Stop & Shop, Inc. v. Ganem

Citation347 Mass. 697,200 N.E.2d 248
CourtUnited States State Supreme Judicial Court of Massachusetts
Decision Date26 June 1964
PartiesSTOP & SHOP, INC. v. A. John GANEM et al.

Raymond M. Sullivan, Boston, for defendants.

Nathan T. Wolk, Boston, for plaintiff.



The defendants in this bill for declaratory relief are lessors under a percentage lease. They have appealed from the final decree in the Superior Court that ruled that the lease does not expressly or impliedly require the plaintiff, as lessee, to use the demised premises for any particular purpose or to keep the premises open and there engage in the supermarket business. Except for brief testimony which is reported, the facts were stipulated. 1

The lease, dated August 24, 1953, demised a lot and building at 154 Merrimack Street, Haverhill, for thirteen years and six months from September 1, 1953, for 'the minimum rental' of $22,000 a year and the further rent of 1 1/4% 'of all gross sales' above $1,269,230.60 'made by the Lessee on the leased premises during each twelve month period.' But the percentage rent was to be paid only if sales at the demised premises and at premises in Lawrence exceeded $3,000,000 a year. The lease recites that the Lawrence premises were leased to the plaintiff by the lessors of the Haverhill premises and certain other owners under a percentage lease containing a like limitation on the payment of percentage rent. The record shows no other facts relative to the Lawrence premises or the business conducted therein. The other lessors of the Lawrence premises, by stipulation in, and order of, this court, have now become parties, and all parties have stipulated that the issues may be determined as though the owners of the Lawrence premises were not concerned. We may, therefore, order declaratory relief on the present record. G.L. c. 231A, § 8. Compare Harvey Payne, Inc. v. Slate Co., 342 Mass. 368, 370, 173 N.E.2d 285.

The lease required that the lessee should pay the amount of the increases in the annual real estate taxes and should receive the amount of the decreases therein, measured on the 1946 figure.

The lease does not state the purposes for which the premises are to be used. Nothing therein in terms requires that the premises be used for any purpose or bars the opening by the lessee of places of business competitive to the lessee's business in the demised premises. The lease does, however, require the lessee to us suitable cash registers to record all sales, to keep accurate books, to furnish statements of gross sales on demand, and at the end of each yearly period to furnish such a statement certified by a certified public accountant. The testimony showed that when the lease was made the plaintiff was engaged in the supermarket business and that the lessors knew it. The premises prior to August 24, 1953, had been used for the conduct of a market.

The plaintiff had occupied the premises as a supermarket through 1962. It had paid percentage rent in 1956 ($2,288.15) and in 1957 ($377.21) but in no other year, and had paid excess taxes in each year. The plaintiff intended to cease operating a supermarket in the premises shortly after January 1, 1963, but to continue to pay the minimum rent and any excess real estate taxes and otherwise to conform to the lease. The defendant lessors had threatened suit to compel the continued operation of a supermarket or, alternatively, for damages.

The defendant lessors filed a counterclaim which alleged that the plaintiff beginning in 1956 had opened two competing stores in Haverhill, one within one-half mile and the other within about one mile of the demised premises. The prayers of the counterclaim were (1) that the lease be reformed to provide that the plaintiff continuously operate the premises as a supermarket, (2) that the plaintiff be ordered to pay to the defendants as part of the rent of the demised premises 1 1/4% of gross sales from all the plaintiff's stores in Haverhill in excess of $1,269,230.60, and (3) for general relief. An interlocutory decree sustained the plaintiff's demurrer to the counterclaim 'with leave to amend denied.' The lessors took no appeal from that decree.

Other facts are referred to later in the opinion.

1. The issue presented by the bill for declaratory relief is whether there is in the lease an implied covenant to continue operations. 2 The counterclaim presents the issue whether the lessee may open competing stores and then discontinue operations. We consider first the issue under the bill.

The controlling principles are well established. An omission to specify an agreement in a written lease is evidence that there was no such understanding. Snider v. Deban, 249 Mass. 59, 65, 144 N.E. 69. Covenants will not be extended by implication unless the implication is clear and undoubted. Smiley v. McLauthlin, 138 Mass. 363, 364-365; Mutual Paper Co. v. Hoague-Sprague Corp., 297 Mass. 294, 301, 8 N.E.2d 802. Justice, common sense and the probable intention of the parties are guides to construction of a written instrument. Clark v. State St. Trust Co., 270 Mass. 140, 153, 169 N.E. 897. 'Since the governing principle * * * is the justifiable assumption by one party of a certain intention on the part of the other, the undertaking of each promisor in a contract must include any promises which a reasonable person in the position of the promisee would be justified in understanding were included.' Williston, Contracts (Rev. ed.) § 1293, p. 3682. RUSSO V. ENTERPRISE REALTY CO., INC., MASS., 199 N.E.2D 689,A and cases cited.

The plaintiff contends that notwithstanding the interest of the lessors in having the premises operated so as to give it the benefit of possible percentage rent, the absence of an express requirement to operate together with a more than nominal minimum rent exclude the implication of a covenant to continue operations.

This may state too broad a rule. For even if there is a more than nominal minimum rent, other circumstances such as that the fixed rent is significantly below the fair rental value of the property might justify the conclusion that the parties intended that the lessors have the benefit of the percentage rent throughout the term.

The record does not show the fair rental value of the demised premises. An apparently substantial minimum rent in an apparently complete written lease, in the absence of a showing of disparity between the fixed rent and the fair rental value, gives ground for the inference that fixed rent and the lessee's self-interest in producing sales were the only assurance of rent that the lessor required. Cousins Inv. Co. v. Hastings Clothing Co., 45 Cal.App.2d 141, 113 P.2d 878; Monte Corp. v. Stephens, 324 P.2d 538 (Okl.); Palm v. Mortgage Inv. Co. of El Paso, 229 S.W.2d 869 (Tex.Civ.App.). See, generally, Am. Law of Property, §§ 3.41, nn. 9-11, 3.66, nn. 9-10; Note, 44 Cornell L.Q. 251. Cf. Masciotra v. Harlow, 105 Cal.App.2d 376, 233 P.2d 586. But see Selber Bros. Inc. v. Newstadt's Shoe Stores, 203 La. 316, 14 So.2d 10; Note, 61 Harv.L.Rev. 317, 325-326. Other circumstances may give rise to the same inference. See e. g. Bynum v. Joseph E. Seagram & Sons, Inc., 89 F.Supp. 780, 783-785 (E.D.Ark.), affd. on this ground sub nom. Joseph E. Seagram & Sons, Inc. v. Bynum, 191 F.2d 5, 18-20 (8th Cir.). In cases where the minimum rent was not substantial continued operation has been held contemplated. Lippman v. Sears, Roebuck & Co., 44 Cal.2d 136, 280 P.2d 775; Professional Bldg. of Eureka, Inc. v. Anita Frocks, Inc., 178 Cal.App.2d 276, 2 Cal.Rptr. 914; Fox v. Fox Valley Trotting Club, 8 Ill.2d 571, 134 N.E.2d 806. See Sinclair Ref. Co. v. Davis, 47 Ga.App. 601, 171 S.E. 150; Sinclair Ref. Co. v. Giddens, 54 Ga.App. 69, 187 S.E. 201; Stoddard v. Illinois Improvement & Ballast Co., 275 Ill. 199, 113 N.E. 913; Prins v. van der Vlugt, 215 Or. 682, 337 P.2d 787. See also Percoff v. Solomon, 259 Ala. 482, 67 So.2d 31, 38 A.L.R.2d 1100. In Smiley v. McLauthlin, 138 Mass. 363, this court held that where rent under a lease of a brick yard was to be computed on the basis of bricks made with no provision for minimum rent, there was no implied covenant that the lessee would operate the yard. The opinion stressed the extrinsic circumstances attending the making of the lease. 'The premises leased were not a brick yard in operation, equipped for work, but barren, unoccupied land. The parties did not know the amount of clay on the land, nor whether brick could be made on the land at a profit * * *. The lease, applied to the subject matter, furnishes indications that the parties regarded the enterprise as experimental, and that any stipulation binding the lessee to work the yard was purposely omitted.' Id. 138 Mass. at 365. The questions may be asked whether the parties did not intent a contract, and if so whether an implied covenant at least to try to operate the brick yard was the only consideration given by the lessee. Compare Wood v. Lucy, Lady Duff-Gordon, 222 N.Y. 88, 118 N.E. 214. As to output and requirement contracts see Neofotistos v. Harvard Brewing Co. 341 Mass. 684, 686-687, 171 N.E.2d 865.

The minimum rent in this lease appears to be substantial. The figure of $22,000 is obviously not nominal in a lease that fixes as a base real estate tax figure the 1946 tax of 3,744.90. The total of real estate taxes for 1954 was $5,127.71. This roughly indicates the valuation for tax purposes of the demised premises at about the time the lease was made.

The burden of showing a disparity between fixed rent and fair rental value such as to furnish ground for implying a covenant to operate would be on the lessors.

Had the lessors brought an action for damages for breach of an implied covenant to continue operations they would, of course, have had the burden of showing the covenant. That the lessee initiated the proceeding...

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