STATE OF MINNESOTA
IN COURT OF APPEALS
Vesta Investa, Inc.,
Sigmund M. Harris, et al.,
Filed February 9, 1999
Hennepin County District Court
File No. CT 97-19473
Kevin D. Conneely, Robins, Kaplan, Miller & Ciresi, 2800 LaSalle Plaza, 800 LaSalle Avenue, Minneapolis, MN 55402 (for appellant)
Jeffrey R. Ansel, Winthrop & Weinstine, P.A., 3200 Minnesota World Trade Center, 30 East Seventh Street, St. Paul, MN 55101 (for respondents)
Considered and decided by Shumaker, Presiding Judge, Kalitowski, Judge, and Anderson, Judge.
U N P U B L I S H E D O P I N I O N
Appellant requests that this court compel respondents to specifically perform a purchase agreement. Because appellant's attempt to exercise a purchase option amounted to a counteroffer, we affirm.
Appellant, Vesta, Investa, Inc., began negotiations in the fall of 1996 to purchase a group of apartment buildings from respondents, Sigmund M. Harris and his family members. Negotiations continued through the winter and spring, and on July 22, 1997, appellant received an option, and other contract documents, signed by respondents. The option agreement stated as follows:
[Respondents] hereby grant to [appellant] the option to purchase, on or before August 28, 1997, in accordance with the provisions of the attached "Purchase Contract" (the "Contract") [the buildings in question].
The relevant portion of the "Purchase Contract" stated that:
"Closing Date" means the date when the Closing occurs. Said date shall be August 30, 1997, or such other date as [respondents] and [appellant] mutually designate in writing.
On August 8, 1997, appellant delivered an earnest money check to respondents' real estate broker. The check was deposited on August 12, 1997.
On August 28, 1997, in an effort to exercise the purchase option, appellant sent to respondents a fax containing the following language:
This letter is to serve notice that we are exercising the Option Agreement dated July 22, 1997 for the purchase of [the buildings in question]. We look forward to closing on the purchase as soon as possible.
* * * *
We are targeting September 29th as a closing date and are working diligently towards meeting that date. Please call if you have any questions.
The next day, respondents replied by fax that they did not consider appellant's exercise of the option to be a proper acceptance of their offer. Respondents' fax explained that the language "[w]e look forward to closing on the purchase as soon as possible" and "[w]e are targeting September 29th as a closing date" prevented a valid exercise of the option, and nullified any binding agreements between the parties.
Appellant sued respondents in district court for specific performance of the purchase agreement. The district court granted summary judgment to respondent. The court explained that appellant's attempt to exercise the offer constituted a counteroffer because appellant's exercise of the option included a modification of the closing date specified in the purchase contract.
D E C I S I O N
On appeal from summary judgment, a reviewing court must determine whether the district court erred in its application of the law and whether there are any genuine issues of material fact. W.V. Nelson Constr. Co. v. City of Lindstrom, 565 N.W.2d 434, 435 (Minn. App. 1997) (citing State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990)). In so doing, this court views "the evidence in the light most favorable to the party against whom judgment was granted." Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993). Nonetheless, this court is not bound by a district court's decision on a question of law. Nelson, 565 N.W.2d at 435 (citing Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984)).
The "construction and effect of a contract are questions of law for the court." Turner v. Alpha Phi Sorority House, 276 N.W.2d 63, 66 (Minn. 1979). The supreme court has explained that "[t]he cardinal purpose of construing a contract is to give effect to the intention of the parties as expressed in the language they used in drafting the whole contract." Art Goebel, Inc. v. North Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn. 1997) (citation omitted). When interpreting a contract, "the language found in a contract is to be given its plain and ordinary meaning." Turner, 276 N.W.2d at 67 (citations omitted).
Appellant contends that it complied with the terms of the option which created a sales contract between the parties. An analysis of whether an option has been properly exercised so as to create a contract focuses on two issues: (1) appellant's compliance with the requirement of the option, and (2) whether the totality of the exercise amounted to acceptance of the purchase agreement so as to create a contract. Cf. Wurdemann v. Hjelm, 257 Minn. 450, 461, 102 N.W.2d 811, 818 (1960) (explaining that contract for sale and purchase of land is bilateral obligation which obligates one party to buy and another to sell property for stipulated price, which evidences meeting of minds and assent thereto; but an option merely gives privilege to buy property). Options may contain conditions which require strict compliance. In addition, the option, as a tool to accept a contract, must also satisfy those conditions of acceptance required by the contract and by law. The failure to comply with either requirement may ultimately spoil contract creation.
The parties do not dispute that appellant clearly and unambiguously exercised the option within the time required. To exercise an option and create a contract, the supreme court has explained that the election must be "clear, unambiguous, and according to and in the manner prescribed by the terms of the option agreement." Brachmann v. Netzinger, 293 Minn. 405, 407, 196 N.W.2d 616, 618 (1972) (citing Kastner v. Dalton Development, Inc., 265 Minn. 511, 517, 122 N.W.2d 183, 188 (1963)).
But appellant's proper election did not amount to acceptance of the contract. The supreme court in Minar v. Skoog, 235 Minn. 262, 265, 50 N.W.2d 300, 302 (1951), asserted that, in the exercise of an option to create a contract, the irrevocable offer, like any other offer, "must be accepted according to its terms." The court further explained that acceptance in real estate contracts is governed by the mirror image rule:
An acceptance, to be valid and to give rise to a binding contract, must be made in unequivocal and positive terms which comply exactly with the requirements of the offer. If the acceptance seeks to vary, add to, or qualify the terms of the offer, it is not positive and unequivocal, and constitutes a rejection of the offer and a counteroffer. A valid acceptance must not only embrace the terms of the offer with exactitude, but it must be unequivocally expressive of an intent to create thereby, without more, a contract.
Id. at 265-66, 50 N.W.2d at 302 (ruling that demand for notification of acceptance or rejection of offer within 10 days negated acceptance and intent to create contract) (citations omitted); accord, e.g., Rose v. Guerdon Industries, Inc., 374 N.W.2d 282, 284 (Minn. App. 1985).
Appellant's August 28 facsimile transmission, exercising the option, sent on the last possible date permitted by the agreement between the parties, unilaterally specified a new closing date with astonishing imprecision by simply noting, "We are targeting September 29 as a closing date and are working diligently towards meeting that date." No such latitude was allowed appellant under the agreements between the parties. The parties had been negotiating for nearly a year. Appellant had more than a month to exercise the option and to prepare for the closing which all concerned had agreed would be August 30. Appellant's attempt, at the last possible moment, to specify a new date, and then only vaguely so, was clearly not an unequivocal and exact acceptance of respondent's offer and, as a result, no contract was formed because appellant failed to accept the offer of respondent.
We reject appellant's argument that the closing date was an immaterial term. It is hard to imagine a term more significant than the deadline by which the buyer must produce the agreed-upon consideration. Certainly the parties could have negotiated for a different closing date or agreed to give appellant additional time to close or, in fact, the parties could have agreed to simply close the transaction in a commercially reasonably manner as soon as was practical. Instead, the parties specifically included a "time is of the essence" clause further emphasizing the significance of the agreed-upon, specified, closing date of August 30.(1) The purported acceptance by appellant was a material modification of the original offer and, "[i]f the acceptance differs substantially and materially from the terms of the original offer, it does not give rise to a completed contract." Hough v. Harvey, 410 N.W.2d 53, 55 (Minn. App. 1987).
Moreover, the supreme court has stated that time is of the essence in option contracts. Merriman v. Sandeen, 267 N.W.2d 714, 719 (Minn. 1978) (noting that parties had also made time of the essence in all phases of their contractual relationship, which controlled absent allegations of fraud or overreaching in drafting of contract). Drawing on the Merriman court's analysis, there is no evidence in the record that respondents agreed to any waiver of the payment date or of the time is of the essence clause or that respondents engaged in fraud or overreaching. See id.
Because we find that appellant's exercise of the option was a counteroffer, we find it unnecessary to analyze the parties' arguments as to the applicability of Minn. Stat. § 559.21, subd. 2(a) (1998) and whether appellant's earnest money qualified as independent consideration for the option.
(1) The contractual language allowing the parties to "mutually" agree to a new closing date is of no significance here because respondents refused to accept any alternative date. Indeed, it is not clear that appellant even proposed an alternative date because they were only "targeting" September 29 as a closing date.
SHUMAKER, Judge (dissenting)
I respectfully dissent.
In granting summary judgment to respondent, the district court ruled that there was no genuine issue of material fact in controversy and that, as a matter of law, appellant's acceptance of respondent's offer was a counteroffer. The majority agrees.
I would reverse for either of two reasons. First, as a matter of law, appellant's acceptance cannot properly be construed as a counteroffer. Second, at the very least, there exists a genuine issue of material fact as to the parties' intent regarding the closing of the sale.
Respondents' "offer" describes the closing date as follows: "Said date shall be August 30, 1997, or such other date as [the parties] mutually designate in writing." (Emphasis added.) The offer fixes no absolute closing date but rather invites negotiation, discussion, and agreement as to a different closing date.
Appellant responded in writing, clearly accepting the offer and proposing September 29 as a closing date.
The majority characterizes the alternative closing date proposal as a "unilateral attempt to modify the terms of the closing date." Relying on Minar v. Skoog, 235 Minn. 262, 265, 50 N.W.2d 300, 302 (1951), for the proposition that an acceptance will not result in a binding contract unless it is "made in unequivocal and positive terms which comply exactly with the requirements of the offer," the majority holds that appellant's proposal operated as a rejection of the offer.
The majority has effectively revised the terms of respondents' offer so as to make the closing date absolute. The offer, however, contemplates the possibility of a different closing date from the date expressed. How can a different date be established unless someone proposes one? Respondent certainly had the right not to accede to the proposed alternate date. Then there would be no new date that the parties "mutually designate in writing," and the August 30 date, which had not arrived as of the date of appellant's acceptance, would become absolute.
The majority also overlooks the rule of Podany v. Erickson, 235 Minn. 36, 38, 49 N.W.2d 193, 194 (1951):
It is a settled rule of law that, in order to form a contract, an acceptance must be coextensive with the offer and may not introduce additional terms or conditions. An acceptance which qualifies the terms of the offer amounts in legal contemplation to a rejection of the offer and is regarded as merely a counteroffer. However, it is equally well settled that requested or suggested modifications of the offer will not preclude the formation of a contract where it clearly appears that the offer is positively accepted, regardless of whether the requests are granted.
I believe that the suggested modification of the closing date was within the intended terms of the offer, and cannot be construed as a matter of law as a counteroffer.
Alternatively, there exist genuine fact issues as to what the parties intended by and how they would effectuate the provision in the offer stating that closing could occur on "such other date as [the parties] mutually designate in writing." The fact issues concern the parties' respective readiness to close on August 30, the reason they included language about the possibility of a different closing date, and whether appellant's proposed September 29 date was a condition or merely a request.
The majority acknowledges that the "parties do not dispute that appellant clearly and unambiguously exercised the option within the time required." This is compelling evidence of appellant's intent to positively accept the offer as contemplated in the Podany rule. At the very least, the question of such intent should be reserved for determination by the trier of fact.