Opinion
No. C7-01-2245.
Filed July 23, 2002.
Appeal from the District Court, Hennepin County, File No. CT9801942.
James M. Susag, Tamara O'Neill Moreland, (for appellant)
John C. Holper, Matthew R. McBride, Karl E. Robinson, (for respondent)
Considered and decided by Harten, Presiding Judge, Willis, Judge, and Shumaker, Judge.
This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (2000).
UNPUBLISHED OPINION
Appellant, assignee of a purchaser of real estate, argues that the district court erred in concluding that (1) the doctrine of impossibility did not exclude appellant's performance under the purchase agreement (the Agreement); (2) the restrictive covenant imposed by the Agreement was not an invalid restraint on the use of real property; and (3) respondent's right to repurchase the property was not barred by the doctrine of election of remedies, the doctrine of res judicata, or timeliness. Because we see no error of law in these conclusions, we affirm.
FACTS
Respondent DJD Partners VII, LLC, (DJD) manages the Shady Oak Plaza and owns one of the two parcels of real property that make up the Plaza. To sell the parcel it owned, DJD negotiated with appellant CNL Income Fund VXIII, Ltd. (CNL) and with Finest Foodservices, Inc. (Finest)owner of the area franchise rights for Boston Market restaurants. In March 1997, DJD and Finest entered into the Agreement, which provided in relevant part:
[DJD] agrees to sell and convey to [Finest] (or its assignee or nominee) and [Finest] agrees to purchase from [DJD] the real estate * * *.
* * * *
[Finest] will initially use the Property for the construction and operation of a free standing Boston Market restaurant * * *.
* * * *
[Finest] shall construct the store and open for business not later than three hundred and sixty-five (365) days from the date of closing. * * * This obligation to construct a store shall survive during any assignment of the Purchase and Sale Agreement by [Finest] * * *. In the event that [Finest] does not construct a store within said three hundred and sixty-five (365) day period, * * * [DJD] may, at [DJD's] sole discretion, repurchase the Property from [Finest] at an amount equal to the total of the purchase price, [Finest's] reimbursement for [DJD's] Site Work, if any, and the cost of [Finest's] improvements in place on the Property as of the date [DJD] exercises its right of repurchase.
* * * *
[Finest] shall have the right to assign this Agreement at any time.
In April 1997 Finest assigned to CNL:
all of [Finest's] rights, privileges, duties and obligations in, to and under that certain Contract of Sale and Purchase * * * between [Finest] and DJD * * * with respect to the sale of a certain tract or parcel of land * * *
CNL and DJD entered into a reciprocal easement agreement (REA), which provided that
CNL will lease [its parcel] to Finest * * * for the purpose of operating a specialty restaurant serving meatloaf and/or ham and/or prepared poultry products * * *. So long as such specialty restaurant is operated on [CLN's parcel] in accordance with the provisions hereof, [DJD] shall not allow an occupant, tenant, or user on [DJD's parcel] to operate as a restaurant primarily offering for sale meatloaf and/or ham and/or prepared poultry products.
The Boston Market restaurant was never built.
DJD sued CNL for specific performance of the Agreement and for payment of expenses that DJD incurred as a result of the breach. CNL answered the complaint and asserted cross-claims against Finest for breach of contract and indemnification. In October 1998, Finest filed for bankruptcy, and all proceedings were stayed. CNL then stipulated that Finest was not a necessary party to the action, and Finest was subsequently dismissed.
CNL asserted counterclaims against DJD and asked the district court to declare the Agreement requirement that it construct a Boston Market restaurant invalid and to strike from the Agreement DJD's option to repurchase. Both parties moved for partial summary judgment. After a hearing, the district court granted DJD's motion and ordered judgment against CNL for $25,792.57, the amount by which DJD was damaged as a result of CNL's breach of the contract provision requiring it to pay its pro rata share of the improvement expenses. The district court also concluded that CNL could not use impossibility as a defense for its breach of the Agreement and that the requirement that CNL construct a Boston Market Restaurant was not invalid; the district court denied CNL's motion for summary judgment on those two issues. However, the district court granted CNL's motion for summary judgment on the election of remedies issue, concluding that DJD could not both seek specific performance and exercise its right to repurchase. DJD then dismissed its claim for specific performance.
Following a trial on damages, a jury found that DJD was damaged in the amount of $82,742 by CNL's breach. CNL moved for JNOV or a new trial, or alternatively for conditional remittitur. That motion was denied, as was CNL's subsequent motion for reconsideration.
CNL now challenges both the summary judgment and the denial of its reconsideration motion, arguing that (1) the doctrine of impossibility excused its obligation to construct a restaurant; (2) the Agreement and the REA do not impose a restrictive covenant, or in the alternative that the restrictive covenant is an invalid restraint on the use of real property; and (3) DJD's right to repurchase is precluded by its claim for money damages, res judicata, and timeliness.
DECISION
On an appeal from summary judgment, this court asks whether there are any genuine issues of material fact and whether the district court erred in applying the law. State by Cooper v. French, 460 N.W.2d 2, 4 (Minn. 1990). Appellant contends that the district court erred in applying the law. A reviewing court is not bound by and need not give deference to a district court's decision on a purely legal issue. Frost-Benco Elec. Ass'n v. Minnesota Pub. Utils. Comm'n, 358 N.W.2d 639, 642 (Minn. 1984).
1. Impossibility
[P]erformance of a contractual duty may be excused when, due to the existence of a fact or circumstance of which the promisor at the time of the making of the contract neither knew nor had reason to know, performance becomes impossible * * *.
Powers v. Siats, 244 Minn. 515, 520 70 N.W.2d 344, 348 (1955). CNL argues that performance of its obligation to build a Boston Market restaurant became impossible when Finest, without whose cooperation CNL could not build the restaurant, refused to cooperate. But Finest's noncooperation does not entitle CNL to invoke the doctrine of impossibility.
[A] promise which cannot be performed without the consent or cooperation of a third party is not excused because of the promisor's inability to obtain such cooperation. Rather, the parties are expected to have anticipated and guarded against such circumstances in the contract.
Blattner Sons, Inc. v. Firemen's Ins. Co., 535 N.W.2d 671, 675 (Minn.App. 1995) (quotation and citation omitted), review denied (Minn. 18 Oct. 1995). Neither the Agreement between DJD and Finest nor the assignment by which CNL assumed Finest's obligations under the Agreement provided for the foreseeable risk of Finest's noncooperation. Therefore, the fact that Finest refused to cooperate does not excuse CNL's nonperformance.
Because Finest did not file for bankruptcy until four months after the breach had occurred, its bankruptcy cannot be used to excuse nonperformance either. The doctrine of impossibility operates to discharge a duty to perform; it does not affect a claim for breach that has already arisen. Restatement (Second) of Contracts § 261 cmt a (1979). Moreover, "bankruptcy in a commercial context is a reasonably foreseeable contingency." Winthrop Res. Corp. v. Anastasi Constr. Co., ___ F. Supp. ___, ___, No. CIV 01-787, 2002 WL 523877 * 5 (D.Minn. 18 May 2002). Because CNL could have foreseen it, the bankruptcy does not meet the criteria for invoking impossibility. See Powers v. Siats, 244 Minn. at 520, 70 N.W.2d at 348 (fact or circumstance rendering performance impossible must be unknown to promisor, and promisor must have no reason to know of it when contract is made).
The district court did not erroneously apply the law when concluding that CNL cannot invoke the doctrine of impossibility to excuse its failure to perform.
2. Use Restriction
CNL now argues that neither the Agreement nor the REA imposed a use restriction. But that argument is not properly before this court because the record shows that it was not raised in the district court until CNL moved for reconsideration in July 2001. Arguments inadequately raised in the district court are not before this court. See, e.g., Wear v. Buffalo-Red River Watershed Dist., 621 N.W.2d 811, 816 (Minn.App. 2001) (arguments first presented to district court in post-trial brief were inadequately raised and were not before this court), review denied (Minn. 15 May 2001).
CNL asserts that it challenged the existence of a restrictive covenant earlier, but both its January 2001 counterclaim and its March 2001 summary judgment memorandum contradict that assertion. See Count I of the counterclaim (purchase agreement "restricts CNL's use of the Subject Property to the construction and operation of a free standing Boston Market Restaurant" and REA "restricts CNL's use of the Subject Property to operating a specialty restaurant serving meatloaf and/or ham and/or prepared poultry products as its primary food products"); summary judgment memorandum ("DJD now concedes that * * * Section 7.3.1 of REA * * * requires that a Boston Market Restaurant be constructed to the exclusion of any other restaurant."). Moreover, when CNL moved for reconsideration, CNL urged the court to construe "for the first time" the relevant section of the REA as not imposing a use restriction.
If the argument were properly before us, we would conclude that the Agreement and the REA impose a use restriction. The Agreement provides that the purchaser "will initially use the Property for the construction and operation of a free standing Boston Market restaurant"; the REA provides that CNL will lease the parcel to Finest "for the purpose of operating a specialty restaurant * * *." When contract language is unambiguous, this court has no basis for rewriting it. Carl Bolander Sons, Inc., v. United Stockyards Corp., 215 N.W.2d 473, 476 (Minn. 1974).
CNL argues in the alternative that the "permanent use restriction" is invalid as an improper restraint on real property. Initially, we note that the use restriction is not permanent. The Agreement provides explicitly that, if a Boston Market restaurant is not constructed and operating within 365 days, DJD has the right to repurchase the property. DJD could then use the property for any purpose. The REA provides that, if the specialty restaurant on the CNL parcel ceases operation for more than 180 days, DJD may operate a specialty restaurant on its parcel. In that case, the CNL parcel would have to be used for another purpose. Neither the Agreement nor the REA requires the parcel to remain vacant forever unless a Boston Market restaurant is established on it.
We note that, by opposing DJD's right to repurchase, CNL itself is causing the restriction to appear permanent.
We are aware that "the law leans in favor of the unrestricted use of property." McKush v. Hecker, 559 N.W.2d 725, 728 (Minn.App. 1997) (quoting Mission Covenant Church v. Nelson, 253 Minn. 230, 233, 91 N.W.2d 440, 442 (1958)). However , numerous Minnesota cases have upheld restrictive covenants. See, e.g., Holiday Acres No. 3 v. Midwest Fed., 308 N.W.2d 471, 484 (Minn. 1981) (holding that a due-on-sale clause in a mortgage agreement was not an unlawful restraint on the alienation of investment residential property); Spalding Hotel Co. v. Emerson, 69 Minn. 292, 296, 72 N.W. 119, 121 (1897) (holding that accepting the lease of a premises for the purpose of operating a hotel amounted to a covenant on the part of the lessee that he would use the premises for that purpose); Leonard, Street and Deinard v. Marquette Assocs, 353 N.W.2d 198, 202 (Minn.App. 1984) (holding that a landlord is not required to consent to a proposed assignment in which the subtenant will not comply with a restrictive use provision in a lease).
CNL relies on these cases and also on In re Turners Crossroad Dev. Co., 277 N.W.2d 364 (Minn. 1979). All three cases are readily distinguishable. Turners concerned a landowner who was benefited by a covenant and attempted to retain the covenant when he sold the land; Mission involved an implied reciprocal negative easement that purchasers of part of a tract of land sought to impose on the unsold part; and McKush involved an alleged covenant that promised free memberships for the seller of a golf course. None of them is relevant here.
CNL provides no persuasive legal support for its view that the use restriction here is an invalid restraint on real property.
3. Right to Repurchase
CNL raises three challenges to DJD's right to repurchase the property; the challenges are unpersuasive.
CNL argues that DJD's claim for money damages is inconsistent with its right to repurchase because both are "remedies" for CNL's breach and DJD may elect only one remedy. But CNL offers no support for its view that one party's contractual right contingent on another party's failure to perform is a "remedy" that precludes the normal contractual remedy, i.e., money damages. Moreover, contrary to CNL's argument, DJD is not making a double recovery. Prior to trial, the district court determined that DJD had incurred damages as a result of the breach; at trial, the jury awarded DJD increased interest costs, a loan extension fee, incremental building costs, and future damages. None of these liabilities will be satisfied by DJD's repurchase of the property; the amount DJD must pay to repurchase the property is set forth in the Agreement. DJD's right to damages does not extinguish its right to repurchase.
CNL also argues that res judicata precludes DJD from repurchasing.To invoke the doctrine of res judicata, a party must show that (1) there has been a final judgment on the merits; (2) a second suit has been brought involving the same cause of action; and (3) the parties are identical or in privity. Demers v. City of Minneapolis, 486 N.W.2d 828, 830 (Minn.App. 1992). Only the third criterion is met here. There has been no final judgment on DJD's right to repurchase, and neither party has brought a second action on any claim. Res judicata presents no obstacle to DJD's exercise of its right to repurchase.
Finally, CNL relies on Hill v. Okay Constr. Co., 312 Minn. 324, 333, 252 N.W.2d 107, 114 (1977) (contract must be performed within a reasonable time), to argue that DJD's right to repurchase has expired. But the issue here is not performance of a contract: it is the exercise of a discretionary right. Moreover, the matter is still in litigation, and it would be unreasonable to compel exercise of a right before the outcome of that litigation is known.
We conclude that the district court correctly granted DJD's motion for partial summary judgment and properly denied CNL's motion for reconsideration.