Chertkof v. Southland Corp., 86

• Decision Date: 22 March 1977
• Docket Number: No. 86,86
• Citation: 371 A.2d 124,280 Md. 1
• Parties: Jack O. CHERTKOF, Trustee of David W. Chertkof Trust v. The SOUTHLAND CORPORATION et al.
• Court: Maryland Court of Appeals

Page 1

280 Md. 1

371 A.2d 124

Jack O. CHERTKOF, Trustee of David W. Chertkof Trust v. The SOUTHLAND CORPORATION et al.

No. 86.

Court of Appeals of Maryland.

March 22, 1977.

Edwin J. Wolf, Baltimore (Archibald Eccleston, III, and Eccleston, Seidler & Miller, Baltimore, on the brief), for appellant.

Lawrence F. Rodowsky, Baltimore (Fred Wolf, III, Baltimore, on the brief for The Southland Corporation; Norman P. Ramsey and Joseph A. Schwartz, III, Baltimore, on the brief for 31 Flavors Stores Realty, Inc. and Baskin-Robbins Eastern Corp.), for appellees.

Argued before MURPHY, C. J., and SINGLEY, SMITH, DIGGES, LEVINE, ELDRIDGE and ORTH, JJ.

LEVINE, Judge.

The question presented here is whether a lessor, despite his written disclaimer of any intention to do so, waived a lessee's breach of covenant in a lease by accepting rent which accrued subsequent to the breach. Following a nonjury trial, the Superior Court of Baltimore City (Liss, J.), in a thoroughly considered opinion, held that waiver could occur even though the lessor had acknowledged acceptance of the rent by a unilateral reservation, and further found as a fact that the lessor had waived the breach of a covenant prohibiting assignment of the lease without his consent. An appeal was taken from that decision to the Court of Special Appeals, but we granted certiorari prior to consideration of the case by that court. ¹ We affirm.

In 1963, Southland Corporation (Southland) acquired certain assets from Delvale Dairies, Inc. (Delvale), including two territorial franchise agreements with Baskin-Robbins 31 Flavors Stores, Inc., together with an ice cream and catering business operated at 4808 Roland Avenue in the Roland Park Shopping Center of Baltimore. In April 1965, the owner of those premises entered into a lease (the prime lease) with Southland for a 10-year term to commence on July 1, 1965, for an agreed rental of $5,000 per annum plus a specified percentage of gross sales and a charge for the use of parking facilities. ² Southland covenanted in the prime lease 'not to assign or sublet all or any part of (the) premises without the written consent of (the) Lessor.'

Prior to actual commencement of the lease, Southland decided to sever the ice cream and catering operations, both of which were being conducted by Audrey C. Fogelsanger (Fogelsanger), who had been a longtime employee of Delvale. To this end, Southland divided the leased premises, and sublet for a term of nine years and 11 months, to commence July 1, 1965, the basement portion and also the rear of the first floor (the 'catering portion') to Fogelsanger, who there continued to operate her catering business. Southland then sublet the remainder or front part of the first floor (the 'ice cream portion') to 31 Flavors Stores Realty, Inc. (31 Flavors) for a 10-year term commencing July 1, 1965; 31 Flavors, in turn, proceeded to sublet the ice cream portion to Fogelsanger for all but the final two months of its sublease. The result was that Fogelsanger continued the ice cream and catering operations, but as separate undertakings.

On December 30 and 31, 1971, Southland entered into a series of transactions with Baskin-Robbins Eastern Corp. (Baskin-Robbins), to which it sold and transferred its interest in the territorial licensing and franchising agreements acquired from Delvale, together with retailer agreements, leases and subleases, and its interest in the subleases and franchise agreements which it had with Fogelsanger. Also, by a document entitled 'Prime Lease Assignment,' Southland assigned to Baskin-Robbins its interest in the prime lease. Pursuant to an agreement with Baskin-Robbins, however, Southland paid to the lessor the rent due under the prime lease for the first three months of 1972.

In assigning the prime lease to Baskin-Robbins, Southland neither sought nor obtained the written consent of the lessor. The transaction came to the lessor's attention in May 1972, when, in response to his written request for the overdue April rent, he received a telephone call from Southland's comptroller informing him that the prime lease had been assigned to Baskin-Robbins. The lessor, through his agent, responded to this disclosure with a letter to Southland dated May 31, in which he declared the prime lease 'null and void and cancelled' because it had been assigned without his written consent. Additionally, he wrote:

'The acceptance of check (or checks) that we receive from Baskin Robbins of California (31 Flavors) as payment of rent shall not be construed as approval of assignment by Southland Corporation since rent is due for the occupancy of the premises. . . .'

The lessor thereafter, for every month from April 1972 to the trial of this case on October 7, 1974, cashed a series of checks drawn by 31 Flavors in payment of the base rent and parking lot fee.

Negotiations commenced in July 1972 for a new lease between the lessor and Baskin-Robbins for the ice cream portion, but never came to fruition; a proposed new lease between the lessor and Fogelsanger for the catering portion was actually executed by her, but not by the lessor. She nonetheless paid to the lessor the rent specified in that proposed new lease through May 31, 1973, when she vacated the catering portion of the premises. The sums which Fogelsanger paid during that 11-month period were something of a windfall for the lessor, since 31 Flavors also paid him the rent for the entire premises. Fogelsanger presently operates the ice cream business, apparently as a sublessee of Baskin-Robbins, which continues to occupy the ice cream portion of the premises while its corporate affiliate, 31 Flavors, pays the lessor the monthly base rent of $416.66 plus the $20 parking fee provided in the prime lease. ³

In November 1972, the lessor filed the action for ejectment from which this appeal arises. In addition to seeking possession, the lessor requested damages for detention of the premises. ⁴ Judge Liss found that Southland, by failing to obtain the lessor's written consent, breached the covenant against assignment of the lease. The correctness of that decision is expressly conceded by appellee, and we are not concerned with it here. We turn, then, to the contention that the trial court erred in its determination that the lessor waived the breach of covenant by accepting subsequently accrued rent after learning of the breach, despite the unilateral reservation expressed in his letter.

We have followed the traditional view in Maryland that since forfeitures for breach of covenant are not favored, any slight acquiescence in a breach will be construed as a waiver of the forfeiture. Live Stock Co. v. Rendering Co., 179 Md. 117, 125, 17 A.2d 130 (1941). This principle has been applied particularly in regard to covenants against assignment, which, because they are restraints on alienation, have been strictly construed. Jacobs v. Klawans, 225 Md. 147, 151-52, 169 A.2d 677 (1961). See Generally Ammendale Normal v. Schrom, 264 Md. 617, 625-29, 288 A.2d 140 (1972).

Waiver is the intentional relinquishment of a known right or such conduct as warrants an inference of the relinquishment of such a right. Food Fair v. Blumberg, 234 Md. 521, 531, 200 A.2d 166 (1964); Gould v. Transamerican, 224 Md. 285, 294, 167 A.2d 905 (1961). An act of the lessor which is frequently relied upon to establish waiver is his acceptance of rent from the assignee with knowledge of the assignment. 1 American Law of Property § 3.58 (Casner ed. 1952). Thus, we apply in Maryland the universal rule that a waiver of forfeiture may occur by an acceptance of rent which accrues after the lessor is on notice that a breach has been committed by the lessee. Ammendale Normal v. Schrom, 264 Md. at 624, 288 A.2d 140; Morrison v. Smith, 90 Md. 76, 83, 44 A. 1031 (1899); cf. In Re Hook, 25 F.2d 498, 499 (D.Md.1928) (distraint for rent, accruing after right to declare forfeiture, constituted waiver; '(t)he acceptance of rent, eo nomine, generally, if not always, has (the effect of waiving the forfeiture)'). The underlying rationale for the rule is simple enough: acceptance of rent accruing after the breach is an affirmation of the tenancy and a recognition of its continuation; in effect, the lessor elects to continue the relationship of landlord and tenant.

We have, in common with many other courts, ⁵ treated the question of waiver of a breach by the acceptance of rent as a matter of intent, which necessarily turns on the factual circumstances of each case. See e. g., Streeter v. Middlemas, 240 Md. 169, 174-75, 213 A.2d 471 (1965); Schlerf v. Bond, 139 Md. 10, 14-15, 114 A. 739 (1921). See generally Rose and Crown, Ltd. v. Shaw Ent., 28 Md.App. 548, 552-57, 346 A.2d 459 (1975), cert. denied, 276 Md. 749 (1976). In considering the question of intent, some courts have said that acceptance of rent accruing after a breach of covenant raises a rebuttable presumption of waiver, see, e. g., Rose and Crown, Ltd. v. Shaw Ent., 28 Md.App. at 555-57, 346 A.2d 459; Mobil Oil Corporation v. Burdo, 69 Misc.2d 153, 329 N.Y.S.2d 742, 747-48 (Dist.Ct.1972), while others have held that the acceptance of rent in such circumstances creates merely an inference of waiver, see, e. g., In re Wil-low Cafeterias, 95 F.2d 306, 309 (2d Cir.), cert. denied, 304 U.S. 567, 58 S.Ct. 950, 82 L.Ed. 1533 (1938); Karbelnig v. Brothwell, 244 Cal.App.2d 333, 53 Cal.Rptr. 335, 340-41 (1966). The important point to be made is that the acceptance of rent, even though it accrues after the breach of covenant, does not establish waiver as a matter of law.

In determining that a waiver had occurred here, the trial court did not treat the issue as one of law, but rather found as a fact 'that the action and conduct of the Lessor amounted to a waiver of (his) right to a forfeiture of the estate granted by the lease.' The lessor, in attacking this ruling, argues...