Toys, Inc. v. F.M. Burlington Co.
1990 Vt. LEXIS 171, 155 Vt. 44, 582 A. 2d 123 (1990)
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Rule of Law:
An option to renew a contract is enforceable if it contains a practicable, objective method for determining essential terms, such as setting a price based on the "then prevailing rate," even if the clause also uses ambiguous language like "renegotiate."
Facts:
- Toys, Inc. leased commercial space in a shopping mall owned by F.M. Burlington Company under a five-year lease.
- The lease contained an option to renew for an additional five years, stipulating that the rent would be 'renegotiated to the then prevailing rate within the mall' and required one year's written notice to exercise.
- On February 7, 1984, Toys, Inc. sent a letter to F.M. Burlington stating its intent to exercise the renewal option.
- F.M. Burlington responded by acknowledging the renewal and stating what it calculated as the prevailing rental rate.
- Toys, Inc. replied that its notice was based on a different understanding of the rate and expressed a desire to 'renegotiate a mutually agreeable rent structure.'
- The parties subsequently engaged in negotiations which resulted in a new offer from F.M. Burlington, which Toys, Inc. requested extensions to consider but never formally accepted.
- During this period, Toys, Inc. actively pursued the purchase of another building as an alternative location for its store.
- F.M. Burlington eventually informed Toys, Inc. that it was listing the leased space as available, prompting Toys, Inc. to reassert that it had already exercised its option to renew.
Procedural Posture:
- Toys, Inc. (plaintiff) sued F.M. Burlington Company (defendant) for breach of contract in the trial court.
- F.M. Burlington moved for summary judgment, arguing the renewal option was unenforceable.
- The trial court denied F.M. Burlington's motion and granted summary judgment on the issue of liability to Toys, Inc.
- F.M. Burlington (appellant) appealed the trial court's grant of summary judgment to the Supreme Court of Vermont.
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Issue:
Does a lease provision that allows a tenant to renew at a 'fixed minimum rental [to] be renegotiated to the then prevailing rate within the mall' constitute an enforceable option contract, rather than an unenforceable agreement to agree?
Opinions:
Majority - Dooley, J.
Yes, a lease provision allowing renewal at a rental rate to be renegotiated to the 'then prevailing rate' is an enforceable option contract. The court reasoned that an option agreement is valid if it contains a practicable, objective method for determining the essential terms, even if it does not specify every term. The phrase 'then prevailing rate within the mall' provides a definite and ascertainable standard for setting the rent, making the option enforceable. The court interpreted the word 'renegotiate' not as an invitation to negotiate from scratch, but as a mechanism for the parties to determine and agree upon what the prevailing rate was. The court further held, however, that while the option was valid, genuine issues of material fact existed as to whether Toys, Inc. had properly exercised the option and whether its subsequent conduct constituted a waiver of its right to renew, making summary judgment on those issues inappropriate.
Analysis:
This decision reinforces the principle that courts will strive to enforce contracts by finding an objective standard for terms left for future determination, thereby preventing them from being voided as mere 'agreements to agree.' It clarifies that the inclusion of a benchmark, such as a 'prevailing rate,' can render an option clause enforceable even when coupled with potentially ambiguous terms like 'renegotiate.' The case serves as a warning for contract drafters to use precise language but also provides assurance that courts may uphold the intent of an agreement if a clear method for determining essential terms exists. It distinguishes between the legal validity of an option and the factual questions of its exercise and waiver, which depend on the parties' intent and conduct.
