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North Gate Corp. v. National Food Stores

Supreme Court of Wisconsin
Mar 17, 1966
30 Wis. 2d 317 (Wis. 1966)


February 1, 1966. —

March 17, 1966.

APPEAL from a judgment of the circuit court for Dane county: NORRIS E. MALONEY, Circuit Judge. Affirmed.

For the appellant there was a brief by John L. Riley and Riley, Pierce Lynch, all of Madison, and oral argument by John L. Riley.

For the respondent there was a brief by Byron C. Ostby, attorney, and W. Scott Van Alstyne, Jr., and George F. Jacobs, Jr., of counsel, all of Madison, and oral argument by Mr. Ostby.

Action for a declaratory judgment as to whether there was a breach of a lease. The facts were stipulated.

Plaintiff, North Gate Corporation (North Gate), is a corporation which owns a shopping center. There are six shareholders, each owning one sixth of the shares. They are Carl Roth and his two sons, John and William, and Paul Roth and his two sons. John was president and William was secretary, and executed the lease as such officers.

Defendant, National Food Stores, Inc. (National), is a corporation which operates a chain of retail food stores.

On March 18, 1960, North Gate and National entered into a lease of premises at the shopping center for use by National as a retail food store. The lease was to run a minimum of thirteen years with two five-year extensions at the option of National. Minimum rentals were substantial, with a total rent dependent upon National's gross sales.

Paragraph Fifth of the lease provided, in part:

"FIFTH: The Lessor, as further consideration for the Lessee entering into this lease, agrees, that as long as the demised premises are occupied by Lessee, its successors or assigns for a retail food store, neither Lessor nor his heirs or legal representatives, or its beneficiaries, subsidiaries, affiliates, successors, or assigns, or any entity in which they or any of them have an interest, will demise, lease, sublease, use, or permit the use of, for the purpose of a retail food store any portion of any property, now or hereafter owned, acquired or leased by them or any of them within 5280 feet from the premises hereby demised to the Lessee, except such property or portion thereof now owned by them and as of the date hereof occupied by a retail food store. . . ."

The lease was a printed form prepared by National and used in leasing premises for its stores throughout the country. Various blank spaces were filled in, and there were interlineations and deletions at several places, but there was no change in the quoted portion of the Fifth paragraph except the insertion of the figure "5280" in a blank space.

When the lease was agreed upon, some of the shareholders owned real estate within one mile from the leased premises. Carl Roth and his wife owned a parcel adjacent to the shopping center, in joint tenancy. Both parties were aware of the ownership of land by the members of the Roth family. On September 3, 1963, Carl and his wife conveyed this parcel to their sons, John and William and to their daughter Mary, as tenants in common. April 1, 1964, John, William and Mary conveyed this parcel to Copps Realty Corporation. The agreement to sell restricted the use to a department store and parking lot, but did not exclude the sale of food at retail. National discovered through a newspaper article that the proposed department store would include a retail food department. National then notified North Gate that the proposed retail sale of food on the adjacent land violated the terms of the lease, and unless the plan to sell food at retail was eliminated, National would pursue its remedies under the lease, including the withholding of rent.

North Gate commenced this action for a declaratory judgment to determine the rights of the parties under the lease. National, in answer, alleged that North Gate, by virtue of its lease, warranted that no officer or stockholder of North Gate would convey any property within one mile of the shopping center without restricting the use of such property to purposes other than that of a retail food store.

On June 1, 1965, the circuit court entered judgment declaring the sale of the land did not constitute a breach. National has appealed.

The sole issue debated by the parties is whether, the lessor being a corporation, the words "its beneficiaries" in paragraph Fifth of the lease, mean or include "its shareholders." National takes the position that North Gate, the lessor, warranted that its shareholders would not permit the use of land owned by them individually, if within a mile, for a retail food store.

The critical portion of paragraph Fifth reads: ". . . neither Lessor nor his heirs or legal representatives, or its beneficiaries, subsidiaries, affiliates, successors, or assigns, or any entity in which they or any of them have an interest. . . ."

Contract terms being construed are to be considered in context. Words used in a contract are generally given their plain or ordinary meaning but ". . . technical words are to be interpreted as usually understood by persons in the profession or business to which they relate, unless the context of the contract or an applicable custom or usage clearly indicates that a different meaning was intended." Neither the ordinary meaning nor any technical meaning of "beneficiary" is equivalent to "shareholder."

17 Am.Jur.2d, Contracts, p. 635, sec. 246.

17 Am.Jur.2d, Contracts, p. 643, sec. 251.

Black's Law Dictionary (4th ed.), defines "beneficiary" as "One for whose benefit a trust is created; a cestui que trust. A person having the enjoyment of property of which a trustee, executor, etc., has the legal possession. The person to whom a policy of insurance is payable. One receiving benefit or advantage, or one who is in receipt of benefits, profits, or advantage."

Where various meanings can be given a term, the term is to be strictly construed against the draftsman of the contract. Here the draftsman was National. Further, the intent of the provision in question is to restrict trade and the use of land. Such provisions are to be strictly construed. The legal term "beneficiaries" normally refers to persons designated to receive benefit from a trust, an estate or an insurance contract.

Schiller v. Keuffel Esser Co. (1963), 21 Wis.2d 545, 124 N.W.2d 646; Strong v. Shawano Canning Co. (1961), 13 Wis.2d 604, 109 N.W.2d 355; Hoffmann v. Pfingsten (1951), 260 Wis. 160, 50 N.W.2d 369; Northwestern Loan Trust Co. v. Topp Oil Supply Co. (1933), 211 Wis. 489, 248 N.W. 466; Milwaukee Corrugating Co. v. Krueger (1924), 184 Wis. 139, 198 N.W. 394.

51 C.J.S., Landlord and Tenant, p. 865, sec. 238.

National contends that the term as used in paragraph Fifth cannot refer to a cestui que trust because of the grammatical context. National suggests that the form was devised for use by either an individual or by a corporation. Where the lessor is an individual, the phrase "nor his heirs or legal representatives" is applicable. But where the lessor is a corporation, National claims that the entire phrase "or its beneficiaries, subsidiaries, affiliates, successors, or assigns" becomes operative, and each of the terms must be relevant to a corporation. National rejects the possibility that a trust or estate might be named as lessor as if it were an entity, and that the term "its beneficiaries" was intended to refer to the beneficiaries of a lessor trust or estate. National makes the nice point that the trustee or the executor properly should be named lessor in such case, and that the beneficiaries of the trust or estate are not properly called beneficiaries of the trustee or executor. This particular argument does not explain, however, why we should prefer the assumption that a draftsman would not name a trust as lessor over the assumption that he would not refer to the beneficiaries of a corporation if he meant its shareholders.

Canons of construction are designed to aid courts in ascertaining the intention of the parties. Normally the words used by the contracting parties are the best indicators of their intention. Occasionally words not used are also instructive. Here National contends that it was the intention of the parties that paragraph Fifth apply to shareholders of a corporation. If that were the intention of the parties, the intention could easily have been manifested merely by using the common term "shareholders." We cannot ignore the draftsman's failure to use an obvious term, especially where it is the draftsman who is urging a tenuous interpretation of a term in order to make it applicable to a situation which would clearly have been covered if the obvious term had been chosen.

17 Am.Jur.2d, Contracts, pp. 631-635, secs. 244, 245; Wisconsin Marine Fire Ins. Co. Bank v. Wilkin (1897), 95 Wis. 111, 69 N.W. 354.

National argues that a construction of an agreement which leaves a part of the language useless or creates surplusage is to be avoided. This is the general rule but it has much less force where, as here, a standard form, designed for use in varying fact situations, is used, and it is obvious that in each transaction where the form is used, some of its terms will necessarily be surplusage.

Goldmann Trust v. Goldmann (1965), 26 Wis.2d 141, 131 N.W.2d 902; Worth v. Kelley Co. (1964), 22 Wis.2d 318, 126 N.W.2d 75; Nelson v. Boos (1959), 7 Wis.2d 393, 96 N.W.2d 813; Lauterbach v. Brown (1959), 7 Wis.2d 240, 96 N.W.2d 605.

We think the term "beneficiaries" may have meaning where this form of lease is used for property held in trust, and that it ordinarily has no meaning with respect to a corporate lessor which is not a fiduciary. We say "ordinarily" because we note, for example, that it is possible for the directors of a dissolved corporation to become trustees for the benefit of creditors and shareholders by operation of law. Whether in that instance or any other extraordinary one, not present here, the shareholders would be deemed beneficiaries under paragraph Fifth, we need not and do not decide.

Sec. 180.768, Stats.

National has based its case against North Gate upon a construction of the words of the lease, and has not claimed that there are any facts present here which would justify a departure from the ordinary rule that a corporation is an entity separate from its shareholders.

See Jonas v. State (1963), 19 Wis.2d 638, 644, 121 N.W.2d 235.

National contends that certain observations of the trial court with respect to available remedies for breach were erroneous. If there were error in any of such statements, it would not be prejudicial since there was no breach.

By the Court. — Judgment affirmed.

Summaries of

North Gate Corp. v. National Food Stores

Supreme Court of Wisconsin
Mar 17, 1966
30 Wis. 2d 317 (Wis. 1966)
Case details for

North Gate Corp. v. National Food Stores

Case Details


Court:Supreme Court of Wisconsin

Date published: Mar 17, 1966


30 Wis. 2d 317 (Wis. 1966)
140 N.W.2d 744

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