Bruggeman v. Jerry's Enterprises, Inc., C9-98-212

• Decision Date: 15 April 1999
• Docket Number: No. C9-98-212,C9-98-212
• Citation: 591 N.W.2d 705
• Parties: William L. BRUGGEMAN, et al., Respondents, v. JERRY'S ENTERPRISES, INC., petitioner, Appellant.
• Court: Minnesota Supreme Court

Page 705

591 N.W.2d 705

William L. BRUGGEMAN, et al., Respondents, v. JERRY'S ENTERPRISES, INC., petitioner, Appellant.

No. C9-98-212.

Supreme Court of Minnesota.

April 15, 1999.

Syllabus by the Court

The presumption of merger does not apply to a repurchase option agreement, which cannot, by its very nature, be performed prior to closing.

Gary A. VanCleve, James M. Susag, Larkin, Hoffman, Daly & Lindgren, Ltd., Bloomington, for appellant.

David F. Herr, James J. Killian, Michael C. McCarthy, Maslon Edelman Borman & Brand, LLP, Minneapolis, for respondents.

Heard, considered, and decided by the court en banc.

OPINION

LANCASTER, Justice.

The issue presented by this appeal is whether the merger doctrine applies to an agreement giving the seller the right to repurchase a parcel of real property if the buyer has not started development of the property within two years. The court of appeals, reversing the district court's grant of summary judgment for the buyer, concluded that the merger doctrine does not apply to agreements that are both a condition subsequent and collateral to the subsequently executed deed. We affirm.

On February 16, 1994, respondents, William L. Bruggeman and The Builders Wholesale, Inc. Profit Sharing Trust, by and through its Trustee, Eugene J. Zugschwert, entered into an agreement with appellant, Jerry's Enterprises, Inc., that gave appellant the option to purchase a parcel of commercial real estate located in the southwest quadrant of Interstate 94 and Radio Drive in Woodbury. The option agreement contained the following repurchase option provision:

21.8) Repurchase Option--Seller shall have the option to repurchase the Property from Buyer if Buyer has not commenced construction of improvements on the Property within two (2) years after the date Buyer exercises its option to purchase the Property. Buyer's [sic] repurchase option shall be upon the following terms and conditions:

* * * *

To exercise its repurchase option, Seller shall give Buyer written notice thereof within two (2) years and ten (10) days after the closing date on the Property. Within ten (10) days after receipt of Seller's notice, Buyer shall furnish Seller with Buyer's calculation of the purchase price. Within ten (10) days thereafter, Seller shall pay the purchase price to Buyer in cash and Buyer shall deliver to Seller a limited warranty deed for the Property subject only to Permitted Encumbrances described herein. If Seller shall fail to timely notify Buyer of Seller's exercise of the repurchase option, such repurchase option shall lapse and be of no further effect.

The option agreement also included the following "survival" clause:

21.2) Survival--Except as limited in Article 9 hereof, all the terms of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the parties, and their respective heirs, personal representatives, successors, and assigns.[ ¹

Article 9, which recited the seller's warranties to buyer, provided in part that:

(04) Seller has executed no options to purchase, rights of first refusal, or any other agreements currently in effect giving any person or other entity the right to purchase or otherwise acquire any interest in the Property and Seller is unaware of any options to purchase, rights of first refusal, or other similar rights affecting the Property; and

* * * *

Except for the representations and warranties made by Seller herein, Seller shall sell and Buyer shall purchase the Property in "as-is" condition without further warranty or representation. Each of the representations and warranties contained herein shall survive for a period of one (1) year after the Closing Date.

In June 1995, the parties entered into the first amendment to the option agreement, which extended the term of the original option agreement.

Appellant eventually exercised its option to purchase the property. On August 10, 1995, respondent William Bruggeman, along with his wife, Ruth Bruggeman, executed a limited warranty deed to appellant; respondent Eugene Zugschwert executed a trustee's deed to appellant on behalf of The Builders Wholesale Inc. Profit Sharing Trust. Neither deed made reference to the repurchase option described in the original option agreement. At this time, respondents Bruggeman and Zugschwert also executed and delivered to appellant affidavits which stated that "[t]here are no unrecorded contracts, leases, easements, or other agreements or interests relating to the Premises."

Two years later, respondents notified appellant by letter of their intent to exercise their right to repurchase the property. Appellant responded by letter that it would not tender the property back to respondents. Appellant asserted that even if respondents could establish that appellant had failed to make sufficient improvements to the property, respondents' repurchase rights had lapsed at the time of closing because neither of the deeds of conveyance reserved the repurchase right or referred to the option agreement as a "Permitted Encumbrance."

Respondents filed suit in Washington County District Court. The complaint, which alleged breach of contract, equitable estoppel, and creation of a constructive trust, requested that the court order appellant to specifically perform its obligation under the repurchase agreement.

Appellant subsequently filed a motion for summary judgment, arguing that it was entitled to judgment as a matter of law. The district court granted judgment in favor of appellant, concluding that, under the merger doctrine, respondents had waived their repurchase rights by not preserving them in the deeds, which represented the final agreement between the parties. The district court concluded that respondents' condition subsequent argument was "in essence" an argument "that the repurchase option was a collateral agreement" and that the collateral agreement exception to the merger doctrine is not recognized in Minnesota. The district court also concluded that the purported survival language found in the option agreement failed to meet the requirements of a survival clause because it did not clarify that the option agreement's repurchase provisions "shall survive * * * after the closing." The district court denied that application of the merger doctrine would lead to a "harsh result," asserting that respondents had passed over opportunities to "fairly easily" protect their repurchase rights by including a specific provision in the deeds reciting that those rights survived closing. ²

On appeal, the court of appeals reversed. Bruggeman v. Jerry's Enterprises, Inc., 583 N.W.2d 299 (Minn.App.1998). The court of appeals concluded, based on its reading of Minnesota's merger doctrine cases, foreign case law, and fundamental contract law, that the merger doctrine does not apply to promises such as repurchase agreements that are "conditions subsequent" to closing. Id. at 301-02. Recognizing that conditions subsequent differ from collateral agreements, the court also concluded that even if the repurchase agreement at issue constituted a collateral agreement, the merger doctrine was still inapplicable because the merger doctrine does not apply to agreements that are "both a condition subsequent and collateral." Id. at 302. Finally, the court of appeals asserted that even if the merger doctrine had applied to the repurchase agreement, the language found in the option agreement's survival clause, while "fall[ing] short of a model survival clause," was sufficient to rebut the presumption of merger. Id.

We granted appellant's petition for further review of the court of appeals' reversal of the district court's grant of summary judgment in its favor.

Summary judgment is appropriate when there is no genuine issue as to any material fact and either party is entitled to judgment as a matter of law. Minn. R. Civ. P. 56.03. When reviewing a summary judgment decision, we must determine whether there are any genuine issues of material fact and whether the lower courts erred in their application of the law. State by Humphrey v. Delano Community Dev. Corp., 571 N.W.2d 233, 236 (Minn.1997). Questions of law are reviewed de novo. Id.

Over a century ago, we announced our endorsement of the merger doctrine. See Whitney v. Smith, 33 Minn. 124, 22 N.W. 181 (1885); Fritz v. McGill, 31 Minn. 536, 18 N.W. 753 (1884). The merger doctrine generally precludes parties from asserting their rights under a purchase agreement after the deed has been executed and delivered. As we explained more than 100 years ago in Griswold v. Eastman:

Where deeds are executed and accepted in performance of executory contracts to convey, the latter become functus officio, and thenceforth the rights of the parties are to be determined by the deeds, and not by the contracts, the presumption being that the deeds give expression to the final purposes of the parties; and the deeds will be conclusive unless it be shown that the grantees have been led by fraud or mistake of fact to accept something different from what the executory contracts called for, in which cases the courts will give relief as in other cases of fraud or mistake.

51 Minn. 189, 192, 53 N.W. 542, 543 (1892). By 1893, we declared that "[n]o rule of law is better settled" than the doctrine of merger. Slocum v. Bracy, 55 Minn. 249, 252, 56 N.W. 826, 827 (1893). ³

We provided our most thorough discussion of the merger doctrine in the 1914 case of In re Brown's Estate, 126 Minn. 359, 148 N.W. 121 (1914). In Brown's Estate, we held that a purchaser had, by accepting a deed, presumably waived his rights under the purchase agreement to enforce the seller's promise that it would, prior to closing, procure a reduced fare privilege from the streetcar company. Id. at 364, 148 N.W. at 122.

In reversing the district court's grant of summary judgment for appellant, the court of appeals focused on language in Brown's Estate indicating that promises to perform acts after...