Patuxent Development Co. v. Ades of Lexington, Inc.

Singley, J., delivered the opinion of the Court. This case involves a contest between a shopping center tenant and its landlord, in which feelings have run high, 1 but no higher than the stakes involved. On 16 May 1961, Patuxent Development Co., Inc. (Patuxent) leased to Ades of Lexington, Inc. (Ades) a store containing some 26,000 square feet in Patuxent’s shopping center at Lexington Park, St. Mary’s County. The lease (the 1961 Lease), which identified Patuxent as the “Lessor” and Ades as the “Lessee” was for a term of 10 years and four months commencing 10 September 1961, at a monthly rental of $1,666.66 to which would be added a percentage of Ades’ gross sales over $400,000 per annum.

It provided also for two options to renew for successive terms of five years at a rent to be adjusted for increases in property taxes. In paragraph 6 of the lease, Ades covenanted that it would not use the leased premises “* * * for any other purpose than that of a department store, variety store, Five-and-Ten Cent Store, off sale liquor, wine and beer sales, and soda fountain” and in paragraph 24 agreed that it would not: “* * * sell or offer for sale groceries, meats, dairy products, vegetables, baked goods nor * * * compound any medicines on the leased premises.” ⁴⁰¹ The paragraph continued: “Nothing herein is intended to prevent Lessee from selling candy, chewing gum, popcorn, nuts or patent medicines.” The lease was otherwise unremarkable except for paragraph 28, which gave rise to the present controversy. The original typescript was altered in ink, apparently by the parties, who initialled the changes: “28. As part consideration for execution of this lease by Lessee, Lessor agrees that during the term of this lease ^aeithey-iesgey-He?- Hiram Millison, the President of Lessor corporation, •aey — aáay-nsesafeey—of—the-4eH»ediate—fasri-ly-©# -H-iraai-MíBi-gSfrj nor any partnership or corporation in which Hiram Millison-©n-any-na-eBafee*-«f-^s-4mmediate--farmily- owns an interest will lease any property within a radius of five (5) miles from the demised premises for use as a variety -department-store or Five-and-Ten-Cent Store.

This restriction shall not apply during the second extended term provided for in the option period defined in paragraph 27 hereof, but during said option period, Lessee shall have first refusal on property intended to be leased for the purpose of a-departínent-stoye^ variety store or Five-and-Ten-Cent Store/’ The lease was executed on behalf of Patuxent by Hiram Millison, its then president, whose signature was attested by Larry Millison, and on behalf of Ades by Sigmund Ades. It seems to be conceded that at the time the lease was signed, and at the time of Hiram Millison’s death on 22 April 1965, substantially all of the voting stock of Patuxent was owned by Mr. Millison. J. Laurence Millison (Larry), Hiram’s son, succeeded his father as president of Patuxent and according to his testimony, now owns a controlling interest in Patuxent. ⁴⁰² Ades opened a variety store known as King’s Shoparama in the leased premises and was successful beyond anyone’s hopes, doing a gross business, at the time the litigation commenced, of about $1,000,000 a year, and generating an annual rent of about $50,000. 2 On 12 April 1967 Patuxent and Ades entered into an “Addendum” to the 1961 Lease, which was signed on behalf of Patuxent by L. Millison (Larry). The Addendum added, at an annual fixed rent of $1, some 4,000 square feet to the premises, and made a slight change in the formula under which the additional rent, based on a percentage of gross sales, was to be computed.

There was a provision in paragraph 1 of the Addendum which is of particular significance: “The demised premises may be used for whatever type of business the Lessee desires to conduct in the premises, except that Lessee agrees not to sell any professional musical instruments or groceries, meats, dairy products, vegetables, baked goods, nor will Lessee compound any medicines upon the leased premises. Nothing herein is intended to prevent Lessee from selling candy, chewing gum, popcorn, nuts, or patent medicines. Lessor and Lessee agree that they shall each be bound by the terms and provisions of the [original lease] dated the 16th day of May, 1961, * * * except as the same are changed, amended or modified by this Agreement * * (emphasis supplied). The important point is that paragraph 28 of the 1961 Lease was in no way altered by the Addendum.

Sometime in 1967, Patuxent had under consideration the construction of an additional building at Lexington Park, diagonally across the street from King’s Shoparama ⁴⁰³ and well within five miles of the Shoparama. The negotiations which got under way between Patuxent and Drug Fair of Maryland, Inc. (Drug Fair) were complicated by the insistence of Patuxent’s prospective mortgage lender that Ades waive the restriction contained in paragraph 28 of the 1961 Lease. There were abortive conversations between Patuxent and Ades commencing in January 1968, looking toward a waiver by Ades of the restrictive provision of paragraph 28. When these failed, a lease was signed on 12 April 1968 between Patuxent and Drug Fair, under which 15,000 square feet of store space in the building being constructed were leased to Drug Fair for a 15 year term commencing 1 September 1968, with two five year renewal options, at a rental based on 4% of gross sales, with an annual minimum of $33,000.

The provisions of the Drug Fair lease are pertinent to the present controversy. By paragraph 10, Drug Fair covenanted “* * * to use the demised premises for the conduct and operation of a retail drug store, including soda fountain and lunch counter service, similar to that now being operated by Drug Fair Stores in Metropolitan Washington and [to] use said premises for no other purpose whatsoever without the prior written consent of Lessor.” In paragraph 28, Patuxent agreed that it would not, during the original term or any renewal term, “* * * lease for or permit the conducting of any other drug store or variety store business in the shopping center of which the leased premises are a part, nor upon any real estate within a radius of two (2) miles from said shopping center in which Lessor or his affiliates now has or may hereafter acquire title or any interest whatsoever; 3 * * (emphasis supplied). ⁴⁰⁴ The paragraph concluded with a statement that the restriction was not to be construed as applying to then existing tenancies. The lease was executed on behalf of Patuxent by J. Laurence Millison, its president. On 20 May 1968, Ades filed in the Circuit Court for St. Mary’s County a bill of complaint against Patuxent; J. Laurence Millison, individually, and Drug Fair, seeking that Patuxent be enjoined from leasing the premises to Drug Fair, and that Drug Fair be enjoined from occupying the premises.

Other prayers for relief asked that Patuxent and Millison be enjoined from harassing Ades, and that exemplary damages of $500,000 be assessed against Patuxent and Millison. Drug Fair’s demurrer was sustained by the lower court, and when Ades elected not to amend its bill of complaint, the case came on for trial against Patuxent and Millison. From a decree enjoining Patuxent from leasing premises owned by it within a five mile radius of Ades’ store to Drug Fair or any other tenant for use as a variety or five and ten cent store; enjoining Drug Fair, in the event it occupies the premises leased to it, from selling "items customarily sold by a variety store, not including, however, items such as prescription and patent medicines, cosmetics, tobacco, food and liquor,” and awarding compensatory damages of one cent and costs, Patuxent has appealed. Patuxent challenges the validity of the decree entered below on three grounds: (i) that the restrictive covenant contained in paragraph 28 of the 1961 Lease was personal to Hiram Millison, and expired on his death; (ii) that if the covenant survived Hiram Millison’s death and was binding on Patuxent, the proscription against leasing property within a five mile radius for use as a variety store or five and ten cent store does not preclude Drug Fair from operating a store similar to those which it operates in Metropolitan Washington; and, (iii) the court erred in issuing an injunctive order against Drug Fair after its demurrer had been sustained and it had been released from further participation in the proceedings.

We ⁴⁰⁵ shall consider these contentions in order, adding such additional facts as may be appropriate to the issues. (i) Patuxent buttresses its argument that the covenant contained in paragraph 28 of the 1961 Lease was personal to Hiram Millison and not binding on Patuxent by referring us to a long line of our prior decisions which hold that restrictive covenants are to be strictly construed against the person in whose favor they were made and liberally, in favor of the unrestricted use of the property, Maryland Trust Co. v. Tulip Realty, Inc., 220 Md. 399 , 153 A. 2d 275 (1959) ; Osborne v. Talbot, 197 Md. 105 , 78 A. 2d 205 (1951); Matthews v. Kernewood, 184 Md. 297 , 40 A. 2d 522 (1945) ; Himmel v. Hendler, 161 Md. 181 , 155 A. 316 (1931) ; Bartell v. Senger, 160 Md. 685 , 155 A. 174 (1931); Peabody Heights Co. v. Willson, 82 Md. 186 , 32 A. 386, 1077 (1895), that if there is doubt, the covenant will be construed in favor of an unrestricted use, Saratoga Bldg. & Land Corp. v. Roland Park Apt. Stables Co., 146 Md. 152 , 128 A. 270 (1924), and that a restrictive covenant should not be extended by implication beyond its original intent, Maryland Trust Co. v. Tulip Realty, Inc., supra; Checket-Columbia Co. v. Lipman, 201 Md. 494 , 94 A. 2d 433 (1953) ; Baltimore Butchers Abattoir & Live Stock Co. v. Union Rendering Co., 179 Md. 117 , 17 A. 2d 130 (1941). Cf.

Savon Gas Stations v. Shell Oil Co., 309 F. 2d 306 (4th Cir. 1962) aff’g 203 F. Supp. 529 (D.Md. 1962), cert. den. 372 U. S. 911 , 83 S. Ct. 725 , 9 L.Ed.2d 719 (1963). Forgetting, for the moment, the excisions and interlineations, the covenant contained in paragraph 28 is quite clear: “* * * [Patuxent Development Company, Inc.] agrees that during the term of this lease, Hiram Millison, the President of [Patuxent Development Company, Inc.], nor any partnership or corporation in which Hiram Millison owns an interest will lease any other property within a ⁴⁰⁶ radius of five (5) miles from the demised premises for use as a variety store or Five-and-Ten-Cent Store.” It is beyond question that this was an obligation which Patuxent assumed as lessor and had the duty to perform since at the time of the undertaking, Millison owned a controlling interest in Patuxent. Any fleeting doubt which remained was dispelled on 12 April 1967 when Patuxent, after Millison’s death, entered into the Addendum which ratified and confirmed the 1961 Lease. Once negotiations have been integrated into an agreement, if the language is clear and unambiguous and there is no fraud, duress or mutual mistake, the true test of what was meant is not what a party to the contract intended it to mean but what a reasonable person in the position of the parties would have thought it meant.

Katz v. Pratt Street Realty Co., 257 Md. 103 , 262 A. 2d 540 (1970), and cases there cited, particularly Ray v. Eurice, 201 Md. 115, 127 , 93 A. 2d 272 (1952). We conclude, as did the chancellor, that the undertaking was binding on Patuxent, and not merely personal to Hiram Millison. As we said in Slice v. Carozza Properties, Inc., 215 Md. 357, 368 , 137 A. 2d 687 (1958) : “* * * [T]he parties to the * * * lease were experienced business people. It would seem strange to