Title: NEVIN v COUNTY OF SILVER BOW

State: montana

Issuer: Montana Supreme Court

Document:

N o . 13164 I N T H E SUPREME C O U R T O F T H E STATE O F M O N T A N A 1977 G E O R G E R. W E V I N e t a l . , P l a i n t i f f s and Respondents, -vs- T H E COUNTY O F SILVER BOW e t a l . , Defendants and Appellants. Appeal from: District Court of t h e Second J u d i c i a l D i s t r i c t , Honorable Jack D. Shanstrom, Judge p r e s i d i n g . Counsel of Record: For Appellants: Stimatz and Engel, Butte, Montana Lawrence G. Stimatz argued, B u t t e , Montana For Respondents: McCaffery and Peterson, B u t t e , Montana John L. Peterson argued, B u t t e , Montana Submitted: March 1 6 , 1977 "fiQ" 7 , - Decided : -. -.'. . ; :TT / - *itr;%" ? - [:<I/~( F i l e d : - M r . J u s t i c e Gene B. Daly delivered the Opinion of the Court. This i s an appeal by Silver Bow County from an adverse judgment i n a breach of contract case involving the lease of t h e restaurant and lounge f a c i l i t y a t the county a i r p o r t . The cause was t r i e d before Hon. Jack D. Shanstrom, s i t t i n g without a jury, i n t h e d i s t r i c t court, Silver Bow County, on January 27, 1975. Judgment was entered April 23, 1975. From t h i s judgment i n favor of p l a i n t i f f s , defendant county appeals. I n 1968, the commissioners of Silver Bow County established by resolution an a i r p o r t commission t o a c t a s an advisory commis- sion t o the Board of County Commissioners and charged it with the duty of an overall program of development and control of the a i r - port. Day t o day control f o r the a i r p o r t operation was vested i n the a i r p o r t manager and engineer. I n 1968, Wm. J. Violet leased t h e premises s e t aside f o r a lounge and restaurant consisting of approximately 4,100 square f e e t . A t t h i s time the lounge and restaurant were not completed. Later Violet abandoned the lease and the premises were i d l e f o r approximately 8 months. The county (lessor) then executed a lease agreement with p l a i n t i f f s George R. Nevin and Geraldine Nevin, (Lessees). Paragraph 2 of the lease recognized some deficiencies i n the premises and agreed t o i n s t a l l a dumb waiter, carpet on the second f l o o r , and further r a i l i n g on the balcony. Paragraph 3 of the lease breaks the r e n t a l of $300 per month i n t o $175 r e n t , and $125 a s lessees' share of water and e l e c t r i c i t y u n t i l the i m - provements were completed; then the basic rent would be $375, plus $125 f o r lessees' share of water and e l e c t r i c i t y , o r a t o t a l r e n t a l of $500 per month. The lease became e f f e c t i v e November 30, 1968 and lessees paid the f i r s t month's r e n t a l required under the lease i n December 5 1968. paragraphlo£ the lease agreement provides: "For t h e consideration aforesaid, lessor hereby gives - - and grants unto lessee, h i s successors and assigns, the r i g h t , privilege and option of renewing t h i s Lease, a t the expiration of the aforementioned term, f o r an additional term of f i v e (5) years, upon the same conditions, covenants and agreements herein s e t f o r t h and a t a r e n t a l t o be nego- t i a t e d by the p a r t i e s , by giving t o the lessor a t l e a s t ninety days' written notice p r i o r t o the expiration of such term of lessee's desire t o exercise said option and renew t h i s Lease f o r such additional term; provided, however, t h a t the r e n t a l f o r the additional term s h a l l not be increased o r decreased beyond a reasonable sum, taking i n t o consideration conditions existing a t the time of renewal and c a p i t a l improve- ments, i f any, on t h e premises during the term." (Emphasis supplied. ) On August 28, 1973, lessees mailed the required notice t o exercise t h e i r option provided i n paragraph 5 of the lease t o extend the term of . . the lease f o r an additional f i v e years. O n August 31, 1973, lessor responded t h a t the notice was not timely, based on i t s copy of the lease which indicated an e f f e c t i v e date of November 1, 1968, inked i n , rather than November 30, 1968, a s shown on lessees' copy. There was considerable argument back and f o r t h between the p a r t i e s from August 1973 u n t i l October 30, 1973, concerning t h e renewal. O n October 30, 1973, lessor proposed a - new lease f o r a term of 3 years with a r e n t a l of $1,500 per month and/or the premises vacated a s of October 31, 1973, the date the lessor alleged the old lease expired. A s a r e s u l t of t h i s communication an agreement was then made t o continue operation of the a i r p o r t f a c i l i t y on a reservation of r i g h t s f o r both p a r t i e s . O n November 15, 1973, lessor agreed the termination date of the lease was not u n t i l November 30, 1973 and notice of renewal was received on time. Lessees offered a 20% increase i n rent o r $600. November 20, 1973, lessor responded with a r e n t a l of $1,200 per month and i n addition requested c e r t a i n changes i n the provisions of the "old" lease. On November 30, the lease terminated. Lessees f i n a l l y vacated the premises, a f t e r f i l i n g an action t o determine the r i g h t s of the p a r t i e s on January 3, 1974 and amended the action on January 25, 1974 t o breach of contract. Lessor on February 24, 1974 f i l e d an answer generally denying a l l allegations, admitted the lease but denied the e f f e c t i v e date of November 30, 1968 and alleged it t o be November 1, 1968. Based on t h i s date, the lessor then by affirmative defense, plead estoppel because the lease terminated before notice was received and further alleged the lessees knew the date t o be wrong. After t r i a l , the court made findings of f a c t and conclusions of law s t a t i n g i n essence: "1. That P l a i n t i f f s entered i n t o a lease agreement with the County of S i l v e r Bow, a body p o l i t i c and p o l i t i c a l subdivision of the S t a t e of Montana, and the Airport Commis- sion of Silver Bow County, Montana, a s lessors, on October 31, 1968, f o r the lease of c e r t a i n premises i n the Silver B o w County Airport Terminal Building, beginning the 30th day of November, 1968, and ending on the same date f i v e years hence i n the year 1973. * * * That a t the time of execution of the lease agreement, the premises were not ready f o r occupancy and were not made ready f o r occupancy by lessors u n t i l November 30, 1968. That a s a p a r t of the lease arrange- ment the P l a i n t i f f s received t r a n s f e r of Retail Beer and Liquor License No. 7847 on December 5 , 1968, * * * and paid the f i r s t month rent i n advance on December 5, 1968.* * * That it was the intention of a l l of the p a r t i e s t h a t the P l a i n t i f f s were t o have a f u l l f i v e year term of a c t u a l occupancy i n the leasing of the premises. ''2. * Jc * and a s l a t e a s November 15, 1973, the Airport Board conceded the f a c t t h a t the lease would not terminate u n t i l November 30, 1973, and therefore waived any r i g h t t o contend the lease terminated November 1, 1973." Finding of f a c t No. 3, s t a t e d p l a i n t i f f s had the r i g h t t o renew under paragraph 5 of the lease f o r 5 years and on August 28, 1973 and a t l e a s t 90 days before expiration, advised defendant of t h e i r i n t e n t t o renew f o r 5 years. Finding of f a c t No. 4 , s t a t e s t h a t on August 31, 1973, defendant acknowledged p l a i n t i f f s ' l e t t e r t o renew but advised p l a i n t i f f s the notice was too l a t e and defendant, without waiving any of its rights because of failure t o notify i n time, advised that it would i n essence negotiate a "new" lease. The next contact by defendant with p l a i n t i f f s was by l e t t e r dated October 30, 1973 advising the lease expired October 31, 1973 and contem- poraneous therewith presented a new lease with other terms changed, i n addition t o the rent increase t o $1,500 per month. O n November 1, 1973 defendant requested possession by midnight November 1, 1973, a t a penalty of $50 per day for holding over, and then offered a 30-day tenancy to p l a i n t i f f s t o run t o November 30, 1973. The court further said: "* * * That the actions by the Defendants breached the terms and conditions of the lease agreement * * * by reason of i t s failure t o negotiate a reasonable increase or decrease i n rental prior t o expiration of the term of the lease on November 30, 1973. That the offer of the Defendants by l e t t e r of November 20, 1973, i n offering a rental change by increase of rent t o $1200.00 per month and provided other provisions of the lease agreement were changed * * * was an unreasonable demand for rent increase i n violation of Paragraph 5 of the lease agreement, and also violated Paragraph 5 of said lease by demanding that various other provisions of the lease agreement be changed, even though the parties had agreed i n the option t o renew that the lease would be renewed for an additional five years 'upon the same conditions, covenants and agreements s e t forth', except for rental. "5. That the offer of the Defendants on November 20, 1973, was an unreasonable reply t o Plaintiffs' offer of November 15, 1973, t o increase the rent t o %600.00 per month, * * * which the court finds was a reasonable amount for rental under the circumstances existing a t the time and i n view of the moderate amount of capital expenditure made during the term of Plaintiffs' lease." Finding of fact No. 6 , states the actions of the parties in an attempt t o negotiate a "new" lease a f t e r November 30, 1973 were efforts i n compromise of a disputed claim and not material t o complying with paragraph 5 of the lease. Even i f material, t h i s increase t o $875 i s specifically found t o be unreasonable i n view of conditions existing a t the time and capital improvements made. "7. That Paragraph 5 of the lease agreement cited above is a valid, binding and enforceable provision of the lease agreement given for the benefit of the lessees and relied upon by them as an inducement t o enter into the lease agreement i n October of 1968. That i n light of said provision, the Court finds that it could have fixed and determined a f a i r and reasonable increase i n rental i n the absence of agreement by the parties, and i n the further event the Plaintiffs sought t o elect t o enforce such remedy. That Plaintiffs, however, are entitled t o select any remedy available t o them, including t h i s action for breach of contract. That the parties themselves recognized that such clause was valid and enforceable by attempting t o negotiate a reasonable rental ." Finding of fact No. 8, stated that had defendant adequately investigated the facts it could have found i n August that the lease terminated November 30, 1973. Upon admission by November 15, 1973 of the true facts, defendant was under a firm duty t o negotiate and f i x a reasonable increase or decrease i n rent with lessees before November 30, 1973. This duty was breached. "9. That upon execution of the-lease agreement and beginning November 30, 1968, Plaintiffs went into possession of the leased premises and for a period of five years conducted a restaurant and cocktail lounge business continually during that period of time, and had as of the termination of the lease on November 30, 1973, an established business in Silver B o w County, with a good business reputation for good food and service and from which the court does conclude that such business would have enjoyed profitable success i n the next five years of operation. "10. That the business records of the Plaintiffs establish by a preponderance of the evidence that by reason of Defendants' breach of the lease agreement Plaintiffs would have earned a net profit in the business of a period of five years from November 30, 1973, the sum of Twelve Thousand Dollars ($12,000.00) each year, which is determined a f t e r deducting from the expected gross revenue a l l business expenses, including taxes, wages, depreciation and a reason- able value of Plaintiffs' services. "11. That by reason of the conduct of business over a term of five years the Plaintiffs earned a good business reputation and established good w i l l with the community, from which Plaintiffs could reasonably have enjoyed con- tinued profitable operation by reason of i t s business loca- tion, reputation for good food and service, general atmos- phere and repeated return of their customers. That by reason of the breach of the lease agreement by the Defendants, the Plaintiffs suffered damages by loss of good w i l l i n the reasonable sum of Five Thousand Dollars ($5,000.00). "12. That by reason of the breach of the lease agreement by Defendants, the P l a i n t i f f s were forced to s e l l t h e i r business, equipment and inventory i n piecemeal l o t s . That had P l a i n t i f f s been able t o s e l l such equipment a s a going concern, the reasonable value of such equipment was the approximate sum of Twenty Five Thousand Dollars ($25,000.00) That by reason of the premature and forced s a l e of such equipment, P l a i n t i f f s received .the sum of Nine Thousand Seven Hundred Eighteen and 60/100ths Dollars ($9,718.60). That by reason thereof the P l a i n t i f f s suffered damages i n the s a l e of s a i d equipment i n the sum of Fifteen Thousand Dollars ($15,000.00). "CONCLUSIONS O F LAW "I. That P l a i n t i f f s have established by a preponder- ance of t h e evidence t h a t the Defendants breached the lease agreement existing between the p a r t i e s , and p a r t i - cularly Paragraph 5 thereof. "11. That by reason of the breach of such agreement, the P l a i n t i f f s have established by a preponderance of the evidence t h a t they suffered damages a s follows: "C. Loss of value on Equipment ---------- $15,000.00 "for t o t a l damages i n the sum of Forty Five Thousand Dollars ($45,000.00) ." Defendant appeals and presents three issues f o r review: 1. The court erred i n overruling defendant's o f f e r of proof t o show the bids and the amount of rent f o r which the leased premises were l e t t o p l a i n t i f f s ' successor a s tenant a s being indicative of the reasonableness of the defendant's o f f e r of a monthly rent of $865.00 t o p l a i n t i f f s . 2. The court erred i n t h a t i t s findings and judgment of breach of lease agreement and of refusal t o negotiate a reasonable increase i n rent by defendant a r e not supported by substantial, credible evidence. 3 . The court erred i n t h a t the damages awarded p l a i n t i f f s a r e excessive, improper and contrary t o the evidence and t h e law. Lessor generallyargues the matter of the correct termination date did not a r i s e during the term of the lease and there was no I I awareness" of t h i s u n t i l August 31, 1973. That a l l matters u n t i l the defendant agreed t o a November 30, 1973 termination date as correct on November 15, 1973, should be deemed acts i n good faith. Lessor then simply says a l l negotiations a f t e r Nov- ember 15, 1973, were good f a i t h and reasonable attempts t o s e t a new rental figure and discuss "(other * * * housekeeping d e t a i l s i n removing obsolete provisions from the lease)". This logic simply ignores the facts in t h i s case. The whole tenor of t h i s situation as f a r as defendant was concerned a f t e r November 15, was merely that the notice was f i l e d on time, so l e t us go forward as is and negotiate a new contract. Examples: (1) Plaintiffs' Exhibit No. 14, a l e t t e r from defendant t o p l a i n t i f f s dated November 20, 1973, which states i n essence---we recognize your November 30 date but we want $1,200 based i n part on-offers from others and i n addition t o rent there must be other changes i n the lease. (2) Exhibit A of defendant, a l e t t e r from defendant to p l a i n t i f f s dated December 11, 1973 i n response t o a request of p l a i n t i f f s for justification of the $1,200 rent figure: "The Board and the Commission are i n agreement that no good purpose would be served by providing a detailed s e t of figures i n support of t h i s $1,200 monthly rental proposal. I f necessary the Board and Commission w i l l supply such figures and justification of the $1,2000 price i n court". (Emphasis added.) This communication was signed by the three members of the board of county commissioners. O n December 28, a f t e r numerous exchanges defendant reminded p l a i n t i f f s to be gone by the end of January, i f no settlement was reached, and so on and on. These few examples demonstrate the problem, but the review of the entire record amply supports the t r i a l court with credible and substantial evidence. - 8 - Damages have been attacked by defendant as self-imposed, beyond the contemplation of the parties when they entered into the lease i n 1968, etc. However, the only proof of damages has been produced by the plaintiffs. Plaintiffs produced evidence of loss of profit for 5 years, loss of good w i l l , and loss of market value of equipment a t forced sale. I n Laas v. Montana Highway Commission, 157 Mont. 121, 132, 483 P.2d 699, t h i s Court specifically held that under section 17-301, R.C.M. 1947, which provides that the measure of damages i n a breach of contract action i s the amount that w i l l compen- sate the party aggrieved for a l l the detriment proximately caused thereby or which i n the ordinary cause of things would be likely t o result therefrom, damages are recoverable for loss of profits : "'* * Jc the rule i s that a person may recover for loss of profits where it is shown that such loss i s the natural and direct result of the a c t of the defendant complained of and that such amount i s certain and not speculative. * * * "Profits which are a mere matter of speculation cannot be the basis of recovery i n s u i t s for breach of contract, while profits which are reason- ably certain may be ." "' 157 Mont. 132. From p l a i n t i f f s ' testimony and plaintif f s ' Exhibits 6 and 17, the court found p l a i n t i f f s ' could reasonab1.y i n the next 5 years expect a yearly profit of $12,000 per year (court's finding No. 10) yet the court awarded $5,000 per year which is well within the evidence. The same holds true for good w i l l and the equipment. The equipment Exhibit was introduced without objection and de- monstrates the t r i a l court's award. I n regard to the offer of proof as t o justification of a higher rental, the foundation was absent t o make the proposed evidence material o r relevant t o the considerations allowable under the contract which governs the method of arriving a t a new rent figure and was therefore properly denied by the t r i a l court. Finding no error and there is substantial credible evidence t o support the judgment of the t r i a l court, that judgment i s affirmed. W e Concur: ..--- . - .--,-7 Chief Justice