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Upper Swede Hollow Neighbors Association v. Khatib

September 10, 2002

UPPER SWEDE HOLLOW NEIGHBORHOODS ASSOCIATION, APPELLANT,
v.
AHMAD KHATIB, RESPONDENT, AND WAEL K. ALASSEDY, RESPONDENT.



Ramsey County District Court File No. C602001335

Considered and decided by Anderson, Presiding Judge, Toussaint, Chief Judge, and Parker, Judge.*fn1

The opinion of the court was delivered by: Toussaint, Judge

Reversed and remanded

Appellant-landlord Upper Swede Hollow Neighborhoods Association (USHNA) appeals the district court's directed verdict for respondents, tenant Ahmad Khatib and subtenant Wael Alassedy, in this commercial eviction proceeding. Because the renewal provision is an unenforceable agreement to agree, we reverse.

DECISION

The renewal provision in Khatib's lease states:

Lessee shall have an option to renew this lease for an additional five (5) years under the same terms and conditions as this lease if the business profits do not increase substantially.

The renewal provision in Alassedy's sublease "assigns" to Alassedy the right to renew Khatib's lease. The district court granted Khatib and Alassedy a directed verdict, ruling that the option to renew had been "validly exercised by Khatib and/or Alassedy" and that "Khatib and Alassedy both timely notified [USHNA] that they each exercised the renewal option." The court declined to address (a) whether, as between Khatib and Alassedy, either or both of them could exercise the option to renew the lease; and (b) under what terms and conditions the lease could be renewed.

By its ruling, the district court apparently read the renewal provision to include both an absolute right to renew the lease (on unstated conditions) and a second, conditional, right to renew the lease on the same terms as the original lease if there was no substantial increase in business profits. Thus, the district court read the conditional business-profits clause to modify only the portion of the renewal provision addressing whether the renewed lease would be on the same terms as the original lease, not whether the lease could be renewed at all. USHNA challenges this reading of the renewal provision.

Generally,

[o]n appeal from a directed verdict, [appellate courts] make an independent determination of whether the evidence was sufficient to present a fact question to the [fact finder]. In making such a determination, [appellate courts] review the evidence in a light most favorable to the nonmoving party. Boone v. Martinez, 567 N.W.2d 508, 510 (Minn. 1997) (citations omitted).

The crux of this appeal involves the meaning of the renewal provision. "The construction and effect of contract presents a question of law, unless an ambiguity exists." Brookfield Trade Ctr., Inc. v. County of Ramsey, 584 N.W.2d 390, 394 (Minn. 1998) (citation omitted). Whether a contract provision is ambiguous is a legal determination. Blattner v. Forster, 322 N.W.2d 319, 321 (Minn. 1982). A contract is ambiguous if its language "is reasonably susceptible of more than one meaning," and if a provision is ambiguous, "courts may resort to extrinsic evidence of intent to construe the contract." Id. (citing Republic Nat'l Life Ins. Co. v. Lorraine Realty Corp., 279 N.W.2d 349 (Minn. 1979)). Absent ambiguity, however, a court cannot interpret a contract and the maxims of contract interpretation are inapplicable to that contract. See Minneapolis Pub. Hous. Auth. v. Lor, 591 N.W.2d 700, 704 (Minn. 1999) (stating "[u]nambiguous contract language must be given its plain and ordinary meaning"); Colangelo v. Norwest Mortage, Inc., 598 N.W.2d 14, 18 (Minn. App. 1999) (stating that because relevant language was clear, "resort to the maxims of contract construction is not available to create ambiguity"), review denied (Minn. Oct. 21, 1999).

The district court's reading of the renewal provision does not address the terms of a renewed lease in the event that business profits increase substantially. Therefore, the district court functionally ruled that if what it deemed to be the absolute right to renew was exercised, and if business profits did increase substantially, the parties agreed that they would agree to the terms of that renewed lease. An agreement to agree is not enforceable. See Ohio Calculating, Inc. v. CPT Corp., 846 F.2d 497, 501 (8th Cir. 1988) (stating mere agreement to agree is not enforceable in Minnesota); see also Lindgren v. Clearwater Nat'l Corp., 517 N.W.2d 574, 574 (Minn. 1994) (concluding that "letter of intent" was unenforceable agreement to negotiate); Mohrenweiser v. Blomer, 573 N.W.2d 704, 706, (Minn. App. 1998) (referring to "letter of agreement" as "an unenforceable agreement to agree in the future"), review denied (Minn. Feb. 19, 1998). Therefore, the district court's reading of the renewal provision renders it unenforceable, and hence meaningless, in the event that business profits substantially increase. Such a reading of the provision is inconsistent with the case law indicating that contract language should be read to avoid rendering a provision meaningless. Cf. Chergosky v. Crosstown Bell, Inc., 463 N.W.2d 522, 526 (Minn. 1990) (stating that courts "will attempt to avoid an interpretation of the contract that would render a provision meaningless").

A close reading of the renewal provision indicates that it creates only a single right, a right to renew the lease on the terms of the original lease, and that the exercise of that right is conditioned on business profits not having substantially increased. This reading of the renewal provision does not render the renewal provision meaningless if business profits increase substantially*fn2. Khatib argues that this reading of the lease makes no "commercial sense" because it means that a business that does well cannot renew its lease. We reject this argument. Reading the renewal provision to create only a single, conditional right ...


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