Food Fair Stores, Inc. v. Blumberg

Prescott, J., delivered the opinion of the Court. This action involves the construction of a percentage lease contract. The lessor-appellees filed suit against the lessee-appellants, praying inter alia, a termination of the agreements between the parties and damages for the breach of an alleged im ⁵²⁵ plied covenant and certain express provisions in the agreements. The lessees filed a combined demurrer and answer, and also a cross-claim, seeking the specific performance of an option to renew the aforesaid agreements.

The demurrer was sustained by Judge Cullen as to the paragraphs which alleged the breach of an implied covenant that lessees would “use their best efforts to derive the maximum volume of business from plaintiffs’ store.” Lessors have appealed this action by Judge Cullen. The case was tried by Judge Jones, who granted lessees specific performance of their option to renew, and awarded the lessors $28,234.03 damages. The lessees appeal from that portion of the decree which awards the lessors damages. Three questions are presented for our determination: 1.

Do the assignments of April 30, 1956, from Food Fair Stores of Maryland, Inc. to Food Fair Stores, Inc. and from Food Fair Stores, Inc. to Food Fair Stores, Anne Arundel, Inc., fall within the purview of paragraph 12 of the main lease agreement ? 2. Assuming, arguendo•, that the assignments were of the type contemplated by paragraph 12 of the lease agreement, do the acts and conduct of the parties evidence a modification of said paragraph 12, or, in the alternative, have the lessors waived their right to the additional rental, or, in the further alternative, are the lessors estopped to assert their alleged claim for additional rental ? 3. Do the allegations contained in the bill of complaint as amplified by the lease agreements establish the existence of an implied covenant on the part of the lessees to use their best efforts to derive the maximum volume of business from lessors’ store ? On December 7, 1949, the appellees (hereafter, we sometimes refer to the lessors as “appellees”) entered into a lease with Food Fair Stores, Inc., a Pennsylvania corporation, one of the appellants (hereafter, we sometimes refer to the lessees as “appellants”) herein, wherein said appellant agreed to lease from the appellees a store building, in Glen Burnie, Maryland, which store building was to be built by the appellees in accordance with specifications furnished by Food Fair Stores, Inc. In addition to the store building, the lease covered approximately ⁵²⁶ 30,000 square feet of land, contiguous thereto, which was to be used by the tenant for customer parking.

On July 11, 1950, the lease agreement was amended, and on June 30, 1951, the lease, as amended, was assigned from Food Fair Stores, Inc., to Food Fair Stores of Maryland, Inc., a wholly-owned subsidiary corporation. The assignee, Food Fair Stores of Maryland, Inc., took possession of the premises on July 1, 1951, and began conducting the business of a retail food supermarket on July 10, 1951. On October 19, 1951, the appellees entered into an additional lease agreement with Food Fair Stores of Maryland, Inc., covering two lots of ground contiguous to the aforesaid leased premises for additional parking and on February 15, 1954, a further agreement was entered into by and between the appellees and Food Fair Stores of Maryland, Inc., permitting Food Fair Stores of Maryland, Inc., to build an addition of some 2,600 square feet to the original store building. The relevant paragraphs of the lease agreement, dated December 7, 1949, in pertinent part, are as follows: “4.

Tenant agrees to pay, and Landlord agrees to accept, as rental for each lease year (as hereinafter defined) of this lease an amount equal to one (1%) per cent of the gross sales (as hereinafter defined) made in Demised Premises in each such lease year, up to, but not exceeding Two Million ($2,000,000) Dollars; provided, however, that for and with respect to each full lease year, Tenant shall pay a minimum annual rental of Ten Thousand Five Hundred and Sixty ($10,560.00) Dollars. “Said rental shall be payable as follows: * * *. :jc * >{c “12. Tenant may assign this lease or sublet the Demised Premises or any portion thereof to be used for any lawful purpose whatsoever subject to the provisions of Paragraph 10 hereof. In the event that such assignment or subletting is for Supermarket Purposes (as defined in Paragraph 10 hereof) Tenant shall be released and relieved of and from all liability for the ⁵²⁷ payment of any rental measured against a percentage of sales as hereinabove provided in Paragraph 4 hereof, and Tenant’s only obligation with respect to rental shall be the payment of the annual rental of the greater of either Thirteen Thousand Two Hundred Dollars ($13,200) or the average annual rental theretofore paid by Tenant hereunder for the preceding ten (10) years or such shorter period as this lease shall then have been in effect, payable in equal monthly installments in advance; provided, however, that the assignee or sublessee, as the case may be, shall, in writing, assume and agree to keep, perform and preserve all the terms, covenants and conditions of this agreement on the part of Tenant to be kept, performed and preserved, * * “5. There is added to paragraph 12, at the end thereof, the following language: ‘Tenant agrees, in the event of an assignment, to immediately furnish Landlord and the mortgagee of the demised premises, with an executed copy of the instrument of assignment * * * and Tenant further agrees that it will obtain for Landlord and mortgagee a like agreement from any such assignee in case of further assignment.’ ” In June of 1951, prior to the opening of the Glen Burnie supermarket, the Food Fair organization decided that it would be in the best interests of the chain to form a wholly-owned subsidiary corporation to take over and operate the various stores located in the State of Maryland.

Accordingly, Food Fair Stores of Maryland, Inc. was incorporated and on June 30, 1951, the main lease was assigned from the parent, Food Fair Stores, Inc., to the newly-formed and wholly-owned subsidiary. The appellees were notified of the assignment in October of 1951, but they did not make formal demand that they be paid rental as provided in paragraph 12 of the main lease. Again, in April of 1956, Food Fair Stores, Inc. determined that its corporate subsidiary structure was becoming obsolete, and, accordingly, another corporate reorganization plan was put into effect. In order to effectuate the new reorganization ⁵²⁸ plan, Articles of Incorporation of Food Fair Stores, Anne Arundel, Inc. were prepared and filed, and, on April 30, 1956, the leases of December 7, 1949, and October 19, 1951, were assigned from Food Fair Stores of Maryland, Inc. to the parent corporation, Food Fair Stores, Inc., and then from Food Fair Stores, Inc. to Food Fair Stores, Anne Arundel, Inc. the newly-formed and wholly-owned subsidiary.

Food Fair Stores of Maryland, Inc. was then formally dissolved. Appellees were never notified of these assignments, but were furnished copies thereof in July, 1960, at the request of the lessors, after Mr. Feldman noticed that the percentage rental check was signed by Food Fair Stores, Anne Arundel, Inc. Beginning on October 4, 1951, and continuing through April 10, 1958, the quarterly certified statement of sales was reported to the appellees on the letterhead of Food Fair Stores, Inc. and signed by Food Fair Stores, Inc. Subsequent thereto, the statements, although on the letterhead of Food Fair Stores, Inc., were signed “Food Fair Stores, Inc. — Agent.” All minimum rental checks were paid by checks of Food Fair Stores, Inc., and all percentage rental checks from 1951 through June of 1956 were paid by checks of Food Fair Stores of Maryland, Inc., which were yellow in color and the percentage rental checks received by the appellees, from July 9, 1956, through July 7, 1960, being twelve in number, were paid on orange-colored checks of Food Fair Stores, Anne Arundel, Inc. Appellees received the maximum rental of $20,000 per year, payable under the terms of the main lease agreement, from the time the store was opened in July of 1951 through the lease year ending June 30, 1959, but thereafter, if appellees were entitled to rental as provided in paragraph 12, due to decreased sales, they received $25,355.54 less than they should have, which with interest added, constituted the $28,234.03 damages allowed by the court below. I The lessees first contend that the assignments of April 30, 1956, were merely “technical,” “purported,” or “intra-company” assignments and “do not fall within the purview of paragraph 12 of the lease agreement.” They seek to invoke the doctrine of ⁵²⁹ “practical interpretation,” or “practical construction” of the terms of a contract, whereby, under certain circumstances, assistance in construing a contract may be obtained from the statements or conduct of the parties. Walker v. Ass.

Dry Goods Corp., 231 Md. 168 , and cases therein cited; Corbin, Contracts, § 558. They claim that the lessors “have arbitrarily either recognized or disregarded the subsidiary assignee corporations whenever one policy or the other best suited their interests,” and that the actions and conduct of the lessors and the testimony of William Taft Feldman show the assignments were not within the contemplation of paragraph 12. However, they concede, as indeed they must, that “the practical construction of an agreement as evidenced by the acts and conduct of the parties is only available in the event of an ambiguity, Walker v. Ass. Dry Goods Corp., 231 Md. 168 .” Judge Jones, in her opinion, stated: “In the present case the provisions of paragraph 12 of the main lease * * * are as clear and free from ambiguity as they could possibly be.

No outside aids, including the doctrine of ‘practical interpretation’ are required. Defendants’ contention that since there were only ‘technical assignments’ within the Food Fair family is not tenable, for a subsidiary corporation, for whatever purpose it may exist, is a separate corporate entity, even though all its stock may be owned by another corporation. 13 Am. Jur., Corporations, pp. 159-160; 64 A.L.R. 2d 769; Brune, Maryland Corporation Law & Practice (Rev. Ed.), §§ 371-373.” We agree. The main lease was prepared by the parent corporation, and if it desired to except assignments to wholly-owned subsidiaries from the provisions of paragraph 12, it could easily have done so, but this it failed to do.

Cf. Walker v. Ass. Dry Goods Corp., supra. We hold that the provisions of paragraph 12 applied to the assignments of the main lease to the wholly-owned subsidiaries.

II The lessees’ assignment of error under this heading is trifurcated. Here they argue that the acts and conduct of the lessors evidenced a modification of paragraph 12, constituted a waiver of their right to additional rental, and/or estopped them from asserting any claim therefor. Specifically, they contend that ⁵³⁰ the failure of the lessors formally to demand payment under the provisions of paragraph 12 after learning, in October of 1951, of the assignment of June 30, 1951, was such conduct as to amount to a modification of the agreement, or a waiver of their right to. collect rental under paragraph 12; and, since the assignments in 1960 were made in reliance upon the acquiescence of the lessors to the “prior technical assignment,” the lessors are now estopped from asserting any claim for additional rental. We are unable to conclude that the course of conduct pursued by the lessors was such as to amount to a modification of the agreement.

When they learned, in October 1951, of the original assignment of June 30, 1951, the situation was entirely different than it was in 1960, when the lessors learned of the assignments of 1956. As of June 30, 1951, the store had not opened (July 10, 1951, being the opening date) ; hence there was no basis upon which to compute the possible future rental as provided by the provision of paragraph 12 of “the average annual rental theretofore paid * * * for the preceding ten (10) years or such shorter period as this lease shall then have been in effect * * In addition, lessors had received a report of the sales for the first quarter of over $600,000, which indicated that they would receive during the course of the year the maximum rental provided for in the main lease (and it turned out that they did). During the full period of occupancy by Food Fair Stores of Maryland, Inc., the landlords received the maximum rental, $20,000, each year. Consequently, in April 1956, when the new assignments were made, $20,000, by virtue of paragraph 12, had become the minimum guaranteed rental.

And it must be remembered that the lessors did not learn of these assignments until some four years later. The sending of different colored rental checks drawn on Food Fair Stores of Maryland,