Charles A. Mullan and Thomas F. Mullan, Jr. v. The United States

412 F.2d 1305, 188 Ct. Cl. 568, 1969 U.S. Ct. Cl. LEXIS 40

Opinions

OPINION

Footnotes

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COLLINS, Judge.

The central issue in this case is the proper construction to be given a cancellation provision in a lease agreement between plaintiffs’ predecessor in interest¹ and the Government. In October 1951 the 420 Fallsway Corporation leased part of an office property known as the Hil-len Building to the General Services Administration (GSA). The contract provided for Government occupancy for a term of years, renewable for a limited number of 3-year increments at defendant’s option. The lease was amended from time to time in several respects, most of which are not pertinent here. By February 1961, the Government, through lease amendments, was renting the entire building. The successive lease renewals apparently incorporated all prior amendments.

During the lease terms from 1951 to 1955 and 1955 to 1958, the Hillen Building was occupied by the Air Research and Development Command, a branch of the Air Force. Because office space had become available elsewhere, however, the Government notified the 420 Fallsway Corporation in early 1958 that the lease would not be renewed for the term beginning July 1, 1958. In May 1958 the Social Security Administration (SSA) requested GSA to obtain office space in Baltimore for some of SSA’s personnel, pending completion in that city of a new SSA building then under construction. After preliminary negotiations, GSA sent the corporation a letter of intent dated June 3, 1958. The pertinent portions of the letter are as follows:

The agency would like to extend the present lease for a three year term beginning July 1, 1958, with certain changes as follows:

(1) The lease to be firm from July 1, 1958 through December 31, 1959, cancellable thereafter on ninety (90) days notice in the event the Social Security Administration Building in Baltimore is completed;

The corporation agreed to the terms of the letter on June 5, 1958.

On June 19, 1958, a supplemental agreement drafted by GSA was executed by the parties. The agreement provided for renewal of the lease between the parties for a 3-year .period. The crucial portion of that amendment states:

1. The Lessor waives notice of renewal as required by Paragraph 5 of the lease and the lease is hereby renewed for a term of 3 years beginning July 1, 1958, and ending June 30, 1961.

2. Paragraph 3 of the lease is amended by the insertion of an additional sentence recited as follows:

“The Government shall have the right to cancel this lease at anytime after December 31, 1959 upon ninety (90) days notice in writing to the Lessor, such notice to be computed starting with the day after the date of mailing. This cancellation right is exercisable only in the event that the New Social Security Administration Building, now under construction near Baltimore, Maryland, is completed and ready for occupancy coincident with the cancellation.”

The new SSA building was completed and occupied by the agency in January 1960. But previously, in the fall of 1958, it was discovered that, contrary to expectations, the new building would not satisfy all SSA’s space requirements. The decision was made to continue to use the Hillen Building as office space for the part of the SSA staff then located there. Construction of an annex to the new building, designed to accommodate this unexpected staff overflow, was started in 1960. On February 27, 1961, the GSA exercised its renewal option by notifying the corporation that it wished to extend the lease for 3 years beyond June 30, 1961, on the same terms and conditions as in the original lease, as amended. No specific reference was made to the cancellation provision. As the annex approached readiness for occupancy, the GSA notified the corporation on May 29, 1962, that it was terminating the lease, and defendant vacated the premises on August 31, 1962. Rent was paid through August, but not beyond.

Before our trial commissioner, defendant predicated its right to terminate the lease in 1962 on two grounds. The Government contended that the “New Social Security Administration Building” referred to in the cancellation provision was, or included, the annex. The commissioner found, however, that the construction of an annex was not proposed until some 4 months after the execution of the June 1958 supplemental agreement. We think the commissioner’s conclusion that the annex was not in the contemplation of the parties in June 1958 is compelled by the evidence. Defendant does not challenge this finding here, and we treat this argument as abandoned.

The Government still argues, however, that the cancellation provision allowed termination by the lessee upon 90 days’ notice at any time after the completion of the new Social Security Administration building referred to therein. This termination provision, defendant asserts, was carried over into the lease as renewed for the years 1961 through 1964. GSA was therefore within its rights in canceling in 1962.

Plaintiffs claim that the lease renewal in 1961 bound the GSA for a full 3-year term and could not be terminated on 90 days’ notice after January 1960. Plaintiffs’ theory is that the clause contained in the supplemental agreement, granting the GSA the right to cancel the lease in the event the new Social Security Administration building was completed “coincident with the cancellation,” gave a limited right of cancellation, exercisable only at the time of the completion of this building. When the GSA failed to exercise this option in January 1960, the point in time when the building was in fact completed and ready for occupancy, the option expired, and the entire clause became a nullity. Therefore, plaintiffs argue, when GSA renewed the lease in 1961, the entire termination provision, including the 90-day termination clause, was of no legal effect, and GSA was bound for the full term called for by the renewal.

Because the language in dispute is ambiguous, we have examined parol evidence in the record to determine from the intent of the parties what meaning they placed upon the unclear wording of the cancellation provision. E.g., General Warehouse Two, Inc. v. United States, 389 F.2d 1016, 181 Ct.Cl. 180 (1967); see Miami Metropolitan Bldg. Corp. v. United States, 180 Ct.Cl. 503, 508-509 (1967) . We find no intention that GSA was to have an unlimited right to terminate the lease, but find rather the existence of an understanding that the Government would exercise its right to cancel only at the time of completion of the new SSA building.

In the first place, we believe the language of the cancellation provision supports plaintiffs’ reading more readily than defendant’s. At the very least, since the Government drafted the ambiguous provision in issue, plaintiffs’ interpretation of the clause — which we find entirely reasonable — must prevail. E.g., Ray D. Bolander Co. v. United States, 186 Ct.Cl. 398 (1968); Sun Shipbuilding & Dry Dock Co. v. United States, 393 F.2d 807, 183 Ct.Cl. 358 (1968) .

The two sentences of the termination clause should be read together, as the reference words, “This cancellation right,” in the second sentence and the ordinary rules of contract construction indicate. See Wertheimer Constr. Co. v. United States, 406 F.2d 1071, 186 Ct.Cl. 836 (1969); Morrison-Knudsen Co. v. United States, 397 F.2d 826, 184 Ct.Cl. 661 (1968). The conclusion is inescapable, we believe, that the second sentence is so worded as to be a limitation upon the general power of termination given in the first sentence.

There is no longer any question concerning what building the parties had in mind. Nor does there appear to be any dispute that the completed construction of the building was in some way conditionally related to the exercise of the cancellation right. What is still at issue is the nature of that relationship, which hinges upon the word “coincident.” Neither party has introduced evidence to show that the meaning of this term is governed by trade usage or a specialized context, and accordingly the common and ordinary denotation of the word is to be used. General Warehouse Two, Inc. v. United States, 389 F.2d 1016, 181 Ct.Cl. 180 (1967). This is usually given as “occurring or operating at the same time.” Webster’s Third New International Dictionary 441 (1965).

Under the facts of this case, the completion of the building and the cancellation over 2 years thereafter can hardly be considered “coincident.” The phrase “ready for occupancy,” which denotes a state of preparedness, rather than of accomplishment, further supports the conclusion that termination was to occur, if at all, at the time of the building’s completion.

For all these reasons, we accept plaintiffs’ interpretation of the disputed language as more convincing. In any case, their reading is entirely plausible, and the above-mentioned rule of contract construction compels an interpretation of the clause to favor the non-drafter.

Moreover, the greater weight of the external evidence shows that in June 1958 the parties understood that the SSA employees in the Hillen Building would be moved into the new structure at its completion, and the lessee’s power of termination was incorporated with this in mind. Much has been made of the difference between the wording of the termination power in the Government-drafted letter of intent and in the supplemental agreement. However, the language in the letter stating that the power could be exercised “in the event” of the completion of the new building is, it seems to us, at least as ambiguous as the contract wording and is susceptible to the same interpretations now urged by the parties with respect to the agreement. We find the letter unhelpful and do not rely upon it.

From the parol evidence concerning the motivations and intent of the 420 Fallsway Corporation, it is unlikely that the organization intended to give the Government carte blanche with respect to termination. When the first renewal of the lease in 1955 was under negotiation, the corporation on two occasions specifically and emphatically rejected the Government’s expressed request for a general power of cancellation. Although it appears that in 1958 the corporation was desirous of retaining defendant as lessee and accordingly made the concession it did regarding termination, it is improbable from its former conduct that the corporation would have allowed the Government a general power to cancel, should defendant not choose to move its employees into the new SSA building.

It is unlikely, however, that the parties seriously considered that the power of cancellation would not be exercised upon completion of the new structure. At the time of the 1958 negotiations, defendant believed that space would be available in the new building for all SSA employees, those in the Hillen complex included. As shown by defendant’s exhibit No. 126, an internal memorandum, the suggestion that some employees be left in downtown Baltimore due to inadequate space in the SSA building was formulated in the fall of 1958. As the evidence indicates, for obvious financial and administrative reasons defendant hoped to consolidate all SSA functions in one building. Indeed, this was the motivation behind the later construction of the annex and defendant’s purported termination of the instant lease in 1962, shortly after the completion of the annex. The other SSA employees were moved into the new building immediately upon its completion and readiness for occupancy consonant with defendant’s plan of unification. From these facts, the conclusion is inescapable that, but for inadequate space, the Hillen Building employees would also have been moved in January 1960. The logical inference to be drawn is that defendant negotiated and drafted the cancellation provision with this purpose in mind. We find, therefore, that defendant definitely intended to cancel its lease with the corporation as soon as the new building was ready for occupancy. We hold that the parties intended that the cancellation provision would be operative immediately upon completion of the SSA building or within a reasonable time thereafter consistent with defendant’s purpose as discussed above.

When the Government’s aim was temporarily frustrated, it chose not to exercise its limited option to cancel. The point of concurrence of time and events at which the parties expressly intended the termination power to be operable, and upon which coincidence the right was conditioned, ceased to exist. Accordingly, since the condition could never again be met, the provision no longer had legal effect. Even if the cancellation provision was incorporated in the lease as renewed in 1961, it was inoperable.

For the above reasons, we conclude that defendant wrongfully terminated its lease with plaintiffs’ corporation in 1962, and plaintiffs are entitled to recover the rental payments from September 1, 1962, through June 30, 1964, plus expenses. In accordance with the commissioner’s unchallenged findings concerning damages, judgment is entered for plaintiffs in the sum of three hundred thirty-two thousand eight hundred forty-one dollars and fifty-five cents (|332,841.55).

The opinion written by Commissioner C. Murray Bernhardt has been helpful to the court, although we reach a different result. The commissioner’s findings of fact, with additions and modifications, have been adopted.

1

. Messrs. Mullan were substituted as plaintiffs for the 420 Fallsway Corporation on January 10, 1969. When, consequent to eminent domain proceedings against its property, the corporation underwent liquidation, all its assets and claims were transferred to its only shareholders, the Mullans. The corporation however, was the party concerned in all actions and at all times pertinent to the present claim. See finding No. 1.