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State Highway Commission v. Demarest

November 30, 1972


Appeal from Circuit Court, Lane County. F. Gordon Cottrell, Judge.

Richard E. Miller, Eugene, argued the cause for appellant Fowler. With him on the briefs were Miller, Moulton & Andrews, Eugene, and Thelma Chapman Fowler, Eugene.

Stanley R. Darling, Eugene, argued the cause for respondents Demarest. With him on the briefs were Johnson, Johnson & Harrang, Eugene.

Keith Rodman, Eugene, argued the cause and filed the brief for respondent Bill Hay, Inc.

In Banc. Howell, J.


This is a proceeding supplemental to a condemnation action to determine the proper allocation of the award made by the State of Oregon in the condemnation case. The award was paid into court, and the parties disagree as to their respective rights in the award and as to the amounts awarded by the trial court. Also involved in this appeal is a forcible entry

and detainer action between two of the parties to this litigation. Because of the number of parties involved they will be referred to by their proper names.

In November 1964 Demarest leased to Fowler a restaurant and adjacent parking area in Eugene. In December 1964, one month after the lease agreement, Demarest contracted to sell the premises to Donald Malone and also assigned the Fowler lease to Malone. The defendant Bill Hay, Inc., a realty firm, handled the sale for Demarest. The commission, which amounted to $10,000, was paid by $5,000 in cash from Demarest and by a $5,000 note from Malone to Demarest, endorsed without recourse by Demarest to Bill Hay, Inc. Malone assigned his interest in the Demarest purchase contract to Hay as security for the note.

Approximately three years later, in January 1968, Malone and Demarest entered into an agreement cancelling the contract of sale and reassigning the Fowler lease to Demarest.

In February 1968 Demarest instituted f.e.d. proceedings against Fowler for failure to pay the February rental.

In October 1968 the Oregon State Highway Commission filed a complaint in eminent domain for a taking of that portion of the Demarest property which included the Fowler restaurant. The condemnation action was settled by stipulation for $160,000, which was paid into court and which is the subject of the dispute in this case. Fifty thousand dollars of the award was paid to the First National Bank to apply on a mortgage from Demarest to the bank.

The trial court awarded $9,991 to Fowler; $4,046 to Bill Hay, Inc.; $19,809 additional to First National Bank; and the balance to Demarest. Fowler appeals,

contending he is entitled to a larger award. Demarest appeals from the award made to Bill Hay, Inc., and cross-appeals from the award made to Fowler. Demarest also appeals from the judgment of the court dismissing the f.e.d. action as being moot.


Demarest contends that Fowler's failure to pay his rent on the due date terminated his status as a tenant and therefore Fowler is precluded from receiving any portion of the condemnation award.

The lease executed in November, 1964, required the monthly rental of $250 to be paid on the first day of each month, and also required the first and last month's rental be paid in advance. In accordance therewith Fowler paid Demarest $500.

After Demarest contracted to sell the property to Malone in December, 1964, and assigned the Fowler lease to Malone, Fowler made his payments to Malone through the Citizens Valley Bank in Albany. On January 8, 1968, Malone and Demarest agreed to a cancellation of the sales contract, and the Fowler lease was reassigned to Demarest. Fowler did not pay the rent due on January 1, 1968, until January 22, 1968. On February 13, 1968, the rent due on February 1 had not been paid, and Demarest filed a forcible entry and detainer action against Fowler. On the same day Fowler tendered $250 rent to the Citizens Valley Bank, but the check was returned by the bank to Fowler on the 29th of February. Demarest dismissed the f.e.d. action in the district court and re-filed in the circuit court. Before the issues in the f.e.d. action were tried in the circuit court, the State Highway Commission

filed its condemnation action. The parties stipulated that the issues in the f.e.d. action would be determined in these proceedings to allocate the condemnation award. The circuit court dismissed the f.e.d. proceedings as moot because it was then impossible to restore possession of the premises to either party because of the taking by the Highway Commission.

Demarest contends that the relationship of landlord and tenant with Fowler was terminated when Fowler failed to pay the February 1968 rental on the due date or within the grace period of ten days allowed by the terms of the lease.

Fowler offers several answers to Demarest's contention. First, he suggests that under the terms of the lease he was entitled to "written demand and reasonable notice" before Demarest was entitled to declare him in default for failure to pay the rental when due. We do not construe the lease as Fowler contends. The lease provides:

"If the Lessee shall be in default in the payment of any rents and such default shall continue for a period of ten days, or if the Lessee shall fail to perform or comply with any other terms, covenants or conditions of this lease on written demand and reasonable notice, then the Lessors may at their election declare this lease terminated * * *."

It is clear from reading the quoted portion above that for breaches other than non-payment, the lessor is required to make a written demand and give reasonable notice; insofar as non-payment of rent is concerned, the lessee is allowed ten days' grace period and no notice or demand is required.

Fowler also contends, and alleged as a separate defense to the f.e.d. action, that he was not in default

in the payment of the February 1968 rent when the f.e.d. action was filed on February 13, 1968. The basis of this defense is not clear from the briefs. We assume, however, that Fowler is relying upon the check for $250 sent by him to the Citizens Valley Bank after the f.e.d. action was filed. In Fowler's brief he states that "the lease was reinstated by Demarest's collection agent receiving and retaining the rental check until February 29, 1968." The bank had been the escrow agent for the sale transaction between Demarest and Malone. However, the record does not show that the bank was acting as the agent for Demarest, or that it was the intention of Demarest or the bank that the check be accepted as payment. Fowler did not mail the check until after he had been served with the summons and complaint in the f.e.d. action on February 13, 1968. It is true that the bank did not return the check until February 29; however, the check was never delivered to Demarest or deposited to his account, but instead was returned to Fowler by the bank. The record does not establish that Demarest or the bank expressly or impliedly accepted the February check as late payment under the statute, ORS 91.090, which we will discuss subsequently.

Fowler also contends that he was not in default for non-payment of the February 1968 rent because he had paid the first and last month's rent in advance in 1964 when the lease was executed. This argument is also without merit. Prepaid rent becomes the absolute property of the landlord. Sinclair v. Burke, 133 Or 115, 287 P 686 (1930). See also Annot., 27 ALR2d 656. Obviously, when the landlord requires the first and last month's rental to be paid in ...

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