Icehouse, Inc. v. Geissler

• Decision Date: 07 November 2001
• Docket Number: No. 21768.,21768.
• Parties: The ICEHOUSE, INC., Plaintiff and Appellant, v. Paul GEISSLER and PTG Enterprises, LLC, Defendants and Appellees.
• Court: South Dakota Supreme Court

636 N.W.2d 459

2001 SD 134

The ICEHOUSE, INC., Plaintiff and Appellant, v. Paul GEISSLER and PTG Enterprises, LLC, Defendants and Appellees.

No. 21768.

Supreme Court of South Dakota.

Considered on Briefs August 28, 2001.

Decided November 7, 2001.

John K. Nooney, Penny Tibke Platnick, Ryan J. Taylor of Morrill, Thomas, Nooney & Braun, LLP, Rapid City, for plaintiff and appellant.

Mark J. Connot of Gunderson, Palmer, Goodsell & Nelson, Rapid City, for defendants and appellees.

GILBERTSON, Chief Justice.

[¶ 1.] The Icehouse, Inc. ("Icehouse") leased portions of a building owned by Paul Geissler and PTG Enterprises, LLC (collectively referred to as "Geissler"). The applicable leases extended through March 5, 2001, with an option to renew for another five-year term held by Icehouse. After a dispute arose as to the parties' rights under the leases, Icehouse filed a declaratory judgment action. Geissler filed a counterclaim, alleging numerous material breaches of the leases, and requesting immediate eviction. The circuit court concluded one lease was ambiguous and ordered Icehouse to vacate the premises at the expiration of the lease. We reverse and remand as to the issues raised by Icehouse and affirm as to the issues raised by Geissler upon a notice of review.

FACTS AND PROCEDURE

[¶ 2.] On March 6, 1996, Icehouse executed a lease agreement, referred to as the Warehouse lease, with North Central Supply, Inc. ("North Central"), for portions of a building in Rapid City known as the Manor House Building ("Manor House"). The lease provided for an initial five-year term, and provided Icehouse the option to renew the lease for an additional five-year term. Three specific portions of the Manor House were leased to Icehouse: a cooler-freezer area, a warehouse bay, and a small office. These areas are not contiguous, but are connected by a common area used by other tenants of the Manor House. Along the common area are a number of loading bays, which are available for use by the tenants of Manor House. Under the terms of the lease, Icehouse was responsible for the purchase and installation of the freezers and coolers. Ownership of the freezers and coolers vests in the Lessor when the lease expires.

[¶ 3.] Icehouse executed another lease with North Central on June 7, 1996, referred to as the Office lease. This lease applied to additional office space in the Manor House. Like the Warehouse lease, the Office lease expired on March 5, 2001, with an option to renew for another five years. The new office space was connected to the warehouse bay and cooler-freezer area by the common area described earlier. Icehouse used these leased areas to operate an ice manufacturing business.

[¶ 4.] North Central sold Manor House to George Taylor on October 4, 1996. In November of 1998, Icehouse and Taylor entered into an oral lease, whereby Icehouse agreed to lease an additional warehouse bay for $1,000 per month. A written agreement for this lease was prepared but never executed by either party. This document is referred to as the "unexecuted lease." In early 1999, Taylor became interested in selling Manor House. Prior to the sale, Icehouse signed an "Estoppel Certificate." The purpose of this certificate was to inform potential buyers of the rights and obligations held by the owner of Manor House. The certificate provided that Icehouse held the property "under three (3) written lease agreements dated March 6, 1996. June 7, 1996, and November 1, 1998, respectively." Taylor eventually sold the property to Geissler on April 19, 1999.

[¶ 5.] Approximately one year later, in April of 2000, Geissler requested that Icehouse purchase the Manor House. Icehouse eventually declined to purchase the building on Geissler's terms. Until that point, Icehouse had paid, and Geissler had accepted, the $1,000 monthly payments pursuant to the oral lease. However, in May 2000, Geissler notified Icehouse he would be raising the rent to $4,000 per month. Rather than pay the increased rent amount, Icehouse vacated the warehouse bay covered by the oral lease. At the same time, Geissler began alleging various breaches of the Warehouse Lease, including unauthorized use of common areas, failure to pay for utilities, unauthorized freezer storage for third parties, contamination of the soil, and failure to remove a junk truck upon timely notice. Geissler also claimed Icehouse was bound by the "hold-over tenant" penalty provisions in the unexecuted lease.

[¶ 6.] On June 12, 2000, Icehouse filed a complaint for declaratory relief, requesting an adjudication of the rights of the parties under the leases. Geissler filed a counterclaim, seeking the holdover tenant penalty and immediate eviction for material breaches of the leases. The parties proceeded to a bench trial on October 12, 2000. The trial court concluded that Geissler was not entitled to the holdover penalty because the unexecuted lease was not binding on the parties. It also concluded that assuming Icehouse's actions were breaches of the leases, none of the alleged breaches were material to the leases, and therefore Geissler was not entitled to rescission and immediate eviction. Finally, the trial court concluded that certain provisions in the Warehouse lease were ambiguous. Because the lease did not contain a severability clause, the trial court felt compelled to cancel the entire lease, thereby precluding Icehouse from exercising its option to renew. As a result, Icehouse was ordered to vacate the premises on March 5, 2001, when the leases expired.¹ Icehouse appeals from the court's order, raising the following issues:

1. Whether the Warehouse lease is ambiguous.

2. Whether the existence of an ambiguity in a lease precludes the renewal of the lease.

3. Whether the absence of a severability clause requires the termination of the entire lease when particular provisions are unenforceable.

By notice of review, Geissler raises the following additional issues:

4. Whether Icehouse materially breached the leases, justifying rescission and immediate eviction;

5. Whether the terms of the unexecuted lease are enforceable;

6. Whether Geissler overcharged Icehouse for water usage;

7. Whether Geissler was entitled to attorney's fees, costs, and expenses under the lease agreements.

STANDARD OF REVIEW

[¶ 7.] A trial court's findings of fact are reviewed by this Court under the clearly erroneous standard. Arnold Murray Constr., LLC v. Hicks, 2001 SD 7, ¶ 6, 621 N.W.2d 171, 174. Pursuant to this standard, we will reverse a finding of fact only "if we are left with a definite and firm conviction that a mistake has been made." Id. "On appeal, this Court can read a contract itself without any presumption in favor of the trial court's determination." Thunderstik Lodge, Inc. v. Reuer, 1998 SD 110, ¶ 12, 585 N.W.2d 819, 822 (additional citations omitted). For that reason, the interpretation of contractual provisions is a question of law, which we review de novo. Mahan v. Avera St. Luke's, 2001 SD 9, ¶ 15, 621 N.W.2d 150, 154. Whether a contractual provision is ambiguous is likewise a question of law, reviewed de novo. St. Paul Fire and Marine Ins. Co. v. Schilling, 520 N.W.2d 884, 886 (S.D.1994) (citations omitted).

ANALYSIS AND DECISION

[¶ 8.] 1. Whether the Warehouse lease is ambiguous.

[¶ 9.] In this action, Icehouse requested a declaration of the parties' rights under the leases, specifically as to Icehouse's right to use the common area. The trial court concluded that the Warehouse lease was ambiguous as to the parties' rights because the lease did not mention the common area. The relevant portion of the lease is section XXVIII, which provides in part:

Vehicle parking will be regulated by a policy that will apply to all tenants and will be developed at a later date. Under such policy, [Icehouse] will be granted exclusive access to the west most door of the south wall to which it is entitled to exclusive possession and reasonable access to docks that it is granted nonexclusive possession of (emphasis added).

The "west most door" mentioned above lies within the warehouse bay specifically leased by Icehouse under the Warehouse lease. All other docks located in Manor House lie within the "common area." It is clear from the language quoted above that Icehouse is entitled to "reasonable access" to those areas. While the word "reasonable" is not defined in the lease, that term alone does not render the provision ambiguous. [¶ 10.] The trial court also noted section X when making its decision that the lease was ambiguous. That provision provides:

Lessor shall pay for all utilities for the non cooler-freezer warehouse and office areas. Lessor shall install at its expense and [Icehouse] shall pay for all water usage metered through said separate water line to its leased premises.

[Icehouse] shall pay for all of the utility expense for utilities, including electricity and water for the cooler-freezer areas. Separate meters for the electrical usage in the cooler-freezer area shall be utilized to calculate [Icehouse's] monthly electrical usage for said cooler-freezer area, which meters shall be read by Lessor and Lessor shall bill [Icehouse] monthly for such electrical usage for that area and [Icehouse] shall pay said bill within ten (10) days after being billed by Lessor.

[Icehouse] shall also be responsible for the cost of installation of a new electrical service to [Icehouse's] leased premises and shall pay all electrical billings for this service directly which new electrical services shall be metered separately. (emphasis added).

At the time of the hearing, no separate metered water line had been installed. Hence, Icehouse was under no obligation to pay for the water used to produce its ice.

[¶ 11.] Pursuant to this provision, Icehouse was responsible for only the electricity used in the cooler-freezer areas. Geissler is responsible "for all utilities for the non cooler-freezer warehouse and office areas."...