Darling Shop of Birmingham v. Nelson Realty Co.

• Decision Date: 15 March 1951
• Docket Number: 6 Div. 128
• Citation: 255 Ala. 586,52 So.2d 211
• Parties: DARLING SHOP OF BIRMINGHAM, Inc., et al. v. NELSON REALTY CO., Inc., et al.
• Court: Alabama Supreme Court

Page 211

52 So.2d 211

255 Ala. 586

DARLING SHOP OF BIRMINGHAM, Inc., et al. v. NELSON REALTY CO., Inc., et al.

6 Div. 128.

Supreme Court of Alabama.

March 15, 1951.

Rehearing Denied May 10, 1951.

Cabaniss & Johnston, Meade Whitaker and K. E. Cooper, all of Birmingham, for appellants.

Leader, Tenenbaum, Perrine & Swedlaw and Kenneth Perrine, all of Birmingham, for appellees.

STAKELY, Justice.

On March 10, 1943 a lease was executed by and between Nelson Realty Co. Inc., a corp., as lessor (one of the appellees), and The Darling Shop of Birmingham, Inc., a corp. (one of the appellants) as lessee, covering premises located at the northwest corner of 18th Street and Third Avenue in Birmingham, Alabama, known as The Darling Shop. The obligations of the tenant under the lease were guaranteed by The Darling Stores, Inc., a corporation (the other appellant).

The lease ran for a period of six years for a term beginning on the first day of February, 1943 and ending on the 31st day of January, 1949. The lease contains the following renewal clause: 'Twenty-ninth: The Tenant shall have the option to renew this lease for a further term of five (5) years upon the same terms and conditions, except that the annual minimum rental during such additional term shall be the sum of Thirty Thousand ($30,000) Dollars per annum, payable in installments on the first day of each and every month of said term in the sum of Two Thousand Five Hundred ($2,500) Dollars. Such option of renewal shall be exercised by notice in writing by registered mail addressed to the Landlord on or before August 1st, 1948.'

The agreed rental was to be six per cent of the gross sales called overage rental, payable annually, with a fixed minimum sum payable monthly.

The case comes here on appeal from a decree of the equity court overruling demurrers to appellees' cross-bill. The cross-bill seeks to have the court declare a forfeiture of the tenant's right of renewal as contained in the lease.

The present litigation began with an original bill for a declaratory judgment filed by appellants seeking an interpretation of paragraphs 25th and 26th which provide for contribution by the landlord toward the cost of alterations and improvements according to a formula. A copy of the lease is attached to the original bill and made a part thereof. The bill for a declaratory judgment was filed on June 11, 1948. On July 23, 1948 the tenant gave the landlord written notice of its election to renew the lease as of February 1st, 1949 for a further term of five years. Nelson Realty Co., Inc., the landlord, by way of reply declared the renewal option forfeited for various alleged defaults on the part of the tenant and thereafter filed the cross-bill in this case seeking to have the renewal right declared forfeited and the lease terminated as of the expiration of the original term viz., January 31, 1949.

In the fourth paragraph of the lease, for the purpose of ascertaining the amount of percentage rentals payable under the lease, the tenant covenants that it will keep records which shall show the daily sales made by the tenant in, on or from the demised premises and further agrees to deliver to the landlord statements of the total sales for each annual period of the term of the lease. In this connection the tenant represents that it maintains a system by which is recorded the receipts from all sales and covenants that it will keep the record of such sales on file for a period of not less than three months following the date upon which it delivers to the landlord a statement of its gross annual sales at the end of each lease year. Paragraph four also provides that the landlord or its representative shall have access to the books, records, accounts and reports of gross sales made upon the premises and will permit inspection by the landlord and also permit the landlord to have an audit made by accountants appointed by the landlord at its own expense.

The following are the allegations in the cross-bill as warranting forfeiture of the right of renewal: '10(a). Respondent avers that The Darling Shop, Inc., of Birmingham, has violated the covenants of the lease as to the payment of rent on the dates required in said lease and has violated the covenants of the lease in failing to give the reports as required in said lease duly authenticated by the officers on the dates required in said lease and that such acts or failure to act on behalf of The Darling Shop of Birmingham, Inc., was made with such frequency as to make it a general course of conduct. Respondent avers that it has considered that complainant has forfeited its right to renewal of the lease under the terms and conditions thereof and that the tenancy of the complainant is terminated at the expiration of the present term on to-wit, January 31, 1949. Respondent avers that it did notify the complainant that the term of its lease did expire on said date by registered letter dated July 30, 1948, a copy of which is hereto attached and marked Exhibit '1' and made a part hereof as fully as if set out herein.'

By amendment Nelson Realty Co. Inc. sought to set up as additional grounds of forfeiture of the right of renewal alleged breaches by the tenant of various parol agreements claimed to have been made at or prior to the execution of the lease and also certain charges of fraud arising therefrom.

In the decree from which this appeal was taken the court sustained demurrers to these aspects of the cross-bill set forth in the amendment. Accordingly these matters are not before the court on this appeal.

By further amendment there was added to the cross-bill a prayer seeking a money judgment for rent accruing subsequent to January 31, 1949, the basis being the alleged unlawful holding over after the expiration of the lease.

Subsequent to the filing of the original cross-bill and subsequent to the expiration of the term of the original lease Frank Nelson, Jr., his sister Margaret Nelson DeBardeleben and their mother Mrs. Olive L. Nelson, the principal beneficial owners of the leased premises and other real property in the City of Birmingham, determined upon a division of their holdings. An agreement was accordingly entered into on August 27, 1949 between the various interested parties including Nelson Realty Co. Inc. a corporation, Frank Nelson Estates, Inc., a corporation, and the foregoing individuals. This agreement provided for a conveyance by Nelson Realty Company Inc. to its parent company Frank Nelson Estates Inc. of the leased premises and the dissolution and liquidation of the Nelson Realty Company Inc.

It was also agreed that Frank Nelson, Jr. would be given an option to purchase the leased premises at a fixed price which option he exercised on October 24, 1949. On August 31, 1949 in accordance with the dissolution agreement Nelson Realty Company, Inc. conveyed the leased premises to Frank Nelson Estates Inc. without warranty of title and subject to 'all existing leases.' Nelson Realty Company Inc. on the same date was dissolved. Thereafter on October 24, 1949 in accordance with the dissolution agreement the leased premises were conveyed to Frank Nelson, Jr. subject to a life estate in a one-third interest contemporaneously conveyed to Olive L. Nelson. Frank Nelson Estates, Inc. received back a purchase money mortgage which was, however, subordinate to outstanding mortgages to Prudential Insurance Company of America, to Bank for Savings and Trusts and to H. M. Davis. These mortgages constituted first, second and third liens, respectively, on the leased premises. Each of these conveyances recognized the existence of the lease to The Darling Shop of Birmingham, Inc. In the conveyance to Frank Nelson Estates, Inc., were these words: '* * * and further subject to all existing leases thereon or affecting the same, * * *.' In the conveyances to Frank Nelson, Jr. and to Olive L. Nelson by Frank Nelson Estates, Inc., were these words: 'This conveyance is also made subject expressly to existing leases and litigation herein referred to by, or against, said Nelson Realty Company, Inc., and any successor thereof, in interest, or by, or against, the grantor as such successor, in interest, and to the entire burden of said litigation whatsoever * * *.'

When the foregoing transfers of title to the leased premises were made the original bill of appellants was amended so as to bring in as parties Frank Nelson, Jr., the executor of the estate of Olive L. Nelson, then deceased, and the various mortgagees including Prudential Insurance Company of America. The cross-bill was then amended and Frank Nelson, Jr., the executors of the estate of Olive L. Nelson, deceased, and Frank Nelson Estates, Inc., joined in the relief prayed for by Nelson Realty Company, Inc. The...