Village Development Co., Ltd. v. Hubbard, 55963

• Decision Date: 16 January 1974
• Docket Number: No. 55963,55963
• Citation: 214 N.W.2d 178
• Court: Iowa Supreme Court
• Parties: VILLAGE DEVELOPMENT CO., LTD., an Iowa corporation, Appellee and Cross-Appellant, v. Ray E. HUBBARD, Appellant and Cross-Appellee.

Page 178

214 N.W.2d 178

VILLAGE DEVELOPMENT CO., LTD., an Iowa corporation, Appellee and Cross-Appellant, v. Ray E. HUBBARD, Appellant and Cross-Appellee.

No. 55963.

Supreme Court of Iowa.

Jan. 16, 1974.

Edward N. Wehr, Davenport, for appellant, cross-appellee.

Doerr, Dower & Rehling by Michael L. Noyes, Davenport, for appellee, cross-appellant.

Submitted to MOORE, C.J., and MASON, RAWLINGS, REES and McCORMICK, JJ.

RAWLINGS Justice.

Appeal by defendant Ray E. Hubbard (Hubbard) and cross-appeal by plaintiff Village Development Co., Ltd., and Iowa Corporation (Village) from final adjudication on plaintiff lessor's action for eviction of defendant lessee. We affirm in part, reverse in part.

Since trial was in equity our review is de novo. See Henderson v. Hawkeye-Security Ins. Co., 252 Iowa 97, 100, 106 N.W.2d 86 (1960). Weight is accorded trial court's findings but they are not binding on us. See Iowa R.Civ.P. 344(f)(7). It is therefore essential we review at some length the evidence relevant to issues here properly presented. See In Re Marriage of Ried, 212 N.W.2d 391, 392--393 (Iowa 1973).

November 20, 1966, Hubbard was manager and director of plaintiff corporation. A lease agreement was then prepared and entered into by which defendant rented from plaintiff what is identified as Unit 11 of Village Shopping Center, located in Davenport.

By this agreement Hubbard was granted an initial occupancy term of five years commencing April 1, 1967, with four like optional extension periods, on notice given not later than six months prior to any term expiration date, all at a rental of $125 payable on or before the first day of each month.

January 20, 1970, Village Hubbard notice to quit because of failure to pay rent when due.

The same day, but prior to receipt of the above quit notice, Hubbard's existing rent arrearages were paid in full.

May 10, 1971, plaintiff filed a quiet title petition.

May 2, 1972, another quit notice was given Hubbard, this time by reason of asserted failure on his part to extend the lease.

July 29, 1971, Hubbard filed answer thereby affirmatively asserting his occupancy of Unit 11 was under a valid existing lease.

Hubbard's answering allegation was denied by Village in its July 10, 1972 reply.

The same date Village amended its petition thereby further asserting Hubbard had failed to give notice of his election to extend the lease.

At commencement of trial Hubbard additionally invoked the defenses commonly identified as waiver, estoppel, Laches and ratification, to all of which Village interposed no challenge.

September 27, 1972, or one day after trial began, Village's petition was again amended, this time additionally seeking relief based upon forcible entry and detainer. But see The Code 1971, Section 648.19.

In course of trial Hubbard testified he, and other Village tenants, had historically made late rental payments, absent any protest, and a written first term lease extension notice had been timely sent to Village.

Testifying as a witness for Hubbard, his wife stated she typed the aforesaid extension notification, then placed it with a check for August rent in an envelope which was forwarded to Village July 30, 1971, registered mail, return receipt requested. That registry is before us as part of Exhibit K. It reveals the above noted envelope was received by Village August 24, 1971.

Hubbard further testimonially declared the aforesaid registered mail envelope with his extension notice and other papers including rent checks previously sent to Village, were later returned to him by mail. The extension notice was offered and admitted in evidence as Exhibit D-1.

Mary Allard, Village's secretary, testified on behalf of her employer. She acknowledged receipt of the Hubbard mailed envelope, opened by her August 24, 1971, but stated it contained no lease extension notice. On cross-examination she produced Exhibit E, a Village rental income record, later admitted in evidence. It revealed a history of late payments by Hubbard and other Village lessees.

Leonard H. Stewart, currently Village secretary and a board of directors member, said Hubbard prepared the instantly involved lease; several standard clauses, among them the right of eviction for nonpayment of rent, were not included in the instrument; and he, Stewart, had never seen any lease extension notice claimed to have been sent by Hubbards.

Other relevant facts will be later set forth as they relate to issues presented.

October 10, 1972, trial court found (1) Village acquiesced in Hubbard's late rent payment pattern; (2) Hubbard paid rental arrearages prior to service on him of the January 20, 1970, notice to quit; (3) the first five year extension option granted Hubbard was within the intent and understanding of the parties when the lease was executed, therefore enforceable; (4) timely and proper notice as to Hubbard's exercise of his first five year lease extension option was given Village; but (5) the lease provision granting to Hubbard three additional five year option extension rights was neither within the intent and understanding of the parties nor supported by adequate consideration, thus unenforceable. Resultantly title was quieted in Village subject to Hubbard's leasehold interest absent the last three extension privileges.

On appeal Hubbard disputes that portion of the decree voiding part of the lease.

By cross-appeal Village questions trial court's holding to the effect Hubbard effectively exercised his first five year extension option.

I. Both parties hereto have generally complied with our recently adopted revised rules of appellate procedure.

Noticeably, however, their briefs do not comply with Iowa R.Civ.P. 344(a)(2) and 344(b). They require that in the listing of all cases and statutes referred to in argument covering a point, The most pertinent, not exceeding four in number, shall be printed in bold-faced type.

Only by a strict observance of these and other related rules can the beneficial purpose for which they were designed be achieved.

II. Throughout the trial of this case, and on appeal, Village repeatedly alludes to the fact that Hubbard, while serving as a director on its board and manager of Village Shopping Center, prepared the lease in question. Pursuing that matter one more step, Village claims Hubbard took advantage of it by omitting any provision in the agreement for termination thereof on nonpayment of rent, and by inclusion of inequitable extension rights.

Though not specifically characterized as such, it still remains Village, in essence, asserts lease voiding fraud, mistake, bad faith or concealment by Hubbard. See generally 49 Am.Jur.2d, Landlord and Tenant, §§ 38--40; 51C C.J.S. Landlord & Tenant §§ 223--224.

Touching on that subject in Holden v. Construction Machinery Company, 202 N.W.2d 348, 357--358 (Iowa 1972), we quoted this, in part, from Des Moines Bank & Trust Co. v. Bechtel & Co., 243 Iowa 1007, 1081, 51 N.W.2d 174, 216 (1952):

'Corporate directors and officers may under proper circumstances transact business with the corporation including the purchase or sale of property, but it must be done in the strictest good faith and with full disclosure of the facts to, and the consent of, all concerned. And the burden is upon them to establish their good faith, honesty and fairness. Such transactions are scanned by the courts with skepticism and the closest scrutiny, and may be nullified on slight grounds.'

See also 19 Am.Jur.2d, Corporations, §§ 1296, 1304; 19 C.J.S. Corporations § 781.

Assuming, arguendo, the lease was drafted by Hubbard while serving as a Village official, the record amply discloses he acted in good faith, attended by full disclosure to and with approval of all then concerned.

At the threshold Exhibits I and J, being minutes of Village Board of Directors' meetings held May 4, 1966 and November 16, 1966, respectively, reveal that body extensively discussed and approved the leasing of Unit 11 to Hubbard at a rental of $1500 per year for five years per his offer to rent 'with options to renew'.

Exhibit I also discloses the executive committee was authorized to approve terms of such attendant lease 'as it deemed fair'.

Additionally, Leonard H. Stewart, as a witness for Village, stated on cross-examination that as the corporation's secretary he signed the Hubbard lease. The signature of William J. Wilson, president, also appears on that instrument.

Stewart also conceded Hubbard's efforts in uncovering a 'scandal' saved the corporation from bankruptcy which had been recommended by its attorneys, and since the board members resultantly felt quite kindly toward Hubbard they wanted him to have a rather favorable lease by way of reward for what he had done.

The foregoing amply corroborates Hubbard's testimony regarding his actions in securing the recovery by Village of more than $100,000 previously misappropriated by others.

In light of the foregoing we now hold there is no merit in Village's attack upon Hubbard's conduct with regard to preparation and execution of the instantly involved lease.

III. The next question to be considered is whether trial court erred in holding the lease was not terminated by reason of Hubbard's tardy rent payments.

At the outset it is generally understood nonpayment of rent when due does not ipso facto operate as a forfeiture of the lessee's term absent a prior payment demand by lessor. See Verlinden v. Revia, 238 Iowa 1030, 1032, 29 N.W.2d 199 (1947); Cole v. Johnson, 120 Iowa 667, 669--670, 94 N.W. 1113 (1903); 49 Am.Jur.2d Landlord and Tenant, § 1034; Annot., 31 A.L.R.2d 321, 396--402.

As aforesaid, the record reveals Village made no demand on Hubbard for payment of rent due prior to service of any notice to quit. See Fritts v. Cloud Oak Flooring Company, 478 S.W.2d 8, 12--13 (Mo.App. 1972); Marine Equipment & Supply Co. v. Welsh, 188 Neb. 385, 196 N.W.2d 911, 913, (1972); 3A Corbin on Contracts, § 754; 51C C.J.S....