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INTREPID, INC. v. JOSEPH S. ASA BENNETT- SUPREME COURT OF MISSISSIPPI

INTREPID, INC. v. JOSEPH S. ASA BENNETT

NO. 2014-CA-00999-SCT

SUPREME COURT OF MISSISSIPPI

2015 Miss. LEXIS 451

September 03, 2015, Decided

NOTICE:

   Decision text below is the first available text from the court; it has not been editorially reviewed by LexisNexis. Publisher's editorial review, including Headnotes, Case Summary, Shepard's analysis or any amendments will be added in accordance with LexisNexis editorial guidelines.

OPINION

    [*1] DATE OF JUDGMENT: 07/15/2014

    TRIAL JUDGE: HON. W. ASHLEY HINES

    TRIAL COURT ATTORNEYS: LINDSEY C. MEADOR H.D. BROCK

    COURT FROM WHICH APPEALED: LEFLORE COUNTY CIRCUIT COURT

    ATTORNEY FOR APPELLANT: LINDSEY C. MEADOR

    ATTORNEY FOR APPELLEE: H. D. BROCK

    NATURE OF THE CASE: CIVIL – CONTRACT

    DISPOSITION: AFFIRMED – 09/03/2015

    MOTION FOR REHEARING FILED:

    MANDATE ISSUED:

   EN BANC.

   DICKINSON, PRESIDING JUSTICE, FOR THE COURT:

   ¶1. A lease agreement included a five-year renewal provision but failed to specify the rent to be paid during the renewal period. So the circuit judge granted a judgment on the pleadings, finding the renewal provision unenforceable.
  We affirm.

    FACTS AND PROCEDURAL HISTORY

   ¶2. Craigside Leasing Corporation leased two tracts of farm land-the 836-acre
T.J. Carter Place (“Carter”) and the 1,975-acre Craigside Place (“Craigside”)- to
Intrepid, Inc., for a thirteen-year term beginning April 1, 1997, and ending December 31, 2009. The annual rent of $81,500 for Carter and $120,000 for Craigside was payable in semiannual installments, and the two lease agreements
contained identical extension or renewal options:

   Lessor hereby gives and grants unto Lessee . . . the right and option [*2]
to lease said lands for two (2) additional five year terms as follows: If not in
default under the terms and conditions of this lease, a five (5) year extension
period beginning January 1, 2010, and ending on December 31, 2014, upon the same terms, except that the rental to be paid by Lessee to Lessor shall be
re-negotiated and may increase by the amount of increase from April 1, 1997, to
January 1, 2009, in land rent customary in the area for similar property; and thereafter, if not in default under the terms and conditions of this lease, Lessee shall have the right and option to renew this lease for an additional five (5) year term beginning January 1, 2015, and ending December 31, 2019, upon the same terms and conditions set forth herein, except that the rental to be paid by Lessee to Lessor shall be re-negotiated and may increase by the amount of increase from January 1, 2009, to January 1, 2014, in land rent customary in the area for similar property. . . . It is specifically understood and agreed that all options to renew herein granted shall automatically take effect unless Lessee notifies Lessor in writing of his intention not to renew prior to September 1st of the last year [*3] of his primary term or of the fifth year of any extended or option term as provided herein.

   ¶3. In October 2008, near the end of the initial lease term, Joseph S. Asa
Bennett bought the land from Craigside Leasing subject to the two leases. In
early 2009, Bennett and Intrepid began renegotiating the lease for the five-year
renewal period as required by the contract. Bennett wanted to increase the
annual rent for Carter to $175 per acre, or $146,300, and for Craigside to $145
per acre, or $286,375. Intrepid balked at Bennett's price and offered to have an
arbitrator determine what the rent should be, but Bennett refused.

   ¶4. On March 9 and 16, 2010, Intrepid tendered the same semiannual rent
payments it had paid for the last thirteen years for both leases. Bennett
rejected Intrepid's payments and declared the leases terminated.

   ¶5. On February 14, 2013, Intrepid sued Bennett for breach of contract,
attaching both lease contracts to its complaint. Bennett filed an answer and a
motion for judgment on the pleadings, arguing that the options were
unenforceable as a matter of law because (1) the rent during the renewal terms
was unstated and (2) the options provided no reasonable means to determine [*4]
the rent. Intrepid argued in response that (1) the options had been exercised
automatically because it had not notified Bennett that it would not renew, (2)
the options contained the minimal rent for the new term, and (3) the options
provided a reasonable formula to determine the new rent through which a
certified real estate appraiser could calculate a reasonable rent based on land
in the area.

   ¶6. The circuit court granted Bennett's motion for judgment on the pleadings,
noting in its ruling that:

   The [c]ourt has reviewed the leases in this case and finds that the renewal
options are nugatory based on the fact that they lack the essential element of
price. Furthermore, because the leases leave the renewal rental to be fixed by
future agreement between the parties, they are unenforceable and void for
uncertainty and indefiniteness.

   ¶7. Intrepid then timely appealed, raising a single issue:

   Whether the [t]rial [c]ourt committed reversible error, as a matter of law,
in ruling that language providing for a possible upward modification of rentals
in an ongoing agricultural lease was not specific enough to be enforceable where
the base amount for the rental was set forth as well as a method [*5] whereby
any amount to be paid above the base rental could be ascertained by reference to
the increase, if any, “in land rent customary in the area for similar property”
during the first term of the lease, with the possible increase in rental above
the base not to take into consideration the improvements placed on the property
at the expense of the lessee?

    ANALYSIS

   ¶8. We review a circuit court's grant of a judgment on the pleadings de novo
,[1] and questions of law, like the enforceability of a contract made an exhibit
to a plaintiff's complaint, may properly be decided through a motion for
judgment on the pleadings.[2]

   ¶9. The law that controls this case is well-settled: "This Court has long
recognized that an agreement must be definite and certain in order to be
enforceable."[3] We have explained this rule as follows:

   [U]nless an agreement to make a future contract is definite and certain upon
all the subjects to be embraced, it is nugatory. To be enforceable, a contract
to enter into a future contract must specify all its material and essential terms and leave none to be agreed upon as the result of future negotiations. Where a final contract fails to express some matter, as, for instance, [*6] a time of payment, the law may imply the intention of the parties; but where a preliminary contract leaves certain terms to be agreed upon for the purpose of a final contract, there can be no implication of what the parties will agree upon. If any essential term is left open to future consideration, there is no binding contract, and an agreement to reach an agreement imposes no obligation on the parties thereto.[4]

   ¶10. We further have explained that "while courts may supply reasonable terms
which the parties omitted in the contracting process, such as a time for
performance, essential terms such as price cannot be left as open-ended
questions in contracts which anticipate some future agreement."[5]

   ¶11. Like the price amount in a sales contract, the rental amount in a lease
contract is an essential and basic requirement. "In black letter law, a lease is
a transfer of an interest in and possession of property for a prescribed period
of time in exchange for an agreed consideration called 'rent.'"[6] Without a
definite agreement as to the amount of rental, there can be no binding lease
contract.

   ¶12. This lease option contains no definite method to determine the rent upon
renewal. The option, [*7] by its very terms, required that rent "shall be
renegotiated," and its uncertain formula for determining the amount of increase
made this task impossible. The option clause was merely an agreement to reach an
agreement in the future, which is no agreement at all.[7] Based on our prior
caselaw, the option is unenforceable because it contains neither a definite
rental amount for the renewal period, or a workable method for determining the
amount of renewal.

   ¶13. In Giglio v. Saia, a 1926 case from this Court, we held that a similar
option provision in a lease contract was unenforceable.[8] The lease agreement
in that case said that "[the lessee] is to have the right and privilege of
renting said store for another period of five years at the termination of this
contract, upon such terms and for the payment of such rent as may be agreed upon
between the parties hereto at that time, necessary repairs to be made by
[lessor]."[9] This Court said:

   [S]pecific performance here sought cannot be decreed, for the renewal
agreement not only does not set forth the terms on which the appellant may rent
the building for another period of five years, but, on the contrary, expressly
provides that he may [*8] do so "upon such terms and for the payment of such
rent as may be agreed upon between the parties hereto." This leaves everything
pertaining to the renewal open for determination by the parties thereto except
the period of time for which it is to run. That is to say, they must agree on
not only the amount of rent to be paid, but upon the conditions, covenants, and
limitations on which the lessor may be willing to renew the lease. Renewal
agreements much more specific than this one in that they leave only the renewal
rental to be fixed by future agreement between the parties have generally been
held unenforceable and void for uncertainty and indefiniteness.[10]

   ¶14. And while the Court recognized the maxim "that is certain which can be
made certain, . . . that maxim is of no avail here, for we are without any guide
whatever as to what the terms of the renewal should be."[11]

   ¶15. Like the doomed option in Giglio, the option in this case left the new
rental amount and increases in the rent for future negotiations. This agreement
to agree in the future failed to create a binding obligation on either party.
"If the document or contract that the parties agree to make is to contain any
material [*9] term that is not already agreed on, no contract has yet been
made; and the so-called 'contract to make a contract' is not a contract at
all.'"[12] By providing that the rental amount "may increase by the amount of
increase . . . in land rent customary in the area for similar property," the
option allowed the lessor to demand a higher rental amount during negotiations.
Bennett did that just that and Intrepid balked.

   ¶16. If Intrepid wanted to protect its right to renew at what it considered an acceptable increase in rent, it could have contracted in advance to increase the rent by the increase to known commodities or price indices,[13] or the parties could have agreed to allow a qualified third party or arbiter to make
the determination.[14]

   ¶17. In this case, the ceiling on the increase is not tethered to a particular index or formula. The geographic area by which the increase is to be measured is left completely undefined, and the option includes no provision for a qualified third party to determine the amount of rental increase. Intrepid argues that "there was an automatic renewal for an additional term of five years beginning January 1, 2010, through December 31, 2014, if no written [*10] objection to automatic renewal was made by either party,“ and that ”both leases were automatically renewed for an additional five year term." This argument ignores the language in the option that requires negotiation. By agreeing to renegotiate the renewal rental amount, rather than recalculate the rental based upon some discernable standard, the option lacked a definite rental amount and
thus was unenforceable.

   CONCLUSION

   ¶18. Because the parties left an essential term of the lease renewal-rent-to
future negotiations, without a definite method to determine that amount, the
option was rendered unenforceable. So we affirm the circuit judge's decision to
grant judgment on the pleadings.

   ¶19. AFFIRMED.

   RANDOLPH, P.J., LAMAR, CHANDLER, PIERCE AND COLEMAN, JJ., CONCUR. KING, J.,
DISSENTS WITH SEPARATE WRITTEN OPINION JOINED BY WALLER, C.J., AND KITCHENS, J.

   KING, JUSTICE, DISSENTING:

   ¶20. The majority holds that the renewal provisions of the leases in this case fail to specify the rent to be paid during the renewal period and therefore affirm the trial court's entry of judgment on the pleadings. Because I believe that the renewal options contained language which was specific enough to ascertain [*11] the renewed rent, I respectfully dissent.

   ¶21. The grant of a motion for judgment on the pleadings is an issue of law,
and the standard of review is de novo. R.J. Reynolds Tobacco Co. v. King, 921
So. 2d 268, 270-71 (Miss. 2005). The allegations in the complaint are taken as
true, and the motion should not be granted unless it appears beyond a reasonable
doubt that the nonmoving party will be unable to prove any set of facts in
support of the claim which would entitle the nonmovant to relief. Id. at 271.

   ¶22. "A contract's terms must be definite, and '[w]ithout some written
evidence of purchase price or a method of determining a purchase price,' the
contract is a mere 'memorandum of intent.'" Crow v. Crow's Sports Center, Inc.,
119 So. 3d 352, 356 (Miss. Ct. App. 2012) (quoting Duke v. Whatley, 580 So. 2d
1267, 1273-74 (Miss. 1991)). An option to purchase at the end of a lease period
was enforced when the lease stated that the property may be purchased "for a
fair market value as determined by appraisal by a licensed real-estate appraiser
or such other term as the parties may negotiate between themselves . . . ." Id.
at 356 (reasoning that a purchase price was absent but the contract provided a
clear method of determining one). The court looked at the "legal purpose and
intent of the parties from an objective reading [*12] of the words employed in
the contract . . . ." Id. at 356 (quoting Royer Homes of Miss., Inc. v.
Chandeleur Homes, Inc., 857 So. 2d 748, 752 (Miss. 2003)).

   ¶23. Finding that the renewal options did not include the rental to be paid during any renewal period, the trial court held that they were void and unenforceable, and therefore granted the motion for judgment on the pleadings. I
would find that to be error. It is true that the leases before this Court did not set forth the specific dollar amounts of the rents to be due during the option periods. The leases provided that rental for the option periods would be negotiated by the parties. The leases provided that the minimum rent, or floor, during any option period would be not less than the original contract prices. Next, the leases provided that the ceiling for purposes of negotiating the new rentals would be "the amount of increase . . . in land rent customary in the area for similar property."

   ¶24. Bennett's motion for judgment on the pleadings under Mississippi Rule of
Civil Procedure 12(c) was properly granted only if it appeared beyond a doubt
that Intrepid would be unable to prove any set of facts in support of its claim.
The majority finds that the renewal provisions are unenforceable because the
provisions [*13] do not contain definite rental amounts or a workable method
for determining the renewal amount. Yet, the leases for the T.J. Carter Place
and for the Craigside Place do provide set parameters for the negotiation of the
rentals for the option years. Given these facts, it cannot be said with
reasonable certainty that Intrepid would be unable to prove any set of facts
which support its claim. Therefore, I believe the motion for judgment on the
pleadings was improperly granted. I respectfully dissent and would reverse the
decision of the trial court and remand for a trial on the merits.

   WALLER, C.J., AND KITCHENS, J., JOIN THIS OPINION.

   [1] Hartford Cas. Ins. Co. v. Halliburton Co., 826 So. 2d 1206, 1210 (Miss.
2001) (citing City of Tupelo v. Martin, 747 So. 2d 822, 829 (Miss. 1999)).

   [2] Leach v. Tingle, 586 So. 2d 799, 801 (Miss. 1991) (citing Keys v. Rehab.
Ctr., Inc., 574 So. 2d 579, 583 (Miss. 1990) ("Questions of the validity, enforceability and construction of contracts-whether the parties have satisfied
the law's formal requisites-are committed to the court as distinguished from the
trier of facts.")).

   [3]Etheridge v. Ramzy, 276 So. 2d 451, 455 (Miss. 1973) (citing 17 Am. Jur.
2d Contracts § 75 (1964)).

   [4] Etheridge, 276 So. 2d at 454 (citing 17 Am. Jur. 2d Contracts § 26
(1964)).

   [5] Duke v. Whatley, 580 So. 2d 1267, 1273-74 (Miss. 1991) (citation omitted)
(citing Smith v. Mavar, 198 Miss. 170, 175, 21 So. 2d 810, 811 (1945)).

   [6] State Nat'l Bank of El Paso v. United States, 509 F.2d 832, 835 (5th Cir.
1975).

   [7] See Etheridge, 276 So. 2d at 454 (citing [*14] 17 Am. Jur. 2d Contracts
§ 26 (1964)).

   [8] Giglio v. Saia, 140 Miss. 769, 106 So. 513, 513 (1926).

   [9] Id.

   [10] Id. (internal citations omitted).

   [11] Id.

   [12] Etheridge, 276 So. 2d at 454 (citing 1A Corbin, Contracts § 29 (1963)).

   [13] See T.B. Guillory, Inc. v. N. Am. Gaming Entm't Corp., 741 So. 2d 44, 47
(La. Ct. App. 3d Cir. 1999) (citing Bonfanti v. Davis, 487 So. 2d 165 (La. Ct.
App. 3d Cir. 1986)) ("[W]e have found that excess rent tied to a cost of living
index was determinable, even though two such indexes resulted in slightly
different figures.").

   [14] See Crow v. Crow's Sports Ctr., Inc., 119 So. 3d 352, 356 (Miss. Ct.
App. 2012) ("In this case, the option-to-purchase provision states that the
Appellees 'have the option to purchase said property for a fair market value as
determined by appraisal by a licensed real-estate appraiser . . . .").