Minnesota Cent. R. Co. v. MCI Telecommunications Corp.

• Decision Date: 29 June 1999
• Docket Number: Nos. C7-98-2136,C9-99-43,s. C7-98-2136
• Citation: 595 N.W.2d 533
• Parties: MINNESOTA CENTRAL RAILROAD CO., Plaintiff (C7-98-2136), Appellant (C9-99-43), Minnesota Valley Regional Rail Authority, Appellant (C7-98-2136), Plaintiff (C9-99-43), v. MCI TELECOMMUNICATIONS CORPORATION, Respondent.
• Court: Minnesota Court of Appeals

Page 533

595 N.W.2d 533

MINNESOTA CENTRAL RAILROAD CO., Plaintiff (C7-98-2136) Appellant (C9-99-43) Minnesota Valley Regional Rail Authority, Appellant (C7-98-2136), Plaintiff (C9-99-43), v. MCI TELECOMMUNICATIONS CORPORATION, Respondent.

Nos. C7-98-2136, C9-99-43.

Court of Appeals of Minnesota.

June 29, 1999.

Syllabus by the Court

1. A third-party purchaser is bound by the terms of a valid consent-to-transfer clause contained in a properly recorded agreement of sale.

2. A purchaser is deemed to have constructive notice of the terms contained in properly recorded instrument.

3. Issues presented to but not passed on by the district court will not be considered on appeal, especially when the underlying facts are in dispute.

Thomas A. Jones, Michael Ferro, Ferro & Jones, P.A., Willmar, for appellant Minnesota Central Railroad Company.

Ruth Ann Webster, Michael S. Dove, Richard F. Prim, Gislason, Dosland, Hunter, & Malecki, P.L.L.P., New Ulm, for appellant Minnesota Valley Regional Rail Authority.

Gregory R. Merz, Kathryn J. Bergstrom, Scott N. Ihrig, Gray, Plant, Mooty Considered and decided by SHUMAKER, Presiding Judge, RANDALL, Judge, and HARTEN, Judge.

Mooty, & Bennett, P.A., Minneapolis, for respondent.

OPINION

RANDALL, Judge.

Appellants argue the district court erred when it granted respondent summary judgment and ruled that appellants' interest in a railroad right-of-way was subject to respondent's easement. Appellants contend the easement is invalid because written consent to the sale of the easement was not obtained by respondents as required by a properly recorded consent-to-transfer clause and respondent had constructive notice that such consent was necessary. Appellants argue the doctrine of good-faith purchaser for value does not apply in the present case. Finally, appellants argue the district court erred when it ruled that the equitable defenses of waiver and estoppel defeat the restrictions contained in the agreement for sale. We reverse.

FACTS

In 1984, the Minnesota Valley Regional Rail Authority (MVRRA) and Minnesota Department of Transportation (MNDOT) acquired a railroad line running from Norwood to Hanley Falls from the Chicago North Western Transportation Company. On December 15, 1983, the MVRRA and MNDOT sold the railroad line to the Minnesota Valley Transportation Company (MVTC) pursuant to an agreement of sale. Under the terms of the agreement, MVRRA retained title to all railroad assets until the purchase price was paid in full. In addition, the agreement contained a consent-to-transfer clause prohibiting the transfer of any assets without the prior written consent of MVRRA and MNDOT.

In early July 1986, MVTC, with the consent of MVRRA, assigned the agreement of sale to MNVA Railroad, Inc. (MNVA). On October 1, 1992, MNVA sold a permanent easement in the railroad right-of-way to respondent MCI Telecommunications Corporation (MCI) so MCI could install a fiber optic cable to carry telecommunications traffic between Chicago and Salt Lake City. MVRRA's written consent was not obtained before the easement was sold. On December 12, 1994, with MVRRA's consent, MNVA transferred its interest in the railroad line to the Minnesota Central Railroad Company (Minnesota Central Railroad).

On May 23, 1997, after learning of MCI's purported easement, Minnesota Central Railroad commenced suit against MCI seeking a declaration that the easement purportedly granted by MNVA to MCI was invalid. MVRRA and MNDOT were joined involuntarily as additional plaintiffs.

On February 13, 1998, MVRRA moved for summary judgment, arguing that MCI's purported easement is invalid because MCI failed to obtain MVRRA's prior written consent as required by the agreement of sale. On June 17, 1998, the district court denied MVRRA's motion for summary judgment, ruling that MCI was not a party to the agreement of sale and therefore could not breach it. On July 17, 1998, MCI moved for summary judgment to dismiss all claims and for declaratory judgment against all plaintiffs. On July 23, 1998, MVRRA moved to strike MCI's equitable defenses, arguing such defenses did not apply to a governmental entity. On July 31, 1998, MVRRA renewed its motion for summary judgment. On October 9, 1998, the district court granted summary judgment for MCI and dismissed MVRRA's claims, ruling that MVRRA was not a good-faith purchaser for value. MVRRA and the Minnesota Central Railroad have brought separate appeals challenging the district court's grant of summary judgment in MCI's favor. These appeals were consolidated by order of this court dated March 12, 1999.

ISSUES

1. Was MCI bound by the consent-to-transfer clause contained in the properly recorded agreement of sale, and therefore required to obtain the written consent of MVRRA before obtaining its easement from MNVA?

2. Did the district court err when it ruled that MVRRA's interest in the railroad right-of-way was subject to MCI's purported easement?

3. Do the equitable doctrines of estoppel and waiver work to prevent the MVRRA from enforcing the terms of the consent-to-transfer clause?

ANALYSIS

On appeal from summary judgment, the reviewing court determines whether any genuine issues of material fact exist and whether the district court correctly applied the law. Offerdahl v. University of Minn. Hosps. & Clinics, 426 N.W.2d 425, 427 (Minn.1988). This court need not defer to the district court's decision on purely legal issues. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn.1984).

I.

MVRRA argues that the district court erred when the court ruled that MNVA could grant a permanent easement to MCI without the prior written consent of MVRRA as required by the consent-to-transfer clause contained in the agreement of sale. MCI counters, arguing that MVRRA gave the equivalent of written consent when it approved the minutes of two MVRRA meetings.

It is undisputed that MNVA derived all its right and interest in the railroad right-of-way from the agreement of sale between MVRRA, MNDOT, and MVTC. The agreement of sale contained a consent-to-transfer clause that provided:

This Agreement or any rights or obligations thereunder shall not be assignable or transferable by the Company [MVTC] without the written consent of the Authority [MVRRA] and MnDOT.

The agreement of sale functioned essentially as a contract for deed. MNVA held equitable title in the right-of-way and would only receive legal title from MVRRA once it complied fully with its obligations under the agreement of sale.

The basis of appellants' claim is that MCI failed to obtain MVRRA's written consent pursuant to the consent-to-transfer clause contained in the agreement of sale. The validity of consent-to-transfer clauses is recognized in Minnesota. In Larson v. Johnson, 175 Minn. 502, 505-06, 221 N.W. 871, 872-73 (1928), the supreme court observed:

Provisions in leases against the lessee subletting or assigning without the lessor's consent are quite common, and we are not aware of their validity being successfully questioned. Such leases often run many years. Obviously such stipulations are important to the lessor, who is interested in having the property which has been intrusted to the possession of another properly cared for, and he should have a voice in the selection of a proper caretaker. The same reason exists for the need of similar provisions in a contract for deed, where possession is given to the vendee during the time the installments of the purchase price are being paid.

In Larson, defendant Luebkemans entered into a contract for the sale of real estate with defendant Johnson. Id. at 503, 221 N.W. at 871. The contract provided that Johnson could not assign his interest in the real estate without the written consent of the Luebkemans. Id. at 503, 221 N.W. at 872. Without obtaining the Luebkemans' consent, Johnson assigned his interest in the contract to plaintiff Larson as security for a loan. Id. Johnson then defaulted under the contract and gave the Luebkemans a quit claim deed for the real estate. Id. The supreme court held that as an assignee to the underlying contract Larson took no interest in the real estate because he was charged with knowledge of the underlying contract's terms, including the consent-to-transfer clause. Id. at 506, 221 N.W. at 873.

The holding in Larson, old, but still the law, establishes that restrictions contained in a valid consent-to-transfer clause are applicable to third parties. To hold otherwise would render consent-to-transfer clauses a nullity. Simply put, a contract for deed vendee can grant an easement or sell any part of the fee that he has not yet paid for only if the contract for deed allows him to do that; the vendee cannot to do so if the contract for deed forbids the vendee from doing so without the vendor's permission.

Here, there is little to distinguish Larson. The agreement of sale contains a consent-to-transfer clause requiring prior written consent before any transfer or assignment of the railroad assets can be effected. The language of the consent-to-transfer clause is clear and unambiguous. Where the language of a consent-to-transfer clause is unambiguous, this court will give effect to the clause. See Torgerson-Forstrom H.I. of Willmar, Inc. v. Olmsted Fed. Sav. & Loan Ass'n, 339 N.W.2d 901, 904 (Minn.1983) (upholding due-on-sale clause where language of clause was "unambiguous" and there was no doubt of its intended meaning). Thus, MCI was required to obtain MVRRA's written consent before it purchased the easement from MNVA.

We reject MCI's assertion that MVRRA gave its written consent to the easement when it approved the minutes of two MVRRA meetings at which the MCI easement was discussed. The meeting minutes do not constitute an "official" action or binding act of MVRAA beyond the acknowledgment that the minutes accurately reflect what occurred at the meetings. By approving the minutes, MVRRA was simply...