Millison v. Clarke

Rodowsky, J., delivered the opinion of the Court. This landlord’s action for rent under a commercial lease involves the defense of surrender by operation of law on which a summary judgment in favor of the tenant was based. The principal question presented is whether the legal consequence of a reletting by a landlord to a new tenant, for a term extending beyond the expiration of the lease to the original, defaulting tenant, is the acceptance of a surrender, without regard to factors indicating the landlord’s intent to the contrary. Phrased another way, the question presented is whether reletting beyond the original term is a factor of such overriding significance on the facts of this case as to have effected a surrender by operation of law as a matter of law.

We hold that such a reletting does not inevitably have that legal result and that it was improper to grant summary judgment here. ⁴²² The premises are located on State Route 232 in California, St. Mary’s County, Maryland. Appellant, J. Laurence Millison ("Landlord”), by lease bearing the date of June 22, 1972, let the premises to Joseph Abel Clarke and Judith A. Clarke ("Tenants”) for a term of ten years beginning September 1, 1972 and ending August 31, 1982. Rent was payable on the first of each month at an annual rate of $6,000 for each of the first two years of the term, $9,000 for each of the next three years and $12,900 for each of the last five years. Tenants covenanted not to use the premises for purposes other than a restaurant and food carryout.

The lease provisions directly describing Landlord’s rights upon default by Tenants are as follows: [I]f the rent shall be Ten (10) days in arrear the Landlord shall have the right to distrain for the same, and to re-enter and take possession; and if the Tenant shall violate any of the foregoing covenants on their part herein made, the Landlord shall have the right without formal notice to re-enter and take possession .... The first phase of what thereafter transpired has been the subject of prior litigation. In summary, Tenants never paid any rent as such, the premises were not finished as a restaurant and food carryout, and the parties disputed the existence and extent of obligations to make the premises ready. 1 On January 2, 1973 Tenants 2 wrote to Landlord asserting certain work had not been completed, requesting a return of a $1,000 security deposit and expressing a ⁴²³ willingness to negotiate another lease "|w]hen, and if, the building is ever completed .. . There followed an exchange of five additional letters through February 2, 1973, which concludes: Again I must remind you that Mr. Millison intends to hold your client responsible for damages in full ....

Hopefully he will find a new tenant under the same or substantially the same terms so that the damages assessed to Mr. & Mrs. Clarke will not be too excessive. On May 10, 1973 Landlord leased the premises to Vernon Miles and Peggy Miles for a term July 1, 1973 through June 30, 1976 (the "Miles Lease”). Rent under the Miles Lease was less than the rent under Tenants’ lease. Landlord advised Tenants of the Miles Lease by letter of January 14, 1974, stated that the rent paid under the Miles Lease would be credited to Tenants and suggested re-entry by Tenants since the Landlord had been informed that the Miles were "unable to make it in this location....” Tenants replied that they "will not enter the premises” allegedly leased to them.

On February 5, 1974 Landlord sued Tenants claiming rent accrued from lease commencement on September 1, 1972 less credit. Landlord wrote Tenants on May 14, 1974 to advise of an assignment of the Miles Lease and stated: Please keep in mind that we have also apprised you that we intend to help to mitigate the damages of Mr. and Mrs. Clarke by constantly searching for interim tenants during the period of the original lease obligation of your clients. It has not been in the past, it is not now, and it will not in the future be our intention to release your clients from the lease agreement obligations as contained in the lease dated June 22, 1972. The prior action was tried in May of 1975, after Landlord had amended to claim through April 30, 1975.

Judgment was in favor of Landlord, but in an amount unsatisfactory to him. On Landlord’s appeal, that judgment was affirmed. ⁴²⁴ Millison v. Clarke, 32 Md. App. 140 , 359 A.2d 127 , decided June 28, 1976. The Miles Lease, as written, expired two days later. Landlord again leased the premises on September 10, 1976 to C.E.L., Inc. That lease commenced November 1, 1976 for a term of fifteen years, or well beyond the August 31, 1982 expiration date of the lease to Tenants.

The rent was $400 per month for the first 12 months, $500 per month for the second 12 months, and $600 per month for the third 12 months. Real estate taxes were made additional rent. In the fourth year and thereafter the "annual rental” was increased proportionately in relation to the "cost of living index as published by the United States Department of Labor ....” 3 In the present action, filed May 20, 1977, Landlord claimed: 1. For rent payable under the lease to Tenants from May 1, 1975 (the rent day immediately following the cut-off of the period for which damages were claimed in the prior action) through October 31, 1976 (the day preceding the commencement of the lease to C.E.L., Inc.), less credit for rent received under the Miles Lease; and 2.

For rent payable from November 1, 1976 (the beginning of the C.E.L. lease) through August 31,1982 (the termination of the lease to Tenants), less credit for rent paid and projected to be paid under the lease to C.E.L., Inc. 4 Each of the parties filed a motion for summary judgment. By Orders entered July 31, 1978, based upon a written opinion, the trial court granted Landlord’s motion as to the issue of liability only, for the period May 1, 1975 through ⁴²⁵ October 31, 1976. 5 Tenants’ motion was granted as to the period extending from November 1, 1976. It was held "as a matter of law, that the offer of surrender by the Clarkes was accepted by the landlord, Millison, at the time the C.E.L., Inc. lease was entered into.” The trial court reasoned that the reletting by Landlord, for a term longer than that of the lease to Tenants "is inconsistent with the continuing operation of the original lease and is of an unequivocal nature demonstrating that the landlord has accepted the offer of surrender.” This conclusion was strongly influenced by language in Eidelman v. Walker & Dunlop, Inc., 265 Md. 538, 544 , 290 A.2d 780, 784 (1972) and in Wilson v. Ruhl, 277 Md. 607, 611 , 356 A.2d 544, 548 (1976), which will be discussed, infra. The open issue of damages from May 1, 1975 through October 31, 1976 was tried non-jury.

Cross-examination of Landlord developed that after the lease to C.E.L., Inc. was signed on or about September 10, 1976, Landlord permitted C.E.L., Inc. personnel to go into the premises to do the "different things” that they found "desirable.” Landlord did not "think there was that much renovation to be done.” Damages were awarded Landlord based on the full rent payable by Tenants less credits of two types: 1. Payments realized under the Miles Lease; and 2. An amount equal to the rent reserved under Tenants’ lease apportioned for the period from the signing of the lease between Landlord and C.E.L., Inc. and its commencement date. This latter credit was allowed on the following analysis by the trial court: I also find that Mr. Clarke is entitled to a credit of $1,250, being the denial of the usage of the premises between September 10 through October 31st.

I don’t like doing that, the reason Mr. Millison did that, being Mr. Nice Guy and he has to get ⁴²⁶ charged for it, but I believe for the sake of justice I must do that. 6 Landlord perfected his appeal to the Court of Special Appeals, Millison v. Clarke, 43 Md. App. 75 , 403 A.2d 384 (1979), which reached the following conclusions on the three issues involved: Issue No. 1 — entry of summary judgment in favor of Tenants for the period November 1,1976 through August 31, 1982: Reversed and remanded for retrial. Issue No. 2 — denial of Landlord’s Motion for Summary Judgment as to the liability of Tenants for the period November 1, 1976 through August 31, 1982: Affirmed. Issue No. 3 — the amount of Landlord’s damages for the period May 1, 1975 through October 31, 1976: Affirmed. The Writ of Certiorari embraced each of these issues.

Issues Nos. 1 & 2 Effect of the Lease To C.E.L., Inc. The essence of the rationale of the Court of Special Appeals was that acceptance of a surrender, which a tenant tenders by abandoning the premises, is a matter of the intention of the landlord, that reletting beyond the original term is evidence of an intent to accept the surrender but is not conclusive of that intent, as a matter of law, in the face of other evidence from which a contrary intent can be inferred, and that the language in the Wilson and Eidelman decisions was strong dicta but was short of a holding that such a reletting effects a surrender as a matter of law. It is clear that the acceptance of a surrender is a matter of intention. Oldewurtel v. Wiesenfeld, 97 Md. 165, 176 , 54 A. 969 (1903). 7 ⁴²⁷ Oldewurtel also rejected a line of cases, illustrated by Gray v. Kaufman Dairy & Ice Cream Co., 162 N.Y. 388 , 56 N.E. 903 (1900), "to the effect that a re-entry and reletting of abandoned premises by the landlord without the consent of the tenant, would create a surrender, by operation of law.” 97 Md. at 176 , 54 A. at 970 (Emphasis added). We have previously been presented with a landlord-tenant dispute in which there was a reletting which extended beyond the term demised to the defaulting tenant.

Lochner v. Martin, 218 Md. 519 , 147 A.2d 749 (1959). In that case the reletting was treated as one of a number of factors which were considered. The receiver of the insolvent, original tenant petitioned for recovery of rent which had been paid for the last five months of a five year lease. The tenant was placed in receivership during the second year of the term.

The landlord relet three months after the receivership for a five year period at the same rent provided in the lease to the insolvent. At the time of the receiver’s petition the landlord had in fact collected rent from the new tenant through the expiration date of the original lease. The threshold question presented was whether the landlord, in collecting rent on the reletting, was acting as agent for the defaulting tenant or whether the landlord’s action after default amounted to an election to cancel and annul the lease. In determining the latter analysis to be correct we said: The landlords, prior to the sale of the assets of the lessee on the leased premises by the receiver, made improvements for the new tenant without the consent or permission of the receiver.

They re-entered and took possession of the demised premises, and began the new tenancy as of May 1, 1954, giving the new tenant free rent for the month of April. The new lease was for a longer period than the original lease had to run. They filed a claim in the receivership proceedings for rent owing at the time only and no claim was made for possible future rent. These actions, when considered together, were inconsistent with anything except the termination ⁴²⁸ of the tenancy by the landlords. [Id. at 523, 147 A.2d at 752 (Emphasis added)].

There have been decisions in other states which have rejected the argument advanced here by Tenants. In D. A. Schulte, Inc. v. Haas, 224 Mo. App. 365 , 287 S.W. 816 (1926), the tenant sought reversal, as a matter of law, of a judgment in favor of the landlord on the ground that the reletting extended beyond the term of the original lease. On that point the court held The fact that the landlord enters into a new lease, after abandonment ... by the tenant, for a period extending beyond the expiration of the old lease is not conclusive as to the question of the intention of the parties, but is a matter to be submitted for the consideration of the jury along with other facts. [Id. at 366, 287 S.W. at 818 ].

A like conclusion was reached in C. H. Little & Co. v. Gay Apparel Corp., 108 F. Supp. 762 (S.D.N.Y. 1952), an opinion by Judge Irving R. Kaufman. Tennessee law, which controlled, had not directly addressed the issue. The court was "inclined to the view that the Tennessee courts would not hold re-letting for a term beyond that fixed in the original lease conclusive as to intent as a matter of law ... but rather would submit for determination by the trier of facts the question of whether the landlord’s actual intent was to accept surrender.” Id. at 763 . This conclusion was bolstered, however, by the Tennessee rule requiring mitigation of damages.

Cf. McNally v. Moser, 210 Md. 127, 141 , 122 A.2d 555 , 60 A.L.R.2d 388 (1956). Meeker v. Spalsbury, 66 N.J.L. 60 , 48 A. 1026 (1901) involved the reletting of a hotel after it had been extensively remodeled. On a case certified, the Supreme Court of New Jersey stated, "[T]he tenants could not complain that the demise was made to extend beyond [the unexpired term of their lease],” since it appeared that the rent secured for the unexpired term was all that was procurable.

Id. at 64 , 48 A. at 1027 . The "new lease ... might be evidential of the ⁴²⁹ intention of the landlord in his conduct after re-entry, but is not, of itself an acceptance of a surrender by the tenants.” Id. However, the court went on to hold that the extensive remodeling constituted acceptance of a surrender since the original lease permitted re-entry only for such repairs as were necessary for the preservation of the premises. Counsel have not directed us to, and our research has not disclosed, any decision, other than in New York, in which reletting beyond the original term has been the exclusive basis for a holding that a surrender by operation of law has been effected as a matter of law.

In general, that factor has either been treated as evidence of the intent of the landlord or, in those cases in which a decision has been made as a matter of law, the length of the reletting has been combined with one or more other factors on which the decision was based. Three Pennsylvania decisions have addressed the problem without holding that a reletting beyond the term is conclusive of the landlord’s intent. The landlord in Rafferty v. Klein, 256 Pa. 481 , 100 A. 945 (1917) had obtained judgment based on the insufficiency of the affidavit of defense by guarantors of the original tenant. It was held that if the landlord "took possession of the demised premises, and without notice to the principal or surety made a lease thereof to a new tenant, for a term of years extending far beyond the expiration of the original term,” the landlord could not recover rent subsequent to the beginning of the new term.

Id. at 486 , 100 A. at 947 (Emphasis added). The matter was remanded with the observation that the "case is such that the rights of the parties can be best determined by a trial, where all the facts and circumstances may be developed.” Id. at 487 , 100 A. at 947 . Ralph v. Deiley, 293 Pa. 90 , 141 A. 640 , 61 A.L.R. 763 (1927) involved a series of relettings, the last of which was within the original term but which carried an option in the tenant to extend two years beyond. The court observed in dicta that had the last of the new leases "created a term extending beyond that in the original lease, it would indicate an intention to accept the abandonment.” Id. at 96 , ⁴³⁰ 141 A. at 643 (citing Rafferty v. Klein, supra) (Emphasis added). 8 The last of the Pennsylvania trilogy declined to reverse a judgment for the landlord where acceptance of surrender, as a matter of law, was argued to have occurred.

Brill v. Haifetz, 158 Pa. Super. 158 , 44 A.2d 311 (1945). There the lease expressly permitted the landlord to relet and to hold the tenant" 'liable for any loss of rent for the balance of the then term.’” Following the tenant’s default the landlord relet the storeroom premises together with three other contiguous stores for a term extending six months beyond the expiration of the defaulting tenant’s lease. A partition was removed.

The new lease made no express apportionment of rent, which was less than the total of the prior, separate rents. It was held that "the lower court was not obliged to hold as a matter of law that the action of the lessor in making a second lease ... operated as a surrender.” The re-renting was "not incompatible with the [original] lease, but in compliance with it,” since the premises were leased at a reasonable rental which was to the advantage of the defaulting tenant. The observation in Rafferty v. Klein, supra, that a second lease " 'extending far beyond the expiration of the original term’ ” prevented recovery was said not to have been necessary to the decision in that case. Id. at 163, 44 A.2d at 313 .

The court in Armijo v. Pettit, 32 N.M. 469 , 259 P. 620 , 61 A.L.R. 767 (1927) reasoned that, since reletting for the balance of the term is undoubtedly proper, there was no basis for varying that rule if the efforts to minimize damages resulted in securing a tenant for a long term. 9 Those cases in which a surrender by operation of law is found to have occurred, and in which there was a reletting ⁴³¹ beyond the original term, do not rely exclusively on the length of the reletting and do not apply that factor, in and of itself, as effecting acceptance of a surrender as a matter of law. Welcome v. Hess, 90 Cal. 507 , 27 P. 369 (1891), affirmed a judgment for the tenants where the landlord did not announce his intention to continue to hold the tenants responsible, and relet without notifying them that he was doing so on their account, in addition to reletting for a period longer than the remainder of the original term. 10 Casper Nat. Bank v. Curry, 51 Wyo. 284 , 65 P.2d 1116 , 110 A.L.R. 360 (1937) reversed a judgment for the landlord on the ground that a surrender had been accepted. There the landlord gave no intimation by word or act that he intended to hold the defaulting tenant for the difference between the rentals, relet for approximately three and one-half months beyond the expiration of the defaulting tenant’s term, combined additional lands in the lease to the new tenant and did not attempt to indicate in the new lease the amount of rent received from the lands originally leased to the defaulting tenant. 11 Reletting beyond the original term has received the strongest emphasis as indicative of a landlord’s intent to accept a surrender in the decisions in New York.

The New York rule was summarized in In re Kerr, 29 F. Supp. 414 ⁴³² (S.D.N.Y. 1939) in which a surrender was held to have been accepted where the landlord relet for two years beyond the term of the original lease which authorized reletting " 'for the whole or any part of the term from time to time as [landlord] may deem best.’ ” Id. at 415 . The court said: The courts of New York hold that in the absence of an express provision in the lease authorizing the landlord to relet the making of a new lease is an acceptance of surrender of a then existing lease. Gray v. Kaufman Dairy Co., 162 N.Y. 388 , 56 N.E. 903 ----However, in the case at bar the landlord entered into a lease extending beyond the term of the bankrupts’ lease. In making such a lease the New York courts say that the landlord will be presumed to be acting for his own account and to have recognized a surrender of the premises in the absence of consent to such reletting.

Brill v. Friedhoff, 192 App. Div. 802 , 183 N.Y.S. 463 [1920]; Matter of Adams’s Estate, 149 Misc. 289 , 267 N.Y.S. 910 ; Matter of Goldburg’s Estate, 148 Misc. 607 , 266 N.Y.S. 106 ; Bonsignore v. Koondel, 134 Misc. 344 , 235 N.Y.S. 453 . [Id. at 415-16]. 12 The 1900