Tri-City Assocs., LP v. Belmont, Inc.

• Citation: 2014 S.D. 23,845 N.W.2d 911
• Decision Date: 16 April 2014
• Docket Number: No. 26755.,26755.
• Court: Supreme Court of South Dakota
• Parties: TRI–CITY ASSOCIATES, LP, Plaintiff and Appellant, v. BELMONT, INC., a South Dakota corporation and Joseph Z. Erba, Defendants and Appellees.

845 N.W.2d 911

2014 S.D. 23

TRI–CITY ASSOCIATES, LP, Plaintiff and Appellant,

v.BELMONT, INC., a South Dakota corporation and Joseph Z. Erba, Defendants and Appellees.

No. 26755.

Supreme Court of South Dakota.

Considered on Briefs Feb. 18, 2014.

Decided April 16, 2014.

Mark F. Marshall of Bangs, McCullen, Butler, Foye & Simmons, LLP, Rapid City, South Dakota, Attorneys for plaintiff and appellant.

Stan H. Anker, Jordan D. Bordewyk of Anker Law Group, PC, Rapid City, South Dakota, Attorneys for defendants and appellees.

ZINTER, Justice.

[¶ 1.] Belmont, Inc. leased unfinished commercial real-estate space from Tri–City Associates, L.P. The parties later filed claims against each other for breach of the lease. The circuit court entered a judgment in favor of Belmont on all claims. The court reasoned that although both parties failed to fulfill certain obligations under the lease, Tri–City materially breached the lease, thus excusing Belmont from performance. Tri–City appeals contending that its failure to complete its initial construction obligations and its failure to deliver the space in “broom clean” condition were excused by the lease's “as is” clause. Tri–City also contends that it was excused by Belmont's failure to give notice of breach and an opportunity to cure. We reverse and remand for the circuit court to enter findings of fact and conclusions of law on the effect of Belmont's failure to give notice of breach and an opportunity to cure.

Facts and Procedural History

[¶ 2.] Tri–City was the owner and developer of a shopping center in Rapid City. Belmont was formed to operate a meat and produce business in Rapid City. In May 2006, Belmont and Tri–City entered into a commercial real-estate lease for a space in the shopping center that Tri–City was developing. The lease was to start on August 1, 2006.

[¶ 3.] A “work letter” attached to the lease allocated some of the initial construction work between Tri–City and Belmont. That work was necessary to ready the premises for occupancy and use in Belmont's meat and produce business. The work letter also required Tri–City to provide the premises in “broom clean” condition. The work letter further recited that Belmont had inspected the premises and was taking them in “as is” condition.¹Nevertheless, there is no dispute that Tri–City did not complete its allocated portion of the initial construction, nor did it deliver the premises in broom clean condition by August 1, 2006.

[¶ 4.] Even though the August 1 start date passed without Tri–City fulfilling its obligations, Belmont worked with Tri–City, attempting to complete construction and ready the premises for occupancy and use. However, the parties encountered numerous problems and delays that rendered their attempts unsuccessful. In December 2006, Tri–City proposed moving the start date of the lease from August 1, 2006, to January 15, 2007. Belmont did not sign the proposed modification agreement.

[¶ 5.] In March 2007, Tri–City served Belmont with a notice to quit and vacate. In April 2007, Tri–City sued to evict Belmont and recover damages for unpaid rent and other Belmont obligations under the lease. In July 2007, based on a stipulation between the parties, the circuit court awarded possession of the premises to Tri–City.

[¶ 6.] In October 2007, Belmont filed an amended answer and added a counterclaim. Belmont denied liability for damages and claimed that Tri–City materially breached the lease by failing to fulfill its initial construction and broom clean obligations. Tri–City responded that even if it failed to perform those obligations, Belmont was liable for rent, and Belmont's counterclaim was barred because Belmont accepted the property as is. Tri–City also contended that Belmont failed to provide Tri–City with written notice of its alleged breach and an opportunity to cure as required by another provision in the lease.²

[¶ 7.] After a court trial, the circuit court found that Tri–City failed to deliver the premises in broom clean condition and failed to complete its allocated portion of the initial construction. The court concluded that Tri–City's failures were material breaches that excused Belmont from liability and rendered Tri–City liable on Belmont's counterclaim. The court made no findings of fact or conclusions of law on Tri–City's claim that Belmont's failure to follow the lease's notice-and-cure provision barred Belmont's defense and counterclaim.

[¶ 8.] Tri–City appeals, contending that Belmont's defense and counterclaim were barred as a matter of law by: (1) the lease provision in which Belmont accepted the premises as is, and (2) Belmont's failure to give Tri–City notice of its alleged breach and an opportunity to cure.

Decision

[¶ 9.] The questions on appeal involve the interpretation of the lease. A lease is a contract, so contract principles govern its interpretation. See Icehouse, Inc. v. Geissler, 2001 S.D. 134, ¶ 21, 636 N.W.2d 459, 465 (“As a lease is a contract we will follow the law of contract in regard to breach.” (citation omitted)). Contract interpretation is a question of law that we review de novo. Poeppel v. Lester, 2013 S.D. 17, ¶ 16, 827 N.W.2d 580, 584 (citation omitted).

[¶ 10.] Tri–City first contends that Belmont's execution of the lease containing the as is clause barred a judgment in favor of Belmont as a matter of law. We disagree.

[¶ 11.] The goal of contract interpretation is to determine the parties' intent. See id. To determine intent, we look “to the language that the parties used in the contract[.]” Id. (quoting Detmers v. Costner, 2012 S.D. 35, ¶ 20, 814 N.W.2d 146, 151). We do not, however, interpret “particular words and phrases ... in isolation.” Casey Ranch Ltd. P'ship v. Casey, 2009 S.D. 88, ¶ 11, 773 N.W.2d 816, 821 (quoting In re Dissolution of Midnight Star Enters., 2006 S.D. 98, ¶ 12, 724 N.W.2d 334, 337). Nor do we interpret language “in a manner that renders a portion of [the contract] meaningless.” Estate of Fisher v. Fisher, 2002 S.D. 62, ¶ 14, 645 N.W.2d 841, 846 (citation omitted). Instead, we interpret the contract to give “a reasonable and effective meaning to all [its] terms[.]” Casey Ranch, 2009 S.D. 88, ¶ 11, 773 N.W.2d at 821 (quoting Midnight Star, 2006 S.D. 98, ¶ 12, 724 N.W.2d at 337).

[¶ 12.] In this case, the lease obligated Tri–City to deliver the premises to Belmont on the start date in broom clean condition, with Tri–City's allocated portion of the initial construction completed. Tri–City does not dispute that it failed to fulfill those obligations. Instead, Tri–City contends that it was essentially absolved of responsibility to satisfy those obligations because Belmont accepted the premises in as is condition when it signed the lease in May 2006. Tri–City's position does not give a reasonable and effective meaning to all terms of the lease.

[¶ 13.] The as is clause appears in the same paragraph as the clauses requiring Tri–City to provide certain construction and to present the premises in broom clean condition. Yet Tri–City's interpretation would read the as is clause to abrogate its construction and broom clean obligations, rendering the broom clean and construction clauses meaningless. Tri–City's interpretation also fails to recognize that the parties signed the lease in May 2006, but use and occupancy of the premises were not contemplated until August 1, 2006. Therefore, although the lease provided that Belmont was taking the premises in as is condition on the date the lease was executed, it expressly contemplated that Tri–City would provide initial construction and present the premises in broom clean condition after the lease was executed. Tri–City's interpretation would abrogate its future obligations by signing the lease, an absurd result that could not have been intended.

[¶ 14.] A harmonious reading of all provisions reflects that the as is clause did not abrogate Tri–City's post-execution obligations to perform initial construction and to deliver the premises in broom clean condition. Indeed, the work letter specifically provided that Belmont was taking the premises as is “[e]xcept for” Tri–City's obligation to put the premises in broom clean condition and “other than [Tri–City's] aforementioned” allocated constructionobligations. We conclude that the as is clause did not bar the judgment in favor of Belmont as a matter of law.

[¶ 15.] Tri–City alternatively argues that Belmont's defense and counterclaim were barred by the notice-and-cure provision. Tri–City emphasizes that this provision required Belmont to give Tri–City written notice and time to cure any default before Belmont could “exercise any remedies available to it[.]” Tri–City contends that because Belmont did not comply with this provision, a judgment in Belmont's favor was barred as a matter of law.

[¶ 16.] Belmont responds first by arguing that our standard of review is limited to determining whether the circuit court's findings of fact support its conclusions of law—Belmont claims they do. Belmont contends that limited review is mandated under Canyon Lake Park, L.L.C. v. Loftus Dental, P.C., 2005 S.D. 82, 700 N.W.2d 729, because Tri–City did not submit both “its own findings of fact and conclusions of law and object to the trial court's findings of fact and conclusions of law.” Belmont misreads Canyon Lake.

[¶ 17.] In Canyon Lake, “neither party specifically objected to [the circuit court's] findings of fact or conclusions of law, nor did they submit their own findings of fact or conclusions of law.” Id. ¶ 10. We held that the failure to either object to or propose findings or conclusions limited our “review to the question of whether the findings support[ed] the conclusions of law and judgment.” Id. ¶ 11 (quoting Premier Bank, N.A. v. Mahoney, 520 N.W.2d 894, 895 (S.D.1994)). We also cited Selway Homeowners Association v. Cummings, for a similar holding, explaining that because “the appellant failed to either object to findings of fact or...