Mister Donut of America, Inc. v. Kemp

• Decision Date: 24 June 1975
• Citation: 330 N.E.2d 810,368 Mass. 220
• Parties: , 89 A.L.R.3d 896 MISTER DONUT OF AMERICA, INC. v. Bruce L. KEMP, trustee, et al. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 810

330 N.E.2d 810

368 Mass. 220, 89 A.L.R.3d 896

MISTER DONUT OF AMERICA, INC.

v. Bruce L. KEMP, trustee, et al. ¹

Supreme Judicial Court of Massachusetts, Plymouth.

Argued April 10, 1975.

Decided June 24, 1975.

A. Morris Kobrick, Boston (Francis X. Meaney, Boston, with him), for plaintiff.

Ann-Louise Levine, Brockton (William D. Crosby, Brockton, with her), for Plymouth-Home National Bank.

Lewis P. Aronson, Boston, for Bruce L. Kemp, trustee.

Alix Smullin, Boston, as amicus curiae, submitted a brief.

Before TAURO, C.J., and BRAUCHER, HENNESSEY, KAPLAN and WILKINS, JJ.

BRAUCHER, Justice.

The principal question before us is whether a 'notice of lease' recorded in a registry of deeds under G.L. c. 183, § 4, must refer to an option to purchase contained in the lease. We hold that such an option is not a right of 'extension or renewal' and need not be referred to in the notice of lease. The recorded notice in this case was therefore in statutory form and was sufficient to give constructive notice of the option to the defendants, as persons not having 'actual notice' of it.

The plaintiff lessee, Mister Donut of America, Inc., is the assignee of a lease made by Ernest Webby, Joseph E. Webby, and John J. Webby as lessors. The lease contains an option to purchase, and the lessee seeks specific performance of the option against the defendants Kemp, a grantee of the lessors, and Plymouth-Home National Bank, a mortgagee from Kemp. The facts are stipulated except as to the defendants' actual notice of the option, which was the subject of testimony. A judge of the Superior Court filed a memorandum of findings, rulings and order for decree granting specific performance, but after further hearing he vacated that memorandum and filed a second memorandum ordering a decree for the defendants. A decree was entered dismissing the bill in equity, and the plaintiff appealed to the Appeals Court. We granted the plaintiff's application for direct appellate review pursuant to G.L. c. 211A, § 10(A).

We summarize the judge's second memorandum, which he adopted as a report of material facts. The lease ran for twenty years from March 22, 1961, and was not recorded. Paragraph eleven gave the lessee the option to purchase the premises during the sixth to twentieth year for $53,000. A pasted overlay strip containing a substitute paragraph ten, unless lifted, hid most of paragraph eleven from view. A notice of lease in statutory form, recorded March 31, 1966, included the following: 'Rights of extension and renewal, if any: None.'

On July 15, 1971, Kemp and the Webbys and attorneys for them and for the bank were present in the office of the bank's attorney when Kemp took title to the premises from the Webbys. The Webbys told Kemp the original of the lease had been stolen, and gave him a photocopy and a written representation and warranty that the lease was as shown on the copy. The copy contained a legible reproduction of a portion of the option paragraph, containing clues pointing to a passage of title to real estate. Kemp acted in good faith; the bank attorney knew of the recorded notice but did not read the photocopy. Neither Kemp nor the bank had actual knowledge of the option. They were put on sufficient notice to warrant further inquiry, which would have revealed the option, but the circumstances were not sufficient to constitute 'actual notice' under the statute.

1. Actual notice. Under G.L. c. 183, § 4, ² 'actual notice' is ordinarily a question of fact, and a person claiming that another is not a good faith purchaser has the burden of proof. Knowledge of facts which would ordinarily put a party on inquiry is not enough. McCarthy v. Lane, 301 Mass. 125, 128--129, 16 N.E.2d 683 (1938). Richardson v. Lee Realty Corp., --- Mass. ---, ---, ^a 307 N.E.2d 570 (1974). We are not prepared to relax our strict construction of the requirement, and therefore we uphold the judge's finding that the defendants had no actual notice of the option. Cf. South St. Inn, Inc. v. Muehsam, 323 Mass. 310, 312, 81 N.E.2d 821 (1948).

2. Constructive notice. The judge ruled 'that a fair reading of the statute would require reference to the option in the notice following the legend 'rights of extension or renewal' in order to give constructive notice of the option to Kemp and the Bank,' citing for comparison UNIVERSAL CONTAINER CORP. V. CAMBRIDGE, --- MASS. ---, 278 N.E.2D 727 (1972)^B. In that case we said (at ---, ^c 278 N.E.2d at 729) 'The recorded notice of lease is in the statutory form, and is sufficient to give the city constructive notice of the petitioner's interest.' The interest in question was the tenant's right to share in damages for a taking by eminent domain; it depended in part on a provision of the lease not referred to in the statutory form.

Rights of 'extension or renewal' have a settled meaning. Mutual Paper Co. v. Hoague-Sprague Corp., 297 Mass. 294, 299, 8 N.E.2d 802, 806 (1937): 'An option for renewal implies the giving of a new lease upon the same terms as the old lease, whereas an option for extension contemplates a continuance of the old lease for a further period.' See O'Brien v. Hurley, 325 Mass. 249, 251, 90 N.E.2d 335 (1950); Gibbs Realty & Inv. Corp. v. Carvel Stores Realty Corp., 351 Mass. 684, 685--686, 223 N.E.2d 534 (1967); Schwartz, Lease Drafting in Massachusetts, §§ 5.17--5.28 (1961). Under our decisions such rights affect 'the term during which the land which a purchaser had bought could be kept from his possession by the holder of an unrecorded lease.' Toupin v. Peabody, 162 Mass. 473, 477, 39 N.E. 280, 281 (1895). See Leominster Gas Light Co. v. Hillery, 197 Mass. 267, 268, 83 N.E. 870 (1908); Fanger v. Leeder, 327 Mass. 501, 506--507, 99 N.E.2d 533 (1951). An option to purchase is quite different; it does not contemplate either the giving of a new lease or the continuance of the old one. The statute does not require the notice of lease to refer to an option to purchase.

The plain object of the statute is to place recording of a notice of lease in statutory form on the same footing as recording of the entire lease, and to place both on the same footing as actual notice of the lease. If recording of a notice of lease were given a lesser effect, its utility would be largely lost, since those concerned would be well advised not to use it. The prospective purchaser of the lessor's interest can fully protect himself by examining the original lease or by consulting...