Court Opinion

ID: 4500353
Source: CourtListenerOpinion
Date Created: 2020-01-23 18:16:53.507407+00
Date Added: 2024-06-11T08:00:36.522238
License: Public Domain

*314OPINION.
Lansdon :
The issue raised by this proceeding is whether the total consideration of $25,000 paid by the vendees in 1921 as the result of the performance of a contract to sell dated April 26, 1921, represents gross income to the petitioner.
The profit resulting from the transaction was $22,392.19. The total consideration for the sale in question was $25,000. The petitioner claims that of said consideration, the amount of $16,660 represents the allocated sales price of property sold and belonging to its individual stockholders, Augustus Botto and A1 Meyers. In other words, the petitioner claims that its gross income has been erroneously increased by the sum of $16,660.
The determination of this case requires a careful analysis of the contract to sell dated April 26, 1921, in the light of all the evidence. The contract was made “by and between Gem Theatre Company, Augustus Botto and A1 Meyers, of Alexander County, Illinois, parties of the first part” and the named vendees as parties of the second part. The contract does not specify the ownership, as between the various parties of the first part, of the items involved and forming the subject matter of the transaction.
The proof adduced by the petitioner is incomplete in several particulars. No evidence was introduced regarding the covenants on the part of the individuals to sell and deliver to the vendees an assignable lease on the Kimmel Theatre and on the Cairo Opera House. We are not in a position to relegate these covenants to an insignificant role in the entire agreement. The contract to sell speaks for itself and contains a provision “that in the event parties of the first part fail or refuse to comply with all of the terms and conditions *315of this contract on their part, then they shall at the option of the parties of the second part, refund to said parties within 10 days the $1,000.00 paid to them at the time of the execution of this contract.” Mr. I. W. Rodgers, one of the vendees, testified that he could not intelligently segregate the separate values of the items forming the subject matter of the contract to sell.-
The provisions of the contract respecting the delivery by the vendors of a lease on the Gem Theatre property, called for a minimum term of five years and a maximum rental of $200 per month to take effect June 1, 1921, or for a substitute lease upon said property to be approved by the vendees. It is shown that the Gem Theatre had been operated on the premises in question close to 11 years, and that the lessors were all of Cairo, Ill., and knew that the property was being used in the motion picture business. Under these circumstances, the contract provision for a maximum rental of $200 per month indicates with reasonable definiteness the vendors’ conception of the fair rental value of the premises. On May 31, 1921, a new lease was executed between the owners and the vendees for a term of five years beginning June 1, 1921, at a rental of $200 per month, with the privilege of a three-year extension at a fixed rental of $250 per month. This indicates with reasonable definiteness the lessors’ conception of the rental value of the premises. The provisions of the contract to sell were thus fulfilled in this regard. It is difficult to perceive a bonus value applicable to the Gem Theatre lease acquired by the vendees on which a portion of the purchase price of $25,000 could be allocated on any sound basis.
In view of the terms of the application for its charter, followed by occupation of the premises and carrying on of the business by the petitioner, we are of the opinion that the lease of the Gem Theatre property was either assigned or sublet to the petitioner, as between the petitioner and Augustus Botto and Al Meyers. Lincoln Furniture Co. v. Bornstein (1926) 135 Atl. 83; Emery v. Hill (1893) 67 N. H. 330; 39 Atl. 266. Cf. In re Lindy-Friedman Clothing Co. (1921) 275 Fed. 453. However, no evidence was introduced to show that the lessor had any knowledge of the breach of the covenant against assigning or underletting. The lessor was therefore always in a position to declare a forfeiture of the lease, and the acceptance of the petitioner’s checks in payment of the rent, without actual knowledge of the breach, did not constitute a waiver of the covenant. Emery v. Hill, supra; German-American Savings Bank v. Gollmer (1909) 155 Cal. 683; 102 Pac. 932; Boston, C. & M. R. R. v. Boston & L. R. R. (1888) 65 N. H. 393; 23 Atl. 529. Cf. Gulf, C. & S. F. Ry. Co. v. Settegast (1891) 79 Tex. 256; 15 S. W. 228; Jackson v. Knight (1917) 194 S. W. 844. Under these circumstances, although *316petitioner could have defended its possession of the premises as against a stranger, it could not recover damages thereunder for loss of future profits or for anything dependent upon the future for its value. Bass v. West (1900) 110 Ga. 698; 36 S. E. 244, 247. An assignment of a lease made in violation of a statutory provision or a covenant in the lease can be taken advantage of only by the landlord for whose benefit alone the provision is made, and he may waive such provision. Thompson on Real Property, vol. 2, pp. 473-474. The existing lease on the premises at the time the contract to sell was executed had been extended to September 1, 1922. If any portion of the consideration of $25,000 is attributable to the cancellation of the existing lease on Gem Theatre property, it would seem that such portion belonged to the petitioner and not to its stockholders.
A consideration of the entire contract leads to the conclusion that the principal factor inducing the sale and the consideration of $25,000 paid by the vendees was the demonstrated earning power of the Gem Theatre Co. from the operation of its three theatres, over and above a reasonable return on the investment in tangible property. Although the so-called good will of the petitioner, in the sense just explained, is not specifically mentioned as such in the contract as being a subject matter of sale, nevertheless, in effect, that is what the vendees acquired as the result of the transaction. Supplementing and bearing directly upon this phase of the transaction was the covenant by the “ parties of the first part ” not to engage in the motion picture business either directly or indirectly for a period of five years in the City of Cairo, Ill. Each of the parties of the first part was bound by this condition; that is, not only Augustus Botto and A1 Meyers, but also the petitioner itself. It would seem even more essential to eliminate the petitioner with the name “ Gem Theatre Company ” from the competitive field in Cairo than to remove its stockholders and officers from such competition. The petitioner in its evidence and brief apparently proceeded on the assumption that Messrs. Botto and Meyers were the only parties concerned in the covenant against competition. That assumption does not seem reasonable under the circumstances.
The most reasonable view of the transaction in question would seem to be that substantially all of the $25,000 purchase price was paid for assets belonging to the business of the petitioner. ÜSTo evidence has been introduced and no basis suggested by which the value of the elimination of the individuals, Augustus Botto and A1 Meyers, from competition in the Cairo field could be even approximated.

Judgment will be entered for the respondent

Considered by Steknhagen, Green, and Arttndeel.