Bennett v. Mahoney

No. 12345 IN THE SUPREME COURT OF THE STATE OF MONTAFA 1973

GARRY V. BENNETT, Plaintiff and Appellant,

HARRIETT V. MAHONEY and STELLA FOOTE, Defendants and Respondents.

Appeal from: District Court of the Thirteenth Judicial District, Honorable C. B Sande, Judge presiding. . Counsel of Record: For Appellant : Crowley, Kilbourne, Haughey, Hanson and Gallagher, Billings, Montana Robert Edd Lee argued, Billings, Montana For Respondents: Anderson, Syrmnes, Forbes, Peete and Brown, Billings, Montana Rockwood Brown, Jr. argued, Billings, Montana

Submitted: January 25, 1973 Decided :MAR 2 3 1973 Filed: 2 8 lgs

Mr. J u s t i c e Gene B. Daly d e l i v e r e d t h e Opinion of t h e Court.

T h i s appeal i s taken from a judgment f o r defendants e n t e r e d by t h e d i s t r i c t c o u r t of Yellowstone County on an a c t i o n f o r d e c l a r a t o r y judgment. The m a t t e r was submitted t o t h i s Court on w r i t t e n b r i e f s and s t i p u l a t e d f a c t s , w i t h a l l p e r t i n e n t agreements and correspondence a t t a c h e d a s e x h i b i t s , The c o n t r o v e r s y involved a l e a s e agreement o r i g i n a l l y e n t e r e d i n t o on September 29, 1945, t o run u n t i l December 31, 1970. The p r o p e r t y involved was a commercial s i t e on Montana Avenue i n Ei!lings. The o r i g i n a l p a r t i e s involved were John W, and Margaret L. Foote a s l e s s o r s and Clark K , Fergus a s l e s s e e . The l e s s e e c o n s t r u c t e d a supermarket, ~IIGPJII a s C l a r k ' s Market, which he operated f o r about twenty-two y e a r s . The p r o p e r t y was then subleased t o a l o c a l department s t o r e . The o r i g i n a l twenty- f i v e y e a r l e a s e contained an o p t i o n f o r a t e n y e a r extended term upon i t s e x p i r a t i o n , w i t h p r o v i s i o n f o r a r b i t r a t i o n i n t h e event t h e p a r t i e s could n o t a g r e e on t h e terms of t h e extended l e a s e , Before e x p i r a t i o n of t h e o r i g i n a l l e a s e , Garry V . Bennett, p l a i n t i f f and a p p e l l a n t ( h e r e i n a f t e r r e f e r r e d t o a s l e s s e e ) , succeeded t o t h e i n t e r e s t s o f Clark K. Fergus. H a r r i e t t V. Mahoney and S t e l l a Foote, defendants and respondents, (hereinafter r e f e r r e d t o a s ~ l e s s o r s ) ,succeeded t o t h e i n t e r e s t s of John and Margaret Foote. Immediately p r i o r t o t h e e x p i r a t i o n of t h e o r i g - i n a l l e a s e , l e s s o r s and l e s s e e n e g o t i a t e d concerning t h e o p t i o n a l t e n y e a r extended term, b u t were unable t o a g r e e on t h e amount of rental. I n a d d i t i o n , t h e y could n o t a g r e e whether o r n o t t h e new r e n t a l should be ground r e n t a l only o r based on improvements by lessee. The m a t t e r was l i t i g a t e d i n t h e d i s t r i c t c o u r t and by o r d e r and judgment dated September 2 2 , 1970, t h a t c o u r t h e l d :

" I T I S ORDERED, ADJUDGED AND DECREED, That under t h e p r o v i s i o n s f o r d e t e r m i n a t i o n of t h e r e n t a l t o b e paid by p l a i n t i f f s (Garry Bennett and E l s i e Fergus) d u r i n g t h e extended term of t h e l e a s e which i s t h e s u b j e c t of t h i s a c t i o n , t h e a r b i t r a t o r s a c t i n g pursuant t o s a i d l e a s e should c o n s i d e r only ground r e n t a l and n o t improvements placed thereon by t h e l e s s e e and h i s s u c c e s s o r s i n i n t e r e s t , i n determining t h e r e n t a l a p p l i c a b l e d u r i n g t h e ex- tended term commencing January I , 1971." Pursuant t o t h e terms of t h i s o r d e r and judgment and t h e provisions of the o r i g i n a l l e a s e c o n t r a c t , three a r b i t r a t o r s met and on December 22, 1970, a r r i v e d a t t h e following r e n t a l agreement : "Rent s h a l l b e a t t h e r a t e of $3,400.00 per annum, s t a r t i n g January 1, 1971, f o r a p e r i o d of f i v e y e a r s through December 31, 1975, w i t h t h e o p t i o n t o renew f o r a n a d d i t i o n a l f i v e y e a r p e r i o d , w i t h r e n t a t $4,000.00 p e r y e a r , s t a r t i n g January 1, 1976 and ending December 31, 1980. "As f u r t h e r c o n s i d e r a t i o n , we amend t h e o r i g i n a l l e a s e wherein t h e l e s s e e CLARK K. FERGUS w i l l pay a l l taxes---more s p e c i f i c a l l y , t h e $200.00 pre- v i o u s l y c a r r e d by t h e l e s s o r , JOHN W. FOQTE." Lessee, through h i s a t t o r n e y , s e n t a l e t t e r t o t h e a t t o r n e y f o r t h e l e s s o r s , d a t e d January 7 , 1971, i n which l e s s e e attempted t o a c c e p t t h e a r b i t r a t o r s ' d e t e r m i n a t i o n of December 22, 1970, and extend t h e l e a s e f o r an a d d i t i o n a l t e n y e a r s . L e s s o r s , through t h e i r a t t o r n e y , r e f u s e d t h e attempted e x e r c i s e of t h e e x t e n s i o n o p t i o n on t h e grounds t h a t i t was submitted p a s t t h e t e n day acceptance p e r i o d provided f o r i n t h e o r i g i n a l l e a s e i n t h e s e terms : ** The t h r e e persons so s e l e c t e d s h a l l c o n s t i - t u t e a board o f a r b i t r a t i o n f o r t h e purpose of de- termining t h e r e n t a l of s a i d l e a s e d premises f o r a t e n year extended term t h e r e o f , and s h a l l promptly a g r e e by a m a j o r i t y v o t e on such r e n t a l , which i n no e v e n t be l e s s than F i f t e e n Hundred D o l l a r s ($1,500.00) p e r annum. Within t e n days a f t e r such board of a r b i - - t r a t i o n- f i x e s such r e n t a l , s a i d l e s s e e shaii-?iotify -- s a i d l e s s o r s i n w r i t i n g whether o r n o t he wishes t o exercise h i s option t o- - extend t h e terms of t h i s l e a s e - f o r an a d d i t i o n a l p e r i o d of t e n y e a r s on t h e r e n t a l f i x e d by s a i d board o f a r b i t r a t i o n and both l e s s o r s and l e s s e e w i l l be bound by t h e d e c i s i o n of s a i d l e s s e e . I' (Emphasis s u p p l i e d ) , O January 20, 1971, l e s s e e s e n t a l e t t e r t o l e s s o r , S t e l l a n Foote, and t o each of t h e t h r e e members of t h e board of a r b i t r a - t o r s , r e q u e s t i n g t h e e x t e n s i o n l e a s e m a t t e r be resubmitted t o

a r b i t r a t i o n on t h e b a s i s t h a t t h e a r b i t r a t i o n award f a i l e d t o follow t h e i n s t r u c t i o n s of t h e o r i g i n a l l e a s e , because t h e r e n t a l d e t e r m i n a t i o n was f o r a p e r i o d of f i v e r a t h e r than t e n y e a r s . Lessors continued i n t h e i r p o s i t i o n t h a t l e s s e e enn nett's f a i l u r e t o make a t i m e l y acceptance of t h e a r b i t r a t i o n agreement had terminated a l l h i s i n t e r e s t . O A p r i l 27, 1971, l e s s e e Bennett f i l e d a d e c l a r a t o r y n judgment a c t i o n i n d i s t r i c t c o u r t f o r a d e t e r m i n a t i o n of t h e s e matters. O August 16, 1972, t h e d i s t r i c t c o u r t rendered i t s n f i n d i n g s of f a c t , c o n c l u s i o n s of law and judgment i n f a v o r of defendant l e s s o r s , which s t a t e d i n p a r t : " I T I S HEREBY ORDERED, ADJUDGED AND DECREED a s f o l l o w s : "1. That t h e A r b i t r a t i o n Award rendered by t h e Board of A r b i t r a t o r s on December 22, 1970, E x h i b i t ' C ' , was w i t h i n t h e a u t h o r i t y and l i m i t s of t h e sub- mission i . e , t h e Lease and Decree of Court, Exhi- b i t s 'A 1 and t B ' r e s p e c t i v e l y , and was l e g a l l y v a l i d and e f f e c t i v e between t h e p a r t i e s t o s a i d l e a s e . "2. That t h e p l a i n t i f f and h i s predecessors i n i n t e r e s t f a i l e d t o e x e r c i s e t h e i r o p t i o n t o extend s a i d Lease f o r an a d d i t i o n a l t e n (10) y e a r s upon t h e terms of s a i d A r b i t r a t i o n Award w i t h i n t h e time and i n t h e manner a s r e q u i r e d by s a i d Lease instrument and by reason of t h i s f a i l u r e , t h e e n t i r e r i g h t , t i t l e and i n t e r e s t of t h e p l a i n t i f f and h i s p r e d e c e s s o r s i n i n t e r e s t a s Lessee under s a i d Lease a r e f u l l y termin- a t e d a s of t h e end of t h e i n i t i a l term. 2k * * I f Lessee a p p e a l s from t h a t f i n a l judgment and p r e s e n t s two a r e a s i n which t h e a r b i t r a t o r s exceeded t h e i r a u t h o r i t y . 1. The a r b i t r a t i o n award only e s t a b l i s h e d t h e renewal l e a s e f o r a period of f i v e y e a r s , r a t h e r t h a n t e n y e a r s a s r e - q u i r e d by t h e submission agreement,

2, The a r b i t r a t i o n award s h i f t e d t h e payment of c e r t a i n t a x e s from l e s s o r s t o t h e l e s s e e , which was n o t w i t h i n t h e a u t h o r i t y of the a r b i t r a t o r s .

W f i n d no m e r i t i n l e s s e e ' s c o n t e n t i o n t h e a r b i t r a t i o n e award was rendered f o r a p e r i o d of f i v e r a t h e r than t e n y e a r s . The award, hereinabove quoted, c l e a r l y e s t a b l i s h e d a r e n t a l f o r t h e t e n y e a r period from January 1, 1971 t o December 31, 1980, and l e s s o r s a r e bound f o r t h a t e n t i r e p e r i o d of time. The f a c t

t h e r e was a $600 i n c r e a s e i n annual r e n t a l and an o p t i o n t o renew scheduled t o t a k e e f f e c t on January 1, 1976, i n no way r e l i n q u i s h e s t h e o b l i g a t i o n s of t h e l e s s o r s t o be bound by t h e terms of t h e lease f o r the e n t i r e ten years. I f anything, i t operates t o the advantage of t h e l e s s e e , g i v i n g him a u n i l a t e r a l o p t i o n t o c a n c e l a t t h e "half way p o i n t " i n t h e l i f e of t h e l e a s e . W f i n d n o t h i n g i n t h e terms of t h e submission agreement e which precluded t h e a r b i t r a t i o n board from e s t a , b l i s h i n g d i f f e r e n t r e n t a l s f o r d i f f e r e n t y e a r s w i t h i n t h e l i f e of t h e t e n y e a r ex- tension lease. W a l s o f i n d no m e r i t i n l e s s e e ' s c o n t e n t i o n t h e d i s p o s i - e t i o n of t h e t a x o b l i g a t i o n was n o t w i t h i n t h e a u t h o r i t y of t h e a r b i t r a t o r s i n f i x i n g the r e n t a l f o r the ten year extension l e a s e period. Under circumstances o t h e r than t h o s e involved h e r e , t h e r e might have been m e r i t i n t h i s c o n t e n t i o n , However, i n looking t o t h e terms of t h e o r i g i n a l twenty-five y e a r l e a s e agreement, we f i n d i t was e s t a b l i s h e d i n 1945 t h a t l e s s o r s would pay a l l t a x e s up t o $200 p e r annun and l e s s e e would pay any t a x e s i n excess of t h a t amount, Thus, t h e payment of t a x e s was v e r y much a p a r t of t h e " r e n t a l " o b l i g a t i o n o r compensation between t h e l e s s o r s and l e s s e e under t h e terms of t h e o r i g i n a l l e a s e . This f a c t made i t incumbent upon t h e a r b i t r a t i o n board t o make some d i s p o s i t i o n of t h e t a x payment i s s u e i n t h e " r e n t a l " terms of t h e t e n year e x t e n s i o n l e a s e . The d i s p o s i t i o n i t made appears i n no way unreasonable t o t h i s Court, nor does i t seem p a r t i c u l a r l y unusual, s i n c e under t h e o r i g i n a l l e a s e agreement l e s s e e was paying p a r t of t h e t a x e s , under t h e t e n y e a r e x t e n s i o n l e a s e he would have paid them a i l . I n McIntosh v. H a r t f o r d F i r e I n s . Co, , 106 Mont. 434, 439, 78 P.2d 8 2 , t h i s Court s t a t e d t h e a p p l i c a b l e g e n e r a l r u l e : "It i s t h e p o l i c y of t h e law t o f a v o r t h e s e t t l e m e n t of d i s p u t e s by a r b i t r a t i o n , and every r e a s o n a b l e i n - tendment w i l l be indulged t o g i v e e f f e c t t o such proceedings. An award made by a p p r a i s e r s o r a r b i t r a t o r s

should n o t be v a c a t e d u n l e s s i t was made w i t h o u t a u t h o r i t y , o r a s a r e s u l t of f r a u d o r mistake, o r misfeasance o r malfeasance of t h e a p p r a i s e r s . 1 1 See a l s o : Lee v , P r ~ v i d e n c eWashington I n s . Co., 82 Mont. 264, 266 P , 640; Crosby v , Board of H a i l I n s u r a n c e , 113 Mont, 470, 29 P.2d 99; 5 Am J u r Zd, A r b i t r a t i o n and Award $ 5 137,167. Appellant l e s s e e h a s n o t s u s t a i n e d t h e burden of e s t a b - l i s h i n g e r r o r abuse i n t h e award made by t h e a r b i t r a t o r s , T h e r e f o r e , t h e judgment of t h e d i s t r i c t c o u r t i s a f f i r m e d ,

- Associate J u s t i c e

// Chief ~ u s t i c e

c i a t e J u s t i c/ s . e