6. Reid v. Mutual of Omaha Insurance Company and United Benefit Life Insurance Company
Supreme Court of Utah --- 776 P.2d 896
FACTS
In 1980, Reid, landlord and Mutual, tenant, entered into 5 years lease for office space. There was another tenant in the building, Intermountain, marketing company. Mutual complained numerous times to the Reids that Intermountain’s personnel were excessively noisy, occupied all of Mutual’s parking spaces, and otherwise interfered with Mutual’s business. In 1982, Mutual gave notice and vacate the premises. Reid filed suit, claiming that Mutual had breached the lease and was liable for the rental for the remaining on the five-year term. Meanwhile, Reid remodeled the premises and leased to Intermountain for the remainder of the five-year term. However, Intermountain vacated and declared bankruptcy, now the premises is vacant. The trial court found against Mutual and concluded that Mutual had breached the lease agreement and awarded the Reids damages under the terms of the agreement. Mutual appealed.
ISSUE
Whether the tenant’s action that vacated the premises before the end of the lease was justified, therefore it’s free of liability to pay remainder of the rent.
RULE
Common Law Doctrine of Surrender and acceptance
When a tenant surrenders the premises to a landlord before a lease term expires and the landlord accepts that surrender, the tenant is no longer in privity of estate with the landlord and therefore has no obligation to pay any rents accruing after the date of the acceptance.
Marini Air Prods. Co., 29 Utah 2d at 293, 508 P.2d at 810
At common law, tenant has the Burden of proving the landlord’s intent to accept the surrender.
Schneiker v. Gordon, 732 P.2d at 610, Illinois Landlords’ Dury, 34 DePaul L.Rev. At 1033
The economies of both the state and the nation benefit from a rule that encourages the reletting of premises, which returns them to productive use, rather than permitting a landlord to let them sit idle while it seeks rents from the breaching tenant.
Kwall, 37 Case W. Res. L.Rev.
Retained-judgment: allows landlord to obtain a judgment soon after the tenant’s breach, it permits the court to retain jurisdiction over the parties and the subject matter and no need to filed new suit to collect future rents.
APPLICATION
(1)there was constructive eviction?
There is insufficient evidence to prove that there was constructive eviction. Mutual’s arguments on this issue are rejected, and the Court affirmed the determination that Mutual breached the lease agreement by vacating the premises and failing to pay rent after Feb 1982.
(2)there was an acceptance after tenant’s surrender?
Mutual contends that under Common Law Doctrine , its obligations to pay further rent was relived by asserting that Reid’s actions in remodeling the premises and reletting them to Intermountain was an acceptance of surrender. The agreement between parties stated that “No such re-entry or taking possession of the premises by Landlord shall be construed as an election by landlord to terminate this Lease unless the termination thereof be decreed by a court of complement jurisdiction or stated specifically by the landlord in writing addressed to Tenant.” And Mutual argued that the trial court erred when it failed to decree that the Reids’ conduct constituted an acceptance.
At common law, tenant has the Burden of proving the landlord’s intent to accept the surrender.
Marini Air Prods. Co., 29 Utah 2d at 293, 508 P.2d at 810. The trial court found that Mutual had not met its burden of proof on the factual question of intent and the Court concluded that Reid’s conduct was reletting without termination. Thus there was no acceptance.
(3)the landlord had a duty of mitigate the damages?
Mutual contends that the trial court erred to award without requiring the Reids to mitigate their Damages by reletting the premises. There is no controlling statute or precedent case directly addressed the same question in Utah. However, the court spoke favorably of allowing landlords to mitigate by reletting without the risk that such mitigation efforts would be treated as an acceptance of surrender. Meyer v. Evans.
In Traditional rule landlord is not required to mitigate by reletting but this origins from the ancient law and anachronistic because it is based on agriculture and growing season. The concept that leasehold is a complete conveyance of real property and the owner has no present ownership during the lease term. Thus, landlord did not have interest in the property during the lease term by reletting the premises. This is no more relevant to modern times.
The Court accepted the Trend rule that requiring landlord to take steps to mitigate its losses. Schneiker v. Gordon, 732 P.2d at 610, Illinois Landlords’ Duty, 34 DePaul L.Rev. At 1033. This rule more in keeping with the current policy disfavoring contractual penalties and also line with the policy favoring mitigation in other ares of the law. (Torts and Contract)
Therefore, the Court held that a landlord has an obligation to take commercially reasonable steps to mitigate its losses, which ordinarily means that the landlord must seek to relet the premises. And applying the retained-jurisdiction approach, if additional unpaid rents have accrued, the landlord may return to the court for a simple determination of additional losses suffered and whether the landlord has fulfilled its ongoing duty to mitigate.
CONCLUSION
No. There was a breach of the contract by tenant but the portion of the judgment must be reversed. The question for Attorney fees should be remanded.
NOTE
법원이 오래된 전통룰을 깨고, Trend rule 을 채택해 랜로드에게 Mitigate the damages 가 있다고 판결했습니다. 그리고 지금 판결을 유지하면서 계약 기간이 끝날 때까지 랜로드에게 보상을 추가한다는 합리적인 오픈결말(?)이 인상적이었습니다.
————
How much hard work?
- As a reasonable person
<< Damage >>
- action occurs after the end of the lease agreement ->
- action occurs before the end of the lease agreement -> future, stipulated damages
3 basic approaches
multiple-cause- of- action : many risks on landlord -> X
Anticipatory-breach doctrine : problem of speculative damages -> X
Retained-jurisdiction concept : judgment soon after the tenant’s breach but no need to filed new suit to collect future rents. Kwall, 37 Case W. Res. L.Rev.
= it is well worth the minimal additional burden it may impose on the parties.