Brick Dev. v. CNBT II LLC

301 Neb. 279

918 N.W.2d 824

BRICK DEVELOPMENT, appellant,

v.CNBT II LLC and The Cattle National Bank & Trust Co., appellees.

No. S-17-865.

Supreme Court of Nebraska.

Filed October 12, 2018.

Randall L. Goyette, Lincoln, and Phoebe L. Gydesen, of Baylor, Evnen, Curtiss, Grimit & Witt, L.L.P, for appellant.

John M. Guthery, Haleigh B. Carlson, and Derek A. Aldridge, of Perry, Guthery, Haase & Gessford, P.C., L.L.O., Lincoln, for appellees.

Heavican, C.J., Miller-Lerman, Cassel, Funke, Papik, and Freudenberg, JJ.

Cassel, J.

INTRODUCTION

An owner of one property seeks to bind a purchaser of another property to the terms of a 50-year lease agreement entered into between different parties. Because there is no privity of contract and the purchaser did not expressly assume the lease, the statute of frauds bars the owner’s claim for breach of contract. We further conclude that equitable estoppel does not prevent the purchaser from raising the statute of frauds as a defense and that there is no genuine issue of material fact. We affirm.

BACKGROUND

PARKING LOT LEASE

In 1978, D. William Smith and Joyce Smith owned a parking lot located on N Street in Lincoln, Nebraska. Two Twenty Enterprises, L.L.C. (TTE), owned an office building located on 17th Street west of the parking lot. The Smiths, as lessors, entered into a lease agreement with TTE, as lessee, to lease the parking lot to TTE (parking lot lease). The original term of the lease was for 50 years.

One section of the parking lot lease allowed the lessee to encumber the leasehold interest by mortgage or other proper instrument. The lease provided in part:

The execution of any such mortgage or other instrument, or the foreclosure thereof, or any sale thereunder, ... shall not be held as a violation of the terms or conditions hereof, or as an assumption by the holder of such indebtedness of the obligations hereof. No such encumbrance, foreclosure, conveyance, or exercise of right shall relieve LESSEE of its liability hereunder.

The parking lot lease contained several other sections pertinent to this appeal. One section authorized assignment of the lease. A different section set forth a right of first refusal in the event that either the lessor or the lessee decided to sell its property or the lessee wished to transfer its interest in the leasehold. And under a rent escalation clause, the rent was to be adjusted in the 11th year and every 5th year thereafter.

LEASE WITH DAS

On May 24, 2004, TTE entered into a lease with the Nebraska Department of Administrative Services (DAS) on behalf of a tenant. TTE agreed to lease space at the office building and to provide parking stalls in the parking lot for use by the tenant’s clients. The lease was set to end on August 30, 2015.

PURCHASE AND ASSIGNMENT

In 2006, Raasch Enterprises, Inc. (Raasch), purchased the office building from TTE. The purchase was financed by a loan from The Cattle National Bank & Trust Co. (the Bank), and Raasch executed a deed of trust to secure the loan. The deed of trust, signed only by Raasch, stated that Raasch "irrevocably assigns, grants and conveys" to the Bank "all the right, title and interest" in existing or future leases "for the use and occupancy of the Property." The deed of trust identified the "Property" as the office building. The deed of trust did not contain any language concerning the parking lot parking property; nor did it identify the parking lot lease as an encumbrance.

On the same day, TTE assigned the parking lot lease to Raasch. Raasch accepted the assignment and assumed the liabilities and duties to perform the terms and conditions of the parking lot lease. The Smiths gave their written consent to the assignment.

DEFAULT AND SALE OF OFFICE BUILDING

After Raasch failed to timely pay indebtedness secured by the deed of trust, the Bank issued a notice of default. As a result of Raasch’s default, a trustee’s sale was arranged. The published notice of trustee’s sale stated that the property "will be sold subject to any and all ... leases, subleases, assignments, amendments, and other rights and interests, if any, which are specifically announced by the Trustee at the sale." According to the sale announcement, the real estate would be subject to the parking lot lease, the 2006 assignment of lease, and the lease between TTE and DAS.

CNBT II LLC (CNBT), whose sole member is the Bank, purchased the office building at the trustee’s sale. In February 2012, the Bank filed a trustee’s deed conveying the office building to CNBT. In conformity with the sale announcement, the deed stated that the property transfer was "subject to" the parking lot lease along with the 2006 assignment of the lease and the lease between TTE and DAS. The deed further stated that the transfer was subject to those leases "provided that the Grantee is not assuming any liabilities, and shall not be liable, for any act or omission of the landlord or any other party under, without limitation, any of the Leases." The president of the Bank signed the deed. CNBT used the parking lot and paid rent to the Smiths.

BRICK BECOMES LESSOR

In December 2012, the Smiths conveyed to Brick Development (Brick), via a quitclaim deed, the parking lot. Brick is the successor in interest to the Smiths as lessor under the parking lot lease.

PROPOSED SALE OF OFFICE BUILDING

In 2013, CNBT received an offer to purchase the office building. It gave notice to Brick of the offer "[p]ursuant to" the right of first refusal interest contained in the parking lot lease. The notice stated, "Per the lease you have 30-days from the date of this notice to notify us of your intent to purchase the Property on the same terms and conditions as the Buyer...."

Brick notified CNBT of a concern. Brick stated that it had "not been able to find any language in the Real Estate Purchase Agreement which refers to the Buyer’s assumption of the existing lease on the parking lot ... which language [Brick] would have expected to see as a Buyer’s Condition of Closing." CNBT’s president responded: "I believe the terms of the previous lease on the parking lot carry over to ... the new owner. If you would like us to get a written agreement to this affect [sic] as a condition of closing we can do this."

Brick later sent a letter to CNBT along with a proposed assignment of lease between CNBT and the buyer. The proposed assignment had been signed by Brick, as lessor, giving its consent, and Brick requested that CNBT sign it. The letter further stated, "In the event the proposed sale does not close, then we will of course continue to look to CNBT ... as successor-in-interest from Raasch ... to fulfill the obligations of the [parking lot lease]." Ultimately, the sale did not occur.

OTHER COMMUNICATIONS BETWEEN BRICK AND CNBT

In January 2014, Brick sent a letter to the Bank and CNBT "to both reconcile unpaid previously scheduled monthly rental increases and inform [them] of the new monthly lease payment for the five year period of September of 2013 through September of 2018 for the parking lot." The letter pointed out that under the parking lot lease, the monthly lease payment was scheduled to increase every 5 years beginning in 1988, but that the increase to begin in September 2008 had not been implemented. Brick also sent an email to counsel for CNBT and the Bank. It stated, in part, "[W]e'd like to get something on record that your client has assumed, or has accepted an assignment of, the [parking lot lease]."

In February 2014, Brick filed with the register of deeds a notice of lease and right of first refusal. The document contained Brick’s signature only. The purpose of the notice was to confirm that the parking lot lease "is currently in full force and effect, and has not been modified other than by conveyance of the interest of the original Lessor to the current owners of the Property, and from the original Lessee ... to CNBT ..., the current Lessee and owner of [the office building]."

On August 7, 2015, CNBT sent Brick a notice of termination and cancellation of the parking lot lease effective September 10. There is no dispute that CNBT paid rent to Brick through September 10.

PLEADINGS

Brick sued CNBT and the Bank. Brick alleged that as of February 2012, CNBT assumed the parking lot lease as lessee. According to Brick, CNBT had paid rent and taxes, had maintained the property, and had complied with the right of first refusal terms of the lease. Brick claimed that CNBT’s actions were "tantamount to and act as an assumption of the [lease]." Brick also alleged that CNBT was equitably estopped from asserting that it was not contractually bound as the lessee because CNBT acquiesced to or accepted a benefit under the lease.

CNBT responded that it did not receive an assignment or transfer of interest by Raasch and that it did not assume the parking lot lease. CNBT and the Bank both alleged that the conveyance stated CNBT was not assuming any liabilities under the lease. They also both alleged that Brick’s claims were barred by the statute of frauds, including Neb. Rev. Stat. §§ 36-105 and 36-202 (Reissue 2016). CNBT claimed that its use of the parking lot property was on a month-to-month basis from the time that it became the owner of the office building.

CNBT, the Bank, and Brick each moved for summary judgment.

DISTRICT COURT’S DECISION

In resolving the motions for summary judgment, the district court first considered whether the trustee’s deed to CNBT satisfied the statute of frauds. It noted that neither Brick nor CNBT was a party to the trustee’s deed and that it was signed by the Bank only. The court determined that "the documents do not show CNBT’s assumption of the obligations of the [parking lot lease]."

Next, the court addressed whether CNBT was estopped from asserting the statute of frauds defense. The court found no evidence that CNBT induced Brick to believe that CNBT had assumed future obligations of the parking lot lease. It found that Brick qualified as a sophisticated business entity...