Cumberland Farms, Inc. v. Dairy Mart, Inc.

• Decision Date: 15 June 1993
• Docket Number: No. 14638,14638
• Court: Connecticut Supreme Court
• Parties: CUMBERLAND FARMS, INC. v. DAIRY MART, INC., et al.

Page 386

627 A.2d 386

225 Conn. 771

CUMBERLAND FARMS, INC. v. DAIRY MART, INC., et al.

No. 14638.

Supreme Court of Connecticut.

Argued March 31, 1993.

Decided June 15, 1993.

Paul D. Sanson, with whom was John J. Moroney, Hartford, for appellant (plaintiff).

Wesley W. Horton, with whom were George A. Levine and Alexandra Davis, Hartford, for appellee (defendant).

Before PETERS, C.J., and CALLAHAN, BERDON, KATZ and PALMER, JJ.

PALMER, Associate Justice.

The plaintiff landlord, Cumberland Farms, Inc., appeals from a judgment for the defendant tenant, Dairy Mart, Inc., ¹ in a summary process action seeking possession of certain leased premises for nonpayment of rent, gasoline gallonage rent and real property taxes. ² The plaintiff claims that the trial court improperly concluded that the doctrine of equitable nonforfeiture applies to this summary process action and therefore improperly refused to grant possession of the premises to the plaintiff. ³ We disagree.

The record discloses the following imbroglio. On August 1, 1975, Sherman Rocklen and Rocklen, Inc., leased property at 528 Main Street, West Haven (premises) to Chevron Oil Company, now known as Chevron USA Inc. (Chevron), for a term of twenty-two years. The lease grants the tenant the options to renew the agreement, to construct buildings and make other improvements on the premises and to purchase the premises for $350,000 after the expiration of the original term of the lease. On July 1, 1979, Chevron entered into a written agreement with the defendant to sublease the premises to it from July 1, 1979, to July 31, 1991, and assigned to the defendant the right to exercise the options.

On June 1, 1986, the plaintiff purchased certain assets from Chevron, including Chevron's interest in the premises. ⁴ As a result, the defendant became obligated to make payments under the sublease to the plaintiff. The sublease requires that the defendant pay: (1) base rent of $2083.33 per month; (2) additional rent of $.01 per gallon for each gallon of gasoline delivered to the premises in excess of 1,200,000 gallons for each year ending June 30; and (3) real property taxes levied or assessed against the premises.

After the plaintiff had acquired Chevron's interest in the premises, the plaintiff never formally notified the defendant of the assignment of the sublease, the name and address of the new landlord, or the name and address to which rent payments should be sent. As a result, the defendant continued to send rent payments to Chevron. ⁵ Because the plaintiff was not prepared immediately to assume the financial accounting responsibilities for all its newly acquired assets, including the premises here, Chevron continued to accept the defendant's rent payments and forwarded them to the plaintiff from June 1, 1986, until April 1, 1988. In April, 1988, Chevron ceased providing accounting services to the plaintiff and began returning the rent payments to the defendant. Employees of the defendant thereupon initiated contact with the plaintiff in order to verify that payments under the lease were owed to the plaintiff and to determine to whom the payments should be sent in the future. The trial court found that the defendant had demonstrated reasonable diligence in its attempts to determine the reason for the return of its rental payments by Chevron and the name and address to which the rental payments should be sent. ⁶

In February, 1989, after repeated telephone inquiries from the defendant, the plaintiff responded, but with a written demand for base rent that misstated certain terms of the assignment. On April 13, 1989, the defendant sent the plaintiff copies of canceled rent checks for the period through April, 1988, accompanied by a cover letter noting that subsequent rent checks had been returned by Chevron and summarizing the defendant's efforts to determine to whom to send the rent payments. The defendant's letter concluded with a request for a recalculation of the amount of rent due and a promise to forward a check upon receipt of that recalculation. It is undisputed that, despite telephone inquiries from the defendant, the plaintiff did not provide the recalculation until November 6, 1989, when the plaintiff contemporaneously gave the defendant written notice of default under the sublease.

In its letter of November 6, 1989, the plaintiff accepted the defendant's claim that the defendant had paid rent through April, 1988, but requested another set of copies of the canceled rent checks. The plaintiff's letter stated that the rent due totalled $39,583.27 and requested, for the first time, gallonage statements for the years ending June 30, 1987, June 30, 1988, and June 30, 1989, as well as gallonage rent, if due, and reimbursement of $23,677.90 for real estate taxes paid by the plaintiff. ⁷ The letter stated that it served as notice to cure these defaults, but stated no time period within which the defendant must cure. Although the letter indicated that copies of the property tax bills and canceled tax payment checks were enclosed, these materials inadvertently were not enclosed with the letter. On November 14, 1989, the defendant received the enclosures that had been omitted. On the same day, an employee of the defendant requested that the accounting department draw a check for rent and taxes and prepare a gallonage statement. On December 1, 1989, the defendant sent the gallonage statement to the plaintiff but did not enclose the gallonage rent payment because it anticipated that the plaintiff would want to verify the amount due. ⁸ The trial court found that a delay in the preparation of the check for base rent and taxes had been caused, in part, by the defendant's negligence because the check had been misplaced on an employee's desk.

On December 15, 1989, the defendant telephoned the plaintiff to apologize for the delay in sending the check for rent and taxes and to indicate that the check was ready to be mailed. An employee of the plaintiff responded that the matter had been turned over to legal counsel. The defendant's employee nonetheless prepared a transmittal letter and mailed it with a check in the amount of $63,065.55 payable to the plaintiff. At approximately 6:15 p.m. on December 15, the defendant received a hand delivered letter from the plaintiff's general counsel advising the defendant that the sublease would be terminated on December 26, 1989, for nonpayment of rent. On December 20, 1989, counsel for the plaintiff prepared and signed a notice to quit. ⁹ On December 21, 1989, the defendant issued a check in the amount of $2083.33 to the plaintiff for the December base rent. In February, 1990, the defendant paid to the plaintiff $1377.96 for the gallonage rent due for the year ending June 30, 1989. ¹⁰ The plaintiff returned both checks to the defendant with the explanation that they could not be accepted because the lease had been terminated.

The dispute between the parties that prompted this action concerns the late tender of the past due rent, real estate taxes and the December, 1989 base rent. ¹¹ The plaintiff alleged that the defendant had failed to pay: (1) base rent, totaling $41,666.60, for the period from May 1, 1988, to December 1, 1989; (2) gallonage rent, totaling $1377.96, for the year ending June 30, 1989 ¹²; and (3) real property taxes in the amount of $23,677.90.

The trial court, in its ruling denying the plaintiff's claim for summary process, found that the plaintiff had never given formal notice to the defendant of the assignment of the sublease or the change in landlords under the sublease. Although the trial court noted that the defendant had been negligent in not paying the past due rents, it found that the defendant's failure to pay the arrearage was not willful. The court observed: "This is not a case where a tenant knowingly neglected to pay its rent for nineteen consecutive months. It is a case where, as a result of a major corporate acquisition involving 600 gasoline stations in ten states, including the sublease for the premises, there was confusion about the identity of the landlord and where to send rental payments. The tenant diligently sought to obtain the necessary information from a confused landlord, who could not calculate the amount owed for seven months after the tenant had requested it. Throughout the entire period of nonpayment the tenant consistently affirmed its intention and willingness to pay the rent and did tender the arrearage within approximately thirty days after calculations were finally provided." The trial court concluded that the equitable defense against forfeiture applied to the facts of this case and denied the plaintiff's motion for possession. ¹³

"[E]quitable defenses and counterclaims implicating the right to possession are available in a summary process proceeding. If, then, the tenant's equitable claim was properly raised, it was properly before the trial court." Fellows v. Martin, 217 Conn. 57, 62-63, 584 A.2d 458 (1991). The defendant properly raised the issue in the trial court and we proceed to consider it upon review. Id., at 64, 584 A.2d 458.

Equitable principles barring forfeitures may apply to summary process actions for nonpayment of rent if: (1) the tenant's breach was not willful or grossly negligent; (2) upon eviction the tenant will suffer a loss wholly disproportionate to the injury to the landlord; and (3) the landlord's injury is reparable. Id., at 66-67, 584 A.2d 458. With these principles as our guide, we traverse the thicket presented by the circumstances of this case.

The plaintiff first claims that the trial court should not have relieved the defendant from forfeiture because the court should have held the defendant's conduct to have been willful or at least grossly negligent. Willful or gross negligence in failing to fulfill a condition precedent of a lease bars the application of the doctrine of equitable nonforfeiture. Fellows v. Martin, supra,...