Trade Usage and Post-Abandonment Conduct Can Prove an Oral Subcontract; Conversion Counterclaims Fail Without Specific Proof of Value and Wrongful Control

I. Introduction

In Lepird Drywall, LLC d/b/a Lepird Decorating and Drywall v. Elite Flooring Installations, Inc. d/b/a Team Elite Construction, 2026 ND 92, the North Dakota Supreme Court affirmed a bench-trial judgment awarding Lepird $44,975 for Elite’s breach of an oral contract and affirming dismissal of Elite’s conversion counterclaim.

The dispute arose after Elite—serving as a subcontractor on three apartment projects—had engaged Juan Gonzalez (a lower-tier subcontractor), who in turn used Lepird for priming, texturing, and painting. When Gonzalez abruptly abandoned the sites, Lepird claimed it reached a new, direct oral deal with Elite’s principal, Andy Rahman: Lepird would finish “punch list” and “patchwork/change order” items in exchange for payment tied to project retainage plus supplemental compensation. Elite denied any new agreement and asserted Lepird remained Gonzalez’s subcontractor.

The appeal presented two core issues:

  • Contract formation: whether the district court clearly erred in finding mutual assent to an enforceable oral contract between Lepird and Elite.
  • Conversion: whether the district court clearly erred in finding Elite failed to prove Lepird converted Elite’s paint and supplies.

II. Summary of the Opinion

The Supreme Court affirmed.

  • Oral contract upheld: The Court held the district court’s finding of an enforceable oral contract was not clearly erroneous, emphasizing (i) credibility determinations, (ii) corroborating conduct after Gonzalez’s departure (direct communications, site direction), and (iii) permissibility of considering industry practice/trade usage and extrinsic evidence to determine the parties’ intent and terms.
  • Conversion counterclaim dismissed: The Court held Elite failed to prove conversion by a preponderance of the evidence, largely because Elite offered vague, unsupported valuation testimony and insufficient proof of wrongful dominion or damages; and because Elite failed to prove that a demand for return was unnecessary as “unavailing.”
  • Unjust enrichment not reached: Because the breach-of-contract judgment was affirmed, the Court declined to address arguments about amendment of pleadings and the alternative unjust enrichment theory.

III. Analysis

A. Precedents Cited

1. Standard of Review and Deference to Trial Fact-Finding

  • Pegg v. Kohn, 2015 ND 79, ¶¶ 8, 12, 861 N.W.2d 764
    Cited for the proposition that existence of an oral contract, its terms, and substantial performance are questions of fact reviewed for clear error. This framing was dispositive because Elite’s appellate arguments largely asked the Supreme Court to reweigh evidence and reassess credibility—tasks the clear-error standard forbids when there is evidentiary support.
  • Cavendish Farms, Inc. v. Mathiason Farms, Inc., 2010 ND 236, ¶ 17, 792 N.W.2d 500 (quoting Helfenstein v. Schutt, 2007 ND 106, ¶ 14, 735 N.W.2d 410)
    Supplies the canonical definition of “clearly erroneous”: error of law, no evidentiary support, or firm conviction of mistake after reviewing the whole record. The Court used this to emphasize that the presence of some supporting evidence—especially when tied to credibility findings—usually ends the appeal.
  • Cavendish Farms, Inc. v. Mathiason Farms, Inc., 2010 ND 236, ¶ 20, 792 N.W.2d 500
    Reinforces that appellate courts do not reweigh evidence or reassess credibility and view evidence in the light most favorable to the findings. This principle underpinned the affirmance on both the oral contract and conversion issues.

2. Trade Usage and Extrinsic Evidence to Identify Intent and Terms in Oral Agreements

  • N.D. Pub. Serv. Comm'n v. Cent. States Grain, Inc., 371 N.W.2d 767, 776 (N.D. 1985)
    The Court invoked this case to validate the district court’s consideration of “established practices and usages” within the trade as a reliable indicator of parties’ intentions, and to underscore that the existence and scope of such usage is for the factfinder. Here, the trial court relied on testimony that verbal subcontracting and retainage-based payment understandings were standard in the parties’ dealings and on these projects—supporting an inference of mutual assent rather than substituting “custom” for assent.
  • Herman Oil, Inc. v. Peterman, 518 N.W.2d 184, 187 (N.D. 1994)
    Cited for the proposition that a trial court may consider extrinsic evidence related to an oral agreement, and that findings on the terms of that oral agreement will be upheld if not clearly erroneous. This supported the district court’s reliance on testimony about the retainage arrangement, change order compensation, and course of dealing—especially where documentation was imperfect.

3. Conversion and Proof of Damages/Value

  • Auction Effertz, Ltd. v. Schecher, 2000 ND 109, ¶¶ 10, 15, 611 N.W.2d 173
    Provides the standard for reviewing factual findings supporting dismissal of the counterclaim (clear error), aligning the conversion ruling with the same deference principles applied to contract formation.
  • Roth v. Meyer, 2024 ND 113, ¶ 29, 9 N.W.3d 469
    Reaffirms that whether a conversion occurred is a fact question reviewed for clear error. This foreclosed Elite’s attempt to recast the issue as primarily legal and to obtain de novo review.
  • Johnson v. Monsanto Co., 303 N.W.2d 86, 93 (N.D. 1981)
    Used to reject Elite’s vague and unsupported valuation testimony. The district court found Elite’s damages evidence lacked the “reasonable degree of certainty” required—no invoices, no quantities, no condition evidence, no project-specific tracing—making it difficult to fix value even if some items were missing.
  • Hochstetler v. Graber, 48 N.W.2d 15, 19 (N.D. 1951)
    Recognizes that demand may be unnecessary where it would be “unavailing.” Elite relied on this to excuse its failure to demand return of the items, but the district court found no evidence demand would have been futile, especially where Lepird testified Elite could retrieve the materials “at any time.” The Supreme Court held this factual finding was not clearly erroneous.

B. Legal Reasoning

1. Oral Contract Formation After a Lower-Tier Subcontractor Abandons the Work

The Court treated the dispute as fundamentally factual: did Lepird and Elite, through outward manifestations, form a new agreement after Gonzalez disappeared? Elite argued there was no mutual assent to essential terms and that the district court improperly relied on “industry custom” rather than the parties’ “overt acts.”

The Supreme Court’s reasoning tracks three evidentiary pillars that supported mutual assent and terms:

  • Credibility and direct communications: The district court credited Lepird’s testimony that he called Rahman, reached an understanding about payment, and then performed. Under clear-error review, that credibility determination carried substantial weight.
  • Corroborating conduct consistent with a direct relationship: Rahman’s direct communications with Lepird after Gonzalez’s departure, site visits, and direction of work sequencing supported the inference of a direct working arrangement rather than mere completion of Gonzalez’s obligations.
  • Trade usage/course of dealing to supply context for terms: The district court found the retainage-based compensation and supplemental compensation for change orders matched standard industry practice and the parties’ prior verbal arrangements. Citing N.D. Pub. Serv. Comm'n v. Cent. States Grain, Inc. and Herman Oil, Inc. v. Peterman, the Supreme Court approved use of such evidence to determine intent and scope of an oral contract.

Elite’s “invoice addressee” argument—documents named third parties rather than Elite—was treated as a factual conflict the trial court resolved. The district court credited Lepird’s explanation (including that Epic directed billing to Hammers after Elite refused to pay), and the Supreme Court declined to reweigh that evidence.

In effect, the Opinion reinforces a practical contracting principle in construction disputes: when documentation is incomplete, courts may look to post-event communications, on-site supervision, payment structure understood in the trade (retainage/change orders), and course of dealing to determine whether a new oral subcontract arose after a workforce disruption.

2. Conversion: Wrongful Dominion Must Be Proved, and Value Cannot Be Speculative

Elite’s conversion counterclaim alleged Lepird took about $20,000 in paint and supplies. The district court rejected it on proof—both on the occurrence/extent of a wrongful taking and on value.

The Supreme Court upheld that decision for three main reasons:

  • Insufficient proof of value and damages: Elite’s valuation testimony was “vague and unsupported,” and Elite offered no documentary proof (e.g., the Hirshfield invoices it referenced). Under Johnson v. Monsanto Co., damages must be provable with reasonable certainty; bare assertions are not enough.
  • Lack of specificity tying property to Elite and to a wrongful deprivation: The trial court found Elite did not clarify when items went missing, from which sites, how they were tracked, or their condition/quantity—undermining proof that Lepird wrongfully exercised dominion over Elite’s property (as opposed to moving/holding jobsite remnants amid contractor turnover).
  • Demand and “unavailing” demand theory not proven: Elite argued demand was unnecessary under Hochstetler v. Graber. But the district court found the evidence cut the other way: Lepird testified Elite could retrieve remaining items at any time, and Elite never asked. On this record, the Supreme Court refused to disturb the factfinder’s conclusion that conversion was not proven by a preponderance of the evidence.

C. Impact

1. Construction Contracting: Oral “Clean-Up” Agreements Are Enforceable When Supported by Conduct and Trade Context

The Opinion signals that North Dakota courts will enforce oral agreements formed quickly in response to jobsite disruptions—such as a subcontractor’s abandonment—when the record shows:

  • direct communications between the putative contracting parties,
  • performance consistent with a new, direct arrangement,
  • site control/supervision reflecting acceptance, and
  • industry usage/course of dealing filling in payment structure (retainage and change orders).

Practically, this may encourage general contractors and subcontractors to document “finish-out” agreements promptly. But the Opinion also reduces the likelihood that a party can avoid payment simply by pointing to missing paperwork, particularly where it directed the work and benefited from completion.

2. Litigation Proof: Conversion Counterclaims Require Traceable, Project-Specific Evidence

For conversion claims arising from chaotic jobsite transitions, the decision underscores that plaintiffs (or counterclaimants) must present concrete evidence: ownership, quantities, condition, timing, location, and value—ideally with documents and inventory controls. Vague testimony pegged to unproduced invoices invites dismissal.

3. Appellate Strategy: Clear-Error Review Is a Steep Hill

The Opinion illustrates that when a bench trial turns on credibility and conflicting narratives, appellants face substantial headwinds under clear-error review. Unless the finding lacks evidentiary support or rests on a legal mistake, the Supreme Court will not re-litigate the facts.

IV. Complex Concepts Simplified

  • Mutual assent: The meeting of the minds shown by outward words and actions—what parties said and did—not merely what they later claim they intended.
  • Oral contract: A binding agreement that is not written down. It is enforceable if essential terms can be proven (often through testimony, conduct, and context).
  • Trade usage / industry custom: Common practices in an industry that help interpret what parties likely meant or understood, especially when terms are informal or unstated.
  • Extrinsic evidence: Evidence outside a written document—testimony, emails, conduct, course of dealing—used to determine what an oral agreement was.
  • Retainage: A portion of contract funds withheld until work is satisfactorily completed, often used to ensure punch list completion.
  • Punch list: Final corrective tasks required before a project is considered complete (touch-ups, fixes, minor completion items).
  • Change order / patchwork: Additional or modified work beyond the original scope (often paid separately).
  • Conversion: A civil wrong involving wrongful control over another’s property that seriously interferes with the owner’s rights. Proof typically requires identifying the property, showing wrongful dominion, and proving non-speculative value/damages.
  • Demand (in conversion context): A request to return property; sometimes required to establish wrongful withholding. It may be excused if truly futile, but futility must be supported by evidence.
  • Clearly erroneous standard: An appellate court will uphold factual findings if supported by evidence, even if other evidence could support a different result.

V. Conclusion

Lepird Drywall v. Elite Flooring Installations, 2026 ND 92, reinforces two practical rules of North Dakota law: (1) an oral subcontract—especially a post-disruption “finish-out” agreement—may be proven through credible testimony, corroborating conduct, and trade usage evidencing mutual assent and workable terms; and (2) a conversion counterclaim cannot survive on generalized accusations and speculative value assertions, particularly where the claimant fails to document inventory, value, and wrongful interference, or to prove that a demand for return would have been futile.

The decision’s broader significance lies in its confirmation that construction disputes are often decided on factfinding and credibility, and that appellate review will rarely disturb a trial court’s resolution when supported by evidence and grounded in accepted principles of trade practice and damages proof.