Kelley v. Von Herberg

• Decision Date: 18 October 1935
• Docket Number: 25364.
• Citation: Kelley v. Von Herberg, 184 Wash. 165, 50 P.2d 23 (Wash. 1935)
• Parties: KELLEY et ux. v. VON HERBERG et al.
• Court: Washington Supreme Court

50 P.2d 23

184 Wash. 165

KELLEY et ux. v. VON HERBERG et al.

No. 25364.

Supreme Court of Washington, En Banc.

October 18, 1935

Appeal from Superior Court, King County; John A. Frater, Judge.

Action by James T. Kelley and his wife against J. G. Von Herberg and others. From a judgment, plaintiffs appeal.

Reversed and remanded, with directions.

Preston Thorgrimson & Turner, of Seattle, for appellants.

Allen &amp Wilkins and Battle, Hulbert, Helsell & Bettens, all of Seattle, for respondents.

BLAKE Justice.

For many years the plaintiffs have been the owners of a plot of ground at the southeast corner of Sixth avenue and Pine street, in Seattle. On March 17, 1928, they, as lessors, and the defendant J. G. Von Herberg, as lessee, executed a lease for a term of 99 years. A monthly rental of $2,000 was reserved for 4 years and 11 months, beginning June 1, 1928. In addition, the lessee covenanted and agreed to pay all taxes, assessments, and charges of every kind that might become a lien on the property. The lessee further covenanted to erect on the property a fireproof building of not less than three stories, on a foundation capable of carrying six stories. The lease contained a provision permitting assignment upon the completion of the building, free from liens, provided the lessee be not in default in any of the covenants and agreements to be by him kept and performed. There was no provision, however, for the release of the lessee on his obligations under the lease. The lessee erected a building in substantial compliance with the covenant.

In February, 1932, the lessee caused to be organized the corporation, Sixpine Leaseholders, Inc. To this corporation he assigned the lease. In consideration of the assignment, he received all of the capital stock of the corporation and a note executed by it for $23,850. The corporation assumed and agreed to perform all the covenants and agreements contained in the lease. It appears, however, that its only asset was the leasehold in the property at Sixth and Pine.

There was default in payment of rent due May 1 and June 1, 1932. Also default was made in payment of taxes for the first half of 1931, which, but for payment by the lessors, would have gone delinquent June 1, 1932.

June 2 1932, the lessors declared a forfeiture, which became effective July 2, 1932. The premises were surrendered to the lessors early in the latter month.

The lease contained a provision allowing redemption by the lessee any time within 6 months after date of forfeiture. Redemption not having been made, plaintiffs brought this action. In their complaint they set up two causes of action. The first was a suit to quiet title. The second was to recover from the defendants Von Herberg rent due under the lease for the months of May, June, and July, 1932; the full amount of the 1931 taxes ($19,332.88); the full amount of the 1932 taxes ($16,646.27); and $375 for attorney's fees alleged to have been theretofore paid in connection with the enforcement of their rights under the lease. They also asked for an allowance of attorney's fees in the present action.

The defendants Von Herberg answered, alleging that, prior to the execution of the lease, it was the understanding and agreement of the parties that, upon assignment of the lease pursuant to its terms, the Von Herbergs would thereupon be relieved and released from all further obligation under the lease. They further alleged that such understanding and agreement had been omitted from the lease through the mutual mistake of the parties. They prayed for reformation of the lease in this respect and that the complaint be dismissed.

The court entered a decree quieting title in plaintiffs on the first cause of action. It dismissed the second cause of action, decreeing that the lease be reformed '* * * so as to provide that upon an assignment thereof by the lessee therein named as therein provided, said lessee be released and relieved from any and all further obligations or liability thereunder and the following stipulation, to-wit:

'Section 3. And it is further covenanted and agreed by and between the parties hereto that the parties assigning or conveying the leasehold estate hereby created upon the conditions and in the manner hereinBefore set forth, shall thereby be forever released and discharged from any and all obligations arising or accruing under the covenants and agreements in this lease, subsequent to the date of such conveyance or assignment, and subsequent to the date of the erection upon said premises of said building in accordance with the provisions of this lease and the completion thereof and full payment therefor, provided such conveyance or assignment shall have been made to carry into effect an absolute and bona fide sale of lessee's interest in said premises,' is hereby made a part of said lease, to follow Section 2 of Article XXIV, on page 34 thereof, to the same effect as though said stipulation had been contained in said lease at the time the same was executed by plaintiffs and the defendant J. G. Von Herberg.'

Plaintiffs appeal.

As we see it, the problem resolves itself to a determination of the legal sufficiency of the evidence to warrant reformation of the lease, as decreed by the court. This will entail an extensive consideration of the evidence of the negotiations leading up to the execution of the lease.

Some time in the fall of 1927, a real estate broker by the name of McGill became active in an attempt to bring Kelley and Von Herberg together on a long-term lease of the property at Sixth and Pine. After getting the negotiations started, McGill called in another broker by the name of Wilson. Later on, at the instance of Von Herberg, another broker (Gottstein) was brought into the negotiations. The parties did not arrive at the point of reducing their engagements to writing until the latter part of January, 1928. At that time Mr. Jay C. Allen, representing Von Herberg, and Mr. A. R. Hilen, representing Kelley, came into the negotiations. Mr. Allen testified that his first contact with the situation was when McGill and Kelley came into his office and told him an agreement had been reached between Kelley and Von Herberg, and that what was known as the 'Hughes lease' was a form satisfactory to Kelley. However this may be, a proposed lease (designated in the record as the first Hilen lease) was submitted to Mr. Allen, as attorney for Von Herberg Mr. Allen made certain pencil notations on the proposed lease, and returned it to Mr. Hilen, who then made a second draft of the lease. The attorneys then got together and discussed the provisions of the second draft, and agreed upon changes to be made. Mr. Hilen made a third draft. In the so-called Hughes lease, and in all three of the proposed leases drawn by Mr. Hilen, there was a provision for the release of the lessee identical with that contained in the decree of the court, which we have quoted.

Mr. Hilen sent a copy of his third draft to Mr. Allen, and gave a copy to Kelley. According to Mr. Hilen's testimony, this was the only draft of the lease that he submitted to Kelley.

Shortly after this, Kelley dismissed Mr. Hilen and retained O. B. Thorgrimson. Kelley left the third Hilen draft with Mr. Thorgrimson, with instructions to draw a lease which would fully protect his (Kelley's) interests; to draw a lease such as he would draw for himself (Thorgrimson); that he wanted to hold Von Herberg. Kelley also asked Mr. Thorgrimson not to mention to any one the fact that he had been retained. Mr. Thorgrimson drafted a lease, which he submitted to Kelley. This proposed lease did not contain any provision for the release of the lessee upon assignment. The proposed lease was submitted to Mr. Allen, who, after an examination of the instrument, addressed a letter to Von Herberg, under date of February 25, 1928, commencing in the following language:

'At your request, I have examined the redraft of the proposed lease from James T. Kelley and wife.

'The criticisms and suggestions which I make herein are not noted or stated in the order of their importance, but as I came across them.'

Then follow sixteen numbered paragraphs, covering four and one-half pages, of criticisms and suggestions. A copy of this letter came into the hands of Mr. Thorgrimson, who discussed the criticisms and suggestions with Kelley. Mr. Thorgrimson and Mr. Allen had a conference, at which each made concessions on behalf of their clients. Thereupon Mr. Thorgrimson redrafted the proposed lease. This draft did not contain any provision for release of the lessee upon assignment. This proposed draft was submitted to Mr. Allen, who suggested some changes, whereupon Mr. Thorgrimson drew the lease as finally executed. In the meantime, on March 8th, Mr. Allen had addressed another letter to Von Herberg, commencing as follows:

'In re: Kelley Lease.

'Since my letter of February 25th there have been frequent conferences about it. Certain of my objections you have waived, and others Mr. Kelley has agreed to. In view of these facts I now advise that, if the lease is changed in the following particulars, I see no objection to your executing it.'

Then follow, numerically, nine objections. In addition, by way of addenda or postscript, are two more. Neither in this nor in the letter of February 25th was the absence of the release clause noted.

The question of Von Herberg's personal liability was evidently a contentious subject all through the negotiations for the socalled first Hilen draft ran from the Kelleys, as lessors, to '_____, a corporation organized and existing under and by virtue of the laws of the State of Washington, having its principal place of business in the City of Seattle, County of King, in said State,...