Xanthakey v. Hayes

140 A. 808, 107 Conn. 459, 1928 Conn. LEXIS 42

• Court: Supreme Court of Connecticut
• Decided: March 8, 1928
• Status: Published

Opinion

Wheeler, C. J.

The defendant’s requests that paragraphs seven and eighteen of the finding be stricken out are denied except that “some of the subtenants” as stated in paragraph eighteen is changed to “one of the subtenants.” Paragraphs twenty-eight, twenty-nine and thirty-nine of the finding are stricken out as conclusions of law. Defendant’s requests thai paragraphs four, thirteen, eighteen, nineteen, twenty-three and twenty-four of the draft-finding be added to the finding are denied as contrary to the evidence, or based on conflicting evidence, and her requests that paragraphs twelve, sixteen, seventeen, twenty and twenty-one of the draft-finding be added to the finding are granted substantially in the form requested.

The plaintiffs seek a mandatory injunction ordering defendant to renew their lease for the period of renewal specified in the lease, and restraining defendant from bringing an action of summary process to evict them. The defendant answered admitting some and denying other allegations. Defendant now assigns as error that plaintiffs are not entitled to the equitable relief prayed for because of their violations of the covenants of their lease: in making the lease to the Dobbs Shoe Company, in permitting the occupancy of the store by Leary, in the conduct of the plaintiffs subsequent to the fire in relation to the leased premises damaged by exposure to the elements, and in the failure to give notice of the intention of plaintiffs to renew the lease. It was the duty of the defendant to have pleaded such violations of the lease as she thought would overthrow or affect plaintiffs’ claim for equitable relief. Opportunity would then have been accorded the plaintiffs to have replied by pleading, res adjudicata, waiver, or the like. The defendant did not so plead, but under her answer of a partial denial the court permitted defendant to introduce evidence of the several claimed violations of the lease by plaintiffs which form a part of the defendant’s reasons of appeal. Both parties appear to have been permitted to introduce such evidence as they desired in support of the contested allegations of the complaint, of the claimed violations of the lease, of whatever defenses plaintiffs desired to interpose to these, and of all evidence tending to substantiate plaintiffs’ claim for equitable relief, or the contrary.

The condition of the record makes it clear that we can determine all of the issues which appear in the assignment of errors without doing injustice to either party. We therefore shall determine these issues without further consideration of the irregularity in the pleading and in the presentation of the case in the trial court. The making of the lease to the Dobbs Shoe Company and the subsequent transfer of the control of the stock of the company to Hertzmark, appear to have been done in literal compliance with this provision of the lease, “And it is further agreed that the lessee may sublet said premises in whole or in part to a corporation or corporations which they may organize but the lessee shall be liable for the rent for the full term even though the lessor accepts it from the said lessee.” All of the facts which defendant sought to have added to the finding, tending to disclose the bad faith of the plaintiffs or their ulterior purpose in avoiding the clauses of the lease concerning subletting, the court refused to find. We cannot find that the trial court was in error in this. It did appear that the course pursued was taken by advice of counsel, and that during the term of the plaintiffs’ lease other corporations had been organized and leases executed to them, thus indicating that the parties to this lease either did not regard this method as beyond the terms of the lease, or, if the defendant did so regard it, she did not, so far as appears, object to it. It is the conduct of the plaintiffs in connection with the making of this lease which determines whether the violation of the lease, if it were a violation, affected the right of the plaintiffs to equitable relief. The facts found do not raise an inference of inequity in the course taken regarding this corporation, its stock and the lease to it. The occupancy by Leary of space in the store of the Xanthos Candy Company, sublessees of plaintiffs, for the sale of flowers for a week preceding Easter Sunday, 1926, is found to have been permitted by the Candy Company without the knowledge or consent of either of the plaintiffs. The defendant’s agent knew of this occupancy at the time and made no objection to it. Thereafter, and as in the case of the Dobbs Shoe Company, defendant continued to receive the rent under the terms of the lease and made no objection or complaint for violations of the lease on account of the occupancy of Leary, or of the lease to the Dobbs Company. The letter of April 7th, 1926, was an express waiver of these instances of subletting, had the plaintiffs been responsible for them.

The claim that the plaintiffs breached their lease by committing waste, through leaving the building after the fire exposed it to the elements, was adjudicated in the summary process action and determined adversely to defendant. Further, the court has found that the premises after the fire were untenantable and remained so until restored by defendant, whose duty it was to care for these premises after the fire and during their untenantable condition. Moreover, upon the restoration of the premises, plaintiffs re-entered and continued to pay rent as before for upward of two years, and in accepting this rent the defendant waived her right to defend this action, for such breach, if it had been a breach.

The covenant of the lease the violation of which the defendant most relies upon is the provision requiring plaintiffs to give sixty days’ notice of their intention to renew. Her counsel urge that the equitable interests of the plaintiffs are not sufficiently great to bring this case within the rule announced in Fountain Co. v. Stein, 97 Conn. 619, 626, 118 Atl. 47. While not directly urging the overruling of that case, they, with ■insistent persistency, admonish against the extension of the rule, or its application to a case which does not clearly fall within the equitable considerations upon which we based it, and press upon our consideration their assertion that that rule “is undoubtedly different from that held by a majority of the courts.” Our holding was this: “We think the better rule to be that in cases of wilful or gross negligence in failing to fulfil a condition precedent of a lease, equity will never relieve. But in case of mere neglect in fulfilling a condition precedent of a lease, which does 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.”

In the case before us the delay in giving the notice was due to mere forgetfulness. It was slight—three days—the first of which was a holiday, the second a Sunday. No loss to the defendant resulted through the delay. The plaintiffs have placed in this building im provements of the value of about $4,000 which belong to the lessor by the terms of the lease. Three thousand dollars’ worth of these improvements were placed in the building within two years of the expiration of the lease. The fire and the delay of fifteen months before defendant restored the building to a tenantable condition, made it necessary for plaintiffs to again establish their business and custom. In the two years prior to the renewal period they had paid the expenses of the business, obtained from it a living for themselves and their families, and secured for their business a good will which was valuable.

The trial court was right in its conclusion that the failure of the plaintiffs to secure a renewal would be, under these conditions, “an irreparable and unconscionable loss,” bringing the case well within the rule of the Fountain case, supra. In view of counsel’s criticism of that case we have re-examined with care our holding and the authorities existent when that case was decided, as well as the decisions rendered thereafter, and will, briefly, state some of the additional reasons which have caused us to reaffirm for this jurisdiction the authority of the Fountain case. The general rule is that unless the delay is so great as to be inexcusable a failure to perform in the time agreed upon will not preclude relief in equity from a forfeiture, when the other conditions affording equitable relief as stated in the rule of the Fountain case quoted above are present.

The provision of this lease is one of option in which there is an obligation on the part of the lessor, upon the lessee giving the specified notice, to give the renewal of the lease, but no obligation on the part of the lessee to give the notice, or to accept the renewal. It is held by high authority that time is always of the essence of a contract of option. In support of this con struction it is said the question “is not one of condition implied in law but of an express condition which must be strictly performed in order to hold the promisor liable.” 2 Williston on Contracts (1920 Ed.) §853. That would be true of an option such as a mere option to buy real estate. It is not true, we think, as to all forms of contracts of option, nor of the provision for an option to renew in the lease before us. It has no relation to an option granted a lessee for the renewal of his lease upon his giving notice of his intention to renew in a stated manner and time such as is found in the lease made by these parties. “All of the clauses of the instrument are to be construed together as a whole, so as to give effect to all of its parts.” Fountain Co. v. Stein, supra, p. 622. The consideration of this lease was not merely the payment of the rental provided in the lease but that, plus the subsequent ownership by the lessor of all improvements made a part of the leased building by the lessee. The consideration of the lease to the lessees was not merely the use of the leased premises for the first term, but also the prospective use in the renewal term. The promise on the part of the lessor to grant a renewal, and the prospect that the lessees would avail themselves of their right to a renewal was an indivisible part of the contract of lease, and formed a substantial consideration for it. The lessees were undoubtedly willing to pay more rent for a lease of business property near the center of Waterbury for a stated term with a privilege of renewal upon the same terms, than they would have been for a single term, and willing to make more extensive improvements, and to agree that these should become the property of the lessor because of the opportunity to secure a longer lease. With each payment of rent, and with every improvement made, the lessees were paying the consideration agreed upon for the renewal of the lease. Having completed the payment of the entire consideration which they had agreed to pay, they ought not to be denied the equitable relief which would be accorded them in their situation in every form of contract other than one for an option. The broad statement of the rule that “the failure of the optionee to exercise his right of election and to give notice within the time stipulated in the option, or implied by law, ends his option rights,” found in §862 of James on Option Contracts, is contradicted in §848, where we find this qualification of the rule, “except in a few instances exhibited by decisions referred to later on, in which the courts, upon broad equitable grounds, have recognized and enforced elections made and notices given after the expiration of the contract time.” We also find on page 401, in note 3, a qualification of this rule: “There should, perhaps, be a qualification of the rule of the text when the option is a part of a lease or other contract which furnishes the consideration for the option, or where the acts done under the lease are with a view to the exercise of the option. In such cases there is reputable authority that time is not necessarily of the essence.”

The true consideration of a renewal provision is excellently stated in McCormick v. Stephany, 61 N. J. Eq. 208, 217, 48 Atl. 25, in considering a lease with an' agreement to give the lessee the option to purchase at the lessor’s figure if the lessor secured a purchaser ready to purchase at this price. “The agreement,” the court says, “to sell was contained in a lease of the premises, and in such cases the payment of the rent is held to be applicable as consideration for the agreement to convey at the named price. . . . Such an agreement to convey is not a mere unaccepted proffer based upon no consideration, as is a letter offering to sell, nor is it a naked promise to sell at a price within a limited time. It is a completed purchase of a right to have a conveyance if the purchaser shall choose to buy upon the terms named. . . . In such case there is no question of the arrival of the parties at a common intent. They have already made a contract upon consideration paid, by which the owner is bound to convey whenever the condition happens, and the making of a counter proposal to him does not enable him to retain the consideration paid and to declare the contract forfeited.” In Monihon v. Wakelin, 6 Ariz. 225, 230, 232, the lease gave the lessees the right to renew a five year lease by giving written notice six months before the termination of the first term. The court says: “An option to purchase, or to renew a lease, standing alone, unsupported by any consideration which has passed, both in law and equity is regarded differently "from a covenant to convey, or to renew a lease forming an integral part of a contract or lease, containing several distinct covenants, and founded upon an adequate consideration. The latter is treated as more than a mere privilege, and as having all of the elements of a mutual contract. . . . Such covenant to convey or to renew a lease, unless it be otherwise declared in the instrument itself, is properly held to constitute a substantial part of the whole contract, because it might well be considered as a material inducement which led to its execution.” The court held in Schroeder v. Germeinder, 10 Nev. 355, 364, that equity will enforce a covenant to renew a lease, “provided it is shown to have been made upon a fair consideration, and where it forms part of a contract, lease or agreement that may be the true consideration for it. What was the consideration for this covenant giving the first privilege to purchase? In order properly to answer this question, all the covenants in the lease must be considered. The covenant upon the part of the lessor to lease the premises for a period of two years, with privilege of two more; the right of the lessees to make improvements thereon; to purchase the same at any time at the price mentioned, and the covenant upon the part of the lessees to pay the rent agreed upon, must be considered as constituting one entire agreement, each particular covenant forming an inducement thereto. The covenant to pay the rent must be deemed to have been made in consideration, as well as for the privilege of becoming the purchaser of the property, as for its use.” See also House v. Jackson, 24 Ore. 89, 32 Pac. 1027; Souffrain v. McDonald, 27 Ind. 269. In the case of a renewal of a ninety-nine year lease where the lessee was in default the court held: “In determining the right of the lessee to renew in this class of cases, the question to be considered is, has the party asking for relief been guilty of gross negligence, or is the default relied on the result of mere negligence?” Selden v. Camp, 95 Va. 527, 531, 28 S. E. 877. The courts of Maryland and California support the doctrine of these cases. Banks v. Haskie, 45 Md. 207; Worthington v. Lee, 61 Md. 530; Myers v. Silljacks, 58 Md. 319; De Rutte v. Muldrow, 16 Cal. 505; Hall v. Center, 40 Cal. 63. Professor Corbin, in his article on Option Contracts, 23 Yale Law Journal, 662, recognizes the existence of the equitable remedy where forfeiture is claimed for failure to give notice or to pay money within the prescribed time. He says: “In option contracts time is nearly always of the essence. This would be so on either theory of an option. If we regard it as an offer, it is open for a time limited and no offer can be accepted after its lapse. If we regard it as a conditional contract, it contains the express condition that notice shall be given or that money shall be paid by a specified time. Such an express condition should be en forced according to its terms, unless such enforcement will result in an inequitable forfeiture.”

The annotator of the note to Fountain Co. v. Stein, in 27 A.L.R. 981, 982, similarly recognizes the existence of such an equitable remedy: “In general it may be said that courts of equity have granted relief in cases of special hardship or of failure to give notice within the required time because of some unavoidable accident or circumstance, where the delay has not been wilful or the result of gross negligence, and the landlord has not been prejudiced thereby, and justice will be promoted by granting a renewal of the lease rather than by giving effect to the consequences of the tenant’s failure to give the notice of renewal within the time stipulated.” See also Underhill on Landlord & Tenant, Yol. 2, p. 1383, §810.

We, too, have recognized this remedy as available to a lessor in a contract for an option in Roberts v. Norton, 66 Conn. 1, 6, 33 Atl. 532, where we held: “Regarding the transaction as a purchase by the defendant with an option to the plaintiff to purchase from him Tor a given price within a limited time,’ it is clear that, independently of the difficulty of granting a decree for specific performance upon the complaint as it stands, the plaintiff is not, on the facts found, entitled to such relief. Time has, by this court, been held to be of the essence of such a contract. Phipps v. Munson, supra [50 Conn. 267]. This should be so, at least to the extent of preventing a plaintiff from successfully inviting a court to ignore his laches, for which he shows no excuse, or palliation, and regarding which no blame attaches to the opposite party.” We enforced the equitable remedy to- prevent the forfeiture of a lease for failure to pay within the prescribed time in Thompson v. Coe, 96 Conn. 644, 115 Atl. 219. In applying the principle of these two cases to the case of an option for a renewal under a lease, we had but a short step to go to reach the conclusion in the Fountain case.

We have examined the three cases upon which the appellant especially relied. Doepfner v. Bowers, 106 N. Y. Supp. 932, holds that where the time within which an option is to be exercised is a condition precedent and no title has vested, and none is to vest until the condition is performed, equity can give no relief in the event of a forfeiture. The opinion in the Fountain case sufficiently discusses the effect of a condition precedent in an optional provision of a lease, and of the existence of an equitable interest in the lessee under the circumstances of that case. We have enlarged in this case upon the consideration of the lease which created the equitable interest in the lessees under the present lease. The Massachusetts case, Donovan Motor Car Co. v. Niles, 246 Mass. 106, 107, 140 N. E. 304, disposes of the attempt to enforce an option for renewal of a lease, when the lessee had not given the notice of its intended exercise of its option, in these words: “The remaining contention is that time not being of the essence of the contract the written notice was sufficient. The short answer is, that whether the question arises either at law or in equity it is settled that Time is of the essence of the option.’ ” That is, in option contracts of every class, for every purpose, and where the parties have not expressly made time of the essence, and where the nature of the contract, construed in the light of its surrounding circumstances, does not make time of the essence, the law will make time of the essence, and deny to the lessee, who has, through slight negligence, failed to exercise his option within the required time, a remedy in equity, and enforce against him a forfeiture, no matter how great the hardship to him may be, or how unconscionable the re- suit. Such a rule is, we believe, against the trend of modern equity jurisprudence, as well as against our former and present holding. Murtland v. English, 214 Pa. St. 325, 63 Atl. 882, holds that the lessee in order to make claim under a renewal provision in a lease must give notice to the landlord of his intention to claim it as prescribed in the lease. The case was not brought to secure an equitable remedy nor do its facts bring it within the facts in the Fountain case or this case. The present case is peculiarly one for the interposition'of equity to prevent the consummation of unconscionable hardship to the plaintiffs There is no error.

In this opinion the other judges concurred.