Brick Development v. CNBT II , 301 Neb. 279 ( 2018 )

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/02/2018 01:11 AM CDT
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
BRICK DEVELOPMENT v. CNBT II
Cite as 301 Neb. 279
Brick Development, appellant, v. CNBT II LLC
and The Cattle National Bank &
Trust Co., appellees.
___ N.W.2d ___
Filed October 12, 2018. No. S-17-865.
1. Summary Judgment. Summary judgment is proper when the pleadings
and evidence admitted at the hearing disclose no genuine issue regard­
ing any material fact or the ultimate inferences that may be drawn from
those facts and that the moving party is entitled to judgment as a matter
of law.
2. Summary Judgment: Appeal and Error. In reviewing a summary
judgment, an appellate court views the evidence in the light most
favorable to the party against whom the judgment is granted and gives
such party the benefit of all reasonable inferences deducible from
the evidence.
3. Contracts: Real Estate: Leases. Neb. Rev. Stat. § 36-105 (Reissue
2016) requires a signature by the party to be charged by the writing.
4. Landlord and Tenant: Assignments. A lessee, during his occupancy
of the demised premises, holds both by privity of estate and of contract.
Assignment of the lease by the lessee divests him of this privity of estate
and transfers it to his assignee, who thereafter holds in privity of estate
with the lessor.
5. Landlord and Tenant: Assignments: Breach of Contract. Privity
of contract is not transmitted to the purchaser of the leasehold by an
assignment of the lease alone; for the express covenants of the lessee
contained in the lease will remain, during the continuance of the terms,
obligatory upon the lessee. These obligations extend to breaches of cov-
enant which have occurred after the assignment, and the lessee is not
relieved therefrom by the mere acceptance of rent by the lessor from the
person to whom such assignment has been made.
6. Landlord and Tenant: Leases. A landlord is not necessarily entitled
to enforce all of the terms of a lease merely because there is privity of
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BRICK DEVELOPMENT v. CNBT II
Cite as 301 Neb. 279
estate; rather, such privity only gives the landlord the right to enforce
covenants that run with the land.
7. Contracts: Real Estate: Words and Phrases. Generally, the three
essential requirements for a covenant of any type to run with land are
(1) the grantor and the grantee intend that the covenant run with the
land, as determined from the instruments of record; (2) the covenant
must “touch and concern” the land with which it runs; and (3) the party
claiming the benefit of the covenant and the party who bears the burden
of the covenant must be in privity of estate.
8. Contracts: Real Estate: Landlord and Tenant: Liability. The cov-
enant to pay rent runs with the land, and a party in privity of estate with
the landlord is directly liable to him for the installments accruing while
that relation exists.
9. Contracts: Real Estate: Liability. Liability for covenants which run
with the land cease with cessation of possession.
10. Real Estate: Leases. An express assumption of a real property lease
requires specific affirmation by the assignee to bind itself to the lease
obligations.
11. Estoppel. The doctrine of equitable estoppel is applied to transactions in
which it is found that it would be unconscionable to permit a person to
maintain a position inconsistent with one in which he or she has acqui-
esced or of which he or she has accepted any benefit.
12. Contracts: Fraud: Estoppel. Only where a party to a written contract
within the statute of frauds induces another to waive some provision
upon which he is entitled to insist and thereby change his position to his
disadvantage because of that party’s inducement will the inducing party
be estopped to claim that such oral modification is invalid because not
in writing.
13. Contracts: Fraud. Sophisticated business entities are charged with
knowledge of the statute of frauds and cannot reasonably rely on oral
statements or conduct.
Appeal from the District Court for Lancaster County: Robert
R. Otte, Judge. Affirmed.
Randall L. Goyette 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.,
for appellees.
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BRICK DEVELOPMENT v. CNBT II
Cite as 301 Neb. 279
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 priv-
ity 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 park-
ing 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 indebt-
edness 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 per-
tinent to this appeal. One section authorized assignment of
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BRICK DEVELOPMENT v. CNBT II
Cite as 301 Neb. 279
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
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BRICK DEVELOPMENT v. CNBT II
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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, assign-
ments, 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 pur-
chase the Property on the same terms and conditions as the
Buyer . . . .”
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BRICK DEVELOPMENT v. CNBT II
Cite as 301 Neb. 279
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 exist-
ing 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 previ-
ous 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 pro-
posed assignment had been signed by Brick, as lessor, giv-
ing 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 obli-
gations 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 pay-
ment 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 imple-
mented. 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 assign-
ment 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 con-
tained Brick’s signature only. The purpose of the notice was to
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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 les-
see. 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 les-
see 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
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BRICK DEVELOPMENT v. CNBT II
Cite as 301 Neb. 279
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 [park-
ing 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 and that
sophisticated business entities are charged with knowledge of
the statute of frauds. The court determined that any reliance
by Brick that CNBT had assumed the obligations under the
lease was unreasonable. The court concluded that CNBT’s lia-
bility ceased with its cessation of possession and that thus, it
was not liable for its obligations as a tenant beyond September
10, 2015. The court sustained CNBT’s and the Bank’s motions
for summary judgment.
Brick appealed, and we moved the case to our docket.1
ASSIGNMENTS OF ERROR
Brick assigns two errors. First, Brick alleges that the court
erred in denying its motion for summary judgment for several
reasons. Second, Brick claims that the court erred in granting
CNBT’s and the Bank’s motions for summary judgment.
STANDARD OF REVIEW
[1,2] Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose no genuine issue
regarding any material fact or the ultimate inferences that
may be drawn from those facts and that the moving party is
entitled to judgment as a matter of law.2 In reviewing a sum-
mary judgment, an appellate court views the evidence in the
1
See Neb. Rev. Stat. § 24-1106 (Supp. 2017).
2
Jordan v. LSF8 Master Participation Trust, 300 Neb. 523, 915 N.W.2d 399
(2018).
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BRICK DEVELOPMENT v. CNBT II
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light most favorable to the party against whom the judgment
is granted and gives such party the benefit of all reasonable
inferences deducible from the evidence.3
ANALYSIS
Statute of Frauds
Brick argues that the district court erred by concluding that
CNBT and the Bank did not assume the parking lot lease and
that the statute of frauds precluded the lease’s enforcement.
Under Nebraska’s statute of frauds, “Every contract for the
leasing for a longer period than one year . . . shall be void
unless the contract or some note or memorandum thereof be
in writing and signed by the party by whom the lease . . . is to
be made.”4
In this case, a relationship complying with the statute of
frauds developed a new wrinkle: The 50-year parking lot lease
between the Smiths and TTE complied with the statute of
frauds. So, too, did TTE’s assignment of the lease to Raasch.
And at the time of the assignment, TTE also conveyed the
office building to Raasch. Thus, for approximately 6 years,
Raasch owned the office building and, as assignee of the park-
ing lot lease, was entitled to use the nearby parking lot. The
statute of frauds problem crept in with Raasch’s executing the
deed of trust to secure the loan from the Bank and the subse-
quent trustee’s sale of the property.
[3] Section 36-105 requires a signature by the party to be
charged by the writing.5 Brick seeks to have CNBT bound by
the parking lot lease. But as Brick forthrightly conceded at
oral argument, there is no direct writing between Brick and
CNBT that is also signed by CNBT. And neither the deed of
trust nor the trustee’s deed is signed by CNBT.
3
Id.
4
§ 36-105.
5
See Walters v. Sporer, 298 Neb. 536, 905 N.W.2d 70 (2017).
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BRICK DEVELOPMENT v. CNBT II
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Brick directs us to the trustee’s deed, which stated that the
property was “subject to” the parking lot lease. However, the
deed of trust contains no reference to the parking lot property
or to the parking lot lease. A deed of trust is a mortgage.6 In
the context of mortgages, we have stated that a mortgage fore-
closure sale transfers to the purchaser every right and interest
of all parties to the foreclosure suit in the mortgaged property.7
It follows then that a trustee’s sale transfers to the purchaser
every right and interest of the parties to the property described
in the deed of trust. And because the deed of trust concerned
the office building only and not the parking lot, we reject
Brick’s contention that the parking lot lease fell within the
deed of trust’s clause where Raasch assigned to the Bank “all
the right, title and interest in . . . existing or future leases . . .
for the use and occupancy of the Property.”
We briefly digress to distinguish Walters v. Sporer.8 In that
case, the original grantor sought to enforce a right of first
refusal contained in a warranty deed. We stated that the right
of first refusal was within Neb. Rev. Stat. § 36-103 (Reissue
2016) of the statute of frauds, which required a signature by
the party to be charged by the writing. But we determined
that acceptance of the deed satisfied the statute of frauds. We
reasoned that “[t]o hold otherwise would be a misapplication
of the statute of frauds by inequitably allowing the [original
grantees] to retain the benefit of the deed while escaping
a clear statement of intent on its face.” 9 But in the instant
case, there is no such clear statement of intent. The deed of
trust did not specifically mention the parking lot lease. Thus,
there is no inequity in not binding the grantee to the terms of
the lease.
6
Fiske v. Mayhew, 90 Neb. 196, 133 N.W. 195 (1911).
7
See Clements v. Doak, 140 Neb. 265, 299 N.W. 505 (1941).
8
Walters v. Sporer, supra note 5.
9
Id. at 558, 905 N.W.2d at 86.
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BRICK DEVELOPMENT v. CNBT II
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In an attempt to circumvent the statute of frauds, Brick
focuses on CNBT’s actions. For over 3 years, CNBT made
monthly rent payments for use of the parking lot, including
rental increases called for in the parking lot lease. CNBT also
reaped the benefits of the 2004 lease that TTE entered into
with DAS and that expired on August 30, 2015. And CNBT
complied with the right of first refusal language contained in
the parking lot lease. Brick points to language in cases from
other jurisdictions stating that possession plus paying rent
gives rise to a presumption of an assignment sufficient to sat-
isfy the statute of frauds.10 But those jurisdictions also make
clear that an assignee will be liable for covenants that run with
the land only while in privity of estate.11
[4,5] A lease of real property implicates principles of both
privity of contract and privity of estate. A lessee, during his
occupancy of the demised premises, holds both by privity
of estate and of contract. Assignment of the lease by the les-
see divests him of this privity of estate and transfers it to his
assignee, who thereafter holds in privity of estate with the
lessor.12 Privity of contract, however, is not transmitted to
the purchaser of the leasehold by an assignment of the lease
alone; for the express covenants of the lessee contained in the
lease will remain, during the continuance of the terms, obliga-
tory upon the lessee. These obligations extend to breaches of
covenant which have occurred after the assignment, and the
lessee is not relieved therefrom by the mere acceptance of rent
by the lessor from the person to whom such assignment has
been made.13
10
See, Gateway I Group v. Park Ave. Physicians, 62 A.D.3d 141, 877 N.Y.S.2d
95 (2009); 8182 Maryland Associates v. Sheehan, 14 S.W.3d 576 (Mo.
2000); Abbott v. Bob’s U-Drive et al, 222 Or. 147, 352 P.2d 598 (1960).
11
See, Beltrone Marital Trust v. Lavelle and Finn, 22 A.D.3d 936, 803
N.Y.S.2d 211 (2005); 8182 Maryland Associates v. Sheehan, supra note
10; Abbott v. Bob’s U-Drive et al, supra note 10.
12
Mayer v. Dwiggins, 114 Neb. 184, 206 N.W. 744 (1925).
13
Id.
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[6-9] If privity of estate is present, a party is typically
liable only for covenants that run with the land. A landlord is
not necessarily entitled to enforce all of the terms of a lease
merely because there is privity of estate; rather, such privity
only gives the landlord the right to enforce covenants that run
with the land.14 Generally, the three essential requirements for
a covenant of any type to run with land are (1) the grantor and
the grantee intend that the covenant run with the land, as deter-
mined from the instruments of record; (2) the covenant must
“‘touch and concern’” the land with which it runs; and (3) the
party claiming the benefit of the covenant and the party who
bears the burden of the covenant must be in privity of estate.15
The covenant to pay rent runs with the land, and a party in
privity of estate with the landlord is directly liable to him for
the installments accruing while that relation exists.16 Liability
for covenants which run with the land cease with cessation
of possession.17
[10] Privity of contract does not run with the land. Privity
of contract is not transmitted to the purchaser of a leasehold.18
Thus, unless a new tenant assumes the lease, the tenant will
not be bound under privity of contract.19 An express assump-
tion of a real property lease requires specific affirmation by
the assignee to bind itself to the lease obligations.20 CNBT
has not specifically stated, orally or in writing, that it agreed
14
See Excel Willowbrook v. JP Morgan Chase Bank, 758 F.3d 592 (5th Cir.
2014).
15
Regency Homes Assn. v. Egermayer, 243 Neb. 286, 296, 498 N.W.2d 783,
789 (1993).
16
Hogg v. Reynolds, 61 Neb. 758, 86 N.W. 758 (1901).
17
See Kelly v. Tri-Cities Broadcasting, Inc., 147 Cal. App. 3d 666, 195 Cal.
Rptr. 303 (1983).
18
See Mayer v. Dwiggins, supra note 12.
19
See Kelly v. Tri-Cities Broadcasting, Inc., supra note 17.
20
Landlord v. Farmers & Merchants, 14 Cal. App. 5th 992, 222 Cal. Rptr. 3d
435 (2017).
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to be bound by the parking lot lease. Because CNBT did not
expressly assume the lease, it is not bound by the obligations
contained therein, other than covenants which run with the land
during CNBT’s occupancy. We conclude that paying rent while
in possession is not an exception to the requirement under the
statute of frauds that an assumption of a lease for a period
greater than 1 year must be in writing.
Equitable Estoppel
[11] Brick assigns that the district court erred in deter-
mining that equitable estoppel did not apply. It contends
that CNBT should be estopped from relying on the statute
of frauds as a defense. The doctrine of equitable estoppel
is applied to transactions in which it is found that it would
be unconscionable to permit a person to maintain a position
inconsistent with one in which he or she has acquiesced or of
which he or she has accepted any benefit.21 Brick contends
that CNBT both acquiesced to and received benefits as a les-
see under the parking lot lease agreement and should not now
be allowed to disclaim it.
[12,13] Equitable estoppel does not apply under the circum-
stances. Only where a party to a written contract within the
statute of frauds induces another to waive some provision upon
which he is entitled to insist and thereby change his position
to his disadvantage because of that party’s inducement will the
inducing party be estopped to claim that such oral modification
is invalid because not in writing.22 There is no evidence that
CNBT induced Brick to believe that CNBT assumed the long-
term obligations of the lease or that Brick changed its position
to its disadvantage in reliance upon such a belief. Further,
the district court found that Brick qualified as a sophisticated
21
Becher v. Becher, 299 Neb. 206, 908 N.W.2d 12 (2018).
22
Fast Ball Sports v. Metropolitan Entertainment, 21 Neb. Ct. App. 1, 835
N.W.2d 782 (2013). See Farmland Service Coop, Inc. v. Klein, 196 Neb.
538, 244 N.W.2d 86 (1976).
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business entity, and Brick does not challenge this finding on
appeal. Sophisticated business entities are charged with knowl-
edge of the statute of frauds and cannot reasonably rely on oral
statements or conduct.23 Because Brick was a sophisticated
business entity, CNBT is not estopped from raising the statute
of frauds as a defense.
No Genuine Issue
Finally, Brick argues that an issue of fact remained regard-
ing whether CNBT and the Bank intended to assume the
assignment of the parking lot lease by continuing to rent the
parking lot and complying with all provisions of the lease
agreement. But there is no genuine issue of material fact that
CNBT never signed anything expressly assuming the obliga-
tions of the parking lot lease. Because the statute of frauds bars
Brick’s claims, CNBT’s conduct and intent are irrelevant.
CONCLUSION
Because there is no privity of contract and CNBT did not
expressly assume the lease, Brick’s breach of contract claim is
barred by the statute of frauds. We further conclude that CNBT
is not estopped from raising the statute of frauds as a defense.
And because there was no genuine issue of material fact, the
district court did not err in granting summary judgment in
favor of CNBT. We affirm.
A ffirmed.
Stacy, J., not participating.
23
See 168th and Dodge, LP v. Rave Reviews Cinemas, LLC, 501 F.3d 945
(8th Cir. 2007).