Appeal from the United States District Court for the Eastern District of Pennsylvania, D.C. Civil No. 82-4260.
Before: GIBBONS, Chief Judge, MANSMANN, Circuit Judge, and McCUNE, District Judge.*fn*
In this diversity action pursuant to 28 U.S.C. § 1332, the defendant tenant, Evans Products, appeals from a district court order declaring Evans Products, appeals from a district court order declaring Evans Products to be in default in certain lease covenants and declaring the consequential right of the plaintiff landlord, 202 Marketplace, to terminate the lease. In a cross appeal, 202 Marketplace challenges the district court's entry of summary judgment against it on a count alleging an oral surrender by Evans Products of the leasehold interest.
We agree that the Pennsylvania Statute of Frauds prohibits an oral surrender under the circumstances of this case. However, we also find that 202 Marketplace failed to meet its burden to establish a default justifying a declaration of forfeiture. Therefore we will affirm summary judgment for Evans Products on Count I and we will reverse the declaratory judgment for 202 Marketplace on Count II.
Evans Products Co., a Delaware corporation with its principal place of business in Oregon, leased a storeroom and an outside sales area in a shopping center in Montgomery County, Pennsylvania from the predecessor of 202 Marketplace, a New Jersey corporation with principal places of business in states other than Oregon and Delaware. Evans products -- which is principally engaged in the sale of lumber, hardware, storage sheds, and heating and plumbing supplies -- established one of its retail stores at the shopping center under the name "Grossman's".
The lease, dated October 18, 1977, was drafted by Evans Products and incorporated another document entitled "lease agreement". The lease gives Evans Products a 30-year leasehold interest with no increase in rent consisting of six successive five year terms which continue automatically unless Evans Products gives proper notice of its intention to terminate. Neither the lease nor the lease agreement provides for any specific form of notice of the intention to terminate the lease. The lease also provides that 202 Marketplace may regain possession of the demised premises if Evans Products defaults in any of its covenants.
Robert T. Healey is a partner in 202 Marketplace. Joseph B. Schwartz & Co., Inc. is a real estate agent and independent property manager for 202 Marketplace. During the period from May 12, 1982 to August 12, 1982 both Joseph Schwartz and Healey directed letters to personnel at the Grossman's Lumber Store in Montgomeryville, Pennsylvania, complaining of the use of areas outside the demised premises for storage of Grossman's products and of the tenant's failure to maintain the outside area free of trash and debris.
In late June, 1982, Robert J. Hertel, assistant secretary and real estate negotiator for Evans Products, contacted Joseph B. Schwartz & Co.'s office in Montgomeryville, Pennsylvania to propose certain changes to the existing lease arrangement. Joseph B. Schwartz & Co. requested a written proposal, and upon receipt of one dated June 30, 1982, forwarded it to Healey at his office in Haddonfield, New Jersey. Healey thereafter contacted Hertel by telephone and advised him that 202 Marketplace would not agree to the proposed changes. Hertel orally advised Healey that Evans Products might terminate the lease unless its proposals were accepted. On July 21, 1982, Hertel telephoned Healey and when Healey again rejected the proposed modifications, Hertel reaffirmed Evans Products' intention to terminate the lease. Notwithstanding the conversation between Hertel and Healey, by letter of July 28, 1982, Hertel notified Joseph Schwartz that Evans Products intended to renew the lease for the five year period commencing November 1, 1982.
By letter of August 17, 1982, counsel for 202 Marketplace notified counsel for Evans Products that 202 Marketplace considered the lease to be terminated at the conclusion of the term on October 31, 1982 as a result of the telephone conversation between Healey and Hertel on July 21. Counsel for 202 Marketplace characterized Hertel's July 28 letter as an ineffective attempt to withdraw the termination of the lease. The August 17th letter alternatively notified Evans Products of 202 Marketplace's election to terminate the lease because Evans products had allegedly breached it by improperly maintaining the exterior, using areas of the premises exceeding the lease and allowing trash and other material and debris to accumulate in areas where it was not permitted.
On October 21, 1982 202 Marketplace filed this action seeking a declaration of its right to terminate the lease. Count I alleged an oral surrender of the leasehold by Evans Products and Count II alleged the plaintiff's right to declare a forfeiture because of Evans Products' breach of lease covenants by improperly maintaining the exterior of the demised premises, improperly using areas outside the demised premises, allowing trash and debris to accumulate, and advertising in ways prohibited by the lease. Evans Products counterclaimed for a declaration that it had effectively exercised its option to renew the lease.
The district court granted summary judgment for Evans Products on the first count, on the theory that the Pennsylvania statute of frauds requires surrender of a leasehold interest of greater than three years to be in writing. A bench trial on the issue of default, by agreement of the parties, was based solely on consideration of documentary evidence. The district court found that Evans Products had covenanted not to obstruct the common areas of the shopping center, i.e., sidewalks and parking areas. The court found that Evans Products had defaulted in that covenant by storing its merchandise in the common areas. ...