924 N.W.2d 791
N.D.2019Background
- In 2008 the Bearces sold 170 acres to Yellowstone via a contract for deed; both original and a 2009 modification promised $100,000 of the purchase price would be paid in "shares" of a planned ethanol plant upon "financial close of the financing" for the plant.
- Yellowstone abandoned the ethanol plant plan in 2010, then informed the Bearces they would still receive ownership units "at the time shares are issued to all its members," and the Bearces conveyed the deed to Yellowstone in August 2010.
- Yellowstone later approved two 3:1 multipliers (Dec 2011 and Oct 2012) applying only to initial cash investors; when units were allocated in Dec 2012, cash investors received the 3:1 multiplier but the Bearces did not.
- The Bearces sued for fraudulent inducement, breach of fiduciary duty (dilution), and breach of contract; both parties moved for summary judgment and the district court granted judgment for Yellowstone.
- The Supreme Court affirmed dismissal of the fraud and breach-of-contract claims, reversed dismissal of the fiduciary-duty claim, and remanded for factual development about the parties’ agreement after the ethanol plan was abandoned.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility of parol evidence for fraudulent inducement to modify the 2009 contract | Bearces: Yellowstone told them their shares would be treated like other investors, inducing the modification; parol evidence should be allowed | Yellowstone: Written contract supersedes prior oral statements; parol evidence barred | Court: Parol evidence for fraud-in-the-inducement is admissible only to rescind; Bearces did not seek rescission, so exclusion was correct — fraud claim dismissed |
| Interpretation of $100,000 equity payment after ethanol plan abandoned (condition precedent; timing of payment) | Bearces: Payment/ownership vested when deed was delivered (Aug 3, 2010); they were later diluted | Yellowstone: Payment was conditional on financing/issuance and not owed absent financing; later treatment created an accord leaving Bearces with less | Court: Contract ambiguous about parties’ obligations after condition failed; summary judgment inappropriate — remand to determine terms (accord/novation) and whether conditions were met |
| Fiduciary duty / dilution from 3:1 multipliers | Bearces: If their interest vested in Aug 2010, Yellowstone owed fiduciary duties and dilution occurred when multipliers were applied only to cash investors | Yellowstone: No fiduciary duty/dilution because units were issued simultaneously in Dec 2012 and Bearces received proportional units | Court: Reasonable arguments exist on both sides; ambiguity requires remand to consider extrinsic evidence and whether a fiduciary duty arose and was breached |
| Breach of contract claim based on proposed bylaws/member control agreement | Bearces: (alleged breach of proposed governance documents) | Yellowstone: (opposed) | Court: Bearces failed to brief/argue the claim on appeal; issue waived — dismissal affirmed |
Key Cases Cited
- Finstad v. Gord, 844 N.W.2d 913 (N.D. 2014) (parol evidence admissible when written agreement does not reflect parties’ intent due to fraud, mistake, or accident)
- Myaer v. Nodak Mut. Ins. Co., 812 N.W.2d 345 (N.D. 2012) (parol evidence rule explained and limited)
- Golden Eye Res., LLC v. Ganske, 853 N.W.2d 544 (N.D. 2014) (parol evidence of fraudulent inducement is admissible only to challenge validity and support rescission)
- Flaten v. Couture, 912 N.W.2d 330 (N.D. 2018) (contract interpretation is a question of law reviewed independently)
- Herb Hill Ins., Inc. v. Radtke, 380 N.W.2d 651 (N.D. 1986) (distinguishing accord and novation; factual issues preclude summary judgment on accord/novation)