North Coast R. Co. v. A.A. Kraft Co.

• Decision Date: 21 April 1911
• Court: Washington Supreme Court
• Parties: NORTH COAST R. CO. v. A. A. KRAFT CO.

115 P. 97

63 Wash. 250

NORTH COAST R. CO. v. A. A. KRAFT CO.

Supreme Court of Washington

April 21, 1911

Department 1. Appeal from Superior Court, Spokane County; Wm. A. Huneke Judge.

Action by the North Coast Railroad Company against the A. A. Kraft Company. From a judgment on the findings, the defendant appeals. Reversed, with directions.

Plaintiff a public service corporation, acquired a lessor's rights in property leased to defendant at a monthly rental of $175 per month, with an option to renew the lease for five years at a rent to be fixed by arbitrators appointed by the parties, and after receiving proper notice of the defendant's election to renew the lease, and of its readiness to appoint an arbitrator, the plaintiff failed to appoint an arbitrator, and after the expiration of the original term, notified defendant that it would not renew the lease for longer than 18 months. After the expiration of the original term, defendant paid to plaintiff's agent the sum of $175 per month, and the plaintiff thereafter, but before the rent for the new term had been fixed, brought action to acquire the unexpired term for a public use. Held in establishing the value of the unexpired term, that the rent provided in the lease continued for the renewal term.

Post, Avery & Higgins, for appellant.

Danson & Williams and Hamblen & Gilbert, for respondent.

GOSE J.

This is an appeal from a judgment establishing the value of a leasehold interest in real property, entered at the suit of the respondent, a public service corporation. The appellant, defendant below, is a corporation engaged in the wholesale and retail harness, saddlery, and manufacturing business. In November, 1903, the Northwestern & Pacific Hypotheekbank leased to the appellant a brick building in the city of Spokane for the term of five years, beginning January 1, 1904, and ending on the 31st day of December, 1908 at a monthly rental of $175 per month, payable monthly and in advance upon the 1st day of each month during the term. The lease contained the following provision: 'Provided, however, that the said lessee, its successors and assigns, shall have the privilege of renewing said lease for the term of five years from the expiration thereof upon giving written notice at least ninety (90) days before the said expiration, that they desire so to do, at such rental as may be mutually agreed upon by the parties hereto, their successors or assigns, and in case they are unable to agree upon the rental to be paid, then the amount of said rental shall be fixed by arbitrators. The method of which said arbitration shall be as follows: One arbitrator shall be chosen by each of the two said parties hereto, and if the two persons so chosen shall be unable to agree, then a third person shall be chosen by each of the two said arbitrators, and the decision of the majority of the three arbitrators shall be binding upon the parties hereto.' It is further provided that the lessors may reenter and repossess themselves of the premises, if the rent is not paid on the day stipulated in the lease or for default in any of the covenants; that the lessee shall not assign the lease or sublet the premises without having first obtained the written consent of the lessor; that the lessee will not make or suffer to be made any change or alteration in the leased premises, either external or internal, without first obtaining the written consent of the owner; that it will not allow the same to be used for any illegal or immoral purposes, but that it will use the same as a wholesale, retail, and manufacturing harness and saddlery or similar business. On the 22d day of October, 1907, the respondent obtained a contract for the purchase of the leased premises, and acquired the fee on April 20, 1909. On the 24th day of September, 1908, the appellant gave notice to the respondent that it exercised its privilege to renew the lease conformably to the stipulation for the period of five years from and after December 31, 1908, and that it 'begs to advise you, and each of you, that it will undertake to make an agreement with that party who is successor in interest of the lessor, or who by virtue of any contract with the owner of the fee-simple title to said property has the right and power so to do, as to the rentals to be paid by the undersigned, and that, upon failure so to do, that the undersigned will promptly name an arbitrator for the purpose of undertaking to fix the amount of such rental, as in the lease provided. The undersigned requests to be promptly notified of the name of the person or corporation who has the right, power, and authority to agree upon the amount of such rental, and, in case of failure so to agree, to name an arbitrator for and on behalf of the lessor. The undersigned further begs to advise you that its representative will meet the person who has the right, power, and authority to agree upon the rental on behalf of the lessor, or the representative of such person or corporation, at any time and place to be named by them, for the purpose of undertaking to mutually agree upon the amount of such rentals.' The respondent disregarded the notice until after the expiration of the original term and until after January 8, 1909. On January 25, 1909, the respondent, through its attorneys, addressed the following letter to appellant: 'January 25, 1909. To the A. A. Kraft Company, Spokane, Washington--Gentlemen: As heretofore stated to you orally the undersigned, the North Coast Railroad Company, is the owner of lot 1 and part of lot 2 in block 3 of resurvey and addition to Spokane Falls (Now Spokane), and of the building situate thereon, it having purchased same for railroad purposes. On account of its needing said property for railroad purposes it cannot renew the lease, which you heretofore held and which expired on December 31st, 1908, for a longer period than eighteen months from January 1, 1909. It is willing to renew said lease for said time and to allow you to occupy said premises at a reasonable rental, said rental to be agreed upon between it and your company, and in case you cannot agree it will appoint an arbitrator, as provided in said lease, who, with such arbitrator as you shall name, shall find the reasonable rental value of said premises for said period as provided in said lease. This will give you ample time to secure another location and building for your use.' In response to this letter, the appellant advised the respondent, in writing, to conduct its negotiations with its attorneys Messrs. Post, Avery & Higgins. This action was commenced in April, 1909. The order of necessity having been entered, the trial of the question of the value of the leasehold interest commenced on November 29, 1909. The rental value for the renewal period of five years had not then been fixed by any of the methods agreed upon in the lease, although eleven months had elapsed since the expiration of the original term.

On January 2, 1909, the appellant paid to the agent of the respendent, who had theretofore collected the rent the sum of $175. This check was cashed by the agent and its check for the same amount was sent to appellant on January 8th. The appellant returned the check, and thereafter it tendered to the respondent $175 on the first of each month. Before writing the letter of January 25th, there was some conversation about the rent between the respondent's attorneys and the appellant, and between the former and the attorneys for the latter. The respondent, however, took the position in each of the conversations, as it did in its letter, that it would not participate in fixing the rent for a renewal term longer than eighteen months from January 1, 1909. The appellant stated that it considered that the payment of the rent on January 1, 1909, fixed the rental value of the premises at $175 per month for the renewal term, but expressly directed the respondent to take the matter up with its attorney as it did not care to talk about it. Pending the trial, the respondent's attorney moved for a stay of proceedings until 'appraisers could be appointed and the rental value determined by them.' In passing upon the motion the court stated that he was 'inclined to grant a stay for a very short time so that the trial can proceed tomorrow, with a view that the parties agree upon arbitrators to fix the rental value, if they cannot agree among themselves.' The attorney for the respondent then stated that he would name an arbitrator 'at once; by morning, if not sooner.' Thereupon the appellant's attorney inquired: 'Your honor will grant a stay until tomorrow morning?' And the court replied: 'I think not longer than the afternoon, so as to proceed at that time.' The attorney for the appellant then stated that he did not think that he was required to state in open court at that time whether he would name an arbitrator. The court then adjourned for the day. Upon the convening of court the next day, the appellant's attorney stated: 'That his understanding of plaintiff's motion and the court's ruling was that arbitrators should be appointed at this time to determine the amount of rent to be placed in the lease as though the arbitrators had met before January 1, 1909, and for the purposes of this lawsuit only and not with the intent of allowing defendant to remain in possession for the period of five years, as provided in the lease, and as the fact was that the failure to appoint arbitrators was wholly the fault of plaintiff, and plaintiff's attitude clearly indicates that it did not desire arbitration, but was satisfied with the old rent, and had accepted the same, that he believed that it was improper for the court to ask defendant to now arbitrate this question for the purposes of this lawsuit and stay...