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Food Fair Stores, Inc. v. Blumberg - 234 Md. 521, 200 A.2d 166 (1964)

Rule:

Whether the lessor under a percentage lease guaranteeing a minimum rental has cause to complain when the business is conducted in such a way that it will not produce additional rent consisting of percentages of gross sales is applicable to a given case depends upon the intention with which the parties entered into the contract of lease, as expressed in the contract, construed in the light of the circumstances in which the contract was made.

Facts:

In 1949, appellees Stanley A. Blumberg and others (lessors) entered into a lease with appellants Food Fair Stores, Inc. (lessee), whereby Food Fair agreed to lease from the appellees a store building in Maryland. In addition to the store building, the lease covered approximately 30,000 square feet of land, contiguous thereto, which was to be used by the lessee for customer parking. In 1950, the lease agreement was amended, assigning the lessee from Food Fair Stores, Inc. to Food Fair Stores of Maryland, Inc., a wholly-owned subsidiary corporation. Under the lease agreement, the lessee will pay the lessor an amount equal to 1% of the gross sales made in the premises in each lease year. The lease also provided for a minimum annual rental of $10,560.00. Paragraph 12 of the Lease Agreement further provided that the lessee may assign the lease or sublet the premises, and in the event that the assignment is for Supermarket Purposes, the lessee shall be released and relieved of and from all liability for the payment of any rental measured against a percentage of lessee’s sales, and the lessee’s only obligation with respect to rental shall be the payment of the greater of either $13,200 or the average annual rental theretofore paid by lessee. Subsequently, the lessee reorganized its corporate structure, and assigned the lease to its parent corporation, to Food Fair Stores, Anne Arundel, Inc. the lessee’s newly-formed and wholly-owned subsidiary. Appellees were never notified of these assignments. All minimum rental checks were paid by checks of Food Fair Stores, Inc., and all percentage rental checks from 1951 through June of 1956 were paid by checks of Food Fair Stores of Maryland, Inc., which were yellow in color and the percentage rental checks received by the appellees, from July 9, 1956, through July 7, 1960, being 12 in number, were paid on orange-colored checks of Food Fair Stores, Anne Arundel, Inc. However, as appellees noted in the present action for damages, the rental amounts they have received were lower than they were entitled to under the lease agreement. The lessees brought a cross-claim that sought specific performance of an option to renew the parties' agreement. The lower court granted the specific performance, but awarded the lessors damages based on the express provisions of the lease. Both parties sought review.

Issue:

  1. Did the assignments from Food Fair Stores of Maryland, Inc. to its subsidiaries, fall within the purview of paragraph 12 of the main lease agreement?
  2. Have the lessors waived their right to the additional rent, or in the alternative, were the lessors estopped to assert their alleged claim for additional rental?

Answer:

1) Yes. 2) No.

Conclusion:

The Court held that an assignment of a lease by the lessee, a parent corporation, to its wholly-owned subsidiary corporation came within the purview of a provision of the lease pertaining to the assignment thereof. The lessee contended that these assignments were merely "technical," "purported," or "intra-company" assignments and that the provisions of the lease did not apply. However, the Court stated that a subsidiary corporation, for whatever purpose it may exist, was a separate corporate entity, even though all its stock may be owned by another corporation. In addition, the lease in this case was prepared by the parent corporation and if it desired to except assignments to wholly-owned subsidiaries from the provisions of the lease, it could easily have done so, but this, it failed to do. Anent the second issue, the Court held that the lessors' acceptance of different colored checks with different signatures did not amount to a waiver. The court found that the lessors were not estopped because they did not do anything to mislead the lessees. As such, the Court affirmed the decision of the trial court.

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