Cinderella Theatre Co. v. United Detroit Theatres Corp.

• Decision Date: 07 September 1962
• Docket Number: No. 3,3
• Citation: 367 Mich. 424,116 N.W.2d 825
• Parties: CINDERELLA THEATRE COMPANY, Inc., a Delaware corporation, Plaintiff and Appellee, v. UNITED DETROIT THEATRES CORPORATION, a Michigan corporation, and Pontiac Theatre Corporation, a Michigan corporation, jointly and severally, Defendants and Appellants.
• Court: Michigan Supreme Court

Page 825

116 N.W.2d 825

367 Mich. 424

CINDERELLA THEATRE COMPANY, Inc., a Delaware corporation Plaintiff and Appellee, v. UNITED DETROIT THEATRES CORPORATION, a Michigan corporation and Pontiac Theatre Corporation, a Michigan corporation, jointly and severally Defendants and Appellants.

No. 3.

Supreme Court of Michigan.

Sept. 7, 1962.

Butzel, Eaman, Long, Gust & Kennedy, Detroit, for defendants and appellants. Rockwell T. Gust, David A. Howell, James D. Ritchie, Detroit, of counsel.

Crawford, Sweeny, Dodd & Kerr, Detroit, for plaintiff and appellee. Harry M. Nayer, Robert G. Russell, Richard H. May, Detroit, of counsel.

Before the Entire Bench.

KELLY, Justice.

This is an appeal from a decree which set aside an assignment of a lease by defendant United Detroit Theatres Corporation (UDT), lessee, to defendant Pontiac Theatre Corporation (Pontiac), and provided that plaintiff (Cinderella), lessor, should recover from the assignor UDT the unpaid rental installments accruing after the assignment up to the date of the decree.

August 5, 1937, a 15-year lease was entered into between plaintiff and UDT for the Cinderella Theatre, which is located on the east side of Detroit, and on July 30, 1952, the lease in suit was entered into by plaintiff Cinderella and defendant UDT for a 15-year term commencing at the expiration of the first lease and extending to August 31, 1967, at a total rental of $589,995, to be paid at the rate of $3,277.75 per month.

Twenty-eight days after the effective date of the current lease, namely September 29, 1952, Pontiac was incorporated by an officer and by a director of UDT, and on October 7, 1952, UDT became the sole stockholder in Pontiac. On that same day the board of directors of Pontiac authorized its officers to enter into an agreement with UDT whereby Pontiac would take over the current Cinderella Theatre lease.

Between the 1952 incorporation of Pontiac and November 8, 1958, when UDT assigned this lease to Pontiac, Pontiac remained dormant and UDT operated the Cinderella Theatre at a loss, with losses particularly heavy in the 2 years preceding the assignment.

During the summer of 1958 the officers and directors of UDT decided to bring to an end Cinderella's loss by assigning the lease to Pontiac. Plaintiff's president, being advised of this fact, notified UDT that an assignment to a dummy corporation would not be recognized, and UDT responded by its letter of August 27, 1958, stating:

'Our attorneys have informed me that the language of the lease, and of Article 14 in particular, makes no requirement that we assign to a financially sound assignee and further, that this Article does not prohibit the assigning of the lease to a 'so-called' dummy corporation.'

Article 14 of the lease, entitled 'Right of Assignment' provides as follows:

'It is further expressly understood and agreed that no assignment or conveyance of this lease or the leasehold estate hereby created may be made by the lessee unless and until the lessee shall have first deposited with the lessor as advance rent the further sum of $39,333, which said deposit shall be applied to the payment of the rental accruing under this lease during the last 12 months of the 15th year of the term hereof, and unless the assignee shall assume and agree to perform all of the covenants and conditions of this lease on the part of the lessee to be performed. Upon said additional deposit in this article provided for being made, and notice given by the lessee to the lessor of such assignment accompanied by a copy of the document of assignment and assumption, the lessee, United Detroit Theatres Corporation, shall automatically be relieved and released from each and every of the covenants in this lease contained.

'It is further expressly understood and agreed that if and in the event, after said additional deposit of $39,333 provided for in this article is made, this lease be terminated by the lessor by reason of default on the part of the lessee or its assignee in the payment of the rental hereinabove reserved and agreed to be paid, or by reason of the default of the lessee or its assignee in the observance or performance of any other covenant or condition of this lease on the part of the lessee or its assignee, then and in such event said sum of $39,333 deposited with the lessor pursuant to the provisions of this article shall also belong to and be kept and retained by the lessor free and discharged of any and all claims, rights or interest of the lessee and its assignee therein and thereto and as and for liquidated damages of the lessor occasioned by such default on the part of the lessee or its assignee.'

November 6, 1958, UDT forwarded to plaintiff its certified check in the sum of $39,333, and on November 8, 1958, UDT notified plaintiff that the assignment had been effected to its wholly owned subsidiary, Pontiac, and enclosed a copy of the instrument of assignment and assumption.

After the assignment Pontiac paid the rent for the first month, but on January 7, 1959, Pontiac notified plaintiff that it could not meet the tax payments due on January 15, 1959, nor could it pay the January rental. No rent payment other than December, 1958, has ever been made.

May 15, 1959, appellee commenced this present suit against UDT and Pontiac, and tendered back to UDT the check for $39,333 that UDT had forwarded to plaintiff.

The court, in finding for plaintiff, stated that article 14 called not only for payment of $39,333 but, also called for an agreement by the assignee to assume all the conditions of the lease; that if the parties wished to provide for termination by payment of liquidated damages they could have done so, but they went beyond that; that UDT for all intents and purposes did not assign to any one because it assigned to Pontiac, set up for the sole purpose of receiving the assignment; that Pontiac was not capitalized in any way that would indicate a good faith intention to operate the theatre; that Pontiac exercised no independent judgment of officers; that there was no severability between the 2 corporations and Pontiac was clearly and completely an instrumentality or another portion of UDT; that this was merely an assignment by UDT to itself; and the court concluded this general thought by saying:

'I can not conceive of Pontiac being anything but the tool, instrumentality and agency of the parent and it is my opinion that is not what was intended by the writers of Article 14, and, therefore, I think the plaintiff is entitled to relief with respect to this assignment and the court will enter a decree setting aside this assignment.'

Appellants contend that article 14, which is silent regarding the qualifications of a prospective assignee, cannot be construed to require that such assignee be an independent corporation capable of performing the covenants of the lease and that 'arriving at a contrary conclusion, the lower court (1) ignored the Michigan statute (M.S.A. § 26.524 [Comp.Laws 1948, § 565.5]) which provides: 'No covenant shall be implied in any conveyance of real estate, except oil and gas leases'; (2) construed the lease in plaintiff's (lessor's) favor, thereby disregarding the well settled Michigan rule that the provisions of a lease are to be construed against the lessor, and in favor of the lessee * * *; and (3) disregarded the Alexander case (Alexander v. Theatre Realty Corporation, 253 Ky. 674, 70 S.W.2d 380).'

In re appellants' reference to the statute providing 'No covenant shall be implied in any conveyance of real estate, except oil and gas leases,' we agree that this provision would apply to the present lease. Minnis v. Newbro-Gallogly Co., 174 Mich. 635, 140 N.W. 980, 44 L.R.A.,N.S., 1110. This statutory prohibition, however, should not be so literally applied as to defeat the clear intent of the parties as gathered from the context of the instrument. Real Estate Stores, Inc., v. Harris, 321 Mich. 623, 33 N.W.2d 97.

As to appellants' claim that the court 'construed the lease in plaintiff's (lessor's) favor, thereby disregarding the well settled Michigan rule that the provisions of a lease are to be construed against the lessor, and in favor of the lessee,' appellee answers by stating that the legal department of Paramount Pictures prepared the lease and drafted same without any provision for its voluntary termination and to this statement appellants answer by stating that while Paramount presumably acted for appellants, yet Paramount only copied article 14 from the previous lease.

Considering appellants' claim that the court erred in disregarding the case of Alexander v. Theatre Realty Corporation, supra, we quote the syllabi in that case:

'Tenant cannot by assignment of lease relieve himself of liability resulting from privity of contract.

'Provision in 99-year lease for tenant's release from liability thereunder in case of assignment and assignee's assumption of lease covenants permitted tenant to obtain release by assigning leasehold to corporation which tenant knew was insolvent, where lease further required maintenance by tenant of deposit in amount aggregating almost one-third of price paid for leased premises.

'The evidence disclosed that the lessor had purchased the lots for $792,000, and that he apparently took no thought as to who should be his lessee or as to lessee's responsibility, but relied for his protection on provision of lease requiring $250,000 deposit by tenant to guarantee its performance. The lease not only required deposit of this amount, but maintenance thereof through the lease term and pledging of additional securities in case of depreciation in value of those deposited.

'Court cannot read additional words into contract, but must construe contract as made.'

The lease and the facts presented to the Kentucky court differ from the present lease and facts, as is evidenced by the following from the Kentucky opinion (253 Ky. pp. 685, 686, 70 S.W.2d p....