Stop & Shop, Inc. v. Ganem

Brief Fact Summary. A company entered into a 13 year lease for a building.  The lease did not specify for what purpose the premises had to be used.  For the first ten years of the lease the company operated as a supermarket, but thereafter wanted to discontinue operations as a supermarket.

Synopsis of Rule of Law. "Since the governing principle * * * is the justifiable assumption by one party of a certain intention on the part of the other, the undertaking of each promisor in a contract must include any promises which a reasonable person in the position of the promisee would be justified in understanding were included."

Facts. The Plaintiff, Stop & Shop, Inc. (the "Plaintiff"), leased on August 24, 1953 from the Defendant, Ganem (the "Defendant"), a building for at least $22,000 per year.  The term of the lease was 13 years.  If gross sales were above $3,000,000 for a twelve-month period at this store and another, 1 ¼ % of all gross sales above  $1,269,230.60 would be added to the minimum rent.  The lease does not specify for what purposes the premise must be used.  The Defendant was aware at the time of the lease the Plaintiff was involved in the supermarket business.  Additionally, prior to August 24, 1953 the building was used as a supermarket.  The Plaintiff operated the premises as a supermarket through 1962 and paid a percentage in only two of those years.  The Plaintiff, shortly after January 1, 1963, sought to stop operating a supermarket under the lease, but to continue paying the minimum rent.

Issue. Does the lease contain an implied condition to continue operations?

Held. The court first observed if something is not said in a lease, that is evidence the parties did not reach an understanding about it.  Courts will not extend covenants by implication "unless the implication is clear and undoubted."  The court then observes "Since the governing principle * * * is the justifiable assumption by one party of a certain intention on the part of the other, the undertaking of each promisor in a contract must include any promises which a reasonable person in the position of the promisee would be justified in understanding were included."
•    The Defendant wishes for the Plaintiffs to keep on operating the premises to obtain higher rent from the percentage mechanism in the lease.  However, there is nothing in the lease that says the Plaintiffs must continue operations.  Also, percentage increase in rent is nominal.  The court recognizes that the minimum rent of $22,000 is substantial. 
•    The court then recognizes "[t]here is in this record no basis for implying a covenant to continue to operate beyond that time when in the business judgment of the lessee operations at the demised location, should cease."  The lessors had the burden, but did not show that a reasonable person would have felt that such a covenant was intended.

Discussion. A covenant will not be implied in a lease unless a reasonable person would be justified in understanding that the parties intended on including such a covenant.