Court Opinion

ID: 9572879
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:45:22.433096+00
Date Added: 2024-06-11T12:34:33.453412
License: Public Domain

OPINION RIORDAN, Justice. El Paso Natural Gas Company (El Paso) sued Kysar Insurance Agency, Inc. (Kysar), and its President and sole owner, Raymond Kysar, Jr., to rescind a lease alleging fraud or constructive fraud, and breach of contract. Kysar counterclaimed for breach of covenant of quiet enjoyment. The trial court entered judgment dismissing El Paso’s complaint with prejudice and granting Kysar’s counterclaim in the amount of $21,938.00 plus costs. El Paso appealed. Kysar cross-appealed on the trial court’s denial of an award of attorney fees. The Court of Appeals affirmed the trial court except for the issue of Kysar’s attorney fees, on which it reversed the trial court. We granted certiorari to consider the issues of constructive eviction and attorney fees. We reverse the Court of Appeals on these issues. In December 1969, El Paso entered into a lease agreement with Western Building Associates (Western) through its agent and part owner, Raymond Kysar. The lease included a purchase option to buy the Petroleum Plaza Building in Farmington, New Mexico exercisable during the first four months of 1975. When El Paso exercised its purchase option, Western refused to make the conveyance. El Paso then filed suit in federal court and was granted specific performance. On July 1, 1977, pursuant to the federal court order, Western transferred legal title to El Paso subject to “the rights and claims of tenants and lessees.” One of the tenants of the Petroleum Plaza Building at the time El Paso acquired title was Kysar Insurance. On May 1,1972, Kysar had entered into a written two-year lease with Western to rent 1,953 square feet of the building’s ground floor for $200.00 per month. The lease included an option to renew for two additional five-year terms at the same rental rate. This rate was considerably less than the market value and what the other tenants were paying. Mr. Kysar testified that Kysar received a more favorable rental rate because he managed the Petroleum Plaza Building and because he completed the construction of the office space that Kysar was occupying. On July 1,1977, El Paso took over ownership and management of the Building. On July 29, 1977, El Paso sent Kysar notice that it was requiring Kysar to pay an increased rental rate, claiming that the original rental agreement was based upon an oral contract for management services which El Paso no longer desired Kysar to provide. Kysar refused to acknowledge the increase in rent and insisted that its monthly rental rate should continue to be $200.00 per month notwithstanding the fact that Mr. Kysar no longer provided managerial services. Kysar claimed the original written lease included no provisions for managerial services, and that in purchasing the building, El Paso was bound by the lease and could not alter its express terms. Constructive Eviction The trial court ruled that El Paso breached the covenant of quiet enjoyment in its lease with Kysar. It awarded Kysar $21,-938.00 in damages. This represented rent Kysar would have received had El Paso not pursued its legal actions against Kysar which Kysar alleged interfered with its ability to sublet. The district court determined that El Paso’s acts in seeking to increase the rent, in declaring the lease terminated, and in seeking a judicial termination of the lease were done maliciously and in bad faith, and constituted a constructive eviction. We disagree.  The record lacks substantial evidence to support the trial court’s conclusion that El Paso acted with malice or bad faith. In order to state a cause of action for interference with, the covenant of quiet enjoyment, a tenant must show that he had been actually or constructively evicted. Barfield v. Damon, 56 N.M. 515, 245 P.2d 1032 (1952); Kennedy v. Nelson, 76 N.M. 299, 414 P.2d 518 (1866); El Paso Natural Gas Co. v. Kysar Ins. Agency, 93 N.M. 732, 605 P.2d 240 (Ct.App.1979), (El Paso I). Kysar was never actually evicted from the Petroleum Plaza Building. It had exclusive use of the premises, and never vacated the premises, from the time of the initial lease in 1972 until August 1, 1980 when Kysar negotiated a sublease.  The general rule is that one claiming constructive eviction must vacate the premises within a reasonable time after the commission of the acts which deprive the tenant of beneficial use of the premises. Kennedy v. Nelson, supra. In Kennedy we stated the exception to this general rule. A delay in vacating may be justified if the claimant shows either: 1) a “reliance on promises by the landlord to correct [a] deficiency” or; 2) a “reoccurrence of [adverse] conditions.” Id. at 303, 414 P.2d 518, 521. Kysar makes no claim of reliance on any promise made by El Paso that induced Kysar to continue its occupancy, nor is there any evidence of such. The only other theory by which Kysar’s failure to vacate the premises may be justified is a “reoccurrence of adverse conditions” caused by El Paso. In El Paso I, supra, the Court of Appeals discussed how the second exception of the Kennedy test applies to this case. The issue before this court is to determine whether the [second] of the two exceptions announced in Kennedy, supra, (reoccurrence of interferences by the landlord) has occurred so as to find constructive eviction. When a landlord repeatedly acts with malice and in bad faith in his attempts to oust a tenant in rightful possession, there is constructive eviction even without actual vacation of the premises by the tenant, as the landlord had breached the covenant of quiet enjoyment. In Kuiken v. Garrett, 243 Iowa 785, 51 N.W.2d 149 (1952), Iowa’s Supreme Court found the issue of constructive eviction to turn on whether there was malice and bad faith by the landlord. The Iowa court then discussed its function in relation to this test: It is true that a landlord has a right to attempt to oust his tenant, if he thinks he has just grounds therefor; and in such case he is not to be held liable for damages if he fails * * *. If he serves repeated notices, and institutes repeated actions, alleging different grounds, and fails to prove any of them upon trial, we think a fair inference of malice may be drawn by a jury. [Emphasis added.] Id. at 737, 605 P.2d 240, 245. The central question, then, is whether El Paso believed it had a meritorious claim when it sent the demand letters and filed suit. Kysar failed to prove that El Paso did not believe it had a just claim. The record shows that the actions taken by El Paso were no different than those one would reasonably expect a landlord to take in the event of a good faith rental dispute with a tenant. In Kuiken v. Garrett, supra, the court found constructive eviction based on repeated acts of malice and bad faith. In that case the landlord served the tenant with ten separate notices and filed four petitions in forcible entry and detainer. Each petition was dismissed or decided in the tenant’s favor. The landlord intimidated his tenants to such a degree that their peaceful enjoyment of the premises was interrupted. The landlord’s actions were clearly meritless and designed to harass.  By contrast, El Paso stops far short of falling within the ambit of malice and bad faith. El Paso sent Kysar three demand letters, a monthly computerized statement, and filed suit. In fact, El Paso indicated that it hoped the letters would lead to a resolution of the dispute without the need for litigation. In addition, demand letters alone, like those sent by El Paso, cannot act to constructively evict a tenant. Lake Charles Diesel, Inc. v. Guthridge, 326 So.2d 613 (La.Ct.App.1976). We therefore find that there is not substantial evidence of repeated acts of malice or bad faith to conclude that Kysar was constructively evicted and entitled to damages for breach of covenant of quiet enjoyment. We reverse the Court of Appeals. Attorney Fees Since we have ruled that the trial court erred in awarding damages for breach of quiet enjoyment, Kysar is not entitled to attorney fees based on that counterclaim. We remand this case to the trial court for whatever further proceedings are appropriate and not inconsistent with this opinion. EASLEY, C. J., and JAMES E. SCARBOROUGH, District Judge, concur. SOSA, Senior Justice, and LORENZO F. GARCIA, District Judge, dissenting. PAYNE and FEDERICI, JJ., not participating.