Williams v. Kaiser Aluminum & Chemical Sales, Inc.
| Decision Date | 23 April 1975 |
| Docket Number | Civ. A. No. CA 3-7399-E. |
| Citation | 396 F. Supp. 288 |
| Parties | J. L. WILLIAMS and B. J. Chafin v. KAISER ALUMINUM & CHEMICAL SALES, INC. |
| Court | U.S. District Court — Northern District of Texas |
Marvin Jones, Dallas, Tex., for plaintiffs.
Patrick E. Higginbotham, Dallas, Tex., for defendant.
In this suit, J. L. Chafin and B. J. Williams (hereinafter "plaintiffs" or "Chafin and Williams"), Texas residents, seek damages arising out of an alleged breach of a lease agreement between themselves and defendant, Kaiser Aluminum & Chemical Sales, Inc., a California Corporation (hereinafter "defendant" or "Kaiser"). Plaintiffs first brought suit in the state district court and this cause was duly removed to this Court on July 2, 1973. The Court finds itself properly vested with jurisdiction pursuant to 28 U.S.C. § 1332.
The lease in question was executed for a primary term of five years on October 1, 1968 (hereinafter "lease") and covered certain commercial property located at 3420 Dalworth Street in the Great Southwest Industrial District (hereinafter sometimes "the property" or "the premises"). The property was properly used under the terms of the lease as part of Kaiser's manufacturing operation of mobile home parts. The alleged breach grew out of Kaiser's decision in 1970 to combine its Dallas and Great Southwest Industrial District facilities into one site. The proposed new facility would have had to have been large enough to house both operations. Bids were solicited from several contractors in the Dallas-Fort Worth area to construct the new building and plaintiffs were included among those invited to bid. The bid invitations made clear the fact that the package which Kaiser was seeking, included the assumption on a sublease basis, of the two older facilities which were to have been abandoned by Kaiser in favor of the new facility. Plaintiffs, Chafin and Williams, were aware of this aspect of the bidding as various correspondence between plaintiffs and defendant initiated by plaintiff show. For example, a letter from the plaintiffs to Kaiser states in pertinent part:
This letter references the two old properties whose leases are to be assumed by the successful bidder. On their own property, plaintiffs in their letter refer only to the primary term. On the other property a primary term and two five-year options are mentioned. Another letter, dated June 1, 1971, has identical language.1 Ultimately, Chafin and Williams were unsuccessful in their bids. The instant dispute ignited over the rights of the respective parties as to the renewal and assignment provisions of the lease agreement. The applicable lease provisions provide in pertinent part:
By its plain terms this language says that the lessee does not have the benefit of the renewal option (paragraph 22) if it had assigned or subleased the premises. The question presented by this case is whether or not the lessee could exercise his renewal option sometime before the end of primary term (but not less than 90 days prior to that ending) and then once the lease was effectively renewed to another five year term, exercise its right under the assignment clause (paragraph 7).
The ability to do just this was crucial to Kaiser's plans. The successful bidder for defendant's new facility, Vantage Properties, Inc. (hereinafter "Vantage") was a competitor of Chafin and Williams not only in the construction field in the Dallas-Fort Worth area, but also in the commercial building leasing market. Before Vantage would take over either of Kaiser's old facilities, they understandably insisted on having the benefit of the renewal term as well as the primary term of the leases. Testimony concerning the lease reflects an annual rent of 65 cents per square foot. Testimony revealed that in 1972 the annual market rate was somewhere between 90 cents and $1.10 per square foot. There is little doubt that whoever would occupy the property covered by the lease when Kaiser left, would be doing so at extremely favorable market rate.
Kaiser, by letter, advised Chafin and Williams of their intention to exercise its renewal under paragraph 22 of the lease. Evidence shows that plaintiffs had been earlier told that their bid was unsuccessful and further advised that the winning bid was tendered by Vantage. Chafin and Williams' reply on August 27, 1971, acknowledged Kaiser's right to renew under the lease provided . . . "they were not in default and had not assigned . . ." This was and is plaintiffs' contention concerning the lease. There is testimony regarding the discussions held between plaintiffs and defendant during the fall, 1971. These discussions culminated in a letter of January 5, 1972, in which defendant offered to terminate the lease. Apparently, the fall, 1971, discussions centered around whether or not Kaiser could renew and then assign its rights under the lease to the winning bidder, Vantage Corporation.2
Chafin and Williams' reply to Kaiser's letter is dated March 17, 1972, and is a counter offer agreeing to cancellation of the lease in consideration of six months rent. Answers to interrogatories and the testimony agree that the fall Kaiser/Chafin and Williams communication were telephonic and not in writing. Testimony is conflicting on the question of when Chafin and Williams first learned Kaiser was going to attempt to exercise its renewal option and then assign the lease to Vantage. I find, however, that Chafin and Williams were placed on notice of the probability of this occurring earlier than their actual notification by virtue of their participation in the bidding process.3
Kaiser's version of the fall conversations was that upon being told that it (Kaiser) was renewing then assigning, Chafin and Williams said no, that Kaiser couldn't do that and anyway plaintiffs could find a tenant who would pay the full market rate. In other words, according to Kaiser, plaintiffs refused to accept Kaiser's replacement tenant and this led to the full break as reflected in the January and March letters. Chafin and Williams assert their position that they were merely holding firm in their interpretation of the lease, that is, that Kaiser was prohibited by the lease from renewing and effectively assigning.
There is disputed testimony on whether or not Chafin and Williams would have accepted their competitor Vantage as a replacement tenant for the remainder of the primary term. In any event, it is clear that they would not have been bound to accept Vantage on any other terms and conditions other than those reflected in the lease agreement. Apex Co. v. Grant, 276 S.W. 445, 446-47 (Tex.Civ.App.—Dallas 1925, no writ). It is also clear that Kaiser did have an absolute right to assign as to the primary term.4
Initially, the Court concludes that Kaiser could not exercise its renewal option and then effect a valid assignment of the lease benefits to its purported assignee for the entire primary term and the renewal term. In other words, any assignment would operate only as to the primary term and would not extend over for a renewal term. The Court agrees that there is a paucity of authority on this question and is persuaded that plaintiffs' interpretation of the lease is the correct one. To hold otherwise would mean a circumvention of the clear intent of the lease instrument when viewed in its entirety. Clearly, the lease gave lessee a right to assign. This right was to have been exercised by the giving of notice, not more than 90 days prior to the expiration of the lease. Also, however, the lessee must not have been in default or have assigned the lease.5 The interplay of the renewal and assignment option are the gist of this controversy, that is, when is a renewal effective? When does one measure default or assignment; at the time of notice or at the expiration of the primary term? The only consistent interpretation of the lease leads the Court to conclude that the proper time to measure a breach, for the purposes of determining whether or not assignment has been effected is at the expiration...
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