Louis K. Liggett Co. v. Rose

¹⁵⁰ Parke, J., delivered the opinion of the Court. The bill of complaint on this appeal was filed in the Circuit Court of Baltimore City on January 27th, 1926, by Henry Eose and Emil Horwitz, appellees, against Theodore H. Diener and Louis K. Liggett Company, a corporation, appellants. After the bill of complaint had been amended, its final form was sustained by the overruling of the demurrers which had been interposed by the appellants, who then answered the allegations of the bill of complaint, and testimony was taken before the chancellor. The proceedings were designed to have specifically enforced an agreement of Theodore H. Diener whereby, on November 11th, 1925, he promised in writing to lease to the appellees a desirable brick store, of three stories, with basement, at the corner of Lexington and Liberty Streets, Baltimore, known as 101 West Lexington Street, for a period of ten years from January 1st, 1926, with the privilege of renewal for a like term.

The agreement to lease was not consummated, but Theodore H. Diener, on January 13th, 1926, demised the same premises to the Louis K. Liggett Company, an appellant, for a period of twenty years, beginning on February 1st, 1926. The theory upon which the present appellees proceeded was that, without their default, and while the agreement between themselves and the landlord was in effect, he negotiated and agreed to make a lease of the same property to the Louis K. Liggett Company, the other appellant, which had knowledge of the prior subsisting agreement. The chancellor decreed specific performance of the agreement of Diener with the appellees, and from his decree the landlord and the company have each prosecuted separate appeals. The record is voluminous, and the oral arguments and briefs have exhaustively and ably presented the case, which, in our judgment, will depend upon whether the Louis K. Liggett Company had notice of the prior contractual rights of the appellees at the time of the execution of its lease.

The court will not attempt an analysis of the conflicting testimony, but will state its carefully considered conclusions as the substantive facts established by the preponderance and weight of the testimony. ¹⁵¹ The premises in question were vacant, except a part occupied by a jeweler, Milton I. Mervis, when the landlord leased to a corporation named Dartley, Inc., another portion of the building from October 1st, 1925, to December 31st, 1925. The owner of the building w'as desirous of leasing the premises and he had employed a real estate agent, the Realty Sendee, Inc., to secure a tenant. A short time before the renting to Dartley, Inc., Emil Horwitz, one of its officers and a large stockholder, became interested in securing from the owner a lease on the whole property. The other appellee,.

Henry Rose, an experienced real estate operator in Hew York, became associated with Horwitz in this undertaking,, and the two met at the owner’s place of business on Hovember 11th, 1925, where, in the presence of Sidney D. Cohen, the representative of the Realty Service, Inc., the owner himself drew up an agreement to lease the entire property, and the three contracting parties signed and delivered the instrument, which was of this tenor: “Hovember 11, 1925. “I hereby agree, subject to concluding arrangements with Milton I. Mervis, to lease to Mr. Horwitz and Mr. Rose premises 101 W. Lexington Street for a term of ten years beginning January 1, 1926, at an annual rental of $24,000, payable in equal monthly installments of $2,000 in advance on the first day of each and every month. As security $10,000 are to be paid on signing of the lease, of which $2,000 are to ho applied to payment of the first month’s rent, the balance to be held at 6 per cent, compound interest for three jears and then applied proportionately on the monthly rental for the succeeding three years. Lease to be signed by a corporation having $50,000 capital and to be individually guaranteed to satisfaction of landlord. Premises to be accepted in condition as is and tenant to have right to make any alteration or repairs that will improve the property.

Two years before expiration of the lease, tenant is to have right to renew for a farther term of ten years at a gross rental for the first five ¹⁵² years of $27,000 and for the second five years of $80,000. “Theo. H. Diener. “Witness: Sidney D. Cohen. “We hereby agree to lease the premises .101 W. Lexington Street under the terms above mentioned, and agree to execute proper lease for same. “Henry Eose, “Emil Horwitz. “Witness: Sidney D. Cohen.” The contract was conditional on the owner obtaining from his tenant, the jeweler, Milton I. Mervis, a release or surrender of his subsisting lease, which had some years to run; and, as will be later more particularly stated, the owner obtained from the jeweler a surrender of his term upon the payment of a large reward. After the agreement was signed, Eose returned to Hew York, and Horwitz remained in Baltimore until Saturday, when he left with the understanding that the lease would be sent by Diener to Hew York for execution. Diener had prepared a lease for all of the property, except the portion occupied by the jeweler, and forwarded it to Hew York in a letter dated Hovember 14th.

As explained by this letter, the form of lease submitted was to cover all of the property except that occupied by the jeweler, for the teim of six years and one month, beginning on the first of January, 1926, and ending on the 31st day of January, 1932, which corresponded with the unexpired period of the jeweler’s lease. The letter stated that another lease for the same period, with similar provisions, would be drawn for the portion of the property occupied by Mervis, and that this second lease would, also, cover the entire premises for the residue of the agreed term of ten years, with the privilege of renewal for ten years more. The form of lease submitted contemplated a lease to the corporation to be named by the lessees and Henry Eose as the two tenants. In his letter of December 14th, the: request was made for the name of the corporation to be furnished, with the suggestion that if this be then impossible, the lease ¹⁵³ would be made in the name of Rose, “with permission to, transfer same to a corporation, subject to conditions named in lease.” The lease contained a clause that “it is further understood and agreed that the said tenants shall guarantee to' the satisfaction of the landlord the payment of the rent stipulated in this lease and the payment of the rent to be paid under the fourteen-year lease to be hereinafter executed,” which evidently was intended to provide for the stipulation in the agreement to lease that the lease was “to be individually guaranteed to the satisfaction of the landlord.” The lease as prepared was acceptable in form to the appellees, except with respect to two provisions.

The first was that any change in the name of the corporate tenant or of the personnel of its board of directors, or any assignment of its shares of stock or assets, should “be deemed and considered a violation of this lease and its provisions,” and, upon the happening of any of these three contingencies, the landlord would have the right to declare the lease terminated, with the right of re-entry. The second provision was that the premises should not be assigned or sublet. Both of these provisions were not within the purview of the agreement to lease, but the appellees, though protesting, would have accepted the proposed form of lease, if the landlord had been willing to leave out the stipulation against an assignment or subletting of the premises. Tiffany, Landlord and Tenant, secs. 150, 151, 152; Carlin v. Harris, 100 Md. 50 , 55; Schlerf v. Bond, 139 Md. 10 ; Bodman v. Murphy, 35 Md. 155 .

The prohibition against- assigning or subletting, especially as the proposed renting was to assume the form of distinct leases for separate portions of the same premises, was vital, and the appellees rightfully declined to acquiesce in this modification of the contract. The landlord was, peremptory in his, position that he would not lease to the appellees without this provision, but the discussion on this point continued until Jamiary 6th, in interviews and through correspondence, in which other matters were considered in connection with the execution of the lease, but the central and substantia] ¹⁵⁴ difficulty was the inexorable refusal of the landlord to rent to the appellees, unless they agreed to incorporate the condition against an assignment and sub-lease. Meanwhile the landlord had agreed that Dartley, Inc., whose term would expire on December 31st, could remain as a monthly tenant, but on January 15th he wrote that, instead of requiring this corporation to vacate on January 31st, an arrangement could be made for an extension until February 15th. The landlord having declined to execute a lease in conformity with his agreement, the appellees, who had been acting under the advice of their attorney in Rew York, engaged the services of local counsel, who addressed a letter to the landlord on January 22nd, 1926, in which a demand was made upon him to carry out the contract of Rovember 11th, 1925, according to its terms, and if he failed or refused, legal proceedings would be begun, and that such action would be taken, unless he replied to the demand on or before January 26th.

In this communication, the deposit of ten thousand dollars was offered to be deposited with the landlord; and it was stated that the appellees were willing to execute any proper form of lease, and that the one first submitted by the landlord was entirely satisfactory, if the two provisions which have been mentioned were eliminated. The appellees further particularly offered to have a corporation formed immediately with a paid in cash capital of fifty thousand dollars, and to have the performance of the lease individually guaranteed to the landlord’s satisfaction. The landlord made reply, through his attorney, on January 25th, to the effect that his attitude had not changed since his letter to Mr. Rose, dated December 21st. Two days later the bill of complaint was filed, wherein the appellees again tendered themselves ready, willing, and able to comply with the terms of the agreement of Rovember 11th, and prayed for a specific performance.

The contract to lease is assailed on the ground that it is lacking in mutuality and in certainty. It would seem reasonably clear, although not wholly free of difficulty, that the better rule would require the specific enforcement of this ¹⁵⁵ contract, under the circumstances, against the landlord, if the appellees be ready, willing, and able at the time of the decree to produce a corporate lessor having a capital of fifty thousand dollars; and to provide guarantors for the performance of the covenants of the lease, against whom no reasonable grounds of objection could be made by the landlord in the exercise of good faith. While mutuality should exist from the beginning of the contract, there is a distinction drawn by the authorities between the mutuality of rigid and obligation, and the mutuality of the equitable remedy; since the first is the binding efficacy of the agreement upon both the parties, and since the second concerns the right of both the parties to- obtain a specific performance. “If the first does not exist when the parties have gone through the form of concluding their contract, it can hardly be said that any agreement at all has been made; any subsequent act-, omission, or event, which would create a mutuality of obligation, would vi rtually be the making of a new agreement. The mutuality of the equitable remedy, on the other hand, does not belong to the essence of the contract.

An agreement may be perfect In its obligations upon both parties, and yet be of such a nature that one of them only could be compelled, by a decree of the court, to specifically perform. As the absence of this kind of mutuality does not render the agreement any less obligatory, it would seem on principle that, if the quality originally lacking should be subsequently supplied, in any practical manner, before the commencement of the suit, or even, perhaps, before the hearing, the objection would then be removed and a specific enforcement would be thus made possible.” Pomeroy’s Specific Performance (3rd Ed.), sec. 166, pp. 429, 430, secs. 171, 172, 173; French v. Boston Nat. Bank, 179 Mass. 404 . In Maryland Construction Company v. Kuper, 90 Md. 529 , the appellant, on January 18th, 1897, sold to the appellee some lots of land, which were to be paid for and conveyed at the expiration of thirty days from the day of sale, and, on the vendor tendering a deed, the purchaser declined to accept, and, on a hill for a specific performance, interposed ¹⁵⁶ the defence that the contract of sale was unenforceable because of a failure of mutuality in the contract.

The Maryland Construction Company was engaged in building for the Baltimore and Ohio Eailroad Company the Baltimore Belt Eailroad. The Baltimore and Ohio Eailroad Company held all the stock of the construction company and was its large creditor. The Baltimore and Ohio Eailroad Company was in the hands of receivers, who applied to the federal court for permission to secure funds for the construction company by the issue of a large amount of certificates of indebtedness, dated December 1st, 1896, and payable three years thereafter, and the court authorized the issue, provided that the receivers, as a condition precedent, should require the construction company to execute to the receivers a declaration of trust to the effect that the receivers should hold all the property of the construction company for the benefit and protection of said receivers, wihout power of sale or other right of disposition by said construction company, except by consent of the receivers in writing, and further that the proceeds of sale should be paid to the receivers. On the 27th day of November, 1896, the construction company executed in accordance with the decree this declaration of trust, which was duly recorded.

It was on account of this situation that the buyer contended there was no mutuality in the contract, as the agreement of sale to him was not signed by the receivers but only by the construction company. It is to be observed that the mutuality of right and obligation of the contracting parties was complete on the face of the contract of sale, and it was binding upon both parties, but, by reason of the declaration of trust by the construction company to the receivers, the mutuality of equitable remedy did not exist at the time of the treaty of sale, because the ability of the vendor to comply with its contract to convey was dependent upon the condition of the construction company being able to secure, after the formation of the contract, the consent to the sale by the receivers, who acted in the representative capacity of officers of the court, ¹⁵⁷ .and their union in the deed of conveyance from the construction company to the buyer. This Court held that the construction company could maintain its bill for specific performance since, after the delivery of the contract, the receivers had consented in writing by uniting with the construction company in the proffered deed to the buyer for the lots sold. The Court, after reviewing Duvall v. Myers, 2 Md. Ch. 401 , and a number of other cases, said: “The authorities are therefore ample to establish the doctrine that the mere fact that the vendor’s property is encumbered, or his title is defective, at the time the contract of sale is made, will not prevent his enforcing the contract in equity, if he has removed the incumbrance and perfected the title by the time he is required to convey it, and generally, when he has acted in good faith relief will be granted him, if he is ready to furnish a clear title at the time of the decree, provided the delay has not prejudiced the purchaser and time is not of the essence of the contract.” Page 543.

And it may now be said to be well established by the decisions of this Court that an agreement upon condition, which might not be enforced at its inception and for some time thereafter, because the performance of the condition had not been fulfilled by the obligee, may be specifically enforced by the obligee, if he has acted in good faith, and if at any time previous to the decree he is able to complete the performance of the condition. Swartz v. Realty Co., 106 Md. 290, 297 ; Hammer v. Westphal, 120 Md. 15, 18 ; Caplan v. Buckner, 123 Md. 590, 601 ; Southern Real Estate Co. v. Strub, 128 Md. 513, 521 ; Dixon v. Dixon, 92 Md. 432, 442, 443, 437 ; Thomas v. G. B. S. Brewing Co., 102 Md. 417 ; Brewer v. Sowers, 118 Md. 681, 689 ; Hensel v. Calder, 135 Md. 487, 490-493 ; Keys v. Keys, 148 Md. 397, 401 ; Schapiro v. Howard, 113 Md. 360, 377 ; Offutt v. Offutt, 106 Md. 236 ; Miller's Equity, sec. 686. This rule is subject to the general qualifications that time is not of the essence of the contract and, when it is not, that the delay in fulfilling the condition or perfecting the ¹⁵⁸ title was not intentional, unreasonably long and snob as to prejudice the rights of the other party. Supra; North Avenue Land Co. v. Baltimore, 102 Md. 475, 483-485 .

The chancellor found that the appellees had ácted in good faith, and the evidence supported this conclusion. Although the contract to lease wás one where, from its object and the nature of its subject matter, time was of the essence of' the contract, yet the right of the lessor to refuse to perform his contract to lease, because the lessee had not made an actual tender of an executed lease with a lessee and guarantors and money deposit, as required by the contract, before January 1st, 1926, was not an absolute right, but one which could be lost by his conduct, as where the delay was caused by his default. The.proof is clear that, if the' lessees had made the tender, it would have been a useless, form, because the lessor had openly and firmly refused to consider the execution by him of any lease which did not contain the stipulation against an assignment or sublease. The decided weight of evidence is that the appellees were ready, before bringing the suit, to comply with the conditions as was originally contemplated by the parties, and the failure of the contract to be performed within the time fixed was wholly the default of the proposed lessor, who without any just or sufficient reason notified the appellees that he would not perform the contract.

Under such circumstances, the owner loses his right to treat the agreement to lease as at an end because the other parties fail to go' through a nugatory ceremony. Irving v. Gregory, 13 Grey 215, 218; Elbert v. Arends, 190 Ill. 221 ; Dynan v. McCulloch, 46 N. J. Eq. 11; Bauman v. Pinckney, 118 N. Y. 604 ; Pomeroy’s Specific Performance (3rd Ed.), secs. 405, 409, 337; Maryland Construction Co. v. Kuper, 90 Md. 529, 549 ; Lawson v. Mullinix, 104 Md. 156 ; Gunton v. Carroll, 101 U. S. 426 , 25 L. Ed. 985 . On the facts of the' record, as the Court finds them, the failure of the appellees to perform their contract by the time designated was caused by the indicated default of the person against whom specific ¹⁵⁹ performance is sought, and he cannot now set up a delay caused by his own default to defeat a proceeding rendered necessary by that default. Budacz v. Fradkin, 146 Md. 400, 407-408 ; Brewer v. Sowers, 118 Md. 681, 683, 687 ; Cheney v. Libby, 134 U. S. 68 ; Morse v. Merest, 6 Madd. 26.

A ground assigned for the contention that the contract itself was uncertain is that the appellees agreed to execute a “proper lease” for the premises. This agreement follows the signature of the landlord, and relates to the body of the contract, wherein its terms are set out. Any uncertainty is removed by reference to the context of the contract, where the terms upon which the renting is to be made are stated, and the meaning of a “proper lease” is made plain to be simply that the lease shall set forth these terms in an adequate manner by an instrument of writing in legal form. Td cerium est quod reddi cerium potest. 1 Tiffany on Landlord and Tenant, secs. 67, 68.

The contract definitely sets forth the necessary elements of a valid lease, and is enforceable even if it should not contain all the usual averments of similar demises. King v. Kaiser, 126 Md. 219 ; Read Drug and Chem. Co. v. Nattans, 129 Md. 67, 71 ; 130 Md. 471 ; Thomas v. Thomas & Thompson Co., 132 Md. 484 ; 1 Tiffany, Landlord and Tenant, sec. 67, p. 393; Caplan v. Buckner, 123 Md. 602 . Eo matter what may have been the prior equitable estate •or other interest of the appellees in the property of which Louis K Liggett Company subsequently acquired a demise, the title of the latter is indefeasible if it was acquired in good faith, for value, and without notice.

The claim of the appellees is founded upon a paper writing whose form did not entitle it to be recorded, and as the demise to the Liggett Company was upon a valuable consideration, it will prevail, unless the company had actual or constructive notice of the prior equity of the appellees. Pomeroy's Eq. Jur. (4th Ed.), vol. 2, par. 767, p. 184; vol. 1, par. 200, p. 288; Price v. ¹⁶⁰ McDonald, 1 Md. 414 ; Stanley v. Schwally, 162 U. S. 276 ; McNamara v. Feihe, 139 Md. 520 ; Code, art. 21, sec. 29.

The contention of the appellees is that constructive notice' of the agreement of November 11th was acquired from the possession of Dartley, Inc., which was the lessee of a part of the premises from the owner Diener for a period of three months, expiring on December “31st, 1925, and thereafter from month to month. The doctrine is that possession of the land is notice of the rights of the party in possession to the-extent they would have been ascertained upon inquiry. The extent of this imputed knowledge is limited to those rights, which are asserted under subsisting relations of the party in possession and the owner of the land, and so to some actual outstanding title;, or equitable interest, and should not be extended to those which might arise from a non-existent, different, and merely anticipated status with a third party. Duvall v. Wilmer, 88 Md. 66, 76, 77 ; Wicklein v. Kidd, 149 Md. 412 ; Fuller v. Brewster, 53 Md. 358 ; Gross v. King, 150 Md. 291 ; McNamara v. Feihe, 139 Md. 516 ; Alexander v. Ghiselin, 5 Gill (Brantly Ed.), note p. 138; Hurwitz v. Buck, 147 Md. 566 ; 2 Pomeroy's Eq.

Jur. (4th Ed.), sec. 609, p. 1183; Shipley v. Fink, 102 Md. 219, 228 . It follows: that the knowledge of the resident manager of Dartley, Inc., that the appellees had entered into the contract of November 11th with its landlord, and that, when and if the appellees obtained their lease of the premises from the landlord, theappellees were expected to rent for a long term to Dartley,. Inc., the premises the latter then occupied, was too remote, uncertain and speculative to be imputed from the mere possession under a different and accepted legal relation; and, moreover, was something the resident manager was under m> duty to disclose upon the inquiry of Louis K. Liggett Company.

The appellees further argue that the Liggett Company acquired constructive notice of their contract by an interview-in New York on November 13th between Monahan, its employee, and Rose, an appellee, and a business associate named: ¹⁶¹ Ball. Accepting the version relied upon by the appellees, Bose and Ball went to the office of the company, and inquired for some one in charge of its out of town real estate department, and were introduced to Monahan, whom they informed Bose held a lease on the premises here in controversy, and inquired if his company would bo interested in the location. Monahan stated that his company had considered the site, and had found it did not afford sufficient floor space and had secured another location. The testimony of Bose and Ball is that Monahan informed them that he was the manager or assistant manager of the out of town real estate department.

They were uncertain with respect to which office he claimed to fill, but that is immaterial, as his own declarations were insufficient to establish his agency. Culver v. Nichols, 140 Md. 448, 452 ; Roland v. People's Bank, 134 Md. 218, 220 . The fact is that Monahan was one of four clerks in the real estate department, and that its head was one Masters, who alone had the right to initiate, conduct, and submit to the executive committee for its authorization the corporate leases. Monahan did not communicate this conversation to Masters or to any other officer or director, nor did it have such present importance or pertinency as would cast upon the clerk the duty to report it to his superior officer, who was clothed with the power to act in such matters.

The property in question had been considered and rejected by the corporation as not available for its purposes a short while before, and was a closed incident so far as Monahan knew. It is not claimed that Monahan was empowered to conduct the treaty for the purchase or lease of any property for his corporation, or that with such affairs he was charged with any special duty; nor did he then, nor did he at any future time, conduct or participate in any negotiations for the lease, which was, however, some weeks later acquired by the corporation tlnmtgh some other agent of a different and superior class. Under these particular circumstances the uncommunieated knowledge of Monahan was not imputed to the corporation. 2 Mechem on Agency (2nd Ed.), secs. 1850, 1843. ¹⁶² The third and final ground to impute notice to the Liggett Company is because of the relation of principal and agent existing between the company and Howard Bichards, a real estate broker of Baltimore City. The appellants have urged that the broker was the agent only of Diener, but the learned chancellor disagreed, and we fully concur in his determination.

Stress is, also, laid upon the point that brokerage fees to the amount of about ten thousand dollars depended upon the success of the broker’s efforts, and that this made