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Progressive Friendship Savings & Loan Association Inc. v. Rose

Decided: June 4, 1964.

PROGRESSIVE FRIENDSHIP SAVINGS & LOAN ASSOCIATION, INC.
v.
ROSE



Appeal from the Circuit Court for Anne Arundel County (DUCKETT, J.).

The cause was argued before Brune, C. J., and Henderson, Hammond, Horney and Marbury, JJ.

Hammond

HAMMOND, J., delivered the opinion of the Court.

In a suit by a landlord, the appellant, for unpaid rent, the trial court, sitting without a jury, found for the tenant, the appellee, on the ground that he had not agreed to pay as rent the amount on which the landlord based its claim.

The appellee, C, Bowie Rose, is a lawyer who for some time has practiced from an office in Glen Burnie. In 1956 he and a lay associate, John Lane, formed the Anne Arundel County Realty Company and, in its name, leased a building in Glen Burnie for ten years at a rental of $230.00 a month. The lessee made improvements and additions to the building costing about $8,000, mostly on the credit, it would appear, of Rose. At about the same time, Rose, to use his words, was "putting together" the Progressive Friendship Savings and Loan Association, Inc., the appellant, of which he became (and during the times herein pertinent was) a director and counsel. Faced with the imminent prospect of paying for the improvements to the leased building, Rose conceived the idea of having the newly formed building association pay the bills, and become the assignee of the lease of the building in order (a) to have a place of business for itself and (b) to sublet to the existing tenants of the building (the Realty Company, Rose, and one Wagener, a director of the Association) at rentals, based on the amount of space respectively used, sufficient to reimburse it for cost of the improvements,

plus six per cent discount interest and a bonus of two per cent. The advantage to the Association was to be an office and, in the words of its president, the receipt of sub-rents in "a sufficient amount to make the proposition attractive to the Association," in a total of $10,506, which would be enough to yield a profit of $3,208.

The advantage to Rose was to be that he would still have the office he wanted and be relieved of the obligation and necessity of paying the improvement bills (except to the extent that some of his share of the sub-rentals, based on the proportion of the total space in the building he used, contributed to the repayment of the money the Association used to pay them). As one director of the Association put it from the stand, "[w]e took Mr. Rose off the hook."

Having conceived the idea (of which Lane, his associate, who was a director and secretary of the Association, was in favor), Rose presented it to most of the other directors individually, or as he said, he "sold [it] to the other directors."

This "sale" having been put across informally, the president of the Association appointed a committee of its directors, headed by Herbert Goldman, the certified public accountant for the Association, to ascertain the amount to be paid for the improvements and the amount to be paid as rent by each of the sub-tenants. The committee measured each of the rooms of the building with a tape measure to ascertain the percentage of the total space used by each tenant (for the purposes of the calculation, and for reasons not here material, the small room used by the director Wagener was not counted as part of the total area), figured a basic rent, including electricity, heat and janitorial services, of $1.41 a square foot, added $1.00 a square foot to amortize the cost of the improvements over a three-year period, and estimated the respective monthly rentals as a flat $70.00 (only slightly in excess of the basic rent) for Wagener, $86.00 for three years, and $60.00 thereafter for the Realty Company (occupancy of 17% of the space), $105.00 for three years and $65.00 thereafter for the Building Association (occupancy of 21% of the space), and $310.00 for three years and $200.00 thereafter for Rose (occupancy of 62% of the space).

A formal meeting was called by the directors of the Association for December 13, 1956, to act on the Rose proposal. At the meeting, at which Rose was present, Goldman read a report of his committee, which was made part of the minutes of the meeting, setting out specifically and in detail the basic rent figure, the additional $1.00 a month a square foot to amortize the cost of improvements in three years, the monthly rentals set for each sub-tenant by the committee, the cost of the improvements, $7,298 (with a detailed analysis of how this total was arrived at), the total rent the Association would pay in ten years (at $230.00 a month), $43,230, the total rent it would collect in ten years under the proposed schedule, $53,736, the difference, $10,506, which after deduction of $7,298 left a profit to the Association of $3,208. According to the minutes, there was "a general discussion on the pro-rata share of rents, costs, benefits to the Association and so forth," and thereafter it was moved, seconded and "unanimously carried by the Board that the present lease held by Anne Arundel County Realty Company, be assigned to the * * * Association and the present occupants, being C. Bowie Rose, Anne Arundel County Realty Company, and August Wagener, sub-lease from the Association at the figures stated in the report." The minutes continue: "The bills to be paid, as part of the assignment of the lease, in the attached report, were again read to the Board and upon motion made by Frank Bready, seconded by Irving Robinson, it was unanimously voted that these bills be paid."

The bills were paid, the lease was assigned, and the sub-tenants paid their stipulated rent, except for Rose. He apparently became disenchanted with the proportion of the total space attributed to his use and the amortization of the improvement costs over a three-year period instead of over ten years. (It may be noted that at the rental rate of $310.00 a month for three years and $200.00 a month for seven years the total rent to have been paid would have been $27,960, and at the rental rate of $235.00 a month -- sufficient to amortize the ...


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