Messall v. Merlands Club, Inc.

Horney, J., delivered the opinion of the Court. While several secondary questions are presented on this appeal, the principal question is whether the tenant defaulted ³² either in the payment of the rent to the landlords or in the performance of other terms or covenants in the lease. By a lease dated June 1, 1956, and amended October 26, 1956, the landlords (Victor R. Messall and Robert E. Howe) leased a tract of land in Montgomery County and the improvements thereon to the tenant (Merlands Club, Inc.) for a term of seven years to be used as a country club. On the expiration of the lease, the tenant, by properly following the procedures set out in the lease, had the options of either renewing the lease for an additional five years or of purchasing the property.

If the tenant chose to renew the lease, it was afforded an option, if properly exercised, of purchasing the property at the expiration of the renewal term. The lease as amended provided in part that as of November 1, 1956, the rent was to be payable in monthly installments consisting of a base rent of $2000 plus $2.50 per month for each member of the club in excess of two hundred and fifty, with a maximum monthly rental of $2850; that the tenant was required to furnish the landlords a sworn statement of the total membership as of the first day of each month; that any default in the payment of rent or any falsification of the total membership would be deemed a default under the lease; that, in addition to the monthly rent, the tenant was to deposit in a mutually “agreed upon” depositary a sum equal to one-twelfth of the annual taxes (estimated at $165) and one-twelfth of the annual insurance premiums on the leased premises (estimated at $100), and any default in the payment of either would constitute a default in the payment of rent; and that the tenant was “to keep and maintain at its own expense the demised premises in good repair, including painting.” In July of 1958, the landlords, having negotiated a first trust loan on the leased premises with a loan association (Guardian Federal Savings and Loan Association at Silver Spring), the tenant and landlords agreed that $1055 of the monthly rent due by the tenant would be paid by it to the loan association to satisfy the landlords’ obligation under the trust loan and that the balance of the rent would be remitted direct to the landlords. At the same time — despite the fact that the landlords and tenant had subsequently agreed that the insurance premiums should ³³ be paid direct to the insurance agent instead of in monthly installments to the depositary — payments in accordance with the terms of the lease of $100 per month for insurance along with $165 for taxes were made to the loan association (which had been furnished with a copy of the lease) to be placed in separate escrow accounts. As a result, from August of 1958 to April of 1961, a total sum of $1320 ($1055 plus $100 plus. $165) was paid monthly by the tenant to the loan association, and, the loan association, not having been otherwise advised by either the tenant or landlords, set apart $265 of the sum according to the terms of the lease.

Sometime in April of 1961, an examination of the tax and insurance escrow accounts disclosed a deficiency of $916.94 in the tax escrow account and a surplus of $3400.80 in the insurance escrow account. As a result of this finding, the landlords demanded that the tenant pay to the depositary the deficiency in the tax escrow account, and informed the tenant that as of May 1, 1961, there should be an increase of $65 per month in the payments to the escrow accounts, $25 of which was for taxes and $40 for insurance. Subsequently, the landlords, after executing an indemnity bond to the loan association as the escrow agent, withdrew the surplus from the insurance escrow account. In June of 1961, the tenant filed an action in equity seeking a declaratory decree as to the ownership of the surplus in the insurance escrow account.

The landlords, replying, filed an answer claiming ownership of the surplus on the ground that it represented a deficit of $100 per month in the basic rental from August of 1958 to April of 1961, and a cross-bill, alleging that there were deficiencies in the payments of rent due and that the tenant had failed to keep the leased premises in repair; demanding an accounting of the rents due and a determination whether the monthly statements of the tenant as to its total membership were false; and seeking the ejectment of the tenant from the premises because of its defaults under the lease. In January of 1963, after the taking of voluminous testimony, the chancellor found as facts that the word “members” in the lease as amended meant active dues-paying members and that the monthly sworn statements were correct; that the al ³⁴ legation as to repairs had been abandoned; that the rent payments from August 1958 to April 1961 were short $100 per month due to a mutual mistake of fact; and that the landlords were due $3298.20 from the tenant through the month of January 1963,' but that this rent deficiency would be treated as a continuing mutual mistake. Pursuant to such findings, the lower court decreed that the $3400.80 surplus withdrawn by the landlords from the insurance escrow account belonged to the landlords and constituted part of the rent for the leased premises; and that the tenant should pay $3298.20 to the landlords as unpaid rent due through January of 1963, and upon failure to do so the clerk of the court was directed to issue a writ of ejectment. 1 Thereafter, the landlords filed a petition to set aside the decree, and in opposition to the order temporarily staying the decree, the tenant filed a motion ne recipiatur 2 which was granted. The landlords’ appeal is from the several orders and decree of the lower court.

We agree with the chancellor that the tenant had not defaulted either in the payment of rent or in the performance of other terms and covenants in the lease. The chancellor' found that the deficiency in rent from August of 1958 to April of 1961 was due to a mutual mistake of fact. Such a mistake has been defined as a clear impression in the minds of the parties as to the existence of a material fact on which the parties relied and acted, sufficient in importance to influence a person of ordinary intelligence, but which was not ³⁵ in reality an existing fact. McNeely v. Philadelphia Nat.

Bank, 172 Atl. 111 (Pa. 1934). In the instant case, the fact alleged to have been believed by all parties was that the tenant was to make monthly payments of $1320 to the loan association and $845, plus $2.50 for each member in excess of two hundred and fifty, to the landlords. The mistake seems to have occurred in this way: Out of the basic monthly rent (of $2000), $1055 of it, according to the agreement between the landlords and tenant, was to be paid to the loan association and the balance (which would be $945) was supposed to be remitted to the landlords. But, according to the terms of the lease, $165 was payable into the tax escrow and $100 into the insurance escrow.

Moreover, since the tenant had purchased insurance to cover the leased premises until August of 1964, it would seem that no money should have been deposited in the insurance escrow (and the parties apparently acquiesced), but the loan association was never advised of this fact. Accordingly, the agreed outlay by the tenant for rent, exclusive of rent payment for memberships, ought to have been $2165 ($2000 basic rent plus $165 for taxes), $1220 of which should have been paid to the loan association and the balance of $945 should have been paid to the landlords. However, the inadvertent inclusion of $100 for insurance in the computation of the sum to be paid to the loan association resulted in the tenant paying the loan association $1320 (instead of $1220) per month, and the balance of $845 (instead of $945) was remitted to the landlords. Accordingly, this caused a rent deficiency of $100 per month or $3400 for the period from August 1958 to April 1961.

It is not clear from the record whether the tenant or the loan association made the mistake in calculating the sum payable to the loan association each month. But the result in the end, as we see it, is the same regardless of who made the miscalculation. If it is assumed that the loan association computed the amount payable, as was likely, the chancellor was correct in finding that the rent deficiency resulted from a mutual mistake of fact. Although a loan association, as a depositary, is generally considered to act as a trustee, it can for certain purposes in rela ³⁶ tion to an escrow account serve in another capacity.

See Century Indemnity Co. v. State of Maryland, 144 F. Supp. 671 (D.C.