FILED

April 23, 1999

Cecil Crowson, Jr.

Appellate Court Clerk

BVT LEBANON SHOPPING )

CENTER, LTD., a Tennessee Limited )

Partnership, )

)

Plaintiff/Appellee, ) Appeal No.

) 01-A-01-9710-CV-00607

v. )

) Wilson Circuit

WAL-MART STORES, INC., a ) No. 9113

corporation; and KUHN'S-BIG-K )

STORES CORP., a Tennessee )

corporation, )

)

Defendants/Appellants. )

COURT OF APPEALS OF TENNESSEE

APPEAL FROM THE WILSON COUNTY CIRCUIT COURT

AT LEBANON, TENNESSEE

THE HONORABLE BOBBY CAPERS, JUDGE

THOMAS V. WHITE

KENNETH F. SCOTT

Tune, Entrekin & White, P.C.

21st Floor, First American Center

315 Deaderick Street

Nashville, Tennessee 37238

ATTORNEYS FOR PLAINTIFF/APPELLEE

JON B. COMSTOCK

702 S.W. 8th Street

Bentonville, Arkansas 72716

THOMAS W. LAWRENCE, JR.

Parker, Lawrence, Cantrell & Dean

200 Fourth Avenue North

Fifth Floor

Nashville, Tennessee 37219

NEAL AGEE, JR.

Agee, Agee & Lannom

P. O. Box 649

Lebanon, Tennessee 37088-0649

ATTORNEYS FOR DEFENDANTS/APPELLANTS

AFFIRMED AS MODIFIED,

AND REMANDED

WILLIAM B. CAIN, JUDGE
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O P I N I O N

This is a suit by a limited partnership as owner of a shopping center in

Lebanon, Tennessee against Wal-Mart Stores, Inc. alleging breach of a lease

contract.

In 1968, J.R. Freeman, Trustee as lessor, entered into a lease agreement

with Kuhn Brothers Co., Inc. as lessee of certain premises in a commercial

shopping center known as The Center of Lebanon. This lease was to expire in

1984. The lease provided a guaranteed minimum annual rent of $70,000.00,

together with 2 1⁄2% of all gross receipts over $2,333,000.00 per annum. 

Wal-Mart acquired Kuhns and the 1968 lease agreement was amended in

1981 with Freeman, Trustee still as landlord and Wal-Mart as lessee. In this

1981 amendment to the lease the term thereof was extended from 1984 through

1996. The guaranteed minimum rent was increased from $70,000.00 per annum

to $136,000.00 per annum with gross receipts percentage rent declining

incrementally with increased gross receipts. The permitted "use" was changed

from a "retail promotional type store" to a "discount department store." 

BVT acquired The Center of Lebanon from Freeman Trustee, and in 1985

Wal-Mart determined a need to expand the leased premises. This resulted in a

1985 amendment to the lease whereby the size of Wal-Mart's premises was to be

expanded from 50,000 square feet to 84,000 square feet with the cost of such

expansion to be borne by BVT. This necessitated the purchase of additional real

estate and the buyout by BVT of the Foodtown lease which was adjacent to the

existing Wal-Mart premises. Wal-Mart supplied the plot plans and

specifications for the expansion and BVT paid approximately $1,500,000.00 to

complete the Wal-Mart expansion.

The 1985 lease amendment extended the term of the lease for nine

additional years to 2005. The guaranteed minimum rent was changed from

$136,000.00 annually to $272,000.00 with an incremental reduction in

percentage of gross receipts rental tied to increased gross receipts of Wal-Mart.
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Wal-Mart was quite successful at The Center of Lebanon. By 1994, the

gross-receipts percentage rental by Wal-Mart to BVT comprised approximately

37% of the total rent paid annually.

In 1994, Wal-Mart determined to vacate The Center of Lebanon and

relocate to a new super center to be constructed within a short distance of the

demised premises. Negotiations between BVT and Wal-Mart failed, and BVT

filed suit October 6, 1994 in anticipatory breach of contract.

On May 24, 1995, over the objections of BVT, Wal-Mart ceased

operations and vacated The Center of Lebanon premises, continuing to pay the

$272,000 annual minimum rent. Five months later it opened a "Bud's Discount

City" in the space vacated by Wal-Mart. "Bud's Discount City" is wholly owned

by Wal-Mart and had generated from two to three million dollars in gross

receipts per annum at the time of the trial of this case.

BVT asserts that Wal-Mart breached the express "use" clause of the lease

and an implied covenant of continuous occupancy. Non-jury trial in April, 1997

resulted in an August 27, 1997 judgment in favor of BVT for compensatory

damages in the amount of $2,507,674.00, together with $108,759 plus interest

for failure to include third party receipts, attorney fees, sanctions and costs. The

trial court found breach of the express "use" covenant and breach of an implied

covenant of continuous occupancy. From this judgment Wal-Mart has appealed.

BVT asserts error as to the amount of damages awarded.

I. PROCEEDINGS IN THE TRIAL COURT

This court marks with empathetic chagrin the acrimonious and heated

nature of the proceedings below. Wal-Mart complains with considerable

justification that the findings of fact and conclusions of law contained in the

August 27, 1997 order are inconsistent with findings announced by the court at

various stages of the trial and appearing in the evidentiary transcript. Because

of these inconsistencies, Wal-Mart urges in its brief that the findings of fact and

conclusions of law in the August 27, 1997 order should be disregarded by this

court. The law of Tennessee, however, is well settled to the contrary.
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Cases predating the Tennessee Rules of Civil Procedure left no room for

doubt on this point, and as this court has observed:

A judgment must be reduced to writing in order to be valid.

It is inchoate, and has no force whatever, until it has been reduced

to writing and entered on the minutes of the court, and is completely

within the power of the judge or Chancellor. A judge may modify,

reverse, or make any other change in his judgment that he may

deem proper, until it is entered on the minutes, and he may then

change, modify, vacate or amend it during that term, unless the term

continues longer than thirty days after the entry of the judgment,

and then until the end of the thirty days.

Broadway Motor Co., Inc. v. Fire Insurance Co., 12 Tenn. App. 278, 280 (1930).

This rule survived the adoption of the Tennessee Rules of Civil Procedure.

Sparkle Laundry and Cleaners, Inc. v. Kelton, 595 S.W.2d 88, 93 (Tenn. App.

1979); Evans v. Perkey, 647 S.W.2d 636, 641 (Tenn. App. 1982).

As observed by the Court of Appeals for the Western Section: "We do not

review the court's oral statements, unless incorporated in a decree, but review the

court's order and judgments for that is how a Court speaks." Shelby v. Shelby,

696 S.W.2d 360, 361 (Tenn. App. 1985).

The proposed findings of fact and conclusions of law and the order of

August 27, 1997, were prepared by the attorney for the plaintiff and adopted by

the court. Prior to the adoption of the Tennessee Rules of Civil Procedure, this

procedure was an improper action and reversible error. Nashville, Chattanooga

and St. Louis Railway Co., et al v. Price, 125 Tenn. 646, 148 S.W. 219 (Tenn.

1911).

The adoption of Rule 52 of the Tennessee Rules of Civil Procedure

modified Price and the supreme court has held: 

Although we believe Price was correctly decided, we think

the adoption of the Rules of Civil Procedure calls for modification

of its holding. We agree that the preparation of findings and

conclusions is a high judicial function. We are committed to the

requirement that the trial court's findings and conclusions be its

own. However, we are also aware that the thorough preparation of

suggested findings and conclusions by able counsel can be of great

assistance to the trial court. In an effort to strike a balance between
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these considerations, we hold that although it is improper for the

trial court to require counsel to prepare findings, it is permissible

and indeed sometimes desirable for the trial court to permit counsel

for any party to submit proposed findings and conclusions.

Findings prepared by the trial judge which represent his

independent labor are preferable, however we do not disapprove of

party-prepared findings. This is a modification of Price which we

feel is more consonant with the Rules of Civil Procedure. We wish

to point out that before adopting findings prepared by counsel, the

trial judge should carefully examine them to establish that they

accurately reflect his views and conclusions, and not those of

counsel. He should also ascertain that they adequately dispose of

all material issues, and to assure that matters not a proper part of the

determination have not been included.

Delevan-Delta Corp. v. Roberts, 611 S.W.2d 51, 52-3 (Tenn. 1981).

The order in this case prepared by counsel for the plaintiff was the subject

of extensive discussion between counsel and the court before it was entered. At

the end of this discussion counsel for the defendant attempted to have the court

enter a simple order granting judgment without findings of fact or conclusions

of law. The record reflects:

THE COURT: Now, what else, sir?

MR. AGEE: That's all on their proposed order, Your

Honor. I would tender to the Court a draft order that I would give

to the Court which --

MR. WHITE: Judge, we've never seen it.

THE COURT: All right.

MR. COMSTOCK: That's correct. But it's a very

simple order, and what it really does is [is] it allows all the findings

that the Court has made on the record to be the Court's findings, and

it allows the order to simply reflect the ultimate decisions that are

being made.

THE COURT: Let me suggest this to you: I like Mr.

White's order fine because everybody wanted the findings of the

facts and all of these other issues. That's what you wanted the

Court to do, make specific findings of fact, and that's exactly what

you sat here and asked me as relates to this order today that I

specifically make that finding of fact and all these other things.

And I've addressed that issue, and they are in there. And you have

originally requested that, and I'm going to hold you to that request.

So Mr. White's order properly reflects what's been requested by the

defendant in this matter. So for that reason, I'm more inclined to

accept Mr. White's order, to be an order, and it also reflects the

findings of fact by the Court. Now, what else?

MR. COMSTOCK: May I on my original simply put

"Wal-Mart draft," and then file that with the clerk?
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THE COURT: You certainly may. Okay. Now --

MR. COMSTOCK: Your Honor, that's all on that.

THE COURT: All right. Well, then the Court is going

to sign the order.

This court recognizesthemarkeddiscrepency between the written findings

of fact and the trial court's oral findings throughout the transcript. Although

puzzling in result, the only conclusion to be drawn from the difference is that, for

whatever reason, the court below changed its mind.

Under the foregoing rules, the findings of fact and conclusions of law

reflected by the order of August 27, 1997 are the only findings of fact and

conclusions of law of the trial court. They alone are reviewable on appeal under

Rule 13(d) of the Rules of Appellate Procedure with a presumption of

correctness unless the evidence preponderates to the contrary. Foster v. Bue, 749

S.W.2d 736 (Tenn. 1988).

The conclusions of law drawn by the trial court are reviewable de novo on

appeal without presumption of correctness. Tennessee Farmers Mutual Ins. Co.

v. Moore, 958 S.W.2d 759 (Tenn. App. 1997).

The findings of fact and conclusions of law of the trial court reflected by

the order of August 27, 1997 are:

(a) The lease at issue contains a percentage rent clause and

the intent of the parties at the time the lease was executed was that

both base rent and percentage rents would be realized during the

term of the lease; be it provided by the existing "Wal-Mart"

discount department store, another discount department store, or

any other lawful use acceptable to the landlord that would generate

the same amount of percentage rent income that was capable of

being generated by the "Wal-Mart" discount department store that

ceased to operate in the demised premises.

(b) The premiseswere expanded atWal-Mart's request and

according to Wal-Mart's plans as reflected in the 1985 Lease

Amendment. Although the 1985 Amendment extended the lease

term to twenty years, the increase in base rent alone would not have

amortized the cost of the expansion over the twenty years.

(c) The plaintiff would not have made the expenditures of

approximately $1.5 million to expand the premises except in
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contemplation of receiving a percentage of sales in addition to base

rents.

(d) Bud's is not a "discount department store" as

contemplated by the parties at the time they entered into the lease.

Therefore, Bud's does not meet the requirements of the lease. The

Court bases this conclusion in part upon Wal-Mart's own

admissions in its letters, communications and advertising both by

flyer and on the Internet.

(e) Gross sales in the demised premises increased each

year from 1981, the first year Wal-Mart, Inc. operated its "WalMart" discount department store in the premises until FYE January

31, 1995, the last full year that Wal-Mart operated its "Wal-Mart"

discount department store in the demised premises. Although the

threshold for percentage rent was increased from $6.825 million to

$18.133 million, contemporaneous with the 1985 Amendment and

expansion, gross sales again exceeded the $18.133 million

threshold within two years after the expansion in 1986. Percentage

rents were generated starting in FYE 1988 and increased every year

thereafter including FYE January 31, 1995.

(f) "Discount Department Store" is a business term used

in the retail industry which the Court has no independent

qualification to define. However, the Court finds that the parties

contemplated a definition more specific than the broad combination

of the definitions of "discount" and "department" found in

Webster's Dictionary. The Court further finds that the parties

contemplated that a "Discount Department Store" would posses[s]

the characteristics offered by plaintiff's expert, Wayne Tomlinson

and, therefore, adopts the following definition: "a large, highvolume merchandising establishment that (I) presents an accurate

image to the consumer that it is a discount department store, (ii)

sells basically the same type new high quality soft and hard goods

day in and day out, (iii) sells at a discount and at a minimal markup,

and (iv) is open to the public seven days a week (usually 9 a.m. to

9 p.m. six days and Noon to 5 p.m. on Sundays." Large would

mean approximately 10,000 square feet and larger and high volume,

would mean annual sales greater than 5 times its inventory value.

(Typically between 150-400/Square foot using 1995 published

data). It is a store that carries the same type quality new goods from

week to week and is open typically seven days a week, in some

instances twenty four hours a day.

(g) Except for the square footage, the Bud's at Lebanon

does not meet any of the criteria of a "discount department store" as

contemplated by the parties.

(h) No retail sales were conducted from the premises for

a period of four months when the "Wal-Mart" discount department
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store ceased operations until the "Bud's" operation began.

(i) Defendants have provided plaintiff with multiple and

conflicting reports of gross sales, some years including third-party

drug sales and some years excluding third-party drug sales.

(j) It was necessary for the plaintiff/lessor to employ

counsel and otherwise incur expenses in connection with

defendantsanticipatory breach and subsequent actionsregardingthe

demised premises and the subject lease.

 2. The Court makes the following conclusions of law:

(a) This is a contract construction case and the Court has

to determine the intent of the parties at the time the contract was

entered into from the entire contract and construe the contract such

that its terms are in harmony with each other.

(b) The Bud's operating in the demised premises is not a

"discount department store" as required under the subject lease,

and, therefore, the defendants have breached the "use" clause of the

subject lease.

(c) There is an implied covenant by the defendants to

continuously operate either a discount department store, as

contemplated by the parties in 1985 and as previously described in

this order, or any other lawful business that would make reasonable

commercial sense for the plaintiff to accept. The Court further

finds that the defendants have breached this covenant and that it

would be reasonable for the landlord to withhold consent for the

operation of a Bud's as a replacement tenant. 

(d) The defendants have improperly withheld percentage

rent attributable to third-party sales conducted within the demised

premises. Furthermore, defendants failed to disclose to plaintiff

that they changed their position relative to these third-party sales at

some time after the 85 amendment.

(e) Defendantshave admitted, pursuant to Kandy Beaver's

affidavit and deposition that they have erroneously deducted certain

items in addition to third-party gross sales from gross receipts when

reporting and paying percentage rents.

(f) The plaintiff has been damaged as a result of the

defendants' breaches of the lease.

(g) Per the lease and pursuant to the Court's inherent

authority, given the circumstances of this case regarding the

withholding of accurate gross receipt information by defendants,

the plaintiff is entitled to audit the defendants' records to determine

the amount of gross receipts from the demised premises; including
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third-party drug sales and otherwise, to ascertain the amount of

percentage rent that should have been paid plaintiff from 1985 to

present.

(h) Pursuant to the lease, Plaintiff is entitled to attorneys'

fees and expenses.

Based upon the foregoing findings of fact and conclusions of law the trial

court entered a compensatory damage award in the amount of $2,507,674.00,

representing the present value of lost future percentage rents for the duration of

the lease.

The August 27, 1997 order further provided:

5. By previous Order, this Court granted the plaintiff's

motion for partial summary judgment on the issue of the defendants'

failure to include gross receipts (and to pay the plaintiff their

respective part of these gross receipts) of third-party tenants, and,

based upon statements of counsel for both parties, a review of the

file, and the testimony before this Court, this Court grants an award

of $108,759.00 plus interest at 10 percent through 1/31/97, for a

total of $144,689.75 plus $39.64 per diem for every day thereafter

until paid. This award is primarily based upon the Court's

acceptance of the testimony of Sam Boles, the witness for the

plaintiff with respect to the calculation of these monies and the

interest on these monies from January 1 of each of the years

referenced in trial Exhibit B, which is attached to this Order and

incorporated herein by reference. The Court further awards

attorneys' fees in the amount of $10,125.00 (67.5 hours at $150/hr.)

plus expenses in the amount of $828.75, for a total of $10,953.75.

By supplemental order entered September 9, 1997 plaintiff was awarded

attorneys' fees in the amount of $170,042.61 for the period through June 30,

1997 and sanctions against defendant Wal-Mart in the amount of $6,240.00,

representing fees due to auditors for work done in Bentonville, Arkansas.

II. ISSUES ON APPEAL

The first issue on appeal asserted by Wal-Mart is its proposition number

one that "Wal-Mart's act of ceasing its 'Wal-Mart Discount Store' operation, and

commencing its 'Bud's Discount City' operation is not a breach of any express or

implied term of the contract."

This issue comprises the heart of this case. The trial court has held: 1)
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'Bud's Discount City' is not a 'discount department store' within the meaning of

the 'use' clause of the lease agreement and, 2) Wal-Mart breached an implied

covenant of continuous occupancy under the lease.

Generally the law recognizes two distinct types of implied contracts:

contracts implied in fact and contracts implied in law, commonly referred to as

quasi contracts. Paschall's, Inc. v. Dozier, 407 S.W.2d 150, 153 (Tenn. 1966).

The differences between contracts implied in fact and contracts implied

in law was delineated by the court of appeals in the context of a phosphate

mineral lease in Weatherly v. American Agricultural Chemical Co., 65 S.W.2d

592 (Tenn. App. 1933). The court observed:

In none of these provisions was the defendant expressly

obligated to mine and remove from the complainants' premises all

of the specified mineral within the term of twenty years. Contracts

implied in fact arise under circumstances which, according to the

ordinary course of dealing and the common understanding of men,

show a mutual intention to contract. Such an agreement may result

as a legal inference from the facts and circumstances of the case.

6 R. C. L. 587; 13 C. J. 241. "Contracts implied in law, or more

properly quasi or constructive contracts, are a class of obligations

which are imposed or created by law without the assent of the party

bound, on the ground that they are dictated by reason and justice

and which are allowed to be enforced by an action ex contractu."

13 C. J. 244. With these definitions in mind, we must determine

whether or not such an agreement as is insisted upon was implied.

The doctrine of duty upon the lessee of minerals to develop

the leased premises to the mutual profit of himself and the lessor by

exercising reasonable diligence has been applied in many cases

upon the theory of implied contract and upon principles of equity

and justice; but the court can declare implied covenants to exist

only when there is a satisfactory basis in the express contract of the

parties which makes it necessary to imply certain duties and

obligations in order to effect the purposes of the parties to the

contract made. And before a covenant will be implied in the

express terms of a contract, or in view of the customs and practices

of the business to which the contract relates, it must appear

therefrom that it was so clearly in the contemplation of the parties

that they deemed it unnecessary to express it, or that it is necessary

to imply such covenant in order to give effect to the purpose of the

contract as a whole.

Weatherly v. American Agricultural Chemical Co., 65 S.W.2d 592, 598 (Tenn.
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App. 1933).

These general rules provide the parameters within which the question of

the existence or nonexistence of an implied covenant of continuous occupancy

must be determined. 

It is well to observe at the outset that although the lease documents in issue

did contain "use" clauses, none contained express covenants of continued

occupancy. Nor is the lessor attempting a right of re-entry pursuant to the use

clause as such right is incorporated into the 1968 lease and both the 1981 and

1985 amendments. Since Wal-Mart is continuing to pay the $272,000.00 per

annum "minimum rent" set by the 1985 amendment, it matters little whether

"Bud's Discount City" is an operation in violation of the "use" clause of the lease

in the absence of an implied covenant of continuous occupancy. By the express

terms of the lease as amended, there is no prohibition against Wal-Mart vacating

the premises in its entirety, thus producing no gross receipts at all. Wal-Mart

would, of course, be obligated under the terms of the 1985 amendment to

continue paying the $272,000.00 per year rental through the end of the term of

the lease in 2005. The case thus turns on whether or not there is an implied

covenant of continuous occupancy as found by the trial court and whether or not

"Bud's Discount City" qualifies as a tenant under such an implied covenant.

This inquiry begins with Kroger v. Chemical Securities Co., 526 S.W.2d

468 (Tenn. 1975).

In Kroger, the Tennessee Supreme Court correctly noted the general

disfavor accorded to such implied covenants, saying: 

. . . such implied covenants must arise from the terms of the lease

itself.

One clause which might, arguably, support such covenants is

the percentage rental clause. However the Court of Appeals did not

rely on this provision in reaching its conclusion, and considering

the substantial sum set as the base rental and the small and

speculative nature of the override, we likewise do not find that

clause determinative.
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Kroger Co. v. Chemical Securities Co., 526 S.W.2d 468, 471-72 (Tenn. 1975).

First and foremost among circumstances supporting the implied covenant is a

percentage rental clause such as exists in the case at bar. The Kroger court

recognized but distinguished Slidell Investment Co., Inc. v. City Product Corp.,

202 S.2d 323 (La. App. 1967) involving a substantial percentage override of the

"minimum rent" under the lease.

We begin this discussion by stating that: ". . . The decision whether to

imply a covenant of continuous operation must be evaluated at the time the

parties signed the agreement." Nalle v. Taco Bell Corp., 914 S.W.2d 685, 688

(Tex. App. 1996). The critical time is June of 1985 when the parties executed

the "third amendment to lease".

In this 1985 amendment,

(1) BVT agreed at the request of the Wal-Mart to expand the Wal-Mart

premises from 50,000 to 84,000 square feet. This was accomplished at a cost to

the BVT of approximately $1,500,000.00.

(2) The Wal-Mart agreed to operate a "discount department store" on

the premises.

(3) The term of the lease was extended for an additional nine years to

expire January 31, 2005.

(4) The "fixed annual minimum rent" was increased from $136,000.00

to $272,000.00.

(5) The percentage rent was set at one and one-half percent of gross

receipts in excess of $18,133,333.00 to and including $20,000,000.00 in gross

receipts and thereafter one percent of gross receipts in excess of $20,000,000.00.

The Court of Appeals of Idaho stated in synopsis the rules applicable to

lease provisions similar to the one agreed to by BVT and Wal-Mart.

[5] The major prerequisite for a finding of an implied

covenant in a percentage rental agreement is that the stipulated

minimum rental must not be substantial consideration. See Archer

v. Mountain Fuel Supply Co., supra, 102 Idaho at --- - ---, 642 P.2d

943; Professional Building of Eureka v. Anita Frocks, Inc., 178

Cal.App.2d 276, 2 Cal.Rptr. 914 (1960); Lippman v. Sears Roebuck

& Co., 44 Cal.2d 136, 280 P.2d 775 (1955); Masciotra v. Harlow,
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105 Cal.App.3d 376, 233 P.2d 586 (1951); Kroger v. Bonny Corp.,

supra; Stop & Shop, Inc. v. Ganem, 347 Mass. 697, 200 N.E.2d 248

(1964); PBJ Company, Inc. v. Ben Duthler, Inc., 89 Mich.App. 767,

282 N.W.2d 216 (1979); Bobenal Investment Inc. v. Giant Super

Markets, Inc., 79 Mich.App. 31, 260 N.W.2d 915 (1977);

Crestwood Plaza, Inc. v. Kroger Co., 520 S.W.2d 93

(Mo.App.1974); Kretch v. Stark, 193 N.E.2d 307 (Ohio

Com.Pl.1962);Brown v. Safeway, supra. Parol evidence is properly

admitted to determine whether minimum rentals are substantial.

Werry v. Phillips Petroleum Co., 97 Idaho 130, 135, 540 P.2d 792,

797 (1975); Anita Frocks, Inc., 178 Ca.App.2d at 278-79, 2

Cal.Rptr. at 916; Lippman, 280 P.2d at 780- 81; PBJ Company, 282

N.W.2d at 218. The burden of showing a disparity between the

fixed minimum rent and fair rental value sufficient to furnish

grounds for implying a covenant is on the lessor. Stop & Shop Inc.,

200 N.E.2d at 252.

Bastian v. Albertson's, Inc., 643 P.2d 1079, 1082-1083 (Idaho 1982).

We must first determine whether or not the $272,000.00 per year is

"substantial consideration."

At the time of the June, 1985 amendment to the lease, all parties were

aware of the prior history of percentage rental experience under the lease.

Fiscal Year Adjusted Sales Base Percent Amount Paid

 1981

 1982 2,047,072.56 1,361,110.0

0

2.50% 17,149.06

 1983 4,931,115.09 6,825,000.0

0

2.00%

 1984 7,539,155.97 6,825,000.0

0

2.00% 14,283.12

 1985 8,981,538.49 6,825,000.0

0

2.00% 43,130.77

Thus is reflected the continued growth of Wal-Mart sales and

corresponding percentage rent payments to the lessor prior to the June, 1985

amendment to the lease. Percentage rentals during this period increased from

$17,149.06 in 1982 to $43,130.77 in 1985. Gross sales increased four fold from

1982 through 1985.
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The 1985 amendment to the lease which increased the base rental from

$136,000.00 to $272,000.00 corresponded with the increased base sales that

would be required before any percentage rent would be paid to the lessor after

the expansion.

From 1986 to 1990, Wal-Mart's adjusted gross sales did not exceed the

amount required to trigger percentage rent. However, the minimum amount was

triggered by the adjusted gross sales in 1990. The 1990 through 1995 experience

shows:

Fiscal Year Adjusted Sales Base Percent Amount Paid

 1990 19,485,627.52 18,133,333.00 1.50% 20,284.41

1990 Total 20,284.41

 1991 20,524,449.94 18,133,333.00 1.50% 28,000.00

 1991 20,000,000.00 1.00% 5,244.49

1991 Total 33,244.49

 1992 22,409,535.46 18,133,333.00 1.50% 28,000.00

 1992 20,000,000.00 1.00% 24,095.36

1992 Total 52,095.36

 1993 25,376,102.00 18,133,333.00 1.50% 28,000.00

 1993 20,000,000.00 1.00% 53,761.02

1993 Total 81,761.02

 1994 26,298,243.00 18,133,333.00 1.50% 28,000.00

 1994 20,000,000.00 1.00% 62,982.43

1994 Total 90,982.43

 1995 29,551,354.91 18,133,333.00 1.50% 28,000.00

 1995 20,000,000.00 1.00% 95,513.55

1995 Total 123,513.55

The term "fixed annual minimum rent" used in the 1985 amendment to

describe the $272,000.00 per annum base rental has no fixed legal meaning. As

the Supreme Court of California has held:

The term "minimum monthly payments" has no fixed legal

significance; its meaning can be ascertained only by reference to the

circumstances in which the lease was executed. Extrinsic evidence,

therefore, was properly admitted to show those circumstances.

Sears maintains that the evidence does not support the finding that

$285 per month "was intended to be and was, in fact, a nominal

rental and was not a substantial or adequate minimum rental."
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Ordinarily, when used in connection with monetary obligations, the

word "nominal" denotes "a trifling sum" (Black's Law Dic. 4th Ed.

1951, p. 469), and Sears is correct in the contention that more than

that amount was required by the lease. But a finding that, within

the contemplation of the parties, $285 per month was not a

substantial and adequate minimum rent to be paid in lieu of a

percentage of the sales is a sufficient basis for a determination that

Sears impliedly covenanted to use the demised premises for the sale

of merchandise during the entire term of the lease. It was not

necessary that the trial court go farther, and the characterization of

the minimum rent as nominal is superfluous.

Lippman v. Sears Roebuck & Co., 280 P.2d 775, 780-781 (Cal. 1955).

The "substantial-insubstantial" question is tied closely to market value in

the law governing implied covenants of continuous occupancy.

The plaintiff contends that notwithstanding the interest of the

lessors in having the premises operated so as to give it the benefit

of possible percentage rent, the absence of an express requirement

to operate together with a more than nominal minimum rent exclude

the implication of a covenant to continue operations.

This may state too broad a rule. For even if there is a more

than nominal minimum rent, other circumstances such as that the

fixed rent is significantly below the fair rental value of the property

might justify the conclusion that the parties intended that the lessors

have the benefit of the percentage rent throughout the term. 

Stop & Shop, Inc. v. Ganem, 200 N.E.2d 248, 251 (Mass. 1964). 

The evidence in this case indicates that the $272,000.00 per annum

minimum rent was well below the fair market rental in Lebanon and the

surrounding areas at the time the parties agreed to the 1985 amendment.

Converted to square foot rental the base rent paid by Wal-Mart in this case was

$3.40 per square foot. The proof showed that the market value in Lebanon and

the surrounding areas ranged from $4.59 to $5.40 per square foot. The record

further shows that the $136,000.00 per annum increase in the base rent standing

alone would be insufficient to amortize the $1,500,000.00 cost of expansion of

the Wal-Mart leased property which expansion was accomplished at the request

of Wal-Mart and paid for by BVT.

In First American Bank & Trust Co. v. Safeway Stores, Inc., 729 P.2d 938
-16-

(Ariz. App. 1986), the trial court made the following pertinent findings of fact:

 The trial court found that the four gentlemen who negotiated the

lease on behalf of Betz were experienced shopping center

developers. It also made the following pertinent findings of fact:

16. The base rent of $1.46 per square foot per year

was not in itself a fair, adequate, or market rent when

the lease was made.

17. Defendant has continued to pay the base rent,

which amounts to $2,500 per month, but has generated

and paid no percentage rents for the period from

December 24, 1983, to date.

* * *

19. A covenant of continuous operation arises

from and is implied by the language and the provisions

of the lease, particularly the clauses providing for

percentage rent, requiring the landlord to build to suit

as a grocery store (paragraph 5), and restricting

competition in the shopping center (paragraph 14) and

on adjacent property (paragraph 29) and it appears

from the language of the lease that Defendant's

continuous operation was so clearly within the

contemplation of the parties that they deemed it

unnecessary to express it.

20. The subject of continuous operation was never

discussed between the parties and is not completely

covered by the lease. A covenant of continuous

operation would have been made or required by the

landlord if attention had been called to it. . . .

729 P.2d 938, 940.

The Safeway court, adopting the same factors to be considered on the

question of implied covenants of continuous operations relied upon by Lippman

v. Sears Roebuck Co., 280 P.2d 775, 779 (Cal. 1955), stated the following:

(1) the implication must arise from the language used ...; (2) it must

appear from the language used that it was so clearly within the

contemplation of the parties that they deemed it unnecessary to

express it; (3) implied covenants can only be justified on the

grounds of legal necessity; (4) a promise can be implied only where

it can be rightfully assumed that it would have been made if

attention had been called to it; (5) there can be no implied covenant

where the subject is completely covered by the contract.
-17-

Safeway, 729 P.2d 938, 940 (Ariz. App. 1986).

With these factors in mind the Safeway court concluded:

Safeway contends that the testimony of Betz' expert appraisal

witness does not support the trial court's conclusion that the base

rent was inadequate and that the provision of the lease allowing

Safeway to assign the lease precludes the trial court from finding

the existence of an implied covenant of continuous operation. We

do not agree. The expert witness unequivocally testified that the

base rent was not equal to the fair rental value of the premises

leased to Safeway. He testified that the percentage clause of the

lease had to be considered in calculating the fair rental value of the

property and, absent the percentage provisions, the monthly

minimum rental was not sufficient to satisfy the obligations that the

landlord would incur in financing the construction and development

of the property.

 The court found that there was no incongruity between

paragraph 13 of the lease, which allowed Safeway to sublet and

assign the lease, and an implied covenant of continuous operation.

Safeway argues that an implied covenant of continuous operation

is repugnant to the provision of the lease allowing it to assign the

entire lease. On that issue, we agree with the conclusion of law

made by the trial court:

 The presence of a right to assign or sublet is not

necessarily inconsistent with an implied covenant of

continuous operation. The two covenants can be

harmonized to permit subletting or assignment to a

business of the same character.

Safeway, 729 P.2d 938, 940-41 (Ariz. App. 1986).

The "risk sharing factor" inherent in a percentage rental lease is a part of

the consideration mutually agreed to between the parties:

The issue of whether there is an implied covenant of

continued operation arises because the lease did not fix the rent, but

guaranteed a minimum payment plus a percentage based upon the

gasoline delivered. In having a percentage lease, the parties

contemplated a lengthy association (20 years) during which rents

would periodically be established by the market place.

A percentage lease provides a lessor with a hedge against

inflation and automatically adjusts the rents if the location becomes

more valuable. (Resolving Disputes Under Percentage Leases

(1967) 51 Minn.L.R. 1139, 1139; see also Powell on Real Property
-18-

(1986) vol. 2, § 242[1], pp. 372.15-372.20.) It is advantageous to

the lessee if the "location proves undesirable or his enterprise

proves unsuccessful." (Id.) Thus, both parties share in the inherent

business risk. (51 Minn.L.R., supra, at p. 1150, fn. 62.) Inherent

within all percentage leases is the fundamental idea that the

business must continually operate if it is to be successful. To make

a commercial lease mutually profitable when the rent is a minimum

plus a percentage, or is based totally on a percentage, a covenant to

operate in good faith will be implied into the contract if the

minimum rent is not substantial. (Lippman v. Sears, Roebuck & Co.

(1955) 44 Cal.2d 136, 280 P.2d 775.)

In interpreting contracts, "[t]he whole of a contract is to be

taken together, so as to give effect to every part . . . each clause

helping to interpret the other." (Civ.Code, § 1641.) Further,

contracts are to be interpreted so as to make them reasonable

without violating the intention of the parties. (Civ.Code, § 1643.)

To effectuate the intent of the parties, implied covenants will be

found if after examining the contract as a whole it is so obvious that

the parties had no reason to state the covenant, the implication

arises from the language of the agreement, and there is a legal

necessity. (Lippman, supra, 44 Cal.2d at p. 142, 280 P.2d 775.) A

covenant of continued operation can be implied into commercial

leases containing percentage rental provisions in order for the lessor

to receive that for which the lessor bargained. 

College Block v. Atlantic Richfield Co., 254 Cal.Rptr. 179, 182 (Cal. App. 2d

1988).

Of similar import though in the context of summary judgment is Leeds v.

Alpha Beta Co., 75 Cal.Rptr.2d 162 (Cal. 1998) wherein the court holds:

The lease required the property owner to build a supermarket

pursuant to Alpha Beta's design. The parties agreed to a long term

lease during which the rent was primarily based on a percentage of

sales. Moreover, as the anchor tenant, Alpha Beta's continued

business operation was important in ways other than its increased

rental payments. Abandonment of the premises could certainly be

found to deny the landlord the benefit of its bargain. 

75 Cal.Rptr.2d 162, 164 (Cal. 1998).

The United States District Court for the Eastern District of Kentucky in

Lagrew, et al v. Hooks-SupeRx, Inc., further refined the Bastian factors:

To determine whether to imply a covenant of continuous

operation, the courts look to the terms of the lease and the

surrounding circumstances. Generally, the courts take several
-19-

factors into account: (1) whether base rent is below market value,

(2) whether percentage payments are substantial in relation to base

rent, (3) whether the term of the lease is lengthy, (4) whether the

tenant may sublet, (5) whether the tenant has rights to fixtures, and

(6) whether the lease contains a noncompetitive provision. 

Lagrew, et al v. Hooks SupeRx, Inc., 905 F.Supp. 401, 405 (E.D. Ky. 1995).

These factors were recently applied by the Appellate Court of Connecticut

in Pequot Spring Water Co. v. Brunelle, et al, 698 A.2d 920 (Conn. App. Ct.

1997)in declaringthe existence of an implied covenant of continuous operations.

The Supreme Court of Connecticut granted an application to appeal in the

Brunelle case on September 30, 1997 (701 A.2d 658), but the case was settled

before argument in March, 1998 and the appeal withdrawn. 

The first three factors of Lagrew are well established in this case as the

base rent is below market value, the percentage payments are substantial in

relation to the base rent, and the term of the lease is lengthy.

The fourth Lagrew factor is "whether the tenant may sublet". Wal-Mart

may do so but under an even more restrictive basis than is set forth in Lagrew.

Paragraph 1(c) of the 1985 amendment to the lease must be read in conjunction

with the "assign or subletting" provisions on page six of the original Big K lease

since such previous provision was incorporated by reference in the 1985

amendment.

Paragraph 1(c) of the 1985 amendment provides:

It is understood and agreed that the Demised Premises being leased

shall be used by lessee in the operation of a discount department

store, but Lessor agrees that the Demised Premises may be used for

any lawful purpose, except for any purpose which is in conflict or

competition with the Cowan's lease (apparel) and except for a

grocery store or supermarket; any use by Lessee other than as a

discount department store shall require the prior written approval

of Lessor, which approval shall not be unreasonably withheld

except in the case of prohibited uses aforesaid.

The assign or subletting provision of the original Big K lease provides:

The Lessee covenants not to assign, mortgage or encumber this
-20-

agreement or sublet or use or permit the demised premises, or any

part thereof, to be used by others without the prior written consent

of the Lessor, which consent shall not be unreasonably withheld.

However,Lessor expresslyagrees that Lessee may, without Lessor's

consent, sublease or assign this lease to an affiliate or subsidiary.

There has been no consent at all by BVT and thus the right to sublease

without consent to an affiliate or subsidiary as provided in the "assign or

subletting" provision of the original lease is restricted by the section 1(c)

provision of the 1985 amendment prohibiting use other than as "a discount

department store".

Given these circumstances, the discussion in Lagrew is particularly

pertinent:

Fourth, while the limited sublease provision theoretically

supports SupeRx's contention that the lease does not contemplate

continuous operation by the lessee, the sublease term is so narrowly

tailored that it implies that some suitable replacement business

would occupy the leased space if not SupeRx. Thus, a more precise

statement of the implied covenant is that the lessee, or some

suitable sublessee, will continuously operate on the premises.

Defendants attempt to persuade the Court that their right to

sublease was not narrowly tailored and that the landlord's

willingness to include this provision negates a finding of an implied

covenant. SupeRx was prohibited from subleasing to a food store,

department store, variety store, skating rink, beer tavern, liquor

store, discount store, or any other business which would conflict

with the exclusive rights granted by the landlord in leases to other

tenants. "The presence of a right to assign or sublet is not

necessarily inconsistent with an implied covenant of continuous

operation. The two covenants can be harmonized to permit

subletting or assignment to a business of the same character." First

American Bank & Trust Co., 729 P.2d at 941. Obviously, the

plaintiffs' predecessors intended for a SupeRx, or another fitting

business, to occupy these premises.

Lagrew, et al v. Hooks-SupeRx, Inc., 905 F.Supp. 401, 406-07 (E.D. Ky. 1995).

The trial court held that the 1985 amendment to the lease contained an

implied covenant of continuous occupancy, and the preponderance of the

evidence supports this conclusion.
-21-

Since this court affirms the finding that an implied covenant of continuous

occupancy exists, the next question is whether or not "Bud's Discount City" is

a "discount department store" within the contemplation of the parties at the time

of the execution of the 1985 amendment to the lease. The trial court found as a

fact that "Bud's" was not and the evidence does not preponderate against such

finding. The "discount department store" contemplated by the parties in 1985

was the discount department store that since 1982 had more than quadrupled its

gross receipts from $2,047,072.56 to $8,981,538.49. It was the "discount

department store" that had increased percentage rentals to the landlord from

$17,149.06 in 1982 to $43,130.77 in 1985. It was the "discount department

store" that the parties, based on experience, had every right to believe would

continue to grow and thereby benefit both BVT and Wal-Mart. True to its

history after the 1985 amendment authorizing expansion, Wal-Mart increased its

gross receipts to $29,551,354.91 and increased percentage rent to $123,513.55.

The "discount department store" known as "Bud's Discount City", the

wholly owned subsidiary of Wal-Mart occupying the premises subsequent to

1995 has gross revenues of approximately $3,000,000.00 per annum.

"Bud's" did not exist in 1985 and is best characterized by the witness Tom

Seay who was the author of the "Bud's" concept. He testified:

THE COURT: When were they first created?

THE WITNESS: Oh, gosh, I don't know the exact year. But

I would say it had to be --

THE COURT: Early '90s?

THE WITNESS: Early '90s, yes, sir.

THE COURT: Okay. For what purpose were they created?

THE WITNESS: Well, actually, they were my idea.

THE COURT: And I've got a pretty good idea of why you

did it, but go ahead and tell me why.

THE WITNESS: Well, what happened was, I approached

David Glass, who is our president, and I told him that I thought we

had an opportunity in some of the buildings that were vacant for us

to put in another operation so we could make more money.

I said, [s]ome of these markets are so good that we could put

in another operation, similar to the Wal-Mart, and I said, I think we

could make a lot of money doing that. And so what we did was, we

looked at all of our vacantstores and said, Okay, on a market-bymarket basis, do we think we could make money? And the ones

that we thought we could, we opened up the Bud's Discount Stores
1An obvious side effect of this arrangement is that Wal-Mart retains 84,000 square feet

in Lebanon Shopping Center at a fixed annual rental somewhere between 63% and 74% of the

square foot market value of the space in 1985 for a period extending through the year 2005.

It also has a cushion of over $15,000,000 per annum gross receipts before "Bud's" would ever

reach the $18,133,333 percentage rental threshold.

-22-

in. It was strictly to make money.

THE COURT: I understand. Okay. But you didn't create a

competitor for yourself. You didn't do that? That wasn't done?

THE WITNESS: No, sir. But what we saw is, we saw a

market opportunity.

THE COURT: Oh, I realize -- I understand that. But if

there's a market opportunity there for a Wal-Mart, then it looks like

to me it makes sense to put a Wal-Mart store there as opposed to

something entirely different, you know.

THE WITNESS: But we already -- we would have a WalMart.

THE COURT: You have a Wal-Mart --

THE WITNESS: This is in addition to the Wal-Mart.

THE COURT: Well, I understand that. But you've also got

many Wal-Mart stores around in different cities, do you not?

You've got more than one in a lot of different cities, do you not?

THE WITNESS: Yeah. But not in a town like Lebanon,

Tennessee.

THE COURT: Well, I realize that. I understand that. But

you did not create Bud's -- well, I guess I need to ask you. Did you

create Bud's to be a competitor of Wal-Mart in a small town? That's

really what you're talking about.

THE WITNESS: What we did was, we created Bud's to put

in these stores because, number one, they were good locations;

number two, the market would justify an additional discount store

in the market; number three, we thought if we could put Bud's in

and be successful, then maybe we would eliminate another

competitor from coming in and picking up the void in the market;

and, number four, we thought we would make money.1

A 1999 Lincoln Town Car is an automobile. A 1925 Model T Ford is an

automobile. They are not the same. The question whether "Bud's Discount City"

is called a "warehouse" or a "discount department store" does not matter. Bud's

clearly is not what was contemplated as a "discount department store" by the

parties in 1985 and thus not the type of store contemplated by the 1985 implied

covenant of continuous occupancy. The assignment by Wal-Mart to Bud's was

not an ". . . assignment to a business of the same character". First American

Bank & Trust Co. v. Safeway Stores, Inc., 729 P.2d 938, 941 (Ariz. App. 1986).

Wal-Marthas breached the implied covenant of continuous occupancy and
-23-

is liable to the landlord for resulting damages. 

III. MEASURE OF DAMAGES FOR BREACH OF AN IMPLIED 

COVENANT OF CONTINUOUS OCCUPANCY

"The measure of damages for breach of any contract is that which was

reasonably contemplated by the parties. The general principle for assessment of

damages for breach of contract is that the plaintiff is entitled to be placed, so far

as can be done by money, in the same position he would have been in if the

contract had been performed." Hawkins v. Reynolds, 62 Tenn. App. 686, 697,

467 S.W.2d 791, 795 (1971); see also Chambliss, Bahner & Crawford v. Luther,

531 S.W.2d 108 (Tenn. App. 1975); Wilhite v. Brownsville Concrete Co., 798

S.W.2d 772 (Tenn. App. 1990) and Action Ads, Inc. v. William B. Tanner Co.,

592 S.W.2d 572 (Tenn. App. 1979).

This is in keeping with the "expectation interest" or "benefit of the

bargain" rule generally applicable in sister jurisdictions. See 22 AmJur2d

"Damages", section 45, p. 68.

This court has held: ". . . that our Tennessee decisions are firmly

committed to the policy of granting the victim of a breached lease all of the

damages which he sustained as a proximate result of the breach, so long as such

damages are reasonably shown and capable of reasonably accurate

ascertainment." Ferrell v. Elrod, 63 Tenn. App. 129, 153, 469 S.W.2d 678, 689

(1971).

We now address the issue of damages when an anchor tenant in a shopping

center breaches a covenant of continuous occupancy express or implied. In the

last decade, appellate courts of Nevada, Indiana, and North Carolina, as well as

the 10th Circuit of the United States Court of Appeals, applying Oklahoma law,

have addressed the issue.

The lineage of the difference-in-value measure begins with what a cynic

might call the "Snake-bit Hornwood Trilogy" from Nevada. Hornwood v.

Smith's Food King No. 1, was first decided by the Supreme Court of Nevada on
-24-

April 25, 1989. In this opinion, reported in 772 P.2d at 1284, the Supreme Court

of Nevada held the proper measure of damages for breaching the covenant of

continuous occupancy to be the difference between the value of the shopping

center with anchor tenant and the value without the anchor tenant. The case was

re-tried in the district court and appealed. On March 6, 1991, the Nevada

Supreme Court held that the trial court had failed to properly assess the

Hornwood's damages for the diminished value of the shopping center.

Hornwood v. Smith's Food King No. 1, 807 P.2d 208 (Nev.1991). In the

meantime, the incumbent trial judge lost his bid for re-election and the case came

on for a third trial before his successor. On this third trial, the successor judge

did not hold an evidentiary hearing but simply adopted the plaintiff's proof as to

damages and entered judgment for $1,425,000.00. On appeal, the Supreme

Court of Nevada on August 28, 1992 reversed and remanded for a third time.

Hornwood, 836 P.2d 1241 (Nev. 1992). In each of the Hornwood decisions, the

Nevada Supreme Court reaffirmed its measure of damages set forth in the first

decision in 772 P.2d 1284.

In holding that the diminution in value of the entire shopping center was

the proper measure of damages, the Nevada Supreme Court stated:

Smith's is a sophisticated business entity. Smith's knew that

its presence as the anchor tenant had a critical impact on the

shopping center's success. Without an anchor tenant, obtaining

long-term financing and attracting satellite tenants is nearly

impossible for a shopping center. Perhaps most importantly, the

anchor tenant insures the financial viability of the center by

providing the necessary volume of customer traffic to the shopping

center. Therefore, we find that the district court clearly erred in

concluding, as a matter of law, that the diminution in value of the

Hornwoods' shopping center was unforeseeable. Conner, 103 Nev.

at 356, 741 P.2d at 801. Accordingly, we reverse that portion of the

district court's ruling and remand to the district court for an

assessment of the Hornwoods' damages as a consequence of the loss

of their anchor tenant. 

Hornwood v. Smith's Food King No. 1, 772 P.2d 1284, 1286 (Nev. 1989).

In Pleasant Valley Promenade v. Lechmere Inc., 464 S.E.2d 47 (N.C.App.

1995), the North Carolina Court of Appeals, in reversing judgment non obstante

veredicto following an $8,000,000 verdict for the plaintiff, determined this
-25-

question of first impression with reliance on Hornwood. Said the court:

In the context of a breach of contract between the anchor

store and the shopping center in which it resides, we recognize

there are often extensive damages. See Hornwood v. Smith's Food

King No. 1, 107 Nev. 80, 807 P.2d 208 (1991); Tyson, Drafting,

Interpreting, and Enforcing Commercial and Shopping Center

Leases, 14 CAMPBELL L.REV. 275 (1992). These damages result

because the shopping center is a "cooperative enterprise, with each

store's success dependent on the continued operation of the other

stores . . . ." Dover Shopping Center, Inc. v. Cushman's Sons, Inc.,

63 N.J.Super. 384, 164 A.2d 785, 790 (Ct.App.Div.1960). The

contribution of each store determines the flow of business of the

entire shopping center, and likewise, a store leaving affects the

center as a whole. See W & G Seaford Associates, L.P. v. Eastern

Shore Markets, Inc., 714 F.Supp. 1336, 1348 (D.Del.1989).

Though a shopping center is 'cooperative" in nature, the anchor

store is the focal point of the entire shopping center. Tyson, 14

CAMPBELL L.REV. 301-303. The function of the anchor is "to

provide certainty of income stream, an identity and stability for the

center which, in turn, draws customers, attracts other tenants and

increases overall sales." Id. at 303. Further, without an anchor

store long-term financing is virtually impossible to obtain.

Hornwood v. Smith's Food King No. 1, 105 Nev. 188, 772 P.2d

1284, 1286 (1989). Therefore, the anchor's loss has been described

as "worse than a flood, fire or tornado, because usually there is

insurance to cover [natural] disasters." Tyson, 14 CAMPVELL L.REV.

at 303.

Pleasant Valley installed Lechmere as the Center's anchor

store based on Lechmere's product mix, value offered, aggressive

advertising method, and regional drawing power. Lechmere, in

breach of the Agreement, abandoned the Center. As a result of

Lechmere's abandonment, Pleasant Valley claimed damages arising

from: (1) harm to the overall probability of success of the Center;

(2) harm to the fair market value of the Center; and (3) harm to the

Center's ability to attract and retain non-anchor tenants and a

corresponding reduction in customer traffic and the attendant

decrease in sales revenue.

Therefore, consistent with the guidance of our Supreme

Court, we believe a damages remedy should be available to Pleasant

Valley which promotes the frequently declared objective of placing

"the injured part[y] in as good a position as they would have been

in if the contract had not been breached . . . ." Knapp, COMMERCIAL

DAMAGES: A GUIDE TO REMEDIES IN BUSINESS LITIGATION, § 1.02

(Matthew Bender 1995). Accordingly, we conclude the damages

measure asserted by Pleasant Valley, diminution in market value,

is recoverable in a breach of contract action.

Pleasant Valley Promenade v. Lechmere Inc., 464 S.E.2d 47, 61-62 (N.C. App.
-26-

1995). An appeal of Lechmere was granted by the Supreme Court of North

Carolina (472 S.E.2d 18), but on December 10, 1996 before argument in the

supreme court the case was settled and the appeal withdrawn. Pleasant Valley

Promenade v. Lechmere Inc., 345 N.C. 346, 484 S.W.2d 92 (N.C. 1996).

Almost simultaneously with Lechmere, the Court of Appeals of Indiana

decided Scott-Reitz Ltd. v. Rein Warsaw Associates, 658 N.E.2d 98 (Ind. 1995).

Again, relying on Hornwood, the Indiana Court of Appeals established a

diminution of value approach involving the entire shopping center. This was

done in part by an income capitalization approach similar to the plaintiff's proof

in the case at bar. In adopting the diminution of market value approach to

damages the court stated:

Scott argues the trial court's award contains anticipated lost

future rental profit, from the B tenants, which is too speculative an

amount to properly base an award of damages. Evidence of future

profits was relevant, insofar as it applied to the value of the Lease

on the date of the breach. Rein's evidence of future profits was

relevant not as to anticipated lost profits as such, but rather as going

to the fair market value of the Lease. See Annon II 597 N.E.2d at

326-238.

Scott -Reitz Ltd. v. Rein Warsaw Associates, 658 N.E.2d 98, 106 (Ind. Ct. App.

1995).

The trial court in the case at bar awarded compensatory damages in the

amount of $2,507,674 representing the present value of lost future percentage

rents for the duration of the lease. This was apparently based upon the

alternative measure of damages testimony offered by the witness Samuel R.

Boles.

In the examination of the witness Boles the record shows:

Q. Now, let me ask you, please, sir, with respect to damages here

-- and I'll just tell the Court initially, we've calculated the damages

in two different manners. Let me ask you first whether or not

you've done these calculations. The first one, Mr. Boles, is the

difference in the value to this center, to the owners, BVT, the

plaintiff here, with and without Wal-Mart in place. Have you done

that calculation?
-27-

 * * * 

Q. What's the number, Mr. Boles?

A. 4.7 million.

Q. And that is what the center is worth less as a result of WalMart not being there?

A. Right.

Q. Tell the Court how you calculated that number.

A. Using actual scheduled rents and actual experience of

expenses and capitalizing the net income.

Q. Have you done this more than once in your life?

A. Many, many times. As an example, and to answer Mr.

Comstock, I have within the last 24 months bought and/or sold

eight different retail investments. I have two currently under

contract. This is something I do frequently is value property, both

for acquisition and sales.

Q. Let me ask you, please, sir, this is a big number. I want you

to concisely but adequately explain to the Judge exactly how you

calculated it. You said you took projected rents, actual rents. Walk

us through that. Just take a couple of minutes and walk us through

that.

* * *

A. Your Honor, what I did is in the last year of operating, which

was 12/31/96 on the calendar year, when Bud's was obviously

operating in the premises, I took the base and actual scheduled

rents, I took the expense reimbursements, the actual ones, I took the

actual vacancy, and come up with the total receipts, actual receipts

for 1996, which is $785,264.

I took the actual expenses, Your Honor, of 204,585, which is

a net income of 580,679. We had capital expenses, Your Honor, of

tenant improvements and replacement reserve which is computed

at 10 cents per square foot, totaling 56,420, leaving a net cash flow

of $524,259.

I researched the market to find out what capitalization rate

would be used, Your Honor, for properties with a Bud's operating

in the premises. And the research in the marketplace told me at

minimum it would be 12 1⁄2 to 15 percent. And in this analysis, I

used 14 percent. And I came up with a value, Your Honor, of

3,745,000 as a Bud's. 

I took the last full year of operating year, Your Honor, for the

Wal-Mart store. I took the actual scheduled leases that were at the

shopping center.

* * *

Q. Okay, Mr. Boles. You've given us an evaluation on the

method described by you that showed the value of the center

without Wal-Mart there in the sum of $3,745,000; correct?
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A. Correct.

MR. WHITE: I think Mr. Agee wants to look at my

chart that they didn't want us to see. But that's fine. We'll note that.

BY MR. WHITE:

Q. Now, I'm asking you, please, sir, about your evaluation of

this center had Wal-Mart stayed. And I've cut you off in this

dialogue, but start one more time.

A. I used the last full year, fiscal year that Wal-Mart -- excuse

me, calendar year, '94, that Wal-Mart was operational. I took the

actual scheduled leases of the existing tenants as well as their

option terms. More in particularly, I was looking at this particular

year.

I took the base rent and the percentage rent that Wal-Mart

paid or would have owed for that year, the expense reimbursements

that would have been paid for that year, less the vacancy of 4 1⁄2

percent. The total receipts were $1,072,779.

The expenses were increased to 223,131 as a result of the

increase in tax base subsequent to Wal-Mart being operational. The

net income was 849,648. The capital expenses and the replacement

reserves totaled 26,535, resulting in a net cash flow of $823,113.

Now, similarly, as I did the other example, I questioned

investors. And with Wal-Mart operational and Wal-mart as an

integral part of this investment, capitalization rates ranged from 9

and a quarter to 9 and three-quarters.

I used the top end of that spectrum. And I come up with a

value of $8,440,000, for a difference in value of 4,695,000 or

$4,700,000.

Q. I'm sorry?

A. Rounded to 4,700,000.

Q. But the precise number in difference in this center without a

Wal-Mart present is a decrease in value of $4,695,000; correct?

A. That's correct.

While Mr. Bole's testimony was admitted over the repeated objections of

Wal-Mart, it is consistent with the market value approach of Hornwood,

Lechmere, supra, Scott-Reitz Ltd., supra, and John A. Henry & Company, Ltd.

v. TG&Y Stores, 941 F.2d 1068 (10th Cir. 1991). 

Since no other evidence in the record addresses diminution of market

value of the shopping center as the measure of damages, and since this court

finds diminution in market value of the shopping center to be the proper measure

of damages for breach of the implied covenant of continuous occupancy, the

judgment of the trial court will be modified to reflect such damages in the

amount of $4,695,000.
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IV. THIRD PARTY RECEIPTS 

Within the leased premises, Wal-Mart allowed Medco Drugs, Inc. to

operate a pharmacy. During the last two years that Wal-Mart and Medco

occupied the leased premises, percentage rent was not paid by Wal-Mart on gross

receipts attributable to Medco sales.

The trial court granted partial summary judgment to BVT holding that the

applicable lease agreement in this respect was unambiguous. This holding is

clearly correct.

The assigning and subletting provision of the agreement states:

The Lessee covenants not to assign, mortgage or encumber

this agreement, or sublet or use or permit the demised premises, or

any part thereof, to be used by others without the prior written

consent of the Lessor, which consent shall not be unreasonably

withheld. However, Lessor expressly agrees that Lessee may,

without Lessor's consent, sublease or assign this lease to an affiliate

or subsidiary.

If Medco is in fact a third party, no written consent of the lessor was ever

sought or received. If Medco is an operating department of Wal-Mart, then its

gross receipts are Wal-Mart's gross receipts and Wal-Mart, within the demised

premises, cannot divide itself into component parts to the end of reducing its

gross receipts.

We observe that Wal-Mart did not segregate its gross receipts attributable

to Medco sales until the last two years of its operations, which was after the

lawsuit at bar had been filed.

'Parties are far less liable to have been mistaken as to the

meaning of their contract during the period while harmonious and

practical construction reflects that intention, than they are when

subsequent differences 'have impelled them to resort to law, and

one of them then seeks a construction at variance with the practical

construction that they have placed upon it of what was intended by

its provisions.'

Pigg v. Houston & Liggett, 8 Tenn. App. 613, 633-34 (1928). (citing 6 R.C.L.

p. 853 sec. 241.) See also McDowell v. Rambo, 21 Tenn. App. 448 111 S.W.2d

892, 899 (1937).
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Having affirmed the trial court's determination that Wal-Mart is liable for

percentage rent based on Medco's gross receipts, this court moves to determine

the amount underpaid, which should be a simple matter of mathematics. Indeed,

the affidavit of Kandy Beaver, supervisor of the accounting department of WalMart, given February 25, 1997, would appear conclusive on this point. She

states, "Attached hereto . . . is a computation reflecting (a) historically, what

Wal-Mart actually paid (b) what additional should have been paid if third party

receipts are to be included ($108,759.23); and (c) what should have been paid

(and what is due Wal-Mart, $186,501.77) if third party receipts are not to be

included."

The court has determined that third -party receipts are to be included and

the figure provided by Wal-Mart and used by the trial court in its judgment for

third party receipts rentals is $108,759.23.

The judgment of the trial court in this respect is affirmed.

V. THE RIGHT TO A JURY TRIAL 

Neither party asked for trial by jury in their original pleading. By amended

complaint, BVT sought the recovery of percentage rental on "third party"

receipts realized by Medco.

In its answer to this amended complaint on July 5, 1996, Wal-Mart noted

on the face of such answer "Jury Trial Requested". Such a demand is adequate

under Rule 38.02 if, in fact, the amended complaint and the answer thereto

present additional questions of fact. The trial court held that no such additional

facts were presented by the amended complaint and answer thereto but only

issues of law were tendered.

This issue involves contract interpretation for the court. If BVT was

correct in its interpretation (acquiesced in by Wal-Mart until after suit was filed)

Wal-Mart owed BVT for Medco sales subsequent to the reversal of position by

Wal-Mart. If Wal-Mart's interpretation of the contract was correct, and such

"third party" receipts were not includable in Wal-Mart's gross receipts, then BVT
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owed Wal-Mart reimbursement for previously paid percentage rent based upon

Medco gross receipts. There being no dispute as to the applicable contract

provisions, and no ambiguity therein, the interpretation thereof is a question of

law for the court. Petty v. Sloan, 197 Tenn. 630, 277 S.W.2d 355 (1955).

Once the court determines the question of law as to contract interpretation

the amount owed should be and in fact is, under this record, a mathematical

certainty. Such is established by Wal-Mart's own proof in the form of the Kandy

Beaver affidavit of February 25, 1997. If BVT's interpretation is correct, the

amount owed by Wal-Mart is $108,759.23. If, on the other hand, Wal-Mart is

correct in its interpretation of the contract, BVT owes Wal-Mart $186,501.77.

There simply is no factual dispute.

This mathematical certainty is explicitly recognized in Wal-Mart's brief

wherein it is stated at footnote 11 on page 39 of the brief: "This should include

a judgment on Wal-Mart's counter-claim for its position that it inadvertently

overpaid BVT for a number of years; it is undisputed that amount of such

overpayment is $186,501.77 . . . ." (emphasis added). It is equally undisputed

that the amount owed to BVT, if the contract interpretation question of law is

decided in its favor, is $108,759.23. It is exactly this latter amount plus

calculable interest thereon that was awarded by the trial court. The third party

complaint, the answer thereto, and the counter-complaint raised only issues of

law and not issues of fact.

"There is no right to jury trial where there is no issue of fact but only a

question of law in a case. State v. Moore, 206 Tenn. 95, 332 S.W.2d 176-77

(1960) (citations omitted).

"In order to create a jury question there must be a conflict in substantial

evidence. Accordingly, the right to trial by jury does not apply when there is no

genuine issue of fact to be tried, nor does it apply to issues that are matters of

law." 47 AmJur.2d Jury, § 16, p. 724.

The chancellor was correct in denying Wal-Mart's request for trial by jury.
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VI. SANCTIONS

By order entered on September 9, 1997, the trial court imposed sanctions

against Wal-Mart in the amount of $6,240, representing auditors fees for work

done in Bentonville, Arkansas, on May 27, 28, and 29, 1997.

This court can find no justification for the imposition of such sanctions

under the record in this case. The audit was for the purpose of calculating the

amount of "third party" sales of Medco. This court has affirmed the

mathematical certainty of this amount in our discussion of the jury trial right.

Unless there were questions of fact still to be resolved following the Kandy

Beaver affidavit, there was no reason for the May, 1997 audit in the first place.

If such questions of fact existed as would justify further audit, it would

necessarily follow that Wal-Mart's answer to the third party complaint tendered

issues of fact and Wal-Mart's jury demand was well taken. The record at trial,

however, does not bear out such fact issues that would justify the audit, and

comments by the court at the hearing of July 15, 1997, relative to these sanctions

is revealing.

The patience of the trial judge with counsel and with Wal-Mart reached its

breaking point at this hearing which resulted in an extended lecture to counsel

for Wal-Mart relative to its alleged failures to produce proper records at the May,

1997 audit. After the trial court had, at length, vented its frustration upon

counsel for Wal-Mart about the proposed audit of these "third party" receipts of

Medco, the following exchange occurred:

MR. WHITE: When we started the trial, Your Honor had

already granted our motion for partial summary judgment and had

denied the motion of Wal-Mart to reconsider. We put Mr. Boles on

the stand.

Mr. Boles testified that he took the -- he did a calculation of

the damages. Your Honor listened to it. He started with the

$108,000, which was admitted by Wal-Mart was the amount in their

calculation that was owed. He put interest on that. It was tendered

as an exhibit.

And the number that he gave, may it please the Court, and I'm

reading specifically from the transcript, the number that he

calculated was $144,689.75. And he testified, quote, "that is

through January 31st of 1997. We have a per diem figure of $39.64

per day."
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May it please the Court, I took the months of February,

March, April, May, and June, which total exactly 150 days. So that

would be through the end of the month of June. That's 150 days

times the per diem figure of $39.64. That is an additional $5,946.

And when that is added to the testimony that Your Honor heard and

approved when this man testified, that gives the number that's set

out in that order of $150,635.75.

THE COURT: Well, Mr. White, is this what we're talking

about now? What is this for?

MR. WHITE: This is for the partial summary judgment.

THE COURT: I realize that. Is that for the sales of the

drugstore?

MR. WHITE: Yes, Your Honor.

THE COURT: Well, what are we doing? Why have I just

got through talking to Mr. Comstock about all these matters if

you've done figured it out?

MR. COMSTOCK: That's exactly right, Your Honor.

BVT asserts correctly that the $108,759.23 figure set forth in the affidavit

of Kandy Beaver of February 25, 1997 is conclusive and indeed undisputed as

to the amount of Medco sales to be included in gross receipts if the BVT

interpretation of the contract is correct. The BVT interpretation of the contract,

accepted by the trial court and accepted by this court, results in the mathematical

certainty evidenced by the Kandy Beaver affidavit. Thus, the answer of WalMart to the BVT amended complaint tendered no issue of fact for trial by jury.

BVT cannot have it both ways. Either the Kandy Beaver affidavit is conclusive

of the fact issue about the extent of Medco gross receipts for all purposes or it is

simply evidence of such gross receipts to be considered along with other

evidence in which case the sanctions imposed would be in the sound discretion

of the court. The other edge of this sword is that in such case, issues of fact were

tendered by the answer to the amended complaint and Wal-Mart's demand for

trial by jury on all issues would be well taken. This court concludes that there

is no genuine dispute of the figures in the Kandy Beaver affidavit and that the

imposition of sanctions was improper and should be reversed.

VII. ATTORNEY FEES

The trial court awarded attorney fees under the lease contract in favor of

BVT in the amount of $170,042.61 through June 30, 1997.
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The awarding of these attorney fees is provided for in the contract, and the

amount thereof is generally within the discretion of the trial judge. The factors

identified for guidance of the trial judge are set forth in Conners v. Conners, 594

S.W.2d 672 (Tenn. 1980). The award of attorney fees will be modified to

disallow any attorney fees for work done on the "third party" receipts issue,

subsequent to the filing before the trial court of the Kandy Beaver affidavit of

February 25, 1997. In all other respects the award of attorney fees is affirmed.

 VIII. CONCLUSION

In this case, the court adopts a measure of damages conforming to the

diminution of value of the entire shopping center rule, having its recent genesis

in Hornwood. This diminution of value rule was further developed in the 1995

cases of Pleasant Valley Promenade v. Lechmere, Inc., 464 S.E.2d 47, 61-62

(N.C. App. 1995) and Scott-Reitz Ltd. v. Rein Warsaw Associates, 658 N.E.2d

98 (Ind. 1995).

It must again be noted that the Supreme Court of North Carolina granted

an appeal from Lechmere but before argument could be held before that court of

last resort, the parties settled the case and the appeal was withdrawn. The

diminution of value of the entire shopping center approach appears to this court

to be consistent with Ferrell v. Elrod, 63 Tenn. App. 129, 154-55, 469 S.W.2d

678, 689 (1971).

Under the facts presented herein, this court finds, applying the factors

recognized by the Supreme Court of Tennessee in Kroger v. Chemical Securities

Co., 526 S.W.2d 468 (Tenn. 1975), an implied covenant of continuous

occupancy. Perhaps most expressive of the developing law relative to such

implied covenants is the rule articulated by the court inPequot Spring Water Co.

v. Brunnell, 46 Conn. App. 187, 698 A.2d 920 (1997). It is again well to note

that the Supreme Court of Connecticut granted an application to appeal in the

Brunnell case but that before the case could be argued in the Supreme Court of

Connecticut it was settled and the appeal withdrawn in March, 1998.

This court having found an implied covenant of continuous occupancy
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under the facts of this case, and having adopted the diminution of market value

of the entire shopping center as the proper of damages, the judgment of the trial

court as to damages is modified to reflect total damages for such diminution in

value in the amount of $4,695,000.

The award of damages by the trial court for "third party" receipt rentals as

to Medco sales is affirmed.

The award of sanctions by the trial court against Wal-Mart is reversed.

The award of attorney fees to BVT is modified to disallow attorney fees

to the extent such fees reflect work on the "third party" receipts issue past the

time when the Kandy Beaver affidavit of February 25, 1997 was filed with the

court.

As modified herein, the decree of the chancellor is affirmed and the case

is remanded for further proceedings in conformity with this opinion.

Costs of the appeal are assessed against Wal-Mart.

________________________________

WILLIAM B. CAIN, JUDGE

CONCUR:

__________________________________

WILLIAM C. KOCH, JR., JUDGE

__________________________________

DAVID WELLES, SPECIAL JUDGE 
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