Westport 85 Ltd. Partnership v. Casto

THOMPSON, Judge. Defendant Cottman argues that the trial court erred in denying its counterclaim, in dismissing its crossclaim and in holding it liable for damages. For the reasons discussed below, we affirm. In denying defendant’s counterclaim and awarding damages to plaintiff, the trial court concluded that plaintiff acted reasonably and promptly to remove Trapp from the property after it learned that Cottman had exercised its right to become lessee and that plaintiff did not breach the implied warranty of possession. Defendant argues that the trial court erred in concluding that plaintiff did not breach the implied warranty of possession because that warranty required plaintiff to deliver actual possession of the property to Cottman on 15 April 1991. Cottman also argues that the trial court erred in holding it liable for rent because plaintiff’s breach entitled it to treat the lease as repudiated on 16 April 1991. We hold that plaintiff was not required to deliver actual possession of the property to Cottman on 15 April 1991 and thus affirm the trial court’s denial of the counterclaim and its award of damages to plaintiff. In Sloan v. Hart, 150 N.C. 269, 272, 63 S.E. 1037, 1038 (1909), our Supreme Court adopted the English Rule “that in the absence of express provision in the lease, the lessor impliedly covenants with the lessee that the premises shall be open to entry by the lessee at the time fixed for the beginning of the term.” The rationale for the rule is that [w]hen a lease is made, the beginning of which is fixed at some future date, it is within the contemplation of the parties and a part of their understanding, without which the lease would not have been made, that when the time comes for the lessee to take possession, according to the lease, the lessor shall have the premises open to the entry of the lessee, and that the latter is not liable for rent until he is afforded an opportunity to enter, and is under no [203] obligation to maintain an action against a tenant holding over to recover possession. Id. at 273, 63 S.E. at 1039. However, the implied covenant does not extend beyond the time when the lease is to commence. Id. at 274, 63 S.E. at 1039. Thus, where a stranger trespasses on or takes possession of and holds the leased premises after the time when the lessee is entitled to have the possession, that is a wrong done to the lessee for which the lessor cannot be held responsible. Id. Defendant Cottman satisfied the conditions of the Lease Rider on 16 April 1991 and thus was assigned all of the Castos’ right, title and interest in the 30 July 1989 Lease Agreement on that date. “ ‘An “assignment” is a conveyance of the lessee’s entire interest in the demised premises, without retaining any reversionary interest in the term in itself.’ ” Neal v. Craig Brown, Inc., 86 N.C. App. 167, 162, 356 S.E.2d 912, 915 (1987) (citation omitted). The 30 July 1989 Lease Agreement was for a five-year term to commence on 1 November 1989. Thus, under the rule set out in Sloan, plaintiff lessor impliedly covenanted to deliver actual possession of the premises on 1 November 1989 and not on some subsequent date when the Castos’ franchise agreement was terminated. Defendant Cottman also argues that the trial court’s finding that the plaintiff acted reasonably and promptly to remove Trapp was not supported by competent evidence. Assuming arguendo that plaintiff was obligated to make reasonable efforts to assist Cottman in removing Trapp, we find the trial court’s findings were supported by competent evidence. On April 15, at the time the Cottman representatives sought possession of the property, plaintiff had not received notice of the termination of the Castos’ franchise agreement or of Cottman’s exercise of its option to assume the lease. After it did receive such notice, plaintiff acted reasonably and promptly to remove Trapp. Defendant Cottman also contends that the trial court should have awarded it damages for its financial losses suffered as a result of the loss of the Draina management agreement because the court found as fact that one reason Draina decided not to go forward with the management agreement was that “the transfer of the Property from Trapp to Cottman had not been handled cleanly.” We disagree. Defendant wrongly equates this finding with a conclusion that plaintiff’s conduct was a contributing cause and a proximate cause of the loss of the Draina management agreement. The court did not find either that defendant’s losses were caused by the loss of the Draina management [204] agreement or that plaintiff was responsible for the manner in which the property was transferred from Trapp to Cottman. We next address the trial court’s dismissal of Cottman’s cross-claim. The trial court dismissed the crossclaim because it concluded that the Management Agreement constituted a novation with respect to the license agreement and that the termination agreement constituted a release of any and all liability between Cottman and the Castos. Cottman argues that the court’s conclusion that the Management Agreement constituted a novation is erroneous and that the court’s conclusion that the Termination Agreement constituted a release was based on improperly admitted parol evidence. We do not address the latter argument because we find that the trial court correctly concluded that the Management Agreement constituted a novation with respect to the license agreement and that this conclusion was a sufficient ground for dismissing the crossclaim. In reviewing the decision of a trial court sitting without a jury, we must determine “ ‘whether there was competent evidence to support its findings of fact and whether its conclusions of law were proper in light of such facts.’ ” Chemical Realty Corp. v. Home Fed’l Savings & Loan, 84 N.C. App. 27, 37, 351 S.E.2d 786, 792 (1987) (citation omitted). The trial court made the following pertinent findings of fact which were supported by competent evidence: (1) Cottman was aware of the negotiations between the Castos and Trapp and Anand for the sale of Castos’ Cottman franchise and Cottman furnished Trapp and Anand with a North Carolina Offering Circular to familiarize and inform them concerning the franchise of an automobile transmission repair center, (2) the purpose of the Management Agreement was for Trapp and Anand to acquire the franchise and relieve Castos of further liability and responsiblity on the franchise, (3) by letter dated 12 March 1991 Cottman acknowledged receipt of the fully executed Management Agreement with a check payable to Cottman in the amount of $7,500, (4) Cottman negotiated the $7,500 check by depositing it in Cottman’s account and applying it.towards the Cástos’ accounts receivable balance, which was in arrears, and (5) Trapp operated the Cottman center from 26 February 1991 through 15 April 1991 pursuant to the Management Agreement. The court concluded that the signing of the 25 February 1991 Management Agreement between the Castos, Trapp and Anand, and the participation of Cottman in that transaction, including its subse [205] quent acceptance of the $7,500 check, constituted a substitution of contract between Cottman, Trapp and Anand, and therefore terminated the License Agreement between Cottman and Castos. We hold that this conclusion was proper in light of the findings of fact referred to above. “A novation occurs when the parties to a contract substitute a new agreement for the old one.” Whittaker General Medical Corp. v. Daniel, 324 N.C. 523, 526, 379 S.E.2d 824, 827 (1989). “ ‘The essential requisites of a novation are a previous valid obligation, the agreement of all the parties to the new contract, the extinguishment of the old contract, and the validity of the new contract.’ . . . ‘Ordinarily in order to constitute a novation the transaction must have been so intended by the parties.’ ” Tomberlin v. Long, 250 N.C. 640, 644, 109 S.E.2d 365, 368 (1959) (citations omitted). Defendant Cottman contends that the Management Agreement could not have constituted a novation because it was not a party to the agreement. We disagree. Although Cottman did not sign the Management Agreement, it evinced agreement to the substitution of Trapp for the Castos by acknowledging receipt of the Management Agreement, negotiating the $7,500 check, and accepting Trapp’s performance under the Management Agreement from 26 February 1991 through 15 April 1991. Moreover, Cottman’s knowledge and acquiescence constituted a ratification of the agreement between Trapp and the Castos which is sufficient to effect a novation. See Port City Electric Co. v. Housing, Inc., 23 N.C. App. 510, 512, 209 S.E.2d 297, 299, cert. denied, 286 N.C. 413, 209 S.E.2d 297 (1975) (an agreement to substitute a new contract for an existing valid contract can be consummated by ratification). For the reasons stated herein, the judgment below is Affirmed. Judges JOHNSON and McCRODDEN concur.