IN THE COURT OF APPEALS OF TENNESSEE

AT MEMPHIS 

January 23, 2008 Session

ARTHUR KAHN, ET AL. v. PAUL J. PENCZNER, ET AL.

Direct Appeal from the Circuit Court for Shelby County

No. CT-004617-04 John R. McCarroll, Jr., Judge

No. W2006-02527-COA-R3-CV - Filed July 24, 2008

Lessees/Appellants filed suit against Lessors/Appellees for breach of a commercial lease after

Lessors/Appellees refused to approve Lessees/Appellants’ proposed subtenants. The trial court

found that Lessors/Appellees had failed to fully mitigate damages, and granted Lessor/Appellees

only 50% of rents as damages, along with damages for taxes and insurance. Lessees/Appellants

appeal the trial court’s award of rents, and the judgment for taxes and insurance. Lessors/Appellees

raise additional issues concerning the trial court’s award of only a portion of its claimed attorneys

fees, and the judgment based upon damage to the demised Building by Lessees/Appellants. Finding

no error, we affirm.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed; and

Remanded

DAVID R. FARMER, J., delivered the opinion of the court, in which ALAN E. HIGHERS, P.J., W.S.,

joined. W. FRANK CRAWFORD, J., did not participate.

Glen Reid, Jr., Hal Gerber, and Douglas Black, Memphis, Tennessee, for the appellants, Arthur

Kahn, Louis Loeb, Larry Bloch and Peggy E. Burch.

William H. Fisher, III and Valerie Fisher, Memphis, Tennessee, for the appellees, Paul J. Penczner

and Jolanda Penczner.

OPINION

This action arises from a dispute over a commercial lease (the “Lease”) of a two-story

building at 964 June Road in Memphis (the “Building”). Arthur Kahn, Louis Loeb, and Larry Bloch

are the partners who comprise the Tennessee general partnership known as Cellermasters, d/b/a

Arthur’s Wine & Liquor ( together with Peggy Burch, Arthur Kahn’s ex-wife and signatory to the

Lease, “Arthur’s,” “Lessee,” or “Appellant”). Paul J. Penczner and Jolanda Penczner (together, the

“Penczners,” “Lessor,” or “Appellee”) are the owners of the Building.
 The original Complaint was brought by Plaintiff Arthur Kahn only. However, the Complaint was later

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amended to add the additional Plaintiffs set out above.

 Arthur’s claim for fraudulent misrepresentation was voluntarily non-suited by Order of April 6, 2006. 2

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The business relationship between these parties began in 1985 when Arthur’s entered into

the Lease with the Penczners. The original lease term began on April 1, 1985 and ran for a period

of six years. Over time, the parties negotiated three extensions of the Lease, the last of which

expired on March 31, 2006. From the beginning of its occupancy, Arthur’s occupied only the first

floor of the two-story building. 

In 2003, Arthur’s desired to relocate to a newly-constructed building, which directly fronted

Poplar Avenue. In December 2003, Arthur’s notified the Penczners of its intention to relocate in the

spring of 2004, and to sublet all or part of the Building for the balance of the Lease term. To that

end, Arthur’s hired a realtor and sought the Penczners cooperation in marketing the Building to

prospective tenants. Ultimately, Arthur’s presented two prospective tenants, both of whom the

Penczners rejected.

On August 10, 2004, Arthur’s filed a “Complaint for Breach of Contract, Fraudulent

Misrepresentation, and Damages” (the “Complaint”) against the Penczners. In its Complaint,

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Arthur’s specifically avers that the Penczners “arbitrarily and unreasonably rejected” the prospective

tenants in violation of theLease. Consequently, Arthur’s contends that the Penczners “violated their

duty of fair dealing and acting in good faith.” In its prayer for relief, Arthur’s asks the court, inter 2

alia, to declare the Lease null and void effective August 15, 2004, for damages including its real

estate agent’s fees, and for attorney’s fees.

On April 22, 2005, the Penczners filed their answer, in which they deny the material

allegations of the Complaint. Concurrently with their answer, the Penczners filed a countercomplaint, asserting that Arthur’s had failed to comply with Paragraph 13 of the Lease by not

supplying the required information on the proposed subtenants. The Penczners further contend that,

based upon the information that they did receive, the prospective tenants were not financially sound,

or were otherwise undesirable for the space. In their counter-complaint, the Penczners assert, inter

alia, that Arthur’s remains liable for all obligations under the original Lease, that the Penczners had

taken steps to mitigate their damages (i.e., they took possession of the building, and retained a real

estate agent in order to find a suitable subtenant). The Penczners further contend that Arthur’s is

obligated to pay the “annual realty taxes and hazard insurance premiums” on the Building, and that

they had failed to make such payments in breach of the Lease. The Penczners also claim that

Arthur’s damaged the demised premises when it abandoned same.

The matter was tried to the court, sitting without a jury. On October 2, 2006, the trial court

entered its Final Judgment, which reads, in pertinent part, as follows:
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[T]he Court found that the Penczners were entitled to recover from the Plaintiffs the

following expenses incurred by them in satisfying the Plaintiffs’ obligations under

the lease:

$740.00– Repair and replace facia on roof damaged by the Penczners’

[sic] sign.

 340.00– Paint facia

 270.00– Clean first floor and cart away debris

 650.00–Clean second floor and cart away debris

150.00–Repair ceiling panels damaged by water resulting from

damage to the roof caused by Plaintiffs’ sign.

290.00– Replace and/or repair ceiling tile damaged by water from

leaking roof.

730.00–Roof repair related to damage caused by Plaintiffs’ sign.

3,840.00– Replacement of ceiling tile grid and tiles removed by

subtenant for which Plaintiffs admitted liability.

$7,010.00– TOTAL

The Court denied the Penczners[’] other counter-claims for expenses,

including expenses incurred in rendering the property suitable for reletting.

The Court made written findings and rendered what was referred to in the

findings as a “preliminary” opinion, a copy of which is attached hereto and made a

part hereof by reference. The Court invited Counsel to supply briefs and/or argument

concerning these findings; and, following the submission of briefs by Counsel, the

Court issued the following written ruling:

It is the Court’s opinion that the Penczners should recover fifty

percent (50%) of the unpaid portion of the unpaid rent from July 1,

2004, through March 31, 2006. No discretionary costs will be

awarded. Statutory court costs will be divided equally.

The Penczners are the prevailing party. The lease states that “The

losing party shall pay all reasonable attorneys’ fees of the prevailing

party.” If the parties cannot agree on what is a “reasonable attorney

fee, I will conduct a hearing to determine the issue.”

The parties were unable to agree on fees for the Penczners’ attorneys, with the

result that a hearing was conducted by the Court to determine the amount of the

attorneys’ fees to which the Penczners would be entitled. Prior to the hearing,

affidavits concerning fees were submitted by William H. Fisher, III, and Valerie

Fisher, the Penczners’ attorneys, and counter affidavits were submitted by Glen Reid
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and Hal Gerber, attorneys for the Plaintiffs. William Fisher then submitted a rebuttal

affidavit. No proof was offered at the hearing other than these affidavits and exhibits

thereto. Based on these affidavits and exhibits, the Court found that the Penczners

should be awarded attorneys’ fees of $45,000.

During the pendency of this cause, the Plaintiffs, by agreement, paid into an

escrow account the 20-months rent, which became due from August 1, 2004, until

the term of the lease ended on March 31, 2006. By agreement, the attorneys for

Plaintiffs and Defendants have joint control of this account, and the agreement

provides that at the conclusion of the litigation, the balance of this account, including

all accretions, must be paid in a manner provided in an order of this Court. There is

a balance in the account currently in the approximate amount of $140,000.00, and the

balance in the account should be paid to the Penczners for which the Plaintiffs should

be given credit on this judgment.

IT IS, THEREFORE, ORDERED, ADJUDGED AND DECREED:

1. That the Plaintiffs’ claims for relief against the Penczners, which are

enumerated in the prayer for relief of the...original Complaint...are without merit and

are hereby denied . . . .

2. That the Plaintiffs’ contention that the Penczners’ counter-claim for rent

due them should be reduced due to their failure to mitigate damages is meritorious

and that they are therefore entitled to only 50% of the rent claimed by them.

3. That the [Penczners] be, and they are hereby, granted judgment against the

Plaintiffs . . . jointly and severally, for the following sums:

a. $22,569.45–City Tax Increases ‘98 thru ‘06

b. 25,806.08–County Tax Increases ‘98 thru ‘06

c. 4,808.67–Insurance Increases ‘98 thru ‘06

d. 7,010.00–Expenses for which Plaintiffs are responsible

e. 74,250.00–50% of rent and late charges from 8/1/04 thru 3/31/06

f. 45,000.00–Attorneys’ Fees

$179,444.20–TOTAL

4. The Penczners’ request for prejudgment interest on the amounts found to

be due them for rent, taxes and insurance be, and it is hereby, denied.

5. That the funds currently held in escrow, controlled by the attorneys for the

parties together with all accretions thereon, be paid to the Penczners for which the

Plaintiffs are to be given credit on this judgment.
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Arthur’s appeals and raises four issues for review as stated in its brief:

1. In light of lease provisions expressly permitting a Tenant to sublease all or

part of the leasehold, did the trial court err in failing to hold that a Landlord’s

refusal to allow prospective sub-tenants constitutes either (I) a breach of the

lease by Landlord that offsets the Landlord’s claim for unpaid rent, or (ii) a

failure by the Landlord to mitigate damages that precludes Landlord’s claim

for unpaid rent?

2. After finding that a Landlord failed to market the leasehold in a commercially

reasonable manner and otherwise failed to mitigate damages, did the trial

court err in awarding damages to Landlord for unpaid rent?

3. Did the trial court err in awarding a Landlord damages for many years of past

tax and insurance escalations that Landlord waived, that were never billed to

Tenant, and which were excluded from the agreed rent by oral modifications

of the lease?

4. In light of the foregoing errors, did the trial court err in awarding Landlord

attorneys’ fees and in failing to award attorneys’ fees to Tenant?

In the posture of cross-appellant, the Penczners raise the following, additional issues

for review:

1. The court erred in holding that the Penczners had a duty to mitigate damages.

2. The court’s holding that the Penczners failed to mitigate their damages by not

negotiating further to the sleep proposal, and that their recovery of rent

should, therefore, be reduced is contrary to the law and a preponderance of

the evidence.

3. The court’s holding that the Penczners failed to mitigate their damages

because there was “significant variance” between the listing agreement and

[Arthur’s] lease and that the Penczners’ recovery of rent should, therefore, be

reduced on account thereof is contrary to law and the preponderance of the

evidence.

4. The court erred in holding that the attorney[s’] fees allowed the Penczners

should be limited to a percentage of the fees claimed equal to the percentage

which the amount recovered by them bears to the total amount claimed by

them, thereby disallowing fees forthe successful defense of Plaintiffs’ claims

vs. the Penczners[’].
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5. The court erred in allowing recovery of only those repair expenses thought

to be allowable under the “good condition” clause and disallowing repair

expense[s] necessary to render the premises tenantable or due under other

clauses of the Lease.

6. The court erred in disallowing all prejudgment interest.

Because this case was tried by the court sitting without a jury, we review the case de novo

upon the record with a presumption of correctness of the findings of fact by the trial court. Unless

the evidence preponderates against the findings, we must affirm, absent error of law. See Tenn. R.

App. P. 13(d). 

Breach of Lease, Mitigation of Damages, and Damages 

It is well settled that the measure and elements of damages upon the breach of a lease is

governed by the general principles that determine the measure of damages on claims arising from

breaches of other kinds of contracts. The general rule of contracts, to the effect that the plaintiff may

recover damages only to the extent of its injury, applies to leases. Damages for breach of a lease

should, as a general rule, reflect a compensation reasonably determined to place the injured party in

the same position as he or she would have been in had the breach not occurred and the contract been

fully performed, taking into account, however, the duty to mitigate damages. In addition, damages

resulting from a breach of a lease must have been within a contemplation of the parties; must have

been proximately caused by the breach; and must be ascertainable with reasonable certainty without

resort to speculation or conjecture. See 49 Am.Jur.2d Landlord & Tenant § 96 (2003).

In the instant case, Arthur’s contends that the trial court erred in awarding damages to the

Penczners in light of its finding that the Penczners had failed to mitigate their damages. Specifically,

Arthur’s asserts that the Penczners’ refusal to approve the proposed subtenants constitutes a breach

of the Lease under Paragraph 13 thereof. This paragraph reads:

13. ASSIGNMENT AND SUBLETTING: It is expected that Lessee, from time to

time, may sublet a portion of the premises, or portions or all of the premises, to

which sublet(s) Lessor agrees, provided, however, that: a) Lessee shall remain

primarily responsible for the performance of all of the terms and conditions of this

Lease; and b) no subtenant shall be allowed whose presence or business would be

detrimental to the value of the premises to Lessor by virtue of the character of the

person(s) or business. Establishments serving food and/or alcoholic beverages are

not per se detrimental to the value of the premises. Lessee agrees to provide Lessor

with notice in writing, thirty days in advance of any proposed sublet or assignment,

of Lessee’s intention to sublet; and the notice shall include a copy of the assignment

or sublet agreement, the proposed subtenant’s financial statement and business

background, and a description of the proposed use, all for the purpose of informing
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Lessor under the terms of part “b” of this paragraph. Lessee and Lessor agree to act

in full good faith, each toward the other, in the implementation of this paragraph.

Under the doctrine of mitigation of damages, an injured party has a duty to exercise

reasonable care and due diligence to avoid loss or minimize damages after suffering injury. See

Cook & Nichols, Inc. v. Peat, Marwick, Mitchell & Co., 480 S.W.2d 542, 545 (Tenn. Ct. App.1971);

Gilson v. Gillia, 321 S.W.2d 855, 865 (Tenn. Ct. App.1958)). Generally, one who is injured by the

wrongful or negligent act of another, whether by tort or breach of contract, is bound to exercise

reasonable care and diligence to avoid loss or to minimize or lessen the resulting damage, and to the

extent that his damages are the result of his active and unreasonable enhancement thereof, or due to

his failure to exercise such care and diligence, he cannot recover. Cook & Nichols, Inc., 480 S.W.2d

at 545. In determining whether an injured party has fulfilled its duty to mitigate, a court must

examine “whether the method which he employed to avoid consequential injury was reasonable

under the circumstances existing at the time.” Action Ads, Inc. v. William B. Tanner Co., Inc., 592

S.W.2d 572, 575 (Tenn. Ct. App.1979) (quoting Tampa Electric Co. v. Nashville Coal Co., 214 F.

Supp. 647, 652 (M.D.Tenn.1963)). Despite this duty, an injured party is not required to mitigate

damages where such a duty would constitute an undue burden. Cummins v. Brodie, 667 S.W.2d 759,

766 (Tenn. Ct. App.1983).

From our reading of the plain language of Paragraph 13 of the Lease, it appears that, although

the parties acknowledge Arthur’s right to sublet the Building, the Penczners retain the right to

approve any proposed tenants. To that end, the paragraph requires Arthur’s to provide written notice

of its intent to sublet, along with a “copy of the assignment or sublet agreement, the proposed

subtenant’s financial statement, and business background, and a description of the proposed use.”

The Penczners’ authority to approve or reject proposed tenants is very broad under our reading of

this paragraph. While required to “act in full good faith,” the sole criterion for the Penczners’

decision hinges upon the question of whether the proposed subtenant’s “presence or business would

be detrimental to the value of the premises to Lessor by virtue of the character of the person(s) or

business.” The parties herein disagree as to the definition of the word “character,” same being the

sole basis for the Penczners’ approval of proposed subtenants. In short, the term is subjective and

the power of that subjectivity lies with the Penczners. Consequently, our determination of whether

the Penczners failed to mitigate their damages in rejecting the two subtenants proposed by Arthur’s

becomes a question of whether the Penczners breached their obligation to act in good faith in

rejecting the two proposals. The trial court’s finding on this question is one of fact and we will not

reverse that determination unless the evidence in the record preponderates against same. Tenn. R.

App. P. 13(d). 

In the instant case, Arthur’s proposed two subtenants for the Building. There were two

proposals submitted on behalf of Chef Jose Gutierrez, and one proposal on behalf of MEDIAS Sleep

Diagnostic Services, an entity involved in sleep therapy. The sleep therapy sublease proposal is

contained in trial exhibit ten. This exhibit consists of a June 4, 2004 letter from Mr. Kahn to Mr.

Penczner, which letter references the following attachments: (1) Sublease Agreement; (2) Business

Description; (3) Financial Statements. The sublease proposal is in the form of a letter from Arthur’s
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agent, Gary Myers, and is not the actual sublease agreement to be entered between Arthur’s and the

sleep clinic. The sublease proposal states that the terms of the original Lease will be honored except

for five enumerated exceptions. This proposal lists “Arthur’s Wine and Liquor” as “sublessor,” and

lists “Camden McLaughlin, Innovative Sleep Management” as “sublessee.” The provided business

description states:

MEDIAS, Sleep Diagnostic Services, is dedicated to providing the highest quality,

cost effective sleep and pulmonary services to its customers, while promoting patient

education in a caring environment.

At MEDIAS, we believe that:

• Excellence of services provided will direct the success of the organization.

• Provision of quality services is the responsibility of each member of the MEDIAS

team.

• Our customers are our most important resource and we will strive to exceed

expectations while being fair and honest.

Any further information can be found at www.midassleep.com

The “financial statements” provided consist of a “Medias, Inc. Balance Sheet as of April 30,

2004,” and a “Medias, Inc. Profit & Loss YTD Comparison April 2004.” Neither of these

documents are signed. According to the balance sheet, Medias, Inc. showed a net worth of

$7,354.71. 

We first note that the name of the proposed subtenant is not consistent. The sleep therapy

entity is referred to as MEDIAS, Inc., MEDIAS Sleep Diagnostics Services, Midassleep, and

Camden McLaughlin, Innovative Sleep Management. From the record, not only is there insufficient

evidence from which to determine the exact name of the proposed subtenant, but there is also

evidence to suggest that this entity was not (as of the date of the proposal) financially secure enough

to take on the Lease. Consequently, we cannot find that the evidence in this record preponderates

against the trial court’s finding that the Penczners did not breach the terms of the Lease by failing

to accept this proposed subtenant based upon the information provided by Arthur’s. However, in

finding that the Penczners had failed to mitigate their damages to the extent necessary to recover all

rents, the trial court found that the Penczners had a duty to negotiate the terms of the sublease

further, as did Arthur’s. From our review of the record, we cannot find that the evidence

preponderates against this finding. Pursuant to both parties’ duty, under Paragraph 13, to act in good

faith, Arthur’s should have provided a more thorough business description, and should have provided

actual financial statements, as well as the proposed sublease agreement rather than a bullet-form

letter outlining the changes to the original Lease. When the Penczners were not satisfied with the

proposal as submitted, in the interest of good faith, they should have discussed the shortcomings with

Arthur’s and any remedies that could allow the proposal to go forward. This is particularly true in

light of Mr. Penczner’s testimony that they would have accepted the sublease had they had a
 We note that Mr. Kahn’s partner Laurence Bloch stated that he would have guaranteed the sublease of the 3

sleep therapy entity.

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guaranty, and Mr. Kahn’s testimony that either of his partners would have provided that guarantee.3

That being said, what the record shows is that the lack of communication between the parties

resulted in a stalemate, which may have been easily remedied through negotiation.

Concerning the proposals offered on behalf of Jose Gutierrez, both take the form of letters

from Scott Barton, Jose Gutierrez’ agent, to the Penczners’ agent, Gary Myers. The first, dated May

14, 2004, is called a “Letter of Intent.” This correspondence indicates that the new lease term will

be “[t]wo [y]ears of Sublease from current Tenant (Arthurs), followed by Five Year new lease and

Three 5 yr. options.” The proposed rent for the two-year remainder of the Lease is listed as $5,500

per month (with Arthur’s being entitled to $1,250 worth of food sales each month). The rent for

years three through seven is proposed at $7,500 per month; rent for years eight through 12 is set at

$7,750 per month; for years thirteen through seventeen, rent is established at $8,000 per month; and

for years eighteen through twenty-two, rent is proposed at $8,250 per month. Neither of the two

letters are signed by Mr. Gutierrez, nor his agent. We note that the Gutierrez proposals contain

significant changes from the terms of the original Lease. In rejecting the Gutierrez proposal, the

Penczners indicate (in their letter of May 31, 2004) that they would agree to a sublease to Mr.

Gutierrez that was more in compliance with the original Lease; however, as with the sleep therapy

proposal, neither of the parties attempted meaningful negotiations concerning changes to the

Gutierrez proposal. Because of the significant variance between the Gutierrez proposals and the

original Lease, we cannot conclude that the trial court erred in holding that the Penczners’ rejection

of same was reasonable. However, because of the parties’ mutual duty to act in good faith, we also

cannot conclude that the trial court erred in finding that the Penczners breached this duty to the

extent that they failed to negotiate or otherwise compromise. 

Concerning the Penczners’ duty to mitigate damages related to the unexpired term of the

original Lease, following Arthur’s notice of its intent to vacate the Building, the Penczners hired

Larry Alexander to find a replacement tenant. To that end, the Penczners and Mr. Alexander entered

into a Rental Agency Agreement (“RAA”). This RAA was admitted as Exhibit 48C at trial. Under

the terms of the RAA, the monthly rent is listed at $15,000.00 or whatever the Penczners agree to

accept. In addition, theRAA calls for a longer lease term. In material aspects, the RAA significantly

differs from the original Lease. The Penczners’ duty to mitigate requires them to exercise due

diligence in protecting themselves from the immediate results of Arthur’s vacating the Building.

From the plain language of the RAA, it appears that the Penczners were not concerned with

obtaining a tenant to take over where Arthur’s left off, but rather that they were concerned with

obtaining significantly more rents, and a longer lease term. 

The trial court did not find that the Penczners had completely failed to mitigate their

damages. In fact, the trial court affirmed the Penczners’ decision in rejecting the two proposals

offered by Arthur’s. Rather, the Penczners’ breach was based upon their duty to act in good faith

concerning any sublet of the Building. As discussed above, the Penczners failed in this duty based
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upon their failure to further negotiate terms of the proposals with Arthur’s; however, Arthur’s too

failed in this regard and thus breached its own duty of good faith. However, because the Penczners

overreached in their RAA, choosing to solicit for more rents and longer terms than they were entitled

to under the original Lease, we agree with the trial court that this alleged effort to mitigate their

damages was unreasonable and, as such, constitutes a breach of their duty of good faith. 

Turning to the issue of damages, the trial court allowed the Penczners to recover 50% of the

rents from the time that Arthur’s vacated the Building until the end of the Lease term. On appeal,

Arthur’s contends that the trial court’s finding that the Penczners failed to mitigate their damages

should result in a forfeiture of all rents. The Penczners assert that, based upon the trial court’s

determination that they did not err in rejecting the subtenant proposals, they should recover all rents

due under the Lease. Based upon the foregoing discussion, Arthur’s argument is not well grounded.

In effect, the trial court found that the Penczners failed to act in good faith (based on the RAA) in

mitigating their damages. The Penczners’ argument is also on narrow footing based upon our

discussion above that, in rejecting said proposals, the duty of good faith required the parties to at

least entertain discussion about modifications thereto. Because both parties failed in this regard,

neither should recover on this basis. Arthur’s failed to provide the required information concerning

its proposed subtenant, and failed to take steps toward meaningful negotiation of the proposals. The

Penczners also failed to negotiate in good faith, and further breached this duty by overreaching in

the RAA. Based upon the evidence before us, and the particular facts of this case, we cannot

conclude that the trial court erred in fashioning the remedy for these mutual shortcomings at 50%

of the total rents due. 

Taxes and Insurance

The Lease provides, in relevant part that:

36. TAX AND INSURANCE ESCALATOR: As additional rent, Lessee agrees to

pay Lessor a sum equal to the amount by which city and county realty taxes on the

premise for any period during the term hereof are increased by virtue of an increase

in the assessment of the premises over that established for the year 1984, or by virtue

of an increase in the assessment of the demised premises over that established for the

year 1984 which reassessment is made pursuant to a city-wide or county-wide

reassessment of real estate. This escalator provision also applies to any hazard

insurance premiums now in effect on the premises. Additionally, Lessee agrees to

pay any increased insurance premiums for hazard occasioned solely by any

alterations or additions to the premises made by Lessee.

Pursuant to this clause, the trial court awarded the Penczners $22,569.45 in City Tax

increases 1998 through 2006, $25,806.08 in County Tax increases 1998 through 2006, and $4,808.67

in insurance increases from 1998 through 2006. Arthur’s asserts that these awards were erroneous,

and specifically contends that the Penczners’ failure to “bill” Arthur’s for these monies constitutes

a waiver. We have reviewed the testimony and conclude that same does not preponderate in favor
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of a finding of waiver. In fact, the respective testimonies of Messrs. Kahn and Penczner are

disputed. Mr. Kahn testifies that the Penczners stopped billing for increases in taxes and insurance

after 1996. Furthermore, Mr. Kahn stated that, upon questioning Mr. Penczner about whether

Arthur’s owed under Paragraph 26, Mr. Penczner stated that Arthur’s would not have to pay so long

as it had not found a subtenant for the upper floor of the Building. In contrast, Mr. Penczner testified

that, from the outset, he had difficulty collecting for increased taxes and insurance. In support of this

statement, Mr. Penczner stated that the dispute over taxes and insurance had resulted in the execution

of a Memorandum of Understanding dated June 25, 1986, which Memorandum was admitted as

Exhibit 28. The Memorandum states, in pertinent part, that “[i]t is understood and agreed that any

increases in taxes or hazard insurance premiums over and above stated stipulated amounts will be

paid by Lessee to Lessor as additional rent.” At the hearing, Mr. Penczner testified that, even after

the execution of the Memorandum, he had difficulty collecting these monies from Arthur’s. Mr.

Penczner testified that he never agreed that Arthur’s would be relieved from this obligation pending

sublease of the second floor. Moreover, Mr. Penczner stated that he had written Arthur’s numerous

times, seeking payment of these monies, but that his requests were ignored. Based upon Arthur’s

failure to comply, Mr. Penczner testified that he did stop billing after 1996, but that he never agreed

to forfeit these payments. 

The trial court resolved this dispute in favor of the Penczners. It is well settled that, when

the resolution of the issues in a case depends upon the truthfulness of witnesses, the trial judge who

has the opportunity to observe the witnesses in their manner and demeanor while testifying is in a

far better position than this Court to decide those issues. See McCaleb v. Saturn Corp., 910 S.W.2d

412, 415 (Tenn.1995); Whitaker v. Whitaker, 957 S.W.2d 834, 837 (Tenn. Ct. App. 1997). The

weight, faith, and credit to be given to any witness's testimony lies in the first instance with the trier

of fact, and the credibility accorded will be given great weight by the appellate court. See id.; see

also Walton v. Young, 950 S.W.2d 956, 959 (Tenn.1997). From our reading of the record and the

relevant paragraph ofthe Lease, we cannot conclude that the evidence preponderates against the trial

court’s finding that the Penczners did not waive their right to these monies. 

Recovery of Damages based upon damage to the Building

In addition to rents, the trial court awarded the Penczners $7,010.00 in damages for

necessary repairs to the Building as set out above. On appeal, the Penczners assert that the trial court

erred in allowing only a portion of the claimed expenses. We disagree. Paragraph 19 of the Lease

provides, in relevant part:

Lessee may remove trade fixtures affixed by Lessee, provided, however, that Lessee

shall forthwith repair any damage to the premises caused by such removal. All other

fixtures installed by Lessee may be removed by Lessee only if Lessee restores the

portion of the premises affected by said removal to its condition prior to the

installation of the fixtures.
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The trial court’s finding concerning the nature and extent of damage caused to the Building

by Arthur’s removing its fixtures is one of fact. Consequently, we will not reverse the trial court on

this issue unless the evidence in record preponderates against this finding. Tenn. R. App. P. 13(d).

Having reviewed the record before us, we find that the specific damage to the Building enumerated

in the trial court’s order, as set out above, and for which the trial court granted damages to the

Penczners are well founded in the record. Although the Penczners assert that they are entitled to

recover for other alleged damages to the Building over and above those allowed by the trial court,

we disagree. Pursuant to the Paragraph 19 of the Lease, Arthur’s is responsible for those damages

arising from the removal of its fixtures from the Building. In the instant case, the proof shows that

certain damage occurred to the facia of the Building, and to the interior stemming from the removal

of Arthur’s sign. The Penczners also suffered damages based upon having to haul away debris left

by Arthur’s. In reviewing this record, including the testimony of Mr. DeLuca, the general contractor

hired by the Penczners to make the repairs, we cannot conclude that the evidence preponderates

against the trial court’s finding as to damages for repairs. Paragraph 11 of the Lease provides that:

Lessee agrees to deliver to Lessor physical possession of the premises upon the

termination of the Lease, in good condition, excepting ordinary wear and tear . . . or

damage from any other cause, unless such cause is attributable to the negligence of

the Lessee.

From our reading of the record, the damages disallowed by the trial court could fall under either the

ordinary wear and tear, or the more broad damage from any other cause [save Lessee’s negligence]

exceptions set out in Paragraph 11. Because the evidence does not preponderate against the trial

court’s decision to disallow certain claimed damages, we must affirm. Tenn. R. App. P. 13(d)

Attorney’s Fees

We now turn to the Penczners’ issue regarding the trial court’s award of attorney’s fees. 

The Lease provides, in relevant part, as follows:

39. ATTORNEY FEES: In the event of any case or controversy arising under the

terms of this Lease whereby it becomes necessary for either or both parties to hire an

attorney, it is agreed hereby between the Lessor and the Lessee that the losing party

in the case or controversy shall pay all reasonable attorney fees of the prevailing

party.

 The combined fees submitted by Mr. Fisher and Ms. Fisher, the Penczners’ attorneys, were

$148,000. This amount was supported by affidavits and corresponding time sheets. Arthur’s

attorneys argued that much of the claimed work was “unnecessary and irrelevant.” Following a

hearing, the trial court allowed the Penczners to recover $45,000 in attorneys’ fees. On appeal, the

Penczners contend that, under Paragraph 39 of the Lease, they are entitled to recover all of their

attorneys’ fees due to the trial court’s statement, in its Order, that “[t]he Penczners are the prevailing
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party.” Arthur’s contends that the Penczners are entitled to none of their attorneys’ fees based upon

the trial court’s determination that they failed to mitigate their damages. 

Based upon our determination that both parties were at fault to some degree in this matter,

and that damages in the amount of 50% of the rents was just, it would be inequitable for the

Penczners to recover the full amount of attorney’s fees claimed in this case. That being said, the

Penczners did prevail to a greater extent than Arthur’s in that they were awarded damages for taxes

and insurance increases and for damage to the Building. Consequently, under the Lease, Penczners

should recover some of their attorney’s fees as the, for lack of a better term, more prevailing party.

We have reviewed the record and we conclude that the trial court did not abuse its discretion in

awarding $45,000. In light of the trial court’s ruling, this amount was reasonable. Finally, we

conclude that the trial court did not abuse its discretion in failing to award pre-judgment interest.

For the foregoing reasons, we affirm the Order of the trial court. Costs of this appeal are

assessed one-half to the Appellants, Arthur Kahn, Louis Loeb, Larry Bloch and Peggy E. Burch, and

their respective sureties, and one-half to the Appellees, Paul J. Penczner and Jolanda Penczner.

___________________________________ 

DAVID R. FARMER, JUDGE