Rose & Crown, Ltd. v. Shaw Enterprises, Inc.

Lowe, J., delivered the opinion of the Court. By judgment concluding a lengthy and detailed opinion by Judge John F. McAuliffe, in the Circuit Court for Montgomery County, the commercial tenant operating the Rose and Crown Restaurant suffered forfeiture of its lease to the landlord, Shaw Enterprises, Inc. Although the substantial evidence and numerous issues in the case warranted the length of the opinion, we are faced with only two of the problems that confronted the lower court. To the extent possible we will limit the facts to accord these issues. For our purposes it will suffice to note that appellee demised to appellants premises for the operation of a restaurant which included the sharing of parking facilities with appellee’s motel customers.

The ten year lease called for rental in an amount equal to 7% of appellants’ monthly gross with a minimum guaranteed rental of $1,250.00, increasing to $1,666.67 after 5 years. To ascertain the 7%, appellants were to deliver to appellee a statement of all gross receipts during the preceding month together with the percentage due. Biannually, on the 15th day of June and ⁵⁵⁰ December, 1 a statement of gross receipts was required for the preceding six months, “. . . verified by a certified public accountant in good standing together with payment of any additional percentage rental found to be due for such period.. . . If the Landlord is not satisfied with any such monthly or semi-annual statement, it shall give the Tenant written notice of such dissatisfaction within thirty (30) days after receipt of such statement.. . .” Appellants concede that the biannual statements due in 1971 and June 15, 1972 were not submitted as agreed.

Nor was the percentage rental paid for the months of April, May and June of 1972 in excess of the minimum amount guarantee. Appellants contend that such rental was withheld because appellee had preempted half of the available parking area for temporary storage. On August 8, 1972 appellee wrote appellants asserting their breach of the lease, citing the aforesaid failures among others. Appellants responded indicating a willingness to negotiate their potential business loss due to deprived parking against the withheld percentage rental.

If silence by appellee did not convey its declination to negotiate, the suit that followed on August 28,1972 surely did. Appellants continued to tender future rental which appellee continued to accept, designating the sums so accepted as mesne profits which it referred to as “quantum meruit damages” in a letter dated October 31,1972: “As I have previously informed you, any amounts of monies accepted by Mr. Shaw for rent due prior to the suit was and is accepted on the basis of arrearages due in the rent. Any sums accepted after August 18th, 1972, was accepted on the basis ⁵⁵¹ of quantum meruit damages for the tenant’s continued breach of the Lease.” Appellee continued to accept the rental payments during the period awaiting trial. “Additional rental,” called for by the lease, of a percentage of increased real estate taxes was even demanded, and presumably received. The case was tried in July of 1974 before Judge McAuliffe whose well articulated opinion contains numerous findings of fact, by which we are bound unless we find them to be clearly erroneous.

Md. Rule 1086. We will also attempt to restrict our recitation of his findings to those relevant to the questions raised. After detailing the many grievances and disagreements leading to the present litigation he found among other things: 1. “Specifically, the tenant has failed or refused to pay all of the rent when and as the same came due, and has failed and refused to provide all the reports required of it by the third numbered paragraph of the lease agreement.” 2 2. Judicially noting an inevitable delay between suit and trial as in excess of a year, the court found that appellants were not misled by the continued acceptance of rent for “its continued occupancy was a valuable right, even if it had breached the lease and thereby forfeited the lease, and it was not therefore unreasonable for the tenant to continue to make payments in an amount which both parties had agreed was fair and reasonable for the occupancy of the premises.” 3. “. . . that the failure on the part of the tenant to provide the financial reports required by the lease was persistent, calculated, deliberate, wilful, in violation of the fundamental principles ⁵⁵² of fair dealing, and did in fact amount to bad faith.” 3 4. “. . . that original records of transactions of the Rose and Crown Restaurant taken from the cash register and/or the precheck machine, were intentionally destroyed to cover falsification of the records as to gross receipts.” 5. “. . . the original reluctance, and ultimate refusal of the Defendants to provide the statement required by the lease cannot be excused as mere negligence, or even gross negligence, but as indicated above, was clearly wilfull, deliberate and an act of bad faith.” The judge then decided that: “Accordingly, the breach is such as will support the forfeiture of the lease and the relief sought, namely possession of the premises, and equitable relief to the defendant is not indicated.” The appeal is limited here to two contentions, waiver by the landlord and entitlement to equitable relief from forfeiture by the tenant.

Waiver The letter of August 8, 1972 clearly apprised appellants of appellee’s intention to forfeit the lease. The letter said in part: “Our patience, however, can endure no longer and we can no longer accede to your requests for further time. We must therefore furnish you the ten day notice provided by Paragraph 15 [ 4 ] of the ⁵⁵³ Lease, and this letter shall be regarded as such notice. During this time, you are hereby notified to correct the following deficiencies:. . . .” There followed two pages of “deficiencies”, in considerable detail, including the failure to pay the percentage rent for April, May and June of 1972, the failure to furnish monthly statements for the months of December, 1971 through June, 1972 and the failure to furnish the six month statements verified by a certified public accountant for the period ending May 31, 1970, November 31, 1970, May 31, 1971, November 31,1971 5 and May 31,1972.

Citing Baltimore Butchers Abattoir & Live Stock Co., Inc. v. Union Rendering Co., 179 Md. 117 and Frederick Motor Sales, Inc. v. Baltimore and Ohio Railroad Company, 202 Md. 491 , appellants begin with the general premise that since forfeitures for breaches of covenants are not favored, any slight acquiescence in a breach will be construed as a waiver of the forfeiture. They narrow this by contending that because appellee accepted rental payments for the two months immediately preceding the forfeiture notice and continuously since then, he has waived the forfeiture. ⁵⁵⁴ Appellants furthermore contend that the October 31, 1972 letter designating the payments as “quantum meruit” can not affect the waiver by acceptance. Appellants rely most heavily on text authority for that premise, stating that: “Where the landlord, with knowledge or notice of an alleged breach accepts rent from his tenant, he waives his right to a forfeiture on such grounds, 49 Am. Jur. 2d, Landlord and Tenant, Section 1067, unless, for example, the lease contains an anti-waiver provision.. . .” Had appellants completed the expression of the law as it appears in 49 Am.Jur.2d, Sec. 1067, they would have found that it was followed by the qualifying phrase, “. . . unless there are circumstances arising from such acceptance of rent by him so as to negative the presumption of his affirmance of the continuance of the lease.” In addition, we do not agree with what is recited as an absolute in appellants’ interpretation of the law espoused by the Court of Appeals: “. . . and the rule that waiver of forfeiture occurs by acceptance of rent which became due after a breach committed by the tenant is fully applicable as enunciated by the Court of Appeals in Morrison vs. Smith, 90 Md. 76 , 44 A. 1031 (1899).

See also, Ammendale Normal Institute, Inc. vs. Schrom Construction, Inc., 264 Md. 617 , 288 A. 2d 140 (1972). Acceptance of rent under such circumstances is a clear waiver of the right to declare a forfeiture, and runs directly counter to the binding nature of the election which must be made by a landlord having knowledge of an alleged breach.” Under appellants’ interpretation of the law, when ejectment of the tenant from the premises awaits a court determination, they would be permitted to stay on the ⁵⁵⁵ premises and the landlord would be compelled to foreswear payment therefore at the risk of waiving his right of forfeiture. We do not so strictly construe it. 6 Morrison primarily holds that when a lease is liable to forfeiture for non-payment of rent when due, the subsequent receipt of that rent is not in itself a waiver of the forfeiture. What appellant refers to as “the rule” in Morrison was a qualification to a basic rule of non-waiver by acceptance of rent gleaned from even more ancient authority than itself. “ ‘The receipt of rent after a breach of covenant does not operate as a waiver unless the rent received accrued subsequently to the act which works the forfeiture.’ Bleeker v. Smith, 13 Wend. 530 ; Williams v. Vanderbilt, 21 L. R. A. 489; 12 Am. and Eng.

Ency. of Law (1st ed.) 758 n. ‘The ordinary waiver of forfeiture occurs by an acceptance of rent which became due after a breach committed by the tenant. ’ Section 497, Taylor’s Landlord and Tenant (7th ed.) This seems to be the well recognized rule of law on the subject settled by the great weight of authorities, if not by all.” Morrison v. Smith, 90 Md. at 83 . The message of Morrison in regard to the acceptance of rent accruing after a breach is that such acceptance by the landlord is evidence of waiver of such strength, that standing alone, it would suffice as proof of waiver of forfeiture. It is, in short, a presumption. That presumption, as with any