                      United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 03-4071
                                    ___________

Dayton Development Company,           *
a Minnesota corporation,              *
                                      *
            Appellee,                 *
                                      * Appeal from the United States
      v.                              * District Court for the
                                      * District of Minnesota.
Gilman Financial Services, Inc.,      *
a Delaware corporation,               *
                                      *
            Appellant.                *
                                 ___________

                              Submitted: December 16, 2004
                                 Filed: August 23, 2005
                                  ___________

Before BYE, JOHN R. GIBSON, and GRUENDER, Circuit Judges.
                             ___________

BYE, Circuit Judge.

     This suit concerns a lease of fixtures in several Target stores across the country.
Gilman Financial Services, Inc. (Gilman) appeals the district court's1 grant of
summary judgment in favor of Dayton Development Company (Dayton). We affirm.




      1
      The Honorable Richard H. Kyle, United States District Judge for the District
of Minnesota.
                                           I

       In 1994, Target, a Minnesota-based retail chain, sold the fixtures (shelving,
racks, display counters, and other fixtures) in over one hundred of its stores. Target
simultaneously executed an agreement, the User Lease, with the purchaser to lease
the fixtures back for five years (with the right to renew for two additional years) with
an option to repurchase the fixtures at the end of the lease period. Target entered this
sale and leaseback transaction to obtain certain tax advantages.

      The transaction was actually a double sale and leaseback in which the
purchaser/lessor under the User Lease promptly resold the fixtures to another party,
who leased the fixtures to yet another party under a second lease, the Master Lease.
The leasehold interests under both the User and Master Leases then changed hands
several times. For purposes of this litigation, Target is the lessee under the User
Lease while Dayton is the lessor under that lease; Dayton is also the lessee under the
Master Lease while Gilman is the lessor under that lease.

       Target, after exercising its option to renew the User Lease for two additional
years, gave notice of its intention to repurchase the fixtures. The User Lease gave
Target the right to repurchase the fixtures at "Fair Market Value," which was defined
as the amount

      that would be obtained in an arm's length transaction between an
      informed and willing buyer or a lessee not currently in possession under
      no compulsion to buy and an informed and willing seller under no
      compulsion to sell, as determined in the good faith exercise of the
      judgment of Lessor [Dayton] and Lessee [Target].

In the event the parties to the User Lease could not agree upon the fixtures' fair
market value, the User Lease had an alternative valuation method which provided
fair market value would be determined "by a knowledgeable independent appraiser

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to be mutually agreed upon by the parties or, failing such agreement, by a panel of
three such appraisers, one selected by Lessor [Dayton], one selected by Lessee
[Target] and a third selected by the first two."

       Upon Target exercising its repurchase option under the User Lease, the Master
Lease obligated Dayton (lessee) to purchase the fixtures from Gilman (lessor) "and
to resell such Repurchased Equipment to User [Target] immediately thereafter in
accordance with the terms and conditions of the User Lease." The Master Lease
further provided the purchase price between Dayton and Gilman would be equal to
"the purchase price or other amount to be paid by or on behalf of the User [Target]
under the User Lease to the lessor under the User Lease [Dayton] . . . minus [] the
Leasehold Interest Value." In other words, the purchase price under the Master Lease
was directly tied to the repurchase price under the User Lease.

       The parties to the User Lease, Dayton and Target, agreed in good faith upon
a fair market value of $423,023 for the fixtures without having to resort to the
alternative valuation method under the User Lease. Dayton then advised Gilman it
was prepared to purchase the fixtures from Gilman under the Master Lease for
$423,023 so that Dayton could deliver title to the fixtures to Target. Gilman rejected
the price as inadequate, and refused to deliver title.

       Dayton then commenced this suit seeking a court order compelling Gilman to
transfer title in the fixtures to Dayton for $423,023. Gilman counterclaimed alleging
Dayton breached the two leases and sought to compel Dayton to participate in the
alternative valuation method under the User Lease. Gilman further contended Target
never validly renewed the User Lease, and thus could not exercise its right to
repurchase the fixtures. Both parties moved for summary judgment. The district
court concluded Gilman lacked standing to challenge the price of the fixture
repurchase because it was not a party to the User Lease or an intended third-party
beneficiary. The district court then denied Gilman's motion for summary judgment

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and granted Dayton's. This timely appeal followed in which Gilman contends 1) it
is a third-party beneficiary of the User Lease; 2) the User and Master Lease are a
single, indivisible contract; and 3) Dayton breached the Master Lease by accepting
Target's renewal of the User Lease without requiring written notice, and thus Target
could not exercise its right to repurchase the fixtures.

                                         II

      We review the district court's grant of summary judgment de novo. Trs. of
Graphic Communication Int'l Union Local 1B Health and Welfare Fund "A" v.
Tension Envelope Corp., 374 F.3d 633, 635 (8th Cir. 2004). "In reviewing the grant
of summary judgment, we likewise review de novo the district court's interpretation
of unambiguous contract language." Id.

      A.    Third-Party Beneficiary

      Gilman primarily argues it is a third-party beneficiary of the User Lease, and
as such had the right to compel Dayton to participate in the alternative valuation
method under the User Lease. We disagree.

      Minnesota applies Section 302 of the Restatement (Second) of Contracts to
determine whether a party is an intended third-party beneficiary of a contract. See
Schoffman v. Cent. States Diversified, Inc., 69 F.3d 215, 217 n.3 (8th Cir. 1995).
Subsection one provides:

            Unless otherwise agreed between promisor and promisee,
            a beneficiary of a promise is an intended beneficiary if
            recognition of a right to performance in the beneficiary is
            appropriate to effectuate the intention of the parties and
            either


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             (a) the performance of the promise will satisfy an
             obligation of the promisee to pay money to the beneficiary;
             or

             (b) the circumstances indicate that the promisee intends to
             give the beneficiary the benefit of the promised
             performance.

       Subparagraph (a) of section 302(1) has been referred to as setting forth a "duty
owed" test, that is, "the promisor's performance under the contract must discharge a
duty otherwise owed the third party by the promisee." Cretex Cos., Inc. v. Constr.
Leaders, Inc., 342 N.W.2d 135, 138 (Minn. 1984). Subparagraph (b) has been
referred to as setting forth an "intent to benefit" test, that is, "the contract must
express some intent by the parties to benefit the third party through contractual
performance[.]" Id. We agree with the district court that Gilman does not satisfy
either the "duty owed" or "intent to benefit" test with respect to the User Lease and
thus was not an intended third-party beneficiary of that contract.

             1. The Intent to Benefit Test

       "The intent to benefit test generally requires that 'the contract must express
some intent by the parties to benefit the third party through contractual performance.'"
Norwest Fin. Leasing, Inc. v. Morgan Whitney, Inc., 787 F. Supp. 895, 898 (D. Minn.
1992) (quoting Chard Realty, Inc. v. City of Shakopee, 392 N.W.2d 716, 720-21
(Minn. Ct. App. 1986)). In most cases, "when there is no reference to the third party
in the contract, there is no intent to benefit the third party." 614 Co. v. Minneapolis
Cmty. Dev. Agency, 547 N.W.2d 400, 410 (Minn. Ct. App. 1996).

      The User Lease did not refer to Gilman, the Master Lease, or the lessor of the
Master Lease; in addition, both the Master Lease and User Lease contained
integration clauses stating the contractual relationship between the parties to the


                                          -5-
respective agreements constituted the entire understanding between the parties with
respect to the matters set forth therein. Thus, there is a strong inference the parties
to the User Lease (Dayton and Target) did not intend to benefit Gilman.

       Gilman contends it was an intended beneficiary of the User Lease merely
because the User Lease referred to the lessee's (Target's) right to repurchase the
fixtures from the lessor (Dayton), who could only obtain title from the lessor of the
Master Lease (Gilman). Gilman argues "when both simultaneously created contracts
are viewed side by side, the consideration that passes from [Target], then is
contractually required to be passed to [Gilman] in return for title." Gilman's Br. at 28-
29.

       The mere reference to Target's right to repurchase the fixtures and the fact the
repurchase would ultimately require title to flow from Gilman through Dayton are not
enough to make Gilman an intended third-party beneficiary of the User Lease.
Instead, Gilman is merely an incidental beneficiary of the User Lease. For example,
when "B contracts with A to buy a new car manufactured by C[,] C is an incidental
beneficiary, even though the promise can only be performed if money is paid to C."
 Restatement (Second) of Contracts § 302(1), illus. 17. Likewise, in this case Target
contracted with Dayton to repurchase the fixtures owned by Gilman. Even though
that promise can only be performed if Dayton pays money to Gilman, Gilman is
nonetheless merely an incidental beneficiary of the agreement between Target and
Dayton. Gilman incidentally benefits from the contract between Dayton and Target
because it receives money from Dayton for the fixtures. But Gilman is not an
intended beneficiary of the contract between Dayton and Target and would not be
able to enforce the User Lease in the same way the car manufacturer could not
enforce the contract between B and A for the purchase of the car.

       The parties to the User Lease did not enter into that agreement with the specific
intent to benefit the lessor under the Master Lease. The Master Lease lessor would

                                          -6-
merely be an incidental beneficiary of the User Lease in the event the option to
repurchase was exercised under the User Lease.

             2. The Duty Owed Test

        To meet the "duty owed" test, "the promisor's performance under the contract
must discharge a duty otherwise owed the third party by the promisee." Cretex, 342
N.W.2d at 138. Gilman contends it meets the "duty owed" test because Target's
performance of the repurchase option will satisfy Dayton's duty to pay Gilman for
title to the fixtures. This argument is easily refuted simply by recognizing the
relevant duty under the User Lease and who the "promisor" and "promisee" are with
respect to that promise. Gilman's argument necessarily fails because it relies upon the
wrong duty, and confuses the "promisor" and "promisee."

       The relevant contract is the User Lease. The relevant promise under the User
Lease is Dayton's contractual obligation to return the fixtures to Target upon Target's
payment of the agreed-upon price. Target is the promisee, that is, the one to whom
the promise is made. Dayton is the promisor, that is, the one who undertakes the
contractual obligation. Gilman would be an intended beneficiary of the User Lease
only if Dayton's "performance of the promise will satisfy an obligation of the
promisee [Target] to pay money to the beneficiary [Gilman]." Restatement (Second)
of Contracts § 302(1)(a). But Target has no obligation to pay money to Gilman.
Only Dayton has an obligation to pay money to Gilman. Gilman's flawed argument
identifies Target as the promisor, and Dayton as the promisee, when the opposite is
true.

       In addition, as the district court noted, "[t]he obligation to be discharged must
arise from the agreement itself, and not from a separate contract." Dayton Dev. Co.
v. Gilman Fin. Servs., Inc., 299 F. Supp. 2d 933, 938 (D. Minn. 2003) (internal
quotations omitted). Gilman contends the relevant duty is Dayton's duty to pay

                                          -7-
Gilman for title to the fixtures. Dayton's obligation to pay Gilman arises from the
Master Lease, however, not the User Lease. Thus, Gilman's argument depends on a
duty that arises outside the very contract to which it claims to be an intended third-
party beneficiary. It is axiomatic that the duty a third-party beneficiary is attempting
to enforce must be a duty contracted for in the contract itself.

      B.     Single, Indivisible Contract

       In the alternative, Gilman argues it need not be an intended third-party
beneficiary of the User Lease because the User Lease and Master Lease should be
construed as a single, indivisible contract. If the two leases are viewed as one
contract, Gilman contends it has standing to enforce the alternative valuation method
under the User Lease. The district court rejected this argument, explaining "the User
Lease and Master Lease do not constitute a single, indivisible contract because these
leases are between different parties and contain integration clauses." Id. at 938 n.3.

       We are reluctant to adopt this part of the district court's reasoning because
Minnesota law indicates separate instruments can be read as one even if they contain
separate integration clauses, Farrell v. Johnson, 442 N.W.2d 805, 806 (Minn. Ct.
App. 1989), and are between different parties, Peterson v. Miller Rubber Co. of N.Y.,
24 F.2d 59, 62 (8th Cir. 1928) (applying Minnesota law). This is merely a partial
victory for Gilman, however, because its contention (that it has standing to enforce
the alternative valuation method under the User Lease) does not follow from its
premise (that the User and Master Leases are a single, indivisible contract).

       Under the plain language of the agreements, even when construed as one,
Gilman does not have the right to be involved in the alternative valuation method set
forth in the User Lease. Section 8 of the User Lease unambiguously gives Target and
Dayton the right to determine the repurchase price, and only Target and Dayton have
the right to use the alternative valuation method in the event they could not agree

                                          -8-
upon a price. Nothing in either the User Lease or the Master Lease gives Gilman the
right to be involved in the three-appraiser process set forth in the User Lease. To the
contrary, the Master Lease plainly provides Gilman would be bound by the price
determined under the provisions of the User Lease. Thus, as the district court noted:

      Despite the extraordinary amount of paper this case has generated, the
      Court finds it to be a relatively simple matter: Gilman, with eyes wide
      open, entered into an agreement in which Dayton and Target – two
      related parties – maintained an enormous latitude in determining the
      eventual purchase price. While Gilman argues that this result amounts
      to a windfall for Dayton, it represents the agreement Gilman signed. As
      the Minnesota Supreme Court has stated,

             When two competent parties who can readily read and
             write, sign [an agreement] . . . there is [usually] nothing left
             for a Court to do but to find a judgment . . . . People who
             sign documents which are plainly written must expect to be
             held liable thereon. Otherwise written documents would
             be entirely worthless and chaos would prevail in our
             business relations. Watkins Prod. Inc. v. Butterfield, 274
             Minn. 378, 144 N.W.2d 56, 58 (1966) (internal quotation
             omitted).

Dayton, 299 F. Supp. 2d at 938.

      C.     Renewal of the User Lease

      Finally, Gilman contends Dayton breached the Master Lease by allowing
Target to renew the User Lease without providing proper notice. Gilman relies upon
Section 11.4 of the Master Lease, which states Dayton may modify the User Lease
"only with prior written consent of [Gilman]." The User Lease allowed Target to
renew the lease by notifying Dayton "in writing of Lessee's intention to exercise such
option at least ninety (90) days prior to the expiration of the Initial Term." When


                                           -9-
Target notified Dayton it was renewing the lease, it did not provide written notice.
Gilman contends Dayton's renewal of the lease without requiring written notice from
Target constituted a modification of the User Lease, and Dayton thereby breached the
Master Lease because it did not get Gilman's consent.

       We disagree. The reference in the Master Lease to "modify" or "modification"
in this context are terms of art. It is clear both Target and Dayton continued their
obligations under the User Lease notwithstanding Target's failure to comply with the
written notice requirement. Minnesota law treats the continued performance of a
party following the failure of the other party to comply with a contract term as a
voluntary waiver of that contract term, rather than a "modification" of the contract.
See Fischer v. Pinske, 243 N.W.2d 733, 735 (Minn. 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 expressed in [the
contract.]"); see also Patterson v. Stover, 400 N.W.2d 398, 401 (Minn. Ct. App. 1987)
("Ignoring a provision in a contract will constitute waiver if the party whom the
provision favors continues to exercise his contract rights knowing that the condition
is not met."). Because both Target and Dayton behaved as if bound by the original
contract despite the lack of written notice, the lack of written notice did not constitute
a modification of the User Lease, but rather a waiver of the requirement of written
notice.

                                           III

      For the reasons expressed, we affirm the judgment of the district court.
                      ______________________________




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