IRT Property Co. v. Papagayo, Inc.

• Citation: 435 S.E.2d 565,112 N.C.App. 318
• Decision Date: 19 October 1993
• Docket Number: No. 925SC912,925SC912
• Court: North Carolina Court of Appeals
• Parties: IRT PROPERTY COMPANY, a Georgia corporation, Plaintiff, v. PAPAGAYO, INC., a North Carolina corporation, Defendant.

Page 565

435 S.E.2d 565

112 N.C.App. 318

IRT PROPERTY COMPANY, a Georgia corporation, Plaintiff, v. PAPAGAYO, INC., a North Carolina corporation, Defendant.

No. 925SC912.

Court of Appeals of North Carolina.

Oct. 19, 1993.

Clark, Newton & Hinson by Reid G. Hinson, Wilmington, and Robinson, Bradshaw & Hinson by Robin L. Hinson, Charlotte, for plaintiff-appellee.

Parker, Poe, Adams & Bernstein by Charles C. Meeker and Stephen D. Coggins, Raleigh, for defendant-appellant.

ORR, Judge.

In February 1985, Papagayo signed a lease agreement with IRT's predecessor to lease space on the second floor of a two-story shopping center, the Galleria in Wrightsville Beach, North Carolina, in which to operate a Mexican Restaurant. Papagayo opened its restaurant in February, 1986 and was originally successful. The other retail tenants surrounding Papagayo were not successful, however, and subsequently, they left the Galleria location. On 6 August 1987, the owners of the Galleria announced they would be renting the vacant space on the second level of the Galleria as office space. Over the next year, Papagayo experienced a decline in sales.

In 1987 and 1988, IRT purchased the shopping center in a two-step transaction and became the landlord to the businesses located in the Galleria, including Papagayo. In September 1988, Papagayo closed its restaurant and ceased to pay rent. In March, 1989, IRT instituted this suit for recovery of this rent. Papagayo counterclaimed asserting IRT breached the lease agreement. The jury found that Papagayo breached the agreement by failing to continue to pay rents due and that IRT did not breach the agreement.

I.

On appeal, Papagayo contends that the trial court erred by excluding parol evidence of oral representations made by IRT's predecessor and pre-lease negotiations between IRT's predecessor and Papagayo's representatives. We agree.

"The general rule is that when a written instrument is introduced into evidence, its terms may not be contradicted by parol or extrinsic evidence, and it is presumed that all prior negotiations are merged into the written instrument." ... However, " 'if the writing itself leaves it doubtful or uncertain as to what the agreement was, parol evidence is competent, not to contradict, but to show and make certain what was the real agreement between the parties.' "

Mosley & Mosley Builders, Inc. v. Landin Ltd., 87 N.C.App. 438, 442, 361 S.E.2d 608, 611 (1987), cert. dismissed, 322 N.C. 607, 370 S.E.2d 416 (1988) (citations omitted).

Further, "[i]f there is a latent ambiguity in the contract, preliminary negotiations and surrounding circumstances may be used to determine what the parties intended." Jefferson-Pilot Life Ins. Co. v. Smith Helms Mulliss & Moore, 110 N.C.App. 78, 81, 429 S.E.2d 183, 185 (1993). " 'A latent ambiguity may arise where the words of a written agreement are plain, but by reason of extraneous facts the definite and certain application of those words is found impracticable.' " Id. (citation omitted).

In the present case, the lease agreement states in pertinent part:

2.1 Lease. Landlord [IRT] hereby leases and demises to Tenant [Papagayo] those certain Premises ... containing approximately 4,300 gross square feet of interior second floor space together with approximately 1,600 gross square feet of enclosed patio area located on the roof area of the adjoining premises ... in the Shopping Center together with the nonexclusive license to use the Common Areas subject to such rules and regulations as Landlord shall adopt.

. . . . .

1.1 Shopping Center. The term "Shopping Center" means all that certain land and the main mall building and associated improvements, equipment and facilities now or hereafter erected thereon known as THE GALLERIA AT WRIGHTSVILLE located in New Hanover County, State of North Carolina, as more particularly described on Exhibit "A" attached hereto and by this reference made a part hereof, as same may be altered, expanded or reduced from time to time. Detached buildings shall not be deemed a part of the Shopping Center.

. . . . .

4.7 Common Area Control/Right of Relocation. Landlord grants to Tenant and his agents, employees, and customers a nonexclusive license to use the Common Areas in common with others during the term, subject to the exclusive control and management thereof at all times by Landlord and subject, further, to the rights of Landlord set forth hereinbelow. Landlord shall have the right at all times, in its sole discretion, to change the size, location, elevation, nature and/or use of any portion or all of the Common Areas, the Shopping Center or any part thereof as Landlord may from time to time determine, including the right to change the size thereof, to erect buildings thereon, to sell or lease part or parts thereof, to change the location and size of the landscaping and buildings on the site, and to make additions to, subtractions from or rearrangements of said buildings.

(Emphasis added.)

The issue we must determine is whether the terms of the lease are ambiguous as to whether IRT had the right to rent open space in the Shopping Center as offices instead of retail stores, thereby changing the Shopping Center into an office center. IRT argues that the terms of Section 4.7 are unambiguous on this issue, and that this section grants it the right to rent spaces in the Shopping Center for office use. We disagree based on our conclusion that the terms are ambiguous.

First, by the title and contents of Section 4.7, it is unclear whether Section 4.7 was meant to apply to the Shopping Center or just to the Common Areas. Section 4.7 is entitled "Common Area Control/Right of Relocation", which does not include the Shopping Center, and the paragraph following this title deals almost exclusively with the Common Areas. Section 4.7 grants the tenant a license to use the Common Areas subject to the Landlord's right to control and manage these Common Areas. The paragraph then states that this right to use the Common Areas is "subject, further, to the rights of Landlord set forth hereinbelow." Following this sentence is the only reference to the Shopping Center in this section which states:

Landlord shall have the right at all times, in its sole discretion, to change the size, location, elevation, nature and/or use of any portion or all of the Common Areas, the Shopping Center or any part thereof as Landlord may from time to time determine....

Thus, the sole reference to the Shopping Center in Section 4.7 is contained in a sentence that the preceding sentence establishes as limiting the right of the tenant to use the Common Areas. Aside from this one reference to the Shopping Center, Section 4.7 is concerned solely with the control of the Common Areas, as stated in the title. Additionally, we note that the word "Shopping Center" seems to have been inadvertently placed in this sentence. By merely changing the comma preceding the word Shopping Center to an "of" so that the sentence reads "Landlord shall have the right ... to change the ... nature and/or use of any portion or all of the Common Areas [of] the Shopping Center", this sentence would be consistent with the rest of the paragraph. Thus, the title and the content of Section 4.7 make it unclear whether this section applies to the Shopping Center, and it is therefore unclear whether this section grants IRT the right to change the Shopping Center.

Second, even if the language of Section 4.7 were interpreted to give IRT the right to change the Shopping Center, in light of Sections 1.1. and 2.1 and in light of the fact that the lease does not define "nature" or "use", it is unclear to what extent IRT can change the Shopping Center under this section. Section 2.1 of the lease purports to rent space to Papagayo in a "Shopping Center". Section 1.1 of the lease defines this "Shopping Center" as "all that certain land and the main mall building and associated improvements, equipment and facilities now or hereafter erected thereon known as THE GALLERIA AT WRIGHTSVILLE". The terms "mall" and "Galleria" are words normally associated with a shopping area featuring a variety of retail stores in which to shop. Thus, as Papagayo argues, the lease could be interpreted as impliedly promising to continue to rent the space surrounding Papagayo's restaurant solely to retail stores, and this promise would limit IRT's right to change the Shopping Center under Section 4.7.

On the other hand, the lease does not contain an express promise to rent the surrounding space solely to retail stores. Therefore, as IRT argues, the lease could be interpreted as giving IRT the right under Section 4.7 to change the Shopping Center to include office areas surrounding Papagayo's restaurant.

Thus, the terms of the lease are susceptible of different interpretations, and are, therefore, unclear and ambiguous. See St. Paul Fire & Marine Ins. Co. v. Freeman-White Associates, Inc., 322 N.C. 77, 83, 366 S.E.2d 480, 484 (1988) ("The fact that a dispute has arisen as to the parties' interpretation of the contract is some indication that the language of the contract is, at best, ambiguous.").

In Parker Marking Systems, Inc. v. Diagraph-Bradley Industries, Inc., 80 N.C.App. 177, 341 S.E.2d 92, disc. review denied, 317 N.C. 336, 346 S.E.2d 502 (1986), this Court stated the applicable rules for interpreting unclear, ambiguous language in a contract. The Court stated:

While clear and unambiguous contracts may be interpreted by the court as a matter of law, if the language used by the parties is ambiguous and their intention unclear, interpretation of the contract is...