Title: KNIGHT v OMI CORPORATION
Citation: N/A
Docket Number: 13641
State: Montana
Issuer: Montana Supreme Court
Date: August 30, 1977

No. 13641 IN THE SUPREME COURT OF THE STATE OF MONTANA KENNETH K . KNIGHT and GRACE L . KNIGHT, his wife, Plaintiffs and Appellants, -vs- OM1 CORPORATION et al., Defendants and Respondents. Appeal from: District Court of the Sixth Judicial District, Honorable Jack D. Shanstrom, Judge presiding. Counsel of Record: For Appellants: Dzivi, Conklin, Johnson and Nybo, Great Falls, Montana William Conklin argued, Great Falls, Montana McDonald & Blackwood, Livingston, Montana For Respondents: Church, Harris, Johnson and Williams, Great Falls, Montana Earl J. Hanson argued, Great Falls, Montana Submitted: June 2, 1977 Decided : i f C Clerk M r . Justice Daniel J. Shea delivered the Opinion of the Court. Plaintiffs Kenneth K. Knight and Grace L. Knight appeal from a judgment entered pursuant to an order granting partial summary judgment t o defendant OM1 Corporation (OMI) i n the d i s t r i c t court, Park County. The d i s t r i c t court ruled that under the language of a lease between plaintiffs, as lessors, and OM1 a s lessee, plaintiffs were entitled t o neither future rentals nor damages based upon future rentals following plaintiffs' cancellation of the lease. The action concerns the lease of a motel, restaurant, and bar complex in Livingston, Montana. O n November 27, 1973, plaintiffs entered into a twenty year lease and supplemental agreement with J. Reid Hoggan, Patrick R. Hoggan, and Kent A. Hoggan, doing business as a partnership. O n June 26, 1974, Hoggans assigned their interest in the lease and the supplemental agreement t o defendant OMI. Plaintiffs consented to t h i s assign- ment i n an "Acknowledgement and Consent" dated April 15, 1975. OMI became delinquent i n its rent payments for the months of September, October, and November 1975 and pdaintiffs delivered written notice of their intention to cancel the lease. Following plaintiffs' voluntary termiration of the lease, on December 15, 1975 they reentered and took f u l l possession of the property. O n January 27, 1976, plaintiffs filed the instant action seeking damages for being deprived of future rent throughout the entire term of the lease, less any sums recoverable i n mitigation thereof. O n August 20, 1976, OM1 filed a motion for partial summary judgment raising the issue of whether plain- t i f f s could recover future rentals a f t e r termination of the lease. Thereafter p l a i n t i f f s f i l e d their motion for p a r t i a l summary judgment on the issue of future rentals a f t e r termination. The issue was briefed and argued by the parties and the d i s t r i c t court issued i t s opinion and order granting OMI'S motion for p a r t i a l summary judgment on October 26, 1976. Final judgment on the order was entered on November 22, 1976. P l a i n t i f f s appeal. Plaintiffs, on appeal, present two issues for review: ( 1 Whether the lease a t issue contains any savings clause preserving lessor's right upon breach by lessee to sue lessee for damages based upon rent falling due a f t e r cancellation of the lease. (2) Whether such a savings clause is a prerequisite t o the right of lessor t o sue the breaching lessee for damages based on rent falling due a f t e r cancellation. The parties agree that generally, following forfeiture, cancellation of a lease and reentry by the landlord terminates the lease and with it a l l obligations, covenants, and stipula- tions dependent upon continuation of the term. 49 Am Jur 2d, Landlord and Tenant, 51054; Bonnet v. Seekins, 126 Mont. 24, 30, 243 P.2d 317. There is also no dispute that a lease may provide for the performance of certain obligations or impose certain l i a b i l i t i e s a f t e r forfeiture. Such a provision, a savings clause, gives the landlord the right t o reenter and resume possession of the demised premises following nonpayment of rent and to hold the tenant still liable for subsequently accruing rents or for any deficiency i n the rent resulting from reletting. 49 Am Jur 2d, Landlord and Tenant, 51055. Provisions preserving the landlord's right t o recover future rent have been given effect i n many - 3 - jurisdictions. See: McIntosh v. Gitomer, (D.C. Municipal Court of @peals 1956), 120 A.2d 205, 206; Broniewicz v. Wysocki, 306 I11.App. 187, 28 N.E.2d 283,284; Walling v. Christie & Hobby, Inc., (1932, Tex.Civ.App.), 54 S.W.2d 186,188. I n the absence of clear language expressly preserving such right, courts generally w i l l not construe a lease as providing that, upon reentry or forfeiture, the tenant shall remain liable for unaccrued rent. Anno. 99 A.L.R. 42,45; Grommes v. St. Paul Trust Co., 147 Ill. 634, 35 N . E . 820, 822 (1893) ; Rohrt v. Kelley Manufacturing Company, 162 Tex. 534, 349 6.W.2d 9 5 3 8 Plaintiffs contend two clauses of the lease in issue expressly preserve their right t o recover future rent or damages based upon future rent following cancellation and reentry. The pertinent language, from the default provision, states: " 15 . D E F A U L T "If an event of default a s provided above shall occur, Lessor shall have the right, on notice, immediately t o cancel this lease, and the lease shall immediately terminate, and Lessor shall have the immediate right to re-enter and repossess the demised premises * * * and Lessor may re-enter the demised premises, and remove a l l persons therefrom without being guilty of trespass and without prejudice to any remedies for accrued rents or damages * * *. "In addition to the right of Lessor to cancel the lease a s above provided for i n t h i s Section and without waiver of such right, Lessor may sue Lessee for damages - for non-compliance with any covenant, agreement or warranty contained in t h i s lease or for non-payment of such sum required to be paid by Lessee to Lessor or for specific performance of any covenant of t h i s lease. * * *It (Emphasis added.) P l a i n t i f f s argue that under the f i r s t paragraph above, which provides that the lessor is authorized t o reenter the premises "without prejudice t o any remedies for accrued rents o r damages'' they have a right t o recover, a s damages, future unaccrued rent. Cases cited by p l a i n t i f f s i n support of t h i s argument are clearly distinguishable from the instant case. I n C.D. Stimson Co. v. Porter, (10th Cir.1952) 195 F.2d 410, the lessor's claim was founded on federal bankruptcy law which allows claims based on unexpired lease terms. I n United States Rubber Company v. White Tire Company, 231 S.C. 84, 97 S.E.2d 403 (1956), and i n Employment Advisors, Inc. v. Sparks (1963 Tex.Civ.App.), 364 S.W.2d 478, the lessee abandoned the premises prior t o the lessor's reentry. This clause does give p l a i n t i f f s the right t o cancel and reenter without losing t h e i r right t o recover rent and damages accrued t o the t i m e of cancellation. It cannot reasonably be interpreted t o continue defendant's obligation t o pay rent following cancellation under the t h e ~ r y that i n t h i s context, "damages" by definition includes future rent. P l a i n t i f f s argue the second paragraph quoted from the default provision, gives them the right t o suettfor damages for ~lon-ompliance with any covenant * * * o r for non-payment of such sum required t o be paid'' and the right t o recover future rent i n addition t o t h e i r right t o cancel the lease. N o such sure interpretation follows from the language of the clause. I f p l a i n t i f f s desired t o preserve their right t o recover damages for nonpayment of rent whether o r not and before o r a f t e r the lease has been cancelled, they should have s o ~ a t e d . This clause does not expressly continue defendant's l i a b i l i t y for rent unaccrued a t the time of cancellation and reentry by plaintiffs. Plaintiffs contend even i f the lease does not expressly preserve their right to recover future rent, it can be so construed as t o contemplate such recovery. W e hold, however, a lease must contain clear language to the effect that a tenant is to remain liable for rent accruing subsequent to the land- lord's cancellation, i f such l i a b i l i t y is to be imposed. Here, the lease language was not clear; it i s therefore unnecessary to resort to construction of the lease t o find whether or not such a savings clause was intended. Finally, plaintiffs argue the lease i n issue should be treated as a contract rather than a conveyance of an interest in land. They c i t e Wright v. Baumann, 239 Or.410, 398 P.2d 119, which concerned the duty of a lessor t o mitigate damages following the lessee's repudiation of a contract t o make a lease. In Wright the court indicated the business lease transaction in- volved was "essentially" a contract, and that contract law principles would apply. The present case involves a lease, not a contract t o make a lease. Plaintiffs contend Wright supports the argument that following cancellation for nonpayment of rent, damages based on rent due for the entire term of the lease should be recover- able. Whether or not plaintiffs' contention is correct, w e reject the argument that contract principles apply i n t h i s context. Section 17-301, R . C . M . 1947, pertaining t o the measure of damages for breach of contract, is also not applicable here. As stated, the general rule is that cancellation and reentry by the landlord, as in the present case, terminates the lease agreement. A savings clause imposes a special liability on the tenant which would othede not exist. To have effect, a savings clause must be explicit as to the right reserved. The language here was not explicit, and the decision of the district court was correct. Judgment is a£ f inned. Chief Justice w w Justices.