Bargain Mart, Inc. v. Lipkis, 13669

• Decision Date: 11 July 1989
• Docket Number: No. 13669,13669
• Citation: 212 Conn. 120,561 A.2d 1365
• Court: Connecticut Supreme Court
• Parties: BARGAIN MART, INC. v. Mordechai LIPKIS, et al.

Page 1365

561 A.2d 1365

212 Conn. 120

BARGAIN MART, INC. v. Mordechai LIPKIS, et al.

No. 13669.

Supreme Court of Connecticut.

Argued May 9, 1989.

Decided July 11, 1989.

S. Robert Jelley, with whom were Andrea G. Savoca and, on the brief, Cheever Tyler and Carolyn Wilkes Kaas, New Haven, for appellants-appellees (defendants).

Gary P. Sklaver, with whom were Irving H. Perlmutter and, on the brief, Willa B. Perlmutter, New Haven, for appellee-appellant (plaintiff).

Before PETERS, C.J., and SHEA, CALLAHAN, GLASS and COVELLO, JJ.

GLASS, Associate Justice.

The issue in this case is whether a sublessee's sublease survived the allegedly voluntary extinction of two superior leases. One sublessor had relinquished its superior lease by "rejection" under federal bankruptcy law and the other by stipulation in a summary process action. The defendants, Mordechai Lipkis and Ceasar's Bazaar Limited Partnership, have appealed from the trial court's judgment ruling that, because the sublessors' conduct constituted a "voluntary surrender" of the superior leases, the plaintiff, Bargain Mart, Inc. (Bargain Mart), has a valid and subsisting sublease. ¹ We find no error.

In 1972, G. Harold Welch acquired the entire leasehold interest in the building at Two Church Street in New Haven from a prior tenant who, in 1962, had leased the property for a term of 102 years from the building's owners, the trustees of the estate of Edward Malley. (We hereinafter refer to the lease between the owners of the building and Welch as the Welch Lease.) Upon acquiring the lease, Welch immediately sublet the building for a twenty-nine year term to the Edward Malley Company (Malley Company). On February 13, 1979, the Malley Company in turn sublet a 3456 square foot portion of the building to Bargain Mart. The Bargain Mart sublease was for a term of fourteen years, to expire in 1993, with an option for an extension to the year 2001. In November, 1980, Outlet Department Stores, Inc. (Outlet), acquired the Malley Company's leasehold interest under Welch, subject to Bargain Mart's 1979 sublease. (We hereinafter refer to the sublease between Welch and Outlet, the assignee of the Malley Company, as the Outlet Lease.)

In January, 1982, Outlet filed a Chapter 11 petition in the bankruptcy court for the southern district of New York. Under 11 U.S.C. § 365(a), Outlet had the option of either assuming or rejecting the unexpired portion of the Outlet Lease. Outlet attempted without success to sell or assign its lease. Thereafter, Welch applied to the bankruptcy court for an approval of Outlet's rejection of the lease. On May 6, 1982, the bankruptcy court determined that it was in the best interests of the bankrupt's estate to reject the lease and, with the parties' consent, approved the rejection. In approving the rejection, the bankruptcy court did not determine whether Outlet had defaulted on its lease obligations or whether Welch had had a corresponding right to terminate the Outlet Lease.

At some time prior to March 18, 1983, the trustees of the Edward Malley estate transferred the fee interest in the building to eleven individuals, collectively known as the "Malley heirs," subject to the Welch Lease. In February and March, 1983, the Malley heirs served two notices to quit on Welch and, on March 14, 1983, instituted a summary process action against him. The heirs sought immediate possession of the premises, claiming that Welch had failed to pay rent and taxes from November, 1982, through February, 1983. In response, Welch filed an answer and alleged several special defenses, including the defense that the Malley heirs had not given him proper notice as a prerequisite to bringing the eviction action. He also commenced two lawsuits against the Malley heirs, claiming, inter alia, that he owned the property. Welch's suits sought a conveyance of the premises or, alternatively, a partition and an order for sale. Further, after the Malley heirs had initiated their summary process action, Land Enterprises, Inc. (Land Enterprises), a corporation controlled by members of Welch's family, obtained a 10 percent ownership interest in the premises. Land Enterprises itself subsequently brought partition proceedings against the Malley heirs. Further, by purchasing an ownership interest in the building, Land Enterprises became a plaintiff with the Malley heirs in the summary process action against Welch.

The Malley heirs and Welch settled the summary process action on April 13, 1984, by a stipulated judgment. ² The trial court in the summary process action did not decide any of the claims in that case on the merits, including Welch's claim of improper notice of default. The trial court in the present case found that the stipulated judgment provided: "(1) That a judgment for immediate possession of the subject premises may enter in favor of the plaintiffs [Malley heirs and Land Enterprises]. (2) Said plaintiffs waive any and all rights and release Welch from any monetary claims arising from the former lease. (3) Welch to withdraw his two suits against the heirs. (4) The heirs agree they will not oppose the partition by sale of the subject property as sought by Land Enterprises, Inc., in its suit against the heirs. (5) Welch to assume sole responsibility and liability for maintaining said property pending its sale in exchange for which Welch may retain whatever rentals he is receiving from the satellite stores occupying parts of said property."

In accordance with the parties' agreement, on July 2, 1985, the trial court in the Land Enterprises partition action rendered a judgment of partition by sale. The committee appointed by the court to sell the property scheduled a public auction for November 18, 1985. The committee sent the defendant Lipkis, who had expressed interest in the property, a packet of information indicating that the property was being sold subject to the "[l]eases and rights of tenants in satellite stores." That notice included a detailed schedule of the "satellite stores" and specifically referred to the Bargain Mart lease and its terms. On December 8, 1986, Lipkis and codefendant Ceasar's Bazaar Limited Partnership bought the building as a result of their successful bid at the auction sale. Upon purchasing the building, Lipkis executed a "bond for deed," or purchase and sale agreement, that indicated that the sale was "subject to the rights of tenants in possession."

The record discloses that, upon entering into its sublease of February 13, 1979, Bargain Mart tendered its rent payments to the Malley Company, and then to the Malley Company's assignee, Outlet. After Outlet had rejected its lease with Welch in the bankruptcy proceeding in 1982, Bargain Mart complied with Welch's direction to pay the rent to him. In February, 1986, following the order of partition in the Land Enterprises action against the Malley heirs, Bargain Mart sent its rent checks to the committee appointed by the court to sell the property. Further, beginning on July 10, 1985, Bargain Mart endorsed its rent check payments with the legend "lease ends 11-30-2001" or similar words. In January, 1987, Lipkis, the new owner, received from the committee Bargain Mart's rent check dated January 8, 1987. Lipkis noted on the back that he accepted and negotiated the check without prejudice "to the landlord's assertion that tenant has no lease and has a month to month status." From February to November, 1987, Bargain Mart sent all rent checks to Lipkis. As had been Bargain Mart's practice since 1985, it noted on these checks that its sublease ended in the year 2001. Lipkis, however, noted on seven of the ten checks sent directly to him that the checks were accepted on the understanding that Bargain Mart had no lease and occupied the premises as a month to month tenant.

On October 5, 1987, Lipkis sent Bargain Mart a handwritten note stating "that since, in our analysis, you have no lease [and] are therefore a month to month tenant, we can not provide heat to your store, particularly since you are the only tenant remaining. It is impossible to run a heating system full time for only 1 1/2% of the [building]. We will run the central system [enough] so that the pipes do not freeze [and] you can supplement that with individual heaters. We still insist that you vacate the premises since you have no lease."

On November 13, 1987, Bargain Mart commenced the present action by application for a temporary injunction requiring the defendants to furnish heat for the premises in accordance with Bargain Mart's 1979 sublease. The trial court conducted a hearing on November 19, 1987, and, with the consent of the parties, entered an order requiring Lipkis to provide heat to the premises Bargain Mart occupied, pending resolution of the matter. On January 21, 1988, the defendants filed an answer and counterclaim seeking a declaratory judgment that the Bargain Mart sublease of February 13, 1979, had terminated, that Bargain Mart presently was a month to month tenant, and that the defendants were entitled to immediate possession of the premises. The trial court conducted a three day hearing on the parties' claims and on May 25, 1988, rendered judgment for Bargain Mart on all claims. The court ruled that the sublease between the Malley Company and Bargain Mart of February 13, 1979, "is a valid and subsisting lease in full force and effect in all of its terms, conditions and covenants, to which the defendants are bound."

The defendants appealed the trial court's judgment to the Appellate Court and we transferred the appeal to ourselves pursuant to Practice Book § 4023. On appeal, the defendants claim that the trial court erred in: (1) ruling that the Outlet Lease and the Welch Lease had not been "terminated" by the lessor but had been "voluntarily surrendered" by the lessee, and therefore concluding that Bargain Mart's sublease of February, 1979, is in full force and effect; and (2) awarding Bargain...