Baron v. Crossroads Center of Iowa, Inc.

Decision Date11 March 1969
Docket NumberNo. 53183,53183
Citation165 N.W.2d 745
PartiesFred BARON, d/b/a House of Fabrics, Appellant, v. The CROSSROADS CENTER OF IOWA, INC., and the Singer Company, Appellees.
CourtIowa Supreme Court

Alan Loth, Fort Dodge, for appellant.

Johnson, Burnquist, McCormick & Erb, Fort Dodge, and David Stanley, Minneapolis, Minn., for appellee, Crossroads Center of Iowa, Inc.

Mitchell, Mitchell, Murray & Goode, Fort Dodge, and Parker & Parker, Minneapolis, Minn., for appellee, The Singer Co.

BECKER, Justice.

Plaintiff seeks a declaratory judgment to interpret specific portions of his lease with defendant Crossroads Center of Iowa, Inc., adjudication of his rights against both Crossroads and defendant The Singer Company, another lessee at the shopping center, and asks injunctive relief. The trial court determined plaintiff's rights had not been violated and dismissed the petition at plaintiff's costs. Plaintiff appeals. We reverse and remand.

Defendant Crossroads owns and operates a shopping center in or near Fort Dodge, Iowa. The center has 32 tenants, including at least four large store operators, Sears Roebuck, Penneys, Woolworths and Younkers. Plaintiff is a tenant by virtue of a lease negotiated during the summer of 1965 and dated August 2, 1965. Plaintiff went into possession and commenced operation of his store February 15, 1966.

Defendant Singer is a tenant by virtue of a similar lease dated February 9, 1967. The Singer Company store commenced operation July 1, 1967. Plaintiff contends Singer's operation violates the restrictive covenants contained in plaintiff's lease and seeks the relief referred to above.

PLAINTIFF BARON'S LEASE

Gerald Schoenfelter, President of Crossroads testified he, with the help of legal counsel, developed the form lease applicable Crossroads' lease provides for a 10-year term, five percent of the gross as rent with a minimum of $675 per month. Baron is to construct the building to be occupied. The controversial clause in the Baron lease reads:

to most of the areas leased at the center. The leases are necessarily long and complicated. They provide for terms of occupancy, renewal options, base rental with percentage rent over a computable amount, restrictions on assignments and subletting and for a great many other problems that may be expected to arise over the years of long term leases.

'XXVIII. EXCLUSIVE OPERATIONS. Except for the Demised Premises no part of Parcel 'B' shown on Exhibit 'A' shall be leased to any other tenant whose principal business is The operation of a store selling fabric. Throughout the term of this lease, and any renewals hereof, the Lessee shall operate on the Demised Premises and during all normal business hours when Shopping Center's tenants generally should be open for business, A fabric store and shall not carry on any other business on the Demised Premises. * * *' (The emphasized portions were typed. The rest was a mimeograph form.)

Prior to, and at the time of signing the lease, a letter was written by Baron to Crossroads, dated July 26, 1965 which has an acceptance by Crossroads, signed by its president, at the bottom also dated July 26, 1965. This letter reads in part: '2. In the aforesaid letter, the Lessor will further advise Mr. Baron of its intention that it shall not lease to any tenant whose principal business is an operation of store selling fabric in the area of Parcels D, D1 and C of the site plan that it maintains ownership or control. This is further understood not in any way to restrict the Lessor as to disposal of its ownership in the aforesaid property.'

Our problem concerns the interpretation of the restrictive covenant in the lease itself because both stores are in Parcel 'B'. We note the paragraph from the letter as indicative of the agreement between the parties.

BARON LEASE ENGOTIATION

The facts and circumstances under which the Baron lease was negotiated, prepared and executed are the subject of considerable dispute. It is clear from the testimony of both parties that the instrument itself was prepared by defendant Crossroads both as to the mimeographed form and the typewritten insertions in the spaces provided. The parties had at least two conferences before the contract was signed.

Both parties agree nothing was said about the meaning of the phrase 'whose principal business is the operation of a store selling fabric' when the contract was approved in final form. Mr. Schoenfelter, Crossroads' president, states he had earlier discussed the meaning of these words with Mr. Baron: 'In this particular case, we explained that we would not enter into an additional lease, or any other lease, in the center with a tenant whose business would be the sale of fabrics as their principal business. Principal business being what they were leasing the space for and for really no other purpose other than incidentals. That was before signing. After signing I can't recollect any discussion about this lease until recent months.

'When we discuss the exclusive provision of this nature, we always point out the stores that are already in the business, or have a right to be in this business, or other stores that have a right to come into it as an incidental part of their business.'

Mr. Baron's version of the discussion of the Exclusive Operations portion of the lease is quite different. He testified: 'The only time other fabric business came up was in connection with other stores--Penney's was mentioned; Woolworths, Sears and the possibility of Younkers. And Mr. Schoenfelter asked me if I was familiar with the fact that these businesses sell fabrics. I said I was; I had seen their operations. That is how it came up. * * *.

'In connection with the discussion of these four stores, there was no talk about there being any other stores to come later which would sell fabric, or would be competing with my business, or that they would be renting to other stores that incidentally sold fabrics.' On cross-examination he stated: 'There is no doubt in my mind that this is understood to mean any store selling fabrics; otherwise I wouldn't be here today. Not 'whole principal business is selling fabrics'; no.'

Mr. Grossman, Baron's attorney, said he was present at the conference when the terms were finally agreed upon. It was at that time he dictated the letter dated July 26, a portion of which we set out above. He too states there was no discussion of the meaning of the phrase 'whose principal business is the operation of a store selling fabrics'. The phrase was in the lease when it was brought to him. He testified without objection: 'I looked on there at the exclusive operation and I saw typed in what we're going to give him exclusively, and typed in were the following words: 'the operation of a store selling fabrics.' Now I thought that anything that restricts the shopping center from having a business in the operation of a store selling fabrics meant what it said--that no store could open up that sold fabric. I felt that protected him.'

Much more was said by both parties. We think the above excerpts are sufficient to show the lessor and lessee differed in their interpretation of the language. The real factual conflict appears when Crossroads insists it explained to Baron its intention to allow competition by other subsequent tenants as an incidental part of such tenant's business. Baron denies this but admits he knew of and expected competition from the four large stores who already had leases or whose lease was being negotiated. (Younkers).

SINGER'S LEASE

The same form was used for the Singer lease. It reads in part: 'Except for the Demised Premises, no part * * * shall be leased to any tenant whose principal business is The operation of a sewing center or the sale of sewing machines. * * * Lessee shall operate on the Demised Premises * * *, A store for the business of the sale and display of sewing machines, electrical appliances, notions and repair, servicing and storage of such and similar merchandise and for the rendering of sewing and related services and the conducting of a Singer Sewing Center, with Fabric and shall not carry on any other business on the Demised Premises.

'It is further agreed that during this lease term and any renewal thereof Lessee may engage in the merchandising and sales of fabrics as an incidental part of its overall operation in the demised premises but may not engage in sales of fabrics as its principal business in the demised premises.' (The emphasized words were typed.)

BARON'S OPERATION

Plaintiff Baron testified he had never operated a fabric shop before but his father had operated such a store and he grew up in the fabric business. Mr. Baron had previously been operating a headwear jobbing business in Minneapolis. He testified 'fabric' includes notions, patterns, trimming and related items as well as yard goods and bolts of cloth and he sells only the articles mentioned as his lease requires. He provided gross sales figures on a monthly basis from February 15, 1966 through December 1967. The figures show substantial increases each month compared with the month in the prior year; and total sales for 1966 at $77,590 and for 1967, $149,067. The 1967 gross was still not high enough to be equal to the base rent at five percent as provided in the lease. Plaintiff claims the month-by-month figures show a drop in comparative increase from 98% In the second quarter of 1967 over the second quarter of 1966, to 80% In the third quarter of 1967 after Singer started July 1, 1967, to 69% In the last quarter of the year.

SINGER'S OPERATION

Under the lease Singer began selling fabrics as part of its business on July 1, 1967, the date it opened for business. Advertising specifically and solely related to the sale of fabrics was introduced in evidence. Although reference was made to advertising of sewing machines and other articles offered for sale by Singer, the record contains no information as to the extent or type of...

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