Funke v. Aggregate Construction, Inc., 2015 ND 123

Background

In 1983 Robin Funke and Robert Cogdill formed Aggregate Construction, Inc.; Cogdill bought Funke’s shares in January 2008.
On January 4, 2008 Cogdill (as Aggregate’s president) signed two one‑year commercial leases (shop and office) with Funke(s); leases contained a one‑year term, a written option to renew (¶12), a holding‑over clause (¶18), and a termination/quiet‑possession clause (¶17).
Aggregate held over and paid rent in 2009–2011; Funkes sent an August 24, 2011 letter stating the leases were terminated effective December 31, 2011. Aggregate asserted it had renewed for 2012 (invoking ¶12 and ¶18) and continued to pay increased rent.
Funkes sued for a declaratory judgment that both leases terminated December 31, 2011; Aggregate counterclaimed seeking rescission/cancellation of a 2006 deed (Lot 3) and restitution for corporate funds used for improvements in 1998.
The district court granted summary judgment declaring both leases terminated Dec. 31, 2011, and dismissed Aggregate’s counterclaims (ratification and statute‑of‑limitations grounds). Aggregate appealed; the Supreme Court affirmed.

Issues

Issue	Plaintiff's Argument (Funke)	Defendant's Argument (Aggregate)	Held
Whether the leases were terminated effective Dec. 31, 2011	Funkes: August 24, 2011 letter validly exercised landlord’s right to terminate at end of term; ¶17 termination plus ¶18 holding‑over does not create perpetual renewal	Aggregate: Holding over (¶18) renews the entire lease including the ¶12 option to renew; rent increases accepted = ratification/estoppel; statute §47‑16‑06 presumes renewal	Court: ¶17 (termination) must be read with ¶18; leases do not permit continual renewals; Funkes’ letter terminated leases Dec. 31, 2011 — affirmed
Whether holding over and acceptance of rent created continuing renewal of the option to renew	Funkes: ¶18 does not expressly preserve ¶12 option; statute creates only a disputable presumption	Aggregate: Acceptance of increased rent and holding over functionally renewed lease terms and ¶12 option	Court: §47‑16‑06 raises only a disputable presumption; the lease construed as a whole supports termination at end of term — favors Funke
Whether Aggregate’s 2006 deed conveying Lot 3 to the Funkes should be rescinded for lack of corporate authorization	Funke: Subsequent corporate acts (notably Cogdill signing a 2008 lease including Lot 3) ratified the conveyance as a matter of law	Aggregate: Cogdill lacked knowledge and authority; disputed facts on ratification and bad faith preclude summary judgment	Court: Cogdill’s 2008 lease signature and accounting entries constitute ratification as a matter of law; dismissal affirmed
Whether counterclaim for unauthorized use of corporate funds (1998 improvements) survives summary judgment	Funke: Cogdill, as corporate officer, was chargeable with knowledge and conduct; claim is time‑barred	Aggregate: Cogdill lacked knowledge; factual dispute whether expenditures were unauthorized and whether rent increases were influenced by that	Court: Expenditures were reflected in corporate records and occurred long before suit; claim barred by limitations (6‑ or 10‑yr); summary dismissal affirmed

Key Cases Cited

City of Harwood v. The City of Reiles Acres, 859 N.W.2d 13 (N.D. 2015) (scope and remedial nature of North Dakota Declaratory Judgment Act)
Working Capital #1, LLC v. Quality Auto Body, Inc., 817 N.W.2d 346 (N.D. 2012) (§47‑16‑06 creates a disputable presumption for holding‑over renewals)
Luithle v. Taverna, 214 N.W.2d 117 (N.D. 1973) (crossclaims moot when plaintiff’s claim dismissal renders recovery impossible)
Bourgois v. Montana‑Dakota Util. Co., 466 N.W.2d 813 (N.D. 1991) (imputed corporate knowledge principles)
Wetzel v. Schlenvogt, 705 N.W.2d 836 (N.D. 2005) (corporation acts through agents; knowledge of officers may be imputed)