Hendricks Property Management Corp., Plaintiff and Appellee
v. Birchwood Properties Limited Partnership, Breezy Shores,
LLC, Bramley Properties Limited Partnership, Marcy's, LLC,
and O'Grady, LLC, Defendants and Appellants


2007 ND 181; 2007 N.D. LEXIS 184

November 19, 2007, Filed

Appeal from the District Court of Cass County, East Central Judicial
District, the Honorable Georgia Dawson, Judge.


COUNSEL: Ronald H. McLean (argued) and Jane L. Dynes (on brief), Fargo, N.D.,
for plaintiff and appellee.

Michael D. McNair, McNair, Larson & Carlson, Ltd., Fargo, N.D., for defendants
and appellants.

JUDGES: Mary Muehlen Maring, Daniel J. Crothers, Carol Ronning Kapsner, John
McClintock, Jr., D.J., Gerald W. VandeWalle, C.J. Opinion of the Court by
Maring, Justice. The Honorable John C. McClintock, Jr., D.J., sitting in place
of Sandstrom, J., disqualified.

OPINION BY: Mary Muehlen Maring


Maring, Justice.

Birchwood Properties Limited Partnership, Breezy Shores, LLC, Bramley
Properties Limited Partnership, Marcy's, LLC, and O'Grady, LLC, (collectively
referred to as "defendants") appeal from a judgment entered after the district
court found they had each breached property management agreements with
Property Management Corporation and awarded Hendricks Property Management $
298,643 in liquidated damages. We conclude the district court did not err in
deciding the defendants breached the property management agreements and the
court's findings of fact on the foundational requirements for a valid
damages clause are not clearly erroneous. We affirm the judgment.


In the late 1990s, Melvin Hendricks approached Scott Fridlund and Wynn Juran
to sell his government subsidized housing units. Melvin Hendricks' housing
had been managed by Hendricks Property Management, a management company owned
his son, Chuck Hendricks. Fridlund and Juran eventually purchased Melvin
Hendricks' housing units in 1999, which they subsequently operated as

Birchwood Properties executed a property management agreement with Hendricks
Property Management, which provided for a three-year term beginning on May 7,
1999, and ending on April 30, 2002, with an automatic year-to-year renewal
unless either party terminated the agreement "with or without cause, at the
of the initial term or of any following term year upon the giving of 60 days'
written notice prior to the end of said initial term or following term year."
The management agreement also included language authorizing termination for

Thirty (30) days after the receipt of notice by either party to the
other specifying in detail a material breach of this Agreement, if
such breach has not been cured within said thirty (30) day period; or
if such breach is of a nature that it cannot be cured within said
thirty (30) day period but can be cured within a reasonable time
thereafter, if efforts to cure such breach have not commenced or/and
such efforts are not proceeding and being continued diligently both
during and after such thirty (30) day period prior to the breach being
cured. HOWEVER, the breach of any obligation of either party hereunder
to pay any monies to the other party under the terms of this Agreement
shall be deemed to be curable within thirty (30) days.

The management agreement further provided for "termination compensation" if
Birchwood Properties terminated the agreement before the end of the initial
or any subsequent term year, which required Birchwood Properties to pay
Hendricks Property Management "as liquidated damages an amount equal to the
management fee . . . for the calendar month immediately preceding the month in
which the notice of termination is given . . . multiplied by the number of
months and/or portions thereof remaining from the termination date until the
of the initial term or term year in which the termination occurred."

In 2001, Fridlund and Juran purchased three additional groups of government
subsidized housing units from other individuals, which they operated under
separate entities as Bramley, Marcy's, and O'Grady. Those three entities
executed separate property management agreements with Hendricks Property
Management to manage the respective properties, and the three management
agreements each set a beginning date of July 1, 2001, and an ending date of
30, 2004. Each of those three management agreements also included language
identical to the Birchwood Properties' agreement for termination and for
liquidated damages.

In April 2002, the initial three-year term for the Birchwood Properties'
management agreement was about to expire without either party providing a
notice of termination. As a result, the language authorizing an automatic
year-to-year renewal was triggered, which resulted in a scheduled expiration
date of April 30, 2003. At an April 2002, meeting, Chuck Hendricks provided
Fridlund and Juran with a copy of a proposed new management agreement. In a
10, 2002, letter to Chuck Hendricks, Fridlund and Juran, on behalf of
Properties, "decided to accept an automatic renewal [of the management
] for the term of one year" with an expiration date of April 30, 2003, and
requested that before that renewal date, they receive a copy of the new
for review "NO LATER THAN January 31, 2003" with any changes in the current
contract "underlined in red" or "blacklined." According to Chuck Hendricks, he
called Fridlund on January 16, 2003, with a question, and Hendricks left a
message that he thought they were "just auto renewing" and he received "no
by 1/31/03."

By letter dated April 23, 2003, Birchwood Properties informed Hendricks
Property Management that it had "elected to terminate the management agreement
that will expire on June 30, 2003, as agreed to by the parties at the time of
the one (1) year renewal term." Hendricks Property Management thereafter
informed Birchwood Properties that the one-year automatic renewal of the
management agreement extended that agreement from April 30, 2003, through
30, 2004. Fridlund and Juran nevertheless began managing Birchwood Properties
July 1, 2003.

Meanwhile, by letters dated April 24, 2003, Bramley, Marcy's, and O'Grady
informed Hendricks Property Management that they were terminating their
respective property management agreements at the end of the June 30, 2004,
three-year term. In those letters, Bramley, Marcy's, and O'Grady also informed
Hendricks Property Management that its failure to "timely deliver reports"
constituted a material breach of the management agreements and that the
respective letters constituted a 30-day notice to cure the deficiency. By
dated May 8, 2003, Hendricks Property Management stated it had delivered
reports to the three entities on April 30, 2003, to cure any alleged
By letter dated August 6, 2003, the defendants gave Hendricks Property
Management notice of alleged breaches of the management agreements involving
four properties. Fridlund and Juran assumed management responsibilities for
Bramley, Marcy's, and O'Grady properties on September 1, 2003.

Hendricks Property Management sued the defendants for breach of contract,
alleging the defendants breached the termination provisions of the agreements
failing to provide a 60-day notice of termination for the Birchwood
contract and by failing to allow Hendricks Property Management a 30-day period
to cure any default in the other three contracts. Hendricks Property
sought damages under the provision in each agreement which authorized
damages. The district court decided the defendants' termination of the four
property management agreements constituted a breach of contract. The court
awarded Hendricks Property Management $ 298,643 in liquidated damages, finding
the foundational requirements for a valid liquidated damages clause had been
established and the liquidated damage clause in each management agreement was


We initially consider the defendants' claim that they did not breach the
property management agreements. They contend the district court clearly erred
failing to decide their agency argument, because agency law governed the
parties' relationship and there was uncontroverted evidence the defendants'
termination of the property management agreements was caused by Chuck
prior breach of his agency and fiduciary duties. The defendants contend that
May 2002, their agent, Chuck Hendricks, was instructed in writing to present a
new property management agreement for Birchwood Properties' review before
January 31, 2003, for the upcoming renewal on April 30, 2003. They claim their
breach of the 60-day notice requirement in Birchwood Properties' management
agreement was caused by Hendricks' failure to follow their instructions and
prepare a new management agreement. They assert if Hendricks had presented the
requested management agreement to them by January 31, 2003, they could have
terminated the contract lawfully. They argue Chuck Hendricks' failure allowed
Hendricks Property Management to retain the benefit of the 60-day notice
requirement for terminating the management agreement, which is strictly
prohibited by the law of agency and trust. The defendants also claim that
rationale "serves the same purpose" for Hendricks Property Management's
contracts with Bramley, Marcy's, and O'Grady, and a breach of one agreement
is a
breach of all the agreements.

"Agency is the relationship which results where one person, called the
principal, authorizes another, called the agent, to act for him in dealing
third persons." N.D.C.C. § 3-01-01. Agency involves both a contractual
relationship and and a fiduciary relationship. Burlington Northern & Sante Fe
Ry. Co. v. Burlington Res. Oil & Gas Co., 1999 ND 39, P15, 590 N.W.2d 433. The
interpretation of an agent's authority is governed by rules for construing
contracts, except to the extent the fiduciary relationship requires a special
rule. Id. at PP 15, 27. See Restatement of the Law 3d Agency § 807, comment
(2006); Warren A. Seavey, Handbook of the Law of Agency §§ 20-21 (1964).

In Burlington Northern, 1999 ND 39, P3, 590 N.W.2d 433, this Court
considered an issue about an agent's alleged self-dealing with its principal's
oil and gas rights, and the scope of the principal's authorization for the
to deal with those rights for "its own account." We said the terms of the
parties' management agreement generally governed the agent's duties to the
principal, but an agency agreement is also a special kind of contract that
be interpreted in light of the fiduciary relationship between the agent and
principal. Id. at PP 15-16. We recognized, however, that an agent's duties to
the principal were governed by the rules of contract interpretation, and by
contract, the parties may "otherwise agree" to alter the normal rules of their
relationship. Id. at P 15. In Burlington Northern, we construed the parties'
agreement to be a general authorization for self-dealing, which did not
specifically eliminate the agent's fiduciary duties to the principal. Id. at

Burlington Northern involved the interpretation of an agent's authority
under a management agreement that, in the absence of language specifically
eliminating the agent's fiduciary duties, this Court construed to impose
fiduciary duties on the agent. This case involves the interpretation of
for terminating a management agreement and the parties' obligations under
provisions. Under N.D.C.C. § 9-07-02, the language of a contract governs its
interpretation if the language is clear and explicit and does not involve an
absurdity. A contract is interpreted to give effect to the mutual intentions
the parties at the time of contracting. N.D.C.C. § 9-07-03. When a contract is
reduced to writing, the parties' intentions must be ascertained from the
alone, if possible. N.D.C.C. § 9-07-04. A contract is interpreted as a whole
give effect to every provision if reasonably practicable and each clause is
to help interpret other clauses. N.D.C.C. § 9-07-06. A contract is interpreted
in its ordinary and popular sense. N.D.C.C. § 9-07-09.

In this case, the parties' property management agreements explicitly
provided a procedure for termination, with an automatic renewal provision and
provisions for termination for cause with an opportunity to cure. The
also specified that "[n]o change to the Agreement shall be valid unless made
supplemental written agreement executed and approved by Owner and Agent.
as otherwise provided herein, any and all amendments, additions, or deletions
this Agreement shall be null and void unless approved by Owner and Agent in
writing." Although agents have fiduciary duties to their principals, the
in this case are governed by contract law, the plain and ordinary meaning of
language of the property management agreements regarding termination, and the
requirement that all amendments to the agreements shall be void unless
by the parties in writing.

Here, the district court found the defendants had breached the termination
language of all four property management agreements:

27. In April of 2002, the parties met regarding the annual review
of operations. Chuck Hendricks proposed a new two-year contract for
the operation of the Birchwood properties. The agreement was never
agreed to nor executed.

28. Fridlund and Juran responded to the proposal negatively and
were critical of Chuck Hendricks claiming that the changes of
compensation in Section 17.1 and Section 17.6 exemplified a kind of
"catch me if you can attitude." They rejected the proposed two-year
contract. They wrote in response:

As per our reading of the contract, "extended for one year" means
it will expire on April 30, 2003. Prior to that renewal date we
request a copy of the new contract be presented for our review NO
LATER THAN January 31, 2003. We further request that any changes you
will have made to our current contract be underlined in red, or if
printed from someplace other than a computer, that it be blacklined.
(Emphasis added)

. . . .

30. In January, 2003, Chuck Hendricks left messages with Fridlund
regarding the Birchwood Agreement but his telephone messages were
unreturned. There was no effort by Juran and Fridlund to contact Chuck

31. The Birchwood contract, pursuant to its automatic one-year
extension, was set to terminate on April 30, 2003. Any notice to
terminate the contract and stop the automatic renewal pursuant to
Section 1.3 had to be sent out sixty (60) days prior to the end of the
term. No notice of termination was sent out prior to March 1, 2003.

. . . .

39. . . . The termination date for the Birchwood Management
Agreement was April 30, 2002. The contract automatically renewed
unless there was sixty (60) days' written notice prior to the
following year term given of a notice to terminate. No sixty (60) day
prior notice to April 30, 2002 was ever prepared and sent to
[Hendricks Property Management]. There is no credible evidence to
support any agreed-upon amendment to the termination date that it was
amended to June 30, 2003.

40. The defendants breached the O'Grady, Marcy's and Bramley
contracts. Pursuant to . . . the three Management Agreements, the
defendants could have terminated [Hendricks Property Management] for
cause upon thirty (30) day notice of material breach with time for
cure. . . . Prior to the expiration of the thirty (30) day extension
period, the defendants wrongfully announced that they were taking over
the properties as of September 1, 2003. The taking over of the three
properties on September 1, 2003 was a breach of the agreements.

41. Even if the thirty (30) days' notice to cure had been given,
the defendants failed to meet their burden of proof that there was
cause under the contract to terminate the plaintiffs.

A district court's findings of fact and conclusions of law must be stated
with sufficient specificity to provide this Court with a clear understanding
the court's decision, and we have said that findings are adequate if we are
to understand the factual basis for the court's determination. Gross v.
Indus., Inc., 322 N.W.2d 679, 682 (N.D. 1982). Here, we are able to understand
the basis for the district court's decision. The court decided there was no
credible evidence to support an amended termination date for the Birchwood
Properties' agreement, and this record does not reflect that the parties
mutually agreed in writing to alter the termination date or the procedure for
terminating the management agreements. Moreover, there is evidence in this
record that Juran and Fridlund knew the expiration dates of the Birchwood
Properties' agreement, as evidenced by their May 2002, letter requesting that
copy of a new contract be presented for review no later than January 31, 2003,
and stating the Birchwood Properties' contract would expire on April 30, 2003.
An agent must disclose to the principal those facts that the agent knows will
affect the principal's judgment unless the principal knows those facts. See
Burlington Northern, 1999 ND 39, PP19-20, 590 N.W.2d 433. We are able to
understand the factual basis for the district court's decision, and we
the court did not err in deciding the defendants breached the language of the
termination provisions of the four property management agreements.


The defendants argue the district court clearly erred in finding Hendricks
Property Management proved the foundational facts necessary for a valid
liquidated damages provision.

Section 9-08-03, N.D.C.C., provides that "[p]enalties imposed by contract
for any nonperformance thereof are void." Under N.D.C.C. § 9-08-04, a
contractual provision fixing liquidated damages is void "except that the
may agree therein upon an amount presumed to be the damage sustained by a
in cases in which it would be impracticable or extremely difficult to fix the
actual damage." A party seeking to enforce a contractual clause for liquidated
damages has the burden of proof under N.D.C.C. § 9-08-04. Circle B
Inc. v. Steinke, 1998 ND 164, P11, 584 N.W.2d 97; Fisher v. Schmeling, 520
N.W.2d 820, 822 (N.D. 1994). This Court has construed N.D.C.C. § 9-08-04 to
follow the modern trend to uphold liquidated damages clauses in cases that do
not involve adhesion contracts. Steinke, at P 12; Fisher, at 822-23; City of
Fargo v. Case Dev. Co., 401 N.W.2d 529, 533 n.3 (N.D. 1987).

Under N.D.C.C. § 9-08-04 and case law interpreting that statute, this Court
has established three foundational facts for the inquiry about whether a
contractual provision is a valid liquidated damages clause or a void penalty:
(1) the damages stemming from a breach are impractical or extremely difficult
estimate when the contract was entered; (2) the parties reasonably endeavored
fix their damages; and (3) the amount stipulated bears a reasonable relation
the probable damages and is not disproportionate to any damages reasonably
anticipated. Steinke, 1998 ND 164, P11, 584 N.W.2d 97; Fisher, 520 N.W.2d at
; Coldwell Banker-First Realty, Inc. v. Meide & Son, Inc., 422 N.W.2d 375, 378
(N.D. 1988); Hagan v. Havnvik, 421 N.W.2d 56, 59-60 (N.D. 1988); City of
401 N.W.2d at 531; Eddy v. Lee, 312 N.W.2d 326, 330 (N.D. 1981).

The foundational requirements in N.D.C.C. § 9-08-04 are not mutually
exclusive. Steinke, 1998 ND 164, P12, 584 N.W.2d 97; Fisher, 520 N.W.2d at
In Fisher, at 822-23, we said the difficulty of estimating damages has greater
importance where there has been little negotiation for the liquidated damages
clause, and less importance where there has been bona fide reasonable
negotiations for liquidated damages. We recognized that although N.D.C.C. §
9-08-04 has not been amended to clearly reflect the modern trend to uphold
liquidated damage provisions, we nevertheless construed our statute to be
receptive to the interests of those who, in good faith, endeavor to avoid the
traditional recourse to the court system by utilizing a liquidated damages
provision. Fisher, at 822-23. In City of Fargo, 401 N.W.2d at 533, we
the reasonable endeavor requirement to fix damages does not require
negotiations about the amount of liquidated damages as a prerequisite to
enforcing the clause.

The foundational requirements for a valid liquidated damages clause under
N.D.C.C. § 9-08-04 are questions of fact which are reviewed under the clearly
erroneous standard in N.D.R.Civ.P. 52(a). Steinke, 1998 ND 164, P11, 584
97; Fisher, 520 N.W.2d at 822; Coldwell Banker, 422 N.W.2d at 378; City of
, 401 N.W.2d at 531; Eddy, 312 N.W.2d at 331. A finding of fact is clearly
erroneous if it is induced by an erroneous view of the law, there is no
to support it, or, if there is some evidence to support the finding, on the
entire record we are left with a definite and firm conviction a mistake has
made. Burlington Northern, 1999 ND 39, P10, 590 N.W.2d 433; Coldwell-Banker,
378; City of Fargo, at 531.

The defendants argue the uncontested evidence shows there were no
negotiations for the written property management agreements or the liquidated
damages provisions, and, therefore, the damages from the breach were not
impractical or extremely difficult to ascertain when the agreements were
executed, the parties did not reasonably try to fix the damages, and the
of liquidated damages does not bear a reasonable relation to probable damages
and is disproportionate to any damages reasonably anticipated. Relying on
Industry Fin. Corp. v. Redman, 383 N.W.2d 847 (N.D. 1986), they claim the
of the liquidated damages awarded by the district court eliminated Hendricks
Property Management's duty to mitigate damages. They also claim the testimony
Hendricks Property Management's expert, Dr. Leonard Sliwoski, does not satisfy
the foundational requirements for a valid liquidated damages clause.

The defendants' reliance on Redman is misplaced. In Redman, 383 N.W.2d at
848-49, we construed two provisions in leases together to render the leases
reasonable and lawful. One provision authorized the calculation of damages on
default in language that required mitigation of damages and the other
said the lease was irrevocable for its full term without a rent abatement. Id.
at 848. Citing N.D.C.C. §§ 9-08-03 and 9-08-04, we said the provision for
unabated rent, standing alone, imposed no obligation to mitigate losses and
permitted double recovery, which by itself would be void and unenforceable as
penalty. Redman, at 848. We construed the two provisions together to authorize
mitigation of damages. Id. at 848-49. Redman involved the interpretation of
provisions in leases and did not involve an analysis of the foundational
requirements for a valid liquidated damages clause. It does not control the
analysis of the liquidated damages clauses in this case. Here, although the
parties may not have had face-to-face negotiations about the liquidated
clauses, we have said face-to-face negotiations are not necessary to uphold a
liquidated damages clause. City of Fargo, 401 N.W.2d at 533. In City of Fargo,
we cited California precedent interpreting a statute similar to N.D.C.C. §
9-08-04, which held that, in a case involving a liquidated damages clause in a
form contract, the "'reasonable endeavor' requirement was satisfied by
that 'the parties agreed to the liquidated provisions, and there is no
that they were not fully aware of circumstances making it desirable that
liquidated damages be provided for.'" 401 N.W.2d at 533 (quoting Better Foods
Markets, Inc. v. American Dist. Tel. Co., 253 P.2d 10, 15 (Cal. 1953)). See
Utility Consumers' Action Network v. AT & T Broadband, 37 Cal.Rptr. 3d 827,
843-44 (Cal. Ct. App. 2006) (citing City of Fargo and holding reasonable
endeavor does not require face-to-face negotiations in form contract). We also
cited another California precedent in which an individual claimed he had not
read the entire agreement and the liquidated damages clause was not pointed
to him or discussed at anytime:

"[the individual], as president of at least one corporation engaged
in commercial trade, must be presumed to have executed the agreement
with knowledge that he was bound by its terms and it was incumbent
upon him to review and acquire at least a working knowledge of the
advantages and limitations of the contract. He cannot now be heard to
refute its effect or to avoid the consequences by disclaiming
knowledge where he had the opportunity to discuss and negotiate

City of Fargo, at 533 (quoting Zurich Ins. Co. v. Kings Indus., Inc., 63
Cal.Rptr. 585, 588-89 (1967)).

In City of Fargo, 401 N.W.2d 533-34, we upheld a liquidated damages
provision, stating the entity bound by the agreement consisted of experienced
business people who had an opportunity to review the agreement and make
suggested changes. We rejected the contention there must be actual
or discussions about the amount designated as liquidated damages, because it
ignored commercial realities. Id. at 534. We said that, in the normal course
conducting business, many agreements are signed without the parties fully
negotiating each individual term of the contract, and we declined to
a liquidated damages clause in a contract negotiated by parties bargaining at
arm's length where each party had an equal opportunity to dictate the
terms. Id.

Here, the district court found Fridlund and Juran had multiple attorneys
available to them when they purchased the properties, and they were both
experienced and knowledgeable business people and knew or should have known
content of the management contracts they signed. The court found that
Property Management presented the Birchwood Properties' management agreement
Fridlund and Juran for their review and execution, and they had the
to review the agreement. There is evidence that Fridlund and Juran first
executed the Birchwood Properties' agreement in January 1999 and also
the same agreement in April 1999, before it took effect on May 7, 1999. The
court found Fridlund and Juran thereafter entered into three new agreements
the subsequently purchased properties, which had language identical to the
agreement except for the rate of compensation for Hendricks Property
Management's services. The court found two of those subsequent agreements
included a "bonus attachment" which was negotiated between the parties. The
court found Hendricks Property Management had to expand its operation to take
those additional properties. The court also made specific findings on the
foundational facts:

a. The court finds that at the time of contracting the type of
damages that [Hendricks Property Management] would incur would be
difficult to determine. [Hendricks Property Management] is a small
company with fixed overhead. It works in a specialized industry. The
revenues under these contracts were a substantial portion of its

b. The parties executed the identical liquidated damage clause four
times. This establishes that the parties did reasonably attempt to fix
their damages.

c. A reasonable relationship exists between the damages stipulated
to and the amount that would have been reasonably anticipated under
the circumstances. The amount of revenue lost by these contracts was
substantial to [Hendricks Property Management], a small business in a
specialized field. It had specialized trained staff who were
cross-trained. From a viewpoint of the time of contracting, the
damages stipulated to reasonably anticipate those that would be

Under the circumstances of this case, where experienced parties and their
attorneys had multiple opportunities to examine the contracts and discuss
terms, including the liquidated damages clauses, we conclude the evidence
supports the district court's finding that the liquidated damages clauses were
the result of reasonable endeavor by the parties to fix compensation. We are
persuaded the district court erred in relying on Dr. Sliwoski's testimony
liquidated damages provisions in property management agreements to provide
context for property management agreements and to help understand the reason
liquidated damages in what the district court termed a "specialized field."
There is evidence in this record that supports the district court's findings,
and we are not left with a definite and firm conviction the court made a
in finding the foundational facts for valid liquidated damages clauses. We
conclude the district court's findings on the foundational facts for these
liquidated damages provisions are not clearly erroneous.


We affirm the judgment.

Mary Muehlen Maring

Daniel J. Crothers

Carol Ronning Kapsner

John C. McClintock, Jr., D.J.

Gerald W. VandeWalle, C.J.

The Honorable John C. McClintock, Jr., D.J., sitting in place of Sandstrom,
J., disqualified.