Tri-City Associates v. Belmont , 845 N.W.2d 911 ( 2014 )

#26755-rev & rem-SLZ
2014 S.D. 23
IN THE SUPREME COURT
OF THE
STATE OF SOUTH DAKOTA
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TRI-CITY ASSOCIATES, LP, Plaintiff and Appellant,
v.
BELMONT, INC., a South Dakota
corporation and JOSEPH Z. ERBA, Defendants and Appellees.
****
APPEAL FROM THE CIRCUIT COURT OF
THE SEVENTH JUDICIAL CIRCUIT
PENNINGTON COUNTY, SOUTH DAKOTA
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THE HONORABLE ROBERT A. MANDEL
Judge
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MARK F. MARSHALL of
Bangs, McCullen, Butler,
Foye & Simmons, LLP
Rapid City, South Dakota Attorneys for plaintiff
and appellant.
STAN H. ANKER
JORDAN D. BORDEWYK of
Anker Law Group, PC
Rapid City, South Dakota Attorneys for defendants
and appellees.
****
CONSIDERED ON BRIEFS
ON FEBRUARY 18, 2014
OPINION FILED 04/16/14
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ZINTER, Justice
[¶1.] Belmont, Inc. leased unfinished commercial real-estate space from Tri-
City Associates, L.P. The parties later filed claims against each other for breach of
the lease. The circuit court entered a judgment in favor of Belmont on all claims.
The court reasoned that although both parties failed to fulfill certain obligations
under the lease, Tri-City materially breached the lease, thus excusing Belmont from
performance. Tri-City appeals contending that its failure to complete its initial
construction obligations and its failure to deliver the space in “broom clean”
condition were excused by the lease’s “as is” clause. Tri-City also contends that it
was excused by Belmont’s failure to give notice of breach and an opportunity to
cure. We reverse and remand for the circuit court to enter findings of fact and
conclusions of law on the effect of Belmont’s failure to give notice of breach and an
opportunity to cure.
Facts and Procedural History
[¶2.] Tri-City was the owner and developer of a shopping center in Rapid
City. Belmont was formed to operate a meat and produce business in Rapid City.
In May 2006, Belmont and Tri-City entered into a commercial real-estate lease for a
space in the shopping center that Tri-City was developing. The lease was to start
on August 1, 2006.
[¶3.] A “work letter” attached to the lease allocated some of the initial
construction work between Tri-City and Belmont. That work was necessary to
ready the premises for occupancy and use in Belmont’s meat and produce business.
The work letter also required Tri-City to provide the premises in “broom clean”
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condition. The work letter further recited that Belmont had inspected the premises
and was taking them in “as is” condition. 1 Nevertheless, there is no dispute that
Tri-City did not complete its allocated portion of the initial construction, nor did it
deliver the premises in broom clean condition by August 1, 2006.
[¶4.] Even though the August 1 start date passed without Tri-City fulfilling
its obligations, Belmont worked with Tri-City, attempting to complete construction
and ready the premises for occupancy and use. However, the parties encountered
numerous problems and delays that rendered their attempts unsuccessful. In
December 2006, Tri-City proposed moving the start date of the lease from August 1,
2006, to January 15, 2007. Belmont did not sign the proposed modification
agreement.
1. The work letter provided, in relevant part:
LANDLORD’S WORK which Landlord is obligated to initially
construct and pay for, shall consist of the following work: [listing
construction obligations]. Except for Landlord’s obligation to
put the Premises in a “broom clean” condition, Tenant agrees
that Landlord has no other construction obligations, other than
the aforementioned, with respect to Tenant’s initial occupancy of
the Premises and that Tenant has inspected the Premises and is
taking the Premises in its “AS IS” condition, with no
representations or warranties of any kind with respect to the
condition of the Premises and its building systems or its
suitability of the Premises for Tenant’s business.
TENANT’S WORK, for which Tenant is obligated to construct
and pay for, shall consist of the items of work described below,
and all other work necessary to complete the improvements in
the Premises in accordance with the Approval Tenant Plans,
except any items of work expressly included in Landlord’s Work.
Tenant to invest a minimum of $50,000.00 in
renovation/fixturing costs and provide evidence of same to
Landlord.
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[¶5.] In March 2007, Tri-City served Belmont with a notice to quit and
vacate. In April 2007, Tri-City sued to evict Belmont and recover damages for
unpaid rent and other Belmont obligations under the lease. In July 2007, based on
a stipulation between the parties, the circuit court awarded possession of the
premises to Tri-City.
[¶6.] In October 2007, Belmont filed an amended answer and added a
counterclaim. Belmont denied liability for damages and claimed that Tri-City
materially breached the lease by failing to fulfill its initial construction and broom
clean obligations. Tri-City responded that even if it failed to perform those
obligations, Belmont was liable for rent, and Belmont’s counterclaim was barred
because Belmont accepted the property as is. Tri-City also contended that Belmont
failed to provide Tri-City with written notice of its alleged breach and an
opportunity to cure as required by another provision in the lease. 2
2. The notice-and-cure provision provided, in relevant part:
Landlord’s Default. Landlord shall be in default under this
Lease upon . . . (b) the failure of Landlord to observe, keep or
perform any of the other terms, covenants, agreements or
conditions contained in this Lease on the part of Landlord to be
observed or performed and such failure continues for a period of
thirty (30) days after written notice by Tenant to Landlord or, if
such failure is not reasonably susceptible to cure within thirty
(30) days, then within a reasonable period of time so long as
Landlord shall have commenced to cure such failure within such
thirty (30) day period and shall thereafter diligently pursue such
cure to completion. Tenant may not exercise any remedies
available to it under this Lease, at law or in equity until
Landlord has been afforded the cure periods described in this
Paragraph 48 . . . .
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[¶7.] After a court trial, the circuit court found that Tri-City failed to deliver
the premises in broom clean condition and failed to complete its allocated portion of
the initial construction. The court concluded that Tri-City’s failures were material
breaches that excused Belmont from liability and rendered Tri-City liable on
Belmont’s counterclaim. The court made no findings of fact or conclusions of law on
Tri-City’s claim that Belmont’s failure to follow the lease’s notice-and-cure provision
barred Belmont’s defense and counterclaim.
[¶8.] Tri-City appeals, contending that Belmont’s defense and counterclaim
were barred as a matter of law by: (1) the lease provision in which Belmont accepted
the premises as is, and (2) Belmont’s failure to give Tri-City notice of its alleged
breach and an opportunity to cure.
Decision
[¶9.] The questions on appeal involve the interpretation of the lease. A
lease is a contract, so contract principles govern its interpretation. See Icehouse,
Inc. v. Geissler, 2001 S.D. 134, ¶ 21, 636 N.W.2d 459, 465 (“As a lease is a contract
we will follow the law of contract in regard to breach.” (citation omitted)). Contract
interpretation is a question of law that we review de novo. Poeppel v. Lester, 2013
S.D. 17, ¶ 16, 827 N.W.2d 580, 584 (citation omitted).
[¶10.] Tri-City first contends that Belmont’s execution of the lease containing
the as is clause barred a judgment in favor of Belmont as a matter of law. We
disagree.
[¶11.] The goal of contract interpretation is to determine the parties’ intent.
See id. To determine intent, we look “to the language that the parties used in the
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contract[.]” Id. (quoting Detmers v. Costner, 2012 S.D. 35, ¶ 20, 814 N.W.2d 146,
151). We do not, however, interpret “particular words and phrases . . . in isolation.”
Casey Ranch Ltd. P’ship v. Casey, 2009 S.D. 88, ¶ 11, 773 N.W.2d 816, 821 (quoting
In re Dissolution of Midnight Star Enters., 2006 S.D. 98, ¶ 12, 724 N.W.2d 334,
337). Nor do we interpret language “in a manner that renders a portion of [the
contract] meaningless.” Estate of Fisher v. Fisher, 2002 S.D. 62, ¶ 14, 645 N.W.2d
841, 846 (citation omitted). Instead, we interpret the contract to give “a reasonable
and effective meaning to all [its] terms[.]” Casey Ranch, 2009 S.D. 88, ¶ 11, 773
N.W.2d at 821 (quoting Midnight Star, 2006 S.D. 98, ¶ 12, 724 N.W.2d at 337).
[¶12.] In this case, the lease obligated Tri-City to deliver the premises to
Belmont on the start date in broom clean condition, with Tri-City’s allocated portion
of the initial construction completed. Tri-City does not dispute that it failed to
fulfill those obligations. Instead, Tri-City contends that it was essentially absolved
of responsibility to satisfy those obligations because Belmont accepted the premises
in as is condition when it signed the lease in May 2006. Tri-City’s position does not
give a reasonable and effective meaning to all terms of the lease.
[¶13.] The as is clause appears in the same paragraph as the clauses
requiring Tri-City to provide certain construction and to present the premises in
broom clean condition. Yet Tri-City’s interpretation would read the as is clause to
abrogate its construction and broom clean obligations, rendering the broom clean
and construction clauses meaningless. Tri-City’s interpretation also fails to
recognize that the parties signed the lease in May 2006, but use and occupancy of
the premises were not contemplated until August 1, 2006. Therefore, although the
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lease provided that Belmont was taking the premises in as is condition on the date
the lease was executed, it expressly contemplated that Tri-City would provide
initial construction and present the premises in broom clean condition after the
lease was executed. Tri-City’s interpretation would abrogate its future obligations
by signing the lease, an absurd result that could not have been intended.
[¶14.] A harmonious reading of all provisions reflects that the as is clause did
not abrogate Tri-City’s post-execution obligations to perform initial construction
and to deliver the premises in broom clean condition. Indeed, the work letter
specifically provided that Belmont was taking the premises as is “[e]xcept for” Tri-
City’s obligation to put the premises in broom clean condition and “other than [Tri-
City’s] aforementioned” allocated construction obligations. We conclude that the as
is clause did not bar the judgment in favor of Belmont as a matter of law.
[¶15.] Tri-City alternatively argues that Belmont’s defense and counterclaim
were barred by the notice-and-cure provision. Tri-City emphasizes that this
provision required Belmont to give Tri-City written notice and time to cure any
default before Belmont could “exercise any remedies available to it[.]” Tri-City
contends that because Belmont did not comply with this provision, a judgment in
Belmont’s favor was barred as a matter of law.
[¶16.] Belmont responds first by arguing that our standard of review is
limited to determining whether the circuit court’s findings of fact support its
conclusions of law—Belmont claims they do. Belmont contends that limited review
is mandated under Canyon Lake Park, L.L.C. v. Loftus Dental, P.C., 2005 S.D. 82,
700 N.W.2d 729, because Tri-City did not submit both “its own findings of fact and
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conclusions of law and object to the trial court’s findings of fact and conclusions of
law.” Belmont misreads Canyon Lake.
[¶17.] In Canyon Lake, “neither party specifically objected to [the circuit
court’s] findings of fact or conclusions of law, nor did they submit their own findings
of fact or conclusions of law.” Id. ¶ 10. We held that the failure to either object to or
propose findings or conclusions limited our “review to the question of whether the
findings support[ed] the conclusions of law and judgment.” Id. ¶ 11 (quoting
Premier Bank, N.A. v. Mahoney, 520 N.W.2d 894, 895 (S.D. 1994)). We also cited
Selway Homeowners Association v. Cummings, for a similar holding, explaining
that because “the appellant failed to either object to findings of fact or conclusions of
law proposed by the appellee, or propose findings of fact and conclusions of law of
their own,” our review was limited to determining “whether the findings supported
the conclusions of law and judgment[.]” Canyon Lake, 2005 S.D. 82, ¶ 11, 700
N.W.2d at 733 (emphasis added) (citing Selway, 2003 S.D. 11, ¶ 14, 657 N.W.2d
307, 312).
[¶18.] Thus, under our cases, there are two methods to preserve our ordinary
standard of review. Review is not limited unless the appealing party failed to object
to and failed to propose findings of fact and conclusions of law. Either alternative
satisfies the purpose of the rule, which is to bring the issue to the attention of the
circuit court for a ruling.
[¶19.] In this case, although Tri-City did not object to the circuit court’s
findings of fact and conclusions of law, Tri-City did propose findings and conclusions
on the notice-and-cure issue. Because Tri-City proposed findings of fact and
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conclusions of law on this issue, our review is not limited. We review findings of
fact for clear error and conclusions of law de novo. See Eagle Ridge Estates
Homeowners Ass’n v. Anderson, 2013 S.D. 21, ¶ 12, 827 N.W.2d 859, 864 (citing
SDCL 15-6-52(a)); Detmers, 2012 S.D. 35, ¶ 9, 814 N.W.2d at 149.
[¶20.] Belmont next argues that Tri-City cannot rely on the notice-and-cure
provision for two reasons. First, Belmont contends that by bringing this suit, Tri-
City demonstrated that it had no intent to perform its obligations and cure its
default. Second, Belmont contends that even if Tri-City can rely on the notice-and-
cure provision, Belmont’s motion to amend its answer and assert a counterclaim
provided the required notice of Tri-City’s defaults. Belmont points out that after it
moved to add the counterclaim, which identified Tri-City’s defaults, Tri-City had
sufficient time to cure but did not.
[¶21.] Tri-City requested that the circuit court rule on the notice-and-cure
issue. Tri-City proposed findings of fact and conclusions of law to the effect that
Belmont’s claims were barred by the notice-and-cure provision. Although this issue
was presented to the circuit court, the court did not address the effect of the notice-
and-cure provision on Belmont’s counterclaim.
[¶22.] The circuit court’s failure to address the notice-and-cure issue is
problematic because some courts have concluded that the failure to abide by a
notice-and-cure provision precludes judicial relief. For example, in Kinstler v. RTB
South Greeley, LTD. LLC, the Wyoming Supreme Court affirmed a trial court’s
rejection of a tenant’s claim that he was excused from paying rent because his
landlord materially breached a lease. 160 P.3d 1125, 1126 (Wyo. 2007). The court
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noted that the tenant correctly argued “that, under some circumstances, one party’s
material breach of an agreement may excuse the other party’s performance under
that agreement.” Id. at 1127 (citation omitted). But the court explained that
“[w]hen a party fails to provide notice of a material breach, if required by the terms
of the lease, reliance on that breach to excuse contractual performance is improper.”
Id. at 1128 (citation omitted); see also Huttenbauer Land Co. v. Harley Riley, Ltd.,
No. C-110842, 2012 WL 4760871, at *2 (Ohio Ct. App. Oct. 5, 2012) (unreported
opinion) (“Because the lease provides that [the landlord] is entitled to notice and an
opportunity to cure an alleged default, and because such notice and opportunity
were not provided . . ., [the landlord’s] default did not result in a breach of the lease
and its actions could not have served as a basis to excuse [the tenant’s] performance
under the lease.”); Hoover v. Wukasch, 274 S.W.2d 458, 460 (Tex. Civ. App. 1955)
(holding that a lease’s notice-and-cure provision, requiring that the tenant give
written notice to the landlord about needed roof repairs, precluded the tenant from
withholding rent because the tenant had failed to give required notice).
[¶23.] Other courts, however, have concluded that a failure to strictly comply
with a notice-and-cure provision does not necessarily preclude recovery. In an
unreported opinion, the Ohio Court of Appeals, citing a number of reported
opinions, explained why such a provision may not preclude recovery:
“Although courts generally should give effect to the plain
meaning of the parties’ unambiguously expressed intentions, in
some circumstances, courts will not strictly enforce contractual
language requiring notice in writing.” [Gollihue v. Nat’l City
Bank, 969 N.E.2d 1233, 1238 (Ohio Ct. App. 2011).] In those
cases, a failure to provide notice according to the terms of the
contract may not preclude recovery on the contract where the
party has received actual notice. [Id. at 1238-39; Adair v.
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Landis Props., No. 08AP-139, 2008 WL 4174130, at *3-*4 (Ohio
Ct. App. Sept. 11, 2008); Daniel E. Terreri & Sons, Inc. v.
Mahoning Cnty. Bd. of Comm’rs, 786 N.E.2d 921, 932 (Ohio Ct.
App. 2003).] “The purpose of requiring written notice is not to
be hypertechnical but, instead, to create certainty.” [McGowan
v. DM Grp. IX, 455 N.E.2d 1052, 1055 (Ohio Ct. App. 1982).]
Marion Forum, L.L.C. v. Lynick Enters., Inc., No. 9-12-13, 2012 WL 6571388, at *4-
*5 (Ohio Ct. App. Dec. 17, 2012) (finding that the record demonstrated that the
landlord had received actual notice of maintenance issues, even though the tenant
had failed to strictly comply with a notice-and-cure provision).
[¶24.] Because of the conflicting authority and the circuit court’s failure to
address the notice-and-cure provision, we decline to review this issue. Further
proceedings are necessary to answer unresolved questions such as substantial
compliance, actual notice, and materiality. We reverse and remand for the entry of
findings of fact and conclusions of law on the effect of Belmont’s failure to give
notice of breach and an opportunity to cure.
[¶25.] Both parties have moved for appellate attorney’s fees, and each has
filed accompanying itemized statements of expenses. “[A]ttorney fees may only be
awarded by contract or when explicitly authorized by statute.” In re Estate of
O’Keefe, 1998 S.D. 92, ¶ 17, 583 N.W.2d 138, 142 (quoting Schuldies v. Millar, 1996
S.D. 120, ¶ 37, 555 N.W.2d 90, 100). In this case, the lease governs attorney fees,
and it provides that fees are recoverable by “the prevailing party.” However, at this
point, neither party has prevailed. We decline to award attorney’s fees to either
party.
[¶26.] Reversed and remanded for further proceedings on the notice-and-cure
provision of the lease.
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[¶27.] GILBERTSON, Chief Justice, and KONENKAMP, SEVERSON, and
WILBUR, Justices, concur.
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