Dolph v. Lennon's, Inc.

220 P. 161, 109 Or. 336, 1923 Ore. LEXIS 104

• Court: Oregon Supreme Court
• Decided: November 20, 1923
• Status: Published

Opinion

BEAN, J.

In regard to the clause which it was claimed in the complaint was omitted from the lease to the effect that Lennon’s, Incorporated, should occupy the premises during the term of the lease exclusively for the conduct of its own business, we should first notice that the trial court found from the testimony, that such clause should not be incorporated in the lease, and the plaintiff being apparently satisfied with the decree did not appeal; therefore, that phase of the matter is out of the case.

A party who has failed to take an appeal cannot, on appeal by the adverse party, insist on a decree more favorable to him than that given in the court below, even though the case is triable de novo in the Supreme Court: Flinn v. Vaughn, 55 Or. 372 (106 Pac. 642); McCoy v. Crossfield, 54 Or. 591 (104 Pac. 423); Goldsmith v. Elwert, 31 Or. 539 (50 Pac. 867), and other cases referred to in these.

The decree appealed from ordered that the lease “be and the same is hereby reformed and corrected to conform to the real agreement of the parties thereto,” then provided for inserting in the lease the following:

“It is further covenanted and agreed by and between the parties hereto that said party of the second part will not assign this lease, nor sublet said premises, nor any part thereof, without the consent in writing of the party of the first part had and obtained permitting the same.”

The instrument as reformed by the decree of the trial court contains no. covenant either that the premises should be used exclusively by Lennon’s, Incorporated, for the purpose of conducting its own business only or for the conducting of the business formerly conducted at Morrison Street. The decree is a judicial determination against the plaintiff, that no snch terms were a part of the original contract.

The only question that remains is whether or not the testimony warrants the finding that the contracting parties to the lease agreed that the premises should not be sublet or the lease assigned without the written consent of the plaintiff, first had and obtained. It goes without saying that a written instrument can only be reformed so as to conform to the agreement made by the parties. The function of the written instrument is to record the agreement which the parties executing the same have made. If it was an oversight in not making any agreement as to subletting the premises or assigning the lease, then there could have been no mistake or oversight in omitting the insertion of such a clause in the written lease. The scrivener who drew the lease would not be expected to insert therein a stipulation that, in fact, had not been made by the parties. Neither is the court authorized to reform the instrument and insert therein any stipulation or agreement that was not in the minds of the parties at the time they made the contract.

"We fail to find in the record any testimony to support the finding or decree of the trial court that the nonassignment clause and clause restricting the subletting of the premises was a part of the real agreement of the parties to the lease. There were four persons present at the negotiations when the verbal contract was consummated and the terms thereof fixed, Mrs. Dolph, Mr. Simon, Mr. Newell and Mr. Berg. All of these witnesses agree that the subject of assignment and subletting was .not even mentioned at that time by either of the parties or anyone else.

The reason for the opinion of the trial court seems to have been that the agreement alleged to the effect that the premises were to be used by Lennon’s, Incorporated, for its business only, and to conduct such a business as was conducted at Morrison Street, is equivalent to an agreement not to assign or sublet the premises without the written consent of the plaintiff.

If the defendant, Lennon’s, Incorporated, did not agree as a part of the contract to occupy its premises for its business only or to conduct its business therein as conducted at Morrison Street, it cannot be said that they agreed to something claimed to be equivalent, namely, not to assign or sublet the premises. We should not translate words used in the negotiations which were not a term of the contract into other words constituting a contract. If we change the phraseology it must mean the same thing as the original language. The new language inserted in the written instrument by the decree is radically different from the original. It is not susceptible of the same meaning as the original language used by the parties in the negotiations and was not so understood by both of them. Therefore, there is no basis for the decree because there is no evidence supporting the finding that an agreement was made that the lease should not be assigned and the premises should not be sublet without the written consent of the lessor.

According to the facts in the case as delineated by the testimony if the clause relating to the nonassignment of the lease, and the restriction as to the subletting of the premises had been inserted in the lease by the draftsman, then it would have amounted to no more than a proposal on the part of the lessor, and would have required the acceptance of the lessee to consummate the agreement. This, .of course, would have been accomplished by the execution of the lease with such an insertion. "Whether the lessor and the lessee could have come to an agreement as to a restriction in regard to subletting if they had endeavored to do so, is in doubt. Mrs. Dolph testified that she would not have signed the lease if she had understood that there were no restrictions in regard to a sublease. On the other hand, Mr. Berg, the vice-president and representative of Lennon’s, the lessee, testified that he would not have signed the lease containing the covenant that the lease should not be assigned, nor the premises sublet without the written consent of the lessor, unless there had been a further provision that such consent should not be arbitrarily withheld. So that it appears that the oversight was a failure of the parties to come to an agreement or understanding in regard to the covenant inserted by the decree, rather than in a mistake in making the written memorandum show what the parties had agreed to.

As a general rule, the power of assignment is • incident to the estate of a lessee, unless it is restrained by the terms of the lease. Though a lease is necessarily a contract, yet it is a contract which creates an estate, and by the common law an estate is assignable, and the power to assign exists without the word “assigns” in the lease. It has been held that under an agreement for a lease the lessor is not, without an express stipulation, entitled to a covenant restraining alienation without the lessor’s consent as a proper and usual covenant: 16 R. C. L. 828, § 323; Church v. Brown, 15 Ves. Jr. 258 (10 Rev. Rep. 74, 15 Eng. Rul. Cas. 688); Hampshire v. Wickens, 7 Ch. Div. 555 (47 L. J. Ch. 243, 38 L. T. (N. S.) 408, 26 W. R. 491, 15 Eng. Rul. Cas. 699).

Eestrictions against assignments being a restraint against alienation are not favored by the courts. Clear and convincing evidence of a previous definite agreement on the particular point is necessary to justify the insertion of such a clause in a lease and even where such clauses appear, they are construed with the utmost strictness in the interest of freedom of alienation: 16 E. C. L. 832, § 328. Tiffany on Landlord & Tenant, Section 152, page 221, says—

“Eestrictions of this character, upon alienation by the lessee are not favored and are, it is said, to be construed strictly, and a particular mode of alienation is, it has been stated in a leading case on the subject, not to be regarded as prohibited unless it is ‘by words which admit of no other meaning.’ ” See also, Id., § 46; Goldman v. Feder, 84 W. Va. 600 (100 S. E. 400, 7 A. L. R. 246).

Lord Chancellor Eldon, in the case of Church v. Brown, 15 Ves. 258, discussing this point said:

“ * * nothing which flows out of that interest as an incident, is to be done away by loose expressions, to be construed by facts more loose; that it is upon the party, who has forborne to insert a covenant for his own benefit, to show his title to it; and that it is safer to require the lessor to protect himself by express stipulation, than for courts of equity to hold, that contracting parties shall insert, not restraints, expressed by the contract, or implied by- law, but such, more or less in number, as individual conveyances shall from day to day prescribe, as proper to be imposed upon the lessee; and that, all those restraints, so imposed from time to time, are to be introduced as the aggregate of the agreement.”

See also opinion of Lord Thurlow in Henderson v. Hay, 3 Brown Ch. 632.

The claim for the insertion of a nonassignable clause is practically based upon the statement made by Mr. Berg on behalf of Lennon’s during the negotiations for the lease to the effect that they desired the building of Mrs. Dolph for the purpose of conducting their business which they had been conducting on Morrison Street, and that he expected to improve the building by the expenditure of $35,000 or $40,000. Neither of these matters was of a contractual nature. Both Mrs. Dolph and Mr. Simon say there was no mistake in regard to omitting from the lease any mention of Mr. Berg’s statement that he expected to expend $35,000 or $40,000 on the property. Mr. Simon, who was attorney for Mrs. Dolph and who drew up the instrument, says that he had no intention of including a provision affirmatively requiring the premises to be used by Lennon’s, although he thought that as a practical matter that would be the effect of a provision against assignment or subletting without written consent.

The reformation of the lease is therefore based upon loose language made by Berg during the negotiations and, although made in good faith and at that time it was the intention to occupy the building by Lennon’s, subsequent circumstances caused a change in the plans. This statement was made as the reason why he desired to lease the premises and as an inducement to Mrs. Dolph to enter into the lease. It is not a part of the consideration for the contract. See Philpot v. Gruninger, 14 Wall. (U. S.) 570 (20 L. Ed. 743, see, also, Rose’s U. S. Notes). Mrs. Dolph treats the assertion of Berg’s as a promise.

The general rule, as stated in Cerny v. Paxton & G. Co., 78 Neb. 134 (110 N. W. 892, 10 L. R. A. (N. S.) 640), is that “fraud cannot be predicated on a promise not performed; that, to constitute actionable fraud there must be a false assertion in regard to some existing matter, by which a party is induced to part with his money or property.” The mere nonperformance of a promise made in the course of negotiations or the failure to carry out an intention expressed in the course of such negotiations is not of itself either a fraud or evidence of a fraud, in the absence of allegations and proof that the representations were falsely and fraudulently made with intent to deceive; that is, that the statement of intent as to the future was made in bad faith: Adams v. Schiffer, 11 Colo. 15 (17 Pac. 21, 7 Am. St. Rep. 202). See note, 10 L. E. A. (N. S.) 641. A representation, to be fraudulent in the legal sense, must relate to a past fact or present condition, and must not be a mere promise: Casselberry v. Warren, 40 Ill. App. 626; Hartsville University v. Hamilton, 34 Ind. 506; Welshbillig v. Dienhart, 65 Ind. 94; Wheeler v. Mowers, 16 Misc. Rep. 143 (38 N. Y. Supp. 950); J. H. Clark Co. v. Rice, 127 Wis. 451 (106 N. W. 231, 7 Ann. Cas. 505), and other cases cited in note to Cerny v. Paxton, 10 L. R. A. 641 et seq.

The defendant, Lennon’s did not agree as a part of the contract to occupy the premises for its business only or to conduct its business thereon as conducted at Morrison Street. There is a marked distinction between the motive that may induce one to enter into a contract and the considération of the contract. The fact that an intention expressed by the representative of Lennon’s in the course of the negotiations was not carried out, or that the hopes or plans discussed did not eventuate is not of itself fraud or evidence of fraud. It cannot he made the basis of a suit for reformation, in the absence of proof that the representations were falsely and fraudulently made with intent to deceive, that is, that the statement of intent as to the future was made in bad faith. It seems that Mr. Berg was absolutely sincere in explaining his reasons for negotiating the lease, ft appears from the record that he went to great trouble and expense on behalf of Lennon’s in procuring plans for carrying his wishes into execution. Impaired health and a disappointment as to his son, whom he expected to assist in the conduct of the business, altered the conditions, and these intentions expressed by him and referred to by Mrs. Dolph as “promises,” could not be carried out.

The plaintiff in her complaint, as amended at the trial, after alleging that the error in the lease occurred through mutual mistake alleges that appellants were guilty of fraud in signing and accepting the lease as drawn, without pointing out that there was a provision omitted. The trial court appears to have adopted that view.

At the time the negotiations for the lease were had, the main part of which were at Mr. Simon’s office, all of the interested parties assented to Mr. Simon drawing the lease. Neither Mr. Berg nor Lennon’s, Incorporated, was represented by an attorney at that time. After the lease was drawn it was submitted to Mr. Berg and executed as drafted. It is not reasonable to hold or expect that Berg or anyone representing Lennon’s should be required to notice provisions in the lease, or omitted from the lease, any more than Mr. Simon, who is considered to be an eminent, able and careful attorney. He represented Mrs. Dolph in the negotiations and suggested that the lessee offer $1,500 per month rental to the premises instead of $1,450. It seems clear to us that there was no fraud either in the preparation or execution of the lease. The language of the court in the case of Fulton v. Colwell, 110 Fed. 54, seems pertinent to the case at bar.

“It is obvious that there can be no question of fraud respecting either the preparation or execution of this contract. It was drawn by Mr. Day, the attorney of the complainant, and was executed in his presence. * * The contract was fairly made, deliberately entered into by the parties, with full opportunity to become acquainted with its contents.” See also 12 E. C. L. 254, § 21.

The subletting of the premises by Lennon’s cannot be made the basis of reformation on the ground of fraud, for the reason it was not a fraudulent transaction nor a badge of fraud, moreover, it occurred more than two years after the making of the lease, “the fraud which will entitle the party to relief is fraud at the time of the execution of the instrument, and not in a subsequent and. distinct transaction.” 23 E. C. L. 329, § 21.

To obtain reformation the testimony of a “mutual mistake” must be clear, definite, cogent and unequivocal and must show precisely what was intended by the parties to be contained in the instrument.

Generally, where a memorandum in writing fails to conform to the contract between the parties in consequence of their mutual mistake, or the mistake of one party, and fraud of the other, a court of equity will reform the instrument so as to make it conform to the actual stipulation of the parties: Bradshaw v. Provident T. Co., 81 Or. 55-62 (158 Pac. 274); Richmond v. Ogden St. Ry. Co., 44 Or. 48 (74 Pac. 333); Bird v. Mayo, 75 Or. 100-103 (144 , 145 Pac. 13, 146 Pac. 475); Howard v. Tettlebaum, 61 Or. 144 (120 Pac. 373); Kraemer v. Alvord, 97 Or. 227-231 (189 Pac. 990); 4 Pomeroy’s Equity Jurisprudence (4 ed.), § 1376.

It is conceded that the concurrence of an excusable mistake of one party and fraud of the other is as potent to justify reformation as a mutual mistake. Plaintiff alleges in her complaint that “ * * defendant, Lennon’s Incorporated, signed and executed the said writing * * in the belief that it fully contained the above mentioned omitted parts,” etc. After that in the complaint “plaintiff alleges that the defendant Lennon’s Incorporated, at the time of the signing of the said writing, * * had full knowledge and notice that the said writing as signed did not express or declare the actual true and full agreement between the said plaintiff and the said defendant Lennon’s Incorporated. ” There is a vast difference between mistake and fraud. One negatives the other. As we have heretofore stated we find there was no fraud in the execution of the lease. Mr. Simon says that he made a “mistake” in not noticing that his stenographer had overlooked a portion of the “boiler-plate” provisions. Mrs. Dolph says she read the lease over and thought it conformed to the agreement but was mistaken. There was no testimony, however, to show that Mr. Berg, who represented Lennon’s, made any such mistake. But Mr. Simon and Mrs. Dolph both state that the subject of assigning and subletting, or restrictions thereon, was never discussed. It should be kept in mind that we are concerned solely with the nonassignment and subletting clause, since that is the only relief granted plaintiff, who does not appeal

In the consideration of a case of this kind it should he borne in mind that every presumption is to be invoked in favor of the correctness of the instrument written. It is important that the sanctity of the written agreement be preserved: 23 R. C. L. 367, 368, § 67. It is an old-established rule in this state, which has been consistently followed, that an instrument will not be reformed except upon “clear and convincing proof” of the facts alleged in the complaint: Remillard v. Prescott, 8 Or. 37; Epstein v. State Ins. Co., 21 Or. 179 (27 Pac. 1045); Kleinsorge v. Rohse, 25 Or. 51 (34 Pac. 874); Thornton v. Krimbel, 28 Or. 271 (42 Pac. 995); Stein v. Phillips, 47 Or. 545 (84 Pac. 793); Smith v. Interior Warehouse Co., 51 Or. 578 (94 Pac. 508, 95 Pac. 499); Sayre v. Moir, 68 Or. 381 (137 Pac. 215); Boardman v. Insurance Co. of State of Pa., 84 Or. 60 (164 Pac. 558).

Under the circumstances of this case, the casual statement of Mr. Berg, of Lennon’s, during the preliminary negotiations as to what the lessee intended to do with the premises cannot be the basis for a legal mandate, forcibly incorporating into the lease a provision against assignment and subletting: United States v. Milliken Imprinting Co., 202 U. S. 168 (50 L. Ed. 980, 26 Sup. Ct. Rep. 572, see, also, Rose’s U. S. Notes); Bower v. Bowser, 49 Or. 182 (88 Pac. 1104); Suksdorf v. Spokane P. & S. Ry. Co., 72 Or. 398 (143 Pac. 1104).

A suit for reformation is an appeal to an extraordinary power of a court of equity. We should scrutinize the clause, sought to be inserted in the writing, and consider its equitable or inequitable features. What is asked is for all practical purposes a requirement that Lennon’s, the lessee, do business on the premises for the term of the lease, ten years. Defendant Berg, who made the negotiations for Lennon’s, testified to the effect that he would not, and that no reasonable business man would have made such an agreement; that the lease was written exactly as the parties agreed. The nonassignment clause in a long term lease, with no restriction as to the arbitrary power of the lessor to withhold consent to a subletting of the premises, does not appeal to the conscience of a court of equity. It appears that prior to subletting the premises the parties were careful to ascertain that the Sweet Sixteen Co. was a responsible concern fully capable of carrying out the term of the lease and that the business in which they engage, in several cities, is no more hazardous than the business of Lennon’s, in fact, is in a similar line, but more extensive. And that preparations have been made by the subtenant to greatly improve and beautify the building. The fact that the lessor appears to be satisfied with the new tenant, provided that the increased rental be paid to her, does not indicate that the lessor has been injured by the change óf tenants. On the other hand, the payment of the rent reserved in her lease will be more secure for the term of the lease.

Mrs. Dolph had a perfect right at the time the contract in question was made to insist on a non-assignment clause and prohibiting or restricting the subletting of her premises; but before the matter would have become a contract the other contracting party would have had to assent to the proposition. The weakness of plaintiff’s case in this respect is that she did not then insist upon or suggest such a stipulation and it was never made. It is too late for her to do ,so now. It follows that the decree of the trial court must be reversed and the suit dismissed.

It is so ordered.

Reversed and Suit Dismissed.

McBride, C. J., and Brown and McGourt, JJ., concur.