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WESTERN SAVINGS FUND SOCIETY PHILADELPHIA v. SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY (03/06/81)

SUPERIOR COURT OF PENNSYLVANIA


filed: March 6, 1981.

THE WESTERN SAVINGS FUND SOCIETY OF PHILADELPHIA,
v.
SOUTHEASTERN PENNSYLVANIA TRANSPORTATION AUTHORITY, APPELLANT

No. 613 October Term, 1978, Appeal from the Judgment of the Court of Common Pleas of Philadelphia County, Civil Action--Equity, No. 307 October Term, 1976.

COUNSEL

Lewis H. VanDusen, Jr., Philadelphia, for appellant.

C. K. Walters, Philadelphia, for appellee.

Cercone, President Judge, and Price, Spaeth, Hester, Cavanaugh, Brosky and Wickersham, JJ. Cercone, P. J., files a dissenting opinion in which Brosky, J., joins.

Author: Price

[ 285 Pa. Super. Page 189]

The instant appeal is from the judgment entered pursuant to an order granting a motion for summary judgment in favor of Western Savings Fund Society of Philadelphia (hereinafter referred to as Western). Western sued in equity seeking to enforce an option to renew a lease against appellant, Southeastern Pennsylvania Transportation Authority (hereinafter SEPTA),*fn1 notwithstanding its failure to

[ 285 Pa. Super. Page 190]

    comply with a lease provision requiring that notice be timely filed. Reasoning that equitable relief was nonetheless appropriate, the chancellor granted Western's motion for summary judgment. Arguing both that the chancellor erred in denying its motion for summary judgment and in entering judgment for Western, SEPTA appealed. A three judge panel of this court reversed the chancellor's order and dismissed Western's complaint. (Filed October 12, 1979).*fn2 Western's petition for allocatur was denied by our supreme court on January 9, 1980. On March 19, 1980, we granted Western's application for reargument before the Court en banc. For the reasons which follow, we reverse the order granting summary judgment to appellee and direct entry of judgment for appellant.

The pertinent facts are undisputed. On November 26, 1965, Western and SEPTA entered into a lease agreement whereby Western leased certain premises in Philadelphia's Suburban Station Concourse at an annual rental rate of $10,350. The lease became effective April 16, 1966, was for a ten year term, and provided Western the option to renew for an additional ten year period at the 1966 rental rate. The manner in which the option was to be exercised was stipulated in the lease agreement as follows:

[ 285 Pa. Super. Page 191]

That, if Lessee shall have satisfactorily performed its obligations and covenants herein contained, Lessee shall have the option of renewing this lease after expiration of the original term hereby created for an additional term of ten years, upon giving three months' notice in writing to Lessor prior to the expiration of the said original term, of its intention so to do. In the event said option is exercised, this lease shall continue for a further term of ten years under the same terms and conditions. It being understood and agreed, however, that in the absence within Page 191} the time specified, of the aforesaid notice of Lessee of its intentions to exercise its option to renew this lease for an additional ten year term, said option herein granted shall expire absolutely, and in this event the lease shall cease and determine at the expiration of the original ten year term.

Clause V(b) (emphasis added). See Record at 11a (Exhibit A).

Both appellant and appellee agree that the date by which notice was required to have been given pursuant to the lease was January 16, 1976. Western's notice was not mailed until January 20, 1976, however, and was not received by SEPTA until January 22, 1976. SEPTA thus rejected the notice because it was not timely filed and informed Western that the lease would expire at the end of the predetermined ten year term. SEPTA did offer Western a new ten year lease, however, albeit at a higher rental rate of $29,580 per year. Western initially accepted the offer but, ultimately, revoked its acceptance when it decided to seek specific enforcement under the more favorable 1966 terms. See Record at 20a. Western's suit in equity thus followed.

Termed an "administrative oversight" by one of Western's vice presidents, see Record at 29a, the delay was found by the chancellor to have been "occasioned by the fact that at the time of the exercising of the option to renew, [Western] was engaged in a 'massive branch expansion program.'" Slip op. at 2. Since SEPTA was not harmed by the delay and to safeguard Western's "large investment"*fn3 in the

[ 285 Pa. Super. Page 192]

    premises, the chancellor opined that the delay of six days "must be considered de minimis." Slip op. at 6. The chancellor thus deemed equitable relief appropriate and granted Western's motion for summary judgment. Appellant SEPTA contends that this was error. We agree.

"[I]t is a sound legal principle that unless an option is exercised within the time fixed it necessarily expires: McMillan v. Philadelphia Company, 159 Pa. 142, 28 A. 220 [(1893)]; Vilsack v. Wilson, 269 Pa. 77, 112 A. 17 [(1920)]; Rhodes v. Good, 271 Pa. 117, 114 A. 494 [(1921)]; Loughey v. Quigley, 279 Pa. 396, 124 A. 84 [(1924)]." Phillips v. Tetzner, 357 Pa. 43, 45, 53 A.2d 129, 131 (1947). This is so because "[t]ime is always of the essence in an option contract." New Eastwick Corporation v. Philadelphia Builders, 430 Pa. 46, 50, 241 A.2d 766, 769 (1968). Cf. 6 Williston on Contracts ยง 853 at 212 (3d ed. 1962) ("whether the question arises either at law or in equity it is settled that 'time is of the essence of an option.'" Id. at 212-13 (footnote omitted)). Accord, Unatin 7-Up Company, Inc. v. Solomon, 350 Pa. 632, 39 A.2d 835 (1944).*fn4

In urging us to ignore both the rule requiring punctuality in exercising an option and the express language of the lease agreement mandating the same, appellee contends that Pennsylvania courts recognize exceptions to the general rule, which exceptions "allow equity to relieve a tenant, in a proper case, from the consequences of a tardy renewal notice." Brief for appellant 7-8. Appellee's inability to cite

[ 285 Pa. Super. Page 193]

    a single Pennsylvania decision in which such exceptions were operative casts considerable doubt on the validity of this position. Appellee's reliance on Unatin 7-Up Co., Inc. v. Solomon, 350 Pa. 632, 39 A.2d 835 (1944), Warner v. Bedell Co., 278 Pa. 576, 123 A. 490 (1924) (per curiam), and McHenry v. Mitchell, 219 Pa. 297, 68 A. 729 (1908), moreover, is misplaced.

Unatin 7-Up Co., Inc. v. Solomon, 350 Pa. 632, 39 A.2d 835, fails to vindicate appellee's position because it stands for the singular proposition that where the optionor himself prevents an optionee from accepting an option in a timely fashion, the optionee has done everything possible to affect a timely acceptance, and notice of acceptance is nonetheless given as soon after the prescribed time as is possible, given the optionor's conduct, the option will be specifically enforced. Rather than positing an exception to the rule requiring punctuality, therefore, the Unatin decision simply comports with the view in this Commonwealth that the timely notice requirement may be waived by agreement or by conduct of the parties, see note 4 supra, and, if such a waiver occurs, failure to give timely notice will not prevent the option from being enforced.

To be sure, the court in Warner v. Bedell Co., supra, gratuitously commented that, "Ordinarily, the possessor of [an option] must exercise it on the day, or within the time specified . . . and nothing sufficient to take this case out of the general rule has been shown." 278 Pa. at 578-79, 123 A. at 491 (citation omitted) (emphasis added). Even accepting, arguendo, appellee's premise that the italicized portion of the court's statement establishes Pennsylvania's recognition of exceptions, it does not follow a fortiori that the instant case is such an exception.

Analysis of the Warner holding reveals only strict adherence to the rule of punctuality and the requirements stipulated in the lease regarding the manner in which the option was to be exercised. Thus, where the lessor was obliged to give notice of his intent to cancel a lease by registered mail on or before a specified date, the notice was ruled untimely

[ 285 Pa. Super. Page 194]

    since, although it was given by the lessor to one of his own employees on the correct date, the lessor's employee failed to deliver it to the lessee until the day following the required notification date. This result obtained notwithstanding the court's concession that, even had the lessor followed the procedure outlined in the lease, viz., sending the notice by registered mail, the letter could not possibly have been received by the lessee until at least the day on which the notice was, in fact, hand delivered. Pivotal to this conclusion was the court's belief that time was clearly of the essence and thus, that

     in contemplation of law, the sending of the letter by registered mail on [the required date] would have been notice instanter of the exercise of the option . . . and hence within the express terms of the lease, whereas [the lessor's] personal delivery of the notice could not take effect before [the day following the required date] . . . after the right to cancel [the] lease had expired.

Id., 278 Pa. at 578, 123 A. at 491 (citation omitted) (emphasis added).

Appellee's reliance on the court's pronouncement in McHenry v. Mitchell, 219 Pa. 297, 68 A. 729, that "[t]ime is presumably of the essence of this, and every other optional agreement," id., 219 Pa. at 301, 68 A. at 731 (emphasis added), is similarly unavailing. Even if we assume that the court's use of the word "presumably" in some way intimates that exceptions to the rule of punctuality exist, the McHenry court's further conclusion that time is always of the essence when, as here, the contracting parties have made it so seemingly precludes the application of any such equitable exception.

Appellee purports to sustain its argument in favor of equitable relief by referring us to decisions by courts in other jurisdictions wherein equitable relief has been granted when: (1) the failure to give timely notice results not from negligence but rather from accident, fraud, surprise, or mistake; (2) the denial of relief would result in a serious forfeiture to the optionee; and (3) no such harm will befall

[ 285 Pa. Super. Page 195]

    the optionor in the event that relief is granted to the optionee. See e. g., Xanthakey v. Hayes, 107 Conn. 459, 140 A. 808 (1928); F. B. Fountain Co. v. Stein, 97 Conn. 619, 118 A. 47 (1922); Sosanie v. Pernetti Holding Corp., 115 N.J.Super. 409, 279 A.2d 904 (App.Div.1971); J. N. A. Realty Corp. v. Cross Bay Chelsea, Inc., 42 N.Y.2d 392, 366 N.E.2d 1313, 397 N.Y.S.2d 958 (1977); Sy Jack Realty Co. v. Pergament Syosset Corp., 27 N.Y.2d 449, 267 N.E.2d 462, 318 N.Y.S.2d 720 (1971); Jones v. Gianferante, 305 N.Y. 135, 111 N.E.2d 419 (1953). We need not decide whether Pennsylvania adheres to this jurisprudential philosophy, however, since we conclude that the equitable considerations which appeared so compelling in the above decisions are absent in the case before us.

As regards the first consideration, the cause of the failure to give timely notice, the chancellor determined that the delay was the sole fault of Western and in no way attributable to SEPTA. The chancellor nonetheless concluded that this was a mistake which "occurred not from neglect or lack of diligence." Slip op. at 4. At the expense of appearing pedantic, we must disagree. Even those jurisdictions which recognize equitable exceptions to the rule that time is of the essence have rigorous standards for determining when such exceptions should operate.

Anything short of the utmost good faith and diligence on the part of the party seeking to be relieved from the consequences of a failure to conform strictly to the terms of such contract will not be regarded as sufficient; but where it appears that by the act of the other party, or by unavoidable accident of such character as could not be foreseen and guarded against, the performance of the contract, with the exercise of due diligence was rendered impossible, and the other party at the earliest opportunity performed his part of the contract, the court will enforce it.

Monihon v. Waklein, 6 Ariz. 225, 234, 56 P. 735, 736-37 (1899) (emphasis added).

[ 285 Pa. Super. Page 196]

A heavy work load is not only foreseen by commercial entities such as Western but is also a state of affairs which such businesses strive to achieve. Thus, the fact that Western's "administrative oversight" was attributed to the workload with which it was faced at or about the date on which notice was required in no way shifts or lessens Western's responsibility for this error. Moreover, the term "negligence" itself includes carelessness, indifference, or instances in which one fails to do that which is required. Webster's New World Dictionary 952 (2d ed. 1980). Clearly, Western failed to do that which it was required to do in order to exercise the option. Thus, neither Western's failure to give timely notice nor its justification therefore evidence either the degree of diligence or the unavoidable circumstances necessary to justify even equitable intervention.*fn5 See, e. g., Woodrum v. Pulliam, Ky., 453 S.W.2d 263 (1970) (forgetfulness does not warrant intervention of equity); Koch v. H. & S. Development Co., 249 Miss. 590, 163 So.2d 710 (1964) (equity will not relieve against forgetfulness and will never intervene where fraud, accident or mistake has not caused the failure to exercise an option); McClellan v. Ashley, 200 Va. 38, 104 S.E.2d 55 (1958) (negligence is not a favored ground for equitable relief).

With regard to the second consideration, we have already concluded that Western was not faced with a forfeiture of the improvements which it added to the premises in question, since SEPTA offered a new lease for a period equal to that available under the option which was not timely exercised. See note 3 supra. An argument that the option to renew was itself an investment to be forfeited absent the intervention of equity is, we believe, also unpersuasive. As Chief Justice Breitel noted in his dissenting opinion in J. N. A. Realty Corp. v. Cross Bay Chelsea, Inc., supra,

[ 285 Pa. Super. Page 197]

Considering investments in the premises or the renewal term a "forfeiture" as alone warranting equitable relief would undermine if not dissolve the general rule upon which there is agreement. For, it is difficult to imagine a dilatory commercial tenant, particularly one in litigation over a renewal, who would not or could not point . . . to some threatened investment in the premises, be it a physical improvement or the fact of goodwill. As a practical matter, it is not unreasonable to expect the commercial tenant, as compared with his residential counterpart, to protect his business interests with meticulousness, a meticulousness to which he would hold his landlord. All he, or his lawyer, need do is red flag the date on which he has to act.

42 N.Y.2d at 407, 366 N.E.2d at 1322, 397 N.Y.S.2d at 967 (Breitel, C. J., dissenting).

Appellee's final argument in this regard is that the delay neither mislead nor otherwise injured appellant and, therefore, that equitable relief is appropriate. We disagree. First, the absence of detriment to the optionor "cannot alone furnish a basis for equitable interposition." F. B. Fountain Co. v. Stein, 97 Conn. at 624, 118 A. at 49. Second, even if this were not the case, we cannot agree with appellee's assertion that appellant would suffer no harm were we to grant Western's request for equitable relief. "There is another side to the coin called equity . . . . The owner, the landlord, the lessor, the person who has lawfully acquired . . . the property is also entitled to consideration, and his rights deserve equal respect under our laws and our right of . . . ownership of property." Koch v. H. & S. Development Co., 249 Miss. 590, 629, 163 So.2d 710, 727. In exchange for various commitments from Western, SEPTA agreed that Western could renew the lease for an additional ten year period at the same rental rate that was competitive ten years previous. If Western had exercised the option, we have no doubt that Western would urge us to strictly enforce the agreement should SEPTA thereafter ask equity to relieve it from an improvident agreement, deemed so in light of current rental receipts received on similar premises.

[ 285 Pa. Super. Page 198]

Thus, because it is the optionor alone who is bound by the agreement until the date on which it is exercised, we think that fairness militates against demanding more from the optionor than he lawfully agreed to give and instead obligates us to strictly enforce the agreement to insure that neither party is prejudiced by a judicially authored revision of the agreement.*fn6

Instantly, Western and SEPTA agreed that the "option . . . [would] expire absolutely, and . . . the lease [would] cease and determine at the expiration of the original ten year term," Record at 11a, unless Western notified SEPTA of its desire to exercise the option on or before January 16, 1976. It cannot be gainsaid that this provision clearly apprised Western that time was of the essence.*fn7 Thus, since, the parties themselves agreed both that performance was to occur on or before some specific date and that time was of the essence, the agreement must be enforced. See, e. g., McHenry v. Mitchell, 219 Pa. 297, 301-02, 68 A. 729, 731 (1908). See Knable v. Bradley, 430 Pa. 153, 242 A.2d 224 (1968); New Eastwick Corporation v. Philadelphia Builders, supra; Morrell v. Broadbent, 291 Pa. 503, 140 A. 500 (1928);

[ 285 Pa. Super. Page 199]

    announce the equitable principles or factors which would support granting them in particular adjudications.

A.

The case of Murtland v. English, 214 Pa. 325, 329-30, 63 A. 882, 883, (1906), stands for the narrow proposition that merely remaining in possession of leased premises without ever giving any notice or paying an increased rent does not evidence a renewal. The rationale of this rule is that strict compliance with the terms of an option is necessary where the lessee gives no indication other than his holding over that he intends to exercise and be bound by the option to renew. Under those circumstances, both courts of law and equity have been sympathetic to the plight of the lessor, i. e., the lessor would in effect be bound by the option while the lessee is free to accept or reject.*fn1 Id., 214 Pa. at 330, 63 A. at 883.

Rhodes v. Good, 271 Pa. 117, 121, 114 A. 494, 495 (1921) involved an agreement to repurchase land. In affirming a lower court judgment in favor of the lessor, the court gratuitously considered the agreement as an option to repurchase. Consistent with Murtland, the court reasoned that if the agreement were so construed, it expired by its own terms as the lessee never expressed any intention to accept the option, late or otherwise. Good, 271 Pa. at 121, 114 A. at 495.

Warner v. Bedell Co., 278 Pa. 576, 123 A. 490 (1924) (per curiam) is perhaps the most closely analogous to the present case. Bedell addressed the question whether delivery of written notice to cancel the lessee's right to renew was

[ 285 Pa. Super. Page 201]

    properly exercised where notice was served on the lessee one day late. The court, in upholding an injunction against ejectment proceedings brought by the lessor, explained:

" Ordinarily, the possessor of such a right must exercise it on the day, or within the time, specified . . ., and nothing sufficient to take this case out of the general rule has been shown." Id. at 578-79, 123 A. at 490-91 (citations omitted) (emphasis added).*fn2

The court, therefore, in applying the general rule, significantly inferred that exceptions to this rule do exist,*fn3 although the opinion gave no further guidance on the factors which would entitle a lessee to relief. The inference drawn in Bedell, supra, strongly points to a conclusion that equitable principles are material and relevant in lessor-lessee option controversies. At this juncture, inquiry properly shifts into ascertaining which factors will be deemed determinative in deciding whether a lessee has an equitable right to relief, and further, whether as a matter of law the lessee made such a showing in this case.

II.

In the instant case, the Chancellor below was of the opinion that American House, Inc. v. Schneider, 211 F.2d 881 (3d Cr. 1954) provided guidance as to what factors a court of equity might consider in determining whether a tenant has

[ 285 Pa. Super. Page 202]

    established the existence of an equitable interest and a right worthy of protection.*fn4 Circuit Judge Hastie, authored the well-reasoned and cogent Schneider opinion. Schneider held that "sound and salutary equity doctrine and practice," requires a federal court "in real hardship cases to allow a renewal despite slight, relatively inconsequential and excusable tardiness." The court identified three considerations as paramount to its holding. Those considerations were:

"(1) the nature of the mistake on the lessee's part which led to the delay, (2) the hardship which would result to the lessee should the lease be terminated, and (3) whether the lessor has had a change in position based upon his reliance on the fact that the lessee did not exercise his option to renew within the required time."*fn5 Id. at 1357-58.

Armed with these criteria of decision, the Chancellor found relative to the first factor that the delay in sending

[ 285 Pa. Super. Page 203]

    notice to the lessor, which was only four days or two business days,*fn6 was not due merely to forgetfulness*fn7 or gross neglect*fn8 on the part of the lessee. On the contrary, the delay being unquestionably slight and attributable to a complicated expansion program which precipitated a hectic time in the lessee's offices, the Chancellor determined the equities weighed in favor of the lessee as to the first consideration.

Regarding the second factor, the Chancellor found that the lessee would suffer harm if it were not permitted to exercise the option. Specifically, the lessee would be deprived of a valuable business interest in the location of the property*fn9 as well as the benefit of an $84,000.00 investment

[ 285 Pa. Super. Page 204]

    it made in improving the property.*fn10 The Chancellor also concluded the third factor weighed in the lessee's favor. The lessor unequivocally related it did not enter into any agreement for the leasing of the premises, nor did it take any other detrimental action based upon the lessee's failure to give notice in accordance with the date in the lease. Based on these findings, the Chancellor granted the lessee's motion for summary judgment and entered an order compelling the landlord to accept the lessee's exercise of its option.

     a.

While we disagree with the majority's substantive conclusion that the lessee failed to establish a triable case as to entitlement to equitable relief, we are, however, of the opinion that summary judgment in favor of the lessee was not appropriate on this record. Summary judgment is proper only in the "clearest of cases," see, e. g., Kotasinski v. Rasner, 436 Pa. 32, 258 A.2d 865 (1969); Prince v. Pavoni, 225 Pa. Super. 286, 392 A.2d 452 (1973) in which there are no genuine issues of material fact. Having reviewed the evidence

[ 285 Pa. Super. Page 205]

    in the light most favorable to the appellant-lessor, we are convinced that disputed questions do exist. In this procedural posture, equity and good conscience dictate a full and fair trial be had for the question of relief to be definitively settled. See, e. g., McGovern v. Spear, 463 Pa. 269, 272, 344 A.2d 826, 827 (1975); Marchese v. Marchese, 457 Pa. 625, 629, 326 A.2d 321, 323 (1974). However, we do not mean to suggest that summary judgment is never appropriate in cases like the present. Rather, there might arise causes where for various reasons summary judgment is particularly fitting. Cf. B-Automotive Co. v. Harrison, 443 Pa. 360, 362-63, 278 A.2d 890, 891 (1971) (attempted exercise of option approximately four years after it became exercisable -- not timely).*fn11

The new proceedings should include testimony on: (1) the precise nature and extent of monetary loss to the lessee regarding its improvements to the property if forced to relocate; (2) the hardship to the lessor, if forced to accept the option at the original rental, i. e., have utilities, taxes or other expenses associated with ownership and maintenance of the property substantially increased such that continued payment of the original rental fee would clearly outweigh the degree of financial hardship to the lessee if forced to vacate. See, 5629 Corporation v. Ideal Lighting Fixtures Co., 538 S.W.2d 139, 141 (Tex.Civ.Ct.App.1976), and (3) the extent to which the lessee's improvements to the land have increased the rental value and useful life of the lease hold. See Application of Topp, 81 N.Y.S.2d 344, 346 (Sup.Ct.1948).

Accordingly, I would reverse the judgment of the lower court and remand for a trial on the above matters.


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