No. 80-61
IN THE SUPREME COURT OF THE STATE OF MONTANA
1980
IRVIN G. RIIS and CHARLOTTE RIIS,
husband and wife,
Plaintiffs and Appellants,
-vs-
ROBERT J. DAY and DONNA RAE DAY,
husband and wife,
Defendants and Respondents.
Appeal from: The District Court of the First Judicial District,
In and for the County of Broadwater, The Honorable
Gordon R. Bennett, Judge presiding.
Counsel of Record:
For Appellants:
Hooks and Eudewitz, Townsend, Montana
For Respondents:
Peter Michael Meloy, Helena, Montana
Submitted on Briefs: June 9, 1980
Decided :
JUL 1 - lgaP
Filed:
Jlii 1 19@
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Mr. Justice John C. Sheehy delivered the Opinion of the
Court.
Appellants, Irvin G. and Charlotte A. Riis, commenced
action in the District Court, First Judicial District,
Broadwater County, for damages for breach of a renewal
provision in a lease. The appellants appeal the District
Court's order granting summary judgment to the respondents,
Robert J. and Donna Rae Day.
On June 1, 1976, the appellants entered a two year
lease agreement with Ned George, the father of respondent
Donna Rae Day and the then owner of the subject property.
The lease was typed by appellant Charlotte Riis. It con-
tained a renewal provision which reads as follows:
"Lessees are hereby given an exclusive option to
renew this Lease and Agreement for an additional
two years, under the same terms and provisions as
this present Lease and Agreement except that the
amount of rental shall be subject to negotiation
and mutual agreement between the parties. In any
event it is agreed that Lessees shall, if they
exercise their said option to renew, have the right
and privilege of meeting the bid of any other bona
fide person, firm or corporation interested in
leasing said property and if they shall meet such
bid, they shall be entitled to a two year renewal
of the Lease and Agreement.
"Lessee's option to renew may be exercised by
Lessees giving Lessor notice of exercise of said
option, in writing at least 60 days prior to the
termination of the Lease and Agreement."
On December 28, 1976, Ned George sold the subject
property to his daughter and son-in-law, the respondents.
The conveyance was expressly made subject to the 1976 lease
between appellants and Ned George. More than a year prior
to the termination date of the lease, the respondents
advised appellants the lease would not be renewed. The
respondents wanted the property for their own use.
Appellants later gave respondents written notice of
their decision to exercise the renewal provision. The
notice was given within the prescribed time period for
exercising the renewal provision, but the respondents refused
to recognize the renewal request. The appellants vacated
the property upon the expiration of the lease on May 31,
1978.
On or about June 4, 1978, the respondents entered into
an oral agreement with Joe Clark regarding the subject
property. In exchange for caring for respondents' cattle on
the subject property and an additional $8.00 per animal
unit, Clark was permitted to graze ten head of his cattle
with those of the respondents.
On August 30, 1978, appellants brought this cause for
damages for breach of the renewal provision. After discovery
and submission of affidavits, both parties moved for summary
judgment. On December 28, 1979, the District Court entered
its opinion and order. The District Court found the renewal
provision void for lack of certainty regarding rent and
granted summary judgment in respondents' favor.
The sole issue for review is whether the summary judgment
entered was proper. We affirm the District Court. Under
the facts at hand, no genuine issues of material fact remain
unresolved, and the respondents rather than appellants were
entitled to judgment as a matter of law. Rule 56, M.R.Civ.P.
As a general rule, an agreement must contain all its
essential terms in order to be binding. Monahan v. Allen
(1913), 47 Mont. 75, 130 P. 768. In this cause, we find the
District Court was correct in holding the renewal provision
void for lack of certainty regarding the essential term of
rent.
We have never ruled on the validity of a renewal provision
which is open to negotiation regarding rent, and the other
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jurisdictions are divided on this issue. After a review of
the authorities, we find three views prevail.
Under the old rule, a provision for the renewal of a
lease must specify the time the lease is to extend and the
rate of rent to be paid with such certainty that nothing is
left to future determination. If it falls short of this
requirement, the agreement is not enforceable. Slayter v.
Pasley (1953), 199 Or. 616, 264 P.2d 444, 446. Jurisdictions
following this view reason that courts cannot make contracts
for the parties nor can they compel parties to agree upon
one. Thus, if an essential term depends upon later agreement,
the contract is void - initia. Hall v. Weatherford (1927),
ab
32 Ariz. 370, 259 P.2d 282, 285.
Under another view, which the parties here characterize
as the "first minority view", a renewal provision will be
enforced if it expressly contemplates a clear and definite
mode for determining future rent. Thus, if a definite mode
for renewal rent is provided by the lease agreement or by
operation of law, which can be determined at the time of
renewal without negotiation, the court is not making a new
contract for the parties but merely compelling the parties
to do what they plainly contemplated in the beginning.
Slayter v. Pasley, supra, 264 P.2d at 446, 448.
Under the third and most liberal view, even if no mode
for determining future rent is provided in the agreement, a
renewal provision is valid if the contract shows the parties
mutual consent to meet in the future for the purpose of
making further provisions for a reasonable rent. If so, the
court will imply a mutual agreement for a reasonable rent.
According to the jurisdiction following this view, this rule
effectuates the parties' intent. The provision must have
been included for a reason, and if one party agreed only in
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the secret belief the provision would later be held un-
enforceable, then the equities compel enforcement. Voluntary
consideration often already has been paid for it as an
inducement for the original lease. To this extent, the
landowner has benefited from the tenants' reliance on the
clause, and the tenant has a stronger claim to the reciprocal
benefit of the renewal provision. Moolenair v. Co-Build
Companies, Inc. (D. Virgin Islands 1973), 354 F.Supp. 980,
982-983.
We believe the "first minority view" reflects the best
standard. It recognizes the business utility of renewal
provisions. Such provisions often do provide the inducement
for entering the original lease. But, given fluctuating
market conditions, the parties cannot fairly determine what
would be an adequate rent in the future. At the same time,
this standard also adheres to the wisdom of the old rule.
It recognizes the danger of courts arbitrarily interpolating
provisions into an arm's length transaction to breathe life
into an otherwise invalid agreement.
Having adopted this view, we next answer whether the
agreement here satisfies the standard chosen. We find it
does not, and therefore, the renewal provision is void for
lack of certainty regarding the essential term of rent.
As the District Court noted, the first two sentences of
the renewal provision appear to conflict with each other.
The first sentence gives appellants an "exclusive option",
which constitutes an unconditional and continuing offer by
the lessor. By supplying the proper acceptance, a tenant can
compel the lessor to perform whether he wants to or not.
Phalen v. Rilley (1971), 159 Mont. 239, 245, 496 P.2d 295,
298. The second sentence, on the other hand, appears to
give the appellants a right of first refusal which is conditioned
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upon a lessor's decision to relet the premises. Phalen,
supra.
A contract is to be construed so as to make provisions
effective, if possible. Repugnant provisions should be
interpretted in such a way as will give them some effect,
subordinate to the general intent and purpose of the entire
contract. Sections 28-3-201, 28-3-202 and 28-3-204, MCA.
With these rules in mind, the most reasonable approach
is that followed by the District Court below. The first
sentence should be construed as an exclusive option to renew
with the second sentence establishing a method of deter-
mining the amount of future rent to be owed. The renewal
provision itself suggests this approach. Under the express
terms of the agreement, the second sentence of the questioned
provision is operative only if appellants have exercised
their option to renew.
Even given this construction, however, the renewal
provision must still fail for lack of certainty regarding
rent. As the District Court reasoned, the mode for deter-
mining rent comes into play only if a bid by a third-party
is made. If there is no such bid, there is no expressed
method for determining rent, and the essential term of rent
remains uncertain. Yet, in an option situation like that
presented here, a binding bilateral contract is created only
at the time all conditions precedent to the exercise of the
option are performed. Corbin on Contracts, 5 2 6 4 . Since
there were no third party bids at the time this contract
should have been created in 1977, the option to renew was
void for lack of certainty as to how future rent was to be
determined.
In the appellants' view, the respondents arrangement
with Joe Clark is a bona fide offer bringing the lease
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agreement's method of determining rent into play. Beyond
this alleged question of fact, appellants maintain a further
question is raised regarding whether the arrangement between
respondents and Clark was a deliberate attempt to defraud
the appellants. We do not agree.
There are no facts in the record indicating the arrange-
ment between Clark and respondents is a leasehold arrangement.
A lease is a contract which gives a lessee exclusive possession
of the premises as against all the world, including the
owner. Herigstad v. Hardrock Oil Co. (1935), 101 Mont. 22,
34-35, 52 P.2d 171, 174. Such is not the case here. Moreover,
even assuming a lease arrangement between Clark and respondents,
that arrangement was not entered into until after the option
to renew had expired. Finally, concerning the alleged
question of a deliberate fraud by respondents, there are no
facts in the record giving rise to such a question. Once
respondents established a lack of material questions of
fact, appellants bear the burden of submitting facts in
proper form which raised such questions. Silloway v. Jorgenson
(1965), 146 Mont. 307, 310, 406 P.2d 167, 169. The respondents
failed.this burden.
The District Court's judgment is affirmed.
// Justice V
We Concur:
1 P.
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Justice
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