Opinion
No. A05-614.
Filed January 3, 2006.
Appeal from the District Court, Clay County, File No. C9-04-2114.
Stephen F. Rufer, Katrina I. Wass, Pemberton, Sorlie, Rufer Kershner, P.L.L.P., (for appellant)
Michael D. McNair, McNair, Larson Carlson, Ltd., (for respondent)
Considered and decided by Lansing, Presiding Judge; Shumaker, Judge; and Hudson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2004).
UNPUBLISHED OPINION
In this dispute over a five-year-extension provision in a farm lease, the lessees appeal the district court's summary judgment determining that the lessor's failure to provide notice of nonextension on or before the date provided in the lease did not restrict his right to deny the extension and terminate the lease. Because the renewal provision unambiguously permits a five-year renewal unless the lessor provides notice of dissatisfaction by the specific date, we reverse.
FACTS
Gerald Barth leased farm land to Brian and Kevin Kuehl Farms (Kuehl Farms) in October 1994. They used a form lease and typed in specific terms, including a section entitled "Lease conditions." The last condition stated: "Lease may be extended for another 5 year period if the lessor is satisfied with the conditions of this lease, if not lessor should notify lessee on or before July 15, 1999."
In October 1999, before the end of the five-year lease term, Barth and Kuehl Farms negotiated a new lease that decreased the amount of rent, but was otherwise identical to the 1994 lease. They used the same lease form, but instead of typing in the specific terms, Kuehl Farms wrote them into the lease. The lease-extension provision remained the same, but the date for notice of dissatisfaction changed to July 15, 2004. Kuehl Farms received no notice of dissatisfaction from Barth on or before July 15, 2004.
Barth twice contacted Kuehl Farms in August 2004 to discuss negotiating a new lease. In the second call, Barth told Kuehl Farms that other people had expressed an interest in renting his land. Kuehl Farms met with Barth in early September to discuss the new lease, and Barth advised Kuehl Farms to submit a bid. A few days after the meeting, Kuehl Farms told Barth that, because he had not notified it of dissatisfaction with the lease before July 15, 2004, it was entitled to extend the 1999 lease until 2009. In response, Barth sent Kuehl Farms a letter stating that he would begin accepting bids to rent the property to other people.
Kuehl Farms sued Barth, seeking a judgment declaring that Barth's failure to give notice of dissatisfaction by July 15, 2004, extended the lease to 2009; enjoining Barth from leasing the land to anyone else; and providing other equitable relief. Barth asserted a counterclaim for a judicial order to eject Kuehl Farms for unlawfully holding over the rental property after expiration of the lease. On cross motions for summary judgment, the court construed Barth's notice requirement in the lease-extension provision as discretionary rather than mandatory and granted Barth's motion. Kuehl Farms appeals, arguing that the plain meaning of the lease-extension provision gives Kuehl Farms the right to extend the lease for an additional five years unless Barth provides notice of dissatisfaction by July 15, 2004.
DECISION
The legal principles governing the interpretation of a lease are straightforward. As with any other contract, the cardinal purpose of construction is to give effect to the intention of the parties as expressed in the terms of the lease. See Art Goebel, Inc. v. N. Suburban Agencies, Inc., 567 N.W.2d 511, 515 (Minn. 1997) (construing contract's indemnity provision); Pettit Grain Potato Co. v. N. Pac. Ry., 227 Minn. 225, 229, 35 N.W.2d 127, 130 (1948) (construing lease). "We construe a contract as a whole and attempt to harmonize all clauses of the contract." Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 525 (Minn. 1990). And we attribute the plain and ordinary meaning to contractual language. Current Tech. Concepts, Inc. v. Irie Enters., Inc., 530 N.W.2d 539, 543 (Minn. 1995). Because of the presumption that the contracting parties intend the language to have effect, we attempt to avoid an interpretation of the contract that would render a provision meaningless. Chergosky, 463 N.W.2d at 526; see also Current Tech. Concepts, Inc., 530 N.W.2d at 543 ("A contract must be interpreted in a way that gives all of its provisions meaning.").
The district court concluded that the language about the five-year extension was unambiguous. Because the notice provision used the words "may" and "should," however, the court ruled the language was permissive or discretionary and, therefore, Barth's failure to give notice of dissatisfaction by the required date of July 15, 2004, did not result in a five-year extension. We agree that the language is unambiguous, but, for three reasons, we do not agree that the notice requirement was permissive or discretionary.
First, aggregating "may" and "should" to equate to a permissive or discretionary construction takes the words out of context rather than considering the provision as a whole. The provision states that the "Lease may be extended for another 5 year period if the lessor is satisfied with the conditions of this lease if not lessor should notify lessee on or before July 15, 2004." Read as a whole, the sentence provides for a five-year extension of the lease unless Barth is dissatisfied, in which case he should notify Kuehl Farms on or before July 15, 2004. In this context, "should" and "may" are conditional because they denote shifting options. If Barth is satisfied with the lease conditions, he need not provide notification, and Kuehl Farms may extend the lease. If Barth is not satisfied, then he should notify Kuehl Farms on or before July 15, 2004, and Kuehl Farms may not extend the lease. But because a requirement is conditional does not mean that it is only permissive or discretionary. See Henschke v. Young, 224 Minn. 339, 342, 28 N.W.2d 766, 768 (1947) (observing that parties may incorporate conditional provisions in contracts to limit liability in event of failure to perform); Raymond v. McKenzie, 220 Minn. 234, 237, 19 N.W.2d 423, 424-25 (1945) (noting that parties to contract may provide for its annulment or cancellation by incorporating conditional provisions).
The conditional language in the extension provision means that if a condition occurs, that is, if Barth does not want the lease to extend, he must act by giving notice. This construction is similar to interpretations of "should" in the context of jury instruction cases: if a condition occurs, that is, the jury finds the presence or absence of an element, it must take a particular action. In the conditional use of "should" in jury instructions, courts have held that "should" means "must." State v. Rack, 318 S.W.2d 211, 215 (Mo. 1958); Kippenbrock v. Wasbash R. Co., 194 S.W. 50, 52 (Mo. 1917); St. Louis S.F.R. Co. v. Brown, 144 P. 1075, 1080-81 (Okla. 1914); Commonwealth v. Hammond, 504 A.2d 940, 941-42 (Pa.Super. 1986). The phrase "should notify" created an obligation for Barth to give notice to Kuehl Farms by a specific date if he wanted to prevent the extension of the lease for an additional five years. When Barth did not notify Kuehl Farms by July 15, 2004, Kuehl Farms had the option to extend the lease.
Second, to accept Barth's interpretation that the notice requirement is only discretionary or permissive would essentially render the provision meaningless. See Chergosky, 463 N.W.2d at 526 (noting that court should "avoid an interpretation of [a] contract that would render a provision meaningless"). The conditions were presumably added to the contract to effect a purpose. This is further confirmed by the specification of a precise date by which Barth must give notice. Designating the specific date of July 15, 2004, is inconsistent with the concept that the notice provision was only discretionary or permissive.
Third, although Minnesota courts have not expressly defined "should" as a mandatory or discretionary term, Minnesota cases have implicitly held that the phrase "should notify" requires notice and is not discretionary. See George A. Hormel Co. v. Am. Bonding Co. of Baltimore, 112 Minn. 288, 296, 128 N.W. 12, 15 (1910) (requiring obligee give obligor notice of breach of contract for which obligor might be liable); Rutter v. Dowagiac Mfg. Co., 102 Minn. 367, 368, 113 N.W. 910, 911 (1907) (focusing on whether plaintiff properly gave notice under contract that stated plaintiff should notify defendant if dissatisfied with product).
Barth argues that extrinsic evidence, such as the parties' course of dealing, negates a finding that the contract required him to give notice to Kuehl Farms. Extrinsic evidence of intent, however, is only relevant if the contract provision is ambiguous. Hous. Redevelopment Auth. of Chisholm v. Norman, 696 N.W.2d 329, 337 (Minn. 2005). Similarly, the question of whether Barth or Kuehl Farms drafted the notice provision is relevant only if the notice provision is ambiguous. Cherne Indus., Inc. v. Grounds Assocs., Inc., 278 N.W.2d 81, 89 (Minn. 1979) (noting well-established rule that ambiguity in contract will be resolved against drafter).
The notice requirement in the extension provision is conditional, but it is not ambiguous. Because the provision is not ambiguous, we apply the plain meaning that Barth was required to notify Kuehl Farms by July 15, 2004, if he did not want to permit the five-year extension. Barth failed to notify Kuehl Farms on or before July 15, and Kuehl Farms had the right to extend the lease for an additional five years. Having concluded that the plain meaning of the notice provision is enforceable, we do not consider Kuehl Farms' alternative claim of promissory estoppel.
II
At the hearing on cross-motions for summary judgment, Barth argued that even if the notice requirement in the extension provision was mandatory, Kuehl Farms waived the requirement by meeting and negotiating with Barth after July 15, 2004. The district court did not rule on this alternative argument, but both Kuehl Farms and Barth address it in their briefs, and both present it as an issue to be decided as a matter of law.
Waiver is the "voluntary and intentional relinquishment of a known right." Ill. Farmers Ins. Co. v. Glass Serv. Co., 683 N.W.2d 792, 798 (Minn. 2004). The party alleging a waiver must provide evidence that the party allegedly waiving the right had both knowledge of the specific right and the intention to waive the right. Id. Knowledge may be actual or constructive, and intention may be inferred from conduct. Carlson v. Doran, 252 Minn. 449, 456, 90 N.W.2d 323, 328 (1958). Waiver must be based on more than course-of-dealing evidence and must show an intentional relinquishment of the known right on the disclosed facts. Citizens Nat'l Bank of Madelia v. Mankato Implement Inc., 441 N.W.2d 483, 487 (Minn. 1989). When the facts are undisputed, waiver is a legal question. Montgomery Ward Co. v. County of Hennepin, 450 N.W.2d 299, 304 (Minn. 1990).
The facts relevant to waiver in this case are undisputed. After the July 15 deadline for notice passed, Kuehl Farms had three contacts with Barth; Barth called Kuehl Farms twice in August 2004, and the parties met once in early September. During the phone calls, Barth told Kuehl Farms he wanted to discuss negotiating a new lease. At the meeting on September 3, 2004, Kuehl Farms indicated a willingness to negotiate, but Barth stated that he wanted to accept bids from others. Following the meeting, Kuehl Farms notified Barth that it believed that Barth was bound by the extension provision in the 1999 lease because he had not given Kuehl Farms notice by July 15, 2004.
Barth's evidence of Kuehl Farms' waiver is insufficient to withstand summary judgment. The record adequately supports Barth's assertion that Kuehl Farms had knowledge of its right to receive notice by the specified date, but it does not provide a basis for Barth's claim that Kuehl Farms' willingness to discuss a new lease amounted to a waiver of its right to notice under the existing lease. Barth and Kuehl Farms had only one substantive discussion related to the prospect of a new lease. The meeting occurred the Friday of Labor Day weekend, and Kuehl Farms contaced Barth the following Tuesday to communicate Kuehl Farms' decision not to negotiate a new lease and to exercise its right to extend the 1999 lease. Although intent may be shown by circumstantial evidence, Barth has not shown that Kuehl Farms' conduct equates to a waiver of its legal right to enforce the notice provision in the lease. Kuehl Farms' decision to negotiate a new lease in 1999 for lower rent instead of extending the 1994 lease and its participation in discussions of a new lease in 2004 do not demonstrate that Kuehl Farms intentionally waived its right to extend the 1999 lease. Further, Barth points to no conduct by Kuehl Farms before notice was due that indicates an intent to waive the notice requirement. See Pruka v. Maroushek, 182 Minn. 421, 423, 234 N.W. 641, 642 (1931) (holding party's conduct did not amount to intentional waiver of its right to notice of distraint proceeding).
Finally, Barth argues that he substantially complied with the notice provision because Kuehl Farms knew by mid-August that Barth was considering leasing the property to other parties. Barth's argument, however, addresses only the knowledge component of a waiver. Even if Kuehl Farms knew of Barth's intent to lease the property to another party, it does not follow that Kuehl Farms intentionally waived its right to extend the lease. We therefore conclude that Kuehl Farms did not waive its right to receive notice under the lease.