Daily Development for
Friday, May 8, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law

LANDLORD/TENANT; TENANT'S REMEDIES; WAIVERS; JURY TRIAL: Leasing agents and/or salespeople that are not parties to the lease cannot use the jury waiver provision in the lease between the landlord and the tenant to prevent a jury trial on the claims asserted against them.

Pancakes of Hawaii, Inc. v. Pomare Properties Corporation, 944 P.2d 97 (Haw. App. 1997).

The Lahaina Shopping Center leased the center to James Romig. Romig subsequently hired Pomare Properties as the managing agent of the center.

Pomare Properties then signed a management and leasing agreement (management agreement) with Sofos Realty Corporation (Sofos) to handle managing and leasing duties. Sofos did not make any final decisions regarding the leases or their terms and did not sign the agreements as either landlord or agent. Pomare Properties made all final decisions and signed the shopping center leases. In 1990, as part of its leasing program, Sofos recruited Pancakes of Hawaii, Inc. to lease a portion of the center.

In discussions with Pancakes, an agent of Sofos made glowing representations about the success of the leasing program and the potential for Pancakes to thrive in the new center. The agent allegedly told Pancakes that he was either in the process of signing up enough tenants that would soon make the center reach an eighty to eighty-five percent occupancy level, or that he expected the center to have an eighty to eighty-five percent occupancy level at some point in the future.

After three months of negotiation and having its attorney review the proposed lease agreement, Pancakes entered into a lease agreement with Pomare Properties on June 27, 1990. Pancakes opened its restaurant in September 1997. The center was unable to lease more than thirty-five percent of its space and the lack of foot traffic through the mall resulted in huge financial losses for Pancakes. Pancakes closed its doors on December 7, 1991.

On December 31, 1991, Pancakes sued Romig, Pomare Properties, Sofos and Carter for, among other things, fraud, misrepresentation, and breach of the duty of good faith and fair dealing. The complaint was amended on February 28, 1994. In its initial complaint, Pancakes requested a jury trial. On January 27, 1994, Pomare Properties to strike Pancakes' demand for a jury trial based on an express waiver in the lease agreement. Sofos joined the motion on February 9, 1994. On March 16, 1994, the Second Circuit Court granted the motion.

The Hawaii Intermediate Court of Appeals found that Sofos and its agent, Lee Carter, were not parties to the lease agreement, the parties to the lease agreement -- Pancakes and Pomare Properties -- did not intend to waive their right to a jury with respect to these or any other third parties. The court further held that Sofos and Mr. Carter were not third party beneficiaries because the parties to the lease did not intend to make such individuals beneficiaries.

Relying on Section 551 of the Restatement (Second) of Torts, the court held that Sofos and Carter had a duty to disclose to Pancakes that the leasing program was "going very poorly" prior to Pancakes entering into the lease agreement. The misrepresentations made by Sofos and Carter may have induced Pancakes to execute the lease agreement.

In a separate issue, the court held that the trial court failed to apply the parol evidence rule correctly, as evidence of fraud is admissible. By allowing evidence of fraud to be introduced, the court is less likely to uphold a contract that appears to bind the parties but, in fact does not. Since allegations of fraud were made by the plaintiff, the defendants were not entitled to summary judgment based solely on the contract.

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