8621 Ltd. Partnership v. LDG, Inc.

ADKINS, J. In 1989, appellant 8621 Limited Partnership (8621) and appellee LDG, Inc. (LDG) jointly purchased a parcel of Silver Spring commercial real estate, known as the Wolfe Property. The Wolfe Property lies between properties known respectively as the Chambers Parcel and the LDG Parcel. Although LDG owned and controlled the LDG Parcel, 8621 did not own the Chambers Parcel. Rather, at that time, the Chambers Parcel was owned by a partnership that is not a party to this litigation, but whose principals include several of the principals in 8621.

The plan was to subdivide the Wolfe Property into two lots, one to be owned by LDG and the other by 8621. 1 Among the terms of the Wolfe Property Joint Venture Agreement that 8621 and LDG entered into is the one that lies at the heart of ²²¹ this dispute—paragraph 10 regarding development of the two subdivided lots: In the event the parties acquire the Wolfe Property, any site plan for the Wolfe Property or the LDG Parcel or the Chambers Parcel shall be done in conjunction with each other and if access from the Chambers Parcel to Fenton Street and from the LDG Parcel to Cameron Street can be reasonably provided without interfering with the development of each parcel, the site plan shall contain such access. In addition, if access from the Wolfe Property to Colesville Road or from Colesville Road to the Wolfe Property through the LDG Parcel is sought by LDG and granted, then [8621] shall be entitled to said access from their parcel to Colesville Road at no additional cost to [8621] provided such access does not interfere with the development of the LDG Parcel. (Emphasis added.) After acquiring the Wolfe Property, 8621 and LDG jointly demolished the commercial buildings on it and used the site as a parking lot for many years. During this time, LDG’s president E. Brooke Lee, III, worked together with 8621’s managing partner, Richard Cohen, to successfully oppose a threatened taking of the Wolfe Property by the State of Maryland.

Eventually, 8621 and LDG subdivided the Wolfe Property into two lots, both of which are in the midst of a commercial block. These lots have direct street access only onto a heavily trafficked portion of Georgia Avenue. They have greater development potential, and therefore greater value, if another indirect route is made available to side streets surrounding that block. LDG’s lot is located adjacent to separate property owned by LDG (the LDG Parcel discussed above), which has side street access onto Colesville Road and Fenton Street.

The lot allocated to 8621 is located next to the Chambers Parcel, which has side street access onto Cameron Street. Thus, in order to access Cameron Street, LDG would need to cross the 8621 lot and the adjacent Chambers Parcel. In order to ²²² access Fenton Street or Colesville Road, 8621 would need to cross the LDG lot and the adjacent LDG Parcel. During and after the subdivision process, Lee allegedly assured Cohen that 8621 would be given access from its subdivided lot to either Fenton Street or Colesville Road.

When Brooke Lee died, his brother Blair Lee became president of LDG. Under Blair Lee’s management, LDG disclaimed any interest in seeking access to Cameron Street across the 8621 lot and Chambers Parcel. Moreover, LDG took the position that it was not obligated to provide 8621 access to either Fenton Street or Colesville Road across its properties. 2 LDG, through Blair Lee, demanded that 8621 execute deeds conveying the two subdivided lots of the Wolfe Property to the individual joint venturers in fee simple, without any access easement. 621 refused to do so. LDG sued 8621 for declaratory and other relief, seeking an order requiring 8621 to execute a deed free and clear of any encumbrances.

It also sought dissolution of the Joint Venture. Ten months after this litigation began, the partnership that owned the Chambers Parcel sold it to an unrelated third party. A month later, 8621 counterclaimed, seeking specific performance of the access provision in paragraph 10 of the Joint Venture Agreement and a declaration that 8621 is entitled to “access from the Chambers Parcel to Fenton Street if such access can be reasonably provided without interfering with the development of the subject parcels” (Count I). Alternatively, 8621 sued for breach of the Joint Venture Agreement (Count II).

LDG moved for summary judgment on its complaint, and to dismiss or for summary judgment on 8621’s counterclaims, on the ground that the access provision in the Joint Venture Agreement is an unenforceable “agreement to agree.” Alter ²²³ natively, LDG argued, the sale of the Chambers Parcel constituted a breach of the Agreement, and rendered performance of the mutual access clause impossible, thereby releasing LDG from any obligation it may have had thereunder. 8621 opposed the motions, arguing that the access clause is enforceable, that the Joint Venture had not run its course because no access had been provided, and that the post-lawsuit sale of the Chambers Parcel did not materially breach the Agreement or otherwise excuse LDG from liability. 8621 later amended its counterclaim to add another count seeking damages for breach of fiduciary duty, as an alternative to the declaratory and injunctive relief sought in Counts I and II. After a hearing on LDG’s motions, the Circuit Court for Montgomery County issued a written decision, concluding that the access provision of the Joint Venture Agreement “lacks material terms sufficient to create an enforceable obligation [ ] as to joint development or reciprocal access, i.e., it is, in short, an agreement to agree in this respect.” Alternatively, even if the access provision is sufficiently definite to be enforceable, the court ruled that “the sale of what the parties have referred to as the ‘Chambers Parcel’ constitutes a material breach of the agreement” and “renders performance of Paragraph 10, as the requirements of that paragraph are characterized by ... 8621 ... impossible];,]” which in turn “excus[ed] further performance by ... LDG.” The circuit court held that, under the Joint Venture Agreement, LDG and 8621 are required to convey the appropriate subdivided lots to each other “in fee simple absolute, free and clear of any encumbrances, in dissolution of the Wolfe Property Joint Venture.” It ordered 8621 and LDG to execute and deliver deeds, and further declared that LDG is not obligated to provide information regarding its development plans, to work in conjunction with 8621 in such development, or to provide 8621 with access to Fenton Street. ²²⁴ 8621 noted this interlocutory appeal, 3 then argued to the motion court that it lacked jurisdiction to proceed on LDG’s motion to dismiss the remaining breach of fiduciary duty count of 8621’s counterclaim due to the pendency of this appeal. The court stayed proceedings on that counterclaim pending disposition of this appeal, without ordering 8621 to post any bond. 8621 appeals that interlocutory judgment, raising two issues: I. Whether the access provision in the Joint Venture Agreement “ ‘is so vague and indefinite as to be unenforceable’?

II

Whether, after LDG spurned access from 8621 LP and filed suit, its reciprocal obligation to provide access to 8621 LP was excused by the post-suit sale of the property over which the unwanted access otherwise would have been provided?” LDG cross-appeals the denial of its motion to dismiss the damages counterclaim, and the stay without bond pending this appeal. We shall hold that the court erred in concluding, as a matter of law, that the access provision in the Joint Venture Agreement is an unenforceable agreement to agree. In addition, we conclude that, although sale of the Chambers Parcel during this litigation prevents 8621 from performing its promise to provide LDG a side street access route across its property, a jury could conclude that 8621 was excused from that obligation by LDG’s prior breach of its obligation to provide access to 8621. Summary judgment was inappropriate due to these material disputes about the meaning of the access clause and the respective performances by LDG and 8621. ²²⁵ DISCUSSION L 8621’s Appeal: The Access Clause 8621 complains that the circuit court erred in focusing solely on the site planning clause in Paragraph 10 and failing to give any effect to the ensuing access clause.

It posits that, even assuming arguendo that “the ‘site plan’ clause of paragraph 10 was too indefinite to be unenforceable, the same manifestly cannot be said of the ‘access’ clause.” Most significantly, no aspect of the agreement to provide reasonable access was reserved for future agreement, and there was mutual consideration for the negotiated agreement to provide side street access in both north and south directions, in order to maximize the development potential of each subdivided lot. LDG responds that the court correctly ruled as a matter of law that both the site planning and access provisions were “merely aspirational.” In LDG’s view, the access clause cannot possibly be “decoupled” from the site planning clause, either grammatically or logically. Moreover, material terms are missing from both clauses: Nothing in paragraph 10 sets forth whether the purported joint development should be commercial, residential or mixed-use, or provide for office space, retail space, a restaurant or a movie theater of all four. There is no provision for how the parties will select a site planner or planners, or bear the cost of doing so.

There is no provision for whose aesthetic or practical sensibilities will govern the site planning; in fact, there is no mechanism at all for resolving disputes between the joint venturers if they were to disagree. Who would determine whether reciprocal access “ ‘can reasonably be provided,’ or if somehow provided, whether such access would be ‘interfering with the development of each ²²⁶ parcel?’.... What does access mean? Vehicular, pedestrian, a bike path?” According to LDG, the fatal absence of essential terms is underscored by 8621’s attempt to use extrinsic evidence to supply them.

LDG contends that, if the contract leaves nothing material to be decided, as 8621 asserts, then there should be no need to resort to the information regarding the parties’ course of dealing that is supplied in the affidavit of 8621’s managing partner, Richard Cohen. . A. Enforceability Of The Access Clause 1. Enforcement Of Future Performance Terms In Maryland contract law, “the primary source for determining the intention of the parties is the language of the contract itself.” Hartford Accident & Indem. Co. v. Scarlett Harbor Assocs.

Ltd. P’ship, 109 Md.App. 217, 290-91 , 674 A.2d 106 , aff'd, 346 Md. 122 , 695 A.2d 153 (1997). Contracts are interpreted objectively, which “means that the clear and unambiguous language of a written agreement controls[.]” First Union Nat’l Bank v. Steele Software Sys. Corp., 154 Md.App. 97, 171 , 838 A.2d 404 (2003), cert. denied, 380 Md. 619 , 846 A.2d 402 (2004). But language in a contract can be “ambiguous when the words are susceptible of more than one meaning to a reasonably prudent person.” Maslow v. Vanguri, 168 Md.App. at 318, 896 A.2d 408 , 2006 WL 907775, ¹⁰ (2006). “To determine whether a contract is susceptible of more than one meaning, the court considers ‘the character of the contract, its purpose, and the facts and circumstances of the parties at the time of the execution.’ ” Id.

(citation omitted). “In construing a contract, each clause must be given effect if reasonably possible.” Arundel Fed. Sav. & Loan v. Lawrence, 65 Md.App. 158, 165 , 499 A.2d 1298 (1985). ²²⁷ “[C]ourts are reluctant to reject an agreement, regularly and fairly made, as unintelligible or insensible.” Quillen v. Kelley, 216 Md. 396, 407 , 140 A.2d 517 (1958). Because the “law does not favor, but leans against, the destruction of contracts because of uncertainty[,] ... courts will, if possible, so construe the contract as to carry into effect the reasonable intention of the parties if that can be ascertained.” Id. Nevertheless, “ ‘[a] court cannot enforce a contract unless it can determine what it is.’ ” See First Nat’l Bank v. Burton, Parsons & Co., 57 Md.App. 437, 450 , 470 A.2d 822 , cert. denied, 300 Md. 88 , 475 A.2d 1200 (1984) (quoting 1 Corbin on Contracts § 95). “An agreement that omits an important term, or is otherwise too vague or indefinite with respect to essential terms, is not enforceable.” Maslow, 168 Md.App. at 322 , 896 A.2d 408 , 2006 WL 907775, ¹² . Therefore, the parties to a contract “must have expressed their intentions in a manner that is capable of understanding.

It is not even enough that they have actually agreed, if their expressions, when interpreted in the light of accompanying factors and circumstances, are not such that the court can determine what the terms of that agreement are. Vagueness of expression, indefiniteness and uncertainty as to any of the essential terms of an agreement, have often been held to prevent the creation of an enforceable contract.” First Nat’l Bank, 57 Md.App. at 450 , 470 A.2d 822 (quoting Corbin, supra). Because courts may not cure indefinite or vague contract language by supplying missing contract terms or definitions, “commercial agreements to negotiate upon terms and conditions to be decided are unenforceable.” Id. at 448, 470 A.2d 822 ; see Horsey v. Horsey, 329 Md. 392, 419-20 , 620 A.2d 305 (1993). For example, when essential elements of a complex real estate development project are reserved for the future agreement of both parties, there may be no enforceable deal.

See id. at 448-50 , 470 A.2d 822 . ²²⁸ In Peoples Drug Stores, Inc. v. Fenton Realty Corp., 191 Md. 489, 492, 495 , 62 A.2d 273 (1948), the Court of Appeals declined to enforce a letter “agreement” regarding construction of a leased store building. The letter included building dimensions and general specifications, rent, and a lease term, but stated that “ ‘the lease itself as to form will be similar to those currently and recently drawn by your company but shall be subject to the approval of the undersigned.’ ” See id. at 492 , 62 A.2d 273 . The Court held that the terms in the letter were not binding, because the parties did not demonstrate a mutual intent “to conclude their contract by their correspondence,” but merely “settl[ed] the terms of an agreement into which they proposed to enter after the particulars were completely adjusted.” Id. at 495 , 62 A.2d 273 . Lack of specific terms, however, does not necessarily make a particular clause in a contract meaningless.

See First Union, 154 Md.App. at 172 , 838 A.2d 404 . There are many types of enforceable commercial contracts that deliberately select an “open” term of performance such as those that require the parties to use “best efforts,” “good faith,” or “reasonable efforts.” See id.; see generally Kenneth A. Adams, Understanding “Best Efforts” and Its Variants (Including Drafting Recommendations), 50 No. 4 Practical Lawyer (Aug.2004) (examining “what best efforts and its variants mean when not defined by contract; and how courts go about determining whether a party has made the required efforts”). “Best efforts clauses and other terms that require a party to use reasonable prudence in performance are obviously like a negligence rule.” Mark P. Gergen, The Use of Open Terms in Contract, 92 Columbia L.Rev. 997, 1000 (1992). These types of “[o]pen terms are used when it is too costly to plan performance ex ante in the contract and vulnerability to opportunism makes a party unwilling to submit to unconstrained ex post bargaining over performance.” Id. Open term performance standards motivate businesses to contract “[w]hen accomplishing a certain goal is not entirely within [the promisor’s] control[.]” See Adams, supra, at 12.

Although ²²⁹ the parties may not be willing to enter into a contract that creates an “absolute duty to accomplish that goal,” they can agree on both the desire to achieve the stated goal, and the obligation to use good faith and reasonable diligence in an effort to achieve it. See id. We applied these principles to enforce a best efforts clause in First Union Nat’l Bank v. Steele Software Sys. Corp., 154 Md.App. at 172-75 , 838 A.2d 404 .

In that case, we upheld a jury verdict in favor of a title search company on a breach of contract claim, rejecting an analogous “agreement to agree” challenge by a bank that contracted to use its “best efforts” in referring its business to the title company. See id. at 175 , 838 A.2d 404 . Of significance to this appeal, we explained in First Union why the “best efforts” referral clause was enforceable even though it lacked specific language requiring the bank to direct a certain percentage of its title transactions to the title company. See id. at 174-75 , 838 A.2d 404 .

We held that commercial businesses are free to enter into mutually binding promises that define their future business relationship by selecting a variety of “non-specific contractual standards” for measuring each party’s performance of its contractual obligation. When contracting parties enter business relationships that cannot be specifically defined in advance, they set up standards that will allow a neutral decision maker some basis for decision. In doing so, they recognize that there is a certain murkiness to exactly how that standard will be applied to the business circumstances that eventually exist. This uncertainty, however, does not preclude formation of an enforceable contract if that is what the parties intended.

Thus, best efforts clauses generally have been held enforceable because the parties intend to be bound, and there is an articulated standard. Id. at 173 , 838 A.2d 404 (emphasis added and citation omitted). For these reasons, we recognized that “open term” performance contracts are premised upon a mutually enforceable ²³⁰ agreement that the non-specific standard selected by the parties will be interpreted and applied by a fact-finder “after the fact,” based on all the circumstances surrounding the parties’ course of dealing. See id. at 174 , 838 A.2d 404 .

See also Adams, supra (“Determining the benchmark for sufficient effort may include: [p]romises made during contract negotiation; [industry practice; [practice with respect to other contracts; [h]ow the promisor would have acted if the promisor and promisee had been united in the same entity”). In First Union , the contract and extrinsic evidence supported the jury verdict in favor of a title company known as 3S. A rational juror could infer that the parties had a meeting of the minds and therefore met the requirement of mutual assent because they understood that First Union was undertaking to be reasonably diligent in referring business to 3S. They agreed to the standard of “best efforts,” on a non-exclusive basis.

They did not necessarily agree on exactly what volume of referrals would meet that standard. First Union clearly had some discretion in determining what was diligent. But it also had an obligation of good faith in determining that volume. Thus, although diligence is at the core of best efforts, First Union also has an obligation to act in good faith.

The jury may have determined that First Union, under the circumstances, did not act in good faith in exercising diligence, even though the best efforts clause did not create a specific obligation to direct a certain percentage of First Union’s transactions to 3S. Id. at 175 , 838 A.2d 404 (emphasis added). We affirmed the contract damages “as a determination by the jury, after the fact, of what level of business would have resulted from reasonably diligent efforts.” Id. 2. Access That “Can Be Reasonably Provided” We recognize that this case involves a promise to create a side street access route across each venturer’s prop ²³¹ erty “if [such] access can be reasonably provided,” rather than a promise to use “best efforts” to refer business.

We nevertheless find the principles governing interpretation of open term contracts equally applicable to both business agreements. In First Union , we examined the meaning of “best efforts” in various business contract contexts in order to decide whether that term has a sufficiently definite meaning to be enforceable. A similar approach is appropriate here. “[W]here trade custom or usage attaches a special meaning to certain words or terms used in any particular trade or business, it is competent for the parties to a contract in which such words and terms are used to show the peculiar meaning of them in the business or trade to which the contract relates, not for the purpose of altering, adding to, or contradicting the contract, but for the purpose of elucidating the language used as a means of enabling the court to interpret the contract language according to the intention of the parties. This rule applies unless there is something to indicate that the parties did not use the language as it is used in the particular trade or business.” Della Ratta, Inc. v. Am.

Better Community Developers, Inc., 38 Md.App. 119, 130 , 380 A.2d 627 (1977) (citation omitted). Given the parties’ stated intent to offer each other an alternative side street access route if it “can be reasonably provided,” we consider whether such a promise may have had a mutually understood meaning in this property contract. In property law, the concept of “reasonable access” is a standard that is commonly used in defining rights to ingress and