Thunderstik Lodge, Inc. v. Reuer

Brief Fact Summary.

Plaintiffs leased agricultural land from Defendants under an agreement providing for an initial ten-year lease, with two ten-year renewal options. The trial court ruled that the second 10-year option was invalid, but severable, leaving the remainder of the lease intact and enforceable. Defendant appealed.

Synopsis of Rule of Law.

For a contract to be severable, (1) the parties’ performances must be separable into corresponding pairs of part performances and (2) the parts of each pair must be for equivalent value.

Facts.

Thunderstik Lodge, Inc. (Plaintiff) leased agricultural land from the Reuers (Defendants). The lease terms stated that the lease was for a ten-year term and could be extended for two additional ten-year terms, with the first extension for an increased annual rent of $33,000 and the second extension for $36,000 in rent. The terms also provided that if any portion of the lease was held invalid or unenforceable, the remainder was to remain valid and enforceable. South Dakota statutes prohibited agricultural leases of longer than twenty years. Defendants sought a declaratory judgment holding the lease to be an invalid thirty-year agricultural lease. The circuit court held that the second of the ten-year extensions was invalid but severed it from the agreement, leaving the remainder enforceable. Defendants appealed, arguing that severance was improper and that the entire agreement was invalid.

Issue.

Whether (1) the parties’ performances must be separable into corresponding pairs of part performances, and (2) the parts of each pair must be for equivalent value for a contract to be severable.

Held.

Yes. The lower court’s ruling is affirmed. For a contract to be severable, (1) the parties’ performances must be separable into corresponding pairs of part performances and (2) the parts of each pair must be for equivalent value.

Discussion.

Under § 183 of the Restatement (Second) of Contracts, for a contract to be severable or divisible: (1) the parties’ performances must be separable into corresponding pairs of part performances, and (2) the parts of each pair must be for equivalent value. When a contract is divisible, the consideration is not a single whole, but can be apportioned to correspond to the separate consideration being offered by the other party. In this case, the parties’ obligations can be separated into corresponding pairs of part performances, because the lease provides separate consideration for both ten-year extensions. In addition, the amounts to be paid annually for leasing the land are agreed equivalents for the value of the lease. The lease also expressly states that any unenforceable part of the agreement may be severed from the rest. The second ten-year extension of the lease may therefore be severed from the agreement, and the remaining lease term and the first 10-year extension are enforceable.