Frandora Realty, Inc. v. Grinnell Bros. , 15 Mich. App. 217 ( 1968 )

QuiLn, ' J.

Plaintiff-landlord filed this action (against' defendant-ténant to recover rent allegedly ,'due under the percentage of gross sales provision of a written lease executed by the parties May 9, 1955. ■The trial court found there was an accord and satisfaction, plaintiff had waived its right to collect the 'tents claimed, and plaintiff was estopped from collecting such rents. Plaintiff appeals from a judgment of no cause, for action.

The lease is a printed form with blank spaces to he filled in according to the agreement of the .parties, but in this instance, the printed provisions with respect to term and rental were not used. Instead, just above the first line of paragraph 2 dealing with term and above the first line of paragraph 3 dealing with rental, the words “see rider” were typed, and none of the blank spaces of paragraphs 2 and 3 were filled in. A typewritten rider was attached to the lease covering the agreement as to term of 15 years with renewal option and minimum monthly rental plus the percentage of gross sales provision.

Paragraph 4 of the lease defines gross sales as,

“ ‘Gross sales’ is hereby defined to mean and include the entire amount of all sales of every kind and character, and all revenues from all departments and services made in, upon and from the herein demised premises by Tenant or any other person or persons, both for cash and on credit, regardless of collections in case of the latter, including all orders taken and merchandise sold from the herein demised premises and filled or delivered from any other store or place, including mail and telephone orders received or filled from the demised premises and all deposits not refunded to purchasers. Gross sales shall not include and there shall be excluded therefrom: (a) returns and refunds to customers; (b) the amount of any ‘sales tax’ so-called collected by Tenant or any other tax which Tenant may now or hereafter be required to pay or collect by any federal, state, municipal or local authority as a sales tax; and (c) interstore transfers of merchandise at Tenant’s cost to other stores owned by or affiliated with Tenant.”

Paragraph 5 of the lease specifies the records to be kept by the tenant as,

“Tenant agrees to keep full and accurate books of all sales and business transacted in accordance with good accounting- practice. Landlord shall have the right at all reasonable times to examine such books and records of Tenant relating to sales and business transacted upon the leased premises in order to determine the correct amount or amounts due Landlord. Tenant shall furnish to Landlord a true and accurate statement on or before the twentieth of each month of the gross sales transacted by Tenant and any sub-lessees during the preceding month and shall, on or before February 1st, furnish a true and accurate statement, verified by independent accountants of good standing of such gross sales during the preceding calendar year. Tenant further agrees to furnish to Landlord each month a copy of its Michigan Sales Tax Return and Tenant hereby waives the confidential information covered in Section 20 of the Sales Tax Act, 167 P.A. 1933, as amended, and grants to Landlord permission to examine the sales tax records on file in the office of the Department of Revenue for the State of Michigan, or at such other place where such records may'be on file, as they pertain'to the within demised premises, for the sole purpose of verifying the correctness of the report of gross sales submitted.”

Paragraph 6 of the lease provides for the landlord’s right to audit as follows:

“In the event Landlord is not satisfied with any monthly or annual or other statement submitted to it by Tenant, Landlord shall have the privilege of having an audit made of the books and records pertaining to the business of Tenant in the demised premises. Such audit shall be made by a certified public accountant selected by Landlord and in the event said audit shall show that Tenant has reported and paid the full amount required as ‘minimum rental’ and ‘percentage rental’, then the expense of such audit shall be borne by Landlord, but in the event that said audit shall show that Tenant failed to report the correct amount of gross sales and a shortage in excess of one per cent (1%) in gross sales for any annual period, then the expense of said audit shall he paid by Tenant hereunder as additional rent payable upon the next rental payment date. In the event that such audit discloses a deficiency in the amount of rent payable hereunder by Tenant, the amount of such deficiency shall be promptly paid together with interest therein at the rate of six per cent (6%) per annum from the date when said rental was payable until the date of actual payment.”

Defendant took possession December 1, 1955 and regmlarly filed the required monthly and annual reports together with letters of transmittal and paid the additional rental established by such reports. The form of the monthly reports was,

“Gross sales ............................ xxxx Less: trade ins, returns and allowances . . xxx Net sales............................... xxxx”

Percentage rental was computed on net sales. The annual reports were recapitulations of the monthly reports. This procedure still prevails.

About June 7, 1962, plaintiff requested and obtained an audit of defendant’s books and records, and the audit was completed about June 25, 1962. The audit disclosed that defendant had not included in gross sales trade-ins, repossessions, outside service sales, merchandise sold at special discount and bad debt charge-offs. In response to plaintiff’s request that these items be included in gross sales, defendant denied liability thereon except bad debt charge-offs. Defendant admitted the latter should have been included in gross sales and corrected its percentage rental payments accordingly. About February 4,19637 plaintiff filed this action,

It is apparent that this dispute arose because the parties to the lease placed different interpretations on the definition of gross sales. Unfortunately, the trial court did not reach the question of what is and what is not included in gross sales, so the question is not before this Court. The questions to be resolved here are: Was there an accord and satisfaction? Has plaintiff waived its right to collect the rent claimed? Is plaintiff estopped from collecting the additional rent claimed ?

In Shaw v. United Motors Products Co. (1927), 239 Mich 194, 196, the Supreme Court stated:

“If the tender is in full satisfaction of an unliquidated claim, the amount of which is in good faith disputed by the debtor, and the creditor is fully informed of the condition accompanying acceptance, an accord and satisfaction is accomplished if the money so tendered is retained.”

In the case at bar, there was no dispute as to the amount due from defendant to plaintiff until the audit, nor does the record indicate any reason why plaintiff should have disputed the amount due prior to audit. There was no accord and satisfaction with respect to the amount due prior to audit. '

The reporting and payment procedure followed by defendant after audit remained the same. There never was a clear, full and explicit statement by defendant that it tendered these percentage rental payments in full satisfaction of all rent due. Durkin v. Everhot Heater Company (1934), 266 Mich 508. Defendant did no more than continue to perform according to its interpretation of the term “gross sales”, plus its concession that bad debt charge-offs were properly included in gross sales. There was no accord and satisfaction on this record.

This holding is not contrary to Davis v. Kramer Bros, Freight Lines, Inc. (1964), 373 Mich 594, relied on by defendant. In Davis, all payments were accepted while the amounts of payment were in dispute and the checks tendered in payment disclosed all deductions made by the drawer.

Defendant contends that the trial court properly found plaintiff had waived its right to question the validity of the reports and cites Bailey v. Jones (1928), 243 Mich 159, 162, in support of this position. Bailey held:

“Waiver is the intentional relinquishment of a known right. * * * The usual manner of waiving a right is by acts which indicate an intention to relinquish it * * *, or by so neglecting and failing to act as to induce a belief that it was the intention and purpose to waive.”

To bring itself within the Bailey rule, defendant assumes plaintiff had all of the facts from the monthly and annual reports, and therefore there was an intentional relinquishment of a known right. This assumption is invalid. The reports did not fully disclose what items defendant was deducting from gross sales. The audit did, and defendant conceded that one item disclosed by the audit should not have been deducted, namely: bad debt charge-offs. Under Bailey, there was no waiver and Book Furniture Company v. Chance (1958), 352 Mich 521, is inapposite; it involved election of mutually exclusive remedies.

By the lease, defendant agreed plaintiff could examine defendant’s books and records at all reasonable times; that plaintiff could audit the hooks and records if not saitsfied with any monthly, annual or other statements submitted by defendant; and that plaintiff could collect any deficiency in rent disclosed by the audit. Defendant did not contest the right to audit. Defendant has conceded that the audit disclosed one error in its reports. Defendant is in no position to assert waiver.

In Shean v. United States Fidelity and Guaranty Company (1933), 263 Mich 535, 541, the Supreme Court said:

“There can he no estoppel where one is not deceived or misled, hut acts upon his own judgment and with knowledge of the facts.”

Here defendant acted upon its own interpretation of the term “gross sales” with knowledge of the facts. In view of the terms, of the lease, defendant was not deceived or misled by plaintiff’s failure to audit until it did. There was no estoppel.

We consider defendant’s assertion of latent ambiguity at the least to he frivolous.

Reversed and remanded for trial of the issues of what “gross sales” means in this lease and what sales and revenues of defendant should be included therein. Plaintiff may recover costs.

McGregor, P. J., and Letts, J., concurred.