Barnes v. Wood

• Decision Date: 10 February 1988
• Docket Number: No. 870483-CA,870483-CA
• Citation: 750 P.2d 1226
• Court: Utah Court of Appeals
• Parties: Robert W. BARNES, Jr., David C. Barnes, Susan B. Nielson, d/b/a The Barnes Family Partnership, Plaintiffs and Respondents, v. Richard C. WOOD and Marilyn P. Wood, d/b/a Fernwood Candy & Ice Cream Company, a partnership, Defendants and Appellants.

Page 1226

750 P.2d 1226

Robert W. BARNES, Jr., David C. Barnes, Susan B. Nielson, d/b/a The Barnes Family Partnership, Plaintiffs and Respondents, v. Richard C. WOOD and Marilyn P. Wood, d/b/a Fernwood Candy &

Ice Cream Company, a partnership, Defendants and Appellants.

No. 870483-CA.

Court of Appeals of Utah.

Feb. 10, 1988.

J. Michael Hansen (argued), Suitter, Axland, Armstrong & Hanson, Salt Lake City, for defendants and appellants.

Richard D. Burbidge (argued), Stephen B. Mitchell, Burbidge & Mitchell, Salt Lake City, for plaintiffs and respondents.

Before BILLINGS, DAVIDSON and GARFF, JJ.

OPINION

BILLINGS, Judge:

This is an appeal from a judgment awarding respondents ("the Partnership") arrearages under a modified lease agreement and attorney fees. We affirm.

FACTS

We view the facts in the light most favorable to the trial court's factual findings. See Security State Bank v. Broadhead, 734 P.2d 469, 470-71 (Utah 1987). On September 1, 1979, Jacqueline Barnes and Richard and Marilyn Wood ("the Woods") executed a ten-year lease agreement, whereby Barnes rented the Palace Ice Cream Store and 75% of the adjacent parking lot to the Woods.

Paragraph 3 of the lease fixed the monthly rent of the store at $750 but further stated "the monthly rental shall be adjusted upward or downward based upon the United States Cost of Living Index using August 1976 as a base, provided that the index must rise or fall 5% from the base or prior adjusted level before adjustments in the rent are made."

Paragraph 4 of the lease agreement detailed responsibility for property taxes and included an escalation clause similar to the one articulated in paragraph 3: "[t]he Lessor shall pay the said property taxes annually, and in the event said taxes shall increase in any year in excess of the 5% ..., 75% of such increases shall be due the Lessor from the Lessee upon proof of payment of the same...."

Paragraph 10 of the lease agreement outlined the sublease of 75% of Barnes' leasehold interest of the adjacent parking lot to the Woods.

The Woods paid the stipulated monthly rent of $750 through August 1979. On September 6, 1979, Raymond Hintze, attorney for Jacqueline Barnes, sent a letter to the Woods, calling for an increase in the rent of the store and the adjacent parking lot pursuant to the escalation provisions of the lease. In his letter, Hintze requested an increase in the monthly rent for the building from $750 per month to $960 per month, and an increase to $100 per month for the parking lot, for a total payment of $1060 per month. Hintze also asked the Woods to pay $118.81, representing their 75% share of the increase in taxes. Hintze did not tender proof of payment of the tax increase. Hintze stated all these figures were based on the "cost of living figures" obtained from "the United States government." Although the Woods did not pay the requested taxes, they began paying the increased rent of $1060 per month.

On December 5, 1979, Gaylen Young, attorney for the Woods, sent a letter to Hintze, seeking to negotiate a reduction in the rent. In his letter, Young claimed the Woods were losing "several thousand dollars a year" on the Palace Ice Cream Store. Consequently, Young stated, with our emphasis added,

Fernwoods (the Woods) would like to work out some fair negotiation in regard to this lease with your client (Jacqueline Barnes) that would be fair. Perhaps a $900.00 per month base could be suggested, plus all increases in property taxes over the 1979 base. In the event that something fair and reasonable cannot be arrived at, Fernwoods have no other alternative but to go to Court to try and obtain some relief.

While these rent negotiations were pending, Jacqueline Barnes was murdered; she bequeathed the Palace Ice Cream Store and her leasehold interest in the adjacent parking lot to her children, collectively known as the Barnes Family Partnership ("the Partnership").

On January 23, 1980, Hintze sent a letter to Young, stating Barnes' personal representative had agreed to reduce the rent to $1000 per month and forego the claim to the taxes which had accrued. The Woods began paying $1000 per month, commencing February 1, 1980, and continued to pay $1000 per month, without objection, until October 12, 1982. On October 12, 1982, the Partnership sent a letter to the Woods, demanding back rental payments and property taxes owed by the Woods pursuant to the lease agreement. (The Partnership was not aware of the January 23, 1980 letter from Hintze to the Woods until after suit was commenced.) The Partnership informed the Woods that as of November 1, 1982, total rent payment would be $1389.04 per month. The Woods refused to pay back rental payments and back property taxes, and refused to pay the increased rent. Consequently, the Partnership filed suit, alleging (1) the Woods had misrepresented the financial condition of Fernwood Ice Cream & Candy, thereby inducing Jacqueline Barnes to reduce the amount of the rent, and (2) the Woods were in breach of the "modified lease" and sought to recover deficiencies in rent and tax payments.

The case was tried to the court. At trial, the Woods contended the reduction in monthly rental to $900 represented the total rent due per month for the store for the remaining term of the lease. Alternatively, the Woods argued the acceptance of the $1000 per month rental payments by the Partnership operated as either an estoppel or waiver, barring the recovery of any arrearages. The Partnership claimed the reduction was for one year only as the $900 was intended to be a base rent from which future escalations would be calculated according to the escalation clause specified in the original lease. The Woods argued that the Partnership was not entitled to back property taxes because it failed to satisfy the condition precedent of proof of payment of the increase in property taxes. The Woods denied the fraud allegation.

The court found no fraud and determined the lease agreement had been modified. The court found the modified lease reduced the base rent to $900 per month upon which future escalations would be calculated according to the escalation provisions of the original lease. The court specifically determined the parties did not intend to abrogate the escalation clauses. Furthermore, the court held the Partnership was entitled to parking lot rentals and past due taxes pursuant to the lease. The court found the term "United States Cost of Living Index" was ambiguous and, over the Woods' objections, accepted extrinsic evidence to ascertain what the parties intended by the use of this term. The court determined the parties intended to use the "Consumer Price Index--All Urban Consumers" and therefore held future escalations would be calculated applying this index.

Subsequent to the trial and pursuant to an attorney fees provision in the lease, the Partnership submitted an affidavit seeking attorney fees. The parties had agreed that affidavits would be sufficient to prove attorney fees. In its affidavit, the Partnership sought $9850 in attorney fees and $526.34 in costs. The Woods objected to the affidavit because it did not differentiate between the time spent by counsel in enforcing the provisions of the lease agreement and the time spent in attempting to prove the fraud allegation. Counsel for the Partnership, in response, submitted an affidavit claiming that all time expended was reasonably necessary to prosecute the contract claim. At the conclusion of the hearing on the Woods' objections, the trial court reduced the amount claimed for attorney fees by one-third, thereby awarding the Partnership $6566.66 in attorney fees.

Several issues are presented on appeal. First, is the trial court's finding that the modification pertained only to the base rent and did not abrogate the escalation provisions of the lease agreement supported by substantial admissible evidence? Second, is the Partnership estopped or did it waive its rights to seek higher rent and recover alleged deficiencies in rent payments and tax payments by accepting payment of $1000 per month in total rent for nearly two and one-half years? Third, did the trial court properly admit extrinsic evidence to ascertain what the parties meant by the term "United States Cost of Living Index" and then correctly determine the parties meant to use the "Consumer Price Index--All Urban Consumers?" Fourth, did the court correctly award the Partnership arrearages in back property taxes, construing the phrase "proof of payment" as a covenant, rather than a condition precedent? Finally, was the award of attorney fees supported by adequate evidence?

MODIFICATION

At trial, the parties agreed the original lease had been modified but disagreed as to the terms of the modified lease. The trial court, after admitting extrinsic evidence to determine the parties' intended agreement, found the modification did not eliminate the escalation provisions of the lease; it only modified the base amount (i.e., fixed it at $900 per month) upon which future escalations in rent would be calculated.

Whenever there is uncertainty or incompleteness concerning the parties' rights and duties under a contract, extrinsic evidence is permissble to ascertain those matters. Craig Food Indus., Inc. v. Weihing, 746 P.2d 279, 283 (Utah Ct.App.1987). If the contract is ambiguous and the trial court bases its construction on extrinsic evidence of intent, then appellate review is strictly limited and the judgment will not be disturbed unless clearly erroneous. See Wilburn v. Interstate Elec., 748 P.2d 582 (Utah Ct.App.1988); Utah R.Civ.P. 52(a). Based upon this standard we agree with the trial court's construction of the modification.

The modification transpired after conversations and an exchange of correspondence between the parties and/or their attorneys. Initially, in a letter dated September 6, 1979, addressed to the Woods, Hintze, Barnes' attorney, informed the Woods...