Farmers and Mechanics Sav. Bank v. First Federal Sav. and Loan Ass'n of Meriden

• Decision Date: 19 November 1974
• Citation: Farmers and Mechanics Sav. Bank v. First Federal Sav. and Loan Ass'n of Meriden, 355 A.2d 260, 167 Conn. 294 (Conn. 1974)
• Parties: FARMERS AND MECHANICS SAVINGS BANK v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF MERIDEN et al.
• Court: Connecticut Supreme Court

Page 260

355 A.2d 260

167 Conn. 294

FARMERS AND MECHANICS SAVINGS BANK v. FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF MERIDEN et al.

Supreme Court of Connecticut.

Nov. 19, 1974.

Samuel N. Allen, Middletown, for appellant (plaintiff).

Frank W. St. John, Meriden, with whom were Kenneth R. Larsen, Meriden, and, on the brief, Roger F. Gleason, New Britain, for appellees (defendants).

Before HOUSE, C.J., and SHAPIRO, LOISELLE, MacDONALD and BOGDANSKI, JJ.

MacDONALD, Associate Justice.

The plaintiff, Farmers and Mechanics Savings Bank, has appealed from a judgment of the Superior Court denying its request for injunctive relief against the defendants, First Federal Savings and Loan Association of Meriden and King's Department Stores, Inc., in an action involving the plaintiff's attemped enforcement of a restrictive covenant contained in its lease of space in a shopping center purporting to grant to the plaintiff the exclusive right to conduct within the shopping center a 'financial of lending business' during the term of the lease.

The plaintiff, hereinafter referred to as Farmers, is a savings bank having its principal office at Middletown, Connecticut. The defendant First Federal Savings and Loan Association of Meriden, hereinafter referred to as First Federal, also is a savings institution having its principal office at Meriden, Connecticut, and the defendant King's Department Stores, Inc., hereinafter referred to as King's, is a Delawere corportation referred to as King's, is a Delaware corporation stores in several states, including a store located in the shopping center in question.

The finding, which requires no material correction sets forth the following facts: On or about February 1, 1973, Farmers entered into a written lease with the Meed Company, hereinafter referred to as Meed, a New York partnership which owned the Middletown Shopping Plaza, hereinafter referred to as Plaza or Shopping Center, located in Middletown, Connecticut, whereby Farmers leased from Meed for an original term of fifteen years a portion of a building in the Plaza in which Farmers planned to open a branch savings bank facility. On April 25, 1973, Farmers recorded in the Middletown land records a notice of the lease which met the requirements of § 47-19 of the General Statutes. ¹ Both the lease and the recorded notice of lease contained the following restrictive covenant: 'No bank, savings and loan association, finance company, loan company or other financial or lending business (other than the lessor) shall be conducted within the Shopping Center during the term of this Lease or any extension or renewal hereof.'

More than a year prior to the recording of Farmers' notice, on March 3, 1972, King's had leased from Meed space in the Plaza by a written lease of that date which conferred upon King's subleasing rights sufficiently broad to permit King's to sublease a portion of the premises described therein to savings and loan association. Neither the lease between King's and Meed, nor any notice thereof, was recorded in the Middletown land records until May, 1973, after the recording of Farmers' notice of lease. King's commenced operation of a department store in the Plaza on November 6, 1972, in a building contiguous to the one leased to Farmers.

Prior to the execution of its lease with Meed, attorneys for Farmers had searched the title to the premises upon which the Plaza was located, but at the time of the execution of its lease Farmers had no actual knowledge of the provisions of the lease between Meed and King's. Farmers, however, was aware during its negotiations with Meed that King's was in possession of and actively occupying a portion of the Plaza, and made no inquiry as to the specific provisions of King's lease. King's, during negotiations with Meed for its lease, had caused the land records to be searched and and asked for and received copies of previous leases.

Farmers, prior to the execution of its lease, inquired of Meed whether Meed was in a position to grant to it the restrictive covenant in question and was assured by Meed that it was in a position to do so. Farmers assumed that Meed was in a position to lease with restrictive covenants, made no inquiry as to existing leases other than to question Meed, and relied exclusively on Meed's representation as to the validity of the restrictive covenant. Apparently solely on the strength of such reliance, Farmers expended approximately $70,000 to prepare its leased premises for use as a savings bank.

Late in 1972 First Federal was negotiating with King's for the sublease of premises in King's Plaza store, and these negotiations resulted in a meeting of the minds as to the terms of such lease, as evidenced by a letter dated January 24, 1973, from First Federal to King's. On or about March 23, 1973, First Federal applied to the federal regulatory agency, the Home Loan Bank Board, located in Boston, Massachusetts, for permission to establish a satellite branch office in King's. This application was approved and notice thereof appeared in the Connecticut Banking Department Bulletin No. 503 on April 13, 1973. In the meantime, First Federal had invested more than $25,000 for equipment for its leased premises.

Farmers was aware of 'satellite banking,' and notified the Home Loan Bank Board, on April 4, 1973, of its displeasure that this site had been approved for First Federal. It was claimed by Farmers that unless enjoined, King's would sublease to First Federal a portion of its premises for use as a satellite branch, but at the time of trial King's had not yet completed the formalities of its sublease of space to First Federal.

The Connecticut Bank and Trust Company operates a branch bank across the street from the Shopping Center, and, at the time of the trial, Farmers was operating its branch banking facility at the space in the Shopping Center leased by it from Meed. The location by First Federal of a satellite office at the Shopping Center would cause competition to Farmers at its branch office in the Shopping Center.

From the foregoing facts, the court concluded that Farmers, when it entered into its lease with Meed on February 1, 1973 had constructive and actual notice of the lease of March 3, 1972, between Meed and King's by virtue of language contained in Farmers' own lease with Meed as well as by virtue of a deed, recorded in the Middletown land records, from Meed to the Washington Holding Company in which reference is made to King's lease. The court further concluded that neither Farmers nor First Federal had actual or record notice of each other's plans for a branch bank in the Plaza until the receipt by Farmers on March 21, 1973, of First Federal's site approval from the Home Loan Bank Board and that neither Farmers nor First Federal was guilty of any wrongdoing, despite the fact that the location of First Federal's branch in the Plaza would be contrary to the convenant between Meed and Farmers. Finally, the court concluded that although the location of either branch office in the Plaza would result in a loss of business to the other, the prior lease to King's is in no way affected by Farmers' subsequent lease containing the covenant restricting the use of King's leasehold interest, and that equity should not act by way of injunctive relief where all parties are equally innocent. In reaching the foregoing conclusions, the court, in effect, overruled Farmers' basic claim of law that it did not have constructive notice of the provision of the lease of March 3, 1972, between King's and Meed. We find that the court correctly overruled this claim of law as well as Farmers' additional claim that Farmers had made reasonable inquiry as to whether Meed was in a position to make the restrictive covenant.

Essentially, Farmers' claim is that the court erred in concluding that the covenant did not bind King's and First Federal since it was subsequent to King's lease. With this contention we cannot agree.

Independent of any rights...