Entrepreneur, Ltd. v. Yasuna

• Decision Date: 27 September 1985
• Docket Number: No. 82-616.,82-616.
• Citation: 498 A.2d 1151
• Parties: ENTREPRENEUR, LTD., Appellant, v. Marshall I. YASUNA, Appellee.
• Court: D.C. Court of Appeals

Page 1151

498 A.2d 1151

ENTREPRENEUR, LTD., Appellant, v. Marshall I. YASUNA, Appellee.

No. 82-616.

District of Columbia Court of Appeals.

Argued January 25, 1985.

Decided September 27, 1985.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

B. Michael Rauh, Washington, D.C., with whom Martin Shulman and Tom A. Lippo, Washington, D.C., were on the briefs, for appellant.

MacKenzie Canter, III, Washington, D.C., with whom Mark J. Diskin, Washington, D.C., was on the briefs, for appellee.

Before MACK, FERREN and TERRY, Associate Judges.

MACK, Associate Judge:

This is an action for possession of the premises at 2140 Cathedral Ave., N.W., based on an alleged forfeiture of the contract of lease by tenant-appellant's breach of a lease covenant, and for a declaration that the option to purchase granted tenant by the lease is null and void. A jury returned a verdict for the landlord and assessed $24,000 in damages against the tenant, and the trial court entered an order finding the option void. We hold that notwithstanding any default under the lease, the extreme sanction of forfeiture of the lease for any such default is not warranted in the circumstances of this case. In addition, we find that the tenant's option to purchase the property remains viable. We reverse and remand to the trial court with instructions to enter judgment for tenantappellant on the landlord's claim for possession, and for additional factfinding on tenant's claim for specific performance of the option contract.

I.

Appellant Entrepreneur, Ltd., is a mailorder business dealing in antiques, marine and aircraft materials. Its sole shareholder and owner is Jack Bachman. Until 1973, Bachman operated Entrepreneur from the fourth floor of his townhouse home in the District, at 2142 Cathedral Avenue, N.W. In April of 1973 Bachman entered into a lease on behalf of Entrepreneur with Muriel Yasuna, the owner of an adjoining townhouse, 2140 Cathedral Avenue. The lease was for a term of five years, commencing on May 1, 1973, at a monthly rental of $675. The lease incorporated an addendum which, among other provisions, granted Entrepreneur a five-year option to purchase the property for $125,000 cash and a right of first refusal. Yasuna granted Entrepreneur permission to break through the wall between the two townhouses. In addition, a form provision that "lessee covenants that he will not carry on any business" in the subject property was crossed out on the face of the lease. Entrepreneur did covenant that it would not "use the [property] for any disorderly or unlawful purpose." If it did so, the lease would "cease and determine, and [] operate as a NOTICE TO QUIT, the thirty days' notice to quit being hereby expressly waived." Entrepreneur also agreed "that no waiver of one breach of any covenant herein contained shall be construed to waive or in any manner affect the covenants of this Lease."

Within a few months of taking possession of 2140 Cathedral Avenue, Bachman had moved part of his mail order home business into the premises, and then had a fire door built between the two townhouses. Although he complied with the Housing Code requirements in connection with the fire door, Bachman failed to obtain a certificate of occupancy for his use of the property, as required by the D.C. Code and implementing regulations, see D.C. Code § 5-426 (1981); 111 DCMR § 3203.¹ (1984);² 12 DCMR § 110.5 (1982).³

In late 1974, according to her testimony, Yasuna experienced some financial difficulties. In January of 1975, she approached Bachman about increasing the rental on the property. Relying on the lease, Bachman refused to pay a higher rental. Yasuna then asked him to exercise his purchase option, and suggested that as a veteran, he could apply for a low-interest Veterans' Administration loan. Bachman declined on the advice of his accountant, who suggested that for financial reasons he should defer exercise of the option until the close of the five-year lease term. Yasuna attempted to refinance the property herself, but was unsuccessful. Her step-son Marshall, appellee here, subsequently applied for and received a Veterans' Administration loan. The property was transferred to Marshall Yasuna in the spring of 1975. Thereafter, Muriel Yasuna acted as Marshall Yasuna's agent, collecting rent under the lease. Muriel Yasuna did not report the transfer to her stepson as a sale on her 1975 tax return. She did amend her 1975 return to so reflect following a court order in this litigation that she release her 1975 return to appellant. She maintained at trial that she had sold the property to her step-son for $150,000, above the $125,000 option price, even though her amended 1975 return reflects a purchase price of $123,000, below the option price. Yasuna also maintained that she had complied with the "right of first refusal" provision of her lease with Entrepreneur, by offering the property to Bachman at the option price of $125,000 in January of 1975. Yasuna did not state at trial that she informed Bachman that she intended to sell the property to her stepson. Instead, she testified only that she had assumed that if Bachman would not buy the property for $125,000, he would not be interested in it at $150,000. Bachman testified that he was not informed that the property had been sold to Marshall Yasuna until January of 1977, and was therefore not given an opportunity to exercise his right of first refusal under the lease.

In connection with the Veterans' Administration loan to Marshall Yasuna, V.A. officials conducted an inspection in order to appraise the property. Muriel Yasuna accompanied the V.A. inspector during the appraisal, held December 17, 1974. The V.A. report stated that the fourth floor of the property contained a home office. Muriel Yasuna testified that at that inspection, she first learned of the office use, and that sometime in 1974 she checked to see if Bachman had obtained a certificate of occupancy. When she discovered that such a certificate had not been obtained, she complained to zoning authorities — in 1975, according to her testimony — requesting that they inspect the property. She said that Bachman denied entrance to the property from 1975 until 1977. This testimony was contradicted by Stephen McCarthy, acting Chief of the Zoning Inspections Office, who said that the first complaint his office received from Muriel Yasuna was dated February 10, 1977. In addition, Bachman testified that Yasuna did not request entry into the premises until some time in 1977.

According to Bachman's testimony, uncontradicted by Muriel Yasuna, on January 16, 1977 — just before the documented complaint to the zoning office — Yasuna told Bachman she was tired of carrying him (referring to a $600 difference between Bachman's rent and Yasuna's monthly mortgage payments). On that date, in addition, she first informed Bachman that she had transferred the property to her stepson. At this meeting Muriel Yasuna did not complain of any lease violation. Yasuna did not so complain until January 31, 1977, when she sent Bachman a notice that he was in violation of "applicable provisions of the District of Columbia Code" and that Bachman would be required to vacate by March 1, 1977. No mention was made of the certificate of occupancy problem in this notice, however, and the notice did not mention any specific provision of the Code. Yasuna subsequently accepted rent for February, 1977. On February 2, 1977, Bachman notified the Yasunas that he intended to exercise his option on the property, and on March 1, 1977, he filed the required notice under the lease of exercise of a purchase option. On March 8, 1977, counsel for Yasuna sent Entrepreneur a notice that stated that the "premises ha[ve] been used for an unlawful purpose as defined by Section 5-433 of the District of Columbia Code." This notice, however, does not state that the purpose is unlawful because of the failure to comply with zoning requirements, and at that time there was no section 5-433 in the District of Columbia Code. On March 24, counsel for Yasuna sent a second notice to vacate the premises to Entrepreneur, again based on the fact that the use of the premises violated the nonexistent D.C. Code § 5-433. Following a request for clarification, on March 25, 1977, counsel for Yasuna notified Entrepreneur that the applicable section of the Code violated by Entrepreneur's use of the property was D.C. Code § 5-422 (1973), the certificate of occupancy requirement. Marshall Yasuna filed a complaint for possession of the property based on Bachman's violation of the lease covenant prohibiting "unlawful" uses of the property on May 5, 1977. The alleged "unlawful" use was the failure to obtain a certificate of occupancy for a business use in an area zoned R-4 residential. The complaint also requested a declaratory judgment that the option to purchase was void because of the "unlawful" use.

On March 8, 1977, the zoning office first inspected the property. Inspectors returned in April of 1977, and after touring the fourth floor office they recommended to Bachman that he apply for a home occupation permit. Bachman did apply for both a permit and a certificate of occupancy. Both were denied by the zoning authorities, and that denial was affirmed on appeal. Bachman thereupon moved his office to a different location.

In the answer filed in response to the complaint, Bachman asserted several defenses, among them that the option contract was not void and that he had taken all necessary steps to exercise the option. The answer did not request "specific performance" of the option contract in a separate counterclaim, however. Because of this omission, the trial court, on the first day of trial, struck Bachman's claim based on the option agreement and excluded evidence relating to that claim. Excluded information included evidence tending to prove that Yasuna's Veterans' Administration mortgage had...