Camelback Land & Investment Co. v. Phoenix Entertainment Corp.

Citations: 407 P.2d 791; 2 Ariz. App. 250Docket: 1 CA-CIV 18

Court: Court of Appeals of Arizona; November 17, 1965; Arizona; State Appellate Court

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Camelback Land and Investment Company (Plaintiff) initiated a lawsuit against Phoenix Entertainment Corporation and Ralph E. Staggs and Patricia J. Staggs (Defendants) to recover unpaid rent under a written lease for a restaurant, "The Embers," located in Phoenix. The lease had a five-year term, allowing the Plaintiff to terminate it at their discretion to ensure the development of adjacent property. The termination notice had to be sent by registered or certified mail prior to specific dates. The rent was structured as a minimum of $3,333.33 per month or ten percent of gross receipts, whichever was higher. Ralph E. Staggs and Patricia J. Staggs acted as personal guarantors for the lease.

The lease included default provisions, stipulating that if the tenant failed to fulfill obligations and did not remedy the default within ten days of notice, the landlord could re-enter the premises, forfeiting the remaining lease term and claiming $5,000 in liquidated damages plus any actual damages. If the default was due to non-payment to third parties, the landlord could pay these amounts on the tenant’s behalf, creating a debt with interest and additional liquidated damages. The landlord also retained the right to relet the premises, holding the tenant liable for any rental deficiency for the remainder of that year.

Rental payments owed by the Tenant are calculated based on gross receipts, with the Tenant responsible for any shortfall exceeding 10% of those receipts compared to actual rent received from reletting for that year. The lease was amended to specify "year" instead of "term" and included handwritten notations initialed by all parties. The Defendant-Lessee occupied the premises from May 2, 1960, until mid-February 1961, ceasing operations and subsequently paying rent for March 1, 1961, and all but $800 of the rent due on April 1, 1961. No further rent was paid, with the first year ending April 30, 1961, and the second year beginning May 1, 1961. On May 17, 1961, the Plaintiff-Lessor filed a complaint to recover the unpaid $800 and the full rental for May 1961. The Defendant-Lessee moved to dismiss the complaint, citing a failure to state a claim, while the Plaintiff-Lessor sought summary judgment. The court granted the motion to dismiss and denied summary judgment, concluding that the remedies available to the Plaintiff were limited by the lease terms. On October 13, 1961, the court dismissed the complaint with prejudice. The Plaintiff-Lessor appealed, arguing that the complaint presented a valid debt claim not solely governed by the lease's default clause, and that the court erred in its rulings. The appeal addresses both the dismissal of the complaint and the denial of summary judgment.

The complaint primarily asserts a claim for debt recovery rather than a breach of lease. The Plaintiff argues that each month's rent accrued as a debt, obligating the Lessee to pay for the remainder of the lease term at the Lessor's discretion, thereby rendering the lease's default provision (Paragraph XXV) irrelevant. The core issue for the Motion to Dismiss is whether the remedies outlined in Paragraph XXV are exclusive, which would exclude traditional lease breach remedies. Paragraph XXV includes three subparagraphs detailing Lessor's remedies: (a) re-entry and $5,000 liquidated damages; (b) the right to pay third-party debts and charge the Lessee; and (c) re-entry, leasing the premises for the remainder of the year, with the Lessee liable for any rent deficiency only for that year. Both parties agree that subparagraphs (a) and (b) do not apply to the current claims. The focus thus shifts to subparagraph (c) to determine if a valid claim for relief exists. The court acknowledges general lease principles, including the Lessee's inability to unilaterally terminate rent obligations, the Lessor's entitlement to collect accrued rents, and the Lessor's re-entry rights not forfeiting rent claims. However, the lease in question allows the Lessor to terminate at their discretion, deviating from standard lease terms and rights. Additionally, while the Lessor may typically hold the Lessee liable for the remaining rent, this obligation is subject to the Lessor's duty to mitigate damages.

The lessor possesses a discretionary right to early termination of the lease, while the lessee is liable for rent for the remainder of the year in the event of default, minus any rent received from reletting the premises. This indicates a modification of standard lease provisions, reflecting the parties' intent to be bound by these terms. The document references the Arizona Supreme Court's rulings on similar contractual situations, particularly in *Armstrong v. Irwin*, which established that in cases of default, parties may forfeit rights and payments made, treating them as liquidated damages. The court emphasized that contracts can stipulate exclusive remedies for defaults, limiting parties to those terms. Additionally, in *Treadway v. Western Cotton Oil and Ginning Company*, the court ruled that a vendor has the discretion to enforce specific performance or declare a contract void due to default, underscoring that contractual terms dictate remedies in breach scenarios. The ruling in *Green v. Snodgrass* reinforces the enforcement of agreed-upon contract terms regarding compensation for services rendered.

Commissions of five percent of the sale price amounting to $5,875 were sought. The agreement stipulated that if the sellers complied but the purchasers defaulted, the down payment of $5,000 would be forfeited and shared equally between sellers and broker. After the purchaser defaulted and issued a stop payment on the down payment check, the court ruled against the broker's claim for commission, emphasizing that the contract's terms governed the situation. The broker did not pursue his share of the forfeited down payment but sought the full commission instead, violating the contract's provisions. 

In another case, the plaintiff sought recovery of unpaid rent from the lessee, claiming amounts due in a manner inconsistent with the lease terms. The language of the complaint indicated a claim for debt rather than for breach of lease, and it improperly included claims for rent due beyond the first year, contravening the lease's provisions. The court reaffirmed that a lessor must adhere to the exclusive remedies outlined in the lease and cannot seek additional claims outside those remedies. Consequently, the lessor's action was dismissed for failure to state a viable claim for relief.

The plaintiff argues that the trial court erred by fully denying their motion for summary judgment, claiming that the defendants owe $800.00 in rent for the remainder of the lease's first year. However, this argument is rejected, as the claim for $800.00 does not align with the plaintiff's original complaint. The court does not opine on possible alternative remedies for the $800.00 or whether the plaintiff made an election regarding it. Consequently, the court finds no need to address the first assignment of error and affirms the trial court's denial of the motion for summary judgment. Chief Justice Stevens and Justice Cameron concur with this decision, while Judge Donofrio recused himself, and Judge Cordova participated in the ruling. This appeal was filed with the Arizona Supreme Court as Number 7501 and referred to the current court under Section 12-120.23 A.R.S.