Abernathy v. Adous

149 S.W.3d 884 (2004)

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Nature of the Case

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Facts

The property that is the subject of the lease is a service station. D, the owners of the property, agreed to build the service station for the original lessee, Griffith Petroleum, Inc. (GPI). D financed the construction through Fidelity National Bank. The lease was for a ten-year term, to begin upon completion of construction, with six consecutive five-year options to renew. The monthly lease payment for the first ten years was the amount D owed to Fidelity National Bank ($3,412.60), plus the additional sum of $583.33 per month, for a total of $3,995.93. GPI agreed to write two checks each month, one directly to Fidelity National for $3,412.60 and the other to D for $583.33. The lessee would be in default upon failure to pay rent in a timely manner or upon becoming insolvent. The lease contained no prohibition against subleasing or assignment. Over four years later, GPI executed a document titled 'Sublease Agreement' with Maref Quran whereby Quran would operate the facility for an initial term of five years and eight months with six consecutive five-year options. Quran's lease payment for the initial term was the same as due from GPI. Quran was to make the rental payments to GPI, who would then remit the payments to Fidelity and P. Adous (P) was added as a subtenant of the site under a document styled 'Addendum to Sublease Agreement.' Eventually, he became the sole subtenant. P made monthly lease payments to GPI, who in turn made payments to Fidelity National and D. There is no evidence that D knew of the sublease. Things were great until January 2001, when GPI failed to pay rent to D. D filed an unlawful-detainer action against GPI as lessee and P as sublessee, seeking to recover possession of the property. March 15, 2001, GPI and P paid $11,985.99 into the court registry, representing three months' rent for January through March 2001. D nonsuited their action, and the court clerk distributed the $11,985.99, plus interest, to them. In April 2001, GPI again failed to pay the rent it owed. P tendered the rent directly to appellants, but it was refused. P then sued D and GPI for specific performance, seeking an order directing D to accept all rental payments made by him or, alternatively, directing GPI to accept the payments and then remit them to D and/or Fidelity National. P pled $3,995.33 into the court registry, representing one month's rent, a practice he would continue each month while awaiting trial. On June 8, D notified GPI that they were terminating the 1992 lease for nonpayment of rent. Later, when they discovered that GPI had become insolvent, they sent a supplemental notice to GPI and P, terminating the lease on that ground. Despite the fact that D demanded surrender of the premises in their notices of termination, P remained on the property. D argued that P's rights as a subtenant were derived from GPI's rights as the original lessee, and thus when GPI breached the 1992 lease by failing to pay rent and by becoming insolvent, P's right of occupancy, was terminated. P agreed that a sublessee's rights are generally derivative of the original lessee's, but he argued that, for various equitable reasons, D should not be permitted to declare a forfeiture of the sublease in this case. The court ruled that P a 'bona fide assignee' of the 1992 lease and 'entitled to enjoy the status of lessee, under assignment for the said original lease.' The court also determined that forfeiture of P's lease would be inequitable. D appealed: P was a sublessee rather than an assignee; 2) as a sublessee, P was required to surrender possession of the premises upon breach by the original lessee, GPI; 3) forfeiture of the sublease was not inequitable.