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Electric Fetus Company, Inc. v. Gonyea

Minnesota Court of Appeals
Nov 21, 2000
No. C1-00-545 (Minn. Ct. App. Nov. 21, 2000)


No. C1-00-545.

Filed November 21, 2000

Appeal from the District Court, St. Louis County, File No. C699600477.

Larry B. Leventhal, and Bruce C. Bromander, (for respondent)

George G. Eck, Michael J. Wahoske, Juliann M. Buron, (for appellant)

Considered and decided by Stoneburner, Presiding Judge, Foley, Judge, and Mulally, Judge.

Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.

Retired judge of the district court, serving as judge of the Minnesota Court of Appeals by appointment pursuant to Minn. Const. art. VI, § 10.

This opinion will be unpublished and may not be cited except as provided by Minn. Stat. § 480A.08, subd. 3 (1998).


Appellant Paul Gonyea argues that the district court erred in awarding specific performance to respondent Electric Fetus pursuant to its exercise of an option to purchase. Because the district court's findings regarding the existence of an option to purchase and Electric Fetus's proper exercise of that option are not clearly erroneous, we affirm.


Electric Fetus, through its president and owner, Keith Covart, leased the building at 10-12 East Superior Street in Duluth in 1987 with a right of first refusal to purchase. Paul Gonyea bought the building in December 1995. Gonyea and Electric Fetus entered into a 5-year lease on August 2, 1996. This lease referred to an Addendum "attached hereto and incorporated herein." Paragraph 10 of the Addendum states:

Lessee shall have a first right of refusal to purchase the building by matching any bona fide offer made for the building in which the leased premises are located.

The Addendum was signed by both parties as of September 10, 1996, however Gonyea made some minor changes unrelated to the right of first refusal and failed to date his signature at that time. Both parties did not effectively sign the Addendum until May 7, 1998.

On April 9, 1998, Carlson Properties (Carlson) submitted an offer to purchase the building through Gonyea's real estate broker/property manager, Daniel King. The offer stated it would expire on April 30 and provided a June 1 closing date. Gonyea made two minor changes to the purchase agreement and signed it on April 24, but did not return the agreement to Carlson or otherwise communicate his acceptance to Carlson. On April 27, King sent a letter to Covart informing him that Gonyea had entered into a contract to sell the building: "This letter is notice to you that the building * * * has been sold, subject to `Lessee's First Right of Refusal * * *.'"

On May 7, Covart and Gonyea met to discuss the right of first refusal and to finally execute the Addendum. Covart testified that at this meeting Gonyea urged him to make a quick decision on whether to exercise his right to first refusal, which did not have any agreed upon time limits. Covart requested a copy of Carlson's written offer and on May 11 wrote to Gonyea requesting access to inspect and appraise the building. Gonyea facilitated the inspection. On May 27, Electric Fetus delivered a Notice of Exercise of Right of First Refusal and a $50,000 earnest money check to Gonyea. The cover letter stated that Electric Fetus is committed to completing the transaction under the terms set down in the purchase agreement "in the most expeditious manner." The Notice stated:

Electric Fetus does match said offer and agrees to all of the terms stated therein except as to such dates that are inapplicable because of late notice to Electric Fetus.

Gonyea returned the check claiming it was bad (it was not) and otherwise repeatedly refused to honor Electric Fetus's exercise of its option.

Electric Fetus brought this action for specific performance of the sale of the building pursuant to its right of first refusal. The matter was tried to the district court which granted specific performance. Gonyea argues that the district court erred in finding that Electric Fetus had a right of first refusal, that the right of first refusal ripened into an option, and that Electric Fetus properly exercised the option.


Gonyea initially contends that the lease contained no contractual right of first refusal at the time the Carlson offer was in effect, because the parties had not yet signed the Addendum when the Carlson offer expired on April 30.

The existence and terms of a contract are issues for the fact finder. Gresser v. Hotzler, 604 N.W.2d 379, 382 (Minn.App. 2000). "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous * * *." Minn.R.Civ.P. 52.01. "If there is reasonable evidence to support the trial court's findings of fact, a reviewing court should not disturb those findings." Fletcher v. St. Paul Pioneer Press, 589 N.W.2d 96, 101 (Minn. 1999) (citations omitted). An option to purchase does not transfer an interest in property and is not within the statute of frauds. Shaughnessy v. Eidsmo, 222 Minn. 141, 145, 23 N.W.2d 362, 365 (1946).

The district court focused on the actions of the parties to conclude that the right of first refusal existed from the time of the lease despite the delay in effectively signing the Addendum. If both parties act as if a right of first refusal existed then they are bound by those representations. See Fischer v. Pinske, 309 Minn. 202, 205, 243 N.W.2d 733, 735 (1976) ("The fact that the parties behaved as if bound by the original contract persuasively demonstrates that they both could be found to have waived any requirement for a writing * * *.").

King was Gonyea's agent at all relevant times. He managed the building, dealt with tenants and handled the execution of leases. The Carlson purchase agreement listed King as Gonyea's agent. Gonyea, through his agent, King, acknowledged the right of first refusal when King sent the letter notifying Electric Fetus of the agreement between Gonyea and Carlson and asking Electric Fetus to make a decision on exercising its right of refusal. Gonyea, who later directly discussed exercise of the right of first refusal with Covart, never refuted King's letter and knew or should have known that Covart would interpret King's letter as an action on Gonyea's behalf. See Lyman Lumber Co. v. Three Rivers Co., 400 N.W.2d 811, 813 (Minn.App. 1987) (recognizing principal liable if he should have known of the agent's conduct).

On May 7, at the time the Addendum was finally executed, Gonyea urged Covart to make a quick decision on exercising his right of first refusal. Given the evidence of the parties' actions acknowledging a right of first refusal on the Carlson offer, the district court did not err in finding that a right of first refusal was in effect throughout the period of the lease.

Gonyea next contends that the right of first refusal never ripened into an option to purchase, because the conditions precedent never occurred.

[A right of first refusal is] a contractual right to preempt another because the right is conditional on the owner's decision that an offer from a third party is acceptable. More specifically, the right is subject to an agreed condition precedent, typically the owner's receipt of an offer from a third party and the owner's good-faith decision to accept it.

3 Eric Mills Holmes, Corbin on Contracts § 11.3, at 470 (Rev'd ed. 1996); Park-Lake Car Wash, Inc. v. Springer, 352 N.W.2d 409, 411 (Minn. 1984) (stating that to satisfy the condition precedent, "the owner must have received a bona fide offer from a third party which he or she is willing to accept.").

The owner need not have entered into an actual purchase agreement to trigger the right of first refusal. Courts generally consider instead whether the owner made representations that gave the right-holder notice of his willingness to sell. See Pincus v. Pabst Brewing Co., 893 F.2d 1544, 1553 (7th Cir. 1990) (holding that if Pabst representatives told the right-holder that Pabst was prepared to accept the proposal, Pabst could not later argue that its managers had harbored secret doubts); New Haven Trap Rock Co. v. Tata, 177 A.2d 798, 800 (Conn. 1962) (holding notice triggers the option to purchase); Vietor v. Sill, 243 So.2d 198, 199 (Fla. Dist. Ct. App. 1971); Stump v. Cunningham Memorial Park, Inc., 419 S.E.2d 699, 706 (W. Va. 1992). The district court found that by signing the purchase agreement and representing to Covart that he had a right of first refusal to exercise, Gonyea gave Electric Fetus notice of his willingness to accept the Carlson offer. This finding was based in part on the documentary evidence and on the court's assessment of the credibility of the witnesses. See Minn.R.Civ.P. 52.01 ("[D]ue regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses."). The evidence supports the district court's finding that a right of first refusal ripened into an option to purchase.

Gonyea further asserts that Electric Fetus did not effectively exercise its right of first refusal. Gonyea argues Electric Fetus did not unequivocally match the terms of the Carlson offer, because that offer expired on April 30 and because it was impossible for Electric Fetus to meet the June 1 closing date contained in the offer. The district court did not squarely address this argument but implicitly found that Gonyea, through his actions, extended the right of first refusal to Electric Fetus despite the passage of dates contained in the Carlson offer. Electric Fetus's Notice of Exercise of Right of First Refusal unequivocally matched the price and terms of the offer Gonyea signed, except those made impossible by Gonyea's actions.

Where by the course of conduct of one party to a contract, entitled to the performance of certain terms or conditions thereof, the other party has been led to believe, as a man of average intelligence, that such performance will not be required, until it has become too late to perform, or until to insist upon performance would work material injustice, the person who has so conducted himself is barred from asserting the right he had.

Malmquist v. Peterson, 149 Minn. 223, 226, 183 N.W. 138, 140 (1921) (citation omitted); see Wolff v. McCrossan, 296 Minn. 141, 145, 210 N.W.2d 41, 44 (1973) (finding defendant waived compliance with time provisions of option agreement); Metropolitan Sports Facilities Comm'n v. General Mills, Inc., 460 N.W.2d 625, 630 (Minn.App. 1990) (finding evidence of waiver of right to terminate contract obligations by continuing to treat agreement as effective), aff'd 470 N.W.2d 118 (Minn. 1991).

The evidence supports the district court's finding that Electric Fetus had an option to purchase the building and appropriately exercised that option.


Summaries of

Electric Fetus Company, Inc. v. Gonyea

Minnesota Court of Appeals
Nov 21, 2000
No. C1-00-545 (Minn. Ct. App. Nov. 21, 2000)
Case details for

Electric Fetus Company, Inc. v. Gonyea

Case Details

Full title:Electric Fetus Company, Inc., Respondent, vs. Paul F. Gonyea, Appellant

Court:Minnesota Court of Appeals

Date published: Nov 21, 2000


No. C1-00-545 (Minn. Ct. App. Nov. 21, 2000)

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Electric Fetus Co. v. Gonyea

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