David Roth's Sons, Inc. v. Wright & Taylor, Inc.

• Decision Date: 17 February 1961
• Citation: 343 S.W.2d 389
• Parties: DAVID ROTH'S SONS, INC., Appellant, v. WRIGHT AND TAYLOR, INC., Appellee.
• Court: United States State Supreme Court — District of Kentucky

Page 389

343 S.W.2d 389

DAVID ROTH'S SONS, INC., Appellant, v. WRIGHT AND TAYLOR, INC., Appellee.

Court of Appeals of Kentucky.

Feb. 17, 1961.

John S. Greenebaum, Louisville (Greenebaum, Barnett, Wood & Doll, Louisville), for appellant.

Allen P. Dodd, Louisville (Dodd & Dodd, Louisville), for appellee.

CLAY, Commissioner.

By this suit appellant, a lessee, sought a declaration that a certain lease was terminable at will for want of 'mutuality.' The Chancellor ruled otherwise.

The appellee lessor owns the Marion E. Taylor Building in Louisville and in 1955 leased two ground floor store rooms to the lessee. The written lease (containing 32 separate provisions) was for a fixed term of 10 years.

The lessee occupied the premises for over three and a half years. Apparently wishing to terminate its tenancy, the lessee sought a legal ground for doing so. It had no such right under the terms of the lease. However, the lessor had an option to terminate on certain conditions. The lessee has taken the position that since the lessor had the right to cancel the lease in any year, the contract lacks mutuality of obligation and is therefore terminable at the will of either party.

The doctrine of mutuality of obligation (as distinguished from mutuality of assent of remedy) is closely related to the theory of consideration in the law of contracts. Where an agreement is founded solely upon reciprocal promises, unless each party has assumed some legal obligation to the other the contract is wanting in consideration and is lacking in mutuality. See Williston on Contracts, (3rd Ed.) Vol. 1, Section 105 A (page 420).

The avoidance of an agreement on the ground of lack of mutuality is most frequently encountered in cases involving contracts for the sale of commodities or the performance of services. See 17 C.J.S. Contracts Sec. 100, p. 452. The lessee relies on a case of that character. Rehm-Zeiher Co. v. F. G. Walker Co., 156 Ky. 6, 160 S.W. 777, 49 L.R.A.,N.S., 694. It was there decided that if the purchaser is not bound to buy anything under a sales contract the manufacturer is not bound by his promise to sell. In that case one of the parties had an absolute and unrestricted right to determine at will his own obligations under the agreement.

The lessor in the present case has no such right under the lease. Upon its execution the lessor was bound to performance according to its terms. It is true the lessor was granted an option to terminate the obligations of both parties under certain conditions. Paragraph 11 of the lease provides:

'It is mutually agreed that the Lessor and his assigns shall have the right to terminate the term hereby demised absolutely on the 30th day of April in any year if the Lessor shall desire to remove or demolish the said building, or shall sell the said building or the land thereunder, or to make a ground lease of said land, provided that the Lessor shall first give to the Lessee on or before February first in the year in which said lease is to be terminated, a written notice of the Lessor's intention to terminate said lease for any of the reasons above specified, the rate of rent herein stipulated being the consideration for this agreement.'

The lessor is thus granted an option to terminate the lease during the 10 year term, on a specified day of any year, upon one of three specified conditions after giving 90 days' notice. The contention is made that since the lessor has control of the conditions, it has the exclusive right to determine the duration of the contract. Conceding this to be true, why should it nullify the lessee's obligations under the lease?

There is no requirement of the law that for each right created by a contract in one party the other party must have a reciprocal right of the same nature. Bank of Louisville v. Baumiester, 87 Ky. 6, 7 S.W. 170. It is observed in Williston on Contracts, (3rd Ed.) Section 105A (page 424) 'Confusion has resulted most frequently where one party is given an option, not accorded to the other, of discontinuing or extending performance or of cancelling or renewing the contract or of determining the extent of performance. If the option goes so far as to render illusory the promise of the party given the option, there is indeed no sufficient consideration, and therefore no contract, but the mere fact that the option prevents the mutual promises from being coextensive does not prevent both promises from being binding according to their respective terms.'

In considering this rather elusive concept of mutuality of obligation, neither the lack of similarity in the respective rights of the parties nor the conditions which give one party an exclusive right to terminate are controlling factors. The crucial question is whether the neture of the unilateral option is such that the party to whom it is granted has in actuality no fixed obligations under the contract. If so, his promise to perform is illusory in the sense that he has made no legally enforceable commitment, and justice demands the other party should not be bound. However, the right of a party to...