Moolenaar v. Co-Build Companies, Inc., Civ. No. 392/1972.

• Decision Date: 13 February 1973
• Docket Number: Civ. No. 392/1972.
• Citation: 354 F. Supp. 980
• Parties: Halver MOOLENAAR, Plaintiff, v. CO-BUILD COMPANIES, INC., Defendant.
• Court: U.S. District Court — Virgin Islands

354 F. Supp. 980

Halver MOOLENAAR, Plaintiff, v. CO-BUILD COMPANIES, INC., Defendant.

Civ. No. 392/1972.

District Court, Virgin Islands, D. St. Croix.

February 13, 1973.

Nichols & Silverlight, Christiansted, V. I., for plaintiff.

Gibbs & Selke, Charlotte Amalie, St. Thomas, V. I., for defendant.

MEMORANDUM OPINION AND JUDGMENT

WARREN H. YOUNG, District Judge.

This case involves the proper construction of the renewal clause in a lease. Briefly stated, two issues are presented. First, is a valid and specifically enforceable renewal option created by a clause which leaves the rent for this period to be determined by subsequent agreement between the parties? And secondly, if the clause is valid but the parties are unable to agree on the rent, how is this rental figure to be determined? Here I must decide whether the court must look to fair market value at the time when the option is exercised, or whether the court may take a lower figure if it is shown that the parties contemplated that the land would be put to less than its most remunerative use. For the reasons given below, I hold that such a renewal clause contains an implicit term that the new rent shall be fixed at its "reasonable" or "fair market" value. The clause is thus specific enough to be valid and enforceable. I further hold that parol evidence is admissible to explain this implicit term, and to show that the parties intended the rent to be set at the fair market value of the land as if it were subject to certain use restrictions.

The facts of this case are not in dispute. In October of 1967, plaintiff Moolenaar, a sheep and goat farmer, leased 150 acres of land from one Aurea Correa. His leasehold was to run for a period of five years with an option to renew for an additional five. Moolenaar was to pay $375 per month during the initial term, but the rent for the renewal period "shall be renegotiated."¹ Moolenaar took possession under this lease and expanded his sheep and goat farm onto the demised premises. Before the time came to exercise the renewal option, however, Mrs. Correa sold the land to real estate speculators who in turn sold it to West Indies Enterprises, the predecessor corporation to the defendant Co-Build Companies, Inc. ("Co-Build"). The new owners nonetheless took subject to Moolenaar's rights under the pre-existing and duly recorded lease. At this point I should mention that the testimony disclosed, and I so find, that the representatives of Co-Build negotiating the purchase of the land had actual knowledge of the lease and its renewal clause. They discussed its validity or purported lack of validity with their counsel and accepted title insurance with an exception taken by the title insurer to the rights of the tenant in possession, including the lease renewal clause.

In April of 1972, some six months before the first five year term expired, Moolenaar informed Co-Build of his intention to exercise the renewal option. Co-Build expressed its willingness to extend the lease at a "renegotiated" rent of $17,000 per month. Co-Build justified this figure by the high price it had paid for the land, and by its unquestionably great value if put to industrial use.² Such a rent, however, is obviously beyond the resources of the less profitable goat husbandry business. Moolenaar therefore proposed a considerably lower figure and indicated his desire to meet for direct negotiations. All such offers were declined. Upon Co-Build's refusal to recede from its initial position, Moolenaar filed the present action for a declaratory judgment setting out the rights of the parties under the lease.

I

The threshold question is, of course, whether Moolenaar possesses a renewal option at all. A number of jurisdictions would hold that he does not, reasoning that a clause which neglects to stipulate the rent is void for uncertainty and indefiniteness. See e. g., State v. Blair, 351 Mo. 1072, 174 S.W.2d 851; R. J. Reynolds Realty Co. v. Logan, 216 V. C. 26, 3 S.E.2d 280 (1939); Camichos v. Diana Stores Corp., 157 Fla. 349, 25 So. 2d 864 (1946). The better view, however, would hold that such a clause intends renewal at a "reasonable" rent, and would find that market conditions are ascertainable with sufficient certainty to make the clause specifically enforceable. A number of policy considerations support this result. First, it will probably effectuate the intent of the parties better than would striking out the clause altogether. A document should be construed where possible to give effect to every term, on the theory that the signatories inserted each for a reason and if one party had agreed to the clause only in the secret belief that it would prove unenforceable, he should be discouraged from such paths. Secondly, a renewal option has a more sympathetic claim to enforcement than do most vague contractual terms, since valuable consideration will often have already been paid for it. The option of renewal is one factor inducing the tenant to enter into the lease, or to pay as high a rent as he did during the initial period.³ To this extent the landlord benefited from the tenant's reliance on the clause,⁴ and so the tenant has a stronger claim to receive the reciprocal benefit of the option. See Young v. Nelson, 121 Wash. 285, 209 P. 515, 30 A.L.R. 568 (1922). Finally, I might take note of the policy of construing ambiguities in lease agreements against the landlord, or, with more theoretical justification but little difference in practical result, against the party responsible for drafting the document. All these considerations were relied upon by the Municipal Court in DeChabert v. Lounsbury, 6 V.I. 591 (Municipal Court 1968), the leading case on the matter in this jurisdiction. Judge Joseph there recognized the validity of such renewal clauses and I reach the same conclusion here.

It then remains to be determined only whether this resolution is within the powers of the Court. In the absence of an applicable statute, the Restatement of Contracts has been designated as positive law in this jurisdiction.⁵ Section 32 of the Restatement provides that a contract is valid if it is "so definite in its terms" that the "performances to be rendered by each party are reasonably certain." Under this standard the renewal clause would appear sufficiently definite to be binding. Illustration 7 in the Restatement provides as follows:

A promises B to execute a conveyance in fee or a lease for a year of specified land and B promises A to pay therefor. Although the terms of leases and conveyances vary, the promises are interpreted as providing for documents in the form in common local use, and are sufficiently definite to form contracts.

It should be noted that this illustration refers to the promises of both parties and that B has not, unlike his practice in other illustrations, agreed to pay "a specified price." Rather, this example seems to assume that a "reasonable rent" is contemplated and that the local real estate market is well enough developed to permit this figure to be determined with fair accuracy. Illustration 10, relied upon by Co-Build, is distinguishable in that it deals with a contract for personal labor which is less susceptible to market valuation. With the blank in the renewal clause thus filled in, it becomes definite enough to be not only valid but also specifically enforceable. Cf. § 370, in which even technical and still uncertain terms, at least if collateral, are not permitted to defeat an otherwise merited remedy.

Even if it were thought that the Restatement is ambiguous or silent on the precise issue sub judice, Moolenaar would still recover. In that case we must make our determination under the common law "as generally understood" in courts of other jurisdictions.⁶ The rule which I have followed here is admittedly the minority view. See 51C C. J.S. Landlord and Tenant § 56(3); Am. Jur.2d, Landlord & Tenant § 1165. But for the reasons which I gave in an earlier opinion, I think it is appropriate to give greater weight to recent decisions rather than weighing the authorities on a strictly numerical basis. Soto v. Bradshaw, D.C., 351 F.Supp. 602 (1972). Briefly, the common law is in a state of perpetual evolution and recent decisions will more accurately reflect the current understanding on an issue. For the issue at hand the minority view is nonetheless a widely followed one, see Am.Jur. and C.J.S. supra, and has been gaining adherents at a rate which indicates that the common law is moving in that direction. Compare, e. g., 30 A.L.R. 572 (1924) (few cases cited for minority view) with 6 A.L.R.2d 448, 454 (1949) (many such cases). And while, of course, not controlling here, the U.C.C. provisions on the Sale of Goods also illustrate the approach of the modern law, with its emphasis on reasonable commercial dealings and its rejection of technical requirements. 11A V.I.C. § 2-305 provides as follows:

(1) The parties if they so intend can conclude a contract for sale even though the price is not settled. In such a case the price is a reasonable price at the time for delivery if

(a) nothing is said as to price; or

(b) the price is left to be agreed by the parties and they fail to agree . . .."

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