Source: http://masscases.com/cases/sjc/312/312mass325.html
Timestamp: 2019-04-20 20:11:44+00:00

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FACTORY REALTY CORPORATION vs. CORBIN-HOLMES SHOE CO.
Cancellation of a lease of premises in accordance with terms stated therein did not relieve the lessee from liability for his previous breach of a covenant in the lease requiring him to make repairs.
In a lease of certain real estate providing for its ultimate purchase according to a deferred payment plan, a further provision that the lessee at his election might cancel the lease by a notice to the lessor and retransfer of certain capital stock and by waiving "all claims to . . . [certain] prior payments made to the" lessor, "by way of liquidated damages," merely established the terms upon which the lessee, in electing to cancel, was to be absolved from future liability under the lease, and had no application to and did not relieve him from liability for past breaches of a covenant by him to repair.
CONTRACT. Writ in the Superior Court dated November 24, 1937.
The case was heard by Hurley, J., who found for the defendant. The plaintiff alleged exceptions.
H. R. Bygrave, for the plaintiff.
F. X. Hurley, for the defendant.
DOLAN, J. This is an action of contract to recover damages for the alleged breach of a covenant by the defendant contained in an instrument under seal which was executed by the parties. The case was referred to an auditor to determine the damages "in the event there should be liability."
Material facts found by the auditor follow. On June 29, 1928, the parties executed the instrument in question which, in substance, provided for the lease and ultimate purchase of a factory building by the defendant from the plaintiff on a deferred payment plan, with the privilege of cancellation of the contract by the defendant, at a certain time or times, on certain terms.
amount due as amortization shall be $2,000.00 per annum (plus excess of rent). The party of the first part agrees that it will within twenty days of the receipt of any sums in excess of $500.00 toward the amortization fund apply the same toward the reduction of any mortgage on the leased premises. The party of the first part shall at all times upon request inform the party of the second part of the status of the mortgage on the premises, and except for the initial mortgage of $30,000.00 and renewals of the unpaid balance thereof the party of the first part shall not encumber or permit any encumbrance on the premises. At the end of the first five (5) years or at the end of any year thereafter the party of the second part, upon ninety (90) days' notice in writing to the party of the first part, shall have the right to cancel this indenture by surrendering and transferring the capital stock of said Factory Realty Corporation held by it to the party of the first part and by waiving all claims to all prior payments made to the party of the first part for the amortization of said principal invested sum or for other purposes, by way of liquidated damages; and for the cancellation of this lease the party of the second part does hereby appoint and constitute the party of the first part its irrevocable attorney for the purpose of transferring said stock."
After the execution of the contract the defendant took possession of the premises and continued to occupy them until on or about June 29, 1937, when it "moved out in accordance with a notice of termination pursuant to the agreement." The defendant had failed to perform the covenant to make and pay for all repairs that were necessary to preserve the premises and permitted them to deteriorate physically in many respects, set forth by the auditor, which need not be narrated here. On one interpretation of the covenant involved the auditor found that the damages thus sustained by the plaintiff amounted to $5,063.74, with interest from June 29, 1937, and, in the alternative, that if the standard he adopted in determining the amount of damages was erroneous the plaintiff was not entitled to recover.
The case was heard by the judge upon the auditor's report and other evidence, and at the close of the evidence the plaintiff made the following requests for rulings: "1. The cancellation of the Agreement dated June 29, 1928, by the defendant, and its surrender and transfer of fifty (50) shares of the plaintiff's capital stock, did not relieve the defendant of the obligation to pay damages to the plaintiff for its failure to carry out the provision in said agreement for the defendant `to make and to pay for all repairs . . . which shall be necessary properly to preserve said premises' as described in said Agreement, up to the date of such cancellation. 2. The defendant having failed to make repairs necessary properly to preserve the premises described in the Agreement, the plaintiff is entitled to recover as damages a sum equal to the fair and reasonable cost of such repairs with interest from the effective date of cancellation of the Agreement." These requests were refused by the judge, subject to the plaintiff's exceptions. The defendant's requests for rulings were in substance that if the defendant duly exercised its right to cancel the indenture as of June 29, 1937, the action cannot lie for alleged breaches of the covenants contained therein; that the effect of the cancellation was to annul or cancel the obligations of both parties to the agreement or indenture and "to cause the covenants and stipulations therein contained to be as if they had not existed"; and that on all the evidence the finding should be for the defendant. These rulings were given by the judge, who found for the defendant subject to the plaintiff's exceptions.
Neither of the parties has argued that the auditor did not adopt the correct standard in determining that, by the failure of the defendant to carry out fully the agreement with reference to making repairs, the resultant damage was in the amount of $5,063.74. The only issues argued before us are as to the liability of the defendant therefor as matter of law. It is conceded by the plaintiff that the defendant seasonably exercised its right to cancel the agreement in question as of June 29, 1937, and surrendered to the plaintiff the fifty shares of its capital stock.
The defendant's contentions are (1) that when an agreement has been cancelled no action lies to enforce it, and (2) that the agreement contained a provision for liquidated damages for the defendant's right to cancel the agreement which it has satisfied. The plaintiff, on the other hand, argues that the exercise of the cancellation clause by the defendant did not relieve it from liability for its prior breach of the care and repair clause, either by way of cancellation or "by way of liquidated damages," and that the plaintiff's exceptions should be sustained.
disability insurance for his employees who chose to participate, the policy giving the employer the right to cancel it as to any employee who ceased to be employed or fell into arrears in his premium contributions, could not by cancelling a policy free the insurer from its liability to pay benefits to an employee who had become disabled before the policy was cancelled. It would seem to be established that there is no rule of law in this Commonwealth such as that contended for by the defendant. See Hall v. Crowley, 5 Allen 304, 306; Phaneuf v. Corey, 190 Mass. 237; Makletzova v. Diaghileff, 227 Mass. 100. It is true, however, that in a few cases statements may be found such as in Newbury v. Bay State Screw Co. 7 Allen 257, 260, 261, where it is said: "Nothing can be plainer, as elementary law, than that when an agreement has been annulled no action lies to enforce it." The defendant has relied largely upon that case and also upon Rogers v. Rogers & Brothers, 139 Mass. 440, and Fitzgerald v. Allen, 128 Mass. 232. In the Newbury case the statement just quoted was not necessary to the result there reached, except as it be interpreted to mean that on the particular facts there involved an action on the original contract, which had been annulled, would not lie. In that case there was no provision in the original contract for its cancellation, and the subsequent agreement that it be cancelled was upon definite fixed terms. In the Rogers case the construction by the court as to the intent of the parties was the determining factor. In the Fitzgerald case there was a provision for cancellation of the contract, but none as to its effect, and recovery was allowed in quantum meruit for materials and labor furnished by the plaintiff in pursuance of the contract before it was cancelled. None of these cases is authority for an inflexible rule such as that asserted to be the law by the defendant.
the right reserved to it in the indenture to terminate the agreement. Manifestly, if the defendant saw fit not to do so and purchased the premises at the end of the twenty years in accordance with the agreement, the plaintiff would not be concerned with the condition of the premises, and the covenant in question would be meaningless if interpreted in accordance with the contentions of the defendant.
It is necessary however to consider the effect of the "liquidated damages" clause in the indenture to determine whether, upon cancellation of the agreement, there was to be no liability on the part of the defendant beyond that stipulated in that clause.
the right so to do at any time after five years upon payment to the purchaser of $2,000. At page 237 the court said: "This sum of two thousand dollars was not liquidated damages . . . . It was not a sum to be paid in case the defendant broke his contract, and did what he had agreed not to do. It was a price fixed for what the contract permitted him to do if he paid." See Eaton v. Simcovitz, 239 Mass. 569; Edward G. Acker, Inc. v. Rittenberg, 255 Mass. 599.
We think that the liquidated damages clause in question, properly interpreted, has no relation to or effect upon the covenant in the agreement, for the breach of which the plaintiff seeks to recover. It merely fixed the price that the defendant was to pay if it exercised its option to cancel, and, reading the instrument in question as a whole, we think that the liquidated damages clause was intended only to provide for the terms and conditions upon which the defendant was to be absolved at its election from future liability under the agreement, and not to relieve it from liability for breaches prior to cancellation. To hold otherwise would be, in effect, to hold that the defendant upon cancellation of the agreement would also be absolved, for example, from the obligation to pay taxes accrued before cancellation in violation of its covenant so to do, and contrary to the decisions of this court to which reference has already been made.
called liquidation clause was not such as to relieve the defendant of its obligations upon the independent covenant upon which the present action is based.
In the determination of the present case we have excluded from consideration certain letters, written by the defendant's president while negotiations were being had for the lease and purchase of the property but before the execution of the contract, which were admitted by the auditor subject to the defendant's exceptions. Without intimating that these exceptions are properly before us, it may be observed that in any event their admission in evidence was not prejudicial error, since without them the result here reached as to the proper interpretation of the contract would be the same.
It follows that the plaintiff's exceptions must be sustained and judgment entered for the plaintiff in the amount of $5,063.74, with interest from June 29, 1937.

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