Prager's, Inc. v. Bullitt Co.

• Decision Date: 29 December 1969
• Docket Number: No. 2--39430--1,2--39430--1
• Citation: 463 P.2d 217,1 Wn.App. 575
• Parties: PRAGER'S, INC., Respondent, Cross-Appellant, v. BULLITT COMPANY, a Washington corporation, Appellant.
• Court: Washington Court of Appeals

Page 575

1 Wn.App. 575

463 P.2d 217

PRAGER'S, INC., Respondent, Cross-Appellant, v. BULLITT COMPANY, a Washington corporation, Appellant.

No. 2--39430--1.

Court of Appeals of Washington, Division 1.

Dec. 29, 1969.

Riddell, Williams, Voorhees, Ivie & Bullitt, J. Vernon Williams, Seattle, for appellant.

Monheimer, Schermer, Van Fredenberg & Smith, John M. Schermer, Melville Monheimer, Jr., and Stephen P. Ryder, Seattle, for respondent.

STAFFORD, Judge.

This dispute involves a lease. Bullitt Company, the defendant-lessor, appeals from a decision that the lease was modified to eliminate a clause (hereinafter called the 'recapture clause') which gave the lessor an option to cancel the lease if the lessee failed to achieve certain annual gross sales within 3 years. Bullitt also challenges the determination that Prager's, Inc., the plaintiff-lessee, paid rent higher than required by the modified lease. The excess payments were found to have been paid under 'business compulsion' which entitled Prager's to reimbursement. Finally, Bullitt appeals from the court's failure to grant its cross-claim for reimbursement of sewer and water charges incurred for Prager's airconditioning system.

THE RECAPTURE CLAUSE

Assignments of error 10--13, 15, 17 and 18, which pertain to modification of the recapture clause, are not well taken. The findings of fact to which they relate are supported Findings of fact 2 and 5 (assignments of error 10 and 12) do deviate from the statement of facts. Nevertheless, they do so in minor matters not relevant to the issues before this court. The error, if any, is harmless and thus not reversible. McLeod v. Keith, 69 Wash.2d 201, 417 P.2d 861 (1966); State ex rel. Carriger v. Campbell Food Markets, Inc., 65 Wash.2d 600, 398 P.2d 1016 (1965).

by substantial evidence or reasonable inferences drawn therefrom. They will not be disturbed on appeal. Wells v. Scott, 75 Wash.Dec.2d 931, 454 P.2d 378 (1969). We will not substitute our judgment for that of the trial court. Sander v. Wells, 71 Wash.2d 25, 426 P.2d 481 (1967).

The parties originally entered into a lease in 1942. The new lease which became effective on January 1, 1960, provided for a low initial rent based upon a percentage of the current annual gross sales. However, within one of the first three years (1960, 1961 or 1962), Prager's was required to achieve annual gross sales of at least $1,000,000 to support an annual rental of at least $50,000. Section 4 of the lease (the recapture clause) provided Bullitt with an option to cancel the lease if Prager's failed to meet the annual gross sales figure. Bullitt's only duty was to give Prager's notice of cancellation between December 31, 1962, and March 31, 1963.

Section 28 of the lease also required Prager's to remodel at its own expense, with all reasonable dispatch compatible with keeping the business in operation. Based on an architect's sketch the parties contemplated the cost would range between $47,000 and $125,000. When the final plans were received in May and June of 1960, however, the parties learned that the cost estimates ranged from $54,800 to $189,742, depending upon the extent and quality of the project selected.

Bullitt indicated a desire for a first-class remodeling job because it would benefit the building. Prager's also preferred the more costly plan, but indicated it could not undertake the excessive expense if the recapture clause remained in the lease.

Bullitt inquired about the time needed for completion. Prager's architect felt it could be completed around February 1, 1961, if promptly commenced (e.g. a 5 1/2-month project). Thereafter Bullitt indicated the estimates would be reviewed and that it would consider deletion of the recapture clause.

On October 19, 1960, Prager's received written notification that Bullitt approved of the plans and would delete the recapture clause provided the construction was promptly started and diligently prosecuted to completion by February 1, 1961. Prager's informed Mr. Yates (real estate manager for Bullitt) that the delay in receiving approval made it impossible to complete the project by February 1, 1961. As a result, Yates changed the proviso to read:

provided the construction is now promptly started and diligently prosecuted Substantially to completion by February 1, 1961.

(Italics ours.)

The formal modification agreement was executed October 26, 1960, and insofar as applicable, read as follows:

I.

That paragraph 4 entitled 'Change in Minimum Rental' * * * Is hereby Cancelled, annulled and deleted in its entirety.

II.

This modification is conditioned upon the Lessee promptly starting the construction of the interior and exterior alterations of the premises in accordance with the architect's plans which have been approved by Lessor, and such construction diligently prosecuted and substantially completed by February 1, 1961.

(Italics ours.) Work was commenced November 2, 1960. The contract called for an expenditure of $175,679.33.

Shortly after Thanksgiving, Prager's informed Bullitt the Christmas rush had impeded remodeling. Prager's requested permission to close the store temporarily and reopen in a nearby building partially owned by Bullitt. Mr. Yates stated that section 28 of the lease required Prager's Thereafter Bullitt's president and Mr. Yates observed the project's progress almost daily. It was only 60.8 per cent completed by February 1, 1961, and had progressed only to 74.5 per cent by the end of February. Nevertheless, Bullitt made no objection.

to keep the 'business operating on the premises during the remodeling work.' He added [463 P.2d 220] that Prager's would be expected to pay rent on both premises even if permitted to move. The idea was abandoned.

While the work was in progress a dispute arose over rental adjustments under clause 5 of the lease. On May 9, 1961, Prager's attorney met with Mr. Whetzel, attorney and general manager for Bullitt, to resolve the problem. Mr. Whetzel's memorandum of the meeting indicates he told Prager's attorney that if a lawsuit developed Bullitt would have 'a chance to open up the modification agreement, particularly since the work was not substantially completed by February 1, 1961, * * *' The memorandum also made reference to 'a reinstatement of the recapture option, * * *' Prager's did not thereafter attempt to litigate the dispute.

Bullitt made no further reference to the completion date, 'opening up the modification agreement' or 'reinstatement of the recapture option.' The project was finally completed May 31, 1961, and a few days later Mr. Yates, as Bullitt's representative, participated in the formal ribbon cutting.

Prager's gross sales failed to exceed $1,000,000 during 1960, 1961 or 1962. Although the figures could have been achieved by holding sales at a sacrifice of profit, Prager's felt no need to do so because of the assumption that the recapture clause had been canceled.

On March 22, 1963, Bullitt notified Prager's by letter that the recapture clause would be exercised. Bullitt asserted the modification agreement was of no force and effect because the remodeling had not been substantially completed by February 1, 1961. The trial court found the letter to be the first Effective notice of Bullitt's intention to treat the modification agreement as a nullity. There is substantial The recapture clause authorized Prager's to reinstate the lease by increasing the minimum monthly rent to $4,166.67 commencing January 1, 1963. The option was exercised and the additional amount was paid under protest. Prager's explained that since the remodeling costs had exceeded $170,000, it could not afford to forfeit the lease.

evidence or reasonable inference to be drawn therefrom to support the finding of fact. We shall not disturb it. Wells v. Scott, Supra; Sander v. Wells, Supra. Contrary to Bullitt's assertion, Mr. Whetzel's memorandum of the May 9, 1961, meeting does not indicate Prager's received notice that Bullitt considered the modification agreement a nullity.

Prager's instituted this action to set aside cancellation of the lease under the recapture clause and for a refund of the excess minimum monthly rental paid to reinstate the lease. Bullitt appeals from an adverse decision.

Bullitt's position is simple. Paragraph 2 of the modification agreement begins, 'This modification is conditioned upon * * *.' Thus, it is urged that compliance with paragraph 2 was a condition precedent to cancellation of the recapture clause. Inasmuch as Prager's failed to comply with the condition precedent, the recapture clause was not canceled.

Bullitt argues further that the modification agreement was an entity separate and distinct from the lease and contained no notice requirement. Therefore, Bullitt was under no duty to notify Prager's of its intention to rely on a failure of the condition precedent.

Prager's position is equally clear. The modification agreement is not an isolated document. It must be construed with the basic lease. When so considered paragraph 1 of the agreement canceled, annulled and deleted the recapture clause at the time the parties executed the modification agreement. Further, paragraph 2 is not an isolated condition precedent but is part of Prager's covenant contained in paragraph 28 of the lease. Thus, paragraphs 21 and 25 of the lease entitled Prager's to 30 days' written notice of any breach upon which Bullitt intended to assert an option to The modification agreement, standing alone, is ambiguous. Paragraph 1, couched in the present tense, refers to a legal right presently consummated: 'That paragraph 4 (the recapture clause) * * * Be and the same Is hereby cancelled, annulled and deleted in its entirety.' (Italics ours.) On the other hand, paragraph 2 is couched in both present and future tenses by providing: 'This modification Is conditioned upon the Lessee * * *' (italics ours) performing acts that can only be accomplished in the Future. If...