Truhe v. Turnac Group, L.L.C.
599 N.W.2d 378, 1999 SD 118, 1999 S.D. LEXIS 141 (1999)
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Rule of Law:
A written contract containing a 'no oral modification' clause can be effectively canceled by a subsequent, mutual oral agreement of the parties. Parties to a contract cannot limit their power to control their future legal relations by mutual agreement.
Facts:
- On January 10, 1996, Marvin Truhe (Tenant) and Turnac Group (Landlord) entered into a written lease for office space.
- The lease contained a clause stating that no modification of the lease would be binding unless it was in writing and signed by the party to be charged.
- In early 1997, Truhe's law practice expanded, creating a need for more office space.
- On March 6, 1997, Truhe met with Dr. John Sabow, the Landlord’s owner, who offered additional space at a rent 40% higher than the current rate.
- Truhe rejected the offer as too high and stated he would move out and sublet the existing space.
- Sabow responded that he would prefer to release Truhe from the lease entirely if a replacement tenant could be found at the higher rent, and the parties orally agreed to cancel the lease on this condition.
- In reliance on this oral agreement, Truhe entered into a lease for new office space with a different property owner.
- Subsequently, Sabow refused to honor the oral cancellation agreement or put it in writing.
Procedural Posture:
- Marvin Truhe (Tenant) filed a lawsuit against Turnac Group (Landlord) in the circuit court (trial court) to determine the parties' obligations under the lease.
- Turnac Group filed a counterclaim against Truhe for nonpayment of rent.
- The trial court found in favor of Truhe, ruling that the lease had been effectively canceled by the oral agreement, and awarded damages to Truhe.
- The trial court also dismissed Turnac Group's counterclaim with prejudice.
- Turnac Group, as the appellant, appealed the trial court's judgment to the Supreme Court of South Dakota.
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Issue:
Does a subsequent oral agreement to cancel a written lease effectively terminate that lease, despite a clause within the lease requiring all modifications to be in writing?
Opinions:
Majority - Lovrien, J.
Yes, a subsequent oral agreement to cancel a written lease is effective despite a clause requiring modifications to be in writing. The court held that parties cannot, by a provision in a contract, deprive themselves of the power to alter or discharge that contract by a subsequent mutual agreement. Citing South Dakota statutes that allow for contract rescission and lease termination by mutual consent, the court adopted the majority rule prevailing in other jurisdictions and supported by leading legal treatises like Corbin and Williston on Contracts. The court reasoned that the 'no oral modification' clause itself can be waived or rescinded by a later oral agreement. This freedom to contract includes the freedom to un-contract, and a prior agreement cannot restrict the parties' inherent power to mutually agree to a new arrangement, including the complete cancellation of the original contract.
Analysis:
This decision solidifies South Dakota's position within the majority of U.S. jurisdictions on the enforceability of 'no oral modification' clauses. It establishes a clear precedent that the principle of freedom of contract allows parties to orally rescind a prior written agreement, even one that explicitly forbids such oral changes. The ruling limits the power of these clauses by affirming that parties always retain the ability to mutually agree to alter their contractual relationships. This holding impacts contract drafting and litigation by confirming that courts may look to subsequent oral agreements to determine if a contract was terminated, increasing the importance of parol evidence in such disputes.
