Elmor Realty Co. v. Community Theatres, Inc. ( 1932 )

The following opinions were filed March 8, 1932:

Fowler, J.

The defendant Theatre Company demurred to the complaint on the ground of insufficiency of the facts stated to constitute a cause of action. From the order of the circuit court overruling the demurrer the defendant appeals.

It appears from the complaint that plaintiff’s assignor executed a lease of a theatre in Milwaukee for the term of five years at a rental of $250 per month to the defendants Genz and Di Leo, who assigned to the defendant Theatre Company. The assignees are by the terms of the lease bound by its covenants. When three and a half years of the term expired the defendant company abandoned the premises and refused to pay further rent. The plaintiff thereupon “re-entered said premises and took possession thereof for the defendants” and “made diligent effort to relet said premises in order to minimize damages,” but was only able to rent them for two months for $300. At expiration of the term plaintiff brought suit to recover the unpaid rents, less the $300. The lessee covenanted to pay the monthly rental in advance on the 10th of each month, and to obey all the ordinances of the city and all lawful orders of the city’s health officers. The lease contained provisions as follows:

“And the lessor further agrees to allow the lessees the sum of three hundred seventy-five ($375) dollars, said amount to pay for the last month and one-half’s rent of this lease. And the lessees have deposited with the lessor the sum of one thousand ($1,000) dollars, said amount being deposited with the lessor as a guaranty that they will fulfil the terms and conditions of this lease, said one thousand ($1,000) dollars, together with the three hundred seventy-five ($375) dollars, to be in full payment for the last five and one-half months’ rent under this lease.

“It is further covenanted and agreed by and between the lessor and the lessees, that should the lessees fail to fulfil the terms and conditions of this lease that the one thousand ($1,000) dollars cash money deposited with the lessor as guaranty shall be forfeited and become the property of the lessor without any notice whatsoever and this lease shall be null and void.”

One thousand dollars was advanced to the lessor on execution of the lease in accordance with the provision quoted.

The appellant contends (1) that by the provision of the lease quoted, when the defendant vacated the premises the $1,000 stood as liquidated damages for its violation of the terms of the lease, and the lease was thereby terminated and the defendant was thereby released from liability for rents. (2) That the conduct of the plaintiff in reletting constituted an acceptance of a surrender of the lease by the defendant, and terminated the lease and defendant’s liability thereunder.

(1) Several decisions of this court are cited by appellant to the effect that where an amount is stipulated in a contract as liquidated damages the courts will treat it as such unless it is grossly in excess of the actual damages or has no relationship thereto. We recognize this as a correct rule. But here the parties have not so stipulated. The term “liquidated damages” is not used. The harsh term “forfeiture” is used instead. The sum by the last paragraph quoted was to be “forfeited” in case the lessee “should fail to fulfil the terms and conditions” of the lease. Had the lessee “failed” to pay a month’s rent on the day stipulated, or unwittingly violated an ordinance of the city or an order of the city health offir cers, a court would not permit the lessor to terminate the lease therefor and retain the $1,000 as liquidated damages. This would be a forfeiture, such as equity would relieve against. 16 Ruling Case Law, p. 1146; note 69 L. R. A. 884. The terms of the lease respecting forfeiture would apply as clearly to such a violation of the terms of the lease by the defendant as to a violation by abandonment.

“The term ‘forfeiture’ imports a penalty; it has no necessary or natural connection with the measure or degree of injury which may result from a breach of contract, or from an imperfect performance. It implies an absolute infliction, regardless of the nature and extent of the causes by which it is superinduced. Unless, therefore, it shall have been expressly adopted and declared by the parties to be a measure of injury or compensation, it is never taken as such by .courts of justice, who leave it to be enforced where this can be done in its real character, viz. that of a penalty.” Van Buren v. Digges, 11 How. (52 U. S.) 461, 477.

It is also quite true, as appellant claims, that the parties might lawfully stipulate that should the lessee abandon the premises before termination of the lease the $1,000 should stand as liquidated damages. But it seems to us sufficient to say to meet this suggestion that the parties did not so stipr ulate, and that it is to be presumed that had they intended so to stipulate they would have used language appropriate to express their intention. The stipulation that the $1,000 should stand as payment of the rent for the last five and a half months of the term negatives the idea that it should stand as liquidated damages in case the lessee should vacate the premises.

It is also true as suggested by appellant that the lease provides that upon a failure “to fulfil any of the terms or conditions of the lease . . . this lease shall be null and void.” But this does not imply that the plaintiff cannot recover rents under it. This language of itself is a provision for forfeiture of the lease. It does not detract from its force as such that it is provided in immediate connection that the $1,000 shall also be forfeited by the lessee’s failure to perform. The provision is for forfeiture of both the $1,000 and the lease. “The construction of provisions for forfeiture of a lease for non-performance of conditions by the lessee is that the lease is voidable only at the election of the lessor and is not rendered absolutely void, though it is provided that it shall be null and void in case of such breach.” 3 Words & Phrases (1st series) p. 2894, citing Small v. Clark, 97 Me. 304, 54 Atl. 758. It is a general rule that a provision in a lease that it shall become void for non-performance of its term renders it optional with the lessor to declare it void, “and if he does not avail himself of it (the right to terminate) the term will continue, for the lessee cannot elect that it shall cease or be void;” and “the effect of a condition making a lease void upon a certain event is to make it void at the option of the lessor only, in cases where the condition is intended for his benefit, and he actually avails himself of the privilege.” 2 Taylor, Landlord & Tenant, pp. 82, 83. “The rule now recognized there [in England] and most parts of this country is that even though the instrument of lease provides that the lease shall become void or terminate upon the breach of a stipulation by the lessee, such a breach does not terminate the tenancy until the landlord has in some way signified his election that it shall do so.” 2 Tiffany, Landlord & Tenant, 1369. To this effect are Smith v. Sinclair, 59 N. J. L. 84, 34 Atl. 943; Bowman v. Foot, 39 Conn. 331; Almy v. Greene, 13 R. I. 350; Trask v. Wheeler, 7 Allen (89 Mass.) 109.

It is to be noted that the provision of the lease quoted declares that the $1,000 was “deposited with the lessor as a guaranty that they (the lessees) will fulfil the terms and conditions of this lease.” The provision was thus inserted for the benefit of the lessor. It was inserted for the purpose of making the lessee fulfil his obligations under the lease, one of which was to pay rent for the full term. To permit the lessee to terminate the lease by abandoning the premises would be to permit him to take advantage of his own wrong. The reason for and purpose of the adoption of the English rule above referred to was to prevent the lessee from so doing, which the former English rule permitted. “The right to declare a forfeiture of a lease is one created by stipulation in the lease for the benefit of the lessor, and he is not obliged to invoke it. He has the choice whether to hold the lessee responsible in damages for breach of covenant or to declare the lease at an end for breach of condition.” Mohawk Co. v. Bankers Surety Co. 162 Wis. 272, 276, 156 N. W. 154; 35 Corp. Jur. p. 1065; note 69 L. R. A. 884 and cases cited.

(2) The contention under this head is based upon the proposition that there is no allegation in the complaint that the re-entry of the lessor for the purpose of reletting to minimize damages was evidenced by “formal notice or by any other proper means constituting such unequivocal act as would amount to an election” to re-enter for that purpose as it is contended is necessary under Weinsklar Realty Co. v. Dooley, 200 Wis. 412, 228 N. W. 515, where it is said that “the mere entry and taking possession of the premises (by the landlord) for the purpose of leasing the same does not constitute such an election.” We again quote from the complaint that “the plaintiff re-entered said premises and took possession thereof for the defendants” and “made diligent effort” to relet them “in order to minimize damages.” On demurrer allegations of a pleading are liberally construed in favor of its support. So considering the allegation quoted, we construe it as alleging something more than “mere entry and taking possession . . . for the purpose of leasing.” The allegation that re-entry was made “for the defendant” implies that it was made for the purpose of reletting for him to minimize his damages. The allegation is one of fact, not of law. Whether the complaint would be subject to motion to make more definite and certain by setting forth the facts by which re-entry for the defendant was evidenced we need not determine as such motion has not been made:

By the Court. — The order of the circuit court is affirmed.