Winternitz v. Summit Hills Joint Venture

WILNER, Judge. Appellant operated a pharmacy and convenience store in the Summit Hills Shopping Center under a lease that expired on January 31, 1983. In an action filed in the Circuit Court for Montgomery County, he contended that (1) the landlord orally agreed to renew that lease and to permit him to assign it to a purchaser of his business, (2) the landlord and its agents thereafter breached both the renewed lease and the assignment agreement, and (3) as a result of their conduct, he was required to reduce significantly the sale price of his business. A jury apparently credited his story, for it awarded him $45,000 in damages for breach of lease (Count I), breach of an assignment agreement (Count II), and malicious interference with his contract to sell the business (Count III).

The court nullified that award by granting judgment N.O.V., principally on the basis that the Statute of Frauds ¹⁹ (Md.Code Ann. Real Prop, art., § 5-103) made the alleged lease renewal unenforceable, leaving nothing to assign. The correctness of that ruling is the issue in this appeal. The relevant facts, taken in a light most favorable to appellant, are as follows. Appellant was operating his pharmacy under a six-year lease that expired January 31, 1983.

The rent was $1,658 per month. Paragraph 24 of the lease obliged appellant to deliver possession of the premises at the end of the term, but paragraph 25 provided that, if he continued in possession thereafter, he would become a month-to-month tenant, at a rental of $1,658 per month. That extended month-to-month tenancy was subject to termination by either party upon 30 days written notice. The landlord, since 1979, was Summit Hills Joint Venture.

It employed Southern Management Corporation to manage the shopping center. Ronald Frank, a partner in the Joint Venture, was an officer of Southern Management; Bonita Harris was employed by Southern Management as a property manager. In October, 1982, appellant met with Mr. Frank to discuss a renewal of the lease. He informed Frank that he might want to sell his pharmacy business and asked if there would be any objection to his transferring the lease.

Frank, according to appellant, agreed to renew the lease and indicated that there would be no objection to an assignment if the assignee was financially sound. In mid-January, 1983, Ms. Harris delivered to appellant a proposed two-year lease, with a conditional option to renew for an additional eight years, the condition being that appellant make certain renovations to the premises by October 31, 1984. The rent for the first two years was to be $1,700 per month, subject to escalation during the optional eight-year extension. After some clarification by Ms. Harris with respect to the renovations, appellant said that he accepted the lease and asked when it could be signed. ²⁰ The signature lines on the proposed new lease showed that appellant would sign as tenant and that Ms. Harris, as property manager, would sign for the landlord.

On the front and last pages, however, someone had written the word “SAMPLE.” Appellant stated that that marking was on the lease when he received it. Despite the fact that both appellant and Ms. Harris were apparently authorized to sign the lease at that time, it was not in fact signed; indeed, Ms. Harris told appellant that “there was nobody available to sign [the lease] at that time.” She instructed appellant to pay the new rent—$1,700—rather than the existing rent —$1,658—for February in the expectation that, at some point, a new lease would be signed. He did so. In the belief that he had a renewal of the lease and permission to assign it, appellant listed the business for sale in mid-January.

His agent quickly found a buyer, and, on February 2, 1983, appellant signed a contract with the Suh family to sell the business for $70,000 plus the “full wholesale price” of the inventory. The contract made specific mention of the lease. Paragraph 1(c) stated: “Purchaser to assume the following obligations of Seller as part of purchase price: Lease on the premises for two years @ $1,700 per month plus an option for 8 yrs at rent plus CPI not to exceed 12% per yr.” A further provision near the bottom of the contract stated: “This contract is contingent on seller procuring lease as stated in 1(c) otherwise this contract is null and void and purchasers deposit returned.” Settlement was to occur on March 7, 1983. On February 5, appellant, the Suhs, and the Suhs’ accountant met with Ms. Harris, who reviewed the Suhs’ financial affairs and, according to appellant, said that she “foresaw no foreseeable problem” with a transfer of the lease.

Several days later, appellant called Mr. Frank and was again assured that “as far as I know everything is okay.” On February 21, however, Frank informed appellant that he had changed his mind and intended to “negoti ²¹ ate his own lease.” Frank confirmed that two days later, telling appellant that he would neither transfer the lease nor renew it. He said that he would regard the extra amount already paid for the February rent (the difference between $1,658 and $1,700) as an overpayment that would be refunded. Later that day, Ms. Harris delivered a 30-day eviction notice directing appellant to vacate the premises by the end of March. Faced with this turn of events, appellant was forced to renegotiate his contract with the Suhs.

On March 7,1983, a new contract was signed, calling for a purchase price of $15,000 (rather than $70,000) plus the inventory at appellant’s cost. Appellant vacated the premises on March 25. The “overpayment” for February was credited against his March rent. (1) Breach of Contract Count I of appellant’s amended complaint stated two alternative causes of action—one, that the landlord had effectively renewed the lease which it then breached, and, two, that appellant became a holdover tenant under the prior lease and that, somehow, the landlord breached that lease.

The only remedy sought was money damages for the breach. In response to a special verdict sheet, the jury found that appellant had a contract of lease with the landlord, that the landlord breached that contract, and that appellant sustained damage as a result. In Count II, appellant asserted that the landlord had agreed to permit the renewed lease to be assigned to a qualified buyer, that that agreement was supported by consideration (appellant’s renewal of the lease), that appellant produced a qualified buyer whom the landlord found acceptable, and that the landlord thereafter breached that agreement by declining to renew the lease and permit an assignment. As with Count I, the only remedy sought was money damages.

The jury specifically found that there was a contract to assign the lease and that the landlord breached it. It is evident, from both the amended complaint and the evidence, that these two counts are related. The key to ²² both is whether the landlord, through its agents, effectively and enforceably renewed the lease, other than on a monthly basis, beyond January 31, 1983. If not, as the landlord contends, not only would Count I fall but Count II as well, for absent an enforceable renewal, there would be nothing that appellant could assign.

The evidence viewed in a light favorable to appellant clearly suffices to establish an agreement between the parties to renew the lease on the terms set forth in the document delivered to appellant in mid-January. Because neither that document nor any other pertaining to it was ever signed by the landlord, however, the Statute of Frauds is implicated. Md.Code Ann. Real Prop, art., §§ 5-101 and 5-102 provide that a leasehold interest in land for a term of one year or more that is not in writing and signed by the party creating it “has the force and effect of an estate or interest at will only, and has no other or greater force or effect, either in law or equity.” See also § 5-103, providing that a leasehold estate may not be granted unless in writing signed by the grantor, and § 5-104 precluding any action brought on a contract for the disposition of any interest in land unless the contract or some memorandum of it is in writing signed by the party to be charged. Appellant relies on the doctrine of “part performance” to escape the bar of these provisions.

That doctrine is succinctly stated in Restatement (Second) of Contracts § 129: “A contract for the transfer of an interest in land may be specifically enforced notwithstanding failure to comply with the Statute of Frauds if it is established that the party seeking enforcement, in reasonable reliance on the contract and on the continuing assent of the party against whom enforcement is sought, has so changed his position that injustice can be avoided only by specific enforcement.” As pointed out in Comment a to § 129, application of the doctrine and thus enforcement of a contract declared unenforceable by the statute, ²³ “has ... been justified on the ground that repudiation after ‘part performance’ amounts to a ‘virtual fraud.’ A more accurate statement is that courts with equitable powers are vested by tradition with what in substance is a dispensing power based on the promisee’s reliance, a discretion to be exercised with caution in light of all the circumstances.” Where the “defense” of part performance is raised, the dispute often concerns the nature and quality of the performance—whether it so relates to and furnishes evidence of the oral agreement as to justify a court in effectively excusing compliance with the statute. See Boehm v, Boehm, 182 Md. 254 , 34 A.2d 447 (1943); Beall v. Beall, 291 Md. 224 , 434 A.2d 1015 (1981); Campbell v. Welsh, 54 Md.App. 614 , 460 A.2d 76 (1983), and cases cited therein. That is how the dispute is portrayed here, appellant contending that his payment of $1,700 in rent for February constitutes sufficient part performance, appellees contending that it does not. In point of fact, however, that issue is quite irrelevant in this case.

The law is clear and well established that “part performance” is an equitable doctrine available only where the principal relief sought is specific performance