Foster v. L. M. S. Development Co.

• Decision Date: 14 April 1961
• Docket Number: No. 15775,15775
• Citation: 346 S.W.2d 387
• Parties: Mollie Adams FOSTER et al., Appellants, v. L. M. S. DEVELOPMENT CO. et al., Appellees.
• Court: Texas Court of Appeals

Page 387

346 S.W.2d 387

Mollie Adams FOSTER et al., Appellants, v. L. M. S. DEVELOPMENT CO. et al., Appellees.

No. 15775.

Court of Civil Appeals of Texas, Dallas.

April 14, 1961.

Rehearing Denied May 12, 1961.

Witts, Geary, Hamilton, Brice & Lewis, Jim K. Choate, W. S. Barron, Jr., and John B. Stigall, Jr., Dallas, for appellants.

Locke, Purnell, Boren, Laney & Neely, Carrington, Johnson & Stephens, Shank, Dedman & Irwin, and Strasburger, Price, Kelton, Miller & Martin, Dallas, for appellees.

DIXON, Chief Justice.

On March 13, 1959 this action seeking cancellation of a long-term lease contract on downtown Dallas property was brought by appellants as lessors against appellees as lessees. The action was also for damages for the alleged alleged wrongful withholding of possession of the property following cancellation.

The original lessors were Harry Foster, who died in 1949, and Mollie Adams Foster, then the wife and now the surviving widow of Harry Foster. Harry Foster left a will giving his one-half community interest in the title to the real estate in question to his two children, Paul Foster and Pola Foster Craft, Jr., now Mrs. Pola Foster Dean. To his sister-in-law, Bertha Adams, now Mrs. Bertha Adams Marshburn, along with his two children, Foster gave his one-half community interest in the net rental income from the property. Robert J. Dean, husband of Pola Foster Dean, and Vernon Marshburn, husband of Bertha Adams Marshburn, are parties to the suit. Texas Bank and Trust Company is a party to the suit as trustee for Mollie Adams Foster. The relatives of Harry Foster and the Bank as trustee are appellants in this appeal.

The appellees are H. Edward Smith, a vice-president of the Mercantile National Bank at Dallas, Mercantile Security Life Insurance Company, a corporation, L. M. S. Development Company, a corporation, and Mercantile National Bank at Dallas as trustee, said Bank being named as trustee in the deed of trust securing Equitable Life Insurance Society of the United States, holder of a $4,000,000 mortgage against the leasehold estate. The latter company will hereafter be referred to as Equitable.

In addition to the $4,000,000 first lien indebtedness held by Equitable there were two second lien notes each in the amount of $1,058,600.85 outstanding at the time suit was filed, said notes being dated September 26, 1958, both notes payable September 26, 1959, one of them payable to Neely G. Landrum, the other to John B. Mills.

Neither Equitable, nor Neely G. Landrum, nor John B. Mills is a party to this suit.

The lease dated October 1st, 1947 was for a term of 99 years and provided for rental payments of $833.33 per month. Lessee was also required to pay taxes and insurance. Section Six of the lease further provided that Lessee on or before July 31, 1956 should do one of two things: either (1) spend not less than $30,000 improving the two-story building then located on the premises, or (2) raze the old building and construct a new building to be completed by the above named date.

It is the contention of appellants as lessors that appellees as lessees had neither spent as much as $30,000 on the old building by July 31, 1956, nor had they completed a new building by that date; but that by fraudulent means they concealed their breach of the contract until they had completed a modern 19-story office building in 1958, which building rested on several tracts of land, including the tract in controvesy.

In reply appellees allege that (1) the agreement in Section Six is a covenant, not a condition, hence breach of it could not result in a forfeiture of the lease; (2) the express provisions of the lease bar any recovery by appellants because (a) there has been and would have been litigation concerning the lease at all relevant times, (b) the construction of the office building, though it was not completed by July 31, 1956, was performance of Section Six and cured any breach, (c) there were liens in existence at all relevant times; (3) appellants by accepting rent for almost two years after the alleged breach and by standing idly by while appellees spent several million dollars constructing an office building on the property, have waived the alleged breach and are estopped from asserting the breach; (4) there was no fraud as a matter of law and as a matter of the undisputed evidence; and (5) there was no breach of the contract as a matter of law and as a matter of undisputed evidence.

In the course of a lengthy trial 67 special issues were submitted to a jury which returned answers favorable in most part to appellants. However, upon motion non obstante veredicto judgment was rendered in favor of appellees, the lessees, that appellants, the lessors, take nothing.

I. Facts.

A. Preliminary Facts

On October 1, 1947 Harry Foster and wife Mollie Foster were the owners of property 70' X 45' on Commerce Street in Dallas. On said date, as lessors, they executed the lease in question with appellee H. Edward Smith as lessee. Next day Smith assigned his rights as lessee to L. M. S., Inc., a Texas corporation, in which Neely Landrum, John Mills and H. Edward Smith were the principal officers and stockholders.

Later L. M. S., Inc., was dissolved and its assets were assigned on July 3, 1953 to appellee Mercantile Security Life Insurance Company, in which Landrum, Mills and Smith, were again the principal stockholders and officers.

Still later another corporation, appellee L. M. S. Development Company was organized by Landrum, Mills and Smith, for the purpose of constructing the office building now known as Mercantile Dallas Building. The building was constructed on several pieces of property, one of which was the Foster lease herein involved. L. M. S. Development Company, by assignment dated September 1, 1958, acquired the rights of Mercantile Security Life Insurance Company in the Foster lease.

In connection with financing the construction of the office building L. M. S. Development Company on January 21, 1957 executed a deed of trust to J. D. Francis, as trustee for James Landrum and Cecil Mills, to secure payment of a note in the sum of $4,000,000. Landrum and Mills immediately assigned the note and deed of trust to Mercantile National Bank at Dallas, and the Bank advanced the money for the interim financing of the construction of the office building.

The permanent financing of the building was thereafter effectuated when on September 25, 1958 L. M. S. Development Company executed an Indenture of Mortgage and Deed of Trust dated September 1, 1958, in the nature of a long-term loan in the principal sum of $4,000,000, bearing 4 1/2% interest to Mercantile National Bank at Dallas as trustee; and on September 26, 1958 said Indenture Mortgage secured by Deed of Trust was purchased by Equitable for a consideration of $4,000,000 cash, which was used to pay off the interim financing for the construction of the office building. Also on September 26, 1958 the two $1,058,000 notes were executed to Landrum and Mills.

Mercantile National Bank, named as trustee in the deed of trust, was sued only in its capacity as trustee, and appears in this appeal only in its capacity as trustee.

B. The Lease Contract

The lease contract in controversy is 25 pages in length with numerous paragraphs and sub-paragraphs. It is much too lengthy to be copied here, but it is appropriate that we give a condensed statement of those of its provisions which are material to our decision of this appeal.

The lease is very complete and seems to us to be clear and unambiguous in its terms.

Section Six is relied on by appellants to show that they are entitled to cancel the lease. Therefore we quote material parts of the Section:

'Section Six. New Building or Buildings.

* * *

* * *

'All other provisions in this section to the contrary notwithstanding, lessee agrees that he, his heirs, personal representatives or assigns, will on or before July 31, 1956, do either one of two things:

'A. Improve the present building on the demised premises, spending at least $30,000 for such improvements, lessee having complete discretion as to what improvements shall be added; or

'B. Raze the present building on the demised premises, and erect in lieu thereof a new building, same to be completed on or before July 31, 1956, unless having been started in time for anticipated completion by that date there shall be delays beyond the control of Lessee, whereupon, if said building is completed with reasonable diligence, but subject to such delays beyond the control of the lessee, this Paragraph B shall be deemed to be complied with.' (Emphasis ours.)

Section Seven gives lessee the right to make extensive alterations and repairs to any buildings on the premises.

Section Fourteen gives lessors or their agent access to the premises at all reasonable times for purposes of examination or inspection of the buildings and improvements on the premises.

Section Fifteen gives lessee broad rights to assign the lease or sublet the premises with or without the joinder of lessors. In event of assignment of the lease by first Lessee (H. Edward Smith) to a corporation, lessee personally shall be relieved of all responsibility under the terms of this lease 'when the instrument of assignment is executed.'

Section Seventeen gives Lessees the right to mortgage or encumber the leasehold estate subject to and subordinate to the terms of the lease in favor of lessors.

Section Eighteen is relied on by appellees to show that under the express provisions of the lease appellants are not entitled to cancel the lease. Therefore, we quote material parts of the Section:

'Section Eighteen. Default by Lessee and Rights and Remedies of Lessors in such Event. An event of default which may lead to a cancellation of this lease shall exist (and there shall be no cancellation or termination of this lease prior to the expiration of the full term herein provided for excepting only in the event...