Summary of Ruud v. Larson, S. Ct. N Dakota [1986] 

Relevant Facts: Pl, Ruud(lessor), and Df, Larson (lessee), entered a 10 year lease then resigned for another 10 years. Df constructed and operated a car wash/gas sales outlet on the property.  After 16 years Df failed to make his payments for two months and failed to pay the taxes for the previous year.  Prior to trial Df’s corp filed bankruptcy.  That ct approved the sale of the corp assets to Luna.  Df proposed a possible sublease to Luna.  Pl redrafted and made a sublease conditioned upon Df’s payment of arrearages.

Legal Issue(s):  Whether Ruud made a goof faith effort to mitigate damages?

Court’s Holding: Yes

Procedure: Tr. Ct found Df breached; Pl made a g. f. effort to mitigate; Affirmed.

Law or Rule(s): LL has a duty to mitigate damages arising out of T’s default.  Once default occurs LL has duty to make a g. f. effort to relet.  The burden is upon the T to establish a lack of g. f.

Court Rationale: As part of the S. Lease agreement Larson agreed to pay arrearages as required by the lease.  This is not a case which the tenant has presented a sublessee, and the LL refused to agree.  Tr. Ct found that Ruud has made a good faith effort to arrange a sublease, but Df decided not to proceed.  When the sublease could not be arranged Df made other attempts to sublease.  Pl made diligent attempts to rent the property, including over 140 contacts w/ 50 people.  Df employed a real estate agent who was unsuccessful in reletting, and Df presented no evidence to show Pl’s use of the real estate agent would have resulted in a reletting.  Pl’s attempt to secure a higher rent than the lease provided is a factor, but not an automatic presumption of a lack of g.f.

Df’s own witness testified that $1200/mo was a reasonable rent.  Df in attempting to relet also sought $1200/mo.  Df has not established that the tr. Ct was erroneous in its findings of fact.

Plaintiff’s Argument: Pl made a good faith effort, expending reasonable diligence and effort, to relet the property, w/ over 140 contacts and 50 people.

Defendant’s Argument: When Ruud refused to sublease the property to Luna unless Larson agreed to pay the arrearage, that, as a matter of law, a LL cannot condition his consent to a sublease upon such payment.

DISSENT: Pl does not take issue that a LL may not make approval of a sublease contingent upon payment of all arrearages.  It is not the T’s good faith that we are evaluating, it is the LL’s.  B/c the T produced a willing, able, and suitable SubT, the LL acted neither reasonably or in g.f. when he rejected the offer to sublease.  Under the S.Lease Df remained liable for all obligations as T under the Lease.  Thus no special agreement was necessary to hold Df responsible for obligations he owed under the lease.