The defendants in this bill for declaratory relief are lessors under a percentage lease. They have appealed from the final decree in the Superior Court that ruled that the lease does not expressly or impliedly require the plaintiff, as lessee, to use the demised premises for any particular purpose or to keep the premises open and there engage in the supermarket business. Except for brief testimony which is reported, the facts were stipulated.
The lease, dated August 24, 1953, demised a lot and building at 154 Merrimack Street, Haverhill, for thirteen years and six months from September 1, 1953, for "the minimum rental" of $22,000 a year and the further rent of 1 1/4% "of all gross sales" above $1,269,230.60 "made by the Lessee on the leased premises during each twelve month period." But the percentage rent was to be paid only if sales at the demised premises and at premises in Lawrence exceeded $3,000,000 a year. The lease recites that the Lawrence premises were leased to the plaintiff by the lessors of the Haverhill premises and certain other owners under a percentage lease containing a like limitation on the payment of percentage rent. The record shows no other facts relative to the Lawrence premises or the business conducted therein. The other lessors of the Lawrence premises, by stipulation in, and order of, this court, have now become parties, and all parties have stipulated that the issues may be determined as though the owners of the Lawrence premises were not concerned. We may, therefore, order declaratory relief
The lease required that the lessee should pay the amount of the increases in the annual real estate taxes and should receive the amount of the decreases therein, measured on the 1946 figure.
The lease does not state the purposes for which the premises are to be used. Nothing therein in terms requires that the premises be used for any purpose or bars the opening by the lessee of places of business competitive to the lessee's business in the demised premises. The lease does, however, require the lessee to use suitable cash registers to record all sales, to keep accurate books, to furnish statements of gross sales on demand, and at the end of each yearly period to furnish such a statement certified by a certified public accountant. The testimony showed that when the lease was made the plaintiff was engaged in the supermarket business and that the lessors knew it. The premises prior to August 24, 1953, had been used for the conduct of a market.
The plaintiff had occupied the premises as a supermarket through 1962. It had paid percentage rent in 1956 ($2,288.15) and in 1957 ($377.21) but in no other year, and had paid excess taxes in each year. The plaintiff intended to cease operating a supermarket in the premises shortly after January 1, 1963, but to continue to pay the minimum rent and any excess real estate taxes and otherwise to conform to the lease. The defendant lessors had threatened suit to compel the continued operation of a supermarket or, alternatively, for damages.
The defendant lessors filed a counterclaim which alleged that the plaintiff beginning in 1956 had opened two competing stores in Haverhill, one within one-half mile and the other within about one mile of the demised premises. The prayers of the counterclaim were (1) that the lease be reformed to provide that the plaintiff continuously operate the premises as a supermarket, (2) that the plaintiff be ordered to pay to the defendants as part of the rent of the
Other facts are referred to later in the opinion.
1. The issue presented by the bill for declaratory relief is whether there is in the lease an implied covenant to continue operations.
The controlling principles are well established. An omission to specify an agreement in a written lease is evidence that there was no such understanding. Snider v. Deban, 249 Mass. 59, 65. Covenants will not be extended by implication unless the implication is clear and undoubted. Smiley v. McLauthlin, 138 Mass. 363, 364-365. Mutual Paper Co. v. Hoague-Sprague Corp. 297 Mass. 294, 301. Justice, common sense and the probable intention of the parties are guides to construction of a written instrument. Clark v. State St. Trust Co. 270 Mass. 140, 153. "Since the governing principle ... is the justifiable assumption by one party of a certain intention on the part of the other, the undertaking of each promisor in a contract must include any promises which a reasonable person in the position of the promisee would be justified in understanding were included." Williston, Contracts (Rev. ed.) § 1293, p. 3682. Russo v. Enterprise Realty Co. Inc., ante, 655, 660, and cases cited.
The plaintiff contends that notwithstanding the interest of the lessors in having the premises operated so as to give
This may state too broad a rule. For even if there is a more than nominal minimum rent, other circumstances such as that the fixed rent is significantly below the fair rental value of the property might justify the conclusion that the parties intended that the lessors have the benefit of the percentage rent throughout the term.
The record does not show the fair rental value of the demised premises. An apparently substantial minimum rent in an apparently complete written lease, in the absence of a showing of disparity between the fixed rent and the fair rental value, gives ground for the inference that fixed rent and the lessee's self-interest in producing sales were the only assurance of rent that the lessors required. Cousins Inv. Co. v. Hastings Clothing Co. 45 Cal.App.2d 141. Monte Corp. v. Stephens, 324 P.2d 538 (Okla.). Palm v. Mortgage Inv. Co. of El Paso, 229 S.W.2d 869 (Tex. Civ. App.). See, generally, Am. Law of Property, §§ 3.41, nn. 9-11, 3.66, nn. 9-10; Note, 44 Cornell L.Q. 251. Cf. Masciotra v. Harlow, 105 Cal.App.2d 376. But see Selber Bros. Inc. v. Newstadt's Shoe Stores, 203 La. 316; Note, 61 Harv. L. Rev. 317, 325-326. Other circumstances may give rise to the same inference. See e.g. Bynum v. Jos. E. Seagram & Sons, Inc. 89 F.Supp. 780, 783-785 (E.D. Ark.), affd. on this ground sub nom. Joseph E. Seagram & Sons, Inc. v. Bynum, 191 F.2d 5, 18-20 (8th Cir.). In cases where the minimum rent was not substantial continued operation has been held contemplated. Lippman v. Sears, Roebuck & Co. 44 Cal.2d 136. Professional Bldg. of Eureka, Inc. v. Anita Frocks, Inc. 178 Cal.App.2d 276. Fox v. Fox Valley Trotting Club, 8 Ill.2d 571. See Sinclair Ref. Co. v. Davis, 47 Ga.App. 601; Sinclair Ref. Co. v. Giddens, 54 Ga.App. 69; Stoddard v. Illinois Improvement & Ballast Co. 275 Ill. 199; Prins v. van der Vlugt, 215 Or. 682. See also Percoff v. Solomon, 259 Ala. 482.
The minimum rent in this lease appears to be substantial. The figure of $22,000 is obviously not nominal in a lease that fixes as a base real estate tax figure the 1946 tax of $3,744.90. The total of real estate taxes for 1954 was $5,127.71. This roughly indicates the valuation for tax purposes of the demised premises at about the time the lease was made.
The burden of showing a disparity between fixed rent and fair rental value such as to furnish ground for implying a covenant to operate would be on the lessors.
Had the lessors brought an action for damages for breach of an implied covenant to continue operations they would, of course, have had the burden of showing the covenant. That the lessee initiated the proceeding for declaratory relief does not shift that burden to the lessee. Travelers Ins. Co. v. Greenough, 88 N.H. 391. Preferred Acc. Ins. Co. v. Grasso, 186 F.2d 987 (2d Cir.). Annotation, 23 A.L.R.2d 1243. Borchard, Declaratory Judgments (2d ed.) 404-409.
Kaplan v. Boston, 330 Mass. 381, and Pierce v. Wellesley, 336 Mass. 517, are consistent with our holding. In those cases the petitioners seeking declarations under G.L.c. 240, § 14A, that zoning regulations were unconstitutional had the burden because of the presumption of constitutionality. See, for a case showing resolution of the issue of the burden of proof by the substantive nature of the case, Dion v. Board of Appeals of Waltham, 344 Mass. 547, 555-556.
In view of the stipulation of most of the facts the cases in other jurisdictions holding that the plaintiff by going forward may be held to have assumed the burden of proof would be inapplicable even if such a rule were to be adopted in our practice. Pacific Portland Cement Co. v. Food Mach. & Chem. Corp. 178 F.2d 541, 547 (9th Cir.). Liberty Mut. Ins. Co. v. Sweeney, 216 F.2d 209, 211-212 (3d Cir.). Hartford Acc. & Indem. Co. v. Lougee, 89 N.H. 222.
There is in this record no basis for implying a covenant to continue to operate beyond that time when in the business judgment of the lessee operations at the demised location
The percentage rent provision of course gave the lessors an interest in the lessee's operations of the demised premises as a retail store. We assume, without deciding, that such interest could be protected against certain acts of the lessee, as for example, discontinuance of operations for
2. We turn to the interlocutory decree sustaining the demurrer to the counterclaim. Although the defendants did not appeal from the decree, it is reviewable on the appeal from the final decree as the latter was affected thereby. G.L.c. 214, § 27. The final decree did not in terms dismiss the counterclaim. We conclude, however, that the final decree was intended to dispose of the entire case and we deal with the case as though the dismissal of the counterclaim had been express. See Faulkner v. Lowell Trust Co. 285 Mass. 375, 377.
As a basis for reformation of the lease the counterclaim alleged an understanding for continued use of the premises as a supermarket. The allegations are of representations made during negotiations;
The allegations underlying the prayer that the sales of other stores be included in the computation of percentage rent are, that the "plaintiff has not in good faith operated the demised premises so as to obtain the greatest volume of sales at this location, but has opened wrongfully [two] other stores at nearby locations, selling the same merchandise at lower prices." The effect of the two newly opened stores was, it is alleged, to diminish sales.
We assume that the prayer, although cast in terms of a specific form of relief for the alleged wrong, may be taken
The allegation "not in good faith" adds nothing to the facts stated. In context, it says no more than that the plaintiff has acted in violation of implied obligations of the lease. The lessors do not contend otherwise.
The lessee, being free to disregard the effect on the lessors of its business decisions in respect of stopping operations, was free also to open stores elsewhere. We assume, without deciding, that had the lessee opened a competing store in the same location as the demised premises, that is adjacent, or nearly so, there might have been a basis for requiring it to regard the lessors' interest under the percentage rent provision in its conduct of the two stores. In such a case the lessee's acts would affirm the business advantage of remaining at the very place at which it had committed itself as tenant of the lessors. See Seggebruch v. Stosor, 309 Ill.App. 385; Cissna Loan Co. v. Baron, 149 Wn. 386. Compare William Berland Realty Co. v. Hahne & Co. 26 N.J.Super. 477 (fair allocation), affd. on this ground, 29 N.J.Super. 316; Stockton Dry Goods Co. v. Girsh, 36 Cal.2d 677 (circumstances negatived implied covenant); Masciotra v. Harlow, 105 Cal.App.2d 376. But, on the allegations, this is plainly not such a case. At most we may infer that there is some overlap of the potential customer area of the two new stores with the demised premises.
The lessors do not contend that the counterclaim is to be read to allege that the lessee acted for other than sound business reasons or for the purpose of depreciating the worth of the demised premises rather than for the affirmative advantage of doing business elsewhere. In the circumstances
The defendants have not suggested that they could show such unfair competition, or that, the implications they contend for not being found in the lease, there was error in ordering the demurrer sustained "with leave to amend denied."
3. The interlocutory decree sustaining the demurrer and the final decree (construed as including a dismissal of the counterclaim) are affirmed.