Warmack v. Merchants Nat. Bank of Ft. Smith

• Decision Date: 16 March 1981
• Docket Number: No. 80-314,80-314
• Citation: Warmack v. Merchants Nat. Bank of Ft. Smith, 612 S.W.2d 733, 272 Ark. 166 (Ark. 1981)
• Parties: Ed WARMACK, Appellant, v. The MERCHANTS NATIONAL BANK OF FORT SMITH, Appellee.
• Court: Arkansas Supreme Court

Page 733

612 S.W.2d 733

272 Ark. 166

Ed WARMACK, Appellant, v. The MERCHANTS NATIONAL BANK OF FORT SMITH, Appellee.

No. 80-314.

Supreme Court of Arkansas.

March 16, 1981.

Bethell, Callaway & Robertson by Edgar E. Bethell, Fort Smith, for appellant.

Daily, West, Core, Coffman & Canfield by Thomas A. Daily, Fort Smith, for appellee.

HICKMAN, Justice.

The questions raised in this appeal concern a lease provision which provides that the tenant cannot sublet the premises without the landlord's permission. The chancellor held that Arkansas law implies that consent to sublet cannot be unreasonably withheld and that the landlord so acted in this case. We disagree and reverse the decree.

The parties are the landlord-owner of the Central Mall, a large shopping complex in Fort Smith, and the tenant-Merchants National Bank of Fort Smith. A detailed and lengthy lease agreement was signed by the parties in 1969. Under this lease the bank would build a drive-in facility on the parking lot of the complex. The complex consisted of a mall with a series of shops interconnected under one roof, and other stores and shops in conventional shopping center configuration. This was the largest such complex in Arkansas at the time it was built.

The lease was for a term of twenty-five years and the terms of the lease were mutually beneficial. The tenant would build the building in a prime location and get a long term lease with the cost being totally tax deductible. The landlord would get a valuable tenant who would contribute to the success of his complex and after twenty-five years the landlord would own the building.

The lease was negotiated but to what extent we cannot say. The tenant bank apparently made numerous deletions in the printed lease and the landlord agreed to all of these. The provision in question was not changed and was not, to our understanding, the subject of negotiations. The questionable provision reads:

Tenant shall not sublet the premises in whole or in part and shall not sell, assign, mortgage, pledge or in any manner transfer this lease, or any interest herein, without in each case having obtained Landlord's written consent; ...

In 1979 the bank merged with the Continental Bank and Trust Company, a local bank with a facility across the highway. It was decided in May or June of 1979 that the bank would move from its facility on the mall to the newly acquired facility across the highway. At the same time, negotiations began with First Federal Savings and Loan Association to sublet the drive-in facility. The landlord was not informed of these proposals until November 16, 1979. At that time he was asked to approve the sublease. (The landlord had some intimation a few days before that the bank would close or abandon the drive-in facility, but he had no official notice before November 16th.)

The landlord said that he would consider the matter and get back to the bank. He subsequently decided to cancel the lease and wrote a letter on December 19th, electing to terminate the lease immediately because the premises had been vacant more than ten days. Two days later the bank filed this suit for declaratory judgment. The landlord counterclaimed to cancel the lease and sought damages under Ark.Stat.Ann. § 34-1516. Monthly payments have been tendered by the bank pending this litigation.

The tenant insisted that despite the language of the lease the landlord could not unreasonably withhold his consent to a sublease and he was doing so. Testimony was given that the new tenant, a savings and loan association, was an identical tenant, the bank would still be liable for the rent and no harm could come to the landlord from the sublease. Indeed, it was argued that the landlord would, if the lease were literally enforced and cancelled, own the building, a substantial gain.

The landlord argued that the lease meant what it said and that consent for any reason could be withheld. Even so, the landlord put on testimony as to why the new tenant was not acceptable. His evidence was that such a shopping complex, to be successful, must contain a good "mix" of tenants; it must have a proper balance. Too many of any kind, such as shoe stores or clothing stores, would be harmful; a complex needs a variety of shops to attract and keep customers. An expert in retail marketing concluded that losing the bank and gaining the savings and loan company would be detrimental. He based his conclusion on two facts: First Federal Savings and Loan already had a facility in the mall and if it operated the drive-in, there would actually be less customers that would come into the mall because some would use only the drive-in facility; a savings and loan company does not draw the same nor as many customers as a bank does.

The tenant countered this testimony by saying that there was...