Slayter v. Pasley

• Decision Date: 25 November 1953
• Parties: SLAYTER v. PASLEY.
• Court: Oregon Supreme Court

Page 444

264 P.2d 444

199 Or. 616

SLAYTER v. PASLEY.

Supreme Court of Oregon.

Argued Sept. 23, 1953.

Decided Nov. 25, 1953.

George P. Winslow, Tillamook, argued the cause and filed briefs for appellant.

Norman L. Easley, Portland, argued the cause for respondent. On the brief were Easley & Whipple and Carl Robert Wells, Portland.

Before LATOURETTE, C. J., and WARNER, TOOZE, and PERRY, JJ.

WARNER, Justice.

This is an action to recover damages in a very substantial amount arising from defendant's alleged refusal to grant an extension under the terms of a written lease. A trial was had before the court without a jury and from a judgment in favor of defendant, plaintiff appeals.

On April 9, 1947, the defendant Lutie Pasley, as the owner of a building situated in the business center of Tillamook, Oregon, entered into a lease with one Gustafson and one Juhnke, demising this property to said parties for a term of three years beginning May 1, 1947, and terminating April 30, 1950. Thereafter, the tenants named conducted a grocery business thereon until January 23, 1948, when, with defendant's consent, they assigned their interest in the lease to the plaintiff W. E. Slayter, who continued the same kind of business on the premises until April 29, 1950.

The provision of the lease which gives rise to the instant litigation reads:

'* * * it is further agreed that the Lessees herein or those having their rights in the property at said time may have an option for an extension of the period covered by this lease, the amount of the rental of the premises to be agreed upon at that time. If no agreement can be made within a period of thirty days prior to the expiration of this lease, then this lease shall expire upon the date provided for herein.'

Several months prior to April 1, 1950, the plaintiff exercised his right of option for an extension and commenced negotiating with the defendant for a rental rate for such extended period. When the parties failed to reach an accord on the rate of the future rental, plaintiff vacated the property. We shall hereinafter refer to plaintiff as the lessee and the defendant as the lessor.

The lessee accuses the lessor of negotiating in bad faith and in an arbitrary and capricious manner. He claims that the lessor was bound to accept, in the absence of an agreement between them, whatever amount was determined by the court to be a reasonable rental for the new term. He asserts that notwithstanding that the lease, as here, sets up no such criterion or method by which a future rental can be fixed, the court is bounden, nevertheless, to enforce such an uncertain and vague provision by applying what appears to be a 'reasonable rental' rate. The rule which appellant urges us to apply to the instant lease, although followed in a limited number of other states, is one of first impression in this jurisdiction.

The lessor rests upon the proposition that the extension provision did not obligate her to agree to a reasonable rental and argues that, in essence, the so-called option for extension was no more than an agreement to agree in the future and, as such, was void for uncertainty.

The lessee's success in this appeal depends upon whether or not this court is empowered to imply from the option clause hereinabove written an intent that the extension was to be at a 'reasonable rental'.

The appellant relies heavily upon Edwards v. Tobin, 132 Or. 38, 284 P. 562, 68 A.L.R. 152, apparently laboring under the impression that it commits us to employ it in this matter as a complete answer to his problem.

It is important to this opinion to note that the Tobin case marks a deviation from the majority rule. This departure is suggested by the opinion itself, 132 Or. 43, 284 P. 564. It is also emphasized in Marnon v. Vaughan Motor Co., Inc., 184 Or. 103, 165, 194 P.2d 992. The appellant also seems to believe that there is but one minority rule and that such rule embraces the specific doctrine of judicial latitude which he contends for here. It certainly is not correct to so evaluate the Tobin case if to so do is intended to imply that there is a complete unanimity of thought and principle between all the cases which are not in accord with the majority rule. It is not difficult to discover that those cases which have declined to follow the majority rule fall into two separate groups or classifications. Each group is different from the other in the extent the court was willing to go in order to give vitality to an option for the renewal or extension of a given lease. We are, therefore, impelled to inquire first as to which branch of the minority holdings the Tobin case properly belongs.

The majority rule, in essence, is that a provision for the extension or renewal of a lease must specify the time the lease is to extend and the rate of rent to be paid with such a degree of certainty and definiteness that nothing is left to future determination. If it falls short of this requirement, it is not enforceable. 32 Am.Jur. 806, 810, Landlord and Tenant, §§ 958, 965; 51 C.J.S., Landlord and Tenant, § 56(b), page 596; 3 Thompson, Real Property, perm. ed., 360, § 1263.

The cases which depart from the strictures of the majority rule can be readily correlated into two separate divisions. The first of these classifications includes holdings wherein the fundamental rule appears to be that the option provision will be enforced if it comprehends a clear and definite basis or mode whereby a court can determine the future rental if the parties themselves cannot agree on such a rate. Insofar as that line of cases demands certainty of expression as to what the parties have agreed upon in this respect, they cleave to the majority rule; but, unlike the majority rule, instead of demanding a degree of certainty which leaves nothing to future determination, the law is yet satisfied if the provision clearly establishes a mode for ascertaining the future rental rate, as by arbitration, or, in the alternative, by expressly declaring for a 'reasonable rental' during the extension period or by employing words or phrases which of themselves clearly connote or are legally synonymous with 'reasonable rental'. The decisions falling within this bracket do not resort to discovery of intent by implication but find the answer in the express words employed by the parties. We will hereinafter refer to this as the first minority rule.

An examination of the authorities coming within the first minority classification confirms the conclusion that such a rule is not, in precise parlance, a minority expression diametrically opposed to the majority rule but, in fact, one which only countenances a more liberal extension of the majority rule under certain circumstances. The essential difference between the first minority rule and the majority rule lies not in the degree of the clarity of the agreement as written but rather in the time when the detail of the future rental charge shall first be made evident. The majority rule mandates its determination coincident with the execution of the original lease. It leaves nothing with respect thereto to future negotiation or agreement. On the other hand, the minority rule under discussion in effect waives prior exact determination of the future rental rate and suffers the parties to establish it at a future time, provided, however, that their leasing instrument definitely sets up a mode for implementing its later ascertainment, as by arbitration, or, in lieu of such mechanism, employs express language of sufficient certainty to justify a court in holding that the extension provision contemplates that the future rentals should be at a reasonable rate to be ascertained as of a date proximating the beginning of the extension period.

The cases which follow exemplify application of the first minority rule.

Kaufmann v. Liggett, 1904, 209 Pa. 87, 58 A. 129, 67 L.R.A. 353, is one of those relied upon by this court in support of the doctrine in Edwards v. Tobin, supra. There the dispute arose by reason of the failure of the mode provided by the parties for fixing the rental, i. e., by arbitration. The court declined to compel an arbitration but, in lieu thereof, undertook to attain the same result by fixing a fair rental and thereafter enforcing specific performance at that rate. A doctrine of similar import has long since been applied by this court to a lease carrying a provision for arbitration in the event of disagreement between the parties. See Houston v. Barnett, 1918, 90 Or. 94, 103, 175 P. 619.

The lease in Bechmann v. Taylor, 80 Colo. 68, 249 P. 262, referred to with approval in the Tobin case, contained a clause for renewal "at what the rent will be worth at that time" and where it was held to be equivalent to 'the fair market rate--i. e., the reasonable rent--at the date of renewal.' Arnot v. Alexander, 44 Mo. 25, 100 Am.Dec. 252, is another citation found in the Tobin opinion. In the Arnot case the grant of a renewal was made contingent that "said parties can agree upon terms, or that said lessee is willing to give as much as any other responsible party will agree to give." (Italics ours.) Concerning the italicized phrase, the court observed:

'* * * Leaving the amount of rent for the renewal term of the lease to be ascertained by what responsible parties would agree to pay for the use of the premises fixes the rent with as much certainty as though it were to be determined by a board of appraisers to be selected by the parties to the lease, each selecting one, with authority in these to select a third in case the two should disagree. The standard of valuation would be the same in both cases, to wit, the rentable market value of the premises at the time the valuation should be made. If the court may hear evidence, and ascertain for itself the value when the appraisement fails through a refusal to appoint an appraiser, why may it not hear evidence and decide the value when the appraisement...