Kintner v. Wolfe

Citations: 419 P.2d 116; 4 Ariz. App. 212Docket: 2 CA-CIV 252

Court: Court of Appeals of Arizona; December 22, 1966; Arizona; State Appellate Court

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The Court of Appeals of Arizona reviewed a case involving Ralph and Florence Kintner and Roy and Dorothy Brockbank, appellants, against Paul Wolfe, appellee, concerning a $30,000 judgment for unpaid rent under a lease for a liquor license. The case was decided without a jury based on factual stipulations and admissions under Rule 36 of the Rules of Civil Procedure. 

The Brockbanks owned property in Sierra Vista suitable for a bar and entered into a lease agreement with Wolfe on July 9, 1957. This agreement, which also involved the Kintners, stipulated that Wolfe would lease a Series 6 liquor license to the Kintners for five years at a rental of $500 per month or 5% of gross proceeds, whichever was greater. The lease was contingent on transferring the license to the Brockbanks' property, with an option for the Kintners to renew for another five years.

The agreement included a 'Guaranty' section, wherein the Brockbanks acted as guarantors for the Kintners. Key provisions included: 

1. The Brockbanks paid Wolfe $1,000 as first and last month’s rent.
2. If the Kintners defaulted on rent, the Brockbanks could cover this payment.
3. If the Kintners' license operation was terminated within ten years, Wolfe would lease the license to the Brockbanks or designated persons for the remainder of the term, subject to state approval and other conditions, including that no rental would be excused during any operational hiatus.

The judgment and the nature of the lease agreement were the focal points of the appeal.

GUARANTORS are obligated to ensure payment to LESSOR of either $60,000 or 5% of gross sales, whichever is greater, for a ten-year lease term that began upon the initial lease commencement. This obligation persists regardless of changing conditions and allows LESSOR to accelerate payments for non-compliance. Additionally, GUARANTORS must facilitate the retransfer of the liquor license back to LESSOR if they fail to provide an alternative lessee. Despite the lease between Wolfe and the Kintners not being renewed for a second term, Mr. Kintner used the liquor license for nine months post-termination without paying rent. Wolfe subsequently notified the Brockbanks of the rent acceleration option and sued for $30,000. The lower court ruled in favor of Wolfe, granting $4,500 from Kintner and $30,000 from Brockbank. On appeal, the Brockbanks question whether their guaranty liability extends beyond the Kintners' obligations and whether such liability was terminated by a law enacted after their initial term. They argue that the term "Guaranty" implies limited liability to the original five-year term, referencing legal principles indicating a guarantor’s obligations can differ from those of the principal debtor. The interpretation of the term "guaranty" is crucial in determining the extent of their liability, with legal precedent suggesting that the label alone does not define the nature of the contract.

The determination of a legal instrument's character relies solely on its explicit content, rather than its title. Courts prefer interpretations that maintain the effectiveness of all parts of a document, rather than those that render portions meaningless. In this case, the agreement clearly imposes a primary obligation on the Brockbanks to guarantee rent for a liquor license over a ten-year period, irrespective of the Kintners' lease renewal options. 

The relevant statute prohibits the assignment or leasing of spirituous liquor licenses except under specific conditions, and allows continuation of existing leases post-examination. The Brockbanks argue that this statute invalidates their obligation to pay rent beyond December 31, 1963, due to failure of consideration, a position the court supports. 

The law states that contractual duties are discharged if performance is prohibited by law, unless there is evidence of a contrary intent or fault. Wolfe contends that the Brockbanks assumed the risk of the contract becoming illegal; however, the court disagrees, interpreting the language of the agreement as not imposing this risk on the Brockbanks. Instead, it suggests that if such a risk were intended to be assumed, the agreement would have included explicit limitations regarding Wolfe's obligations.

The term "future changes in conditions" refers to alterations in business and economic conditions that could hinder the lessee's use of the license, such as the closure of Fort Huachuca as a military base, but does not encompass legislative actions that render the contract illegal. It is argued in defense of the judgment that Wolfe's choice to accelerate future rents before the lease's legality was affected justifies a judgment for the total rent for the final five years of the guaranty period. However, no supporting authority is provided for this claim. The court opines that exercising the acceleration clause does not improve the lessor's position compared to a scenario with prepaid rent. If rent had been prepaid and the agreed performance became partially impossible, a pro rata refund would be warranted. Generally, a party who has performed under a contract, while the other party is excused due to impossibility, can seek judgment for the value of the performance rendered, minus the value received, unless the performance can be returned in its original form within a reasonable timeframe. The judgment from the lower court is reduced from $30,000 to $8,500, with interest accruing from the date indicated in the lower court's judgment, and this modified judgment is affirmed. The case was appealed to the Arizona Supreme Court and subsequently referred to this court.