Southway Corp. v. Metropolitan Realty and Development Co., CA 04-559 (AR 2/23/2005)
| Decision Date | 23 February 2005 |
| Docket Number | CA 04-559 |
| Parties | SOUTHWAY CORP. and NEWMAN MCGEE, JR. CIRCUIT COURT, Appellants v. METROPOLITAN REALTY AND DEVELOPMENT CO., LLC, Appellee |
| Court | Arkansas Supreme Court |
Appellants Southway Corp. and Newman McGee, tenants of commercial property in North Little Rock, appeal from a summary judgment in favor of their landlord, appellee Metropolitan Realty & Development, LLC. The summary judgment declared that the parties' lease contract was unambiguous, that appellants had breached the lease, and that appellee was entitled to possession of the property and treble damages. On appeal, appellants argue that the trial court erred in granting summary judgment and in awarding appellee treble damages. We affirm.
Appellee leased its property to Paul Morriss (not a party herein) in 1986 for use as a bowling facility. In 1995, the lease was assigned to appellants and provided in pertinent part that: 1) rent was due on the first of each month; 2) the lessee must make a once-a-year payment to lessor of a portion of its gross sales; 3) the lessee must pay all ad valorem property taxes by October 1 of each year; 4) an "event of default" would occur if the lessee failed to pay rent within fifteen days after written notice; 5) upon default, the lessor could immediately terminate the lease and retake possession of the property; 6) that "time is of the essence of this Agreement."
On December 17, 2002, appellee sued appellants in Pulaski County Circuit Court, citing appellants' failure to remit a percentage of their gross sales as required by the lease. Appellee further averred that appellants had been chronically late with their rent by virtue of "riding" the grace period, i.e., not paying the rent until they had received written notice that it was past due. On February 3, 2003, the parties settled the lawsuit and executed a written agreement that changed the lease in several respects, including the imposition of a $200 late-payment charge, the redefining of an "event of default" as the failure to pay rent within five days after notice rather than fifteen, and the addition of the following provision:
In the event that Lessee fails to timely perform any obligation (whether monetary or non-monetary) under the Lease, and within the previous six (6) months Landlord has given Lessee Notice as set out above of a previous failure to perform by Lessee and Lessee has in fact failed to timely perform, such second failure shall automatically be deemed an event of Default under this section 10.1, and the Landlord may, without any additional Notice whatsoever, thereafter treat any such failure to timely perform as an Event of Default, and shall be entitled to take any and all actions available to Landlord at law or equity, or otherwise, including undertake any remedy available to Landlord under this Lease.
Appellee describes the above quoted section as a "one-bite-at-the-apple" provision, meaning that, once appellants were late with any payment, a second late payment within a six-month period would result in an automatic default, without the need for notice.
After the settlement agreement was executed, dealings between the parties proceeded without controversy until October 1, 2003. On that date, appellants were obligated to pay ad valorem taxes on the property, but they failed to do so, despite two faxed reminders from appellee in the preceding months. On October 2, 2003, appellee faxed appellants a letter, stating:
In accordance with the terms of our February 3, 2003 Settlement Agreement, this letter is our notice to you that we have not received your payment for real estate taxes as set forth in our Lease Agreement.... Your failure to pay within five (5) days after this notice (October 7, 2003) will result in an Event of Default. Further, your failure to timely perform any obligation during the next six-month period will be deemed a second failure to perform and an Event of Default, without additional notice.
Despite appellants' receipt of the above letter, they failed to pay the November rent when it was due on November 1. As appellants would later explain in affidavits, their courier, Mary Scott, attempted to deliver the November 1 rent payment to appellee on October 31. However, Scott did not feel well and ran into traffic problems and so did not complete the delivery. Scott then attempted to deliver the rent to appellee on Saturday, November 1, but appellee's office was closed. Scott did not try to deliver the rent on Monday, November 3, because she was sick. She delivered the rent on November 4, but it was refused by appellee. At 11:45 a.m on November 4, appellee faxed appellants a notice, informing them that their failure to timely pay the rent on November 1, after having failed to timely pay the property taxes on October 1, put them in default. Thereafter, on November 18, 2003, appellee filed the present unlawful-detainer action to remove appellants from the premises.
On December 18, 2003, appellee filed a motion for summary judgment and argued that the provision in the settlement agreement, quoted above, clearly provided that, once appellants exhausted their one chance to be late by failing to timely pay the ad valorem taxes in October, appellants' second untimely action within the six-month period resulted in a default without further notice. Following a hearing, the trial court entered an order of summary judgment, declaring that the relevant terms and conditions of the lease were unambiguous; that appellee's termination of the lease was the result of appellants' material breach in failing to pay the November rent when due and was consistent with the terms of the lease; that appellants' failure to vacate the premises by November 13, 2003, was a willful unlawful detainer; and that appellee was entitled to $33,129.60 as "statutory damages," presumably treble damages pursuant to Ark. Code Ann. § 18-60-309(b)(2) (Repl. 2003). Appellants now appeal from that order.
Our standard of review is well established. In summary-judgment cases, we need only decide if the granting of summary judgment was appropriate based on whether the evidentiary items presented by the moving party in support of the motion left a material question of fact unanswered. Holytrent Properties, Inc. v. Valley Park Limited Partnership, 71 Ark. App. 336, 32 S.W.3d 27 (2000). The burden of sustaining a motion for summary judgment is always the responsibility of the moving party. Id. All proof submitted must be viewed in a light most favorable to the party resisting the motion, and any doubts and inferences must be resolved against the moving party. Id.
The construction and legal effect of a written lease contract are to be determined by the court as a matter of law, except where the meaning of the language depends on disputed extrinsic evidence. See Holytrent Properties, Inc., supra. When contracting parties express their intention in a written instrument in clear and unambiguous language, it is the court's duty to construe the writing in accordance with the plain meaning of the language employed. Id.
Appellants argue first that the trial court erred in granting summary judgment because the parties' lease — the settlement provision in particular — is ambiguous. The trial court apparently interpreted the provision at issue just as appellee did: when appellants failed to timely pay the rent on November 1, and within the previous six months had received notice of a prior failure to perform in October, then appellants' failure to timely pay the November rent resulted in an automatic default. Appellants, however, argue that the provision is susceptible to two other reasonable interpretations and is thus ambiguous. See generally Anderson Gas & Propane v. Westport Insurance Corp., 84 Ark. App. 310, 140 S.W.3d 504 (2004) ().
Appellants' first alternative interpretation is that the provision permits automatic default only after the third late payment rather than the second. Appellants base this interpretation on the provision's language that, after the lessee's second late payment, the landlord may thereafter treat anysuch failure to perform as an event of default. We reject this interpretation for two reasons. First, we do not address arguments that are made for the first time on appeal. Sweeden v. Farmers Insurance Group, 71 Ark. App. 381, 30 S.W.3d 783 (2000). Appellants did not urge this interpretation below. In fact, they submitted, in response to the summary-judgment motion, appellant Newman McGee's affidavit, which expressly contradicted this interpretation, to wit:
It was my understanding at the time of the execution of the Settlement Agreement in February 2003, and it continues to be my understanding and belief, that the "no" notice provision was simply a provision which allowed accelerated termination of the Lease without notice in case of a second event of default.
(Emphasis added.)
Secondly, appellants' interpretation is irreconcilable with language in the provision that a "second failure shall automatically be deemed an event of Default." (Emphasis added.) A construction which neutralizes any provision of a contract should never be adopted if the contract can be construed to give effect to all provisions. North v. Philliber, 269 Ark. 403, 602 S.W.2d 643 (1980). Further, the intention of the parties is to be gathered not from particular words and phrases but from the whole context of the agreement. Id., citing Fowler v. Unionaid Life Insurance Co., 180 Ark. 140, 20 S.W.2d 611 (1929). Moreover, the interpretation of a contract must be upon the entire instrument and not merely on disjointed or particular parts...
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