Court Opinion

ID: 9782298
Source: CourtListenerOpinion
Date Created: 2023-08-30 18:17:23.046266+00
Date Added: 2024-06-11T12:15:14.559918
License: Public Domain

CASTILLO, Judge (dissenting). {34} While I agree with the majority that our task in this case is to decide which line of cases best reflect the law and policy of New Mexico, I respectfully dissent. I believe that equity should be allowed to intervene because this case involves a possible forfeiture. The majority opinion decides as a matter of law that equity cannot be considered in cases where a tenant forgets to timely send a notice of lease renewal. This holding is based on three points: (1) courts may not rewrite obligations that the parties bargain for themselves; (2) in the absence of well-defined equitable exceptions, equity should not intervene; and (3) instability and uncertainty would ensue if we adopted the Fountain rule. There is New Mexico law to support these general propositions, but not in cases such as this where forfeiture is a possible result. New Mexico law is clear: equity abhors forfeiture. Stamm, 55 N.M. at 132, 227 P.2d at 636. {35} As early as 1922 our Supreme Court, in recognizing the harshness of forfeiture, held that equity could intervene to relieve a tenant of commercial property from “forfeiting” the lease simply because the tenant was late in paying one month’s rent. N.M. Motor Corp., 27 N.M. at 307, 201 P. at 106. The Court in N.M. Motor Corp. allowed equity to intervene in this commercial lease situation to prevent a forfeiture even in the absence of fraud, accident, or mistake. Id. “[Equity] looks to the substance rather than the form. It will not sanction an unconscionable result merely because it may have been brought about by means which simulate legality.” Ortiz v. Lane, 92 N.M. 513, 519, 590 P.2d 1168, 1174 (Ct.App.1979) (Hernandez, J., specially concurring) (quoting from Merrick v. Stephens, 337 S.W.2d 713, 719 (Mo.Ct.App.1960) (emphasis and internal quotation marks omitted)). This case should not turn on attempts to characterize the failure to give timely notice, but rather on the consequences to both parties that flow from the untimely notice. {36} In Nearburg, the Court described forfeiture as follows: The Restatement uses the term forfeiture to mean the denial of compensation to an obligee because of the non-occurrence of a condition after the obligee has relied substantially on the expectation of the bargained-for exchange, either by preparation or performance. [Restatement (Second) of Contracts § 227 cmt. b (1981) ]. “When it is said that courts do not favor forfeitures, the meaning is that they do not like to see a party to a contract getting something for nothing.” 3A Arthur Linton Corbin, Corbin on Contracts § 748, at 465 (1960). 1997-NMCA-069, ¶ 21, 123 N.M. 526, 943 P.2d 560. In Nearburg, we held there was no forfeiture. Id. Unlike the purchase option cases cited by the majority, this case deals with a notice to renew a long term lease on premises developed at substantial cost to Tenant. In this case, Landlord will receive a fully developed piece of property having paid little or nothing for the development.. While we recognize that Tenant has received rents in excess of what is paid to Landlord, the difference is used to recoup the investment. If the lease is terminated now, Landlord is entitled to that rental income, or it may re-let the premises at a higher rate, all without having any substantial investment in the development of the property. This is “getting something for nothing,” and is exactly the type of situation that requires at least the consideration of equity. {37} Citing to Bishop, 67 N.M. at 342, 355 P.2d at 279, the majority points to the reasoning behind allowing equity to apply to real estate contracts, which is that the buyer has an equitable right to the land and that this type of financing is a special device that allows many people to become property owners with very small down payments and long payment periods in a manner likened to rent. The majority believes that the possible uncertainty in outcome by allowing equity to intervene when late notice is made in commercial lease cases would have a negative impact on the conduct of business in New Mexico. A review of real estate contract eases reveals that not all buyers are individuals; on the contrary, real estate contracts are used in commercial dealings. See, e.g., Albuquerque Nat’l Bank v. Albuquerque Ranch Estates, Inc., 99 N.M. 95, 654 P.2d 548 (1982). Further, I believe we must look to the underlying policy in the real estate contract cases, that is, equity abhors forfeiture, and allow the district court to make a decision under the existing facts of the case. See id. at 102, 654 P.2d at 555. Again, each case turns on its own facts, and a trial court weighs the many factors in deciding when and how equity should intervene. In allowing equitable principles to determine whether a forfeiture can be declared by a vendor against a sub-vendee without notice, our Supreme Court summarized New Mexico law as follows: the modern view that valuable contractual rights should not be surrendered or forfeitures suffered by a slight delay in performance unless such intention clearly appears from the contract or where specific enforcement [upon the seller] will work injustice after a delayed tender. As we observed in Martinez v. Martinez, 101 N.M. 88, 92, 678 P.2d 1163, 1167 (1984)], the courts’ disapproval of forfeitures is longstanding; we are not compelled in every case to enforce a real estate contract when fairness and legal principles dictate that we should not. A forfeiture declaration is essentially an equitable remedy. It therefore makes perfectly good sense to apply equitable principles in determining whether a vendor under an installment land sale contract will be permitted to declare a forfeiture. Yu v. Paperchase P’ship, 114 N.M. 635, 644, 845 P.2d 158, 166 (1992) (internal citations and quotation marks omitted). Absolutely forbidding equity to be considered in this case is contrary to the spirit of New Mexico law. {38} I disagree that application of the factors in Fountain or its progeny will introduce excessive instability or insecurity into commercial transactions. This type of arrangement or series of transactions has become increasingly common as a method of developing commercial property. See generally Whalen, supra §§ 1.1 to 1.8; 2 Friedman, supra Ch. 14. The holding in Fountain is more consistent with commercial realities and will provide increased stability for those who wish to develop commercial property, with no unexpected losses to the owners of the land on which the development takes place. Normally, when leased premises have been developed and are sublet, landlords expect the lease to be renewed. In those cases, the failure to tender a timely notice is unexpected and in some cases a surprise. It may also result in a windfall for the landlord. {39}- In this case, Tenant asked for an equitable remedy, which was to require Landlord to treat the untimely notice as effective. Landlord did not want the district court to take equity into account. Landlord’s attorney argued to the district court that “one way or another someone is going to get the short end of the stick, whether it is [Landlord] or [Tenant], that’s the reality.” {40} It is clear from the record that the district court did in fact consider all the equities as set out in Fountain before granting relief and that the equities were heavily in favor of Tenant in this ease. First, it was undisputed that Tenant did not intentionally fail to give timely notice. Second, while the notice of a desire to extend the lease was not given in a timely fashion, it was still given, and indeed suit was filed, before that term of the lease expired. The majority points to the difficulty in applying a rule involving “slight” delay. According to Fountain, the delay is measured against the notice. In this case, the tenant was late about forty days out of the ninety-day notice period. The majority is concerned that because the word “slight” is open to interpretation, the parties have nothing concrete to rely on. Each case turns on its own facts. I believe a district court is certainly capable of evaluating the delay as it did in this case. I cannot say that the district court was wrong in considering this particular delay slight, especially when balanced with the other factors. {41} Third, the district court considered the substantial hardship to Tenant which in this case is tantamount to forfeiture. Even the majority recognizes the $2,000,000 investment made by Tenant but expresses its concern about the value of the recoupment and difficulty in following known standards. Again, each case turns on its particular facts and I believe that district courts are capable of sorting it all out. {42} Fourth, the district court considered the extent to which Landlord’s interests would be prejudiced by granting the requested relief. In the district court, it was undisputed that Landlord had not changed its position in reliance on the failure to give timely notice. Indeed, the only prejudice to its interests that Landlord could point to was the fact that it would continue to receive rent at a rate set in the 1960s and substantially below what the market would bear today. This, however, is the result of the rental rate and the number of extensions allowed under the lease and has nothing to do with the timeliness or untimeliness of the notice of intent to renew for an additional term. {43} Lastly, the district court also considered the interests of possible third parties. It was undisputed below that Landlord had not looked for or found a new tenant, nor had Landlord listed the property for sale, so its interests did not implicate those of any third parties or owner whose interests had to be considered. On the other hand, it was equally undisputed that the interests of the Subtenants would also have been significantly harmed if relief was not granted. In short, this was a case in which the equities favored giving relief. {44} In summary, I believe New Mexico law should allow the exercise of equitable powers and require a Landlord to treat as timely an untimely notice of intent to extend a long term lease for another term of years if, as is true here, the delay in giving notice is not willful or deliberate, the length of the delay is relatively short, the notice of intent to extend is given before the term of the lease expires, and the hardship to the tenant in denying relief clearly outweighs any hardship that will be incurred by the landlord if relief is granted. {45} For the above reasons, I respectfully dissent.