Reynolds-Penland Co. v. Hexter & Lobello

567 S.W.2d 237, 1978 Tex. App. LEXIS 3190

• Court: Court of Appeals of Texas
• Decided: April 24, 1978
• Docket: 19337
• Status: Published

Opinions

AKIN, Justice.

The principal question on this appeal is whether equity will relieve a lessee, who, without fault on the part of the lessor, forgot to give timely notice of intention to renew an option to extend the lease term for an additional five years. We hold that the neglect of the lessee bars the interposition of equity. Accordingly, we affirm.

The property in question is located in a suburban shopping center and is used by the lessee as a men’s clothing store. The lease was for a term ending on January 31, 1977, and contained the following provision granting the lessee an option to renew the lease:

The lessee shall have, and is hereby given, the right to extend this lease for a further period of five (5) years beginning February 1, 1977, conditioned only that the lessee shall give to lessors written notice of its election to exercise such right of extension at least nine (9) months prior to January 31, 1977. [Emphasis added]

Under this provision, the time for exercising the option of renewal expired on April 30,1976. After the lessee failed to exercise its option of renewal, Hexter, as representative of the lessor, notified Reynolds-Pen-land on June 28, 1976, that the lessor expected Reynolds-Penland to vacate the premises at the end of the lease term. Upon receiving this notice, the lessee’s principal officer, Ed Reynolds, attempted to exercise the renewal option by letter of July 1,1976, slightly more than two months after the time specified in the lease. The lessors declined to accept the attempted late exercise of the option and elected to stand upon the specific condition in the lease and filed this suit seeking a declaratory judgment pronouncing the lease terminated on January 31, 1977. Reynolds-Penland responded, contending that since the delay in exercising the renewal option was slight, and that since the lessor had suffered no damage by the delay, the court should, accordingly, declare Reynolds-Penland’s late exercise of the renewal effective. On these grounds, Reynolds-Penland moved for summary judgment, asserting that no fact issues existed and that it was entitled to summary judgment, as a matter of law, under equitable principles, extending the lease for an additional five years at the rate specified in the lease. The lessors also moved for summary judgment on the ground that, as a matter of law, Reynolds-Penland had no right to renew except as specifically provided in the lease. Prior to hearing on the motions, the parties stipulated that certain relevant exhibits and depositions would be considered as summary judgment evidence, fully authenticated for such purposes, so that the trial court could consider all evidence in ruling on both motions. The trial court denied the motion of Reynolds-Penland, but granted the motion of lessors and rendered judgment accordingly. Reynolds-Penland appeals.

The facts are undisputed. Reynolds, who was charged with the responsibility for exercising the option, testified in his deposition that he simply forgot to exercise the option and admitted that nothing said or done by the lessors misled him. He also testified that the lease containing the option was in the possession of Reynolds-Pen-land’s attorneys, but he thought the lease required a six-month notice, rather than nine. When his attention was called to the matter by the lessor some two months after the time, had expired for exercising the renewal option, he attempted belatedly to exercise the option. Reynolds admitted that he had had years of extensive experience in leasing property, both as a landlord and as a tenant; he understood renewal options and knew that the option was required to be exercised timely in writing. Reynolds-Penland argues that the trial court erred in failing to recognize and apply the “rule of equity” which provides that a lessee’s delay in giving written notice of renewal of the lease option should be excused where the delay was slight, lessor’s loss small, and undue hardship would result to the lessee from the withholding of relief. We cannot agree with this contention because no such equitable rule exists in Texas.

The crucial question is whether mere neglect of the lessee in failing to timely exercise its option, absent other ameliorating circumstances such as fraud, misleading statements or acts by the lessor, or waiver, justifies the interposition of equity to rewrite a lease. We believe the correct rule, supported by the more numerous and better reasoned decisions, is that equity will not intervene in such a situation even though it may result in hardship to the lessee. Koch v. H & S Development Co., 249 Miss. 590, 163 So.2d 710 (1964); McClellan v. Ashley, 200 Va. 38, 104 S.E.2d 55 (1958); Woodrum v. Pulliam, 453 S.W.2d 263 (Ky. App.1970); see, Cattle Feeders, Inc. v. Jordan, 549 S.W.2d 29, 32-33 (Tex.Civ.App.—Corpus Christi 1977, no writ); Forest Park Lanes, Ltd. v. Keith, 441 S.W.2d 920, 932 (Tex.Civ.App.—Fort Worth 1969, no writ); see also Annot., 44 A.L.R.2d 1352 (1955).

The lease provision required a nine-month notice to the lessor of the lessee’s intent to renew for an additional five-year term at the same rental rate. This notice was a condition precedent to the lessee’s right to renew and was for the lessor’s benefit. Since Reynolds-Penland failed to exercise timely its right to renew through mere forgetfulness, that right was lost. The question then becomes whether equity should intervene in such a situation to relieve the lessee from complying with the terms of the lease, absent a waiver of the condition by the lessor. We hold that the neglect of the lessee bars the interposition of equity to grant relief to the lessee under these circumstances. In view of this holding, the common law rule that time is of the essence applies. Since the parties had contracted for a nine-month notice to be given as a condition precedent to the lessor’s obligation to extend the lease for an additional five years, the lessee must strictly adhere to this condition, unless excused by circumstances beyond his control. CLARK, EQUITY, § 144 (1954).

Reynolds-Penland asserts that not only will it be subjected to hardship, but also that a forfeiture of their anticipated renewal term will result. We cannot agree. At the time this suit was filed, Reynolds-Penland had nothing to forfeit. Its only right to occupy the premises beyond the primary term which the lessee had, was contained in the. lease. A mere neglect to comply with the condition precedent gives the lessee no rights in the leased premises beyond the primary term. See WALSH, EQUITY, § 72, pp. 360-61 (1930). Consequently, there can be no forfeiture, as Reynolds-Penland asserts, since no primary right ever came into existence.

Our holding as to when equitable principles apply is supported by the rationale in Barfield v. Howard M. Smith Company of Amarillo, 426 S.W.2d 834, 839 (Tex.1968). In that case, the supreme court held that a party claiming an estoppel must have used diligence to ascertain the truth of the matters upon which he relies in acting to his detriment. Barfield concerned a situation where the lessee had paid a lesser rental than that specified in the lease and asserted an equitable estoppel against the lessor’s action for the difference. In rejecting this argument, the court stated that “[0]ne of the requirements of estoppel is that the party claiming the estoppel was without knowledge, or the means of acquiring knowledge of the facts which the party to be estopped is alleged to have represented by his acts, conduct or silence.” That court concluded that where the facts were open for his convenient ascertainment, he cannot effectively say he was deceived or misled. The same principle applies here. Similarly, Reynolds-Penland had a copy in its possession, and could easily have ascertained the date for exercising the option by simply reading the lease.

Furthermore, in the absence of fraud or misrepresentation, a party is charged with knowing the legal effect of a contract voluntarily made. Barfield at 838. To state the rule differently, absent fraud, a party to a contract who has access to the full information of its contents cannot avoid it on the ground of his own neglect in failing to read it. Indemnity Ins. Co. of North America v. W. L. Macatee & Sons, 129 Tex. 166, 101 S.W.2d 553, 556 (1937); Morrison v. Insurance Company of North America, 69 Tex. 353, 359, 6 S.W. 605, 606 (1887); Womack v. Western Union Telegraph Co., 58 Tex. 176, 179 (1882).

In support of its contention that equity should intervene, Reynolds-Penland cites dicta in Jones v. Gibbs, 133 Tex. 627, 130 S.W.2d 265, 272 (1939); which quoted the following statement from F. B. Fountain Co. v. Stein, 97 Conn. 619, 118 A. 47, 50 (1922):

In cases of mere neglect in fulfilling a condition precedent of a lease, which do not fall within accident or mistake, equity will relieve when the delay has been slight, the loss to the lessor small, and when not to grant relief would result in such hardship to the tenant as to make it unconscionable to enforce literally the condition precedent of the lease. [Emphasis added]

In our view, Texas has not adopted this rule. Jones v. Gibbs, supra, concerned an option to renew a lease to cut timber where the defendants had paid the full consideration for the timber at the time the lease was executed. The Commission of Appeals held that the option was renewed when the lessee timely paid, at the administrator’s direction, the option renewal sum to the attorney for the lessor’s estate.

The dicta in Jones discussing F. B. Fountain, supra, as well as other cases, was not essential to the decision and was predicated upon the assumption by the court that “[I]f it is assumed the plaintiff in error (Jones) did not direct the payment of the rental for 1934 to be made to Wynne (the attorney for Jones), then the facts and circumstances proven by the undisputed evidence . are such . . . as to bring the case within the qualification established by the foregoing authorities to the strict rule generally applied to options. The case is one for the application of “overruling equitable rules”. Jones, 130 S.W.2d at 273. We do not regard this dicta as adopting the rule in F. B. Fountain v. Stein, supra. This is particularly true in light of the fact that the Connecticut court clearly stated that equity would intervene in the case of mere neglect and yet the court in Jones when it discussed by dicta this decision, as well as other decisions not so broad as Fountain, to the assumed facts, stated that equity would intervene where the lessee’s failure to comply was due in part to the conduct of the lessor or was the result of an honest and justifiable mistake on the part of the lessee and equity would not intervene in the case of willful conduct or gross negligence. Jones at 275. The Jones court did not say that equity will intervene in ease of mere neglect. We do not read the language “honest and justifiable mistake” to include within its ambit mere neglect in failing to read a lease. Furthermore, no question of neglect on the part of the lessee existed in Jones; indeed, the lessee in Jones acted both timely and diligently. Consequently, in the absence of a clear statement that equity will intervene in cases of mere neglect, the dicta in Jones, supra, is not authority to hold that equity will intervene when the lessee merely neglected to read its lease and to exercise its option.

Neither does Sirtex Oil Industries, Inc. v. Erigan, 403 S.W.2d 784 (Tex.1966) support Reynolds-Penland’s position. Although that court quoted from the dicta in Jones v. Gibbs, supra, it held that the clause in a lease requiring annual payments was a covenant, not a condition. This holding disposed of the case, but that court noted by dicta that equity abhors a forfeiture and copied the quotation of F. B. Fountain v. Stein, supra, from Gibbs. Since that discussion was not essential to the decision, and since the question of whether neglect justifies the interposition of equity was not before that court nor discussed by that court, we conclude that Sirtex is, likewise, not authority to hold that mere neglect of a lessee condones the intervention of equity.

We cannot agree with the dissent’s assertion that the discussion of equitable principles in Jones and Sirtex was an independent or alternative ground upon which each of these decisions rested. In our view, the dissent fails to draw a distinction between a holding predicated upon two separate and distinct grounds (alternative grounds) and dicta. In Casparis v. Fidelity Union Casualty Co., 65 S.W.2d 404, 406 (Tex.Civ.App.—Austin 1933, writ ref’d), the Austin Court of Civil Appeals enunciated the rule that “where an appellate court rests its decision on two or more distinct grounds, each is as much an authoritative determination as the other, and neither can be disregarded as obiter dictum.” Id. 406. In Casparis, the court was concerned with whether it was bound by both grounds of the Commission of Appeals’ decision in Cooper v. United States Fidelity & Guaranty Co., 29 S.W.2d 971, 973 (Tex.Comm’n App.—1930, judgmt. adopted). The Casparis court did not, however, discuss the distinction between alternative holdings of an opinion and obiter dicta. Although we agree with the rule stated in Casparis, it has no application here. In our view, there is a sharp distinction between alternative holdings and obi-ter dictum. The former exists where the appellate court rests its decision under the facts presented on two separate, but equally valid, grounds. For example, a court may rest a decision on the statute of frauds, and, additionally, on the statute of limitations, either of which is determinative. On the other hand, obiter dictum exists where an appellate court decides a case on a specific ground based upon the facts of the case and, then assuming facts not before it, makes statements based upon the assumed facts. Such was the case in both Jones and Sirtex.

If the view advanced by the dissent is accepted, all contracts would be called into question as meaningless and uncertain, dependent upon the whims of a panacean court or a jury. If certainty of rights and obligations is the basic goal of contract law, this goal would be frustrated by making every option contract the subject of equitable discretion by both court and jury. The absurdity of such a rule is even more apparent where, as here, the contract is between experienced and sophisticated businessmen.

Affirmed.