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Filed at Legal Methods Website under “Teaching Materials”
Synopsis Submitted By
Teaching Materials on Richard B. Cappalli
Case Analysis (with Temple Law School
teacher’s manual)
“Mitigation of Damages” September 24, 1998
160 pages
In a series of cases stretching back to 1841, the Pennsylvania appellate courts have struggled with the question whether the lessor of a commercial property had a duty to mitigate damages when the lessee vacated prior to the end of the lease term. The issues presented by the latest case in the series are cast as a problem, “Stone v. Rock,” to be solved by applying the decisional law contained in 11 relevant precedents. Each of the precedents is followed by a series of methodological questions. The precedents have been “delocalized”; they are rendered by the Supreme Court of Temple except for the one decided by the Supreme Court of Hope, the high court of a neighboring state.
The file contains three parts. Part I (pages 2-100) contains the problem, the cases and the questions. This is for the students. Part II ( pages 101-129) contains suggested answers to the questions in the form of a teacher’s manual. Part III contains three opinions deciding Stone v. Rock. One (pages 130-143)is the decision and opinion of Emily, an excellent first year student. The other two (pages 144-160) are the opinions of the Pennsylvania Superior and Supreme Courts on the issue.
EXERCISE IN SEQUENTIAL CASE ANALYSIS:
MITIGATION OF DAMAGES
Instructions: You are a judge sitting on the Intermediate Court of Appeals (“ICA”), State of Temple. Your ultimate task is to resolve the issue which has reached the ICA in Stone v. Rock, whose facts are set out below. To put yourself in a position to understand and apply law correctly, you are to analyze a series of precedents of the Supreme Court of Temple. At the end of your study of each precedent you are to answer the questions posed. One recurring question is “What is the law relevant to Stone v. Rock now and to what conclusion does it lead you?” Parties are described as plaintiff or defendant regardless of their position on appeal.
“Y” = year
“-Number” = years ago
“Y-0" = current date
Stone v. Rock
Intermediate Court of Appeals
State of Temple
Y-0
FACTS. Stone, the landlord and plaintiff, is the owner of a shopping center. He rented store space in that center to Rock, the defendant and tenant, for a video rental store. The lease was for three years, commencing on July 1, Y-5, and terminating on June 30, Y-2. The total rent was $18,000, payable in equal monthly installments of $500.
On October 31, Y-3, defendant vacated the premises and returned the keys to plaintiff’s rental agent. The next day the plaintiff sent a registered letter to defendant stating that he did not accept the surrender of the premises, would not re-let the space, and would hold tenant liable for the balance of the rental due.
The space remained vacant to the end of the lease term and plaintiff sued for 8 months of rent totaling $4,000. The parties stipulated before trial that all available space in the center was rented on long-term leases and that defendant’s abandoned space was the only space available for leasing.
In a trial without a jury, the trial court initially determined that plaintiff had no duty to lower damages by re-leasing the premises following defendant’s abandonment. It found for the landlord in the amount of $4,000, plus interest. It reversed itself on post-trial motions, however, and held that landlord had a duty to mitigate damages by re-leasing the premises. The judge ordered a new trial limited to the questions: (1) what efforts to re-lease were reasonable under the circumstances; (2) whether such efforts would have produced a new tenant for the abandoned space; (3) when would the new lease have started; and (4) at what rent. It laid the burden of proof on these mitigation issues on the tenant.
We have certified for this appeal the question whether the trial court’s order for a new trial was legally correct.
PRECEDENT #1
Homer v. Oedipus & Oedipus
Supreme Court of Temple
1841
ERROR to the District Court for the City and county of Temple.
Homer brought an action on the case against a partnership, Oedipus & Oedipus, and declared in assumpsit for the use and occupation of a certain warehouse in the city of Temple.
At the trial on the 1st of May 1840, the plaintiff claimed for one-quarter and seven days rent, at the rate of $600 a quarter; and proved by the admission of the defendants that they had taken the store from him for one year, from the 22d of April 1837, at the rent of $2400 per annum, payable quarterly.
The defendants produced as a witness one William Tell, who testified as follows:
“I was book-keeper and clerk of Oedipus & Oedipus in 1836 and also in 1837. We finally got out of Homer's store in Market street, on Saturday, October 21st 1837; there were none of our goods in that store after that time. I went on the morning of that day, (Saturday), with the receipt-book and money to pay him the rent, taking the key with me; I did not find him at home, until near ten o'clock; I then met him in the street, at the door; I told him that I called to pay him the rent, give him the key, and get the receipt for it. Homer said that he would not attend to it that night, and would not receive the rent until it was due, and went in and shut the door. On Monday morning, I called again; I paid him the money, and he wrote the receipt; I laid the key down on the table; he took the key and forced it into my breast; I opened my coat and the key fell on the floor; he altered the receipt as it appears in the book, from the 22d to the 23d. This was 8 o'clock A. M.; I said to him, I suppose if I had called yesterday, being Sunday, you would not have received the rent; Homer said that it was due on the 22d; he said no, he would not have received it on Sunday; I left the key lying on the floor, and came away. Homer said he would not receive the key. In the course of a few days I saw a bill on the store: it was to let; Oedipus & Oedipus had nothing to do with that store from the Saturday when they moved, and when I paid the rent on Monday and left the key with Homer; they never occupied it from Saturday, October 21st 1837." Cross-examined.—"I called with the rent and key on Saturday on Homer; I did not offer the key until I had paid the rent, and got the receipt."
The following letters from the plaintiff to the defendants were put in:
"Temple, 23d October 1837.
Gentlemen—Your agent this morning, contrary to my directions and against my consent, left in my entry the key of the house and store No. 122 Market street, leased by me to you for one year, at the rate of $2400 per annum, payable quarterly.
The key will be tendered to you by the bearer, and if you refuse to receive it, it will be at your own risk and costs."
"Temple, 24th October 1837.
Gentlemen—I yesterday tendered you the key of the store and house No. 122 Market street, and you refused to receive it. I might now leave the premises unoccupied, and hold you liable for the whole loss; but I am unwilling to expose you to any injury that may be avoided.
I shall, therefore, on your account and at your risk, make every endeavor to lease the premises on the best terms that can be obtained, and hold you liable for any deficiency that may arise."
The evidence being Closed, the defendants' counsel requested the court to charge the jury,
"That the plaintiff having declared for use and occupation, and the proof being that they did not use and occupy it: that if the plaintiff could recover at all, he could not recover in this form of action, but must recover for breach of contract."
Whereupon, the learned judge charged the jury as follows:
"The plaintiff alleges that on the 22d of April 1837, he let the store to the defendants for a year; and it is admitted by the defendants that they occupied it for two quarters. The plaintiff's receipts for these two quarters -- $600 for each -- have been read in evidence. Mr. Woodward says, Mr. Oedipus, one of the defendants, told him at the store which he was then occupying, that they had rented it of Homer for one year, at all risks; that they had a right to keep it for one year. On the 21st of October (being Saturday), Mr. Tell, the defendants' clerk, called with the key to pay the second quarter's rent. Not finding the plaintiff at his first call, he went a second time in the evening, and waited till about ten o'clock, when he met the plaintiff near his door, and told him he had come to pay the rent and give up the key. The plaintiff declined receiving the rent then, saying it was not due. The witness called a third time, (which was on Monday morning, the 23d of October), when the rent was paid and a receipt given, which was in evidence. The witness says he then laid the key on the table, that Homer took it and forced it into his breast, and that he, the witness, opened his coat and the key fell on the floor. The key was left on the floor, Homer saying he would not receive it. This witness also says, that the defendants moved out of the store on the 21st of October 1837, and never occupied it afterwards. None of their goods, however, he says were there afterwards. The defendants, in reference to this part of the testimony, contend, that if they are liable at all to the plaintiff for anything beyond what they have paid, they are not liable in this form of action, which is for use and occupation. In regard to this point, I say to you that if you find the store was taken for a year, payable quarterly, and that the plaintiff did not accept the key when offered by the defendants' witness, but on the contrary, refused to receive it, and did occupy the store during the third quarter, the plaintiff may recover for the third quarter, with interest from the time when it was payable."
The following errors were assigned:
1. That the judge erred in charging that the plaintiff could recover in this form of action.
2. That the judge erred in charging the jury that the plaintiff could recover, although the defendants did not occupy the store in the third quarter.
Righteous, J., delivered the opinion of the court.
That the actual occupation of the premises leased, is not necessary to support an action of assumpsit for use and occupation, is ruled in McGunnagle v. Thornton, 10 S.&R. 251, and in the other cases cited at the bar. This action depends either upon actual occupation, or upon an occupation which the defendant might have had if he had not voluntarily abstained from it. Whitehead v. Clifford, 5 Taunt. 518. But it is said no action is maintainable for use and occupation, on account of rent due, after acceptance of possession by the landlord, where there has been no actual possession or occupation. Coventry & Hughes's Dig. 1454; 5 Taunt. 518. And this is true, because from the time of unqualified acceptance of the possession, the contract is at an end. But is that the case here? The landlord accepts the key, takes possession, puts a bill on the house for rent, but at the same time apprises his tenant that he still holds him liable for the rent. This was for the benefit of the tenant; and was not intended, nor can it have the effect, to put an end to the contract and discharge him from rent. Although the tenant did not actually occupy the premises, he was at liberty to do so; and is therefore liable for the action.
Judgment affirmed.
Questions
Introductory Note. It appears that Homer was able to re-lease the warehouse for the fourth quarter and sued to collect the rent for the third quarter when the warehouse was empty, getting a judgment for $600 plus interest. In understanding the judicial rules of law applied in the case and in answering questions 2 and 6 below, both of which ask you to extract rules from Homer, it may help to break the law into two parts: (1) the rule which entitles Homer to the $600 and (2) the rule which lets Homer collect even though he re-leased the warehouse for some of the time left on the lease. Keep this in mind when you reach those questions.
1. Defendant’s attorney raised a single issue on appeal: that plaintiff used the wrong form of action, “assumpsit for use and occupation.” The Supreme Court determines that defendant was wrong and that this form of action covers cases in which the tenant abandoned the leased premises. Does the Homer court have authority to make decisions beyond this single issue concerning forms of action?
2. What rule of law is the legal basis for Homer's getting $600? Make sure you include each of its elements.
3. State the facts which are material to the rule of law entitling Homer to $600.
4. The leased space was used for commercial purposes, namely a warehouse.
(a) That was a case fact. How do you know whether it was relevant to the Court’s decision?
(b) In its opinion how does the Court verbally characterize the nature of the leased space and what does this teach you about the reach of the Court’s holding?
5. Is Homer v. Oedipus relevant to the issue whether a landlord has a duty to mitigate damages by re-leasing the premises?
6. On the question of mitigation, Homer v. Oedipus does contain a ruling. What is it? Include all elements of the rule.
7. What are the material facts relevant to the mitigation rule of Homer v, Oedipus?
8. What rationale does the court offer for its mitigation rule?
9. Does the Homer court advance any policy reasons supporting its mitigation rule?
10. Clear rationales for rulings are critical to common law application and development. See Cappalli, §§ 3.12(a)-3.12(f).
(a) On this standard, rank the Homer court on a scale of 1 (lowest) to 10 (highest).
(b) Add a “reasons” sentence or two to the opinion which will strengthen it.
(c) It is the duty of the court applying Homer’s mitigation rule to clarify its underlying reasons. Why?
11. Assume Homer also sued for the fourth quarter rent. Does the “rule” of Homer cover this case? Does the court say anything relevant to the question whether Homer could have collected for the fourth quarter too (see the court's last sentence)? Is this dicta?
12. Set out the complete rule of Homer v. Oedipus.
13. Does the complete rule of Homer v. Oedipus resolve the issue on appeal in Stone v. Rock?
14. Although Homer may not be “on point” to the Stone case, two points may have further relevance:
(a) the court applies ordinary contract principles to resolve the case; (b) Although it is faint, the court signals some approval of the mitigating landlord’s conduct.
PRECEDENT #2
King v. Duke & Duke
Supreme Court of Temple
1867
ERROR to the District Court of Temple county.
This was on the case brought by King against Alexander Duke and Thomas Duke, doing business as Duke & Duke, to recover the sum of $900, with interest, from April 1st 1855.
The plaintiff averred that in June 1854 the defendants, being engaged in manufacturing soda ash, entered into a contract with him to take charge of the chemical department of their works from the 1st day of July next ensuing, or sooner, if requested, until the 1st day of April 1855, a period of nine months, for which they agreed to pay him $900. That they wrote to him to come to Temple a few days prior to the 1st of July, and take charge of their works. That he came according to their request, tendered his services, offered to perform his part of the contract, but they refused to receive him, or permit him to enter upon his duties, and that he was ready and willing at all times during the period covered by the contract to perform his part, but was prevented by the defendants from so doing.
Two grounds of defence were set up to the plaintiff's right to recover, and a third as to the measure of damages.
1st. Defendants denied that any such contract was ever entered into by them. 2d. They averred that the plaintiff was incompetent to take charge of the chemical department of their works, and that he had imposed upon them by misrepresentations as to his capacity; and 3d. That even if the jury should find against them on both these issues, the measure of damages would be merely for his loss of time and expenses in coming to Temple. They contended also, that as soon as they refused to take him into their service, he was bound to seek employment elsewhere, and that the burden of proof was on him to show that he could not find any other employment.
The court below submitted the first two points to the jury under the facts given in evidence, instructing them that if there was no contract between the parties, if it was tainted with fraud, or if the plaintiff was not competent to discharge the duties for which he was employed, their verdict should be for defendants, otherwise for the plaintiff. On the question of damages, the learned judge said, "The plaintiff has given no evidence of special damage, beyond the loss of time and expense, in coming to Temple. He rests this branch of his case on the proof of the contract, his tender of performance, and the defendants' refusal to receive him. On the other hand, the defendants have given no evidence tending to show that the plaintiff might have procured employment elsewhere. This state of facts presents the naked question, on whom does the burden of proof rest to show the amount of damage the plaintiff should recover—the plaintiff or defendants? It was undoubtedly competent for the defendants to show, in mitigation of damages, that the plaintiff was offered similar employment in the same locality, and refused to take it, or that he was actually employed in the same or other business a portion or the whole of the period covered by the contract. This would have reduced his damages, and if sufficiently strong and comprehensive, might have prevented a recovery for more than mere nominal damages. But were they bound to do so in order to prevent a recovery for the entire amount specified in the agreement? Or was it incumbent on the plaintiff to take the initiative in the proof, and show that he could not secure employment? This is purely a question of law, for the determination of the court. It is undoubtedly true, that when a contract for services to be rendered is entered into for a specified time, but no sum is fixed as the amount of wages to be paid, the plaintiff must not only prove the contract, and his readiness to perform his part, but he must also show what his services would have been worth. But when the parties themselves have fixed the wages to be paid, the question arises whether the party undertaking to render the service need prove more than the terms of the agreement and his offer to perform his part, and there rest.
“The general rule is, that he who asserts a fact in pleading must prove it. A party cannot in general be called upon in the first instance to prove a negative. After the party having the affirmative of the issue has given his evidence, the other party may disprove the alleged fact by giving negative testimony.
It is a principle of law that he who prevents a thing from being done, shall not avail himself of the non-performance which he himself has occasioned: Add. on Con. 1121. And it has frequently been held, although the decisions are not entirely harmonious on the subject, that a tender of performance is equivalent to actual performance. This rule is undoubtedly true so far as to give the party tendering performance a right of action against the party preventing him from performing his part of the contract. But a tender of performance cannot be regarded as equivalent to performance for all purposes, in all cases. For if a man should refuse to deliver a hundred barrels of flour at a certain time for a stipulated price, and should make the tender which was refused by the purchaser, he could not recover the actual price agreed on, but the difference between that and the market price at the time it was to be delivered. The reason is, that he still has his flour, and can dispose of it at the market price, and make himself whole by recovering the difference. The great object of damages is to repair an injury, to make the wrongdoer pay to the injured party such an amount as will make him whole.
“But I apprehend there is a difference between personal property and labour. The former will always find a purchaser in the market, but not so with the latter, and especially is this true of scientific or professional labour. A man of this class may go unemployed for many months, notwithstanding the most untiring efforts to procure a place. But was the plaintiff bound to make any effort, and if so, upon what principle? He was in no default, having done all he agreed to do; by tendering his services, he might well rest upon his contract, and await the order of the defendants, who, notwithstanding their refusal at first, might change their minds, and receive him into their service. In the first instance, than he has done on this branch of the case, it was not incumbent on the plaintiff, therefore, to prove more, to entitle him to recover the amount agreed upon.
"If the defendants have broken their contract, without good cause, they are wrongdoers, and are liable, prima facie, to pay the amount fixed in their contract. The burden of proof, therefore, rests on them to show that the plaintiff's damages are less than that sum. This they might have done by proving that the plaintiff had not been idle during a portion or the whole of the time, and whatever they could show he had earned in the mean time would have gone to mitigate the damage, or they might have shown that a similar or other good situation was offered him, which he refused, without good cause. But they have offered no such evidence, nor any evidence whatever in mitigation of damages, but have chosen to stand upon their naked legal position, that they were not bound to offer any evidence on the subject.
"We have already said that when a contract is silent as to the price to be paid for services agreed to be performed, the plaintiff must show what his services would have been worth in order to entitle him to recover more than nominal damages. But where the price is fixed by the parties themselves, that amount is, prima facie, to be taken as stipulated damages: Adams Express Co. v. Egbert, 12 Casey 360; Richardson v. Miltigh, 2 Bing. 229. In The Philadelphia, Wilmington, and Baltimore Railroad Co. v. Howard, 13 How. 330, it was held, that in an action for breach of contract to permit the plaintiff to construct a railroad and to pay him therefor, at certain rates, the profits meaning thereby the difference between the cost to him of doing the work and the time to be paid for it, are a proper subject of damages. The case of Hoy v. Gronoble, 10 Casey 9, goes much further than is claimed in the one before us. There it was held, that in an action to sustain damages for the breach of a parol contract, by which the defendant engaged to employ the plaintiff to cultivate a farm upon shares, the proper measure of damages is, the profit which the plaintiff would have made upon the farm, if the contract had not been violated. And in Masterton v. The Mayor of Brooklyn, 7 Hill 62, which was a case in which the plaintiffs had agreed to furnish marble for the City Hall of Brooklyn, for which the defendants agreed to pay as the work progressed; after a portion of the marble had been delivered, the defendants refused to receive any more, and the plaintiffs brought covenant for a breach of the contract. It was held, that they were entitled to recover the profits they would have made from the actual performance of the contract. In The Bank of Montgomery v. Reese, 2 Casey 146, Lewis, C.J., says: 'The paramount rule in assessing damages is, that every person, unjustly deprived of his rights, should at least be fully compensated for the injury he sustained.' In Wilkinson v. Ferree, 12 Harris 190, Mr. Justice Black said: 'When suit is brought on a contract, and in affirmance of it, the verdict should make the plaintiff whole; that is, put him in as good a condition as if the contract had been performed.'
“The present plaintiff sues on the contract, and in affirmance of it, and if he had not been prevented by the defendants from performing the services agreed on, he would have entitled himself to the sum stipulated to be paid. The rule then announced by Judge Black would entitle the plaintiff to recover that amount.
"The principle applicable to this case is clearly recognised in Stewart v. Walker, 2 Harris 293. That was an assumpsit on an alleged contract by Stewart to pay Walker $2.35 a day for himself and team for one year, who dismissed him before the expiration of the time, without cause. It was shown that after Walker was discharged, he had done hauling with his team for other persons during a portion of the time. The court below charged the jury, inter alia, 'that if Stewart, the defendant, had agreed to give the plaintiff work for a year, and discharged him without good cause before the expiration of the year, from that moment the contract was broken, and the defendant was liable for the damages which the plaintiff would sustain by reason of such revocation.'
"If the plaintiff was out of employ for the whole year, holding himself ready at all times to labour for the defendant, he would be entitled to recover pay for the entire year; but he was not bound to remain idle at the risk of losing all claim upon the defendants. He might seek employment and obtain it (although not bound to do so), and the defendants could not complain, as it would reduce the damages, and thereby enure to his benefit. The jury found for the plaintiff, and on error brought, the Supreme Court affirmed the judgment for the reasons given by the court below.
"But the case most relied on by the counsel for the plaintiff is that of Costigan v. The Mohawk and Hudson Railroad Co., 2 Denio 609. That case is like the present in every material fact. The only difference being that there the plaintiff had entered upon the services agreed to be performed, and was discharged before the time expired. But there is no difference in the principle, whether the services had been commenced or not. That case was elaborately argued and well considered by the court, and all the authorities bearing on the questions involved were carefully examined. The case was this: the defendants employed the plaintiff to superintend the railroad for one year, from May the 1st 1843, at a salary of $1500 for the year, together with the use of a dwelling-house worth $150 per annum. He commenced the service, and continued in the employment until July 1st of that year, when he was dismissed by them without cause. Upon this he gave notice that he was ready to proceed and perform his contract, and that he should claim his salary for the entire year, according to the agreement. He was not, however, allowed to go on with the business, and remained wholly unoccupied for the residue of the year, although at all times ready to serve according to his contract. The Supreme Court held that he was entitled to recover the stipulated salary for the entire year. It was also held that he might show in diminution of damages, that after the plaintiff had been dismissed, he had engaged in other business. That employment of the same general nature as that from which he had been dismissed, and to be carried on in the same locality, had been offered to the plaintiff, and refused by him; but not a different kind of employment or business to be conducted in another place. It was also ruled that the opportunity to be so employed will not be presumed, but must be affirmatively shown by the defendant. That the onus probandi rests on the party asserting an affirmative fact, not on him who denies it, and that between the wrongdoer and the party injured the presumptions respecting disputed facts are with the latter.
"We are of opinion, therefore, as well upon principle as authority, and so instruct you, that if you find for the plaintiff on the issues of fact submitted to you, the measure of damages will be the sum stipulated in the agreement, with interest, from the expiration of the term of service agreed on till the present time."
Under these instructions there was a verdict and judgment for plaintiff; whereupon the defendants sued out this writ, and assigned for error that the court below refused to instruct the jury, as requested.
1. That if an agreement was made and concluded, the measure of damages is what the plaintiff lost of his business during the time he was engaged in making the contract, and until he was notified of their intention not to employ him.
2. That if there was a contract made by the parties, and the defendants refused to comply, that plaintiff can only recover such damages as he proves specifically suffered by him; and,
3. That if a contract was made and broken by defendants, the plaintiff is bound to show that, during the time the contract was to run, he had endeavored to procure employment and failed, or else he is not entitled to recover.
The opinion of the court was delivered, November 13th 1862, by
STRONG, J.—The learned president of the District Court has so well indicated his charge delivered to the jury, that little need be said in addition. In the 4th edition of Greenl. on Ev., vol. 2, §261 a, the author, in discussing the subject of damages, remarks that "a distinction has been taken between contracts for specific work by the piece, and the like, and contracts for the hire of clerks, agents, labourers, and domestic servants for a year or shorter determinate period; and it is held in the latter class of cases that if the person so employed is improperly dismissed, before the term of service is expired, he is entitled to recover for the whole term, unless the defendant, on whom the burden of proof lies, can show either that the plaintiff was actually engaged in other profitable service during the term, or that such employment was offered to him and rejected." In support of this doctrine he refers to Costigan v. The Mohawk and Hudson Railroad Co., 2 Denio 609, where the question is discussed at length, and the English as well as the American cases are largely cited. Without referring to them more particularly here, it will suffice to say that they establish incontrovertibly the rule in England to be that, in such a case, the plaintiff is prima facie entitled to the stipulated compensation for the whole time. If so, the burden of proof in regard to his employment elsewhere, or his ability to obtain employment, must necessarily rest on the defendant. All evidence in mitigation is for a defendant to give. In its nature it is affirmative, and hence it is for him to prove who asserts it. But the possibility of obtaining other similar employment, or the fact that other employment was obtained, bears upon the case only in mitigation of damages, and is therefore a part of the defendants' case.
It is, however, superfluous to add more, or even thus much, to what was said in the court below, and to the cases there cited.
The judgment is affirmed.
Questions
1. King holds (1) that a person hired to perform services for a specific term and at a specific salary can sue for that salary when the employer does not permit him/her to do the promised work and (2) that the breaching employer can mitigate damages by showing that plaintiff worked for others during the period or had rejected other similar employment and (3) that the breaching employer has the burden of proof on the mitigation issue.
The opinion is purely “formalistic,” resting solely on rules without stating underlying principles or policies (for definitions and explanations of “principles” and “policies,” see Cappalli §§ 2.03-2.04). Nonetheless, common law rules always rest on reasons, whether principles or policies, even if unexplicated by the precedent-setting court.
Try to formulate one or more general principles justifying King’s mitigation rule.
2. Do the mitigation principles you wrote in response to Question 1 apply equally well when a tenant vacates premises leased at a fixed rate for a determinate period?
3. Does the King court offer any reasons or explanations why its mitigation rules should be limited to the employment context? Can you think of any?
4. If your answer to Question 2 is “yes” and Question 3 is “no,” formulate a holding for King which is broad enough to cover mitigation in non-employment contexts. See generally Cappalli, ch. 5 “Reasoning from Precedents.”
5. Engage in analogical reasoning to test King’s relevance to the context of a breached lease:
(a) The employment contract is analogous to: ________________________
(b) Services are analogous to:____________________________
(c) The employer is analogous to:__________________________
(d) The employee is analogous to: _________________________
(e) Getting work and pay from others during the breached employment term is analogous to: ____________________________
(f) Refusing employment by others during the breached employment term is analogous to: _________________________
6. Is the analogy perfect? If not, why not?
7. Do the steps involved in Questions 1-4 increase your comfort level in applying King by analogy [Question 5] to the lease context?
8. Can King be read as imposing a mitigation duty on the employee? The court’s opinion speaks of “the possibility of obtaining other employment” in its penultimate sentence.
9. Does King, when correctly interpreted, resolve Stone v. Rock?
PRECEDENT #3
Chambermaid v. Factotum
Supreme Court of Temple
1871
March 14th 1871. Before RULE, C. J., READ, WRITE and SPELL, JJ.
Error to the Court of Common Pleas of Temple county: No. 220, to January Term 1871.
This was an action on the case brought, June 2d 1869, by Ms. Chambermaid by her father and next friend James Chambermaid, against Dr. Abraham Factotum for malpractice by which her arm that had been dislocated had become stiffened.
The plaintiff was about sixteen years of age; the dislocation occurred on the 15th of September 1868.
The defendant was called in two days afterwards, and treated the case. There was much evidence given by the plaintiff of the manner in which her arm had been treated by the defendant. After some time her father took her to Drs. Halsey and Richardson, whom he consulted, and who attempted to reduce the dislocation. The plaintiff having closed, the defendant called Dr. Richardson, and proposed to prove by him that "at his first examination of the arm of plaintiff, in presence of and at request of her father, he proposed to put plaintiff under the influence of an anaesthetic, and attempt to reduce it, and that Mr. Chambermaid replied in presence of plaintiff, that so long as she was improving so fast as she had done since he came home, he should not have it disturbed, and that the injury could then have been reduced."
The offer was objected to by the plaintiff, rejected by the court, and a bill of exceptions sealed.
The verdict was for the plaintiff for $300. The defendant took a writ of error, and assigned the rejection of the above offer for error.
The opinion of the court was delivered, March 23d 1871, by
RULE, J.—It is certainly true that if a servant has been wrongfully dismissed before his term of service is out, and he sues to recover his entire wages during the period, the defendant can show in mitigation of damages that he might have procured employment in the interim: King v. Duke & Duke (1867). It was the duty of the plaintiff in such case not to remain idle if he was able to work. Undoubtedly it is incumbent in every case upon an injured party to do whatever he reasonably can to lessen the injury. But is there any similarity between these cases and that presented upon this record? Is it the duty of a person who has been injured by the malpractice of a physician or surgeon to make any experiment which may be suggested to him, however plausible it may appear? A man who is not himself a physician and cannot be expected to know anything upon the subject, cannot be himself a judge of such matters. It was very reasonable for the father to say when Dr. Richardson proposed to put his daughter under the influence of an anaesthetic and attempt to reduce the limb, "that so long as she was improving so fast as she had done since he came home, he should not have it disturbed." Had Dr. Factotum proposed this experiment there might be some reason to hold that he should have the opportunity of redeeming his mistake, or even if he had called in Dr. Richardson to act on his behalf. Mr. Chambermaid merely requested Dr. Richardson to examine his daughter's arm and give his opinion about it. That did not oblige him to adopt his advice, or to incur the hazard and expense of another operation. He owed no such duty to Dr. Factotum. It was offered to prove that the injury could then have been reduced. But how was Mr. Chambermaid or his daughter to have known this? Had the experiment failed, it might well have been urged that as she was improving she ought to have been let alone, and that Dr. Factotum was relieved from all responsibility by the case having been taken out of his hands. We cannot see then that the evidence offered would, if received, have had any legitimate effect in mitigating the damages. There was, therefore, no error in its rejection.
Judgment affirmed.
Questions
1. The second and third lines of the court’s opinion, discussing King v. Duke & Duke, state:
It was the duty of the plaintiff in such case not to remain idle if he was able to work. Undoubtedly it is incumbent in every case upon an injured party to do whatever he reasonably can to lessen the injury.
Was this the ruling of the King court?
2. Does Chambermaid create a duty to mitigate?
3. What is the legal status of the language quoted in Question 1?
4. For explanations of dicta, see Cappalli §§ 2.17, 2.18. See in § 2.17 the quote from Chief Justice Marshall: “The question before the court is investigated with care, and considered in its full extent. Other principles which may serve to illustrate it ... [are] seldom completely investigated.” Does the language quoted in Question 1 exemplify the point?
5. What are the dangers of pronouncements such as those quoted in Question 1?
6. The idea found in the quote in Question 1 is attractive. Can it be used validly in future cases?
PRECEDENT #4
Milling v. Grinding
Supreme Court of Temple
1880
November 9th, 1880. Before SHARP, C. J., MERCURY, FLASH, SWIFT, TRUTH, LIGHT and SPARK, JJ.
Error to the Court of Common Pleas, No. 2, of Temple county: Of October and November Term 1880, No. 163.
The action was to recover rent from October 1st 1878 to April 1st 1879, for certain premises in the city of Temple, of which the plaintiff was the owner, and which he alleged the defendant rented from him by a verbal lease from May 1st 1873 to April 1st 1874, at a rent of $20 per month, payable monthly, and that after the 1st of April 1874 the defendant held over and continued to occupy the premises. Plaintiff further alleged that about April 1st 1876, additional rooms were rented by him to the defendant, and her rent increased to $25 per month, payable monthly, as before, and that she continued, under the terms of the original lease, to occupy the premises until October 7th 1878, when she removed therefrom, paying the rent to October 1st 1878.
The defendant alleged that when she rented the premises in 1873 she told Milling she was a stranger in the city and did not know whether she would be able to pay the rent or not, and that therefore she would not rent the premises in any other way than by the month, and that plaintiff readily agreed to this arrangement, and that thereunder she moved in and remained his tenant, without any change in the lease until October 7th 1878. That at that time she paid the rent in full to October 1st 1878; tendered to plaintiff over half a month's rent for the seven days she occupied the premises after the 1st of October, and left the key with the plaintiff in person and removed from the house. It also appeared that plaintiff never made any demand on defendant for the rent as it fell due, and that there were other acts to show an acceptance of the surrender tendered. It also appeared by plaintiff's own testimony that he not only did not try to rent the premises after defendant removed, but that he positively refused to rent the same to several parties who called upon him for that purpose, and that he did not report these parties to defendant, but gave to them all an unqualified refusal.
The verdict was for defendant, and after judgment plaintiff took this writ and alleged that the court erred as follows:
1. In charging the jury: "She claims that she rented by the month, and only by the month, stating that she was a stranger; that she did not know how her business would succeed; that she would not involve herself for a longer period than a month, and that she rented by the month, to be payable monthly, and on no other terms, and for no fixed time. I might say just here that if that is discovered to be the fact, then if you find that all the rent has either been paid or tendered at the time this key was left; with Mr. Milling, there can be no recovery, and there ought not."
2. In charging the jury: "It all devolves upon the question whether she was simply a monthly renter, without any fixed time to such monthly rental. If there was a contract to that effect agreed upon by the parties without limit as to how long it would run, I then say to you that if she tendered all the rent that was due, and you so find, she had a right to go out as a monthly renter at the expiration of any month that she might see proper."
3. In charging the jury: "If it be as Mr. Milling claims, why then she ought to pay and must pay until the end of the year, unless Mr. Milling was guilty of neglect and might have rented but did not."
4. In affirming defendant's first point: "That if the jury find from the evidence that when defendant first leased from plaintiff the premises in question, that she rented them by the month, and that no agreement changing this tenancy was afterwards made; that defendant continued to occupy said premises as a monthly tenant up until the date she moved, and that their verdict must be for the defendant.
5. In affirming defendant's second point: If the jury find from the evidence that at the time plaintiff accepted the key of the premises and demanded and received the month's rent necessary to balance accounts in full to October 1st 1878, he intended to accept the surrender so made, defendant was then and there released, and no subsequent act of plaintiffs at any time performed could again make her liable, and that the verdict must be for defendant.
6. In affirming the defendant's third point, that plaintiff was bound to use his utmost endeavors to rent the premises in question between November 12th 1878 and April 1st 1879 for the relief of defendant.
Mr. Justice SHARP delivered the opinion of the court, November 22d 1880.
These parties disagree on the question whether the letting of the premises was by the month or year, and on this the conflicting testimony was fairly submitted. But the testimony on all controverted questions might as well not have been submitted at all, for the jury were instructed that on the case, as claimed by the plaintiff, the defendant ought to pay rent until the end of the year, unless the plaintiff was guilty of neglect and might have rented, but did not, and that he was bound to use his utmost endeavors to rent the premises for the relief of the defendant; and, if the renting was by the month, the verdict must be for the defendant. Now, the parties agreed that the plaintiff made no effort to rent the premises to another till the end of the year; also, that the rent was paid up to the first of October. Therefore, the affirmance of defendant's first and second points was decisive against the plaintiff.
A vital point to a complete defence was to establish a rescission of the lease by mutual agreement. Three witnesses on part of defendant said that when the last rent was paid, a few days after her removal from the premises, the plaintiff took the key without saying a word; and three witnesses on plaintiff's behalf testified that he absolutely refused to accept the key. Probably the testimony was sufficient to warrant submission of the question; but it was far from conclusive, and by no means justified instructions as if it were an indisputable fact that there was a surrender. The declaration of a landlord that his tenant had given up his lease, accompanied by an unsuccessful attempt to lease to another, is not conclusive evidence that their relation had ceased. There must be an agreement to rescind or the lease continues in force, and the acts and declarations of the parties tending to prove such agreement are for consideration of the jury. Mere removal by a tenant with unaccepted offer to deliver the key, is not evidence of a termination of the lease: Kiester v. Miller, l Casey 481. Taking care of the key of the house and repairing the floor after the tenant had voluntarily left, were no eviction. He would have been entitled to enter if he had returned: Pier v. Carr, 19 P. F. Smith 326. So, taking care of the key and cleaning the windows of a house after the tenant had left, would not be conclusive evidence of the landlord's acceptance of a surrender.
The effect of a surrender is to pass the estate of the tenant to the landlord, which results in extinguishment of the rent reserved and accruing out of the lease estate not due at the time of the surrender: Greider's Appeal, 5 Barr 422. Hence, if there was an agreement for surrender made in October between Milling and Mrs. Grinding, no rent which was not then due can be recovered; but if there was no such agreement whether the term was for a month or a year, the plaintiff was entitled to the rent until the end of the term. In case of a surrender, it was immaterial whether the plaintiff did or did not rent the premises to another; and if the relation of landlord and tenant was not ended by contract, he was not bound to rent to another during the term for relief of the defendant. Nothing in the original contract obligated him to seek another tenant, and had he done so and put one in possession of the premises, he could recover no rent of the defendant accruing thereafter. That, indeed, would have relieved the defendant—a most absurd thing for him to do if he wished to hold his contract with her. She alone had as little power to terminate her obligation to pay rent until the end of the term as she had to make the lease. It takes as many persons to rescind a contract as it took to make it, unless it contains a stipulation that it shall become void upon a contingency.
The third and sixth assignments are well taken; and the first and second must also be sustained. True, if the defendant rented by the month, she had a right to end the lease at the expiration of any month, but she would be bound to pay the rent for that month unless there was a surrender. The tender of a half-month's rent at the time the key was left, was vain. If the jury found the facts mentioned in the defendant's first point, without more, the defendant was not entitled to a verdict. She moved after the first of October, and in any view was liable for the rent of that month if the contract was not rescinded. The defendant's second point assumes that the plaintiff accepted the key of the premises, and for that reason ought to have been refused.
Judgment reversed, and venire facias de novo awarded.
Questions
This is a specific holding that a landlord has no duty to rent premises which have been abandoned (without acceptance of surrender) by the tenant within the term. Plaintiff appealed a judgment for the tenant and his third and sixth assignments of error were “well taken,” the judgment for defendant being reversed.
1. The Milling precedent has never been overruled. It is more than a century old. Does its age enhance or diminish its authority?
2. Try to develop an argument why America’s change from an agrarian to an urbanized society has undercut the social validity of the Milling rule.
3. Why does the Milling court not cite King v. Duke & Duke which, we have seen, can easily be read as authority for a general “no duty to mitigate” principle?
4. Why does the Milling court not discuss the Chambermaid view that “undoubtedly it is incumbent in every case upon an injured party [here, Milling] to do what ever he reasonably can [here, re-lease the apartment] to lessen the injury [here, the injury--owed rent--to Grinding]?”
5. Is the holding broad enough to cover residential leases (assuming Grinding rented commercial space, as it seems).
6. Concerning the mitigation issue, the Court’s third paragraph contains a classic example of dicta. What is it and why is it dicta?
7. The dicta you identified in answering Question 6 seems inconsistent with past precedents. Which and why?
8. Milling seems to require that the lease contract contain a mitigation clause and it uses straight contract analysis throughout its opinion. This reminds us of Homer’s use of simple contract principles. Keep this in mind as contract law twists in new directions in the future in the State of Temple.
9. Is the trial court’s decision in Stone v. Rock consistent with Milling? Should its order for a new trial be reversed on the basis of Milling?
10. Can the trial court in Stone v. Rock reasonably defend its action on the basis of the language in Chambermaid?
PRECEDENT #5
Ben Franklin v. William Penn
Supreme Court of Temple
1882
January 17th 1882. Before SHARP, C. J., MERCURY, FLASH, SWIFT, TRUTH, LIGHT AND SPARK, JJ.
ERROR to the Court of Common Pleas No. 1, of Temple county: Of July Term 188l, No. 18.
Covenant, by Ben Franklin against William Penn, upon a contract of suretyship annexed to a lease.
On the trial, the following facts appeared: On October 15th 1875, the plaintiff leased a certain house to one Jacob Brown, for the term of five years, at the yearly rent of $360, payable in equal monthly payments of $30 each. The lease contained the usual covenants on the part of the lessee to pay the rent as due, &c. At the foot of the lease was the agreement of suretyship signed and sealed by the defendant, William Penn, whereby he covenanted that the lessee should faithfully perform all the covenants in the lease on his part to be performed, otherwise immediate recourse may be had against the surety without any prior proceedings against the lessee.
The lessee entered, paid his rent regularly to January 1877, and moved out, without notice to his landlord, on February 13th 1877, because, as he alleged, of defective drainage; after removal he took the keys to the landlord's agent, J. McGeogh. McGeogh testified that he declined to receive them, and stated that he would hold his surety for the rent, whereupon Brown threw them on the floor and went out. Brown testified that McGeogh took the keys, saying it was all right, but he admitted that McGeogh said he would hold William Penn, the surety, for the rent.
McGeogh sent to Penn the following letters on the days of their date.
“TEMPLE, February 17th 1877.
"Office 2228 North Fifth street.
"William Penn, Esq. Dear Sir:—The rent of No. 1836 Germantown avenue was due on the 15th instant, and I would like you would call up and pay it. Brown, the tenant for whom you are security, having removed, of course we will have to hold you for the rent. Yours, respectfully,
"J. MCGEOGH."
"February 21st 1877.
“William Penn, Esq. Dear Sir:—The tenant of 1836 Germantown avenue having removed, and as under the lease you are security, I shall look to you for the payment of the rent. If you desire it, I shall place a bill on the house and rent it for you; but in no case will we release you until the expiration of the lease. You will take notice that unless I hear from you in this matter within a few days, I shall proceed to rent the house at your risk, holding you, of course, for the rent until the expiration of the lease.
Yours, respectfully,
"JAMES MCGEOGH,
"Agent for Ben Franklin, 2228 South Fifth street.”
"February 23d 1877.
"William Penn, Esq. Dear Sir:—If I do not hear from you to-day, I shall put a bill on the property 1836 Germantown avenue to-morrow, still holding you, as before stated, for rent until the expiration of the lease. Yours, respectfully,
"J. MCGEOGH, Agent for Ben Franklin."
"TEMPLE, March 1st 1877.
“William Penn, Esq. Dear Sir:—A party named Frederick Metzger is desirous of renting 1836 Germantown avenue; he is willing to pay thirty dollars per month. If you have any objection please let me know. If I do not hear from you by to-morrow morning, I will rent it to him, and still hold you as security. Yours, respectfully,
"JAS. MCGEOGH, Agent for Ben Franklin."
"TEMPLE, September l5th 1877.
"William Penn, Esq. Dear Sir:—Frederick Metzger, present occupant of 1836 Germantown avenue, is removing. John Riehl, a former occupant of the place, desires to rent it. Unless I hear from you to the contrary, I shall rent it to him, still holding, you, of course, for the rent as security on the lease.
"Yours, respectfully, JAMES MCGEOGH,
"Agent for Ben Franklin, 2228 North Fifth street."
"January 2nd 1878.
“William Penn, Esq. Dear Sir:—Store 1836 Germantown avenue is again vacant; there is a party named Sylvester Kreider who wishes to rent it as a barber shop. If you have no objections I will rent it to him, still holding you, of course, as security under the lease. Yours, respectfully,
"J. MCGEOGH,
"Agent for Ben Franklin, No. 2228 North Fifth street."
"January 21st 1878.
“William Penn, Esq. Dear Sir:—Premises 1836 Germantown avenue being idle, I shall put a bill on the same, to rent, unless I hear from you to the contrary, holding you, of course, as security under the lease.
Yours, respectfully,
"J. MCGEOGH, 2228 North Fifth street."
"May 13th 1878.
“William Penn, Esq. Dear Sir:. There is a party named William Piersons, who desires to rent the house 1836 Germantown avenue, for a saloon. I can not get any more than $25. If I do not hear from you by to-morrow morning I shall rent it, holding you of course under the lease as security.
"Yours, respectfully,
"J. MCGEOGH, 2228 North Fifth street."
No answers were received to these communications. McGeogh rented the premises to various tenants from time to time, credited the lessee with the rents received from them, leaving a balance due, at the expiration of the term, of $355, for which this suit was brought.
The defendant presented the following points:—
1. "That if the jury find that the premises leased were unhealthy and untenantable by reason of impure air, arising from defective drainage, which existed when the lease was made; that this fact was known to the plaintiff, and he refused to remedy the defect, and that the tenant removed in consequence thereof, the plaintiff cannot recover in this suit. The tenant is not bound to repair defects existing when he leases the premises."
Answer. "I was going to say that that is a proposition of law, which it does not seem to me necessary to answer, in one way or another, here, because there is no testimony to that effect; on the contrary, the testimony on both sides has been that the house was perfectly satisfactory at the time it was leased, that Mr. Brown lived in it about a year afterwards. I do not think the state of facts arises here which makes it necessary for me to answer the point."
2. "If the landlord took possession of the premises, and used or occupied the same, either personally or by a second tenant, he will be estopped from collecting the rent for the same period of the former tenant, unless otherwise agreed between them."
Answer. "The phraseology there is a little ambiguous. 'If the landlord took possession of the premises.' If that means that if the landlord accepted the surrender of the premises and agreed to release the tenant, the proposition is true; but the mere fact, as I have said to you, of the landlord's taking possession of the premises and renting them, after the other party had refused to remain upon them, does not produce the effect that is here asked for. If that is the meaning of the point, I refuse to affirm it."
The learned judge charged the jury, inter alia, as follows: —"The rule of law is perfectly well settled in this state, that a landlord is not liable for repairs unless there is a special stipulation to that effect in the lease. Any man has a right to take the premises of any other man if he pleases, making any covenant or agreement with the landlord that he pleases, but it is settled that he cannot withhold the payment of the rent on account of the bad condition of the premises.
"The second point that he makes is, that he surrendered possession of these premises. A contract to lease a house, or a contract to take a house, is like any other agreement. After you have made it, one party has no right to put an end to it. No man, after you have made an agreement or contract with him, can come to you and say, 'I will give up this contract.’ Unless both parties assent to the giving up of the contract, the contract cannot be broken in that way. Undoubtedly, if the landlord and tenant come together, and a landlord agrees to accept a surrender of the premises, that would end the lease and responsibility of the tenant; but a tenant has no right to go into a landlord's office and say, 'I have done with the house,' and throw the key on the door of the landlord's office. The landlord is not bound to let the key remain on the floor; he has a perfect right to hang it upon a nail without it being evidence that he accepts the surrender.... On the contrary, he says, 'I will hold your surety responsible.' It does not constitute a surrender or an acceptance by the landlord that he takes possession of the property and looks after it, and rents it, because that is for the benefit of both parties.
"[If a man refuse to continue your tenant, gives up the house into your hands, why then you have a right to put a bill upon the house, and try to rent it, because if you rent it, it is so much saved to Mr. Penn so much saved to the surety, or the tenant, because you have to give an account of every cent you make out of the house, and certainly it is much better for the tenant that the landlord should rent the house and get something for it than to simply lock the door, and lay by and sue the tenant or the surety for the whole amount of the rent for the whole term for which he has taken it, so that, being for the benefit of both parties, it is no presumption that the landlord has accepted a surrender that he has taken and leased the house.]”
"[In regard to the leasing in the name of Mr. Penn, I see no pertinence in that, one way or the other. I do not see what right he would have to use Mr. Penn's name as landlord any more than he had to use the name of any one of us, and rent any property for us. He did the best—he was bound to do the best he could for the property—it was quite immaterial under whose name he rented it.]"
Verdict and judgment for the plaintiff, for the amount claimed. The defendant took this writ of error, assigning for error the answers of the court to his points, and the portion of the charge above quoted in brackets.
Mr. Justice SHARP delivered the opinion of the Court, February 13th 1882.
Nothing is better settled in Temple than that a tenant for years cannot relieve himself from his liability under his covenant to pay rent by vacating the demised premises during the term, and sending the key to his landlord. The reason for it is that in the absence of fraud, one party to a contract cannot rescind it at pleasure. And the landlord may accept the keys, take possession, put a bill on the house for rent, and at the same time apprise his tenant that he still holds him liable for the rent. All this, as was said by Mr. Justice Righteous in Homer v. Oedipus (1841), is for the benefit of the tenant, and is not intended, nor can it have the effect, to put an end to the contract and discharge him from rent. A surrender, a release, or an eviction will undoubtedly relieve a tenant, and it was said by Chief Justice GIBSON, in Fisher v. Milliken, 8 Barr 111, that nothing less would do so. This remark, however, was without the authority of the court, and must be regarded as dictum. The case in hand does not require us to assert so broad a proposition. There was neither a release nor an eviction here, but the surety claimed to be discharged because after the tenant, who was his principal, sent the keys to the landlord, the latter leased the property to another tenant. Yet there is no presence that the landlord accepted a surrender; on the contrary the proof is clear that he declined to do so, and notified the defendant below that he would hold him for the rent. This notice was repeated on more than one occasion when he was about to lease the property to another tenant. Yet it was urged by the defendant below that such subsequent leasing by the landlord, and the acceptance of rent from the tenant, raised a presumption of a surrender. Surrender of demised premises by the tenant during the term, to be effectual, must be accepted by the lessor. The burden of proof is upon the tenant to show such acceptance. He sets it up to relieve himself from his covenant, and must prove it. When, therefore, the lessor retains the keys, and at the same time notifies the lessee that he will hold him for the rent, there is no room for the presumption of a surrender. Nor does the renting of the premises to another tenant under such circumstances raise such presumption, for the reason that it is manifestly to the lessee's interest that they should be occupied. The landlord
may allow the property to stand idle, and hold the tenant for the entire rent; or he may lease it and hold him for the difference, if any. It was said in Breuckmann v. Twibill, 8 Norris 58 that "taking possession, repairing, advertising the house to rent, are all acts in the interest and for the benefit of the tenant, and do not discharge him from his covenant to pay rent." Much more is it to the interest of the tenant for the landlord to rent the premises. If at the same rent, the tenant is entirely relieved; if at less, he is liable only for the difference.
Upon the trial in the court below the learned judge instructed the jury, as set forth in the second assignment of error, as follows: "If a man refuses to continue your tenant, gives up the house into your hands, why, then, you have a right to put a bill upon the house and try to rent it; because, if you rent it, it is so much saved to Mr. Penn, so much saved to the surety of the tenant, because you have to give an account of every cent you make out of the house; and certainly it is much better for the tenant, that the landlord should rent the house and get something for it, than to simply lock the door and lay by and sue the tenant or surety for the whole amount of the rent for the whole term for which he has taken it; so that, being for the benefit of both parties, it is no presumption that the landlord has accepted a surrender, that he has taken and leased the house."
We see no error in this. It is good sense as well as good law.
We are not aware of any authorities in this state which are in conflict with the foregoing views. Those cited on behalf of the defendant below certainly are not.
The remaining assignments do not require discussion. The fifth does not fully state the ruling of the court below. As it appears in the bill of exceptions it is entirely correct.
Judgment affirmed.
Questions
1. In light of Homer, King and Milling, how much freedom did the Supreme Court of Temple have to decide this case otherwise?
2. Homer and Franklin stand for the legal proposition that a landlord may re-lease the premises and that act alone does not amount to an acceptance of the tenant’s surrender. Tenant is not relieved of the breach. Is that legal proposition any “stronger” law in Temple after Franklin than before?
3. What does Franklin add to the mitigation law of Temple, if anything?
4. Cumulate the doctrines found in the preceding precedents by drafting a paragraph of law as if you were writing a treatise.
5. The court concludes by saying its holding (affirmance of the lower court’s jury instruction) “makes good sense as well as good law.” Shouldn’t the court explain what the “sense” is and why it is “good”?
6. Speculate why the Supreme Court of Temple has been reluctant to explain the principles and policies underlying its rules.
7. Franklin involved as surety a defendant. Does its rule cover a tenant as defendant?
PRECEDENT #6
Taber v. Saber
Supreme Court of Temple
1921
Action by George H. Taber against the Saber Company, Incorporated. Judgment for plaintiff, and defendant appeals.
McCleman, whose testimony is referred to in the opinion, was a contractor who had been engaged in such work for many years, and who had done dry filling, but no pump filling, and who was familiar with the plaintiff's property. He was permitted to testify, over the objection that he was not an expert on pump filling, that in his opinion 18 cents a cubic yard for filling property situated where plaintiff's property was situated at the time of the filling of plaintiff's property was very cheap.
Gildersleeve, whose testimony is also referred to, was an officer of the defendant company, and while testifying for the defendant was questioned as to conversations carried on at the time the contract was entered into. Plaintiff's objections to such testimony were sustained.
Opinion of the Court by Equity, J.
Defendant contracted to fill plaintiff's lot of ground in Temple, but failed to do so. The land was filled by another, and plaintiff recovered the difference between cost and contract price. The real issue in the court below was the existence of a contemporaneous oral agreement to take case of the waterways on the ground in connection with the filling. Appellant's main complaint is now based on the supposed lack of evidence to show plaintiff had paid anything to complete the contract breached by defendant, and that the actual cost of completing was not proven. The only dispute as to damages was the proper measure; the difference between contract price and actual cost of making the fill being plaintiff's theory, while defendant's was the difference in the value of the ground filled and unfilled.
Viewing the case as now presented, however, the evidence was sufficient to show payment and cost. Defendant objected when Harris, superintendent of the dredging company that did the work, was asked, 'What was the actual cost of making that fill as you made it?' and further objected to a detailed statement showing how the work was done. The best that could be offered where the land was filled in connection with other land was to show the average price, and that it was a reasonable price. But there is sufficient from the testimony to infer the average price (18 cents per yard) was the price paid by plaintiff. It was plaintiff's duty, when defendant failed in its contract, to mitigate the damages by such reasonable acts as would avoid financial loss to all parties. This land, along with other land, was filled by the American Dredging Company. Had it been the only land filled, it would have cost much more. The average cost was, then, less than the reasonable cost. Appellant surely cannot complain if the result of this combination was to reduce the cost of filling the lot. While defendant insisted on knowing the actual cost, it objected when the witness wanted to tell the 'whole story.' If the actual price was less than the average price, of course defendant should have the benefit of this reduction, but as plaintiff submitted the average price as the cost price charged by the dredging company, defendant, by one question, could have clarified the matter to the satisfaction of counsel who now take this appeal. While there is evidence to sustain the verdict, there is not a single assignment raising the question now urged. It was evident to counsel who tried the case, as it is to us, that cost and payment were adequately proven. The ninth assignment states the position of the trial court in relation to this matter when the jury were instructed:
The 'measure of damages is the difference between the contract price and what it cost plaintiff to fill his land.'
And further:
'We have evidence here, not contradicted, that he [plaintiff] did do that [fill the land] in the most economical way possible.'
Defendant objected to the measure of damages as not being proper, and, on this ground alone, asked an exception to this portion of the charge. It asserted the measure of damages was the difference between the value of the land filled and unfilled. On this phase of the case, it is the only objection we can consider, and defendant does not press it. However, the measure adopted by the court was correct. Snyder v. Bassler Limestone Co., 66 I.C.A.. 5, 9.
The evidence of Harris was clearly admissible, as was that of McCleman. Gildersleeve's evidence was properly excluded. As a general rule, damages are to be ascertained at the time of the breach. As the lot was not filled at that time, Gildersleeve was asked:
'What would have been a fair price for filling the lot to the established city grade about the end of May or the first of June, 1918?'
That was objected to by defendant. The next question asked, 'What was the actual cost of making that fill as you made it?' and this also was objected to.
We do not touch upon several very interesting propositions of law presented. Plaintiff claims that, admitting, but not conceding, he gave the ground merely as wasting ground, without charge, and the lot was filled after defendant breached his contract without cost, the latter is not entitled to the fruits of this arrangement, but should be held to pay what it would reasonably cost to fill the land at the time of the breach, less contract price. It is just as earnestly urged by appellant it is plaintiff's duty to mitigate damages as far as possible, and it is not the policy of the law to permit a contractor who has failed to make good to be unduly penalized. So, when plaintiff secures the work to be done at a cost less than appellant agreed to, or for no cost at all, defendant is entitled to the benefit. As there is enough evidence to sustain the verdict, it is unnecessary to discuss these questions.
The judgment of the court below is affirmed.
Questions
1. If Taber has the duty of finding another to fill the land, why does not a landlord have the duty of finding a tenant to fill the vacated space? Has the Supreme Court of Temple offered a rationale for distinguishing the two situations? Can you supply one?
2. The Supreme Court of Temple later cites Taber as establishing, "[a]s a general proposition of contract law," a duty to make reasonable efforts to mitigate. See Baffled, infra, at 3d ¶ from end. Taber actually says that. See opinion, 2d para. But does it hold that?
PRECEDENT #7
Ralph v. Roger
Supreme Court of Temple
1928
Action by Louis M. Ralph and another against Milton Roger and others, trading as Roger Company. Judgment for defendants, and plaintiffs appeal.
Reversed, with directions.
Just, J., delivered the opinion of the Court.
The plaintiffs leased a property in the city of Temple to the firm of Roger Company for five years. The rent stipulated was $18,000, payable in monthly installments, $300 in cash at the beginning of each year of the lease, and eleven bankable notes in like sum for the remainder of that year; one note falling due each month. The lease provided, among other things, that, in the event of removal before the expiration of the term, all rentals for the entire term should immediately become due and payable, and, on the removal of personal goods from the property without all the rent for the entire term having been paid, 'the whole rent in this lease shall be taken to be due and payable.' The lease could not be assigned, nor could any portion of the premises be underlet without the written consent of the parties.
During the first year of the lease, lessees organized a corporation of the same name, which, without an assignment or a sublease, conducted business on the property; but, as the rent and the notes were paid to a bank, lessors knew nothing of the change until one of the notes went to protest. As the parties concede that the first lessees continued to be bound by the lease, this attempted substitution is unimportant. The assignment of the lease and the acceptance of rent from an assignee does not relieve the original lessee from liability. Ghegan v. Young, 23 Temple 18; Fisher v. Milliken, 8 Temple 111. In any event, this lease specifically provides:
'This indenture shall bind all persons claiming under the parties hereto, in whatever character, as fully as if they were in every instance herein named.'
The corporation failed in business, and receivers were appointed. Counsel for the receivers notified the lessors that the premises would be surrendered on the 1st day of May, 1921, when the lease had two years to run. All property of the lessee was removed. The lessors subsequently relet the premises to several tenants for rentals that were less than that called for in defendant's lease. In the last lease, an option was given to the lessees to continue the term for two years beyond that called for in defendant's lease. It also contained a covenant relative to the heating of a part of the premises, but, even if this sum should be included as rent, all amounts received by the lessor did not equal the amount called for in the original lease.
The lessor sued for the difference between the rent so received and the balance of the rent due under the first lease. Defendant contended in the court below that there had been a surrender of the lease through a reletting of the property. The court below charged the jury that it was absolutely essential to lessors' right of recovery that lessees be notified the surrender offered was not accepted. The jury found for lessees, but the court below sustained the judgment on the ground that a reletting by the landlord constituted, in law, an acceptance of surrender. This appeal followed. If the court was correct in this view, then the previous erroneous instruction is immaterial.
We had occasion to review some of the questions before us in Jenkins v. Root, 269 Temple 229, 232. We pointed out that 'care must be taken to distinguish cases in this state where it has been held that a second lease may exist for the same premises and for the same term. Where the first lessee, without right, abandons the possession [in such case] the landlord may resume possession and rent or repair the property, in the interest of the first tenant, who remains liable for any defalcation or deficiency in the rent, and the joinder of the first lessee in securing another tenant will not work a surrender in law unless the owner agrees thereto. Franklin v. Penn (1882).
Nothing is better settled in Temple in the law of landlord and tenant than that a tenant for years cannot relieve himself from liability under his covenant to pay rent by vacating the demised premises during the term and sending the key to the landlord. The reason for this is, one party to a contract cannot rescind it at pleasure. Franklin v. Penn, supra.
When the lessee quits the premises with an intention to give up all rights to them, and to disengage himself from liabilities springing from the contract of lease, to make his effort effectual he must procure the lessor's assent, or, in other words, there must be a surrender. A surrender is the yielding up of an estate for years to him who has the immediate reversion, and the effect is to pass the estate of the tenant to the landlord, extinguishing the rent reserved. Milling v. Grinding (1880). Surrender is a contractual act, and it occurs only through the consent of both parties, evidenced by an express agreement or unequivocal act of the parties which implies that they have agreed to consider the surrender as being made. Felker v. Richardson, 67 N. H. 509, 510, 32 A. 830, 831. Where assent has been given orally or in writing, no question can arise. The dispute occurs over the acts of the landlord as evidencing assent to the abandonment or a surrender of demised premises by implication of law. To show it, there must be evidence of acts so inconsistent with the terms of the first lease that the relation of landlord and tenant, established by the reletting, could not be enforced under the terms of the first lease. Such acts would indicate as a logical and reasonably necessary result that the lessor intended to accept the surrender tendered by the lessees. Whitcomb v. Brant, 90 N. J. Law, 245, 100 A. 175, L. R. A. 1917D, 609. These acts must be distinguished from acts of the landlord in protection of the property after an attempted surrender. The burden of showing such acceptance is on the lessee (Franklin v. Penn, supra; see, also, 35 C. J. 1094), and is primarily a question of the landlord's intention. It is usually a question of fact for the jury but the evidence may be such as to make it one of law for the courts.
The lessees contend there is a surrender through the lessors' neglect to protest or to notify them that they would not accept the abandonment. The court below instructed the jury such notice was necessary. This is not the law. The result of such instruction is to make every quitting or abandonment of the premises effective as a surrender, unless such notice is given. The landlord is not required to protest against an abandonment of the demised premises. In re Mullings Clothing Co. (C. C. A.) 238 F. 58, L. R. A. 1918A, 539.
Lessees now claim that an acceptance appears from the fact that notice was not given that the reletting was for lessees' benefit. The lessors' right to claim for rent after abandonment does not depend on either notice. The legal relations existing between the parties have not been changed by the absence of notice, and, in the reletting, where the new leases are within the terms of the original lease, lessor's right is not lost.
The contract of lease created an estate in the lessee, and covenants between the lessor and lessee. The privity of estate, which is part of the completed legal relation of landlord and tenant, is divested when the lessee quits the premises. If the landlord refuses to accept the surrender offered, the privity established by the contract is not terminated. The liability to pay rent is based on the covenants therein. The landlord, under his common-law right, for the protection of the demised premises, has a legal right to enter. On this theory he could permit the premises to remain idle and recover for the balance of the entire term. 16 R. C. L. 969, § 431. Reletting is not imposed on a landlord as a duty (Franklin v. Penn, supra); and he cannot be held liable for failure to rent where a tenant is offered. Nevertheless, a landlord should be reasonably diligent in securing a desirable tenant for the best rent obtainable to minimize the first lessee's loss. In re Mullings Clothing Co., supra. Reletting does not invade the covenants by which lessee was bound, unless it exceeds or is so inconsistent with them that the two leases could not stand together. Reletting within those covenants is merely the administration of an abandoned estate. When it is done, the landlord should not be held to have accepted the abandonment merely because he does not notify the lessee that the reletting is for his benefit. Lessees must respond to a liability arising from the covenant of the lease. An act done to minimize that liability does not discharge the lessee from that covenant.
In the present case, under the last reletting, the tenant was given the right to an extension of two years. This right was not hostile to the terms of the first lease. Moreover, it was for the benefit of the lessee, as the tenant, in all probability, could not have been procured without this extension. Had the lease disregarded the first lease and created a term extending beyond that in the original lease, it would indicate an intention to accept the abandonment. As to the provision relative to heat, in the reletting, it was stated that, if a certain part of the building was to be heated, the new tenant should pay a certain sum for it; but this sum, added to his rent, would not equal the rent provided in the original lease. It created no additional burden on the terms of that lease.
The lower court was in error in not holding, first, that it is not necessary for a landlord to notify a tenant abandoning the property that he will not accept the surrender and will hold him for the rent for the balance of the term; second, that it is not necessary for the landlord to notify the lessee on reletting during his term that the reletting is for his benefit to minimize his loss; and, third, that a reletting within the terms of the first lease is not such an equivocal act as to indicate an intention on the part of the lessor to accept the surrender of the property.
The affidavit sets up as a defense the acceptance of surrender through the leases discussed. This we have passed on, and, as there are no other facts for consideration, plaintiffs are entitled to have their motion for judgment n. o. v. granted.
The judgment of the court below is reversed, and it is directed that judgment be entered for the amount shown to be due plaintiffs, costs to be paid by defendants.
Questions
1. Review Homer, Milling and Franklin to ascertain whether the Supreme Court had determined what acts of the landlord are necessary to reject tenant’s surrender of the lease.
2. What, then, is the rule(s) of Ralph?
3. Might a rule of Ralph be formulated as follows?
Acceptance of a tenant’s surrender must be accomplished by an unequivocal act of the landlord.
4. Right after affirming that under the relevant precedents the landlord has no duty to mitigate by re-letting, the Ralph court says: “Nevertheless, a landlord should be reasonably diligent in securing a desirable tenant for the best rent obtainable to minimize the first lessee’s loss...”
(a) This is a bald dictum. Why?
(b) If landlord can refuse to mitigate, indeed even reject offers to rent, see Milling, what is the nature of the obligation created by the “should be reasonably diligent” dictum?
(c) Assume that the Supreme Court of Temple is unhappy with the “no duty to mitigate rule.” The quoted language may signal the rule’s eventual demise. Is this sound judicial practice?
PRECEDENT #8
Shenk v. Shank county
Supreme Court of Temple
1935
Note on Shenk. The Supreme Court of Temple wrote a virtually incomprehensible opinion in Shenk. Shenk was a contractor remodeling a courthouse and adding a new wing to it. He sued for delay costs. He claimed governing bodies unreasonably delayed approving sub-contracts which, in turn, caused a one-year delay on his contract. During the time of delay Shenk claimed additional cost such as paying for a skeleton crew “waiting for work.” The main thrust of the opinion is that approval delay was not the kind of “neglect” for which a government could be held responsible. Along the way the court had the following to say about Shenk’s maintaining workers on stand-by.
The rule that a party cannot recover damages from a defaulting defendant which could have been avoided by the exercise of reasonable care and effort is applicable to all types of contracts. As stated in Sedgwick on Damages § 205 (9th Ed.): ‘The rule (avoidable consequences not recoverable) may be applicable in any case of breach of contract. Where damages are claimed, not for the direct injury, that is, the loss of the value of the contract itself, but for a consequential loss, the plaintiff cannot recover for such loss if he might reasonably have avoided it.’ Since the early New York case of Clark v. Marsiglia, 1 Denio (N.Y.) 317, 43 Am. Dec. 670, practically all American jurisdictions recognize and adopt the rule. Chambermaid v. Factotum (1871).
Avoidance of the consequences of the county’s delay in the instant case would not have necessitated affirmative efforts on the part of the appellee and consequently the duty to discharge a useless working force or utilize it otherwise is stronger than in a case where a contractor would have had affirmatively to have taken steps to avoid the consequences of the delay. In other words, plaintiff admitted that he could put his men at work some place else or have procured others and he should have done one or the other and not load a bill of $18,000 on the county for wages, etc.
As we view the circumstances from April 15th to the date of completion, there is not a single item of compensable delay, and appellee was in no position to claim damages.
Questions
1. It appears that the Shenk court places part of its ruling on plaintiff’s failure to mitigate as revealed by the case facts. This makes the mitigation discussion part of Shenk’s holding. Does its location within a long, complicated opinion focusing on other issues diminish the authority of this holding?
2. What significance as authority do you attribute to the Shenk court’s statement that a duty to mitigate “is applicable to all types of contracts”?
3. Has Shenk overruled Milling implicitly? Has the combination of Taber and Shenk?
PRECEDENT #9
Summer v. Spring
Riverview v. Lakeview
Supreme Court of New Hope
1977
PASSION, J., for a unanimous Court.
We granted certification in these cases to consider whether a landlord seeking damages from a defaulting tenant is under a duty to mitigate damages by making reasonable efforts to re-let an apartment wrongfully vacated by the tenant. Separate parts of the Intermediate Court of Appeals held that, in accordance with their respective leases, the landlords in both cases could recover rents due under the leases regardless of whether they had attempted to re-let the vacated apartments. Although they were of different minds as to the fairness of this result, both parts agreed that it was dictated by Joyce v. Bauman, 113 N.H. 438 (1934). We now reverse and hold that a landlord does have an obligation to make a reasonable effort to mitigate damages in such a situation. We therefore overrule Joyce v. Bauman to the extent that it is inconsistent with our decision today.
I.
Summer v. Spring was tried on stipulated facts. On March 10, 1972 the defendant, Spring, entered into a lease with the plaintiff, Summer, owner of the "Pierre Apartments" in New Hope, to rent apartment 6-L in that building. The term of the lease was from May 1, 1972 until April 30, 1974, with a rent concession for the first six weeks, so that the first month's rent was not due until June 15, 1972.
One week after signing the agreement, Spring paid Summer $690. Half of that sum was used to satisfy the first month's rent. The remainder was paid under the lease provision requiring a security deposit of $345. Although defendant had expected to begin occupancy around May 1, his plans were changed. He wrote to Summer on May 19, 1972, explaining “I was to be married on June 3, 1972. Unhappily the engagement was broken and the wedding plans canceled. Both parents were to assume responsibility for the rent after our marriage. I was discharged from the U.S. Army in October 1971 and am now a student. I have no funds of my own, and am supported by my stepfather. In view of the above, I cannot take possession of the apartment and am surrendering all rights to it. Never having received a key, I cannot return same to you. I beg your understanding and compassion in releasing me from the lease, and will of course, in consideration thereof, forfeit the 2 month's rent already paid. Please notify me at your earliest convenience.” Plaintiff did not answer the letter.
Subsequently, a third party went to the apartment house and inquired about renting apartment 6-L. Although the parties agreed that she was ready, willing and able to rent the apartment, the person in charge told her that the apartment was not being shown since it was already rented to Spring. In fact, the landlord did not re-enter the apartment or exhibit it to anyone until August 1, 1973. At that time it was rented to a new tenant for a term beginning on September 1, 1973. The new rental was for $345 per month with a six week concession similar to that granted Spring.
Prior to re-letting the new premises, plaintiff sued Spring in August 1972, demanding $7,590, the total amount due for the full two-year term of the lease. Following a mistrial, plaintiff filed an amended complaint asking for $5,865, the amount due between May 1, 1972 and September 1, 1973. The amended complaint included no reduction in the claim to reflect the six week concession provided for in the lease or the $690 payment made to plaintiff after signing the agreement. Defendant filed an amended answer to the complaint, alleging that plaintiff breached the contract, failed to mitigate damages and accepted defendant's surrender of the premises. He also counterclaimed to demand repayment of the $345 paid as a security deposit.
The trial judge ruled in favor of defendant. Despite his conclusion that the lease had been drawn to reflect "the 'settled law' of this state," he found that "justice and fair dealing" imposed upon the landlord the duty to attempt to re-let the premises and thereby mitigate damages. He also held that plaintiff's failure to make any response to defendant's unequivocal offer of surrender was tantamount to an acceptance, thereby terminating the tenancy and any obligation to pay rent. As a result, he dismissed both the complaint and the counterclaim. The Intermediate Court of Appeals reversed in a per curiam opinion.
Riverview v. Lakeview arose in a similar manner. On December 27, 1972, Carl Lakeview entered into a written lease with plaintiff Riverview. The agreement covered the rental of apartment 5-G in a building owned by the realty company at 2175 Hudson Terrace in New Hope. As in the companion case, the lease prohibited the tenant from subletting or assigning the apartment without the consent of the landlord. It was to run for a two-year term, from February 1, 1973 until January 31, 1975, and provided for a monthly rental of $450. The defendant took possession of the apartment and occupied it until February 1974. At that time he vacated the premises, after having paid the rent through January 31, 1974.
The landlord filed a complaint on October 31, 1974, demanding $4,500 in payment for the monthly rental from February 1, 1974 through October 31, 1974. Defendant answered the complaint by alleging that there had been a valid surrender of the premises and that plaintiff failed to mitigate damages. The trial court granted the landlord's motion for summary judgment against the defendant, fixing the damages at $4,050 plus $182.25 interest.
The Intermediate Court of Appeals affirmed the trial court, holding that it was bound by prior precedents, including Joyce v. Bauman, supra. Nevertheless, it freely criticized the rule which it found itself obliged to follow: “There appears to be no reason in equity or justice to perpetuate such an unrealistic and uneconomic rule of law which encourages an owner to let valuable rented space lie fallow because he is assured of full recovery from a defaulting tenant. Since courts in New Hope and elsewhere have abandoned ancient real property concepts and applied ordinary contract principles in other conflicts between landlord and tenant there is no sound reason for a continuation of a special real property rule to the issue of mitigation.”
II
As the lower courts in both appeals found, the weight of authority in New Hope supports the rule that a landlord is under no duty to mitigate damages caused by a defaulting tenant. See [cites to cases]. This rule has been followed in a majority of states, Annot. 21 A.L.R.3d 534, § 2(a) at 541 (1968), and has been tentatively adopted in the American Law Institute's Restatement of Property. Restatement (Second) of Property, § 11.1(3) (Tent. Draft No. 3, 1975).
Nevertheless, while there is still a split of authority over this question, the trend among recent cases appears to be in favor of a mitigation requirement. Compare [cases from 12 states].
The majority rule is based on principles of property law which equate a lease with a transfer of a property interest in the owner's estate. Under this rationale the lease conveys to a tenant an interest in the property which forecloses any control by the landlord; thus, it would be anomalous to require the landlord to concern himself with the tenant's abandonment of his own property. Wright v. Baumann, 239 Or. 410, 398 P.2d 119, 120-21, 21 A.L.R.3d 527 (1965).
For instance, in Muller v. Beck, 94 N.H. 311 (1920), where essentially the same issue was posed, the court clearly treated the lease as governed by property, as opposed to contract, precepts. The court there observed that the "tenant had an estate for years, but it was an estate qualified by this right of the landlord to prevent its transfer," 94 N.H. at 313, and that "the tenant has an estate with which the landlord may not interfere." Id. at 314. Similarly, in Heckel v. Griese, 12 N.H. Misc. 211 (1934), the court noted the absolute nature of the tenant's interest in the property while the lease was in effect, stating that "when the tenant vacated, . . . no one, in the circumstances, had any right to interfere with the defendant's possession of the premises." Id. at 213. Other cases simply cite the rule announced in Muller v. Beck, supra, without discussing the underlying rationale. [cites].
Yet the distinction between a lease for ordinary residential purposes and an ordinary contract can no longer be considered viable. As Professor Powell observed, evolving "social factors have exerted increasing influence on the law of estates for years." 2 Powell on Real Property (1977 ed.), § 221(1) at 180-81. The result has been that (t)he complexities of city life, and the proliferated problems of modern society in general, have created new problems for lessors and lessees and these have been commonly handled by specific clauses in leases. This growth in the number and detail of specific lease covenants has reintroduced into the law of estates for years a predominantly contractual ingredient. (Id. at 181) Thus in 6 Williston on Contracts (3 ed. 1962), § 890A at 592, it is stated: “There is a clearly discernible tendency on the part of courts to cast aside technicalities in the interpretation of leases and to concentrate their attention, as in the case of other contracts, on the intention of the parties, * * *.” See also Javins v. First National Realty Corp., 138 U.S.App.D.C. 369, 373, 428 F.2d 1071, 1075 (D.C.Cir.1970) cert. den. 400 U.S. 925, 91 S.Ct. 186, 27 L.Ed.2d 185 (1970) ("the trend toward treating leases as contracts is wise and well considered"); 57 E. 54 Realty Corp. v. Gay Nineties Realty Corp., 71 Misc.2d 353, 335 N.Y.S.2d 872, 874 (App.Div.1972); Parkwood Realty Co. v. Marcano, 77 Misc.2d 690, 353 N.Y.S.2d 623, 626 (Cty.Ct.1974); 3 Thompson on Real Property (1959 ed.), § 1110 at 377; Hicks, "The Contractual Nature of Real Property Leases," 24 Baylor L.Rev. 443 (1972); Note, "Right of Lessor to Refuse any Subtenant When Lease Prohibits Transfer Without Consent," 41 Minn.L.Rev. 355, 357 (1957).
This Court has taken the lead in requiring that landlords provide housing services to tenants in accordance with implied duties which are hardly consistent with the property notions expressed in Muller v. Beck, supra, and Heckel v. Griese, supra. See Braitman v. Overlook Terrace Corp., 68 N.H. 368 (1975) (liability for failure to repair defective apartment door lock); Berzito v. Gambino, 63 N.H. 460 (1973) (construing implied warranty of habitability and covenant to pay rent as mutually dependent); Marini v. Ireland, 56 N.H. 130 (1970) (implied covenant to repair); Reste Realty Corp. v. Cooper, 53 N.H. 444 (1969) (implied warranty of fitness of premises for leased purpose). In fact, in Reste Realty Corp. v. Cooper, supra, we specifically noted that the rule which we announced there did not comport with the historical notion of a lease as an estate for years. 53 N.H. at 451-52. And in Marini v. Ireland, supra, we found that the "guidelines employed to construe contracts have been modernly applied to the construction of leases." 56 N.H. at 141.
Application of the contract rule requiring mitigation of damages to a residential lease may be justified as a matter of basic fairness. Professor McCormick first commented upon the inequity under the majority rule when he predicted in 1925 that eventually “the logic, inescapable according to the standards of a 'jurisprudence of conceptions' which permits the landlord to stand idly by the vacant, abandoned premises and treat them as the property of the tenant and recover full rent, while yield to the more realistic notions of social advantage which in other fields of the law have forbidden a recovery for damages which the plaintiff by reasonable efforts could have avoided.” (McCormick, "The Rights of the Landlord Upon Abandonment of the Premises by the Tenant," 23 Mich.L.Rev. 211, 221-22 (1925)) Various courts have adopted this position. See Annot., supra, § 7(a) at 565, and ante at 770-771.
The pre-existing rule cannot be predicated upon the possibility that a landlord may lose the opportunity to rent another empty apartment because he must first rent the apartment vacated by the defaulting tenant. Even where the breach occurs in a multi-dwelling building, each apartment may have unique qualities which make it attractive to certain individuals. Significantly, in Summer v. Spring, there was a specific request to rent the apartment vacated by the defendant; there is no reason to believe that absent this vacancy the landlord could have succeeded in renting a different apartment to this individual.
We therefore hold that antiquated real property concepts which served as the basis for the pre-existing rule, shall no longer be controlling where there is a claim for damages under a residential lease. Such claims must be governed by more modern notions of fairness and equity. A landlord has a duty to mitigate damages where he seeks to recover rents due from a defaulting tenant.
If the landlord has other vacant apartments besides the one which the tenant has abandoned, the landlord's duty to mitigate consists of making reasonable efforts to re-let the apartment. In such cases he must treat the apartment in question as if it was one of his vacant stock.
As part of his cause of action, the landlord shall be required to carry the burden of proving that he used reasonable diligence in attempting to re-let the premises. We note that there has been a divergence of opinion concerning the allocation of the burden of proof on this issue. See Annot., supra, § 12 at 577. While generally in contract actions the breaching party has the burden of proving that damages are capable of mitigation, see Sandler v. Lawn-A-Mat Chem. & Equip. Corp., 141 I.C.A. 437, 455 (1976); McCormick, Damages, § 33 at 130 (1935). Here the landlord will be in a better position to demonstrate whether he exercised reasonable diligence in attempting to re-let the premises. Cf. Kulm v. Coast to Coast Stores Central Org., 248 Or. 436, 432 P.2d 1006 (1967) (burden on lessor in contract to renew a lease).
III
The Summer v. Spring case presents a classic example of the unfairness which occurs when a landlord has no responsibility to minimize damages. Summer waited 15 months and allowed $4658.50 in damages to accrue before attempting to re-let the apartment. Despite the availability of a tenant who was ready, willing and able to rent the apartment, the landlord needlessly increased the damages by turning her away. While a tenant will not necessarily be excused from his obligations under a lease simply by finding another person who is willing to rent the vacated premises, see, e. g., Reget v. Dempsey- Tegler & Co., 70 Ill.App.2d 32, 216 N.E.2d 500 (Ill.App.1966) (new tenant insisted on leasing the premises under different terms); Edmands v. Rust & Richardson Drug Co., 191 Mass. 123, 77 N.E. 713 (1906) (landlord need not accept insolvent tenant), here there has been no showing that the new tenant would not have been suitable. We therefore find that plaintiff could have avoided the damages which eventually accrued, and that the defendant was relieved of his duty to continue paying rent. Ordinarily we would require the tenant to bear the cost of any reasonable expenses incurred by a landlord in attempting to re-let the premises, see Ross v. Smigelski, supra, 166 N.W.2d at 248-49; 22 Am.Jur.2d, Damages, § 169 at 238, but no such expenses were incurred in this case.
In Riverview v. Lakeview, no factual determination was made regarding the landlord's efforts to mitigate damages, and defendant contends that plaintiff never answered his interrogatories. Consequently, the judgment is reversed and the case remanded for a new trial. Upon remand and after discovery has been completed, R. 4:17 et seq., the trial court shall determine whether plaintiff attempted to mitigate damages with reasonable diligence, see Wilson v. Ruhl, supra, 356 A.2d at 546, and if so, the extent of damages remaining and assessable to the tenant. As we have held above, the burden of proving that reasonable diligence was used to re-let the premises shall be upon the plaintiff. See Annot., supra, § 11 at 575.
In assessing whether the landlord has satisfactorily carried his burden, the trial court shall consider, among other factors, whether the landlord, either personally or through an agency, offered or showed the apartment to any prospective tenants, or advertised it in local newspapers. Additionally, the tenant may attempt to rebut such evidence by showing that he proffered suitable tenants who were rejected. However, there is no standard formula for measuring whether the landlord has utilized satisfactory efforts in attempting to mitigate damages, and each case must be judged upon its own facts. Compare Hershorin v. La Vista, Inc., 110 Ga.App. 435, 138 S.E.2d 703 (App.1964) ("reasonable effort" of landlord by showing the apartment to all prospective tenants); Carpenter v. Wisniewski, 139 Ind.App. 325, 215 N.E.2d 882 (App.1966) (duty satisfied where landlord advertised the premises through a newspaper, placed a sign in the window, and employed a realtor); Re Garment Center Capitol, Inc., 93 F.2d 667, 115 A.L.R. 202 (2 Cir. 1938) (landlord's duty not breached where higher rental was asked since it was known that this was merely a basis for negotiations); Foggia v. Dix, 265 Or. 315, 509 P.2d 412, 414 (1973) (in mitigating damages, landlord need not accept less than fair market value or "substantially alter his obligations as established in the pre-existing lease"); with Anderson v. Andy Darling Pontiac, Inc., 257 Wis. 371, 43 N.W.2d 362 (1950) (reasonable diligence not established where newspaper advertisement placed in one issue of local paper by a broker); Scheinfeld v. Muntz T. v., Inc., 67 Ill.App.2d 8, 214 N.E.2d 506 (Ill.App.1966) (duty breached where landlord refused to accept suitable subtenant); Consolidated Sun Ray, Inc. v. Oppenstein, 335 F.2d 801, 811 (8 Cir. 1964) (dictum) (demand for rent which is "far greater than the provisions of the lease called for" negates landlord's assertion that he acted in good faith in seeking a new tenant).
IV
The judgment in Summer v. Spring is reversed. In Riverview v. Lakeview, the judgment is reversed and the case is remanded to the trial court for proceedings in accordance with this opinion.
QUESTIONS
1. New Hope is a neighboring state. Temple courts, as is true of all state courts, frequently utilize well-considered judicial precedents from others states as “persuasive authority.” Temple courts have a particularly strong tendency to follow the high courts of neighboring states. Can we say that Summer v. Spring forms, to some extent, part of the law of Temple?
2. See Shenk, Question 3. If you were in doubt about Milling being implicitly overruled after Taber and Shenk, are you more comfortable with that conclusion after Summer?
3. None of the relevant Temple precedents offered the property rationale, discussed in Summer, for the no-duty-to-mitigate rule, although Ralph does discuss the "estate for years" when analyzing a "surrender" issue, see Ralph, supra, at 7th ¶. Does that make Milling (and the Temple cases with no-duty-to-mitigate dicta) easier or harder to consider implicitly overruled?
4. On the retroactivity of case law, see Cappalli, ch. 13. Landlord Summer may well have relied on firmly established New Hope law in leaving apartment 6-L vacant for 15 months, or in renting other empty apartments during that period. Does Summer have a justifiable complaint of unfair retroactivity? Should the New Hope court have overruled prospectively?
5. Go back and review the trial judge's decision and opinion in Summer v. Spring. What do you think of this judge's action? See generally Cappalli, ch. 7 ("Horizontal and Vertical Precedent").
PRECEDENT #10
Cardozo v. Holmes
Supreme Court of Temple
1979
OPINION BY: RIGHT, J.
Holmes, defendant, had been, pursuant to an oral month-to-month lease, renting a residential dwelling in Temple county at the rate of $60.00 per month from November, 1971 until recently. Her landlord, plaintiff Cardozo, instituted two separate landlord-tenant actions against defendant before a justice of the peace, the first resulting in a judgment for unpaid rent (for the period from September, 1975 through June, 1976) and the second resulting in a judgment for unpaid rent (for the period from June, 1976 through August, 1976) and for possession of the premises. Following Holmes’ appeals to the Court of Common Pleas of Temple county, plaintiff filed separate complaints, the first seeking unpaid rent and the second seeking both unpaid rent and possession. In both actions, defendant filed answers asserting a defense of the landlord's alleged breach of an implied warranty of habitability. Additionally, in the second action, defendant asserted a setoff due in an amount which she claimed she had spent to repair a broken lock after having given plaintiff notice and a reasonable opportunity to repair the lock. Defendant also filed a counterclaim for the cost of repairing other allegedly defective conditions of which she had given plaintiff notice. Plaintiff filed preliminary objections to the answer and counterclaim which the Court of Common Pleas sustained finding that defendant's answer failed to set forth a legal defense to the landlord's actions, and that the counterclaim failed to set forth a legal cause of action.
On appeal, the Intermediate Court of Appeals reversed and remanded. The Intermediate Court of Appeals abolished the doctrine of caveat emptor as applied to residential leases and held that a warranty of habitability by the landlord will be implied in all such leases, which implied warrant would be mutually dependent upon the tenant's obligation to pay rent. Cardozo v. Holmes, 253 I.C.A. 76 (1978). By order dated July 20, 1978, this Court granted plaintiff's petition for allowance of appeal.
I
DOCTRINE OF CAVEAT EMPTOR ABOLISHED/IMPLIED WARRANTY OF HABITABILITY ADOPTED
The doctrine of caveat emptor comported with the needs of the society in which it developed. However, we find that the doctrine of caveat emptor has outlived its usefulness and must be abolished, and that, in order to keep in step with the realities of modern day leasing, it is appropriate to adopt an implied warranty of habitability in residential leases. The rule of caveat emptor, as applied to landlord-tenant relationships, developed in England in the sixteenth century and was adopted in the nineteenth century as the law of Temple in Moore v. Weber, 71 Temple 429 (1872). Moore held "The rule here, as in other cases, is caveat emptor. The lessee's eyes are his bargain. He is bound to examine the premises he rents, and secure himself by covenants to repair." Id. at 432. In the primarily agrarian society in which the doctrine developed, the law viewed the lease transaction as a conveyance of land for a term, and the focal interest in the conveyance was the land any shelters or structures existing on the land were "incidental" concerns. The rent was viewed as "coming out of the land" itself, not from the dwelling or the dweller. The feudal landlord
had no obligations to the tenant other than those made expressly, and the tenant's obligation to pay rent was independent of the landlord's (covenants) . . . The doctrine of caveat emptor was fully applicable. The tenant's only protections were to inspect the premises before taking possession or to extract express warranties from the landlord. It was assumed that landlords and tenants held equal bargaining power in arranging their rental agreements, and that the agrarian tenant had the ability to inspect the dwelling adequately and to make simple repairs in the buildings which possessed no modern conveniences such as indoor plumbing or electrical wiring.
As agrarian society declined and population centers shifted from rural to urban areas, the common law concepts of landlord-tenant relationships did not change. Despite the facts that the primary purpose of the urban leasing arrangement was housing and not land and that the tenant could neither adequately inspect nor repair urban dwelling units, landlords still were not held to any implied warranties in the places they rented and tenants leased dwellings at their own risk.
253 I.C.A. at 78-79.
As stated by defendant, "times have changed. So has the law." (Brief for defendant at 3). Today, the doctrine of the implied warranty of habitability has attained majority status in the United States, the doctrine having been embraced by the appellate courts and/or the legislatures of some 40 state jurisdictions and the District of Columbia. [string citation]. The warranty recognizes that the modern tenant is not interested in land, but rather bargains for a dwelling house suitable for habitation.
Functionally viewed, the modern apartment dweller is a consumer of housing services. The contemporary leasing of residences envisions one person (landlord) exchanging for periodic payments (rent) a bundle of goods and services, rights and obligations. The now classic description of this economic reality appears in Javins v. First National Realty Corp., 138 U.S.App.D.C. 369, 428 F.2d 1071, 1074, cert. denied, 400 U.S. 925, 91 S.Ct. 186, 27 L.Ed.2d 185 (1970) (footnote omitted). When American city dwellers both rich and poor, seek 'shelter today, they seek a well known package of goods and services a package which includes not merely walls and ceilings, but also adequate heat, light and ventilation, serviceable plumbing facilities, secure windows and doors, proper sanitation, and proper maintenance.'
Commonwealth v. Monumental Properties, Inc., 459 Temple 450, 467-68 (1974) (holding Unfair Trade Practices and Consumer Protection Law applicable to residential leases.)
Moreover, prospective tenants today can have vastly inferior bargaining power compared with the landlord, as was recognized in Reitmeyer v. Sprecher, 431 Temple 284 (1968). In Reitmeyer this Court stated:
Stark necessity very often forces a tenant into occupancy of premises far from desirable and in a defective state of repair. The acute housing shortage mandates that the average prospective tenant accede to the demands of the prospective landlord as to conditions of rental, which, under ordinary conditions with housing available, the average tenant would not and should not accept. No longer does the average prospective tenant occupy a free bargaining status and no longer do the average landlord-to-be and tenant-to-be negotiate a lease on an 'arm's length' basis.
Id. at 289-90.
The Intermediate Court of Appeals correctly observed that to join the trend toward an implied warranty of habitability would not be a complete and sudden break with the past, but would be the "next step in the law which has been developing in Temple for a number of years." 253 I.C.A. at 85. Temple courts have held that a tenant's obligation to pay rent was mutually dependent on express covenants of a landlord to repair and that a material breach of the landlord's covenant to repair relieved a tenant from his obligation to pay rent. McDanel v. Mack Realty Company, 315 Temple 174 (1934). In Reitmeyer v. Sprecher, supra, recognizing the contractual nature of modern leasing and the severe housing shortage resulting in unequal bargaining power, this Court adopted § 357 of the Restatement (Second) of Torts and imposed liability on a landlord who had breached a covenant to repair a dangerous condition on the premises, which breach resulted in injury to the tenant. In Elderkin v. Gaster, 447 Temple 118 (1972), we abolished caveat emptor and adopted an implied warranty of habitability in sales of new homes to buyers by vendors/builders. In Elderkin we noted "caveat emptor developed when the buyer and seller were in an equal bargaining position and they could readily be expected to protect themselves in the deed. . . . 'The caveat emptor rule as applied to new houses is an anachronism patently out of harmony with modern home buying practices.' " Id. at 127-28.
In 1974, Commonwealth v. Monumental Properties, Inc., supra, we held the Unfair Trade Practices and Consumer Protection Law (1968) applicable to residential leases, primarily because of the functional, contractual view of modern leasing and the housing crises in the Commonwealth. Id. at 467, 474-77. The inferior bargaining position of some tenants caused by the housing shortage made the protection of these consumer laws necessary. Similarly, consumers of goods have received the protections of the implied warranties of merchantability and fitness for a particular purpose since 1953. Uniform Commercial Code, §§ 2-314, 2-315 (1970).
More recently we held that a lessee of commercial property is relieved from the obligation to pay rent when the leased premises are destroyed by fire. Albert M. Greenfield & Co., Inc. v. Kolea, 475 Temple 351 (1977). This Court stated "In reaching a decision involving the landlord-tenant relationship, too often courts have relied on outdated common law property principles and presumptions and have refused to consider the factors necessary for an equitable and just conclusion. . . . Buildings are critical to the functioning of modern society. When the parties bargain for the use of a building, the soil beneath is generally of little consequence. Our laws should develop to reflect these changes." Id. at 356-57.
Given the foregoing considerations and authority, we affirm the Intermediate Court of Appeals’ holding that a lease is in the nature of a contract and is to be controlled by principles of contract law. The covenants and warranties in the lease are mutually dependent; the tenant's obligation to pay rent and the landlord's obligation imposed by the implied warranty of habitability to provide and maintain habitable premises are, therefore, dependent and a material breach of one of these obligations will relieve the obligation of the other so long as the breach continues.
II
ADOPTION OF IMPLIED WARRANTY OF HABITABILITY: A PROPER JUDICIAL FUNCTION
Plaintiff does not argue that an implied warranty of habitability does not comport with current understanding of the landlord-tenant relationship. In light of the overwhelming authority in favor of the warrant, he would be hard pressed to do so. Rather, the thrust of plaintiff's argument is that the establishment of an implied warranty of habitability is the setting of social policy, which is a function of the legislature. Specifically, plaintiff maintains that, because the legislature has acted in the field via the Rent Withholding Act (1977), the courts are prohibited from further development of common law solutions to landlord-tenant/habitability problems. We cannot accept this position.
The Rent Withholding Act (hereinafter the Act) provides:
Notwithstanding any other provision of law, or of any agreement, whether oral or in writing, whenever the Department of Licenses and Inspections of any city of the first class, or the Department of Public Safety of any city of the second class, second class A, or third class as the case may be, or any Public Health Department of any such city, or of the county in which such city is located, certifies a dwelling as unfit for human habitation, the duty of any tenant of such dwelling to pay, and the right of the landlord to collect rent shall be suspended without affecting any other terms or conditions of the landlord-tenant relationship, until the dwelling is certified as fit for human habitation or until the tenancy is terminated for any reason other than nonpayment of rent. During any period when the duty to pay rent is suspended, and the tenant continues to occupy the dwelling, the rent withheld shall be deposited by the tenant in an escrow account in a bank or trust company approved by the city or county as the case may be and shall be paid to the landlord when the dwelling is certified as fit for human habitation at any time within six months from the date on which the dwelling was certified as unfit for human habitation. If, at the end of six months after the certification of a dwelling as unfit for human habitation, such dwelling has not been certified as fit for human habitation, any moneys deposited in escrow on account of continued occupancy shall be payable to the depositor, except that any funds deposited in escrow may be used, for the purpose of making such dwelling fit for human habitation and for the payment of utility services for which the landlord is obligated but which he refuses or is unable to pay. No tenant shall be evicted for any reason whatsoever while rent is deposited in escrow.
Initially we note the Act is applicable only to cities of the first three classes and so is, by its terms, not applicable to the case at bar. Nevertheless, we must consider plaintiff's contention that, by acting at all, the legislature has precluded the judiciary from common law development in the landlord-tenant/habitability area.
The Act does not purport to be the exclusive tenant remedy for unsavory housing, nor does it attempt to replace or alter certain limited and already existing tenant remedies such as constructive eviction. Kelly v. Miller, 249 Temple 314 (1915). The Act's silence as to constructive eviction could not be construed, without more, as a legislative abolition of that doctrine. Neither can mere enactment of the Rent Withholding Act signal a legislative intent to remove from the courts the authority to fashion new remedies where appropriate in the landlord-tenant field.
Caveat emptor was a creature of the common law. Elderkin v. Gastner, supra at 123. Courts have a duty "to reappraise old doctrines in the light of the facts and values of contemporary life particularly old common law doctrines which the courts themselves have created and developed." Javins v. First National Realty Corp., supra 138 U.S.App.D.C. at 372, 373, 428 F.2d, 1074 at 1074, quoted in Albert M. Greenfield & Co., Inc. v. Kolea, supra at 357. And when a rule has been duly tested by experience and found inconsistent with the sense of justice or the social welfare there should be little hesitation in "frank avowal and full abandonment." Cardozo, The Nature of the Judicial Process, 150-51 (1921). We have followed these principles recently in several decisions which are clearly founded on a realization of, and adaption of the law to correspond to, changing social policy. Ayala v. Philadelphia Board of Education, 453 Temple 584 (1973) (governmental immunity abolished) and Flagiello v. Pennsylvania Hospital, 417 Temple 486 (1965) (immunity for charitable institutions abolished).
In reappraising antiquated laws, it is entirely proper to seek guidance from policies underlying related legislation.
[c]ourts, in assessing the continued vitality of precedents, rules and doctrines of the past, may give weight to the policies reflected in more recent, widespread legislation, though the statutes do not apply treating the total body of the statutory law in the manner endorsed long ago by Mr. Justice Stone 'as both a declaration and a source of law, and as premise for legal reasoning' (The Common Law in the United States, 50 Harv.L.Rev. 4, 13 (1976)).
Introduction to Restatement (Second) of Property, Landlord and Tenant.
The purpose of the Act is to restore substandard housing to a reasonable level of habitability as swiftly as possible and to deter landlords from allowing their property to deteriorate into a condition unfit for habitation. Newland v. Newland, 26 I.C.A. Admin. 519 (1976) and Palmer v. Allegheny county Health Department, 21 I.C.A. Admin. 246 (1975). The adoption of the implied warranty of habitability is consistent with this policy.
Appellate courts of other jurisdictions have considered and rejected the argument that a state's rent withholding act or other statutory remedies precluded judicial adoption of the implied warranty of habitability. In Boston Housing Authority v. Hemingway, 363 Mass. 184, 293 N.E.2d 831 (1973), the Massachusetts Supreme Court reviewed the overwhelming support from other jurisdictions which have judicially sanctioned the implied warranty and stated "All of these decisions are predicated on the implied assumption that remedial legislation designed to promote safe and sanitary housing does not preclude the courts from fashioning new common law rights and remedies to facilitate the policy of safe and sanitary housing embodied in the withholding statutes." Id. at 293 N.E.2d 841. That court further reasoned that failure to adopt the warranty of habitability would render that state's statutory law and common law conceptually and functionally inconsistent. See also, Green v. Superior Court, 10 Cal.3d 616, 111 Cal.Rptr. 704, 517 P.2d 1168 (1974) (state statute authorizing tenants to repair defective conditions and deduct expenses from rent held not exclusive remedy and not preclusive of judicial adoption of common law implied warranty of habitability) and Jack Springs, Inc. v. Little, 50 Ill.2d 351, 280 N.E.2d 208 (1972) (rent withholding statute not exclusive remedy and not preclusive of judicial adoption of common law implied warranty of habitability); Cf. Blackwell v. Del Bosco, Colo., 558 P.2d 563 (1976) (lone appellate decision deferring adoption of implied warranty of habitability to legislature, although not predicated on existing statutory tenant rights and remedies). We conclude, therefore, that the Rent Withholding Act is not the exclusive tenant remedy for a landlord's failure to maintain the leased premises in a habitable state nor does it preclude judicial development of common law landlord and tenant obligations, rights and remedies. To the contrary, the Act supports the adoption of the implied warranty of habitability.
III
BREACH OF THE IMPLIED WARRANTY OF HABITABILITY
Plaintiff also asserts that the Intermediate Court of Appeals erred by failing to establish definite standards by which habitability can be measured and breach of the warranty ascertained. We disagree. The parameters of the warranty were adequately defined by the Intermediate Court of Appeals.
"The implied warranty is designed to insure that a landlord will provide facilities and services vital to the life, health, and safety of the tenant and to the use of the premises for residential purposes. King v. Moorehead, at 495 S.W.2d 75." Cardozo v. Holmes, 253 I.C.A. 87. This warranty is applicable both at the beginning of the lease and throughout its duration. Id. citing Old Town Development Co. v. Langford, 349 N.E.2d 744, 764 (Ind.App.1976) and Mease v. Fox, 200 N.W.2d 791, 796 (Iowa 1972).
In order to constitute a breach of the warranty the defect must be of a nature and kind which will prevent the use of the dwelling for its intended purpose to provide premises fit for habitation by its dwellers. At a minimum, this means the premises must be safe and sanitary of course, there is no obligation on the part of the landlord to supply a perfect or aesthetically pleasing dwelling. Cardozo v. Holmes, 253 I.C.A. 87. "Materiality of the breach is a question of fact to be decided by the trier of fact on a case-by-case basis." Id. Several factors (not exclusive) are listed by the Superior Court as considerations in determining materiality, including the existence of housing code violations and the nature, seriousness and duration of the defect. Id.
We believe these standards fully capable of guiding the fact finder in his determination of materiality of the breach. Further, these standards are flexible enough to allow the gradual development of the habitability doctrine in the best common law tradition. This finds support in Elderkin v. Gaster, supra, wherein we declined to establish rigid standards for determining habitability and its breach in the builder/vendor vendee context and, instead, defined habitability in terms of "contemporary community standards" and breach of the warranty as whether the defect prevented the use of the dwelling for the purposes intended habitation. 447 Temple at 128. In that case, we held that lack of a potable water supply to the home prevented its use as habitation and, accordingly, found the implied warranty of habitability to have been breached.
Additionally, we agree with the Superior Court that, to assert a breach of the implied warranty of habitability, a tenant must prove he or she gave notice to the landlord of the defect or condition, that he (the landlord) had a reasonable opportunity to make the necessary repairs, and that he failed to do so. 253 I.C.A. 88.
Plaintiff would require that a determination of breach of the implied warranty be dependent upon proof of violations of the local housing codes. We decline to accept this argument as it would unnecessarily restrict the determination of breach. The Supreme Court of Massachusetts was asked to define their implied warranty of habitability by reference to a housing code of statewide applicability, but declined to do so. In Boston Housing Authority v. Hemingway, 293 N.E.2d 831 (Mass. 1973) that court stated:
The State Sanitary Code minimum standards of fitness for human habitation and any relevant local health regulations provide the trial court with the threshold requirements that all housing must meet. Proof of any violation of these regulations would usually constitute compelling evidence that the apartment was not in habitable condition, regardless of whether the evidence was sufficient proof of a constructive eviction under our old case law. However, the protection afforded by the implied warranty or (sic) habitability does not necessarily coincide with the Code's requirements. There may be instances where conditions not covered by the Code regulations render the apartment uninhabitable. Although we have eliminated the defense of constructive eviction in favor of a warranty of habitability defense, a fact situation, which would have demonstrated a constructive eviction, would now be sufficient proof of a material breach of the warranty of habitability, regardless of whether a sanitary code violation existed or not. 293 N.E.2d at 844, n.16.
Other courts have likewise concluded that the existence of housing code violations is only one of several evidentiary considerations that enter into the materiality of the breach issue. E. g., Foisy v. Wyman, 83 Wash.2d 22, 515 P.2d 160 (1973); King v. Moorehead, 495 S.W.2d 65 (Mo.App.1973); Mease v. Fox, 200 N.W.2d 791 (Iowa 1972). This reasoning is even more persuasive in Temple where there is no statewide housing code and where many municipalities have not promulgated local housing regulations.
In this case, defendant alleged ten specific defective conditions including a leaky roof, lack of hot water, leaking toilet and pipes, cockroach infestation and hazardous floors and steps. If proven on remand, these conditions would substantially prevent the use of the premises as a habitable dwelling place and could justify a finding by the trier of fact that a breach of the implied warranty of habitability had occurred.
IV
REMEDIES FOR BREACH OF IMPLIED WARRANTY OF HABITABILITY
As the adoption today of the implied warranty of habitability creates new legal rights and obligations, it is essential for this Court to outline and clarify some of the available remedies and the manner in which these remedies are to be implemented. The tenant may vacate the premises where the landlord materially breaches the implied warranty of habitability. We have held analogously where the landlord materially breaches express covenants to repair or to maintain the leasehold in a habitable state. See McDanel v. Mack Realty Co., supra, 315 Temple at 174. Surrender of possession by the tenant would terminate his obligation to pay rent under the lease. Lemle v. Breeden, 51 Haw. 426, 462 P.2d 470 (1969) Murray, on Contracts A Revision of Grismore on Contracts, § 183, Mutual Performances in Leases - The Implied Warranty of Habitability (1974) (hereinafter Murray).
Where the tenant remains in possession, and the landlord sues for possession for unpaid rent, the implied warranty of habitability may be asserted as a defense. Virtually all courts addressing the issue of breach of this warranty as a defense concur with this view. See e. g., [cites]; see Restatement (Second) of Property, Landlord and Tenant, § 11.1 (Rent Abatement). If the landlord totally breached the implied warranty of habitability, the tenant's obligation to pay rent would be abated in full and the action for possession would fail because there would be no unpaid rent. Cardozo v. Holmes, supra, 253 I.C.A. 87, citing Javins v. First National Realty Corp., supra, 138 U.S.App.D.C. at 380-81, 428 F.2d 1082-83. If the landlord had not breached the warranty at all, no part of the tenant's obligation to pay rent would be abated and the landlord would be entitled to a judgment for possession and for unpaid rent. Id. If there had been a partial breach of the warranty, the obligation to pay rent would be abated in part only. In such case, a judgment for possession must be denied if the tenant agrees to pay that portion of the rent not abated; if the tenant refuses to pay the partial rent due, a judgment granting possession would be ordered. Id.
Plaintiff urges that the failure of the Superior Court to require a method of escrowing unpaid rent monies is "the most glaring defect" in the Superior Court's decision below. This Court is in favor of an escrow procedure, but is not inclined to make such procedure mandatory. Rather, the decision whether a tenant should deposit all or some of the unpaid rents into escrow should lie in the sound discretion of the trial judge or magistrate. The tenant may retain his rent, subject to the court's discretionary power to order him, following a hearing on the petition of the landlord or tenant, to deposit all or some of the rent with the court or a receiver appointed by the court. This is the approach taken by a majority of the courts which permit the tenant to withhold rent pending the outcome of litigation in which the defense of the implied warranty of habitability is asserted. Restatement (Second) of Property, Landlord and Tenant § 11.3, Reporter's note 2 (1970) Citing, e.g., Javins v. First National Realty Corp., supra and Hinson v. Delis, 26 Cal.App.3d 62, 102 Cal.Rptr. 661 (1972). Factors to be considered include the seriousness and duration of the alleged defects, and the likelihood that the tenant will be able to successfully demonstrate the breach of warranty. Id.
Also at issue in this case is the availability of the "repair and deduct" remedy. Defendant, after allegedly giving notice to the landlord and a reasonable opportunity to repair, repaired a broken door lock and deducted $6.00 from her rent for the month of May, 1975. We have held that, where a landlord fails to perform a lease covenant, the tenant may perform it at his own expense (if reasonable) and deduct the cost of his performance from the amount of rent due and payable. McDanel v. Mack Realty Co., supra, 315 Temple at 177 (landlord failed to perform covenant to supply heat; tenant could have provided heat and deducted reasonable costs from rent). Similarly, the repair and deduct remedy is appropriate for breaches of the implied warranty of habitability. This remedy has been approved in other jurisdictions, Marini v. Ireland, 56 N.J. 130, 265 A.2d 526 (1970); Garcia v. Freeland Realty Co., 63 Misc.2d 937, 314 N.Y.S.2d 215 (1970) and by the Restatement (Second) of Property, Landlord and Tenant § 11.2. Section 11.2 provides "(I)f a tenant is entitled to apply his rent to eliminate the landlord's default, the tenant, after proper notice to the landlord, may deduct from his rent reasonable costs incurred in eliminating the default." "Proper notice" in this instance is one that describes the default and specifies what steps will be taken by the tenant to correct it if the landlord has not eliminated the defective condition within a reasonable time. See Comment a. to § 11.2. The use of the repair and deduct remedy is not, of course, unlimited. Repairs must be reasonably priced and cannot exceed the amount of the rent available to apply against the cost, i.e. the amount of rent owed for the term of the lease. Merilh v. Pan American Films, 200 So.2d 398 (La.App.1967). See comment c. to § 11.2. Further the tenant runs the risk of an adverse court finding on the necessity of the repairs if the court finds that the repairs were not needed to render the premises habitable, the court must find the rent deduction unreasonable. In such event, the landlord could obtain a judgment for the amount of rent deducted. Or if the repairs were needed but the cost was excessive, the landlord could recover the difference between the actual cost and what would have been the reasonable cost of repairs.
Plaintiff also asserted a counterclaim for $25.00 for repairs allegedly made at various times to the heating system, the bathroom floor and to replace a broken window pane. In principle, we see little difference between the counterclaim for repairs and the "repair and deduct" remedy. The counterclaim can be utilized to recover damages from already paid rents based upon expenses incurred in making repairs of defective conditions after failure of the landlord to repair within a reasonable time following proper notice. See Marini v. Ireland, supra and Garcia v. Freeland Realty Co., supra, Pines v. Perssion, 14 Wis.2d 590, 111 N.W.2d 409 (1961). The limitations applicable to the repair and deduct remedy are applicable here as well the cost of the repairs must be reasonable and the maximum amount which the tenant may expend is the amount of rent owed for the term of the lease. However the counterclaim is not available where the tenant has not paid his rent for the period in which the repairs are made and the cost of the repairs do not exceed the rent owed for that period. In that case, there are no damages as the tenant has already been compensated for the cost of repairs by not paying rent.
Finally, since the lease is a contract, other traditional contract remedies such as specific performance are available to enforce the implied warranty of habitability. Javins, supra 138 U.S.App.D.C. at 380, at 428 F.2d 1082, n. 61; See Uniform Residential Landlord and Tenant Act § 4.101(b) (1972) And Blumberg and Robbins, Beyond URLTA: A Program for Achieving Real Tenant Goals, 11 Harv.Civ.Rts. Civ.Lib.L.Rev. 1 (1976). As with other contracts, however, specific performance is an equitable remedy not available as a matter of course but only in unique situations. 11 S. Williston, Contracts § 1418A (3d ed. 1968); Murray, supra at § 220.
V
MEASURE OF RENT ABATED
The Superior Court held, where the tenant claims the breach of warranty of habitability as a defense or counterclaim "the monthly rent past and future (until the dwelling is returned to a habitable state) may be reduced by the difference between the agreed upon rent and the fair rental value of the apartment in its present condition." It is urged that this Court adopt the "percentage reduction of use" method of calculating damages for breach of the implied warranty (This method would reduce the amount of rent owed by a percentage equal to the percentage by which the use of the premises has been decreased by the breach of warranty.) rather than the "fair rental value" approach suggested by the Superior Court. We hold that the "percentage reduction in use" method is the correct manner of determining the amount by which the obligation to pay rent is abated.
The "fair market value" approach suffers from two drawbacks. The first is that it assumes there is a fair market for the defective premises. This assumption is questionable given the housing crises which exists today. Reitmeyer v. Sprecher, supra 431 Temple at 289-90 (1968). Because of the housing shortage, "Premises which, under normal circumstances, would be completely unattractive for rental are now, by necessity, at a premium." Id. at 290. As one author phrased it "it seems questionable whether in asserting damages in this situation cognizance should be taken of a 'fair' market value of noncomplying housing such a market could be regarded as an illegal 'black market' existing only by violation of law." Note, 84 Harv.L.Rev. 729, 737 (1971).
The second flaw is a practical one. The determination of the fair market value of the defective dwelling would in all probability require some type of market survey, statistical evidence, or expert testimony from realtors or appraisers familiar with the local rental market. See, Moskovitz, "The Implied Warranty of Habitability: A New Doctrine Raising New Issues : 62 Calif.L.Rev. 1444, 1467-68 (1974). "The cost of obtaining such evidence or testimony would simply be prohibitive to many litigants, especially low-income tenants." Id.
One court which initially adopted a "fair market value" approach in computing the amount of rent to be abated, McKenna v. Begin, 3 Mass.App. 168, 325 N.E.2d 587 (1975) (McKenna I), rejected that approach following appeal from the trial court on remand, and opted for the "percentage reduction in use" formula, McKenna v. Begin, 362 N.E.2d 548 (Mass.App.1977) (McKenna II), in order to fashion a measure of damages "which more closely reflects the actual injury suffered by (the tenant)." 362 N.E.2d 552. Under this approach, the rent is to be abated "by a percentage reflecting the diminution the value of the use and enjoyment of leased premises by reason of the existence of defects which gave rise to the breach of habitability." Id. citing Green v. Superior Court, supra, Academy Spires, Inc. v. Brown, 111 N.J.Super. 477, 268 A.2d 556 (1970) and Morbeth Realty Corp. v. Rosenshine, 67 Misc.2d 325, 323 N.Y.S.2d 363 (N.Y.Cir.Ct.1971).
This method of evaluation better achieves the goal of returning the injured party (the tenant) to the position he would have been in if performance had been rendered as warranted. Corbin, Contracts § 992 (1964); Murray, supra at § 220. The tenant bargains for habitable premises and the rental price reflects the value placed on those premises by the parties. Therefore, where the premises are rendered uninhabitable, in whole or in part, the contract price (fixed by the lease) is to be reduced by the percentage which reflects the diminution in use for the intended purpose. Another advantage of the percentage reduction method is that the need for expert testimony is greatly reduced as the determination in "percentage of reduction in use" of a residential dwelling is a matter within the capabilities of the layman.
Finally, there should be no doubt that recovery will not be precluded simply because there is some uncertainty as to the precise amount of damages incurred. It is well established that mere uncertainty as to the amount of damages will not bar recovery where it is clear that damages were the certain result of the defendant's conduct. Academy Spires, Inc., supra, 111 N.J.Super. at 486, 268 A.2d 556. McCormick, Damages § 27, p. 101 (1935). The basis for this rule is that the breaching party should not be allowed to shift the loss to the injured party when damages, even if uncertain in amount, were certainly the responsibility of the party in breach. Story Parchment Company v. Paterson Paper Company, 282 U.S. 555, 563, 51 S.Ct. 248, 75 L.Ed. 544 (1931). As noted by the Supreme Court of California, damages in this case "do not differ significantly from a host of analogous situations, in both contract and tort law, in which damages cannot be computed with complete certainty." Green v. Superior Court, supra, 10 Cal.3d at 638, 111 Cal.Rptr. at 719, 517 P.2d at 1183.
Accordingly, on remand, if breach of the implied warranty of habitability is proven, the trial court is to apply the "percentage reduction in use" formula to determine the percentage by which the use and enjoyment of the premises had been diminished.
For the foregoing reasons, we overrule all cases inconsistent with this opinion, affirm the order of the Superior Court with the aforementioned modifications, and remand to the Court of Common Pleas of Temple county for proceedings consonant with this opinion.
Concur: OPINION CONCURRING IN PARTS I, II & III
REASON, Justice.
I join in Parts I, II & III of the Opinion of the Court which adopt the position of the Restatement (Second) of Property, Landlord and Tenant §§ 5.5(1) & (3) and Comment f (1977). As the Reporter's Note to Section 5.5 points out,
to impose the burden on the landlord fulfills the expectations of the parties that the tenant seeks property suitable for a dwelling and the landlord provides property fit for that purpose:
The very object of the letting was to furnish the defendant (the tenant) with quarters suitable for living purposes. This is what the landlord at least impliedly (if not expressly) represented he had available and what the tenant was seeking. Marini v. Ireland, 56 N.J. 130, 144, 265 A.2d 526, 533-534 (1970).
Thus, in leases of residential property the conclusion is justified that the landlord impliedly promised to make repairs. A number of courts have adopted the position of this section that the landlord's implied promise of habitability and the tenant's obligation to pay rent are mutually dependent. Green v. Superior Court, 10 Cal.3d 616, 111 Cal.Rptr. 704, 517 P.2d 1168 (1974); Rome v. Walker, 38 Mich.App. 458, 196 N.W.2d 850 (1972); Fritz v. Warthen, 298 Minn. 54, 213 N.W.2d 339 (1973); Berzito v. Gambino, 63 N.J. 460, 308 A.2d 17 (1973).
Because, however, this case is before this Court on a demurrer, I believe any discussion of remedies and damages premature. I would remand for proceedings consistent with Parts I, II, and III of the Opinion of the Court.
QUESTIONS
1. The only rationale offered to support a “no duty to mitigate rule” with respect to leases was conceptual: the leasehold was considered a property interest (“estate for years”) which continued after the tenant vacated and disenabled the landlord from re-leasing. See Summer, supra. Cardozo rejects this conceptual thinking as contrary to modern needs and thinking. Has the judicial precedent set in Milling survived Cardozo? Decide State v. Rock.
2. The early Temple cases were barren of rationales, other than some bare contractual talk. Does this make them easier or harder to overrule?
3. Is it legitimate for a later court to supply rationales for precedents-without-reasons, consider the rationale invalid, then overrule?
4. Remember that the only rationale offered for a no-duty-to-mitigate rule in the lease context was that the tenant conceptually held a property interest in the leased premises, an interest which continued when tenant vacated. See Summer. Note that the early Temple cases, which never explicitly set forth this rationale, permitted a landlord to re-lease, at his/her discretion, and sue for any rent balance. What impact does this factor have on the question whether Milling is overruled by Taber, Shenk and Cardozo?
5. See Cappalli, ch. 14 (“Judicial Policy”). How would you rank the Cardozo court as a policy-making institution (1 low to 10 high)? Why?
6. Note the huge difference in judicial technique between the early Temple cases and Cardozo. What explains this shift?
7. Is concurring Justice Reason right in stating that the court should not be laying out the rules concerning when premises are inhabitable and the available remedies?
8. Are parts III and IV of Cardozo all dicta?
Precedent#11
Baffled v. Borough
Supreme Court of Temple
1991
OPINION
FAIRNESS, Justice.
We granted plaintiff's Petition for Allowance of Appeal from the Order of the Intermediate Court of Appeal, affirming the Order of the Court of Common Pleas of Temple county which had granted the defendant's motion for summary judgment, to review the continuing applicability of Harris v. Dawson, 479 Temple 463 (1978). Because Harris no longer addresses economic reality and fails to take into consideration the principle of mitigation of damages, we can no longer adhere to its rationale.
The parties entered into an agreement for sale of real estate designated as 46 S. Main Street, Temple county, a/k/a Normal School Building, on March 4, 1986. The purchase price was $90,000.00 with $1,000.00 hand money paid on account. Any default by the buyers was controlled by the following provision:
DEFAULT BY BUYERS. Should BUYERS default in performing this agreement, any sum or sums paid on account shall be retained by SELLERS, either on account of the purchase money, the balance of which shall be recoverable in an action of assumpsit, or as liquidated damages, as SELLERS shall elect, and in the latter case this contract shall become null and void. Record 66a.
Because the Borough was unable to obtain adequate financing to complete the transaction, the Borough defaulted under the contract. The plaintiff then filed a complaint against the defendant seeking, in part, the purchase price.
Subsequently, the plaintiff filed a preliminary motion seeking court approval of another sale of the Normal School Building at a reduced sales price, in an attempt to mitigate the damages against the defendant. In addition, the plaintiff sought judicial approval of the sale so not as to prejudice his claim against the defendant. After taking testimony, the court granted the relief sought by the plaintiff finding the sales price of $50,000.00 both the "best and fairest price" and furthermore determining that this sales price "shall not prejudice the plaintiff's right to pursue his claims against the defendant." Record 26a.
After the sales transaction for $50,000.00 was completed, the defendant amended its answer averring that the resale of the Normal School Building constituted an election by the plaintiff to accept the $1,000.00 down payment as liquidated damages. Thereafter, the defendant filed a motion for summary judgment on the basis of the subsequent sale of the property.
The trial court granted the defendant's motion for summary judgment holding that the court order of November 5, 1987 was effectively a non-jury adjudication of the value of the property on that date. Furthermore, since the plaintiff no longer had the ability to convey the property to the defendant, the plaintiff could not maintain his action for the purchase price, citing Harris v. Dawson, supra. Intermediate Court of Appeals affirmed in a memorandum opinion adopting the trial court's rationale.
In Harris v. Dawson, supra, the parties entered into a purchase agreement for the sale of a tract of land in Temple Township for $60,000.00. One Hundred Dollars was paid on account, $20,900.00 was due at the closing and the balance was to be satisfied by the transferring of the title of a home owned by the buyers. Thereafter, the buyers defaulted on the purchase. In response, the sellers sold the property to a third party for $54,000.00 and instituted a lawsuit for the difference between the contract price and the resale price.
On appeal, we held that the liquidated damage clause was clear and unambiguous and that in accordance with that provision, the seller could not recover the difference between the contract price and the resale price if the sellers were unable to tender a deed for the property upon satisfaction of a monetary judgment.
In most instances, buyers default because of a lack of funding. Therefore, it is unlikely that a buyer will be financially capable of complying with a decree of specific performance. During the time a seller must await the outcome of his lawsuit for specific performance, he is forced to maintain the property, possibly a mortgage, and is subject to changes in the real estate market. The net result is that a successful seller may receive a paper victory only, as the buyer will be unable to comply with the decree of specific performance. What the successful seller is left with is a worthless victory, legal fees, consequential losses, possibly a loss of bargain, and the necessity to resell the property because of the buyer's inability to comply with the decree of specific performance.
Under Harris, a seller can avoid costly litigation and a loss of his bargain only by accepting the deposit as liquidated damages. This option, however, is most probably injurious to a seller, an innocent party, and will result in a windfall to a buyer. Furthermore, the Harris rule precludes any mitigation of damages.
As a general proposition of contract law, a party who suffers a loss due to a breach of contract has a duty to make a reasonable effort to mitigate his losses. Taber v. Saber (1921). To hold otherwise would in many instances penalize the breaching party beyond the assessment of actual damages while rewarding the injured party for his failure to act. Based on this reasoning, we must overrule Harris v. Dawson.
Reviewing the record before us, it is clear that the plaintiff did everything possible to mitigate his damages as well as protect his claim against the defendant. In fact, the trial court entered an order of court finding that the resale price was "fair and reasonable" and that plaintiff's actions in mitigating his damages did not prejudice his claim against the defendant.
The analysis we employ today provides a common-sense approach to a recurring problem. Neither party will be punished. Instead, sellers will be made whole while buyers will pay the actual damages suffered by their repudiation of an enforceable sales agreement. Accordingly, the judgment is reversed and the matter is remanded to the trial court for further disposition in accordance with this opinion.
Judgment reversed.
Questions
1. In paragraph 8, the Baffled court describes the sorry plight of a real estate seller whose buyer has defaulted because of a lack of funds. If resale to another at a lower price forfeits the seller's breach of contract action against the defaulting buyer, she is on the horns of a dilemma: (1) accept the down-payment, typically small in amount, as liquidated damages and give up the breach suit; or (2) sue for breach, laying out lawyer's fees and getting a possibly worthless judgment. The seller may resell at a lower price, it is true, but then seller loses her "bargain" with the breaching buyer. Do Temple precedents place a lessor in the same position?
2. If your answer to the first question is "no," of what value is Baffled in deciding Stone v. Rock?
3. We saw some difficult retroactivity questions in analyzing Summer v. Spring (Question 4). Does Baffled present comparable claims of unfairness?
4. Based on the principles, holdings, and rationales of all 11 precedents, as an Intermediate Court of Appeals judge decide Stone v. Rock with a well-reasoned opinion.
EXERCISE IN SEQUENTIAL CASE ANALYSIS:
MITIGATION OF DAMAGES
TEACHER'S ANSWER MANUAL
PRECEDENT #1
Homer v. Oedipus
Answer 1
As long as the Court’s legal pronouncements are (1) relevant to case facts; and (2) help in resolving the case correctly, the Court can go beyond the theories posed by the appealing parties.
Answer 2
Looks like a straight contract action:
(1) H offers to lease premises to O
(2) O accepts
(3) Terms of contract: one year, $2,400, payable quarterly
(4) O fails to make 3d quarter’s payment
then
O liable to H for 3d quarter
(5) Damages - No $ 3d quarter
Answer 3
(1) Agreement to rent space for one year
(2) Payment of $2,400/$600 quarterly promised
(3) Tenant breached promise by not paying final 2 quarters
(4) Loss of rent income 3d quarter
Answer 4
(a)
Did the Court treat it as “material” by emphasizing it? Use it in its rationale? See Opinion: No.
(b)
Talks just of “premises” - case holding would apply to all “premises” (e.g., residential, commercial, etc.).
Answer 5
Not an issue in the case. This landlord did re-lease for 4th quarter and sued just for 3d quarter’s rent and got judgment for that amount - see trial judge’s charge.
Because there is no discussion of Homer's efforts to re-let in the third quarter, parties probably thought there was no duty to mitigate. That, however, cannot form part of the Court's holding because the parties never raised the possibility.
Answer 6
If landlord does re-lease the premises after refusing tenant’s surrender and notifying tenant he will be liable for unpaid rent, he can collect unpaid balance from tenant minus rents he has collected from re-leasing.
Answer 7
(1) Tenant abandons premises
(2) Landlord refuses to accept the surrender
(3) Landlord attempts to re-lease
(4) Landlord informs tenant he will be liable for any deficiency
(5) Landlord re-leases for part of the unexpired term
Answer 8
Looks like a legal rationale - the landlord’s conduct did not end contract - no “unqualified acceptance of [re]possession” by landlord - therefore tenant’s contract duty to pay rent continued and was breached.
Answer 9
Looks like fairness to landlord - he acted “for the benefit of the tenant.”
Answer 10
(a)
Almost “pure” example of “formal” opinion - see § 3.12(f).
(b)
Insert before last sentence: “The law should not encourage owners to leave property idle or to permit unnecessary loss, nor should the law punish owners who take practical action to mitigate a breaching party’s liability.”
Student Emily's response: "If beneficial action, such as re-letting the premises, could not be taken while still allowing the landlord to abstain from accepting the tenant's abandonment, then all would be at a loss. Those individuals in society who truly desire to make use of the premises would be barred, the space would have to remain idle during the entirety of the remainder of the tenancy in order for the landlord to recover any damages, the amount of damages paid by the tenant would be greater, and if a tenant could not be found later, the landlord would have forfeited all chance of making money on the property. Permitting re-letting is beneficial to society in general, particularly because if the landlord is able to re-let the premises right away, and no or little rental income is lost, the landlord would not have to tie up the courts with a lawsuit and the parties would be at peace."
(c)
All courts should state the reasons for rules, even those applying rules created by earlier judges. Judicial precedents need sharp reasons to develop the law soundly. (1) The same court in a later year can attach reasons which it currently believes in, thereby curing the earlier opinion’s defects. It is not guessing at precedent-court’s motivations: it is supplying its own reasons. If the applying-court cannot think of sound reasons justifying the rule, it must consider overruling the precedent. (2) If the applying-court is inferior in rank, it must apply the rule (stare decisis), though it may question its soundness.
Student Emily's answer. "If the court is applying a rule, it must clarify its underlying reasons so that future courts have a better understanding of the basis and elements of the rule so that it can be followed in the future and the principles applied more broadly to fact patterns which may not be exactly like the initial case. Without the rationale, future courts will have no way of knowing securely the principles and policies justifying the rule. They will be likely to misapply the rule or erroneously fail to apply it, not knowing the rule's purposes and scope."
Answer 11
No. Not case facts. Any pronouncement would seem to be dicta.
But in holding that tenant does not have to be in actual possession to be liable for breach [contrary to plaintiff’s position], the court noted defendant was “at liberty to do so.” Thus, implicitly if warehouse occupied by new tenant within lease term, defendant no longer liable for that period.
Answer 12
See 2, 6 & 11.
Student Emily's answer: "A landlord may recover all remaining rent owed on a lease contract plus interest if a tenant abandons the premises and no longer pays rent, as long as the landlord has not accepted the tenant's surrender, thereby ending the contract. A landlord may retain a key given by the tenant and may re-let the premises on the tenant's account without those actions constituting acceptance of the tenant's surrender. When a landlord re-leases the premises during or for part of the time remaining on the defaulting tenant's lease, the landlord may not recover rent damages from the defaulting tenant for the re-leased period."
Answer 13
No. Here landlord mitigated on his own. Case facts do not involve a landlord who failed to mitigate, like Stone. But Homer provides a rule for landlords who do mitigate (whether under force of law or not) -- they can collect deficiency [lease damages minus rents collected under re-lease].
Answer 14
N/A
PRECEDENT #2
King v. Duke & Duke
Answer 1, part 1
(1) Plaintiff should not be allowed a “windfall” if he worked for a salary during period (double recovery).
(2) Plaintiff should not take unfair advantage of defendant’s breach by remaining idle when offered work.
Answer 1, part 2
The law should encourage productivity and avoid waste. If plaintiff is offered another job, he should take it.
Student Emily's answer included the burden of proof ruling: "Placing the burden of proof on the employer is justified because the employer is the breaching party. It would be unfair when the employee has not acted in bad faith to have the burden of proving that mitigation hadn't occurred in order to recover any damages. If the employee believes less money should be owed, let him prove it."
Answer 2
Probably yes.
Student Emily saw a problem on the burden of proof issue: "It may be difficult for a tenant to prove that a legitimate rental was refused or what the price of a replacement tenancy was without the cooperation of the landlord. This may make it difficult for a tenant to meet a mitigation burden." (Note: Emily did not see that the same proof problem is faced by an employer who must show that the employee did work or could have worked.)
Answer 3
No. Can’t think of any reasons.
Answer 4
E.g., When a contract is breached, the injured party must accept reasonable opportunities to reduce his damages and cannot make double recoveries when he profits from others during the term of the breached contract.
Student Emily's answer included the burden of proof element: "When a contract and all its terms are established and agreed to by the parties, and one party breaches the contract, the other party is entitled to recover the full amount agreed to by the breaching party as long as the other party was ready to tender performance. Damages may be reduced if the defendant proves that plaintiff either received substitute performance or refused it.”
Answer 5
(a) -the lease
(b) - space
(c) - the tenant
(d) - the landlord
(e) - renting to others
(f) - refusing rental by others
Answer 6
Yes.
Answer 7
Hopefully yes. Student Emily responded: "Yes. Steps force you to think of the rule in broader terms, rather than focusing on the case's specific fact pattern. They help formulate the broad, as opposed to the narrow, holding of the case."
Answer 8
No. Its ruling is to the contrary. It affirms a judgment where the judge instructed the jury that plaintiff was not “bound to make any effort” - see p. 13, top ¶.
Student Emily missed this. You have to read your cases closely!
Answer 9
No. See Answer 8.
Student Emily responded: "If Rock could prove Stone had had an opportunity to re-let the premises, but refused to, then Rock would be entitled to have damages mitigated. Unless Rock could prove such mitigation, under the rule of King. Stone would be entitled to recover the full amount of the contract. In any event it doesn't resolve the specific questions posed by the new trial."
PRECEDENT #3
Chambermaid v. Factotum
Answer 1
No. To the contrary, King held there was no duty to mitigate.
Answer 2
No. The precedents (misread) are found inapplicable to the case facts. Therefore, any pronouncements about those cases are dicta.
Answer 3
Pure dicta.
Answer 4
Clearly yes - Chambermaid court says the King precedent is irrelevant to the case before it.
Student Emily said: "Yes. The language quoted in Question 1 distorted King, and general statements were made seemingly off the cuff which weren't pertinent to the case, and which seem to have been given only cursory attention. No rationales or underlying principles or reasons were given for the statements."
Answer 5
Misuse in later years; confusion in the laws.
Student Emily replied: "If lawyers or judges do not investigate the mitigation issue thoroughly, they may see Chambermaid and believe those statements about mitigation were proper statements of the rule of law. The statements may be adopted and applied in future cases even though the statements were not given proper consideration. Hopefully, if they are adopted in a future opinion, the future court will give underlying reasons. Otherwise, dicta may become law without ever having been thoughtfully examined."
Answer 6
It’s still dicta. Must explain that when using it in future. It was attractive to the Chambermaid court but, as dicta, doesn’t form part of the law of Temple.
Student Emily thought dicta, though weak, is usable as "persuasive" material. Dicta is persuasive only to the extent it persuades, and the Chambermaid statements, lacking any rationale or authority, persuade not at all.
PRECEDENT #4
Milling v. Grinding
Answer 1
Enhance - the “law” for more than 100 years = “established” law: many reliance interests (landlords).
Diminish - socio-economic conditions may have changed.
Student Emily responded: "Age enhances a precedent's authority. As more cases with different fact patterns arise, for a precedent's general rule or principle not to be altered or overruled means the principles and policies upon which it is based must be well accepted and widely applicable." This presumes a precedent has been utilized repeatedly. If it has sat there for a century without use, it's just old and deserves no respect for its age.
Emily also commented, wisely: "[T]he longer a precedent has been a rule, and the greater the number of cases decided under it, the greater the chance courts are applying the rule by rote and are failing in their job of keeping the law current to modern needs."
Answer 2
Perhaps more people now need law’s protection; people less intimate; less likely to “do the right thing” (e.g., mitigate) on their own.
Student Emily developed the following argument: "In agrarian society where land ownership was spread out and where there were many fewer people located in an area, particularly those of wealth who did not already have landholdings of their own, a no-duty-to-mitigate rule might have made sense because of the landlord's difficulty of re-letting the premises easily or quickly. In modern, urbanized society re-letting difficulties are less. A plethora of urban city dwellers constantly looking for premises to let provides a landlord ample potential lessors. Also, compared to an agrarian society, the premises to be leased vary only slightly, creating a more consistent market. Additionally, with newspapers, commercials, billboards, and the Internet, sending out information to a vast number of individuals in a wide area around the premises is convenient and easy."
Answer 3
Legal categories - employment vs. leases - prevent courts from cross-fertilizing doctrine.
Student Emily speculated that the Milling court found King but read it narrowly, applying only to employment cases.
Answer 4
(1) Knew about it, but ignored contrary pronouncements - poor judging. Knew about it, but considered the statements weak dicta, not worthy of mention.
(2) Neither court nor lawyers aware of it. Note: it is a medical malpractice case.
Answer 5
Yes. Court’s reasoning (3d ¶) does not focus on use of rental space. Written broadly as “relation of landlord and tenant.” No precise mention in opinion of defendant’s use of space.
Student Emily stated: "Yes. So far no distinction has been made by the courts for us to think commercial leases are substantially different from residential leases. However, such reasons may turn up, such as differences in agrarian and urban settings. They might indicate that commercial re-leasing is considerably more difficult than residential re-leasing and lead to different mitigation rules."
Answer 6
“[H]ad [the landlord sought another tenant] and put one in possession of the premises, he could recover no rent of the defendant accruing thereafter." -dicta because these are not the case facts; plaintiff did not try to re-lease.
Answer 7
Homer - re-leasing does not relieve the breach; King seems to permit deduction of income received from contract amount owed. If lease #2 less than lease #1, defendant owes difference.
Answer 8
N/A
Answer 9
(1) No. (2) Yes.
Student Emily concluded: "Under the rule of Milling, the order for a new trial in Stone should be reversed and the judgment for the landlord for $4000, plus interest, reinstated."
Answer 10
No. Direct holdings - Milling and King vs. bald dicta in Chambermaid.
PRECEDENT #5
Ben Franklin v. William Penn
Answer 1
Under stare decisis, none. Re-leasing does not amount to a surrender. Homer. Can sue for lost rent. Homer; Milling.
Emily stated: "None without overruling those prior cases and coming up with a justification for the new rule and the overruling."
Answer 2
Perhaps a “line of authorities” is harder to overrule than a single precedent - becomes “established” law - see the Court’s opening sentence.
Student Emily said "Precedent gains authority as it is adopted and followed by subsequent courts, particularly if the rationale behind the rule is further developed and logically reasoned." Emily, Franklin does neither.
Answer 3
We now know for sure that landlord can sue for “balance” when re-lease is less than breached lease - dictum to contrary in Milling (see Milling, Q6) is rejected.
Answer 4
A lease is a contract which may not be unilaterally terminated by one party. Milling; Franklin. Merely accepting the key tendered by tenant and re-leasing does not amount to a mutual recision of the contract, and the tenant continues to be liable for rent. Homer; Milling; Franklin. The landlord has no duty to mitigate by re-leasing, Milling, even if others offer to rent the premises. Milling. But cf. King. If the landlord does re-lease, tenant is responsible for the rent for periods when not leased, Homer, or for rent deficiencies when the rent of the re-lease is less than the breached lease. Franklin. The burden of showing income from other leases is on the tenant. Cf. King.
Emily wrote: "Landlords may recover all remaining rent owed on a lease contract, plus interest, after the tenant abandons the premises and no longer pays rent prior to the end of the lease, as long as the landlord has not accepted the tenant's surrender of the premises, thereby ending the contract. Accepting the keys, possession or re-leasing of the premises by the landlord in and of themselves do not constitute acceptance of the tenant's surrender. The burden is on the tenant to prove surrender has been accepted. It is to the benefit of all parties for the landlord to relet the premises. (Emily, this last sentence is not a statement of "law.") Although under no duty to do so, when the landlord re-leases on behalf of the tenant, damages owed by the tenant are reduced by the amount of the rent paid by the new tenant. Additionally, damages may be mitigated if the tenant is able to prove that new tenants were available but unjustifiably refused by the landlord. The burden of proving mitigation is on the tenant."
Answer 5
Judicial law develops more soundly and is applied by lower courts more soundly if courts explain the reasons for their rules - see Homer, Q’s 8, 9, 10.
Answer 6
Decisions made from 1841 to 1882. This was within the era when courts believed they “found” and did not “create” law; law is assumed to be “there” and a product of “reason”; no need to justify it. See Cappalli, pp. 36-37, 118-119.
Answer 7
Clearly yes; surety steps into shoes of tenant and is indistinguishable; not a “material” distinction; no reason given by court or imaginable why tenant and surety should be treated differently.
PRECEDENT #6
Taber v. Saber
Answer 1
Looks like contradictory decisions are being made in parallel fields. The way the law sorts doctrine into categories (leases vs. construction) leads to the creation of contradictory doctrine when factual situations are in essence not distinguishable.
--Temple court has offered no rationale.
--I can’t think of one and neither can student Emily.
Answer 2
No. "Duty to mitigate" was not an issue on appeal. Rather, defendant asserted on appeal that at trial plaintiff failed to prove his damages and that the court below applied the wrong measure of damages, defendant losing on both points. Although certain rules may have been applied at trial, only if the validity of those rules is challenged on appeal can the higher court make law on those matters.
PRECEDENT #7
Ralph v. Roger
Answer 1
No. In Homer and Franklin rejection was explicit; not an issue; in Milling evidence on both sides -- a jury question and no law established therefore an open question at time of Ralph.
Student Emily listed certain "refusing" acts of the landlord found in the precedents, but failed to see that "acceptance of surrender" was not in issue (or not resolved in Milling) and thus could not lead to case law.
Answer 2
Two rules. (1) To reject surrender, landlord does not have to notify tenant that the surrender is not accepted. (jury instruction to contrary was wrong) (2) Merely re-letting is not by itself an acceptance of the surrender.
Answer 3
Too early to generalize so broadly. Too big a jump from (1) notice of rejection not necessary to (2) explicit acceptance needed or from (1) reletting not acceptance to (2) unequivocal act needed. Need more cases and no facts for broader rule to develop clearly.
Answer 4
(a)
Ralph’s plaintiff did re-lease.
(b)
Moral duty?
Student Emily said: "Persuasive advice? It is completely non-binding; however, lower courts typically heed Supreme Court dicta and sometimes follow it. The "advice" may become law."
(c)
No! Creates turmoil in leasing field. What advice should real estate lawyers give clients. If unhappy court should overrule when “on point” case comes along. Also, Ralph facts don’t raise the question. Wait for a suitable case which shows the rule’s lack of wisdom.
Student Emily said: "No, but I believe it is often how rules are created. (Emily, that it is done does not make it right) It is always unsound to state judicial rules without providing proper rationale and reasoning. Additionally, by decreeing such drastic changes (Emily, can courts "decree" law without a need generated by case facts?) in long-standing rules, the court would generate legal instability, would project an aura of autoritarianism, and would generate distrust in the court system. If the proposed rule makes more sense than the current one, the court should take the time to overrule properly and provide convincing reasons why such is necessary. (Emily, the court always needs a live issue before it which calls for the new rule. In Ralph the landlord had mitigated.)
PRECEDENT #8
Shenk v. Shank County
Answer 1
No. No reason to assume the court didn’t work hard on this issue too.
Student Emily replied: "No. Just because an opinion has many issues does not make its discussion of each necessary one unimportant and non-binding."
Answer 2
Certainly overbroad. Shenk just had a construction contract before it.
Emily thought the "counter-argument can be made [to one citing the language] that full and proper consideration was not given to such a broad statement, thereby lessening its authority."
Answer 3
The authority of Milling is being undermined in policy and logic. (1) The policy reasons for mitigation seem equally applicable to leases (reasons which we, as readers, supply -- the “good sense” not explained in Franklin or Milling or Homer.
(2) Logic says:
Mitigation duty applies to all contracts.
Lease is a contract.
Mitigation applies to leases.
I think a court, even a trial or intermediate court, would be right in saying “Milling is no longer good law.”
Student Emily gave a cautious answer, reflecting typical judicial conservatism: "It is difficult to say because both Taber and Shenk are cases with fact patterns unrelated to landlords and tenants and Milling specifically relates to them. Yet there is nothing in Taber and Shenk stating their rules aren't applicable to all contracts."
PRECEDENT #9
Summer v. Spring
Answer 1
Interesting theoretical question. Probably not, since Temple courts have freedom to reject Summer rule. It is like inchoate “law.” Material which has a strong chance of becoming law.
Answer 2
Summer adds some strength to the idea.
Answer 3
I think easier. Don’t have to fight the “jurisprudence of conceptions.”
Emily thought: "Easier, because most of the no-duty-to-mitigate cases provided no rationale. Since Summer is so well reasoned, a reader readily understands the principles behind the rule and finds it easier to overrule precedents without justifications."
Answer 4
Probably should have been applied prospectively but maybe to defendants Spring and Lakeview. To them because of the need for incentives to litigate. If parties like them win the legal issue but lose the case, future litigants will be dissuaded from costly, time-consuming challenges (why appeal? if we win they'll apply new rule prospectively). Reliance on property rules is commonplace. Landlords may have been mitigating if they thought that was the rule. In New Hope, scores of landlords may have relied on Joyce v. Bauman in deciding not to mitigate in whole or part. Unfair to change the law on them mid-stream. Arguable that Joyce was "on the ropes," landlords could have predicted its overruling and should have been mitigating.
Emily thought, perhaps incorrectly, that "most new rules are applied prospectively and not retroactively." If Emily had case law in mind, she is wrong because retroactivity is the norm and prospectivity the rare exception (used when state and local taxes are deemed unconstitutional). If Emily had in mind the total body of rules -- case law, statutes, regulations, ordinances -- she may be right because the last three are almost invariably applied prospectively because of due process.
Answer 5
Courageous but inappropriate judicial behavior. Joyce is valid law unless later precedents can be said to have overruled it implicitly. The two ICA opinions applying Joyce suggest not. Trial judge should have ruled for landlord while expressing his unhappiness with the Joyce rule in his written opinion.
Emily stated: "In Summer, the trial court disavowed rule of vertical precedent of the courts above it, and instead ruled according to notions of justice and fair dealing. Although the trial court ended up ruling as the Supreme Court did in the end, it did not have the power to overrule under stare decisis. Unless a court has the power to overrule and actually does so (explicitly or implicitly), it must follow "on point" precedents. By ruling according to personal preferences, the trial judge jeopardized the legitimacy of the legal system."
PRECEDENT #10
Cardozo v. Holmes
Answer 1
(1) Milling cannot survive Cardozo’s idea that a residential lease is a contract. No rationale for Milling survives. It is a precedent “without legs.”
Emily said: "No. Cardozo stresses dropping property notions in lease cases and using contract principles to resolve them. It overrules all precedents to the contrary, and this would include Milling."
(2) But Cardozo involved a lease of residences. Must still decide if its thinking extends to commercial leases. Most of the pro-tenant reasons given in Cardozo apply equally well to commercial tenants. Exception may be "inequality of bargaining power" rationales used in Cardozo (see pages 76-77), though not in Summer. In some commercial leases, lessee may have power to write mitigation duty into lease.
Answer 2
Harder, because later courts can only guess at underlying reasons and will be unsure whether overruling is appropriate. If rationales are set forth clearly (whether legal, policy or principle), we can see in later years when they have become invalid and more easily overrule (or consider precedents implicitly overruled).
Emily disagreed with me, saying "Easier. Precedents without rationales will be easier to overrule because no reasoning exists for future courts to grasp either to criticize or to support."
Answer 3
Surely yes. The barren precedents would otherwise be invincible. You don’t want two wrongs: the judicial-rule-without-rationale and, later, a court overruling without reasons.
Emily disagreed here too. "Possibly to be thorough, but it seems as if an unnecessary step is being taken. If the overruling case is very clear and well reasoned, an effort to contrive reasons in support of the overruled precedent is not needed."
Answer 4
Much easier. Contradicts property rationale for “no duty.”
Answer 5
Open-ended question. I think it’s a superb job. Remember that courts must create law. See Cappalli, ch.8 ("Creativity in the Common Law"). The issue is whether they do so openly and with full reasoning.
Emily's answer: "'10'. The Cardozo court functioned well as a policy-making institution. Judges must concern themselves with the future effects of their rulings and should act with a conscience. Rules should be constructed soundly: in a way which deters harm-causing conduct and encourages beneficial social actions. Full policy reasoning helps us calculate whether the rule will generate these positive effects."
Answer 6
From “formalism” to “realism.” Judges make law and all modern judges know that.
Answer 7
In general, yes. The common law works best when law is created not in the abstract, as here, but in the context of actual cases with actual facts. But arguably the particular case facts needed these rules. For example, the tenant Holmes repaired a broken door lock and deducted $6 from the rent On remand, the trial judge needs guidance on this and the other remedy issues. An alternative, which high courts often utilize, is to let the Intermediate Appellate Court and the trial court struggle through these issues. See next answer.
Emily had a different, defensible view, saying "No, who else is to guide future courts? I think the court was dictating several methods and examples of determining habitability and calculating remedy, not limiting courts to some hard and fast rule. Since it is overruling precedent and establishing a new regimen, it is probably better for the court to provide some guidance. Future courts, as cases come before them, may see fit to rule differently if it appears the Cardozo court's guidance was inappropriate given new case facts. At that point they may be able to ignore the Cardozo guidance as dicta."
Answer 8
No. These rules are relevant to later proceedings below. They are applicable to this case and thus “holdings.” But the court would be better off letting the parties below (and the trial judge and ICA) work out these details (in this or later cases) so that issues reach the Supreme Court with fully developed records.
Emily said, "The Cardozo court was deciding whether or not a tenant who argued that the premises were inhabitable had a right to withhold rent and move out as a consequence of the landlord's failing to provide suitable premises. While the court doesn't really need to decide what constitutes breach of habitability and available remedies in all cases, the court was trying to decide the particular issue before it. (Note that Emily failed to pay close attention to the Cardozo facts, a critical necessity in case analysis. Because the landlord sued for possession, it is safe to assume that tenant Holmes stayed in the residence without paying rent. The case did not involve a tenant who "moved out" and the court has no power to create a "right to move out" in the absence of a live issue created by relevant case facts.)
PRECEDENT #11
Baffled v. Borough
Answer 1
No. The Temple precedents enable the lessor to re-lease and then sue the original lessee for any balance of rents (original lease rent minus money collected from other renters). Thus, the lessor could choose which course of action was economically wiser: don't mitigate and sue a solvent lessee; mitigate and try to get the balance from the defaulter.
Emily responded: "No. I think the scenario described in paragraph eight was the plight of Harris which Baffled overruled. Temple leasehold precedents, like Baffled, permit a landlord to maintain an action against the tenant while at the same time allowing the landlord to re-lease the premises and get whatever rent he can. That way the landlord has already recovered some money from the new tenant and can try to collect the remainder from the abandoning tenant. The landlord has not lost everything if the original tenant has no money."
Answer 2
Baffled is still useful. This seller mitigated, so the case cannot establish a "duty to mitigate." But it does have strong dicta supporting Taber. It also may implicitly establish a duty to mitigate. The precise holding -- a suit to collect the balance is permissible -- may be based on the premise that sellers must mitigate and the expanded remedy is correlative to that duty.
In combination, Taber, Shenk and Baffled establish a "duty to mitigate" principle in Temple law, which should readily extend to leases. Students might note that in this case line the only precedent, apart from Milling (the precedent whose validity is in doubt), involving a seller/lessor/builder/contractor who did not mitigate was Shenk, not the strongest of precedents. But Shenk does not stand alone, because in Taber and perhaps Baffled the precise rulings assumed and thus implicitly adopted the duty.
Emily responded: "Baffled reaffirms, like most of the other precedents, the value to all parties in mitigating and also confirms that there is a duty to mitigate. It provides backing that the Stone trial judge was correct to order a new trial to determine the mitigation issues."
Answer 3
Shed no tears for Borough! It's impossible to construct an argument that they relied on Harris in planning their default. That overruled precedent didn't protect them in any way because it seems that seller could sue the defaulting buyer for the full price of the property.
Answer 4
The combination of King (employee's limited duty to mitigate), Taber (though no clear holding), Ralph (moral duty),Shenk (explicitly holds plaintiff violated duty to mitigate), Summer (neighboring precedent on point and strong), Cardozo (kills any possible rationale for Milling), Baffled (implicit duty to mitigate). All of this adds up to an implicit overruling of Milling. The policy reasons underlying the duty to mitigate apply fully. Has also been seen in the precedents as a principle of fairness. See Chambermaid (dicta); Ralph (dicta).
But "commercial" vs "residential" lease issue must be dealt with. I think the argument that lessee of commercial space has greater bargaining power is insufficient to cause a different rule. Much of Cardozo's rationales apply equally to residential and commercial space (e.g., rent building not land underneath; lessee pays for a package of amenities and services) Also, it's dubious that small commercial lessees have much bargaining power.
What follows are Emily's full-blown opinion on the Stone issue and the decisions of the Superior and Supreme Courts of Pennsylvania in the case which provoked this exercise in case synthesis.
STONE V. ROCK
Intermediate Court of Appeals
State of Temple
Y-0
Emily, Justice, for a unanimous Court — Affirming in part and modifying in part, and cause remanded for proceedings consistent with this opinion.
Plaintiff Stone brought suit against defendant Rock to recover $4,000 in owed commercial rental payments after defendant vacated the premises before the lease had ended. A bench trial was held and a verdict rendered for Stone for $4,000, plus interest. The court changed its mind on post trial motions, vacating the verdict and ruling that Stone, as landlord, had a duty to mitigate damages by using reasonable efforts to re-lease. The lower court ordered a new trial to answer the following questions: (1) what efforts to re-lease were reasonable under the circumstances; (2) whether such efforts would have produced a new tenant for the abandoned space; (3) when would the new lease have started; and (4) at what rent. The order stated that defendant tenant would bear the burden of proof on mitigation issues in the new trial. Stone appealed, and we granted this appeal to determine whether the trial court’s order was legally correct.
The record reveals that plaintiff Stone leased store space in his shopping center to defendant Rock for a three year term beginning July 1, Y-5 and ending June 30, Y-2. The total rent was $18,000, payable in monthly installments of $500. Rock vacated the premises and returned the keys on October 31, Y-3, eight months before the end of the lease. Shortly thereafter Stone wrote by letter that (1) he would not accept Rock’s surrender of the premises, (2) he would not re-lease and (3) he would hold Rock accountable for all remaining rent. Even though the store space abandoned by Rock was the only space available to lease in the center, Stone did not re-let for any part of those eight months and the premises remained idle. At the end of the lease term Stone sued Rock for $4,000 in unpaid rent.
Two issues arise on appeal from the trial court’s order. The first issue is whether the trial court was legally correct in stating that it is the law of the State of Temple that commercial landlords have a duty to mitigate by re-leasing when tenants vacate leased premises before the end of the term. In conjunction with this issue it must also be decided if the trial court erred in ordering a new trial be held to determine whether re-leasing was possible and what the result of efforts might be.
Second, should it be found that commercial landlords do have a duty to mitigate damages, we must determine which party bears the burden of proving mitigation. The trial court ruled that the burden of proving mitigation lies with the abandoning tenant.
While it was not always the rule in Temple, the trial court correctly stated that landlords have a duty to mitigate damages when tenants abandon premises in the midst of a lease term. Originally a contrary rule was dictated by a late nineteenth century case, Milling v. Grinding (Temple, 1880), which held that an injured landlord has no duty to mitigate damages by re-leasing the premises when a tenant abandons in the middle of the lease term. Yet subsequent contract law rulings have required injured parties to mitigate damages, the Supreme Court of Temple’s sister state New Hope has affirmatively assigned injured landlords a duty to mitigate, and recent Temple Supreme Court precedent has decreed that leasehold law be governed by ordinary contract principles rather than by outdated doctrines such as caveat emptor. We find that later Temple case law and its reasoning has implicitly overruled Milling. The rule of Milling has been replaced by the well reasoned rationales of subsequent cases imposing a duty on injured parties to mitigate the damages owed by those breaching a contract.
As is frequently true in early days, initially in Temple there was no rule of law regarding what action the landlord was required to take when a tenant abandoned the premises. Prior to Milling, the issue had not been brought before the Temple courts, possibly because landlords did in fact mitigate or because there were no mitigation clauses in lease contracts to be litigated. Milling was the first case before the Temple Supreme Court in which a landlord refused to re-let the premises after the tenant vacated in the middle of the lease term. The Court held that a landlord is not bound to rent to another during the lease term for the relief of the abandoning tenant. If the few precedents accurately reflect the practices of landlords, it appears from the cases discussed below that landlords re-leased as a matter of course. Curiously, then, the Milling rule ran contrary to normal conduct and expectations, even in the nineteenth century and the first part of this century.
While a definitive rule regarding a duty to mitigate had not been judicially created until Milling, a body of law did develop throughout the years covering situations in which mitigation had occurred in fact. For example, as early as 1841, in Homer v. Oedipus & Oedipus (Temple, 1841), the Supreme Court held that landlords were able to accept keys from the tenant, take possession of the premises, and re-lease the space on behalf of and for the benefit of the tenant all the while holding the tenant responsible for any rent which was left unpaid. In Franklin v. Penn (Temple, 1882), the Court held that keys may be accepted, and premises re-let, without accepting a tenant’s surrender, and that such action is to the benefit of the tenant for if premises are re-let then the abandoning tenant is only liable for the difference in rent. The Court, in 1928, held that premises may be re-let for the benefit of abandoned tenants without notice to the tenant, and while still holding tenant liable for any deficiency in the rent. Ralph v. Roger (Temple, 1928).
These mitigation rules, which were developing throughout the nineteenth and early twentieth centuries, derived from contract law because leases have always been considered binding contracts among landlords and tenants. See Homer (referring to landlord’s acceptance of the key from abandoning tenant as not “put[ing] an end to the contract”); Milling (stating that “nothing in the original contract obligated [Milling] to seek another tenant”); Franklin (referring to abandoning tenant’s attempt to end the lease by returning the key and stating “one party to a contract cannot rescind it at pleasure”).
Identical no-duty-to-mitigate rules existed in early non-lease breach of contract cases as well. See King v. Duke & Duke (Temple, 1862) (holding employee is entitled to full sum contracted for when employer breaches employment contract). There too, however, courts fielded cases in which plaintiffs had mitigated in fact and for these cases courts developed equitable rules. Again in King the court stated that damages would be reduced if the defendant were able to demonstrate substitute work was performed by the plaintiff or that there was a possibility of obtaining other similar employment. See also Chambermaid v. Factotum (Temple, 1871) (dictum, citing from King that breaching employer may mitigate damages by showing plaintiff “might have procured employment in the interim”).
Freedom to let damages idly accrue ended, however, when in 1935 Temple’s Supreme Court created an affirmative duty to mitigate and held, in a non-lease contract case, that an injured party cannot recover damages from a defaulting defendant which could have been avoided by the exercise of reasonable care and effort. Shenk v. Shank (Temple, 1935). The court also stated that this rule applies to all contract types. Id. While such a universal pronouncement is too broad to be anything but dictum, it reflected the rule evolving throughout the country. See id. citing Sedgwick on Damages.
Shenk did not revolutionize Temple's contract law because cases decided before it repeatedly advocated mitigation by plaintiffs and stressed its benefits to all parties. As early as 1867, the King court, although holding there was no duty to mitigate, created something of a duty by suggesting damages could be reduced if defendant could show “possibility of obtaining other similar [performance]” on the part of the injured party. In dicta, the Chambermaid court stated “[i]t was the duty of the plaintiff in [a breach of contract case] not to remain idle if he was able to [perform],” and that “[u]ndoubtedly it is incumbent in every case upon an injured party to do whatever he reasonably can to lessen the injury.” An early twentieth century case, although rendering no clear holding, stated “[i]t was plaintiff’s duty, when defendant failed in its contract, to mitigate the damages by such reasonable acts as would avoid financial loss to all parties.” Taber v. Haber (Temple, 1921). A few years later in Ralph, after stating that landlords cannot be held liable for failing to re-let when a tenant is offered, the court hinted at a landlord's moral obligation as follows: “[n]evertheless, a landlord should be reasonably diligent in securing a desirable tenant for the best rent obtainable to minimize the first lessee’s loss.”
The Court’s 1935 ruling in Shenk, which is still good law, explicitly incorporates a duty to mitigate into Temple's jurisprudence, and broadly states that the duty attaches to breaches of all contract types. We doubt that Milling’s 1880 rule survived Shenk. Ample moral reasoning found within Temple's body of case law provides additional persuasion that the Court has retreated from its original no-duty-to-mitigate norm which acted only to punish tenants and promote economic waste by forgiving landlords who let premises remain completely idle. Late 1970s opinions from Temple’s Supreme Court and the Supreme Court of Temple’s sister state, New Hope, confirm that a duty to mitigate is the current rule, and the only rule which is sustained in Temple.
Temple’s neighboring Supreme Court of New Hope explicitly held that a landlord has an obligation to make reasonable efforts to mitigate damages when a tenant wrongfully vacates. Summer v. Spring (New Hope, 1977). As justification for the rule, the New Hope Supreme Court first quoted its lower court’s criticism of the old rule. In New Hope case law, the old, no-duty-to-mitigate rule was based on the antique notion that leases were a form of property transfer rather than an ordinary contract. Id. The lower court challenged this thinking in the following passage:
[t]here appears to be no reason in equity or justice to perpetuate such an unrealistic and uneconomic rule of law which encourages an owner to let valuable rented space lie fallow because he is assured of full recovery from a defaulting tenant. Since courts in New Hope and else where have abandoned ancient real property concepts and applied ordinary contract principles in other conflicts between landlord and tenant there is no sound reason for a continuation of a special real property rule to the issue of mitigation.
Id.
The Court noted that modern issues in city leasing are quite different from society’s earlier agrarian ones, and are resolved by lessors and lessees by means of specific lease clauses which are contractual in nature. The court continued, saying that any distinction between a lease for ordinary residential purposes and an ordinary contract is no longer viable, and that the “[a]pplication of the contract rule requiring mitigation of damages to a residential lease may be justified as a matter of basic fairness.” Id.
Another important case signaling the final pronouncement that lease agreements are ruled according to contract law came from Temple’s own Supreme Court in 1979. In Cardozo v. Holmes (Temple, 1979), the Court analyzed precedential rationales regarding leasehold law and brought the law into modern times.
At the time of Milling, landlord-tenant relationships were governed by the doctrine of caveat emptor. Id. Leases primarily conveyed land for a term, not structures on the property. Id. Tenants were thought to bargain with as much power as landlords, and they were obliged to inspect the premises before signing the lease. Id. “Buyer beware” was the standard of conduct. Unless express warranties were added to the lease, the tenant was obliged to pay rent independently of the landlord’s promises. Id.
In Cardozo, the court reexamined the doctrine of caveat emptor and held that the doctrine no longer reflected the true nature of modern leaseholds. Old doctrines must be reappraised in light of the facts and values of contemporary life. When a rule has been duly tested by experience and found inconsistent with a sense of justice or the needs of social welfare, a court should little hesitate to disavow and fully abandon it. Id.
According to the Cardozo court, in modern times when tenants sign leases with landlords they bargain for a bundle of housing goods and services rather than merely for the use of the land under the shelter. Additionally, the court found that tenants do not possess bargaining power equal to the landlord's as they once did when negotiating leases. Id.
The court found that leases should no longer be treated as a special class. Instead the court concluded that “a lease is in the nature of a contract and is to be controlled by principles of contract law.” Id.
Because leases are held to be governed by regular contract law, (see Cardozo), and because of the long-standing duty for plaintiffs to mitigate damages in breach of all contracts, (see Shenk), the rule of Milling is outdated and implicitly overruled. This overruling, which can be traced back to Shenk, was validated by the explicit statements made by our sister court of New Hope in Summer. We are pleased to note that the modern rule regarding lease contracts of Temple is in harmony with the modern rule created by our sister state in Summer.
Not only does the legal analysis and rationale in Shenk, Cardozo and Summer indicate that Milling has been implicitly overruled, but also the policy reasons underlying an injured landlord’s duty to re-lease are compelling. Cardozo and Summer stressed the need to make decisions based on equitable and just conclusions, and of the importance of not perpetuating uneconomic rules of law. Dicta in contract cases as early as Chambermaid and Ralph noted that fairness to the first tenant by attempting to minimize losses mandated use of reasonable efforts to re-lease. Also, a landlord's turning down of a prospective tenant’s request to re-let should be punished by means of a mitigation deduction from the balance owed on the lease.
A mitigation rule is economically efficient and preferable for all of society. A rule requiring re-lease discourages landlords from letting premises succumb to idle waste and facilitates the commodity, the empty premises, to be put to its most desired use. Those who most want the commodity, prospective new tenants, are more readily able to put the space to use under a duty to mitigate rule. Also, if premises are re-let quickly after the original tenant abandons, and no rental income is lost, landlords are likely to forego litigating the issue, which means that courts will be less burdened. This decreases the overall cost of court system for the benefit of all citizens.
A final idea, explaining the sense of fairness embodied in a duty to mitigate rule for breach of all contracts, was recently offered by Temple’s Supreme Court in Baffled v. Borough (Temple, 1991). The court noted that without a mitigation requirement the breaching party is likely to be overly punished, which goes against the remedial principles of contract law. The Court wrote:
As a general proposition of contract law, a party who suffers a loss due to a breach of contract has a duty to make a reasonable effort to mitigate his losses. Taber v. Saber (Temple, 1921). To hold otherwise would in many instances penalize the breaching party beyond the assessment of actual damages while rewarding the injured party for his failure to act.
Baffled. The Court went on to include that mitigation is the common sense approach because it precludes punishment of either party.
Taken in toto, the foregoing amply persuades us that Milling has been implicitly overruled and that currently it is the rule of Temple that in lease contracts an injured landlord has an affirmative duty to mitigate damages by using reasonable efforts to re-lease the premises during the abandoned lease term. Although Milling is the precedent of the court above us, our conclusion is that it is no longer authoritative. Thus, we do not violate the rules of stare decisis in ignoring Milling.
In the case at bar Stone said he would make no attempt to try to lessen the damages owed by Rock for vacating the commercial space. Stone denied those who most wanted the space by failing to even offer it in the market, even though the space abandoned by Rock was the only available store in his shopping center. It was appropriate for the trial court to order a new trial to determine what effect attempts to re-let would have had in mitigating damages in this situation.
While both Summer and Cardozo specifically involved residential lease contracts, we find no substantial reason for distinguishing between residential and commercial leases for purposes of the mitigation rule. The precedents have not differentiated between commercial and residential leases in the past, thereby suggesting that the type of lease contract is irrelevant. Also, the legal rationales and policy considerations offered by Summer and Cardozo apply equally well to commercial leases. All the benefits flowing from residential mitigation would also be reaped if the contract were a commercial lease. Even if re-leasing were more difficult or unsuccessful due to the nature of commercial premises, this is not a reason for discharging an injured landlord from his or her duty to use reasonable efforts to re-let. Cardozo’s argument that in modern times tenants often do not enjoy comparable bargaining power when negotiating a lease compared to the landlord is also applicable to commercial leases, particularly small business lessees. For these reasons we find that the duty to mitigate applies to both commercial leases and residential leases.
The second issue before the court is to determine whether the trial court was correct in assigning the burden of proof on mitigation issues to the breaching tenant. We find that the trial court erred in this regard and that the law dictates that such proof be offered initially by the injured party, the landlord.
While the King court in 1867 held that the defendant bears the burden of proving mitigation issues, in that case a breaching employer, we believe that today fairness to the tenant and current principles of leasehold law dictate that the plaintiff landlord be required to supply information regarding mitigation efforts. We rely on the reasoning supplied by the Supreme Court of New Hope in Summer.
In Summer the court placed the burden on the landlord because he or she is in a much better position to demonstrate whether reasonable diligence in attempting to re-let the premises had been exercised under the circumstances. The landlord, not the tenant, would have ready access to information such as that regarding the rental market and prevailing rental prices. Additionally, the law should not put the tenant in the untenable position of trying to elicit accurate and honest information from a likely disgruntled landlord.
In conclusion, due to the changed perception of leaseholds in the late 1970s as ordinary contractual arrangements and not special contracts influenced by property principles, we find it proper to hold under standard principles of contract law that mitigation is required and that the plaintiff landlord bear the burden of proving it. This means that the landlord must show that reasonable efforts would not have resulted in a re-lease or would have produced a re-lease at a lesser rent. Failing such showing, the landlord is presumed to have suffered no damages flowing from the tenant's breach. Although the landlord must prove a negative, we see no special proof difficulty in the discharge of that responsibility in the normal case.
Judgment affirmed in part and modified in part, and cause remanded for proceedings consistent with this opinion.
454 Pa. Super. 468
(Cite as: 685 A.2d 1019)
STONEHEDGE SQUARE LIMITED PARTNERSHIP, Appellant (at 930),
v.
MOVIE MERCHANTS, INC. d/b/a Movie Merchants, Appellee.
STONEHEDGE SQUARE LIMITED PARTNERSHIP, Appellee,
v.
MOVIE MERCHANTS, INC. d/b/a Movie Merchants, Appellant (at 915).
Superior Court of Pennsylvania.
Argued Sept. 11, 1996.
Filed Nov. 25, 1996.
Commercial landlord sued tenant to recover rent owing under balance of shopping center lease after tenant vacated demised premises. After bench trial, the Court of Common Pleas, Cumberland County, Civil Division, No. 94-6625, Kevin A. Hess, J., found for landlord and awarded damages, but, on posttrial motions, found that landlord had duty to mitigate damages and ordered new trial. Both parties appealed. The Superior Court, Nos. 00915 and 00930 Harrisburg 1995, Schiller, J., held that: (1) evidence did not establish that commercial landlord accepted tenant's surrender of demised premises; (2) any reliance by tenant on landlord's purported representations that it had or would soon secure replacement tenant was unreasonable; and (3) landlord had no obligation to mitigate damages.
Reversed and remanded.
McEwen, President Judge, concurred in result.
Before McEWEN, President Judge, and SCHILLER and BROSKY, JJ.
SCHILLER, Judge.
In these cross-appeals, the parties appeal the orders of the Court of Common Pleas of Cumberland County finding defendant Movie Merchants liable for breach of a commercial rental lease and awarding a new trial on the issue of damages only. We affirm in part and reverse in part.
FACTS:
Appellant, Stonehedge Square Limited Partnership [appellee on the cross- appeal, hereinafter referred to as "Landlord"] owns and operates the Stonehedge Square shopping center on Walnut Bottom Road in Carlisle, Cumberland County, Pennsylvania. Landlord entered into a written lease agreement for a store in the shopping center with General Video Corporation that began on July 6, 1990 and ended on July 5, 1995. On July 31, 1992, General Video assigned the lease to Appellee Movie Merchants, Inc. [appellant on the cross-appeal; hereinafter referred to as "Tenant"]. Tenant operated a video rental store at the shopping center from July 1992 to October 27, 1994, when it vacated the premises. Landlord filed the present action to recoup unpaid rent from November 1, 1994 to July 5, 1995.
The case was tried without a jury before the Honorable Kevin A. Hess. Following the trial, the court made findings of fact as follows: The defendant [Tenant] had notified the plaintiff [Landlord] of its intention to vacate the premises. The plaintiff, initially, expressed optimism concerning the ability to rent the property to another tenant. No final understanding was reached, however, and, in the final analysis, the defendant's departure from the leased premises was unilateral. *1022 The defendant, upon learning that the leased premises were now vacant, permitted a realtor to pursue its re-rental. There were almost no efforts to re-rent the premises after December of 1994. The premises remained vacant until the expiration of the lease term in July of 1995 with the exception that other leases in the mall, most notably Nell's Market, were permitted to use the former video store for the storage of equipment. Eventually, the locks were changed on the leased premises. The trial court then made the following conclusions of law: The surrender of the demised premises by the tenant was, in this case, not accepted by the lessor and the evidence in this case does not create the presumption of a surrender. The fact that Stonehedge took possession of the premises and used it for temporary storage does not rise to the level of adverse use to warrant an acceptance of the tenant's surrender nor does the changing of some of the locks of the leased building warrant an acceptance, particularly where the tenant remained able to enter the building through other entrances. The circumstances of this case do not give rise to a duty on the part of the plaintiff to negate its damages by reletting the premises following the defendant's abandonment, nor is the defendant discharged from the covenant to pay rent on this account. Slip Opinion, Stonehedge Square Limited Partnership v. Movie Merchants, Inc., d/b/a Movie Merchants, Court of Common Pleas, Cumberland County, No. 94-6625 at 1-2.
As a result of these findings, the trial court on August 11, 1995, found in favor of the Landlord in the amount of $46,797.09, plus interest. Both parties filed post-trial motions. On November 22, 1995, the trial court reversed itself on the question of damages and found that Pennsylvania law imposes a duty on lessors to mitigate damages, and ordered a new trial. Both parties have appealed these orders before this Court.
DISCUSSION:
The parties have raised, inter alia, the following issues: [FN1] (1) whether the trial court erred in finding that the Landlord had not accepted the tenant's surrender of the lease (Tenant's issue); (2) whether the trial court erred in finding that the representations of the Landlord as to the demised premises being relet did not preclude the Landlord from seeking damages under the doctrine of equitable estoppel (Tenant's issue); and (3) whether Pennsylvania law imposes a duty to mitigate on commercial lessors when the lessee breaches the lease (Landlord's issue).
FN1. Tenant Movie Merchants raised two additional issues that we need not address: whether the trial court erred in applying property law and not contract law in originally finding that no duty to mitigate exists in this case, and whether the trial court acted properly in allowing tenant to file post-trial motions under Pa.R.C.P. 227.1 after the ten day period prescribed in that rule. The first issue has been treated with the issue on the duty to mitigate damages. As Landlord does not allege that the trial court erred in allowing the post-trial motion, we need not address the second issue.
[1][2] Our standard of review in a non-jury trial is clear. We must determine whether the findings of the trial court are supported by competent evidence and whether the trial judge committed error in the application of law. Additionally, findings of the trial judge in a non-jury case must be given the same weight and effect on appeal as a verdict of a jury and will not be disturbed absent error of law or abuse of discretion. Olmo v. Matos, 439 Pa.Super. 1, 5-6, 653 A.2d 1, 3 (1994), alloc. denied, 541 Pa. 652, 664 A.2d 542 (1995).
[3] Regarding the first issue, Tenant claims that it informed the Landlord in August, 1994, of an opportunity it had to relocate to another location and of the necessity to remove various trade fixtures from the Stonehedge Square store by the end of September. A meeting of the parties was held on September 2, 1994, where, according to Tenant, Landlord stated that it had no objection to the move and could re-let the premises with little difficulty. Throughout September, 1994, Tenant tried unsuccessfully to contact Landlord. On October 4, 1994, *1023 Landlord wrote to Tenant that Landlord would not consider an early termination of the lease. By that time, Tenant claims that it had already removed the fixtures. Tenant then left the premises in late October, 1994.
Approximately one month after the Tenant vacated the premises, the Landlord began storing materials in the vacated premises, including some belonging to another tenant in the shopping center. In April, 1995, the Landlord changed some of the locks. Tenant argues that these actions by the Landlord evinced an acceptance of the Tenant's surrender of the lease.
[4][5][6][7][8] Before an act of surrender by a tenant can be held to relieve the tenant from further liability under a lease, the landlord must accept the surrender. Hochman v. Kuebler, 53 Pa.Super. 481, 484 (1913). When determining if a surrender of the lease occurred, the intention of the parties govern. Lawton v. De Angelo, 169 Pa.Super. 380, 382, 82 A.2d 900, 901 (1951). Whether the landlord accepted the tenant's surrender is a question of fact for the jury. Id. The burden is on the tenant to show by clear and convincing evidence that the landlord's actions constituted acceptance of the tenant's surrender. See Brill v. Haifetz, 158 Pa.Super. 158, 162, 44 A.2d 311, 313 (1945). It must be shown that the landlord made some "unequivocal act" that would constitute acceptance of the tenant's surrender. Ralph v. Deiley, 293 Pa. 90, 94, 141 A. 640, 642 (1928). According to the Supreme Court: where a tenant, during the term [of the lease], abandons the demised premises, the landlord is not bound, under the penalty of loss of his right to receive rent, to permit the tenement to remain wholly unoccupied with the consequent possible or probable loss of his insurance, destruction by waste, or other like injuries. The mere fact that he resumes possession is not of itself a sufficient foundation upon which to predicate ... an acceptance of a surrender ... It must further be found on evidence that such resumption of possession is not merely for the protection of the property during the absence of the tenant, but is adverse to a reoccupation of it by him and a renewal of the relations created by the lease. Kahn v. Bancamerica-Blair Corp., 327 Pa. 209, 213-14, 193 A. 905, 907 (1937) (citation omitted).
It was shown at trial that the items in question were not moved into the demised premises until approximately one month after the Tenant had vacated the store, and that the items would have been moved out of the store if the Tenant had indicated a desire to resume operation of the store. [FN2] In addition, only some of the locks were changed, and the tenant was still able to enter the store at will via a different door. N.T., June 22, 1995, 122. Based on this evidence, the trial court found that the Landlord's actions did not constitute such an "unequivocal act" as to constitute acceptance of the Tenant's surrender. This was a factual determination and will not be disturbed absent an abuse of discretion or an error of law. Lawton, supra. Neither exist here.
FN2. Richard M. Singer, general partner of Landlord, testified on direct as follows: Q: And you never received a call [from Tenant] asking you to move those items [placed in the store]? A: No. Q: If you would have received a call from Trish Greenberg or anybody at Movie Merchants saying we are prepared to move back in, what would you have done with those things? A: If they said they were going to move back in and they brought their rent up to date, I would have moved the things that were stored in that building. N.T., June 22, 1995, 35-36.
[9] Tenant's next issue is whether the trial court should have prevented the Landlord from seeking damages under a theory of equitable estoppel. Tenant argues that the Landlord made representations that it had secured a replacement tenant for the store, or that it did not anticipate a problem in finding a replacement tenant. According to Tenant, it was in reliance on these representations that it vacated the premises and relocated to a new location.
[10][11][12][13][14] Whether equitable estoppel exists in a given case is a question of law for the court to decide. Nesbitt v. Erie Coach Company, 416 Pa. 89, 96, 204 A.2d 473, 476 (1964). When reviewing questions of law, *1024 the trial court's conclusions of law are not binding on this court, whose duty is to determine whether there was a proper application of the law to the facts by the trial court. Thatcher's Drug Store v. Consolidated Supermarkets, Inc., 535 Pa. 469, 477, 636 A.2d 156, 160 (1994). [FN3] "Equitable estoppel, a doctrine sounding in equity, acts to preclude one from doing an act differently than the manner in which another was induced by word or deed to expect." Zitelli v. Dermatology Educ. & Res., 534 Pa. 360, 370, 633 A.2d 134, 139 (1993). It may be applied:
FN3. Though Thatcher's Drug Store v. Consolidated Supermarkets, Inc., 535 Pa. 469, 636 A.2d 156 (1994), involved an issue of promissory, not equitable estoppel, the standard of review for questions of law is applicable to both kinds of estoppel.
where the party asserting estoppel established by clear, precise and unequivocal evidence (1) that the party against whom the doctrine is sought to be asserted intentionally or negligently misrepresented a material fact, knowing or with reason to know that the other party would justifiably rely on the misrepresentation, (2) that the other party acted to his or her detriment by justifiably relying on the misrepresentation, and (3) that there was no duty of inquiry on the party seeking to assert estoppel. Homart Development Co. v. Sgrenci, 443 Pa.Super. 538, 554, 662 A.2d 1092, 1099-1100 (1995) (en banc). The doctrine is one of "fundamental fairness" and its application will depend on the facts in each case. Id., at 554, 662 A.2d at 1100 (citation omitted).
In this case, a meeting was held on September 2, 1994 between Richard M. Singer for the Landlord and Patricia Greenberg and May Jane Robins for the Tenant. Tenant claims that Landlord stated that "he had a tenant. Blockbuster was very interested in our space ... And he felt that it was a very good possibility that they would take that space." N.T., June 22, 1995, 65. According to Tenant, Landlord also stated that "if Blockbuster did not take that space ... it would only be a matter of a couple of weeks before he would have someone else that could take the space." N.T., June 22, 1995, 66-67. However, this testimony was contradicted by Mr. Singer, as the following colloquy on direct examination demonstrates: Q: Did you ever tell them [Tenant] you had secured a tenant? A: No. Q: Did you ever tell them that it would be easy to secure a tenant? A: No. Q: Did you ever tell them that it would be no problem to secure a tenant? A: No. N.T., June 22, 1995, 25. Similar testimony was given by Beverly Capistrano, an employee of Landlord. N.T., June 22, 1995, 52. In addition to this testimony, Landlord introduced a letter from Landlord to Tenant dated October 4, 1994, that said "until such time as a replacement tenant is effected, the original terms and conditions of the Lease Agreement with Stonehedge Square Ltd. Partnership remain in force and the store cannot be vacated." Plaintiff's Exhibit 4, p. 2. A letter dated October 26, 1994, from Landlord to Tenant stated: "We have listed the space for rent with the area's most aggressive retail broker. They have shown the space to Blockbuster Video, as well as to other tenants, none have said 'no', but none have said 'yes.' We will continue to market the store but until we are successful, you will have to abide by the terms of your lease." Plaintiff's Exhibit 4, p. 7. Similar letters expressing the Landlord's intention to enforce the lease were sent on October 28, November 8, and November 16, 1994. Plaintiff's Exhibit 4, pp. 12, 16, 19. Finally, we notexchange between Ms. Greenberg of Tenant and Landlord's counsel: Q: So at the time that you did finally close the store you were aware that he [Mr. Singer] fully intended to enforce the lease? A: I suppose so. N.T., June 22, 1995, 105.
Based on this evidence, the trial court concluded that the Tenant did not prove by clear, precise and unequivocal evidence that equitable estoppel should bar landlord's claim. We agree with this conclusion. Moreover, the Landlord consistently indicated *1025 that while it was trying to secure another tenant, it would enforce the lease against Tenant until a replacement tenant was found. The uncontroverted testimony shown above, and the correspondence sent from Landlord to Tenant, convince us that any reliance by Tenant on Landlord securing another tenant was unreasonable. Therefore, the Tenant did not satisfy the requirements of a claim for equitable estoppel, and the trial court acted properly in so holding.
[15] The final issue, and the one asserted by Landlord, is whether the trial court erred in holding that Landlord had a duty to mitigate the Tenant's damages. The trial court originally held that no such duty exists. However, upon Tenant's post-trial motion, the trial court reversed itself and held that Landlord did have such a duty. This is a question that has not been addressed by a Pennsylvania appellate court in almost seventy years. [FN4]
FN4. This Court declined to address this issue in Cusamano v. Anthony M. DiLucia, Inc., 281 Pa.Super. 8, 421 A.2d 1120 (1980), as the case was decided on other grounds. See Harris Ominsky, "Leasing: Landlord Must Mitigate Damages, Philadelphia Lawyer, Vol. 59, No. 3, p. 72 (Fall 1996)." Mr. Ominsky is a well recognized expert in the field of real estate law.
[16][17] Tenant argues that leases between landlords and tenants are governed by contract law, Pugh v. Holmes, 486 Pa. 272, 284, 405 A.2d 897, 903 (1979), and that general contract law imposes a duty to mitigate on the non-breaching party. Bafile v. Borough of Muncy, 527 Pa. 25, 30, 588 A.2d 462, 464 (1991); Restatement of Contracts (Second) s 350 (1965). While this is a correct statement of law, it provides no relief to the Tenant under the facts of this case; for nowhere in the thirty-seven page lease is there a mitigation clause imposing on the Landlord a duty to mitigate the Tenant's damages if the Tenant breaches the lease.
[18] It is well established that, "[t]he law will not imply a contract different than that which the parties have expressly adopted." Hutchison v. Sunbeam Coal Corp., 513 Pa. 192, 198, 519 A.2d 385, 388 (1986). This rule is particularly apt when reviewing a contract involving two parties of relatively equal bargaining power, as is generally the case in a commercial lease setting. The only exception to this rule is when the inclusion or absence of a contract term would be violative of public policy. See Pugh v. Holmes, supra. We find no such violation in this context, for the established law in Pennsylvania does not require that a landlord mitigate a tenant's damages.
In Milling v. Becker, 96 Pa. 182 (1880), the Supreme Court held "if the relation of landlord and tenant was not ended by contract, he was not bound to rent to another during the term for relief of the defendant." Id. at 185- 86. In Auer v. Penn, 99 Pa. 370 (1882), the Supreme Court held "[t]he landlord may allow the property to stand idle, and hold the tenant for the entire rent." Id., at 375-76. Finally, in Ralph v. Deiley, 293 Pa. 90, 141 A. 640 (1928), the Supreme Court cited Auer for the rule that "[r]eletting is not imposed on a landlord as a duty." Ralph, supra, at 95, 141 A. at 643.
[19] We acknowledge that there have been several court of common pleas decisions which have imposed a duty to mitigate on a landlord, in both a commercial and residential lease context. [FN5] See Brumbach v. Kauffman Carpet Co., 67 Berks L.J. 18 (1972) (commercial lease); Essex House Apartments v. Kayser, 142 Pitt. L.J. 520 (1994) (residential lease); Harrison v. Irving Shoes, 44 Cumb. L.J. 455 (1995) (commercial lease); Mon Valley Travel, Inc. v. Morgan Management Company, 23 D & C.4th 494 (1995) (commercial lease). See also In re New York City Shoes, Inc., 86 B.R. 420 (Bankr.E.D.Pa.1988) (commercial lease). [FN6] However, regarding *1026 this anomaly, we must agree with the wisdom of Judge Learned Hand, who once wrote that it is not "desirable for a lower court to embrace the exhilarating opportunity of anticipating a doctrine which may be in the womb of time but whose birth is distant." Spector Motor Service, Inc., v. Walsh, 139 F.2d 809, 823 (2d Cir.1943) (Hand, J., dissenting), vacated, 323 U.S. 101, 65 S.Ct. 152, 89 L.Ed. 101 (1944). This is especially true for an issue as complex as the duty to mitigate damages in the commercial lease setting, which raises a myriad of troublesome questions: e.g., what constitutes "reasonable efforts" to mitigate by the landlord; what happens when the demised premises are on the fifth floor but a new prospective tenant desires space on the twentieth floor; what responsibility does the landlord have in granting "concessions" to a prospective tenant in order to mitigate the breaching tenant's damages? See Harris Ominsky, "Leasing: Landlord Must Mitigate Damages", Philadelphia Lawyer, Vol. 59, No. 3, p. 72 (Fall 1996). It is certainly not for this Court to "evolve" the law of Pugh and impose a duty to mitigate on commercial landlords without guidance from the Supreme Court. [FN7]
FN5. Though the language of the Supreme Court cases on this issue does not make a distinction between residential and commercial leases, we address only the commercial lease situation presented by this case.
FN6. We note that several court decisions have followed the rule of Milling and Auer and held that no such duty to mitigate exists. Hoffman Estate, 47 D. & C.2d 32 (1969) (residential lease); West Norriton Industrial Park v. Snappy Car Rental Inc., 118 Montg. L.R. 73 (1986) (residential lease); Blanchard v. DiNardo, 48 D & C.3d 268 (1988) (commercial lease).
FN7. Given the permutations which may arise from the blanket imposition of a duty to mitigate, a more complete solution may be a subject for legislative action.
In summary, the Supreme Court has held that a landlord has no duty to mitigate damages, and absent a contrary decision by that Court, it is the duty of this Court and the court of common pleas to adhere to that authority. Commonwealth v. Buehl, 540 Pa. 493, 658 A.2d 771 (1995). Moreover, as stated previously, the duty to mitigate in contract does not apply here since Tenant assumed the lease obligations of a previous tenant whose thirty-seven page lease did not provide for mitigation. Therefore, the trial court erred in ordering a new trial on the basis that Pennsylvania law imposes a duty to mitigate on commercial lessors.
CONCLUSION:
The actions of the Landlord here did not constitute acceptance of Tenant's surrender of the lease, and Tenant did not satisfy the requirements of equitable estoppel. Furthermore, Pennsylvania law, as stated by our Supreme Court, does not require Landlord to mitigate the damages of the breaching Tenant in the commercial lease setting.
Consequently, the order of the Court of Common Pleas of Cumberland County granting Tenant-Appellee's post-trial motions is reversed. This case is remanded to that Court for the reinstatement of the verdict as to damages. Jurisdiction relinquished.
McEWEN, President Judge, concurs in the result.
[J-29-1998]
IN THE SUPREME COURT OF PENNSYLVANIA
MIDDLE DISTRICT
|STONEHEDGE SQUARE LIMITED |::::|No. 085 M.D. Appeal Docket 1997 |
|PARTNERSHIP, |::::| |
| |::::|Appeal from the Order of the |
| |::::|Superior Court dated November 25, 1996 at No. 915HBG95, reversing the|
|Appellee |: |order of the Court of Common Pleas of Cumberland County dated |
| | |November 22, 1995 at No. 94-6625 and remanding for reinstatement of |
| | |verdict as to damages. |
| | | |
|v. | |454 Pa.Super. 468, |
| | |685 A.2d 1019 (1996) |
| | | |
| | |ARGUED: February 4, 1998 |
|MOVIE MERCHANTS, INC., | | |
|d/b/a MOVIE MERCHANTS, | | |
| | | |
| | | |
|Appellant | | |
| | | |
OPINION OF THE COURT
MR. CHIEF JUSTICE FLAHERTY DECIDED: JULY 21, 1998
The issue in this case is whether the landlord in a commercial lease is required to mitigate its damages when its tenant has breached the lease agreement by moving out before the end of the lease term.
Stonehedge Square Limited Partnership owns and operates a shopping center in Carlisle, Cumberland County, Pennsylvania. Stonehedge originally entered into a five year lease with General Video Corporation. The lease began on July 6, 1990 and ended on July 6, 1995. On July 31, 1992, General Video assigned its rights, duties and liabilities under the lease to Movie Merchants, Inc., which operated a video rental store on the premises from July of 1992 through October 27, 1994.
On or about August 25, 1994, Movie Merchants discussed with Stonehedge the possibility of terminating its lease prior to the expiration of the remaining term of the lease. Stonehedge listed the premises for rent, but was unable to find a tenant. Movie Merchants expressed a desire to buy out the lease, but no agreement could be reached as to a buyout amount. Stonehedge indicated to Movie Merchants that until a tenant could be secured, Movie Merchants was liable on the lease. On approximately October 27, 1994 Movie Merchants vacated the leasehold and failed to pay any rent thereafter.
Stonehedge then sued for rent due under an acceleration clause in the lease, seeking unpaid rent from November 1, 1994 to July 5, 1995. The case was tried without a jury, and on August 11, 1995, the court returned a verdict in favor of Stonehedge and against Movie Merchants in the amount of $46,797.09, plus interest. Movie Merchants excepted to the verdict and the trial court reversed itself, holding that the landlord had a duty to mitigate damages. Consequently, the court ordered a new trial on the issue of damages. Both parties appealed and the Superior Court reversed the order for a new trial and reinstated the original verdict in favor of Stonehedge. We granted the petition for allowance of appeal, limited to the issue of whether the Superior Court's reliance on our decision in Aeur v. Penn, 99 Pa. 370 (1882), was proper. We now affirm.
Prior to the thirteenth century, leases were used for two purposes: to lend money and to facilitate the working of the land of prominent landowners. The first use of the lease, as a money lending device, originated as a way to avoid the ecclesiastical ban on usury. The borrower-landowner would receive money from the lender and would allow the lender to utilize his land for a certain period of time, presumably to grow crops.[1] Subsequently, the money lending function fell into disuse and the agricultural lease, which was simply a device to provide a labor source for the production of crops, became prominent. In neither case was the tenant regarded as having an interest in the land. Both of these leases were important because they may have influenced the way in which early common law courts viewed tenants, viz., as having an action available on the contract, but no possessory action which would be dependent on the conveyance of an interest in the land. Thus, prior to the thirteenth century at common law, the tenant's interest in the land was personal and contractual, not a real property interest protected by a recovery of possession.
Between the thirteenth and sixteenth centuries, lessees gradually came to be regarded as holding an interest in the land and entitled to a possessory action. In fact, for purposes of giving the tenant a remedy to recover possession, the land interest came to be regarded as the only interest possessed by the lessee; the lease was regarded as essentially a conveyance rather than a contract.
In the last 150 years, the pendulum has begun to swing back so that contractual elements have once again assumed a role of importance in leases. A primary factor influencing this development is the urbanization of the population and the growth of cities, shifting the focus in leasing from land to the buildings on the land. Complexities in modern life and the increased importance of structures as opposed to the land itself commonly have been handled by provisions in leases. 2 Powell on Real Property § 16.02(1)(a).
Thus, in modern landlord-tenant law, leases have a dual nature, both as conveyances of protected property interests and also as contracts. Because of this historical background in which leases are sometimes viewed as conveyances and sometimes as contracts, problems in leases may be resolved either by principles of property law or by principles of contract law.
At common law, the mitigation of damages in a lease was regarded as being controlled by property law. Because the lease was a conveyance of real property, the tenant owned a non-freehold estate, and the landlord had no duty to mitigate damages arising from the tenant's breach of the lease. It was of no concern to the landlord whether the tenant chose to occupy the property or not. Cribbet, Principles of the Law of Property, p. 190 (Mineola, 1975). This was so in spite of the fact that it is a general principle of contract law that the non-breaching party to a contract has the duty to reduce his damages, if he can reasonably do so. Restatement of Contracts 2d, § 350. Nonetheless, Pennsylvania has followed the common law view that a non-breaching landlord has no duty to mitigate damages where the tenant has abandoned the property in breach of the lease.
In 1882 this court held that "if the relation of landlord and tenant was not ended by contract, he was not bound to rent to another during the term for relief of the defendant." Milling v. Becker, 96 Pa. 182 (1880). Two years later, in Auer v. Penn, this court held that "[t]he landlord may allow the property to stand idle, and hold the tenant for the entire rent; or he may lease it and hold him for the difference, if any." Id, 99 Pa. 370, 375-76 (1882). And in 1928 this court held that "[r]eletting is not imposed on a landlord as a duty." Ralph v. Deiley, 141 A.2d 640, 643 (Pa. 1928).
The issue becomes, then, whether we should now modify the rule of these cases. Movie Merchants argues that a lease is in the nature of a contract and is controlled by principles of contract law.[2] Further, it argues that the common law rule leads to unfair results, encourages waste, imposes penalties, and fosters bad public policy. Movie Merchants argues that although leases traditionally have been regarded as conveyances of land, modern leases are an exchange of promises, and contract law has long recognized the duty of a non-breaching party to mitigate damages.
Stonehedge, on the other hand, argues that the Pennsylvania rule should continue in effect because precedent requires it, because to require the landlord to mitigate damages would reward the breaching tenant for his breach, and because the requirement of mitigation would place an onerous burden on the nonbreaching landlord, denying him the benefit of his bargain.
We agree with Movie Merchants that certain aspects of leases are controlled by the law of contracts and that insofar as the law of contracts is applicable, the non-breaching party must mitigate his damages. In the Pugh case, supra, for example, the lease was construed as a contract; however, Pugh deals only with the issue of whether there is an implied warranty of habitability in a residential lease, and, therefore, offers us no guidance on the question of mitigation of damages.
For the following reasons, we now hold that a non-breaching landlord whose tenant has abandoned the property in violation of the lease has no duty to mitigate damages.
First, this rule is firmly established in Pennsylvania. As the Auer court stated:
Nothing is better settled in Pennsylvania than that a tenant for years cannot relieve himself from his liability under his covenant to pay rent by vacating the demised premises during the term, and sending the key to his landlord.
99 Pa. at 375. Leases have been drafted and bargained for in reliance on this rule. Business decisions and structured financial arrangements have been made with the expectation that this rule, which has been the law, will continue to be the law.
Second, the established rule has the virtue of simplicity. If the landlord is required to relet the premises, there is unlimited potential for litigation initiated by the tenant concerning the landlord's due diligence, whether the landlord made necessary repairs which would be required to rent the premises, whether the landlord was required to borrow money to make repairs, whether the landlord hired the right agents or a sufficient number of agents to rent the premises, whether the tenants who were refused should have been accepted, and countless other questions in which the breaching tenant is permitted to mount an assault on whatever the landlord did to mitigate damages, alleging that it was somehow deficient. This potential for complexity, expense, and delay is unwelcome and would adversely affect the existing schema utilized to finance commercial development.
Third, the Landlord and Tenant Act of 1951, Act of April 6, 1951, P.L. 69, art. I § 101 et seq., 68 P.S. § 250.101 et seq., which is a comprehensive regulatory scheme governing the landlord and tenant relationship, does not modify the landlord's duty to mitigate damages as it had been established in our cases.
Fourth, there is a fundamental unfairness in allowing the breaching tenant to require the nonbreaching landlord to mitigate the damages caused by the tenant. This unfairness takes the form of depriving the landlord of the benefit of his bargain, forcing the landlord to expend time, energy and money to respond to the tenant's breach, and putting the landlord at risk of further expense of lawsuits and counterclaims in a matter which he justifiably assumed was closed.
Fifth, in this case, the tenant was in a position to mitigate his own damages. The lease provides:
26. ASSIGNMENT AND SUBLETTING
The Tenant shall not, and shall not have the power to, transfer, assign, sublet, enter into license or concession agreements, change ownership, mortgage or hypothecate this Lease or the Tenant's interest in and to the Demised Premises without first procuring the written consent of the Landlord which Landlord may withold in Landlord's sole discretion, not to be unreasonably withheld.
Thus, the tenant could have provided the landlord with a sublessee and the landlord had a duty not to unreasonably withhold consent. It seems self-evident that in choosing between requiring the non-breaching party and the breaching party to mitigate damages, the requirement, if any, should be placed on the breaching party, as it has been for centuries.
Order of the Superior Court is affirmed.
Mr. Justice Zappala files a concurring opinion in which Madame Justice Newman joins.
Mr. Justice Cappy files a concurring opinion.
CONCURRING OPINION
MR. JUSTICE ZAPPALA
I concur in the result. However, I do not believe this is an appropriate case to reach the issue of whether a commercial landlord is generally required to mitigate damages. Since the grant of allocatur was limited to that issue, I suggest that the more prudent course would be to dismiss the appeal as improvidently granted.
As the majority notes, this action was based on an acceleration clause in the lease. The parties thus provided in the lease for their respective rights, obligations, and remedies in the event of a breach.[3] Under the terms of the lease, the landlord may relet the premises, but is not obligated to do so. Accordingly, this case does not present the issue that the majority decides, whether the common law should require a landlord to mitigate damages.
Madame Justice Newman joins this Concurring Opinion.
CONCURRING OPINION
MR. JUSTICE CAPPY
I join in the majority's opinion, but write separately to emphasize that the majority's statement that "the tenant was in a position to mitigate his own damages [as it had the ability to sublease]" is not controlling in this matter. Majority slip op. at 9. I believe that such an observation merely recognizes the facts of this case, and shows that this particular tenant had within its hands the power to minimize its loss due to breach of the lease. In my opinion, a tenant's ability to sublease, and thus reduce its liability for breaching the lease, is of no import: whether the tenant had such a power or not, the landlord would not be under a duty to mitigate damages.
-----------------------
[1]. Pollock and Maitland note that besides leases, mortgages were also used to secure loans. The term mort gage [dead gage] is our modern "mortgage," and Pollock and Maitland point out that the gage of land is closely connected to the lease for years:
The notion expressed by the word [gage] seems to be that expressed by our "security"; something has either been given or been seized, and the possession of it by him in whose hands it now is, secures the payment of money or the performance of some act by the person by whom it was given or from whom it was taken. But it is the given gage of land that concerns us now.
Such transactions had long been known. We read of them in some of the Anglo-Saxon land-books, and it is highly probable that in England as elsewhere we might from a very early age distinguish several different methods by which land was made to serve as a security for money lent. We seem to see the conveyance which is subject to a condition, also the beneficial lease for years which enables a lender to satisfy himself by taking the fruits of the land, also a form of gage which does not set off the fruits against the debt. . . . Before the end of the twelfth century very large sums of money had been lent upon gage.
II History of English Law, II, Ch.IV §5, 117-18 (Cambridge, 1899)(Emphasis added).
[2]. In Pugh v. Holmes, 405 A.2d 897, 903 (Pa. 1979), this court held that in a case involving the implied warranty of habitability, a lease is in the nature of a contract and is controlled by principles of contract law.
1. Paragraph 42 of the lease states the landlord’s rights in the event of a default. It appears to set the amount of liquidated damages at 25% of the remaining installments of rent (remaining installments of rent less “the fair rental value of the premises,” fair rental value being defined as “seventy-five percent of the minimum rent provided in Paragraph 5.”) The landlord is also entitled to recover, among other things, the minimum rent, additional rent, and other costs due under the lease, “less net rent, if any, actually collected by the Landlord on reletting” ¶ 42(3)(emphasis added). These latter amounts are payable on the days they would have been payable had the lease not been terminated. It is not clear whether the verdict of $46,797.09 plus interest was based on this formula, but it does not appear that this amount was ever challenged on appeal.
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