This is a suit in equity brought by the plaintiff lessee against the lessors to set aside a written lease which the plaintiff claims is unconscionable, harsh and oppressive. The plaintiff leased the premises which are in John Day, Grant County, for the purpose of operating a physiotherapy clinic. After about a year and a half she vacated the premises and eventually the defendants took possession in accordance with the termination provisions contained in the lease. The alleged hardship to plaintiff resulting from the termination of the lease arises out of the fact that the plaintiff had constructed a building upon the leasehold premises at a cost of $14,000 and that her interest in the building would be forfeited if the relief requested is not granted.
The written lease contained a clause providing that the building was to be used by the lessee in carrying on physiotherapy and as her personal residence and for no other purpose. The lease also contained a covenant against assignment by the lessee. It is contended that these restrictions on the lessee's interest were inserted in the lease as a result of duress by the defendants. The plaintiff alleges that as a result of defendants' conduct and other factors there were not sufficient physical therapy patients to enable her to
The plaintiff seeks a decree permitting her to remove the building constructed by her, or to recover the reasonable value of it upon payment of such damages as defendants may have suffered. The lower court dismissed the plaintiff's complaint and the plaintiff appeals.
The lease is for a term of twenty years beginning on January 1, 1952. The lessee agreed to pay 5% of the gross receipts earned in carrying on the practice of physical therapy, payable at the end of each month during the term of the lease. There was no provision for minimum rental. The lease recited that the lessee had begun construction of a building on the leasehold premises and the lessee covenanted to complete it. It provided that upon the expiration or termination of the lease the premises were to be delivered up to the lessors. The clause restricting lessee's
The lease contained a nonassignment clause which read as follows: "Said lessee will not assign, transfer, pledge, hypothecate, surrender, or otherwise encumber or dispose of this lease or the estate created in this lease, or any interest in any portion of the same, or permit any other person or persons, company, or corporation to occupy the premises without the written consent of the lessors being first obtained in writing." The lessee further agreed: "That this lease is personal to said lessee, and her interests, or any part thereof, cannot be sold, assigned, transferred, seized or taken by operation of law, or under or by virtue of any execution or other process, attachment, or proceeding instituted against the lessee, or under or by virtue of any bankruptcy or insolvency proceeding had in regard to the lessee, or any other manner, except as above mentioned."
The lease reserved the lessors a right of entry "* * * if the lessee shall be in arrears in the payment of rent for a period of 10 days, or if said lessee shall fail or neglect to do, or perform, or observe any of the covenants contained herein on her part to be kept and performed * * *."
The lease was executed under the following circumstances. The defendants, husband and wife, are medical doctors. They own and operate a hospital or clinic in John Day, Oregon. The plaintiff is a physical therapist. The parties met for the first time in 1942 when the plaintiff, as a part of her duties
Plaintiff did not have any further contact with the defendants from August 1943 until 1951 when she got in touch with them by letter for the purpose of determining whether it would be feasible to establish a physiotherapy practice in John Day. At that time she had her own practice in Seattle, Washington, but because of her son's ill health she wished to move to a drier climate. The defendants indicated their interest in having the plaintiff move to John Day. She visited John Day in the spring of 1951 and again a few months later; on each occasion for only a few days. It was sometime during these visits that the parties entered into negotiations for a lease of defendants' property. The formal written lease which plaintiff now seeks to set aside was not signed by the lessee until June, 1952. However, a draft of a lease prepared by the defendants' attorney was prepared and submitted to the plaintiff's attorney sometime before November 7, 1951.
On October 18, 1951, prior to the time the written lease was finally executed, the plaintiff entered into a contract with William Zickler, a building contractor in John Day, for the construction of the building which was completed in March, 1952. It is plaintiff's position that she constructed the building before obtaining a written lease because she relied upon the defendants' oral promise that the written lease would contain a
She then charges, in effect, that after she had proceeded so far in the construction of the building that it would have been very costly for her to retreat from that enterprise, the defendants took advantage of her necessitous circumstances and through "business compulsion" forced her to accept a lease which did not protect her in the event that it became necessary for her to give up the premises. She asserts that when she tried to secure the inclusion of a clause which would protect her under such circumstances, the defendants assured her that she would not suffer by its omission from the lease, stating that there must be "mutual trust" in such matters.
There is no doubt that although the plaintiff's business was good initially, it soon fell off to a point
"1952 January ____________________________ nothing February ___________________________ $ 15.00 March ______________________________ 417.00 April ______________________________ 437.00 May ________________________________ 513.00 June _______________________________ 413.00 July _______________________________ 748.00
August _____________________________ $669.00 September __________________________ 370.00 October ____________________________ 276.00 November ___________________________ 223.00 December ___________________________ 152.00 1953 January _____________________________ 246.00 February ___________________________ 374.00 March ______________________________ 233.00 April ______________________________ 221.00 May ________________________________ 124.00 June _______________________________ nothing"
1. In October, 1952 the plaintiff was married in Reno, Nevada. She was divorced in June, 1953 and moved to Boise, Idaho in July, 1953 to practice her profession. The decline in business started one month prior to her marriage, and it is possible that this affair of the heart took time and interest away from the operation of the business. However, there is no substantial evidence establishing the causative connection. But looking at all of the evidence relating to the reasons for the plaintiff's loss of business neither can we say that it resulted from the defendants' conduct.
Another of the allegations of the complaint is that the plaintiff was induced to follow the defendants' advice in establishing a physiotherapy practice in John Day in reliance upon the defendants' superior knowledge of the opportunity for the establishment of a successful practice in John Day. However, the record reveals that the plaintiff made her own investigation of the opportunities for the practice of her profession in eastern Oregon and it further shows that she had an understanding (perhaps even superior to that of the defendants) of the factors which should be considered in determining whether an area would support a
The plaintiff also sought the advice of another doctor in the area as to the advisability of setting up her practice in eastern Oregon and "he thought it was a wonderful idea" according to the plaintiff's own testimony. It appears to us that the plaintiff selected the city of John Day as the place to practice her profession upon the basis of her own evaluation of the opportunity which the region afforded.
She alleges in her complaint that upon the completion of the building she requested the defendants to furnish her with a memorandum of agreement setting out her relationship with the defendants including provisions to protect her investment in the
It has been noted that the contract for the construction of the building was let on October 18, 1951. Construction was started sometime in November, 1951. A letter written to the plaintiff by her attorney, whose office was in Portland, dated November 7, 1951 recites that it was accompanied by a preliminary draft of a lease. The letter also states that the lease was submitted to plaintiff's attorney by the defendants' attorney who also practiced in Portland, and suggested certain modifications in the lease including a clause permitting the lessee to reside on the premises and "some appropriate provision to protect your rights in the event that you desire to dispose of your business during the term of the lease." The building was not completed until March, 1952. It is apparent then, that prior to the completion of the building the plaintiff had before her a written statement of the terms of the lease as drawn by defendants' attorney. We do not have evidence of the exact date upon which construction of the building began but it was sometime in November, 1951 and so it is clear that the construction could not have proceeded very far when the
The plaintiff first testified that on November 22, 1951 she presented to the defendant, Gerold G. van der Vlugt, a lease prepared by her attorney and requested the defendant to sign it; that he refused to do so and said that he would draw up one of his own. The lease which plaintiff referred to contained the same covenant restricting the use of the premises as that contained in the lease finally executed. The covenant on assignment, however, differed from the final lease. It provided that the lessee could assign "to any responsible third person, persons or corporation who shall assume each and every duty, obligation and liability of this lease." The final lease prohibited assignment without lessors' consent. Later she testified that she did not have this lease with her at the conference on November 22, 1951 but that she did have the letter referred to earlier, in which her attorney suggested certain modifications of the lease he had received from the defendants' attorney. She pointed out that the defendant, Gerold van der Vlugt, had written on the margin of the letter, "OK Jerry" opposite the suggested modifications that the lessee be permitted to
This explanation of the notation seems strained. It seems more reasonable to interpret the notation as a rejection of plaintiff's demand for the modification requested and an insistence by the defendant that the restrictions in the lease as drafted by his attorney should be retained. If the defendant had approved of the suggested modification on the use of the building it seems strange that the lease drafted by plaintiff's attorney immediately after the November conference would not have more clearly expressed the privilege which the plaintiff requested. But that lease retained the limitation on the use of the premises for physical therapy purposes only, except for the privilege of lessee to reside on the premises. As noted earlier, this draft of the lease permitted assignment by
It is to be remembered that there was in existence at the time of the conference a draft of a lease prepared by defendants' attorney. This lease may have been before the parties at the November 22nd conference. On cross-examination when asked if she had brought this draft of the lease with her on November 22nd she replied, "I might have had it, but I didn't sign it and I didn't ask him to sign it either, if I had that." We do not think that the plaintiff's evidence is sufficient to establish that the defendant promised to permit the use of the premises as the plaintiff contends.
From some of plaintiff's testimony it would appear that the negotiations for the drafting of a lease did not begin until after plaintiff occupied the building. She testified as follows:
2. After a painstaking examination of the record in this case, we reluctantly conclude that the plaintiff has not established the existence of a fiduciary or confidential relation between herself and the defendants, either before or after the construction of the building on the leasehold, and therefore we cannot grant to the plaintiff relief from forfeiture on the ground that the defendants breached a duty to the plaintiff arising out of such a relationship.
3. Consequently, unless the plaintiff can establish some other basis for equitable relief such as fraud or duress she must accept the legal consequences of entering into an unfavorable bargain which was binding upon her. If we remove from the transaction the alleged inequitable conduct of the defendants, it assumes the form not uncommonly entered into in leasing property for commercial purposes; the lessee agreeing to erect a structure on the premises which is to become the absolute property of the lessor upon the expiration or termination of the lease.
4. If a lease is lawfully terminated prior to the expiration of the term the lessee forfeits his interest in the addition made to the property, in the absence of circumstances justifying equitable relief from forfeiture. Title & Trust Co. v. Durkheimer Co., 155 Or. 427,
The plaintiff asks us to apply the doctrine of "business compulsion" on the ground that she was coerced into making the lease as a result of business necessity. The specific facts which plaintiff relies upon as constituting the coercion in this case are not clearly identified. It is argued by counsel that "the circumstances which brought about the compulsion for the appellant were acts and inducements of the respondents in encouraging her to place the building on their land." But, as we have already indicated, there was not sufficient evidence of disparity in the bargaining power of the parties to establish the alleged compulsion. The plaintiff has not shown "some misplaced reliance on the opposite party's good faith, some misleading partial disclosure, or some extreme inequality of the parties in knowledge, experience, or economic resources." Dawson, Economic Duress, 45 Mich L Rev, 251, 281 (1947).
As the facts appear from the record, the parties dealt at arm's length, each represented by an attorney who was bargaining for his client's advantage. For all we know the plaintiff may have decided that the prospects for a physiotherapy practice in eastern Oregon were so favorable that she was willing to accept a lease which strictly limited her right to use the premises. The defendants' insistence on a clause restricting the use of the premises was not necessarily an unreasonable position for them to take. A use on the leased premises alien to their hospital on adjoining
The business risks incident to the leasing of the premises were not all on the plaintiff's side of the transaction. The defendants bargained away the use of their lot for twenty years at a rental which could have been nominal for the entire period of the lease, since no minimum rent was reserved. In the meantime, any plans for the expansion of their hospital facilities into which the structure on the leasehold did not fit would have to be modified accordingly.
5. The principle which governs the case at bar is found in Title & Trust Co. v. Durkheimer Co., 155 Or. 427, 63 P.2d 909, 64 P.2d 834, 109 ALR 1279 (1937). In that case the lessee constructed an office building on the leasehold premises at a cost of approximately $100,000 pursuant to the terms of the lease. Because of depressed economic conditions the lessee became unable to pay the rent reserved in the lease. Relying upon the default clause in the lease the lessor terminated the lease. The lessee argued that the lessor could not invoke forfeiture for default where it was the result of unprecedented economic conditions. The court said:
In this connection the court also said:
In that case it was urged, as it is here, that the cancellation of the lease according to its terms would result in the unjust enrichment of the lessor. In answering this contention the court pointed out that the lessee, prior to the onset of difficult economic conditions, had collected substantial rents from his sub-lessees. The plaintiff in the case at bar considers this fact a basis for distinguishing the two cases. However, we regard the Title & Trust Co. case as standing for the proposition that a lease will be enforced in accordance with its terms even though the lessee may suffer losses which benefit the lessor. As the court said in that case, at page 453, "We do not see that a discussion of the losses will avail any benefit to any of the parties."
The position taken by the court in Title & Trust Co. v. Durkheimer Co. in holding that the lessor is entitled to improvements made by the lessee even
The case of Caine v. Powell, 185 Or. 322, 202 P.2d 931 (1949) relied upon by plaintiff is not helpful. That case stands for the proposition that the landlord cannot terminate a lease for the tenant's breach of covenant resulting from the fraudulent conduct of the landlord. In the case at bar the plaintiff has not proved that the defendants were guilty of fraud or other inequitable conduct.
The plaintiff relies on Clanton v. Oregon Kelp-Ore Co., 135 Or. 321, 296 P 30 (1931), a case also involving a percentage lease without a minimum rental. The lessor attempted to terminate the lease for nonpayment of rent, alleging that the lessee had failed to comply with the terms of the lease requiring him, among other things, to mine ore from the premises out of which the rental was to be paid. The court held that there was a substantial compliance by the lessee with the terms of the lease. In that case, unlike the case at bar, the lessee was in possession of the premises, and was in the process of developing the business which gave promise of producing income out of which rent would be paid.
6. We next consider whether the lease in the case at bar was properly terminated. The plaintiff left the premises and moved to Boise, Idaho on July 4, 1953 where she resumed her occupation. No rent was paid after June, 1953. A few months later her sister moved into the building on the leasehold premises. According to the plaintiff's testimony she had her sister reside on the premises "because the neighbor had written me that somebody had tried to break into the building and so she moved in to protect it."
It is apparent from the plaintiff's conduct that when she left the premises she had no intention of resuming possession unless the premises could be used for some purpose other than that specified in the lease. There is no unambiguous legal term to describe the legal consequences of this type of conduct. We would describe the plaintiff's act as an abandonment were it not for the fact that the term has assumed a variety of meanings in the adjudicated cases; sometimes signifying the intention to give up a known right, sometimes merely describing the physical act of the tenant in leaving the leasehold premises; and in the latter case it is frequently used as the equivalent of surrender by operation of law and occasionally to mean a forfeiture of the lease. We think that the legal result of plaintiff's conduct is clear. Having manifested the intent to discontinue permanently her use of the premises for the purpose designated in the lease, the defendants had the option to treat the lease at an end. American Law of Property, § 3.99, p 394. The defendants manifested their intention to exercise their power of termination by serving the notice of default upon the plaintiff.
7. The lease was terminable upon still another basis. The lessee obligated herself to pay rent at the rate of 5% of the gross receipts of the business. No minimum rent was reserved. Under these circumstances we are of the opinion that the lease must be construed as including an implied covenant to continue the business. American Law of Property, § 3.41, p 257; Lippman v. Sears Roebuck & Co., 44 Cal.2d 136, 280 P.2d 775
Any other construction would excuse the plaintiff from the obligation to pay any rent to the defendants and would, therefore, defeat the defendants' purpose in entering into the lease. Note, 61 Harv L Rev 317, 326 (1948). The covenant having been broken, the defendants were entitled to terminate the plaintiff's interest in the leasehold in accordance with the default provisions reserved in the lease.
We regret that the plaintiff's business enterprise resulted in failure. On the basis of the evidence which is included in the record we are powerless to help her recover her loss. The decree is, therefore, affirmed.