Opinion ID: 485541
Heading Depth: 1
Heading Rank: 1

Heading: exercise of the option

Text: 20 Not until the time for the beginning of trial did Papo contend Olga's did not have standing to exercise the option Papo claimed was nonassignable. The district court ignored this argument as coming too late and effectively waived. Testimony indicated that Olga's and Olga California acted together in the leasehold arrangements, and that Papo never objected to dealing with either one during the course of their dealing at Hayward. Correspondence between Papo and Olga's indicated that Papo effectively recognized Olga's as the lessee. Furthermore, no evidence suggests that the lease was ever assigned. Olga's was, under the circumstances, a proper party to exercise the option and had standing to pursue it on behalf of its wholly owned subsidiary.
21 Papo never claimed plaintiff to be in default during the lease period for late rent payments, but at trial argued that the no waiver clause, paragraph 17 of the lease agreement, precluded exercising the option to acquire the leasehold equipment and improvements. Papo claims that his conduct did not waive invocation of the no waiver clause. The district court, however, ruled that this claim of default was an afterthought by defendant. 22 A lessor may waive a nonwaiver clause in a lease agreement by a persistent course of conduct in accepting late payments. Westinghouse Credit Corp. v. Shelton, 645 F.2d 869, 873-74 (10th Cir.1981); Dillingham Commercial Co. v. Spears, 641 P.2d 1, 7-8 (Alaska 1982). The question whether Papo did in fact waive his right to rely on Olga's default in making late payments is one of fact. See, e.g., Westinghouse Credit Corp., 645 F.2d at 873-74; Jefpaul Garage Corp. v. Presbyterian Hospital, 61 N.Y.2d 442, 462 N.E.2d 1176, 474 N.Y.S.2d 458, 461 (1984). 23 We do not find error under these circumstances in the district court's holding. A lessor may by its conduct waive not only the timeliness of lessee's performance, but also the no waiver clause itself. See, e.g., Westinghouse, 645 F.2d at 874, and Jefpaul, 474 N.Y.S.2d at 458-61. As in Dillingham, Papo acquiesced in late payments by Olga's throughout almost the entire five year lease arrangement. The correspondence between the parties about the exercise of the option, moreover, manifests Papo's waiver of the nonwaiver clause. Instead, Papo sought fair market value for the equipment. When Papo finally rejected Olga's proposal by the June, 1983, letter, it did so solely on the basis that the amount was insufficient, rejecting at the same time on the basis of default Olga's exercise of a similar option to purchase equipment in a San Jose restaurant.
24 Plaintiff failed to pay interest due to Papo arising from its delinquent payment of rent. Again, Papo never asserted that this failure to make delinquent interest payments amounted to a material default that would prevent Olga's exercise of the option. As in the case of the late rental payments, Papo was held to have waived application of the no waiver clause. Unlike the late payments, which default Papo excused by repeated acceptance, Olga's failure to make the interest payments continued until trial and placed Olga's in breach. The issue becomes whether that breach was material and thereby would prevent Olga's from exercising the option. 25 Materiality of a breach, like the existence of a waiver, presents a fact question to be resolved by the factfinder. Jameson v. Foster, 646 P.2d 955, 957 (Colo.Ct.App.1982). If a breach is not substantial, a lessee is not prevented from exercising an option. Id. at 957-58. In determining whether a default is material, a court should consider whether the landlord has been harmed or prejudiced and whether the tenant has acted in good faith. 1014 Fifth Avenue Realty Corp. v. Manhattan Realty Co., 111 A.D.2d 78, 489 N.Y.S.2d 204, 205 (N.Y.Sup.Ct.1985). Further consideration is given to the tenant's resulting forfeiture if specific performance was denied. Id. (equity will intervene to prevent a forfeiture occasioned by a trivial or technical breach). Thus, when the  'allegations are de minimis in nature,' and the landlord 'has failed to show any prejudice resulting from the tenant's alleged breach of the terms of the lease,'  a material breach may not have occurred and specific performance should be ordered. Id. at 206, quoting Restoration Realty Corp. v. Robero, 58 N.Y.2d 1089, 1091, 462 N.Y.S.2d 811, 449 N.E.2d 705 (1983). 26 Papo showed no real prejudice by reason of late interest payments; when Olga's paid off the interest after judgment was entered, Papo was fully compensated. Bad faith on Olga's part was not demonstrated. Moreover, the trial court took judicial notice that the amount of interest owed was relatively insignificant in comparison to the approximately $540,000.00 already paid as rent. We find no error in the district court's finding no material breach in Olga's failure to pay interest payments amounting to approximately 2% of the total rent (or finance) payments made. Forfeiture in this case would work substantial inequity, considering the additional finding that the arrangement between the parties was not, in reality, a lease but rather an equipment financing agreement.
27 Papo next argues that Olga's made a legally sufficient tender to trigger exercise of an option to purchase. Papo contends that Olga's was required to tender to Papo in cash before the May 31, 1983 deadline Olga's suggested fair market value of $34,147.00 for the equipment before the option could be exercised. 28 The option in this case was to be exercised by Olga's paying fair market value for the equipment rather than a specified amount. Thus the term was left open for reasonable negotiation as to fair market value in the event Olga's chose to exercise the option. Plaintiff indicated a clear and timely intent to exercise the option. In response Papo directed that Olga submit a fair market value for the leased equipment. Prior to expiration of the lease, in accordance with Papo's direction, Olga set what it deemed to be fair market value of the equipment and improvements in the Hayward store at $34,147.00 and indicated that it was ready and able to close these purchases. After the lease had expired, stating that the sum offered was not commensurate with the current market value of the leased equipment, Papo rejected the option proposal, but did not set out its version of fair market value before expiration. Thus Papo effectively prevented Olga's from tendering an acceptable amount without making a counteroffer. 29 Tender of cash is not always a condition precedent to an effective exercise of an option. Michigan courts have on several occasions found that a failure to tender cash was not fatal to actions for specific performance or contract damages: The law of tender is replete with cases which depart from the generalization that tender is the payment in hand of legal currency to explore the fact-laden paths of the litigants' course of dealing. Birznieks v. Cooper, 405 Mich. 319, 328, 275 N.W.2d 221, 224 (1979). Tender requires the offer of that to which the tenderee is entitled, without qualification or condition, an actual offer to pay coupled with present ability. Duiven v. Brakesman, 356 Mich. 1, 3, 95 N.W.2d 868, 869 (1959). Another court has added: 30 when the default has not been serious and the vendee is willing and able to continue with his performance of the contract, the vendor suffers no damage by allowing the vendee to do so. In this situation, if there has been substantial part performance or if the vendee has made substantial improvements in reliance on his contract, permitting the vendor to terminate the vendee's rights under the contract and keep the installments that have been paid can result only in the harshest sort of forfeitures. Accordingly, relief will be granted whether or not time has been made of the essence. [Barkis v. Scott 34 Cal.2d 116, 208 P.2d 367, 371 (1949) ]. 31 6 Williston on Contracts, Sec. 834 at 113-14. Williston, in his treatise, explored at greater length when formal tender is not mandated in actions at law, by quoting from Cladianos v. Friedhoff, 69 Nev. 41, 240 P.2d 208, 210 (1952): 32 The word 'tender' as used in such connection does not mean the same kind of offer as when it is used in reference to the payment or offer to pay an ordinary debt due in money, where the money is offered to a creditor who is entitled to receive it, nothing further remains to be done, and the transaction is completed and ended; but it means only a readiness and willingness accompanied with an ability on the part of one of the parties to do the acts which the agreement requires him to perform, provided the other will concurrently do the things which he is required by it to do, and a notice by the former to the latter of such readiness. Such readiness, ability, and notice are sufficient evidence of, and indeed imply, an offer or tender in the sense in which those terms are used in reference to mutual and concurrent agreements. It is not an absolute, unconditional offer to do or transfer anything at all events, but it is, in its nature, conditional only, and dependent on, and to be performed only in case of, the readiness of the other party to perform his part of the agreement. 33 The law is clear, however, that any affirmative tender of performance is excused when performance has in effect been prevented by the other party to the contract.... It is a principle of fundamental justice that if a promisor is himself the cause of the failure of performance, either of an obligation due him or of a condition upon which his own liability depends, he cannot take advantage of the failure. 34 In this respect it is stated that the term 'prevented from performing' does not mean 'that there must be physical prevention, but that any acts, conduct, or declarations of the party, evincing a clear intention to repudiate the contract, and to treat it as no longer binding, is a legal prevention of performance by the other party. 35  '... a refusal on the part of the defendant to perform obviated the necessity of performance, or tender of performance, on the part of the plaintiff, after such refusal.'  36 6 Williston, Williston on Contracts, Sec. 832 at 101-03 (W. Jaeger ed. 3d ed. 1962) (footnotes omitted). 37 Although the quoted passage refers to actions for damages at law, Williston stated the rule is essentially the same for actions for specific performance in equity. Id., Sec. 834 at 109-13. Furthermore, under a court's equitable power, serious consideration must be given to determine whether a strict rule of tender would cause a forfeiture. 38 A party does not forfeit his rights to the interposition of a court of equity to enforce a specific performance of a contract, if he seasonably and in good faith offers to comply, and continues ready to comply, with its stipulations on his part, although he may err in estimating the extent of his obligation. [Willard v. Tayloe, 75 U.S. (8 Wall.) 557, 569 (1868).] 39 Id. at 113-14 (footnotes omitted). 40 Plaintiff's evidence that it was ready and willing in good faith to exercise the option to purchase in accordance with the agreement's terms adequately satisfied the tender requirement, Papo prevented Olga's from timely tendering an acceptable sum. Because of these circumstances, harsh forfeiture would result if actual tender were mandated, and we find no error in the trial court's refusal to reach such a result. Papo indicated that the issue of fair market value was open to negotiation and did not suggest that any particular sum by Olga's would be accepted. 6