Toys Inc. v. F.M. Burlington Co.

NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 111 State Street, Montpelier, Vermont 05602 of any errors in order
that corrections may be made before this opinion goes to press.


                                No. 88-200


Toys, Inc.                                   Supreme Court

                                             On Appeal From
     v.                                      Chittenden Superior Court

F.M. Burlington Company d/b/a/               April Term, 1989
Burlington Square


James L. Morse, J.

Michael I. Green and Geoffrey W. Crawford of O'Neill and Crawford and
  Jarvis and Kaplan, Burlington, for plaintiff-appellee

Robert B. Luce of Downs Rachlin & Martin, Burlington, for defendant-
  appellant


PRESENT:  Allen, C.J., Peck, (FN1) Gibson and Dooley, JJ., and Barney, C.J.
          (Ret.), Specially Assigned


     DOOLEY, J.    F.M. Burlington Company, defendant below and appellant
here, moved for summary judgment in this contract action pursuant to
V.R.C.P. 56.  The trial court not only denied the motion but awarded summary
judgment on the issue of liability to plaintiff in the action, Toys, Inc.
V.R.C.P. 56(c) ("Summary judgment, when appropriate, may be rendered
against the moving party.").  We agree with defendant that plaintiff should
not have been awarded a summary judgment on all liability issues and reverse
on that basis.  We conclude, however, that the court was correct in awarding
plaintiff summary judgment on the issue of whether a valid lease renewal
option existed between the parties and also conclude that neither party is
entitled to summary judgment on the remaining issues.  Accordingly, we
remand for trial.
     On November 1, 1979, the parties entered into a lease for space in a
shopping mall owned by defendant.  The lease was for an initial five-year
term, April 1, 1980 through February 28, 1985, and plaintiff was given an
option to renew for five additional years.  The option provision in the
lease is as follows:
         Tenant shall be provided one option to extend the lease
         for five years, provided that tenant was not in default
         of the lease at any time during the initial term upon
         the same terms and conditions except:

            (a)  there shall be no further right to renew;
            (b)  the fixed minimum rental shall be renegotiated
         to the then prevailing rate within the mall.

         Should the tenant wish to renew, tenant shall give one
         year's written notice of intention to exercise the
         option.

On February 7, 1984, Toys Inc. wrote to F.M. Burlington, pursuant to the
lease, and said, "[P]lease be advised that Toys, Inc. hereby notifies F.M.
Burlington Company of its intent to exercise its option to renew."  F.M.
Burlington responded on February 24, 1984.  In that letter defendant
confirmed that plaintiff was exercising its option to renew and then stated
the prevailing rate per square foot in the mall.
     On March 1, 1984, plaintiff responded.  This letter stated that "Toys,
Inc.'s notice of intent to renew was premised on a substantially different
understanding of the prevailing rate."  It described a conversation with
defendant's leasing agent that involved the quotation of a prevailing rental
rate well below that stated in defendant's letter of February 24th and
included the understanding that "we would be completely free to renegotiate
the issue of a fixed minimum rent without being bound to a prevailing rate."
The letter concluded, "I trust . . . that in the coming months we will be
able to renegotiate a mutually agreeable rent structure."  On March 2, 1984,
defendant responded by letter stating:
         You are of course completely free to renegotiate the
         rate without reference to the prevailing rate.  However,
         as far as the rights of the Tenant under the option are
         concerned, the prevailing rate . . . is $10.00 [per
         square foot].

         The prevailing rate is subject to change until such time
         as an agreement for renewal is reached.

     On July 17, 1984, the parties met and seemed to come to an under-
standing as to a rent structure for the renewal term.  The new rent
structure was not significantly different from that specified by defendant
in February, except that the first-year rent was lower than the prevailing
rate and the last-year rent was higher than the prevailing rate.  Over the
five-year period, the new rent averaged to the prevailing rate.  Defendant
wrote to plaintiff the next day describing the terms and stated "[i]f this
offer is accepted, please have a copy of this letter executed and returned
to me.  This offer is valid through August 1, 1984."  (Emphasis added.)
Plaintiff responded with a request for more time to consider the offer and
was given until August 15, 1984.  On August 15, 1984, plaintiff wrote to
defendant:
            It is necessary for my clients at this time to ask
         for an additional two (2) week extension from [August
         15, 1984], in which to accept your offer as set forth in
         your July 18, 1984 correspondence.

            Please let me know if there is a problem with the
         above request.

Defendant did not respond, and plaintiff did not accept or reject the
"offer" of July 17, 1984.  During this time, plaintiff was seeking an
alternative location for its toy store in case negotiations with defendant
did not work out.
     Sometime in the late summer or early fall, plaintiff began pursuing the
purchase of a building in which to locate its store.  In October, a loan
application was submitted to a financing source for funds to purchase the
building.  The next communication between the parties to this action was a
letter from defendant dated November 1, 1984 and informing plaintiff that
"Burlington Square is listing store no. 20 for lease effective March 1,
1985."  On November 9, 1984, plaintiff wrote to defendant:
            On February 7, 1984, my clients informed you in
         writing of their intention to exercise the option to
         renew in the above matter.  At this time we would like
         to be advised of the prevailing rate so that a lease can
         be signed as soon as possible.

            In reference to your November 1, 1984[,] letter, we
         would consider any attempt on your part to lease store
         No. 20 to any party other than Toys, Inc., a breach of
         our lease.

Although the paper jousting continued, negotiations between the parties
ceased.  Defendant took the position that plaintiff had failed to accept the
prevailing rate in February and that they had let the July offer lapse.
Plaintiff stated that it had exercised the option to renew with the February
7th letter and defendant was bound at its prevailing rate.  Plaintiff left
the mall and purchased the building for which it earlier sought financing.
Plaintiff then sued for breach of contract.
     After discovery and based generally on the facts set forth above,
defendant moved for summary judgment, arguing that:  (1) the option
provision in the lease is actually an unenforceable agreement to agree; (2)
even if a valid option existed, it was never effectively exercised by
plaintiff; (3) if plaintiff had a right of renewal, it waived it through its
conduct.  The trial court found that the lease provision created a binding
option, that plaintiff exercised the option by letter on February 7, 1984,
and that plaintiff never waived its acceptance of the renewal.  Accordingly,
it awarded summary judgment to the plaintiff.  Defendant renews its same
arguments here, urging that we grant it summary judgment or, alternatively,
remand for trial.
     We start by reviewing the standards for summary judgment under Rule 56.
Summary judgment is appropriate only if there is "no genuine issue as to any
material fact."  V.R.C.P. 56(c).  The party against whom summary judgment is
sought is entitled to the benefit of all reasonable doubts and inferences in
determining whether a genuine issue of material fact exists.  See Creighton
v. Town of Windsor, 1 Vt. L. W. 159, 160 (Apr. 20, 1990).  The facts
bearing on the issue must be clear, undisputed or unrefuted.  See id.  In a
case such as this where both parties are seeking summary judgment, both
parties are entitled to these benefits when the opposing party's motion is
being judged.
     We agree with the trial court that summary judgment for plaintiff was
appropriate on the first issue raised by defendant.  The lease provision
created a valid option for plaintiff to renew for an additional five years.
Defendant characterizes the lease renewal provision as merely an agreement
to agree and therefore not enforceable.  If defendant's construction were
correct, the lease provision would not create an enforceable option.  See
Reynolds v. Sullivan, 136 Vt. 1, 3, 383 A.2d 609, 611 (1978).  In Reynolds
we held that a preliminary option agreement that was vague and uncertain in
its terms "would be an impossibility to enforce."  Id.  The test is whether
the option agreement contains "all material and essential terms to be
incorporated in the subsequent document."  Id.  The agreement in Reynolds
was labeled as preliminary and specifically provided that the parties "agree
to enter an agreement for an option" and that "more specific terms will be
stated in the option to purchase."  Id. at 2, 383 A.2d  at 610.
     It is not necessary under Reynolds that the option agreement contain
all the terms of the contract as long as it contains a practicable,
objective method of determining the essential terms.   See Krupinsky v.
Birsky, 129 Vt. 400, 405, 278 A.2d 757, 760 (1971) (option contract valid
even though it "did not fix a price certain" where "it did appoint a mode of
determining the price"); Restatement (Second) of Contracts { 33 comment
(a), { 34(1) (1981) ("The terms of a contract may be reasonably certain even
though it empowers one or both parties to make a selection of terms in the
course of performance.").  We must construe the option agreement in a way to
give it binding effect if possible.  See Agway, Inc. v. Marotti, 149 Vt.
191, 194, 540 A.2d 1044, 1046 (1988) (before voiding a contract for
vagueness, indefiniteness or uncertainty of expression, Court must attempt
to construe the contract to avoid the defect).  We are also mindful that
defendant drafted the language of the option clause and that a doubtful
provision in a written instrument is construed against the party
responsible for drafting it.  See Trustees of Net Realty v. AVCO Financial
Services, 147 Vt. 472, 475-76, 520 A.2d 981, 983 (1986).
     The option agreement states that "the fixed minimum rental shall be
renegotiated to the then prevailing rate within the mall."  We believe that
this language sets forth a definite, ascertainable method of determining the
price term for the lease extension.  Within days after plaintiff stated its
original intent to exercise its option, defendant replied by quoting the
"prevailing rate within the mall" at that time.  Neither defendant nor
plaintiff have disputed the accuracy of this calculation.
     Defendant puts much emphasis on the use of the term "renegotiate" in
the renewal clause, as showing an intent to reach a future agreement.  While
the choice of wording could have been more precise, we agree with the
plaintiff that the term means that the then-existing "prevailing rate" would
be determined by agreement, and does not mean that the parties would start
from a clean slate in renegotiating a rent term.  Even if we give defendant
the benefit of all inferences and reasonable doubt, we find no genuine issue
of fact bearing on whether there was an enforceable option to renew and hold
as a matter of law that a valid option existed.
     Defendant's second argument is that even if a valid renewal option
existed, plaintiff did not properly exercise its option.   An option is
merely an agreement to hold open a specific offer to a specific party for a
stated time.  Harden v. Vermont Dep't of Taxes, 134 Vt. 122, 125, 352 A.2d 685, 687 (1976).  The essence of the option must be accepted according to
its terms in order to generate a binding contract.  Bricker v. Walker, 139
Vt. 361, 364, 428 A.2d 1129, 1130 (1981); Buchannon v. Billings, 127 Vt. 69,
74-75, 238 A.2d 638, 642 (1968) (terms of the option "must be strictly
complied with by the optionee").  The determination of whether an
acceptance meets the terms of an offer is described in Ackerman v.
Carpenter, 113 Vt. 77, 81, 29 A.2d 922, 924-25 (1943) as follows:
             We agree with defendants' contention that an
         acceptance which varies from the offer will not conclude
         a contract.  But the reply may go beyond the terms of
         the proposal without qualifying the acceptance.  The
         addition may be such as fairly to import a request
         instead of a condition.  In determining what one party
         intended and the other ought to have understood, regard
         must be had to the situation and purpose of the parties,
         the subject matter and course of the negotiations.
              The question whether there was a contract between
         the parties does not depend alone upon the specified
         facts found but also upon the reasonable inferences to
         be drawn from them.

(Citations omitted.)  While the basic facts in this action are clear and
undisputed, we cannot say the same for the "situation and purpose of the
parties" and the "reasonable inferences to be drawn from" the facts, two
critical factors set forth in Ackerman.
     Plaintiff's theory is that both it and defendant were bound as of
February 7, 1984 as a result of the initial letter.  While this is one
interpretation of the facts, it is not the only one.  The letter can be
construed as an expression of intent only with the necessary action to await
the determination of the prevailing rental rate.  Indeed, the March 1
letter, which stated that the earlier notice of intent to renew was based on
a substantially different understanding of the prevailing rate, is
consistent with this view.  It is difficult to reconcile plaintiff's theory
with its actions in July when it refused to agree to terms that were
slightly more favorable to it than those it says it became bound to in
February.  When we consider the overall course of dealings between the
parties, their evident purposes, and the inferences to be drawn from the
facts, we cannot say as a matter of law that plaintiff accepted the option
according to its terms.  It was error to award summary judgment to plaintiff
on this issue.
     While we do not believe it was appropriate to award summary judgment to
plaintiff on this issue, we do not conclude that summary judgment for
defendant would be appropriate.  When we give plaintiff the benefit of all
reasonable doubts and inferences, we cannot say as a matter of law that
plaintiff failed to accept the option according to its terms.  The question
must be left to the factfinder.
     The third issue is whether the  actions of plaintiff subsequent to the
purported exercise of the option constituted a waiver of that acceptance.
As with the second issue, we find that this issue is not appropriate for
summary judgment for either party.  We have defined waiver of a contract
right as:
         the intentional relinquishment or abandonment of a
         known right, and the act of waiver may be evidenced by
         express words as well as by conduct.  Unlike an
         estoppel, it involves the act or conduct of one party to
         the contract only, and involves both knowledge and
         intent on the waiving party.  A waiver does not
         necessarily imply that one has been misled to its
         prejudice or into an altered position.

Lynda Lee Fashions, Inc., 134 Vt. 167, 170, 352 A.2d 676, 677 (1976)
(citations omitted).
     Defendant argues that plaintiff's conduct subsequent to its initial
letter exercising the option was so inconsistent with the intent to renew
that plaintiff waived the taking of the option.  It cites to the prolonged
and inconclusive negotiations between the parties, the failure of plaintiff
to respond to an overture to arbitrate the dispute, and plaintiff's active
pursuit of real estate outside of the mall as evidence of this waiver.
Plaintiff responds that it did nothing directly inconsistent with the
February 7, 1984 renewal and that it was free to, and encouraged by
defendant to, renegotiate its rent outside of the terms of the option,
without impairing its acceptance of the option.  See Ackerman, 113 Vt. at
81, 29 A.2d  at 925 (reply to option may go beyond the terms of the proposal
without qualifying the acceptance).
     Again, the basic facts are clear but the inferences to be drawn from
the facts and the intentions and purposes of the plaintiff are not clear.
A fact finder could find a waiver based on this record but that conclusion
is not commanded as a matter of law.  Summary judgment was in error.
     Reversed and remanded.

                                        FOR THE COURT:




                                        Associate Justice





FN1.    Justice Peck sat for oral argument but did not participate in the
decision.