Singer Co. v. Makad, Inc.

• Decision Date: 26 January 1974
• Docket Number: No. 47094,47094
• Citation: 213 Kan. 725,518 P.2d 493
• Parties: The SINGER COMPANY, a New Jersey corporation, Appellee, v. MAKAD, INC., a Nevada corporation, et al., Appellants, Equitable Life Assurance Society of the United States, a New York corporation, and the Equitable Life Mortgage and Realty Investors, a Massachusetts Business Trust, Defendants.
• Court: Kansas Supreme Court

Page 493

518 P.2d 493

213 Kan. 725

The SINGER COMPANY, a New Jersey corporation, Appellee, v. MAKAD, INC., a Nevada corporation, et al., Appellants Equitable Life Assurance Society of the United States, a New York corporation, and the Equitable Life Mortgage and Realty Investors, a Massachusetts Business Trust, Defendants.

No. 47094.

Supreme Court of Kansas.

Jan. 26, 1974.

Rehearing Denied March 6, 1974.

Syllabus by the Court

1. The rule against perpetuities, precluding the creation of future interests in property which will not necessarily vest within twenty-one years after a life or lives presently in being plus the period of gestation where such is taking place, has been recognized by the courts of this state.

2. The modern tendency is to temper the rule if possible where its harsh application would obstruct or do violence to an intended scheme of property disposition.

3. This court has been reluctant to extend the 'infectious invalidity' doctrine to situations where application of the rule against perpetuities was not needed to prevent remote dispositions of property.

4. The rule against perpetuities generally bears little relation to contemporary business practices or to the everyday world of commercial affairs.

5. A lease to commence upon completion of the leased building is a common business arrangement and a method of leasing often used in the development of shopping centers. It is to be assumed that the parties to such a lease agreement contemplate that the building will be completed and the lease fully executed within a reasonable time and necessarily within twenty-one years.

6. A document should be interpreted where feasible to avoid the conclusion that it violates the rule against perpetuities.

7. Where no time has been fixed for the performance of an act to be done, the law implies that performance is to be accomplished within a reasonable time.

8. What constitutes a reasonable time depends on the facts and circumstances of the particular case and is a matter for the trial court to determine in the first instance.

9. The record is examined in an action to cancel or rescind certain lease agreements and for reasons appearing in the opinion it is held (1) the trial court erred in holding the leases violated the rule against perpetuities and (2) the action is remanded for the trial court to determine whether the lessors had performed their obligations under the agreements within a reasonable time.

Terry L. Bullock, Cosgrove, Webb & Oman, Topeka, argued the cause, and Edward Larson, Jeter & Larson, Hays, was with him on the brief for the appellants.

John R. Cleary, Linde, Thomson, Van Dyke, Fairchild & Langworthy, Kansas City, Mo., argued the cause, and Myron L. Listrom, Sloan, Listrom, Eisenbarth, Sloan & Glassman, Topeka, was with him on the brief for the appellee.

FONTRON, Justice:

This action is brought under the declaratory judgment statute, K.S.A. 60-1701. It was initiated by The Singer Company, hereafter referred to as Singer or plaintiff, which, as lessee, executed lease agreements for space in two shopping centers, one at North Platte, Nebraska, and the other at Hays, Kansas, under dates of October 17, 1967, and November 22, 1967, respectively. The original lessors were Harry M. and Kathleen May Ellen Daum who subsequently, and sometime in April, 1969, assigned their interest in the lease agreements to Daum Industries, Inc., which in turn, and on November 1, 1970, assigned the leases to Makad, Inc., a company in which the Daums held a one-half interest. We shall refer to the present lessor as Makad, to its predecessors in title as the Daums and to them collectively as defendants.

Two bases for relief are advanced by Singer: First, that the leases were void as violating the rule against perpetuities; second, and in the alternative, that Makad and the Daums, its assignors, unreasonably delayed the construction and opening of the two shopping centers. The trial court held that the lease agreements violated the rule against perpetuities and, accordingly, entered judgment in favor of Singer. This appeal followed.

At this time it may be well to record the progress of the shopping center project after the lease agreements were executed in the fall of 1967. In June, 1969, the leases were amended with respect to the base rent, the amount, naturally, being increased. Financing was available on and after May 26, 1971, and the leases were assigned to Equitable Life Assurance Society of the United States and the Equitable Life, Mortgage and Realty Investors as collateral security about July 29, 1971. Plans and specifications for the centers were completed the latter part of June, 1971; construction was commenced approximately June 1, 1971, and the center was opened April 12, 1972, by which time this lawsuit had been filed. When the case was tried before the district court on May 15, 1972, it was anticipated that the center would be 75 per cent occupied the fllowing August.

The lease agreements, whose terms for present purposes were identical, appear to have been lengthy and detailed, containing twenty articles in all. From the few paragraphs set forth in the record we find each covered a space of 3000 square feet in the respective shopping centers which were to be constructed by the Daums. The base rental, as amended, was $750 per month, plus percentage of sales. The term was for a period of ten years to commence thirty days after the landlord had substantially completed construction. We are given to understand that the leases in question conform generally to the mold of modern shopping center leases and that the plan or method ordinarily used in the development of shopping center areas was followed in this case, which is to say: First, lease agreements are secured from prospective tenants, hopefully including at least one chain concern; second, the required finances are sought and obtained, and the leases assigned as collateral; third, construction is commenced and the project eventually completed.

In concluding that the Singer leases violated the rule against perpetuities the trial court relied on the following specific provisions:

Article III(a)

'The term of this Lease shall be for a period of ten (10) years commencing upon the date of commencement set forth in Article VII(b) hereof, and shall end on the last day of the tenth (10th) consecutive full lease year as said term 'lease year' is hereinafter defined. The term 'lease year' as used herein shall mean a period of twelve (12) consecutive full calendar months. The first lease year shall begin on the date of commencement of the term hereof if the date of commencement of the term hereof shall occur on the first day of a calendar month; if not, then the first lease year shall commence on the first day of the calendar month next following the date of commencement of the term hereof. Each succeeding lease year shall commence upon the anniversary date of the first lease year.

'Anything in this paragraph to the contrary notwithstanding, it is understood and agreed that Tenant shall not be obligated to open for business in the demised premises until at least 75% of the other retail tenants of the Center, including J. C. Penney, are open for business.'

Article VII(b)

'When Landlord has substantially erected and completed Landlord's work and the leased premises are ready for Tenant's work and the installation of Tenant's equipment, Landlord shall notify Tenant in writing to that effect, hereinafter called 'the notice date,' and the term of this Lease shall commence (i) thirty (30) days after 'the notice date;' or (ii) the opening by Tenant of its business on the premises, whichever of (i) or (ii) should first occur. Tenant agrees that it shall open the premises for business not later than thirty (30) days after 'the notice date' except as otherwise provided in Article III(a). No rent shall be payable by Tenant to Landlord until said term shall have commenced as herein provided.'

Article VII(e)

'The Landlord shall not be obligated to proceed with the construction of the leased premises unless and until financing acceptable to Landlord is obtained. Should such financing not be obtainable within six (6) months after completion of final plans and specifications for the Shopping Center, Landlord may so notify Tenant in writing, and this lease shall thereupon cease and terminate and each of the parties hereto shall be released and discharged from any and all liability and responsibility hereunder . . .'

Conclusions of law were formulated and entered by the trial court in the following particulars:

'2. The leasehold interest described in the leases at issue herein did not vest in the plaintiff at the time of the execution of the leases, but on the date of execution each lease created a leasehold interest for a term of years to commence in the future with the commencement of the term of each lease being dependent upon the occurrence of three uncertain and indefinite events, to-wit:

'a) The condition precedent that Landlord obtain financing acceptable to Landlord;

'b) The condition precedent that Landlord substantially erect and complete the Shopping Centers;

'c) The condition precedent that 75% of the other retail tenants of each Center are open for business.

'3. Each lease at issue herein granted a leasehold interest limited to vest upon the occurrence of certain future events. At the time of the execution of the said leases there was a possibility that these events might not occur within the period prescribed by the Rule Against Perpetuities, and therefore each lease violates the Rule Against Perpetuities and is therefore void and of no effect.'

We presume that every student of the law has been familiar at one time or another with the rule against perpetuities which has been handed down to us from the common law. Simply stated, the rule precludes the creation of any future interest in property which does not necessarily vest within...