Keystone Square Shopping Center Co. v. Marsh Supermarkets, Inc.

• Decision Date: 08 February 1984
• Docket Number: No. 2-882A249,2-882A249
• Citation: 459 N.E.2d 420
• Parties: KEYSTONE SQUARE SHOPPING CENTER COMPANY, a Partnership, Ralph Wilfong and Milton J. Fineberg, Appellants (Defendants-Counter Claimants Below), v. MARSH SUPERMARKETS, INC., an Indiana Corporation, Appellee (Plaintiff-Counter Defendant Below).
• Court: Indiana Appellate Court

Page 420

459 N.E.2d 420

KEYSTONE SQUARE SHOPPING CENTER COMPANY, a Partnership Ralph Wilfong and Milton J. Fineberg, Appellants (Defendants-Counter Claimants Below), v. MARSH SUPERMARKETS, INC., an Indiana Corporation, Appellee (Plaintiff-Counter Defendant Below).

No. 2-882A249.

Court of Appeals of Indiana Third District.

Feb. 8, 1984.

Rehearing Denied March 20, 1984.

Tom R. White, Christian, Waltz, White, Klotz & Free, Noblesville, Willis K. Kunz, S. Gregory Zubek, Kunz & Kunz, Indianapolis, for appellants.

G. Daniel Kelley, Jr., Stephen M. Terrell, Ice, Miller, Donadio & Ryan, Indianapolis, for appellee.

HOFFMAN, Judge.

In 1970, appellant Keystone Square Shopping Center Company and Marsh Supermarkets, Inc. entered into negotiations for the lease of space in the soon to be completed shopping center. Marsh was to operate a store as an "anchor tenant" in the shopping center. The lease was completed and amended, and Marsh finally took possession of the leased premises in 1972.

Marsh agreed to pay Keystone $2.13 per square foot as the base annual rent, which totaled $56,232. In addition Marsh agreed to pay Keystone 1% of its gross sales in excess of $5,623,200. The store was operated with great success and achieved gross sales of approximately $9.5 million in 1978. At that time Marsh attempted to renegotiate its lease with Keystone to expand its store facilities into a neighboring space. These negotiations failed, and Marsh moved its store from the shopping center to a new location near Keystone in 1981.

While Marsh was preparing to open its new store in 1981, the leased premises were temporarily vacant. The store was then reopened and operated, by Marsh, as a Green Basket discount supermarket. Marsh filed a complaint for declaratory judgment in January 1979. Keystone counterclaimed alleging Marsh was in default of the lease and guilty of fraud. The trial court entered findings of fact and conclusions of law in support of a judgment for Marsh. Keystone appeals.

Several issues have been raised which are restated:

(1) whether the lease agreement included an implied covenant requiring Marsh to continue to operate a supermarket in the leased facility;

(2) whether Marsh breached the lease agreement by failing to pay Keystone the correct amount of percentage rent due;

(3) whether Keystone Square was entitled to conduct discovery in support of its Trial Rule 60(B) motion for relief from judgment;

(4) whether the trial court erred in excluding testimony of certain witnesses for Keystone relating to the amount of damages resulting from Marsh removing its store; and

(5) whether Keystone was entitled to judgment in its favor due to a substantial change in circumstances.

The essence of this litigation centers around the lease contract negotiated by the parties. With this in mind the pertinent legal concepts to be applied may be found primarily in the area of contract law. In general a contract is considered as a whole so as to give effect to all its provisions without narrowly concentrating upon some clause or language taken out of context. Evansville-Vanderburgh Sch. Corp. v. Moll, et al., (1976) 264 Ind. 356, 344 N.E.2d 831; Geyer v. Lietzan, (1952) 230 Ind. 404, 103 N.E.2d 199. The language used in a contract is given its plain and ordinary meaning unless some technical term is used in a manner meant to convey a specific technical concept. Thompson, Jr. v. Arnold, Assessor et al., (1958) 238 Ind. 177, 147 N.E.2d 903; THQ Venture v. SW, Inc., (1983) Ind.App., 444 N.E.2d 335. The Court must attempt to interpret a contract so as to give effect to the intent of the parties at the time they formed the contract. Loving v. Ponderosa Systems, Inc., (1983) Ind.App., 444 N.E.2d 896. Further, a written contract is presumed to embody the parties' entire agreement and merge within it all prior negotiations. W.T. Rawleigh Co. v. Snider, (1935) 207 Ind. 686, 194 N.E. 356.

Since this action was originally brought by Keystone, it is appealing from a negative judgment. When reviewing an appeal from a negative judgment, this Court will reverse the trial court's decision only where the evidence leads inexorably to a conclusion opposite that reached by the trial court. Woodward Ins., Inc. v. White, (1982) Ind., 437 N.E.2d 59. The record will be reviewed in a light most favorable to the trial court's determination. Woodward Ins., Inc. v. White, supra. Further, in a case such as this where the trial court has entered special findings and a proper error has been presented, this Court will apply a two-tier standard of review. First, it must be determined the evidence supports the findings. Then the Court must conclude the findings support the judgment. Graham v. Review Bd., etc., (1979) 179 Ind.App. 497, 386 N.E.2d 699.

The first error raised by Keystone concerns its allegation the lease contains an implied covenant that Marsh will continue to operate a Marsh supermarket on the leased premises for the duration of the lease. Keystone contends such implied covenant is a necessary component of this type of lease involving an anchor tenant in a shopping center. Understandably, Marsh disagrees.

This precise legal question appears to be one of first impression in Indiana. However, it is a long-standing principle that implied conditions or covenants are not favored in the law. Sheets v. Selden, (1868) 74 U.S. 416. This position is even stronger when the implied condition or covenant is alleged to restrict another party's freedom to enter contracts or engage in other legitimate activities. Howard Johnson v. Parkside Devlp. Corp., (1976) 169 Ind.App. 379, 348 N.E.2d 656.

While the specific point of law before this Court has not been dealt with by a court of this state, this particular area of law has seen a great deal of growth in recent years corresponding to the rapid expansion and development of shopping centers and malls similar to the one involved in this case. Consequently, courts in several other jurisdictions have analyzed this issue and can be looked to for guidance. While the results are mixed, the trend seems to disfavor acknowledging any implied covenant to continue operations.

The Supreme Courts of Kansas, Massachusetts, and Washington, as well as the Appellate Court of Idaho, refused to find an implied covenant in a store lease requiring the tenant to continue operating a supermarket. Williams v. Safeway Stores, Incorporated, (1967) 198 Kan. 331, 424 P.2d 541; Stop & Shop, Inc. v. Ganem, (1964) 347 Mass. 697, 200 N.E.2d 248; Fuller Market Basket, Inc. v. Gillingham & Jones, Inc., (1975) 14 Wash.App. 128, 539 P.2d 868; Bastian v. Albertson's, Inc., (1982) 102 Idaho 909, 643 P.2d 1079. The Appellate Court of Arizona refused to find that a tenant who was to operate as a "magnet" in a shopping center entered into a lease which contained an implied covenant to continue its operations. Walgreen Arizona Drug v. Plaza Center Corp., (App.1982) 132 Ariz. 512, 647 P.2d 643. In Woodland Theatres, Inc. v. ABC Intermountain, (1977) Utah, 560 P.2d 700, the Supreme Court of Utah refused to find an implied covenant requiring a tenant to operate his business in a prudent and businesslike manner so as to generate a higher rent pursuant to the percentage rental agreement. ¹

In the case at bar the parties occupied relatively equal bargaining positions at the time the lease was negotiated. Neither party was a novice in the arena of real estate lease negotiations. The lease which was negotiated is a sophisticated document employing clear, precise, and unambiguous language covering a myriad of details regarding the parties' relationship as landlord and tenant.

The lease specifically permits Marsh to assign or sublet the leased premises. In fact Marsh can perform such act without the landlord's permission so long as the lease is assigned or sublet to a supermarket operation. Faced with the clear language of the document negotiated by the parties themselves, this Court will not imply a covenant which would restrict one party's freedom to conduct its own business as it sees fit. The parties were capable of including such a provision in the express language of the contract and failed to do so. To imply such a covenant would amount to rewriting the parties' agreement; an act this Court will not perform.

Next, Keystone argues that Marsh was in default of the lease for payment of an incorrect amount of rent. Specifically, Keystone contends Marsh set off certain liabilities not allowed in the lease against its calculation of the amount of rent due. Marsh counters that these setoffs and deductions are allowed in the lease.

The trial court agreed with Marsh and entered these findings:

"24. Section IV of the Agreement of Amendment specifically provides that 'Marsh shall be entitled to set off as a credit against all overage rentals due hereunder, all sums paid by Marsh under this section 12' of the lease, and the sums included in Section 12 of the lease specifically include personal property taxes and license fees.

"25. The Court finds that the terms of the lease and amendment are unambiguous and that Marsh is allowed to take as a credit against overage or percentage rentals the amounts paid by Marsh for personal property taxes and license fees.

"26. Section IV of the Agreement of Amendment provides that Marsh is entitled to setoff [sic] 'all' sums paid under Section 12 of the lease as against 'all' overage rentals due.

"27. The lease and Agreement of Amendement [sic] are unambiguous and Marsh is entitled to take as a credit 'all' such sums paid against 'all' overage rentals due, and therefore, any unused sums are properly carried over from year to year, until used.

"28. Marsh is not in default of its obligations under the Lease and Agreement of Amendment with respect to Item 3 of the Notice of Default with respect ot its accounting procedures and is entitled to take as a credit against percentage rentals due personal property taxes and...