Sonoma Management Co., Inc. v. Boessen

• Citation: 70 S.W.3d 475
• Decision Date: 02 January 2002
• Docket Number: No. WD 59457.,WD 59457.
• Parties: SONOMA MANAGEMENT COMPANY, INC., Appellant, v. Elmer L. BOESSEN, Respondent.
• Court: Court of Appeal of Missouri (US)

70 S.W.3d 475

SONOMA MANAGEMENT COMPANY, INC., Appellant, v. Elmer L. BOESSEN, Respondent.

No. WD 59457.

Missouri Court of Appeals, Western District.

January 2, 2002.

Motion for Rehearing and/or Transfer to Supreme Court Denied March 5, 2002.

Application for Transfer Denied April 23, 2002.

Duane E. Schreimann, Jefferson City, for appellant.

Dale C. Doerhoff, Jefferson City, for respondent.

Before SPINDEN, C.J., BRECKENRIDGE and HARDWICK, JJ.

LISA WHITE HARDWICK, Judge.

This appeal arises from a declaratory judgment action filed by Sonoma Management Company, Inc. ("Sonoma") regarding its lease of a service station property from Elmer Boessen. The trial court entered judgment in favor of Boessen, ruling that the lease agreement terminated in April 2000 and that Sonoma had no right to extend the lease. On appeal, Sonoma claims the trial court erroneously declared and applied the law to the facts in interpreting the lease agreement. We reverse the trial court's judgment and remand for a hearing on damages.

Factual and Procedural History

In April 1973, Elmer Boessen acquired title and became the owner of a service station property located on the southwest corner of Dunklin and Jefferson Streets in Jefferson City, Missouri. Boessen, a computer programmer, purchased the property as an investment.

At the time Boessen acquired title, the property was subject to a Lease and Agreement dated April 21, 1971 ("1971 lease") between its former owner and the lessee, Star Service & Petroleum Company ("Star Service"). Boessen assumed rights as lessor under the 1971 lease. The term of the lease was twenty years, beginning on September 1, 1971 and terminating on August 31, 1991. The lease had two ten-year extension options, which the lessee could exercise no less than ninety days prior to expiration of the original lease term. The lessee's monthly rental payment was $600.00 under the 1971 lease.

In April 1985, Boessen and Star Service executed a Memorandum of Agreement ("1985 lease") to modify the 1971 lease as a result of improvements Boessen intended to make to the property. The memorandum, in effect, changed the term of the lease and the rental payments while incorporating other "conditions" of the 1971 lease. The memorandum stated:

The conditions of the [1985] Lease and Agreement shall be the same as those in a Lease and Agreement dated April 20, 1971 between [Boessen's predecessor owner and Star Service] ... with the following exceptions:

1. The term of Lease shall start May 1, 1985 and end on the 30th day of April 2000.

2. The rental amount shall be Six Hundred and No/100 Dollars ($600.00) per month until improvements are completed, but not later than ninety (90) days from the starting date, at that time rental shall be adjusted to 12% of all improvement cost [sic], and paid in equal monthly payments to Lessor, for the remaining term of this Lease and Agreement. Lessor shall pay for all improvements at time of completion.

Boessen substantially completed the improvements to the property by October 1986, at a construction cost of $63, 972.00. Star Service's monthly rental thereafter increased to $1,279.72.

On September 28, 1989, Star Service assigned all of its lease rights in the property to a third party, and the lease was thereafter assigned several times. On December 20, 1994, the lease was assigned to Sonoma Management Co., Inc., the Respondent herein. Upon such assignment, Sonoma assumed all rights in an existing sublease with FFP Operating Partners ("FFP"). The sublease entitled Sonoma to collect $3,800.00 in base monthly rental from FFP, with an annual 4% escalation. The sublease term was from July 21, 1993 through June 30, 1996, subject to two five-year renewal options. In 1996, Sonoma and FFP exercised the first option and extended the sublease through 2001.

On October 12, 1999, Sonoma sent a letter notifying Boessen of its intent to exercise the first ten-year option to extend the 1985 lease, with the renewal being effective May 1, 2000. Boessen rejected Sonoma's notice of extension by letter dated January 26, 2000, stating that the lease "expires on April 30, 2000, and there are no renewal options." Sonoma disagreed, believing that the 1985 lease incorporated the extension options from the 1971 lease. Sonoma further believed its notice of renewal was timely as it was given more than ninety days prior to the April 30, 2000 expiration date of the 1985 lease. Sonoma thereafter tendered rent for May 2000, but Boessen rejected the payment. Sometime after May 1, 2000, Boessen executed an agreement to lease the service station property directly to FFP at a monthly rental of $2,800.00.

On May 25, 2000, Sonoma filed a Petition in the Cole County Circuit Court, seeking, in Count I, a declaratory judgment concerning its right to renew the lease and, in Count II, damages against Boessen for conversion of rent from the sublease with FFP. After a bench trial, the court entered judgment in favor of Boessen. The court held that Sonoma had no right to lease the service station property beyond April 30, 2000, and made the following findings of fact:

The Court finds that the "Memorandum of Agreement" between plaintiff and defendant (hereinafter referred to as the "1985 lease"), had an express "end on" date of April 30, 2000. The 1985 lease expired by its terms on April 30, 2000.

The Court further finds that even if the 1985 lease incorporated "conditions" from the earlier "Lease and Agreement" (hereinafter referred to as the "1971 lease"), this did not incorporate the extension options in the 1971 lease. Extension options are promises and not mere conditions.

The Court further finds that after the 1985 lease was signed, the Lessee twice tendered documents to defendant that would have created extension options. The first time this occurred was in 1986. Defendant declined to sign this document. The second time this occurred was in 1991. Again, defendant declined to sign the documents. By tendering these amendments, the Lessee demonstrated that its interpretation of the 1985 lease was the same as defendant's interpretation, which was that the 1985 lease did not have any extension options. Plaintiff is bound by this interpretation and estopped to take a contrary position.

The Court further finds that even if the 1985 lease incorporated the two extension options from the earlier 1971 lease (which it did not), plaintiff did not make a timely exercise of the options. That is because the Lessee failed to give written notice to Lessor of the election to exercise the extension option "not less than ninety days before the expiration of the original term of this lease."

Finally, the Court also finds that even if the renewal options in the 1971 lease were incorporated into the 1985 lease (they were not), and even if there was timely notice of an intention to exercise the renewal options (there was not), judgment should nevertheless be against plaintiff and in favor of defendant because plaintiff breached the lease and lost any right to possession for failure to extinguish the liens against the leasehold estate within twenty days after notice was given to plaintiff on the existence of the liens.

Sonoma appeals.

Points on Appeal

Sonoma raises three points on appeal, all of which hinge on interpretation of the 1971 Lease and Agreement and the 1985 Memorandum of Agreement. Sonoma claims the trial court erroneously declared and applied the law in determining: 1) that Sonoma had no right to extend the 1985 lease; 2) that Sonoma did not give Boessen timely notice to extend the lease under the 1971 lease; and 3) that Sonoma had no right to extend the lease because it failed to keep the property free and clear of liens. Based on these allegations of error, Sonoma requests that we reverse the trial court's judgment and remand for hearing on damages.

Review of this court-tried case is governed by Murphy v. Carron, 536 S.W.2d 30 (Mo. banc 1976). We must affirm the judgment of the trial court unless there is no substantial evidence to support it, it is against the weight of the evidence, or it erroneously declares or applies the law. Id. at 32.

Sonoma first challenges the trial court's finding that the 1985 lease did not incorporate the extension options from the 1971 lease. In making this finding, the court considered the language of the agreements, as well as parol evidence concerning the parties' negotiations pre-dating the 1985 lease and their subsequent conversations about further amendments to the lease. Sonoma contends the court erred in considering any extrinsic evidence because the two agreements clearly and unambiguously established Sonoma's right to renew the lease.

Interpretation of a contract is a question of law. Robbins v. McDonnell Douglas Corp., 27 S.W.3d 491, 496 (Mo. App. E.D.2000). The cardinal rule of contract interpretation is to ascertain the parties' intention and to give effect to that intention. J.E. Hathman, Inc. v. Sigma Alpha Epsilon Club, 491 S.W.2d 261, 264 (Mo. banc 1973). The intent of the parties is to be determined based upon the contract alone and not based on extrinsic or parol evidence unless the contract is ambiguous. Atlas Reserve Temporaries v. Vanliner Ins. Co., 51 S.W.3d 83, 87 (Mo. App. W.D.2001). "A contract is ambiguous only if its terms are reasonably open to more than one meaning, or the meaning of the language used is uncertain." Id. In determining whether the terms of a contract are ambiguous, words should be given their natural and ordinary meaning. Id. A provision is not ambiguous merely because the parties disagree over its meaning. Id. Furthermore, courts are prohibited from creating ambiguities by distorting contractual language that may otherwise be reasonably interpreted. Id.

Applying these standards to the case at hand, we must first seek to determine the parties' intentions based on the language of the 1971 and 1985 lease agreements. The 1971 lease was for a...