Vermilyea v. BDL Enterprises, Inc., s. 16760

• Decision Date: 14 November 1990
• Docket Number: Nos. 16760,16763,s. 16760
• Citation: 462 N.W.2d 885
• Parties: Bill VERMILYEA and Jan Vermilyea, d/b/a Cost Cutters, Plaintiffs and Appellants, v. BDL ENTERPRISES, INC., Defendant and Appellee.
• Court: South Dakota Supreme Court

Page 885

462 N.W.2d 885

Bill VERMILYEA and Jan Vermilyea, d/b/a Cost Cutters, Plaintiffs and Appellants, v. BDL ENTERPRISES, INC., Defendant and Appellee.

Nos. 16760, 16763.

Supreme Court of South Dakota.

Argued Jan. 10, 1990.

Decided Nov. 14, 1990.

George Beal, Rapid City, for plaintiffs and appellants.

Ronald R. Johnson, Lemmon, for defendant and appellee.

RONALD K. MILLER, Circuit Judge.

Bill and Jan Vermilyea (Vermilyeas), are tenants in the Twin City Shopping Mall (Mall) in Lead, South Dakota. They brought an action for judicial rescission of a twenty-year-term lease they executed for space in the Mall being developed by BDL Enterprises, Inc. (BDL). If rescission was denied, Vermilyeas alternatively sought to have the term of the lease revised to a five-year term at the same lease rental.

The trial court denied Vermilyeas' request for judicial rescission of the lease while granting the alternative relief of revision of the lease term. It revised the term of the lease to fifteen years instead of the five years requested by Vermilyeas. The trial court concluded that the Vermilyeas' consent to a twenty-year-lease term was obtained by the mistake of Vermilyeas or fraud practiced upon them by BDL. The court held that rescission was the more severe of the two remedies and was not justified under the circumstances; revision was more appropriate under the facts. We reverse.

The Vermilyeas appeal from the trial court's final order asserting as error the following:

(1) The trial court's revision of the twenty-year-lease term to a fifteen-year-lease term instead of a five-year-lease term; and

(2) The trial court's denial of their request for judicial rescission of the twenty-year-term lease.

BDL asserts that no relief should have been granted the Vermilyeas.

FACTS

BDL is a South Dakota corporation with principal offices in Lemmon, South Dakota. It is engaged in the development and management of commercial real estate. BDL is the owner of the Mall. Lynn Feist (Feist) is a fifty percent stockholder in BDL and is its secretary-treasurer.

Rod Galland (Galland) is the owner and chief executive of Galland & Associates, Inc. (Galland & Associates). BDL hired him to be its agent to negotiate lease commitments from prospective Mall business tenants. Rick Lockhart (Lockhart) worked for Galland & Associates from December 1985 through April 1, 1986.

The Vermilyeas operate two beauty salons in Rapid City and one in Lead pursuant to fifteen-year-term license agreements with Cost Care Hair Centers, a franchise operation. The Vermilyeas entered into a separate fifteen-year licensing agreement for each shop, which they operate as individual proprietorships.

In the fall of 1984 BDL began plans to develop a shopping mall in Lead in conjunction with a necessary move of the Piggly Wiggly grocery store from a Homestake Mining site. Jan Vermilyea (Jan) first heard about the possibility of the Mall over the radio in October 1985. She consulted her husband, Bill, and the two decided that they were interested in locating a Cost Cutters Salon in the Mall, if it was constructed. Jan was generally acquainted with Feist and contacted him in November 1985 about the possibility of opening a Cost Cutters operation in the Mall. Feist advised her that he would have someone from BDL contact her.

Lockhart, working under the direction of Galland, contacted Jan in December 1985 and they had a general discussion since the Mall was only in the preliminary stages. A second meeting with Lockhart took place in the latter part of December 1985 when both Jan and Bill were present. During this meeting, the Vermilyeas told Lockhart about the lease terms for their two Rapid City salons and advised him that they also wanted a five-year-lease term with a five-year-renewal option for the Mall. Lockhart told Vermilyeas that the Mall's financing arrangements required that every tenant have a twenty-year-lease term. Lockhart further mentioned that if they were interested a letter of intent to lease space would be forthcoming.

Jan received the letter of intent to lease space in the Mall in early January of 1986. Lockhart visited Jan again later in January and asked her to sign the letter of intent. Jan resisted signing the letter of intent and objected to the twenty-year-lease term it contained. Lockhart told Jan that the letter of intent was not binding upon her, but it was needed to obtain financing for the Mall. She could determine later whether she wanted to open an outlet in the Mall. Bill was not present at this time. After further meetings with Lockhart, Bill signed the letter of intent in February 1986 after objecting to the twenty-year-lease term and being assured by Lockhart that all tenants of the Mall, because of financing requirements, had to sign twenty-year, non-negotiable, lease terms.

From the time BDL began putting the financial package together for the Mall, and until February 19, 1986, BDL instructed Galland & Associates to attempt to obtain lease commitments for twenty-year terms; if prospective tenants refused, Galland & Associates was instructed to search for prospects who would sign twenty-year leases. BDL wanted to use the twenty-year leases as collateral. If a sufficient number of twenty-year leases could not be obtained, BDL would have to provide other security, such as personal guarantees, for the permanent financing. In late 1985 or early 1986, Galland & Associates informed BDL that prospective tenants were objecting to twenty-year leases. On February 19, 1986, BDL abandoned the twenty-year requirement for small tenants, and negotiated shorter term leases at higher rental cost in order to fill the Mall.

In April or May 1986, Jan Vermilyea was advised that Lockhart was leaving the employ of Galland & Associates and that Galland would be calling on her from then on. Galland kept in contact with Jan by stopping in her Rapid City salon frequently. On July 1, 1986, the Vermilyeas signed a retail lease which BDL signed later in July 1986. This lease did not contain a lease term or monthly rental rate. Jan signed an amendment to the retail lease on March 17, 1987, which defined the rentable area of the leased premises, the twenty-year term of the lease, and the minimum rent. Notwithstanding the February 19, 1986, change in negotiating guidelines for small tenants, neither BDL nor Galland & Associates informed the Vermilyeas that the twenty-year lease term requirement had been abandoned prior to them signing the retail lease or amendment to retail lease. Prior to this time, when the Vermilyeas were told all leases had to be for twenty-year lease terms, this was in fact true.

The Vermilyeas obtained a fifteen-year-license agreement from Cost Cutters for the Twin City Mall location on May 1, 1987, and opened for business on May 16, 1987. The Vermilyeas had not consulted legal counsel to advise them about the contents of the license agreement or Mall lease. Instead, they relied upon the information furnished and statements made to them by BDL and Galland & Associates. Vermilyeas were told that the twenty-year-lease term was a financing requirement and not negotiable. Although they never wanted a twenty-year lease and attempted to obtain a five-year lease, they nevertheless signed the twenty-year-lease agreement because they believed there was no choice since that was what BDL required.

On January 20, 1988, Bill learned from another Mall tenant that at least one other tenant in the Mall had a lease for less than twenty years. The Vermilyeas immediately wrote a letter to BDL and Galland demanding that their lease term be reduced to five years. They met about this letter with Feist and Galland in early February 1988. At this meeting the Vermilyeas first learned that the twenty-year-lease requirement had been eliminated. Bill demanded that they be given the five-year lease they had asked for prior to the abandonment of the twenty-year requirement and said they should have been informed of the requirement change before they signed the Mall leases. BDL refused to renegotiate the lease term. Only two other retailers in the Mall signed twenty-year leases. These two retailers were the major tenants in the Mall, one of which had requested a twenty-year lease. Letters of intent for lease terms of less than twenty years were being negotiated prior to July 1, 1986, with prospective tenants other than the Vermilyeas. None of these tenants, in Vermilyeas' size class, signed twenty-year leases.

ISSUE I

WHETHER THE TRIAL COURT ERRED IN REVISING THE MALL LEASE FROM A TWENTY-YEAR TERM TO A FIFTEEN-YEAR TERM AT THE SAME RENTAL COST WITH TWO OPTIONS TO RENEW THE LEASE FOR FIVE-YEAR PERIODS?

In this case, neither Vermilyeas nor BDL ever mentioned a fifteen-year-lease term. Vermilyeas wanted a five-year-lease term and were told that they could not have this because permanent financing required twenty-year-lease terms. The parties never agreed to a five-year-lease term. It was the intent of both parties to enter into a twenty-year lease.

SDCL 21-11-1 provides in part that "[w]hen through fraud or mutual mistake of the parties, or a mistake of one party which the other at the time knew or suspected, a written contract does not truly express the intention of the parties...