may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1998).
STATE OF MINNESOTA
IN COURT OF APPEALS
Union Bank & Trust Company, as Trustee for the
benefit of the Milton R. Krelitz IRA,
SuperValu, Inc., a Delaware corporation, d/b/a Cub Foods,
Filed August 31, 1999
Dissenting, Halbrooks, Judge
Hennepin County District Court
File No. 981920
David R. Marshall, Allison M. Dibley, John M. Koneck, Fredrikson & Byron, P.A., 1100 International Centre, 900 Second Avenue South, Minneapolis, MN 55402 (for respondent)
Considered and decided by Halbrooks, Presiding Judge, Schumacher, Judge, and Amundson, Judge.
Appellant Union Bank & Trust Company, as Trustee for the benefit of the Milton R. Krelitz IRA, challenges adverse summary judgment on its breach of contract and promissory estoppel claims, contending that the district court erroneously determined that the parties had not finalized a lease renewal agreement. We conclude that the parties never agreed on the specific terms of the proposed agreement. We affirm.
In a December 1, 1989 agreement, respondent SuperValu, Inc., a Delaware corporation, d/b/a Cub Foods, leased the Reed Building in Stillwater from Max Rutman. Rutman subsequently transferred his interest to Union Bank as trustee for Milton Krelitz. The original lease ran for an initial term of three years and contained two five-year renewal options. In 1992, SuperValu exercised the first five-year renewal option, which expired on November 30, 1997.
In 1997, the parties negotiated for the second lease renewal. SuperValu initially decided not to exercise the second renewal option, but subsequently reconsidered. Pursuant to the original lease, as a basis for determining rent for the second renewal term, both parties obtained appraisals of the building's fair market value.
In early September, Tom Thueson, the Director of Development for Cub Foods, a subsidiary of SuperValu, and Deb Carlson, SuperValu's Regional Vice President of Real Estate, met with Krelitz's attorney, Leonard Juster, to discuss rent for the second renewal term. In a September 16, 1997 letter, Carlson stated the rent that SuperValu was willing to pay. Krelitz subsequently indicated the proposed rent was acceptable.
By a September 30, 1997 letter to Carlson, Juster transmitted a black-lined version of a proposed "lease extension agreement." As in the original lease, the proposed agreement contained provision 8(c), detailing the tenant's obligation to maintain building systems. The proposed lease extension agreement included a new clause in 8(c) referring to tenant's obligation to replace building systems if necessary. An October 14, 1997 letter from Juster to Thueson transmitted four "execution copies" of the agreement that incorporated limitations on tenant's obligation to replace building systems.
In an October 22, 1997 letter to Krelitz, Thueson described "some last-minute confusion" over terms of the proposed lease renewal relating to the replacement of equipment. Thueson detailed a "suitable compromise" reached on the phone that morning:
1. Cub will agree to pay 15% of the replacement cost of the HVAC unit only (if replacement is warranted) as a one-time charge in year one of the lease renewal term.
2. Cub will agree to pay 10% of the replacement cost of the HVAC unit only (if replacement rather than repair is warranted) during years two, three, and four of the renewal term.
3. Cub will have no responsibility to participate in the replacement cost if replacement rather than repair is needed in year five of the renewal term.
4. During the entire renewal term, Cub has no other responsibilities with respect to replacing building systems as defined in section 8(c) of our lease.
In closing, Thueson stated: "Milt, if this reflects your understanding as well, I think we are ready to get this lease renewal signed."
In response to Thueson's October 22 letter, another attorney at Juster's firm, John Giblin, drafted a proposed revision to paragraph 8(c). By an October 30, 1997 letter to Thueson, Giblin transmitted the revised paragraph, which read:
Except as provided above, Tenant shall, at Tenant's sole cost and expense, keep the Demised Premises in the same state of repair as that in which Tenant took the Demised Premises following completion of Tenant's initial leasehold improvements. This obligation shall include the obligation to perform all maintenance upon the heating, ventilating and air conditioning equipment and systems, as well as the plumbing and electrical systems, equipment and facilities in the Building (collectively the "Building Systems"). In the event Tenant is required to replace the heating, ventilating and/or air conditioning system ("HVAC"), Tenant's obligation for said replacement HVAC system will be limited to 15% of the replacement cost, including installation thereof if replacement becomes necessary during the first year of Tenant's occupancy in accordance with this Agreement. If the HVAC must be replaced during the second, third or fourth year of tenant's occupancy, Tenant shall pay 10% of the cost thereof. Subsequent to the fourth year of Tenant's occupancy, Tenant shall have no obligation to contribute to the replacement of the HVAC system or the replacement of other Building Systems as herein defined.
Giblin followed up his letter with a telephone call to Thueson, but did not receive a response. Concluding Thueson had no problem with the redrafted paragraph, on November 5, 1997, Giblin sent Thueson four execution copies of the lease extension agreement incorporating the redrafted paragraph. In the transmittal letter, Giblin stated: "If the Lease is suitable, I would appreciate your signing all four copies and then delivering them to Milt Krelitz who will complete the execution."
According to Juster, at the end of November or early in December, Thueson told him there was no problem with the lease agreement as drafted, but he was having trouble getting the lease signed for other reasons. A November 4, 1997 internal SuperValu memo recommends not renewing the lease because of a lack of formal space analysis. A December 1, 1997 internal SuperValu memo from Thueson states he will inform the owner's attorney of SuperValu's decision to cease all negotiations over the Reed Building. On December 11, 1997, Krelitz relisted the property.
Union Bank filed breach of contract and promissory estoppel claims, alleging that SuperValu had breached a lease extension agreement. The district court granted SuperValu's motion for summary judgment, concluding no contract was formed because SuperValu never manifestly accepted Union Bank's proposed lease extension agreement. Specifically, the district court found that the paragraph redrafted by Giblin did not embody SuperValu's position set forth in the October 22, 1997 letter. The district court further ruled that the statute of frauds bars the breach of contract claims, and that the record did not support Union Bank's promissory estoppel claim.
On appeal from summary judgment, this court determines whether there are any genuine issues of material fact and whether the trial court erred in its application of the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990); see Minn. R. Civ. P. 56.03 (setting forth standard for summary judgment). This court must view 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) (citation omitted). On appeal from a grant of summary judgment, this court reviews questions of law de novo. Christensen v. Eggen, 577 N.W.2d 221, 224 (Minn. 1998). When at issue, this court reviews the district court's factual findings under a clearly erroneous standard. Minn. R. Civ. P. 52.01.
1. Union Bank disputes the district court's conclusion that the parties did not form a contract for the second lease renewal. If in dispute, the existence of a contract is a question of fact. Morrisette v. Harrison Int'l Corp., 486 N.W.2d 424, 427 (Minn. 1992). "In order to complete a contract, there must be an offer by one party and an unconditional acceptance by the other." St. Paul Fire & Marine Ins. Co. v. Bierwerth, 285 Minn. 310, 317, 175 N.W.2d 136, 141 (1969). Mutual assent of the parties evaluated from an objective standard is essential for formation of a contract. Crince v. Kulzer, 498 N.W.2d 55, 57 (Minn. App. 1993). A proposed acceptance that varies the terms of an offer is a rejection of the offer and is treated as a counteroffer. Alpha Venture/Vantage Properties v. Creative Carton Corp., 370 N.W.2d 649, 652 (Minn. App. 1985), review denied (Minn. Sept. 19, 1985).
In this case, the district court concluded the Giblin redraft constituted a rejection of the October 22 offer, and treated the redraft as a counteroffer that SuperValu never manifestly accepted. A comparison of the October 22 letter with the redraft transmitted October 30 reveals substantial differences. The October 22 letter clearly stated that SuperValu would have no other obligation towards replacement of building systems other than paying 15% of HVAC replacement in year one and 10% in years two through four. The redraft, however, did not make clear that tenant had no other replacement obligations. Indeed, the second and last sentences of the redraft could be read to implicitly obligate SuperValu to contribute towards replacement of the building's plumbing and electrical systems during the first four years. Accordingly, the district court did not err in finding the redraft did not embody the position in the October 22 letter. Because the terms of the redraft differed from the October 22 letter, the redraft was a counteroffer.
Language in the correspondence supports the view that the parties were still involved in negotiation and had not agreed to the lease renewal. The October 22 letter stated: "Milt, if this reflects your understanding as well, I think we are ready to get this lease renewal signed." (emphasis added). The November 5 letter stated: "If the Lease is suitable, I would appreciate your signing all four copies and then delivering them to Milt Krelitz who will complete the execution." (emphasis added). These statements reveal the suitability of the lease was an open question and the parties were still engaged in negotiations. We conclude that the parties' negotiations did not form a contract for the second renewal term. See 451 Corp. v. Pension Sys. for Policemen & Firemen, 310 N.W.2d 922, 924 (Minn. 1981) (stating negotiations for contract do not constitute contract in themselves).
2. Union Bank also argues the trial court erroneously concluded the statute of frauds barred the contract action. The statute of frauds requires that any contract for leasing land for more than one year shall be void unless "in writing and subscribed by the party by whom the lease * * * is to be made, or by the party's lawful agent thereunto." Minn. Stat. § 513.05 (1998). Satisfying the statute of frauds requires:
a writing containing (1) a statement of the consideration; (2) an adequate description of the parties; (3) an adequate description of the land; (4) the general terms and conditions of the transaction; and (5) subscription by the vendor.
Bouten v. Richard Miller Homes, Inc., 321 N.W.2d 895, 899 (Minn. 1982). Here, the district court concluded that the statute of frauds bars the breach of contract claims because the parties never agreed to the specific terms of the lease agreement. We agree. Furthermore, the statute of frauds also bars the breach of contract claim because, as the district court found, neither party signed the proposed agreement.
3. Union Bank further argues that this court should reinstate the promissory estoppel claim. Promissory estoppel is "a doctrine based on reliance which courts may use in a proper case to prevent injustice." Constructors Supply Co. v. Bostrom Sheet Metal Works, Inc., 291 Minn. 113, 120, 190 N.W.2d 71, 75 (1971). To use promissory estoppel the court must determine whether: (1) there was a "clear and definite promise"; (2) the promisor intended to induce reliance and such reliance occurred; and (3) the promise must be enforced to prevent injustice. Ruud v. Great Plains Supply, Inc., 526 N.W.2d 369, 372 (Minn. 1995). But, as the district court concluded, since the parties never reached an agreement, there is no evidence of a promise to support the promissory estoppel claim.
HALBROOKS, Judge (dissenting)
Unlike the majority, I believe the Giblin redraft substantially embodies the terms of the October 22 letter, and is an acceptance rather than a rejection and counteroffer. Therefore, I respectfully dissent.
An acceptance is a manifestation of assent to the offer. Holman Erection Co. v. Orville E. Madsen & Sons, Inc., 330 N.W.2d 693, 695 (Minn. 1983). An acceptance that differs "substantially and materially" from the terms of the offer does not give rise to a contract. Markmann v. H.A. Bruntjen Co., 249 Minn. 281, 286, 81 N.W.2d 858, 862 (1957). Whether a contract is formed is judged objectively by the conduct of the parties, not by their subjective intent. Cederstrand v. Lutheran Bhd., 263 Minn. 520, 532, 117 N.W.2d 213, 221 (1962).
A comparison of the October 22 letter with the Giblin redraft reveals no substantial or material differences. The October 22 letter details the tenant's obligation to pay 15% of the HVAC replacement in year one, and 10% in years two, three and four. Respondents urge that the last sentence of the redraft requires the tenant to contribute to replacement of other building systems in years one through four. Such a reading appears to be an ad hoc attempt to characterize the redraft as imposing obligations it clearly does not. The redraft substantially and materially embodies the terms of the October 22 letter. Because the redraft does not further obligate the tenant to replace building systems, it does not operate as a rejection and counteroffer.
The summary judgment standard requires this court to view the evidence in the light most favorable to appellant. Fabio v. Bellomo, 504 N.W.2d 758, 761 (Minn. 1993). Giblin testified that his October 30 redraft successfully incorporated the terms of the October 22 letter. Juster testified that Thueson told him in November that there was no problem with the lease agreement as drafted. Respondents have offered no evidence to the contrary. Viewing the evidence in the light most favorable to appellant, whether the parties agreed on the specific terms of the proposed lease agreement is a genuine issue of material fact. Therefore, I would reverse on contract formation.
I would also reverse on the statute of frauds and promissory estoppel. The purpose of the statute of frauds is to prevent the enforcement, by "fraud and perjury, of contracts that were never in fact made." Radke v. Brenon, 271 Minn. 35, 38, 134 N.W.2d 887, 890 (1965). In this case, the district court ruled the statute of frauds bars the breach of contract claim because the parties never agreed on the specific terms of the proposed agreement. Because there is a genuine issue of material fact as to whether the parties had agreed to the specific terms, the district court's ruling was in error. The majority points out that the statute of frauds would further bar the breach of contract claim because the proposed agreement was never signed. But where, as here, a party pleads promissory estoppel, an agreement may be taken outside the statute of frauds. See Norwest Bank Minn., N.A. v. Midwestern Mach. Co., 481 N.W.2d 875, 880 (Minn. App. 1992) (holding the reasonableness of a promisee's reliance on a promise presented a determination of fact for the jury), review denied (Minn. May 15, 1992). I would, therefore, remand for trial.