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Lisa v. Tom

Lease-Tenancy for Years

Lisa entered into a leasehold agreement with Tom, her tenant, to lease the top floor of a commercial building at $500 per month for five years. This is a tenancy for years because it continues for a fixed period of time. The lease was in writing and signed by both parties, thus satisfying the Statute of Frauds. The lease also contained clauses restricting Tom's use of the space and Lisa's use of other spaces in the building. Thus, Tom and Lisa created an enforceable contract.

Assignment or Sublease

Absent any express restrictions in a lease, a lessee may freely transfer her leasehold, in whole or in part. If the lessee transfers the entire estate for the remainder of the term, she has made an assignment. Any transfer of a lesser estate is a sublease. Here, Tom assigned his entire interest under the lease to Alice in June of 2005, and thus it is an assignment.

However, Tom, as the assignor, still has the duty to pay rent. Thus, if Lisa is unable to collect rent from Alice, who now has possession of the premises, she may seek rent from Tom. Tom may assert any defenses Alice has against Lisa.

Breach of the Non-Competition Clause

Tom will argue that Lisa breached the express non-competition clause contained in the lease agreement. Lisa expressly agreed not to lease space to any "competitor" of tenant. Tom operated a dance studio, and would argue that an aerobics class is a similar type of activity, which conflicts and competes with dance lessons since both involve physical exercise.

Lisa would counter that a dance studio is different from an aerobics exercise class. She would argue that aerobics classes would draw upon different clientele than a dance class and that the two business enterprises do not necessarily conflict or compete with one another. However, because the activities are substantially similar, Lisa would lose on this issue.

Under common law, a breach of an express covenant by the landlord gives rise to an action for damages, but does not release the tenant from his obligations under the lease to pay rent. Thus, under common law, Tom may sue for damages but may not refuse to pay rent. Modernly, a breach of an express covenant constitutes constructive eviction. Tom may refuse to pay rent under this minority view because by renting to a competitor, Alice has breached an express agreement under the lease.

Breach of Implied Covenant of Quiet Enjoyment

Tom will also claim that Lisa has breached the implied covenant of quiet enjoyment, arguing that the fact that the top floor is not suitable for the sole purpose of the lease makes the property unusable and releases him from his duty to pay rent. Because the lease provides that the leased area may only be used as a dance studio and no other purpose, Tom will likely prevail since Lisa has refused to fix the floor, and the space cannot be used for its intended purpose. Thus, Lisa, by her refusal, has constructively evicted Tom from the premises.

Tom will also argue that Lisa's refusal to fix the floor constitutes a breach of implied warranty, since it interferes with Tom's and Alice's use of the premises as a dance studio.

Lisa would argue that she replaced the board and the building meets building code requirements. However, given the limited use provided by the lease, her argument would be rejected, since Tom and Alice cannot use the leasehold for another purpose.

Under either theory, Tom will be released from his liability to pay rent.

Although the implied warranty of habitability does not apply to commercial leases, a small minority of jurisdiction apply this warranty to commercial leases. However, because the facts indicate that "the building met building code requirements," Lisa has not breached the implied warranty of habitability even in these jurisdictions.

Lisa v. Alice

Alice is the assignee of Tom's interest in the tenancy for five years, and is in privity of estate with Lisa. As an assignee, Alice has the duty to pay rent subject to any defense she might raise.

Because the lease agreement between Tom and Alice contained no express assumptions or assignment of contract rights clauses, the lease provisions of Tom's agreement with Alice are binding on Alice only if the agreements are said to "run with the land." The parties must intend the agreement to run to successive owners and the agreement must touch and concern the land.

Breach of the Express Non-Competition Clause

The breach of the express non-competition clause clearly runs with the land and was intended to apply to successive leasees, such as Alice. An express agreement not to lease to a competitor so as to benefit the tenant's use of the leasehold concerns the very purpose of the lease, and both Lisa and Tom likely intended that the lease apply to anyone who leased the premises during the five-year period. Thus, for the same reasons argued by Tom, Alice would be released from her duty to pay rent because Lisa's lease to Charles violated this express provision.

Alice would raise the same arguments as Tom regarding breach of the covenant of quiet enjoyment and covenant of habitability and would prevail on one or both arguments, dischargin her duty to pay rent.

Duty to Mitigate

If Alice and/or Tom are found liable for the rent, under common law, Lisa had no duty to mitigate. However, modern law does require mitigation, but because Lisa has made all reasonable attempts to mitigate the loss, she fulfills this requirement and may collect all the rent which is due from the time of Alice's abandonment.

QUESTION 4 1 . Remedies against Betty Betty's statement to Al was a material misrepresentation on which Al relied.

Business Associations

1A. Board's Action Increasing Size of Board

Power of Board: May the board alter the bylaws without shareholder approval?

The issue presented in whether the Board may alter the bylaws of Dixie without shareholder approval. The board acted to increase the size of the Board to nine, contravening the express statement in the bylaws that "the number of directors of the corporation shall be five." The power to amend the bylaws may lie either in the shareholders of the board of directors. In most cases, the authority is set forth in the Articles of Incorporation or in the bylaws themselves. Although it is unclear whether the Articles or bylaws of Dixie delegate the authority, the majority of states require shareholder approval, and thus the board's actions were improper under the majority view. Although the board may argue it acted in good faith in attempting to present a hostile takeover, this does not affect the shareholder's rights since a special meeting to obtain shareholder approval could have been called. Other states, however, allow the directors to amend the bylaws without shareholder approval, but may states expressly prohibit amendments by the board of directors of bylaws which affect the directors. Since the amendment at hand increases the number of board members from 5 to 9, it may be improper even in those states that permit board-approved amendments to the bylaws.

1B. Board's Action Staggering Terms for Directors

Power of Board: May the board alter the Articles of Incorporation without shareholder approval?

1C. Board's Refusal to Call Special Meeting of Shareholders

Power of Shareholders: Do the shareholders have the right to call a special meeting, and does the Board have the right to refuse?

1D.Board's Action of Filling Newly Created Board Positions Without Shareholder Vote

Power of Shareholders: Shareholders elect the directors.

2. Board's Motion to Dismiss

Requirements of a Shareholder Derivative Suit

a. Good faith demand made on directors to bring suit unless futile or directors refuse in bad faith

b. Contemporaneous ownership of stock: Did D own stock when suit brought and when injury occurred?