Standard Industries, Inc. v. Alexander Smith, Inc.

Hammond, J., delivered the opinion of the Court. The suit below was a bill by a landlord, Standard Industries, Inc., seeking a declaration that a lease between it and Alexander Smith, Inc., tenant, was binding until the expiration of its stated term, June 30, 1956. In August, 1955, the property was flooded during the passage of Hurricane Connie and the tenant, claiming that resulting damage justified the action, cancelled the lease. The case was tried in open court and on the third day of the trial, the tenant asked and received leave to amend its answer to add a prayer for loss of rent sustained by it when its sub-tenant cancelled its lease.

The chancellor dismissed the landlord’s bill and denied the tenant’s prayer for loss of rent. Each appealed. Standard owns some ten acres in Southeast Baltimore, improved by a brick platform type single story building containing approximately 110,000 square feet. The property is lo ²¹⁸ cated in a low area bounded on the west by the North Point Road, on the north by the B. & O. railroad tracks on an embankment eighteen feet high, on the east by Herring Run, and on the south by a farm.

A considerable portion of the building is built over a pit eight feet deep, two hundred twenty feet long and thirty-six feet wide, into which drains excess water coming onto the lot. This reservoir holds nine thousand gallons of water and when the water reaches a certain level, automatic pumps begin to work. In 1946 Smith became interested in leasing the property and several of its officials came down to view it, including one Miller, manager of the region of which Baltimore was a part, and one Boal, who was in charge of all real estate operations, and two engineers. At that time the property was in the “middle of a marsh” and Standard was starting to build a dike between Herring Run and the property.

In April, 1946, Standard and Smith executed a lease for a term of five years, beginning July 1, 1946, with the option in the tenant to renew for an additional term of five years, at an annual rental of $27,200. The premises demised consisted only of a portion of the building known' as Building “A”, comprising approximately 68,000 square feet. The lease provided that the tenant was to make all repairs necessary to maintain the demised premises, “excepting repairs of a structural nature” which were the obligation of the landlord. There was this further provision: “If, during the term of this Lease, or any renewal thereof, said demis.ed premises shall be substantially destroyed by fire, the elements or any other cause not the fault of the Lessee, then this Lease, at the option of the Lessee and upon notice in writing to the Lessor, shall cease and terminate, and each Party shall be released from further obligation hereunder, and Lessor shall refund to Lessee any portion of the rent paid in advance and not earned at the time of such destruction. “If, however, during the term hereof, the said premises shall be only partly destroyed by fire, the ²¹⁹ elements or any other cause not the fault of the Lessee, then the Lessor shall repair such premises as speedily as possible at Lessor’s expense, and until the completion of such repairs Lessee shall be entitled to a reduction of rent in proportion to the amount of floor space of which they are deprived the use while such repairs are being made. “Damage to such extent as to render fifty (50%) per centum or more of the floor space unusable for the purpose of Lessee’s business shall be deemed a ‘substantial destruction’ within the meaning of this agreement, and damage which renders less than fifty (50%) per centum of the floor space unusable for the purpose of Lessee’s business, but which cannot be repaired within ninety (90) days shall likewise be deemed to be a ‘substantial destruction’.

Damage which renders less than fifty (50%) per centum of the floor space unusable for the purpose of Lessee’s business, and which can be repaired within ninety (90) days shall be deemed to be a ‘Partial destruction’ within the meaning of the agreement.” In the Fall of 1946, there was a heavy rain and Herring Run broke through the dike near the B. & O. railroad tracks and inundated the leased building to a depth of between one and two feet. Standard thereupon replaced the section of the dike in question with a different kind of earth and built it to a higher level. In 1947 the combination of roof leaks and outside water caused about four inches of water to come in the warehouse, damaging materials of Smith, which thereafter put its merchandise on skids or platforms above the floor level. Standard again raised the level of the dikes.

Early in 1948, Smith took over the whole of the leased premises, (a portion had previously been sub-let) and sent its employees, Barrett and LeNaire, both qualified engineers, to “study the flood control situation around the warehouse”. LeNaire filed with Smith a report and a plat, a copy being sent to Standard for its information. The report outlines the problems and discusses a plan, explained to LeNaire by ²²⁰ Standard’s manager, for the control of flooding in the future. Included in the measures to be taken (and that were taken) were an extension in length and addition in height to the dikes, the digging of a new drainage ditch on the north side of the property, and the placing of a new pump, the capacity of which was to be increased if the one proposed proved to be inadequate.

LeNaire’s conclusion in the report was “that the proposed method seemed logical to me.” In June, 1948, during a heavy rain, water entered the property again and inundated the motors of the heating system which had to be taken out and dried. By a letter dated August 8, 1949, Smith, without even suggesting a change in the language of the lease, exercised its option to renew the lease for an additional five-year term ending June 30, 1956. In September, 1950, the premises were flooded to a depth of four feet throughout. Water covered desks, files and office equipment, soaked the motors of the sewage pumps which Smith had installed, making it necessary to bake them out and rewind them, covered the walls and floor with mud, silt and dirt, and damaged Smith’s inventory to the amount of over $250,000.

When the flood receded, Smith took five days to evacuate much of its merchandise and then washed off the walls and scrubbed most of the floors and continued to use the building. Immediately after the flood of 1950, Standard increased the height of the dikes seven to nine feet above the normal level of Herring Run, and Smith built brick sills in the doorways and later raised the Herring Run dikes with earth fills supplied by Standard to a height of ten or eleven feet, even higher than Standard had raised it immediately after the storm. Standard extended its dike on the south side all the way to North Point Road. From this time until the date of Hurricane Connie, in August 1955, no water entered the building.

Smith continued to occupy the leased premises until 1951, when it made plans to transfer its warehouse to a new building on Erdman Ave. There was testimony that the move was because Smith was not willing to risk further floods. Smith wrote to this effect to the National Production Authority of the U. S. Department of Commerce in 1951 ²²¹ in an effort to obtain construction priorities, saying: “We are presently located in a building in which we are continually vulnerable to flood damage and in order to operate successfully it is essential that we move. * * * If permission is not granted to erect the facilities that we now require * * * we will be placed in a position of unreasonable hardship * * * primarily due to the recurring flood damage which must be anticipated in view of our past experience and which condition is beyond our control to correct.” About eight months after this letter, Smith’s officer in charge of its real estate operations, who had visited the property and conferred with Standard’s president after the flood of 1950, wrote to him as follows: “As I mentioned to you, we expect to transfer the showroom and warehouse operation to our new location on Erdman Avenue sometime in the spring, at which time part or all of the space we lease from you will not be needed by us. However, we intend to fulfill our obligations under our lease agreement which extends through June 30, 1956, but would appreciate your cooperation in any sub-leasing arrangement we might make.” In June, 1952, Smith sub-leased the property to Bendix Aviation Company for a two-year term ending August 31, 1954, at an annual rental of $44,200.

Under the sub-lease, Smith was responsible to Bendix for plumbing and heating facilities, all pumps, electrical facilities, flood control dikes and repair of all interior portions of the demised premises. When the sub-lease expired on August 31, 1954, Bendix wanted as short a commitment as possible because “our continued use of the premises in terms of definiteness was indeterminate”, and became a monthly tenant at the same rental and on the same conditions, except as to term. After the sub-lease and before Hurricane Connie, Smith vacated its new building in which it had moved in 1952 and abandoned all but a negligible part of the storage of its merchandise in the Baltimore area. Hurricane Connie commenced August 12, 1955, and brought with it approximately eight inches of rain within twenty-four hours, more rainfall than had ever been recorded in this area since the commencement of United States Weather Bureau records.

In preparation, Standard ²²² stationed six men on the property, which had been provided with pumping facilities with a total capacity of 220,000 gallons per hour. They succeeded in keeping the premises free of water until late Friday night, August 12, by which time more than five inches of rain had fallen. On August 13, Herring Run became so swollen that it could not get through the culvert at Pulaski Highway, which was about 500-700 feet north of the demised premises. It overflowed Pulaski Highway, ran down North Point Road, flooding all property adjacent to the east side of that road, entered the demised premises and, ironically, trapped by the protective dikes and the B. & O. embankment, the water reached a depth of eight feet both inside and outside the building.

During the night a dike broke from the inside and water dropped about three feet. Immediately after the hurricane, Bendix concluded that it would vacate the property and on August 15, notified Smith of the cancellation of its tenancy, claiming a refund of half of the August rent which had been paid. On August 19, without having any direct knowledge of the condition of the demised premises and without inquiry to or communication with Standard, Smith wrote Standard that it had been advised that the flood had rendered the premises “completely unusable” and that it, therefore, “in conformance with lease agreement” elected to declare the lease terminated “as of the date the premises became untenantable.” Smith requested refund of the portion of the rent not earned “at the time the premises became untenantable”, which it assumed to be August 15. The dispute between the parties is not so much as to the effect of Hurricane Connie on the demised premises, but rather is as to the application of the language of the lease to what is more or less agreed to have occurred.

It is undisputed that the storm caused no structural damage to the building, that is, to the walls or the superstructure or the floor. Appellant employed Baltimore Contractors, Inc., to repair the broken dike, wash down the exterior of the building, and pump out the lot and the building. Bendix had filled the building with racks, shelving and equipment for the material ²²³ it was storing. It put a force of one hundred fifty men in the building to salvage its property stored there.

On August 17 and 18, LIurricane Diane struck but no water came into the building. On August 19, one week after the onset of Connie and one day after Diane had ended, Baltimore Contractors had completed its work and was out of the property. By August 20 or 21, Bendix’s material had been moved out and the evacuation force, which had worked around the clock until that time, cut down to eight hours work a day devoted exclusively to removing the extensive shelving, racks, fixtures and equipment, and the debris and mess caused by the flooding. Bendix was completely moved out by August 25.

After the water had been cleared, it was shown that the only effects of the hurricane on the demised premises were: (1) damage to the electrical system, including the motors to the heating system, not then in use, on which repairs were completed August 26 at a total cost of $500; (2) fifteen to twenty broken panes out of several thousand in the demised premises (most of these had been deliberately broken to accommodate pump hoses); (3) some doors off their hinges; (4) one section of office partitions, which had been installed by Smith, broken by Bendix employees in moving their equipment out of the office; (5) temporary inoperability of toilets and lavatories, which had been installed, maintained and pumped by Smith, during the time the electricity was off; (6) discoloration of celotex ceiling installed by Smith in what was described by counsel for Bendix as a “rather minor or small area” in the office, which apparently could be replaced for under twenty dollars; (7) damage to approximately fifteen square feet of asphalt flooring, which had been installed by Smith, and which Bendix workers tore up in the course of the evacuation; (8) dried out and caked mud and silt on the walls and floors; and (9) a small part of the access road, not part of the demised premises, was destroyed and required resurfacing at a total cost for the slag used, of $48.00. The bills which were offered in evidence showed that the total expenditures to outside contractors for all of the damage, including the repair of the dikes and the washing and pumping of the exterior and interior, was $4,600, and the pumping cost $3,600 of this. ²²⁴ Three of Standard’s employees on its regular payroll also received a total of $500 for their work in this connection. Standard painted the inside and out to erase the water line, at a cost of $500 for the paint and $500 for labor. Standard’s vice president testified that if he could