Darling Shops of Tennessee v. Brack, 10880.

• Decision Date: 24 February 1938
• Docket Number: No. 10880.,10880.
• Citation: 95 F.2d 135
• Parties: DARLING SHOPS, INC., OF TENNESSEE v. BRACK et al.
• Court: U.S. Court of Appeals — Eighth Circuit

95 F.2d 135 (1938)

DARLING SHOPS, INC., OF TENNESSEE v. BRACK et al.

No. 10880.

Circuit Court of Appeals, Eighth Circuit.

February 24, 1938.

E. L. McHaney, Jr., and S. Lasker Ehrman, both of Little Rock, Ark. (Grover T. Owens, of Little Rock, Ark., and Frederick E. Zvirin, and Philip Lippner, both of New York City, on the brief), for appellant.

Robert E. Wiley, of Little Rock, Ark., for appellees.

Before STONE, WOODROUGH, and VAN VALKENBURGH, Circuit Judges.

WOODROUGH, Circuit Judge.

On appeal from a judgment upon a jury verdict whereby the plaintiff's suit was dismissed with costs.

The Darling Shops, Inc., a Tennessee corporation, sued the three owners of store property known as 504 Main street in Little Rock, Ark., for damages for breach of a written lease dated December 19, 1934, by the terms of which the owners jointly leased the property to the plaintiff for the term of five years from March 1, 1935, with a five-year renewal option. The annual rental specified in the lease was $12,000 payable $1,000 monthly in advance, and "as further consideration and rent the plaintiff lessee agreed to pay an amount equal to 2½ per centum of all sums of money exceeding the gross sales in said premises over and above $650,000.00 per year." The first month's rent in the sum of $1,000 was paid in advance early in December, 1934, when a written agreement to execute the lease was entered into. The owners failed to deliver possession of the property to the plaintiff on or before March 1, 1935, in accordance with the terms of the lease and later on in August, 1935, the owners served notice in writing that they canceled the lease and refused to be bound by it. Thereupon plaintiff brought this suit claiming special and general damages.

It appeared without dispute that there were several associated corporations bearing the same name as the plaintiff "Darling Shops, Inc.," operating so-called Darling Shops in various cities, one of which corporations was organized under the laws of New Jersey and another under the laws of Tennessee, and that, when the lease of the property was originally drawn up by the owners and signed by them and the wives of two of them, "Darling Shops, Inc., a New Jersey Corporation" was named lessee therein, but before the same was signed by plaintiff the designation "New Jersey" in front of the word "corporation" was erased and "Tennessee" was substituted therefor. The fact that there was an erasure and typing in of the word "Tennessee" plainly appears looking at the first page of the lease at the beginning of the fourth line from the top. The plaintiff claimed that defendants orally authorized the change before it was made, and also that the defendants, knowing that the change had been made, ratified it and recognized and negotiated and dealt with the plaintiff as the tenant under the lease before they breached and repudiated the same.

The special damages were demanded in the complaint on the ground that the defendants knew when the lease was negotiated and entered into that it was the business of the Darling Shops, Inc., to acquire and maintain a chain of department stores in each of which the several departments were let to different subtenants and that different parts of the store in question were to be sublet to subtenants who would sell different lines of goods therein, and the plaintiff alleged that after the lease herein was entered into, and pursuant to its agreement and understanding with the defendants, it proceeded to make subleases of parts of the building to six named corporations at a total annual rental of $24,000 representing a profit of $12,000 a year to plaintiff or $60,000 over the five-year term; that on plaintiff's failure to obtain possession of the property the sublessees made claims for damages against plaintiff aggregating large sums by reason of their having purchased merchandise and equipment for their respective parts of the store which they had to sell at forced sale and that they had also employed managers for the respective departments at large expense, for all of which losses plaintiff had become liable and was entitled to hold the defendants. Other items of special damage alleged were that plaintiff had incurred expense in negotiating for the lease and in attempting to get possession of the property and that it had incurred expense by hiring an architect and his two assistants for the purpose of remodeling the store. There was also claim for general damage in that the reasonable rental value of the premises for the term of the lease was alleged to be twice the rental stipulated in the lease.

A joint answer was filed by all the defendants in which they admitted their joint execution and delivery of a lease in form as set out in the complaint but alleged that the change in the designation of the lessee was made therein without notice to or consent by them. There were allegations in the answer to the effect that negotiations for the lease had been had with one J. A. Rosoff as agent and that Rosoff had "represented to the defendants that the plaintiff, a Tennessee corporation, was the head concern, solvent and financially able to perform the obligations of the lease"; that the defendants had "believed and relied upon said statements," but that the same were false, "the truth being that the plaintiff was not the head corporation of the associated concerns being operated as Darling Stores or Darling Shops in various cities but was a new and very subordinate corporation with only a nominal capital and wholly without assets and without any financial ability to pay rent or perform the obligations of the lessee in said lease."

It was also alleged in the answer that said lease was obtained by Rosoff by further fraud in that he had falsely represented and induced the defendants to believe that the lease was being obtained for the benefit of one Jack Fine who was then in possession of the premises as the tenant of the defendants; that it was falsely represented by Rosoff that said Jack Fine was to remain in possession and "this was a fraud upon defendants who wished to have their former occupant Jack Fine fully accommodated in the making of any lease." The joint answer also contained the following:

"Defendants admit that delivery of said premises was not made to plaintiff on March 1, 1935, and allege the truth to be that plaintiff agreed with defendants that said delivery should be postponed until September 1, 1935, and that failure to deliver on March 1, 1935, was with the consent of the plaintiff. That before September 1, 1935, to-wit: about August 1, 1935, defendants having discovered, as aforesaid, the frauds of plaintiff and Rosoff in procuring said purported lease, cancelled the same and notified plaintiff it would not be longer bound thereby."

"And defendants deny that plaintiff continually requested defendants to deliver said premises after March 1, 1935, or that defendants repeatedly informed plaintiff they would so deliver within a short while, but state the fact to be that the failure and postponement to deliver on March 1st was by agreement negotiated by defendants with plaintiff for a postponement of such delivery until September 1, 1935."

In accordance with the Arkansas statutes, Pope's Digest Statutes of Arkansas 1937, § 1427, there was no reply filed by the plaintiff, and the case went to trial on the issues presented by the complaint as amended and answer.

The testimony for plaintiff tended to show that Mr. Vivian O. Brack and his brother Milton G. Brack owned the property in question except for a life estate in a small undivided fractional part owned by their mother; that plaintiff's employee J. A. Rosoff, living at St. Louis, Mo., heard about the possibility of renting the store in question and got in touch with Mr. Vivian O. Brack by long-distance telephone. Mr. Vivian Brack said over the telephone that there was no lease on the store and he would be glad to talk to Mr. Rosoff about it. Mr. Rosoff thereupon went to Little Rock and had a conference with Mr. Vivian Brack at his office. There was discussion about the method used by Darling Shops in merchandising their goods. Mr. Rosoff says: "I told him that we operated a chain of stores, all called the Darling Shops; that we had various corporations responsible for the leases; that the corporation which took the lease would in turn lease out various departments, such as shoes, dresses, underwear, furs, millinery, children's dresses, etc. I told him that we had a corporation in Tennessee and one in New Jersey. We agreed that the Darling Shops should pay him 2½% on all business over $650,000.00 per year. Mr. Brack stated to me that he, being an attorney, fully understood the procedure with all the departments of the business, and that with so many lines there was a chance for us to do over that amount of business, and that he hoped we would."

Mr. Rosoff also told Mr. Brack that the corporation that would sign the lease would sublet every department in the store.

As a result of the conference a written agreement for the lease of the property was drawn up by Mr. Vivian Brack and signed by him for himself and his brother as follows:

"Vivian O. Brack, Attorney at Law

"Riegler Building, Little Rock, Arkansas.

"December 10, 1934.

"Rent of 504 Main Street, Little Rock, Ark.:

"Store building — 2 story — 40 ft. by 140 ft. outside dimensions: (Obliterated.)

"Five year lease with option of renewal for five years at minimum guarantee rental of $12,000.00 per year, payable monthly in advance, and two and ½ percentum of gross sales over $650,000.00 per annum, payable every six months.

"Lessee to make all alterations. Owners to take care of all repairs due to ordinary wear and tear. Owners to pay insurance on building, except liability incurred by alterations by tenant and tenant to pay elevator insurance. Joint rental insurance in case of destruction of building.

"Possession given within 90 days. Tenant...