Opinion
No. C0-96-1678.
Filed May 20, 1997.
Appeal from the District Court, Hennepin County, File No. 95-9752.
Jarett B. Decker, (for Respondents)
Patrick V. Johnson, (for Appellants)
Considered and decided by Crippen, Presiding Judge, Lansing, Judge, and Peterson, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1996).
UNPUBLISHED OPINION
Appellant Loviel Computer Corporation, identified in this opinion as LCC, disputes its liability for approximately $29,000 in rent remaining due under a lease for a number of months following its vacation of commercial space in a building managed by respondent RREEF Funds. Although the lease was written in favor of Lloviel Corporation, identified here as LC, the trial court concluded that LCC was equitably estopped from denying that it was the tenant in fact and accordingly was responsible for the rent remaining due under the lease. We affirm.
FACTS
Lloyd Lee, as president of LC, signed an agreement with respondent RREEF Funds to lease approximately 1,450 square feet of commercial space at a base rent of $9,420, beginning in October 1990 and for a term of three years and four months. Around February 1991, Lee advised respondent that his business needed additional space. The parties agreed to an amendment to the original lease that purported to give LC an additional 1,400 square feet at an annual base rent of $7,416 for the remainder of the original lease term. In the meantime, LC had discontinued its business, and Lee had established another computer products business as LCC, which he also served as president. LCC ran its business out of the leased space. In early 1992, respondent ran a credit check on LC because the parties were negotiating another amendment to add additional space to the lease. Respondent's manager informed Lee that the credit report "did not look good." In response, Lee sent respondent financial statements for LCC. Finally, in 1992, respondent began addressing correspondence to LCC, and Lee signed a lease renewal proposal addressed to LCC.
In late May 1992, Lee informed respondent's manager that LCC would be vacating the space at the end of June 1992. Respondent subsequently sued appellants to recover unpaid rent for the eight months that the space was vacant, plus the rent differential between the rent stated in the lease and the amount subsequently received from a replacement tenant, and for litigation costs recoverable under the lease. After a court trial, the court found that LCC was estopped from denying liability under the lease because it accepted the benefits under the lease, and awarded respondent damages of $28,539 for unpaid rent, rent differential, and costs associated with re-renting the space, and $13,912.51 in litigation costs.
DECISION
On appeal from a judgment, we are to decide whether the trial court's findings are clearly erroneous and whether it erred in its legal conclusions. Citizens State Bank v. Leth , 450 N.W.2d 923, 925 (Minn.App. 1990).
1. Findings of Fact
Appellant asserts that the court erred in finding that by February 1991 LC had discontinued its business and that Lee had continued the business under the name of LCC. Employing the clearly erroneous standard of review, we give due regard to the opportunity of the trial court to judge the credibility of the witnesses. Minn.R.Civ.P. 52.01.
Notwithstanding the fact that the February 1991 lease amendment was written in favor of LC, we conclude that there is ample evidence in the record to support the court's findings that, by that time, LC had discontinued its business and that Lloyd Lee had established another computer products business as LCC. Toward the end of 1990, LC suffered serious financial problems that Lee said were the result of fraud by LC customers on the West Coast. Lee agreed on cross-examination that a Dun Bradstreet report correctly stated that LC was discontinued in December 1990. In addition, Lee stated in sworn interrogatory responses that the date of last sale of any product by LC was January 1991 and the date of the first sale of any product by LCC was February 1991. An income statement for LCC's fourth quarter in 1991 indicated that the company had total sales of $1,404,618 and earned a gross profit of $261,636.10.
There is also ample evidence that by 1992 LCC was openly acting as the tenant of the combined space purportedly leased by LC. LCC listed the address of the space on its letterhead, put its name on the door at the space, conducted business there, and paid rent with LCC checks. Rent under the lease was less than would have been due from LCC under a month-to-month tenancy. In addition, when respondent questioned Lee about LC's poor credit report during the negotiations for additional space in early 1992, Lee submitted LCC's financial statements to respondent. Moreover, in 1992, respondent began to correspond directly with LCC, and Lee signed the proposed lease renewal for LCC. Because the record supports the trial court's findings, we conclude that they were not clearly erroneous.
2. Equitable Estoppel
The trial court based its ruling on the theory of equitable estoppel, citing Olson v. Ronhovde , 446 N.W.2d 690, 692-93 (Minn.App. 1989) (invoking equitable estoppel to prevent a lessee from applying the statute of frauds to avoid liability under a lease). As a general rule, for equitable estoppel to apply, the plaintiff must demonstrate that the defendant's language or conduct "induced the plaintiff to rely, in good faith, on this language or conduct to his injury, detriment or prejudice." Ridgewood Dev. Co. v. State , 294 N.W.2d 288, 292 (Minn. 1980); see also Suske v. Straka , 229 Minn. 408, 416, 39 N.W.2d 745, 751 (1949) (holding it is "elementary law" that one who misrepresents facts to another party is estopped from denying those facts where doing so would prejudice the other party). The doctrine "is a most flexible one, founded in equity and good conscience, and is a favorite of the law." Roberts v. Friedell , 218 Minn. 88, 96, 15 N.W.2d 496, 500 (1944).
Equitable estoppel has also been defined as the effect of a party's voluntary conduct in which the party is absolutely precluded from asserting property, contractual, or remedial rights that might otherwise have existed, as against another person who has relied in good faith on the party's conduct, who has been led by that conduct to change his position for the worse, and who acquires some corresponding property, contractual, or remedial right. Moberg v. Commercial Credit Corp. , 230 Minn. 469, 475-76, 42 N.W.2d 54, 58 (1950).
Appellant LCC contends, inter alia, that the court erred in employing the doctrine of equitable estoppel because there is no evidence that respondent was prejudiced by the fact that LCC acted out the role of lessee. Rather, LCC argues that its payment of rents benefited respondent. We conclude that appellant premises its analysis on an incomplete portrayal of the facts in this case.
The trial court did not distinguish between LCC's role with respect to rent due under the February 1991 amendment and rent due under the original lease. Initially, we examine the transaction in terms of the amendment to the lease in February 1991. At that time, as the trial court determined, Lloyd Lee was no longer acting on behalf of LC, but instead on behalf of LCC. In effect, as the president of LCC, Lee represented to respondent that LC was a viable entity in need of additional space. In fact, at that time LC had discontinued business, and Lee was leasing the space for LCC's operations. The fact that respondent's manager believed he was dealing with a healthy financial entity — represented to be LC — influenced his decision to enter into the amendment to the lease in the form employed by the parties. Respondent's manager relied on Lee's misrepresentation that LC was a healthy business seeking additional space. Accordingly, the trial court did not err in concluding that appellant was estopped from denying it was party to the lease amendment.
We also conclude that there is ample evidence to support the use of equitable estoppel against LCC on rent due under the original lease. At the time of the 1991 lease amendment, respondent no longer had a viable, enforceable lease agreement with LC because the company had discontinued its business. Because respondent's manager relied on LCC's representation that it was the business entity that respondent knew as LC, respondent forfeited the opportunity to secure its revenue under the original lease either by recovering possession of the property or demanding that LCC assume responsibility for the original lease. See Missouri Valley Steel Co. v. New Amsterdam Cas. Co. , 275 Minn. 433, 438-39, 148 N.W.2d 126, 129-30 (1966) (upholding application of equitable estoppel where plaintiff's reliance on defendant's conduct caused plaintiff to forego debt collection efforts until debtor was insolvent). Respondent was therefore prejudiced by Lee's misrepresentation, and the trial court did not err by its application of the doctrine of equitable estoppel with respect to the original lease.