Coulter v. Capitol Finance Company

146 S.E.2d 97 (1966)

266 N.C. 214

Annie Ben COULTER v. CAPITOL FINANCE COMPANY, Original Defendant, and Eastern Finance Company of Burlington, Inc., and CMC Finance Group, Inc., Additional Defendants.

No. 691.

Supreme Court of North Carolina.

January 14, 1966.

*100 Wharton, Ivey & Wharton, Greensboro, for plaintiff appellant.

Forman, Zuckerman & Scheer and Harry Rockwell, Greensboro, for defendant appellees.

LAKE, Justice.

Nothing else appearing, when a tenant for a fixed term of one year or more holds over after the expiration of such term, the lessor has an election. He may treat him as a trespasser and bring an action to evict him and to recover reasonable compensation for the use of the property, or he may recognize him as still a tenant, having the same rights and duties as under the original lease, except that the tenancy is one from year to year and is terminable by either party upon giving to the other 30 days' notice directed to the end of any year of such new tenancy. Kearney v. Hare, 265 N.C. 570, 144 S.E.2d 636; Duke v. Davenport, 240 N.C. 652, 83 S.E.2d 668; Murrill v. Palmer, 164 N.C. 50, 80 S.E. 55; Harty v. Harris, 120 N.C. 408, 27 S.E. 90.

The parties to the lease may, of course, agree upon a different relationship. Here, they have done so. Paragraph V of the lease gives the lessee the option to extend the lease for an additional term of two years, the rent during such additional term to be $225.00 per month instead of the $175.00 payable during the original term. This paragraph also provides that the lessee agrees to notify the lessor, in writing by registered mail, 30 days before the end of the original term, of its intention to exercise such option. We construe this provision for notice to be a condition precedent to the right of the lessee so to extend the term. Otherwise, the so-called agreement would have no meaningful purpose.

Nothing else appearing, a holding over by the lessee, without giving such notice, would not prevent the lessor from treating the lessee as a trespasser following the expiration of the original term and suing immediately to evict. Elm & Greene Streets Realty Co. v. Demetrelis, 213 N.C. 52, 194 S.E. 897; Merchants Oil Co. v. Mecklenburg County, 212 N.C. 642, 194 S.E. 114; Holton v. Andrews, 151 N.C. 340, 66 S.E. 212. However, this provision for notice is for the benefit of the lessor and may be waived by him. Kearney v. Hare, supra; 32 Am.Jur., Landlord and Tenant, § 980; 51 C.J.S. Landlord and Tenant §§ 127, 145, 149. See also: Merchants Oil Co. v. Mecklenburg County, supra; Holton v. Andrews, supra. When a tenant, having the right to extend, holds over, he is presumed to do so with the intent of exercising the right to extend. Kearney v. Hare, supra; First-Citizens Bank & Trust Co. v. Frazelle, 226 N.C. 724, 40 S.E.2d 367; 32 Am.Jur., Landlord and Tenant, § 982. When such a lessee remains in possession without giving the prescribed notice, the lessor has an election to treat him as a trespasser or to waive the notice and treat him as holding by virtue of an extension of the lease. Acceptance by the lessor of the rent which the lease provides shall be paid during the extended term is a waiver of such notice by the lessor, nothing else appearing. 32 Am.Jur., Landlord and Tenant, § 980; Anno.: 27 A.L.R. 981, 993. This is especially true where, as here, the lease provides that, in event of an extension of the term, the rent shall be increased. Long v. Stafford, 103 N.Y. 274, 8 N.E. 522; Anno.: 27 A.L.R. 981, 995.

*101 In 32 Am.Jur., Landlord and Tenant, § 982, the rule is correctly stated as follows:

"[I]f the lease provides for an additional term at an increased rental, and after the expiration of the lease the tenant holds over and pays the increased rental, this is affirmative evidence on his part that he has exercised the option to take the lease for an additional term; but where, under such a lease, the tenant holds over after the expiration of the original term and does not pay the increased rental as provided by the lease, but continues to pay the original rental, which is accepted by the lessor, this negatives the idea of the acceptance of the privilege of an additional term."

Here, the lease provided for an increase of the rent, from $175.00 per month to $225.00 per month, if the lessee exercised its right to extend the term for two additional years. The lessee held over. Rent, at the rate of $225.00 per month, was paid and accepted without comment. This clearly indicates an intent on the part of the lessee to exercise its option to extend the term for two additional years and a similar intent on the part of the lessor to waive the notice to which she was entitled.

The defendants contend that Paragraph VI of the lease leads to a different conclusion. This paragraph provides:

"Should the Lessee remain in possession of the leased premises beyond the expiration of the original term or any renewal or extension of this lease, which shall result in a tenancy from month to month, this lease may be terminated by either party upon the giving of thirty (30) days' written notice to the other party."

This provision is ambiguous. Construed literally, it would apply whenever the lessee remained in possession beyond the expiration of the original term, even though the lessee had given notice, pursuant to Paragraph V, of its intent to extend the term for two years. It does not seem likely that this is what the parties had in mind. Nor does it seem reasonable to construe this Paragraph VI to mean that the lessee, by remaining in possession beyond the expiration of the original term, without giving notice of any intent to exercise its option could thereby compel the lessor to recognize the continuance of the landlord-tenant relationship for at least another month. A reasonable construction of Paragraph VI would seem to be that it is intended to apply only where there is (1) no exercise of the option to extend under Paragraph V, (2) a holding over by the lessee and (3) an election by the lessor to treat the lessee otherwise than as a trespasser subject to immediate eviction.

Without Paragraph VI such a combination of circumstances would create a tenancy from year to year. Williams v. King, 247 N.C. 581, 101 S.E.2d 308; Murrill v. Palmer, supra; Harty v. Harris, supra. The purpose of Paragraph VI seems to have been to provide that in such circumstances the tenancy would be from month to month, and so terminable by either party at the end of any month, but only upon 30 days' notice rather than upon the seven days' notice, which would otherwise be sufficient to terminate a month to month tenancy under G.S. § 42-14.

In event of a month to month tenancy, pursuant to Paragraph VI, the rent would be $175.00 per month, not $225.00 per month, since the only provision for the increased rental is in Paragraph V and relates to the extension for two years. The payment and acceptance of the higher rent is consistent only with the establishment of an extended term of two years beginning with the expiration of the original term.

Ordinarily, an ambiguous clause in a lease is construed in favor of the *102 lessee. Kearney v. Hare, supra; First-Citizens Bank & Trust Co. v. Frazelle, supra; 32 Am.Jur., Landlord and Tenant, §§ 128, 962. However, "It is also a rule of construction that an ambiguity in a written contract is to be inclined against the party who prepared the writing." Salem Realty Co. v. Batson, 256 N.C. 298, 123 S.E.2d 744; Jones v. Palace Realty Co., 226 N.C. 303, 37 S.E.2d 906; Wilkie v. New York Mut. Life Insurance Co., 146 N.C. 513, 60 S.E. 427. Here, the lease was prepared by the attorney for the lessee. Consequently, the ambiguous language in Paragraph VI should be construed in favor of the lessor.

What Eastern, the original lessee, held over after the expiration of its three year term, paying rent at the rate which was to apply only if it exercised its option to extend the term for two additional years, and the lessor accepted this payment, the extension of the lease was effected and the conditons to which Paragraph VI was to apply never came into being. Both lessor and lessee were then bound for the two year term.

Thereafter, Eastern assigned the lease to its parent corporation which reassigned it to CMC. CMC and Capitol, the wholly owned subsidiary of CMC, entered into possession of the leased premises and paid the agreed rent to the lessor. The assignment of a lease does not release the lessee from its contractual obligation to pay rent even though the lessor consents to the assignment and accepts rental payments from the assignee. Williams v. King, supra; Fidelity Bank of Durham v. Bloomfield, 246 N.C. 492, 98 S.E.2d 865; 32 Am.Jur., Landlord and Tenant, §§ 356, 358, 360. The assignee is also liable for rent accruing after the assignment takes effect. The lessor may sue either the lessee or the assignee, or both, although he can, of course, have but one satisfaction. 32 Am.Jur., Landlord and Tenant, § 374. The abandonment of the lease by the assignee does not relieve the assignee from liability for rent for the remainder of the term. 32 Am.Jur., Landlord and Tenant, § 380.

The lease having been extended for two additional years, as provided in Paragraph V, the lessor is entitled to recover from all of the defendants her damages resulting from their breach of the lease agreement, the amount of which damages is stipulated to be $3,979.50.

The court below erred in its conclusions of law Nos. 1, 2 and 3. Its judgment must, therefore, be reversed and the cause remanded to the superior court for the entry of a judgment in favor of the plaintiff in accordance with this opinion.

Reversed and remanded.