Court Opinion

ID: 1082221
Source: CourtListenerOpinion
Date Created: 2013-10-09 20:56:56.200247+00
Date Added: 2024-06-11T08:11:35.889755
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                   WESTERN SECTION AT NA SHVILLE
______________________________________________________________________
_______

LESSIE BLANKENSHIP,                               Bedford Circuit
                                                  No. 6860
   Plaintiff/Appellee.                            C.A. No. 01A01-9504-00137

VS.                                               Hon. Lee Russell
                                                  Judge
CENTURY HEALTH SERVICES, INC.

   Defendant/Appellant.
                                                               FILED
                                                                 Dec. 15, 1995

                                                               Cecil Crowson, Jr.
CHARLES RICH, Bobo, Hunt & Bobo, Shelbyville                    Appellate Court Clerk
WILLIAM P. SURIANO, Riverside, Illinois, Pro Haec Vice
Attorneys for Defendant/Appellant.

AN DREW RAMBO, Bom ar, Shoffner, Irion & Ram bo, Shelbyville
Attorney for Plaintiff/Appellee

AFFIRMED IN PART, REVERSED IN PART AND REMANDED

Opinion Filed:
______________________________________________________________________
_______

TOMLIN, Sr. J.

       Lessie Blankenship ("plaintiff") filed suit in the Circuit Court of Bedford County

against Century Health Services, Inc. ("Century" or "defendant"), seeking damages for

breach of a commercial lease. Following a bench trial, the court awarded plaintiff

damages in the amount of $44,943.80 for rent due under the lease, costs incurred by

plaintiff in seeking to relet the prem ises, and attorney fees in the amount of 15% of the

amount of the judgment. On appeal, Century presents five issues for review: Whether

the trial court erred (1) in finding that Century had assum ed the lease between plaintiff

and South Central Home Health, Inc. (?South Central”), the original lessee; (2) in

concluding that Century had not properly terminated the lease; (3) in finding that plaintiff

had properly mitigated her damages; (4) in awarding plaintiff damages for future rent

under the lease; and (5) in awarding plaintiff attorney fees in the amount of 15% of

plaintiff's judgment. For the reasons hereinafter stated, we affirm in part, reverse in part

and remand.

                                             1
       For the most part the underlying facts are not in dispute. In January 1992, plaintiff

and South Central entered into a written lease for a commercial building owned by

plaintiff in Shelbyville for use as a home health care facility. The term of the lease was

to expire on D ecem ber 31, 1995. At the time the parties entered into the lease, plaintiff

was an em ployee of defendant. In early 1993, defendant purchased certain assets of South

Central and continued to operate a hom e health facility in the leased premises. Although

defendant did not enter into a lease agreement with plaintiff, it continued to pay rent to

plaintiff pursuant to the terms of South Central's lease.

       In March 1993, defendant terminated plaintiff's em ployment. Defendant first

began to complain about reported problems with the leased premises to plaintiff in August

of that year. Specifically, defendant reported problems with insect infestation in the

building along with a low electrical voltage on the right side of the premises. In response

to these complaints, plaintiff employed a pest control service and a Nashville contractor

to attempt to correct the problems.

       On September 24, 1993, the building code enforcer for the City of Shelbyville

notified defendant that the following alleged violations of the Standard Existing Building

Code had been detected in the leased premises and that they required correction as soon

as possible:

       1. Electrical - The panel box has plenty of space yet all electrical circuits
       are tied into only two (2) breakers and this is not adequate to carry the
       computer load.
       2. The building has no exit signs and no emergency lighting.
       3. The floor in the vault area needs som e attention. (It is a tripping hazard.)
       4. Steps going into the rear storage room are unstable and need to be
       secured.
       5. The building needs a handrail
       6. The rear door of the storage room allows water to enter the building.
       This needs to be fixed.

Defendants regional administrator imm ediately wrote plaintiff on September 30, 1993,

demanding that the code violations as stated be corrected by plaintiff no later than

                                              2
Monday, October 4, or defendant would vacate the prem ises. Plaintiff received the letter

on October 5. On the following day, plaintiff faxed a letter to defendant informing it that

she had em ployed a contractor to correct the code violations the following week. After

the contractor failed to complete the repairs as stated, plaintiff again wrote defendant on

November 17, 1993 to assure them that the work would be completed within thirty (30)

days or another contractor would be employed.

       On November 29, 1993, defendant advised plaintiff that due to her failure to "meet

the terms of the lease" defendant w ould treat the lease as no longer being in effect, and

that its occupancy of the prem ises would continue on a month-to-month basis. Shortly

thereafter, on Decem ber 9, 1993, the building code inspector again wrote to defendant

concerning the code violations. In his letter he noted that while some of the violations had

been corrected, the electrical problems had not.        The inspector demanded that the

defendant correct these electrical problem s within ten (10) days or steps would be taken

by the city to "make the building safe," which included the possibility of cutting off the

power to the building. In this comm unication the inspector also noted, for the first time,

that the rear basement wall to the building had some structural damages as a result of

water leakage and required immediate attention.

       Four days later on December 13, 1993 defendant's chief financial officer wrote

plaintiff demanding to know by the following day whether plaintiff would fix the

structural damage as noted in the building inspector's letter. After plaintiff failed to meet

defendant's demand, on December 16, 1993 defendant further informed plaintiff that it

would terminate the lease and vacate the premises on January 9, 1994. This threatened

action was then carried out by defendant.

       The trial court issued its mem orandum opinion shortly after the hearing. The court

found that defendant had, by its conduct, becom e a party to the lease and was therefore

bound by its terms. The court also held that plaintiff's failure to correct the building code

violations was not a substantial breach of the lease but was merely a pretext for defendant

                                             3
to attempt to void the lease. The court awarded plaintiff a judgment against defendant in

the amount of $39,050 as damages for rent in the amount $1,650 per month upon the date

of breach until the date of the award, and $1,650 per m onth as rent from the date of the

award until the end of the lease period. In addition, plaintiff was awarded costs incurred

in connection with her attempt to relet the premises in the amount of $31.65 and attorney

fees of fifteen percent (15%) of the judgment, amounting to $5,862.15.

                 I. The Issue of Defendant's Liability Under the Lease

       This court is of the opinion that defendant's first two issues can be considered

together and at the same time stated a bit differently—that is, whether the evidence

preponderates against the finding of the trial court that defendant was liable to plaintiff

under the terms of the lease agreem ent originally entered into between plaintiff and South

Central. Defendant contends that it did not assume the lease in existence between plaintiff

and South Central, and even if they had assumed same, plaintiff's failure to correct the

building code violations justified defendant’s termination of the lease.

       Our scope of review on appeal is de novo upon the record in the trial court.

Findings of fact by the trial court come to this Court with a presumption of correctness.

Absent an error of law, unless w e find that the evidence presented to the trial court

preponderates against these findings, we must affirm. T.R.A.P. 13(d).

       In finding defendant liable to plaintiff under the lease, the trial court stated in

relevant part as follows:

               The first question to be decided is whether or not the Defendant
       became a party to the lease and was bound by its terms. Clearly the
       Defendant believed itself to be a party, acted as though it were a party,
       benefitted under the lease as if it were a party, and demanded on its own
       behalf that the Plaintiff meet her obligations to the Defendant under the
       lease . . . . It is untenable for the Defendant to deny that it was subject to a
       lease agreement after it had occupied premises [sic] pursuant to the lease,
       paid rent pursuant to the lease, made dem ands under the terms of the lease,
       and purported to convert and then terminate the lease.

                                              4
        The record reflects that defendant, after purchasing some of the assets of South

Central, went into possession of plaintiff's premises under South Central's lease and

continued to occupy the premises for the purposes for which it was initially leased. In a

letter to plaintiff dated August 1993, defendant stated in part as follows:

               This letter is to inform you of several problems with the building
        leased by Century Home Health Care of South Tennessee, Inc., located at
        107 East Holland Street. . . . (Em phasis added.)

                ....

              The building is not suitable in its current condition for continued use
        by Century Home Health. You are hereby requested, to correct the above
        problems within 30 days from the date of this letter. If corrections are not
        made, we will be forced to evacuate the building.

        On September 24, 1993, the Codes Enforcement Office of the City of Shelbyville

wrote to defendant's administrator stating, "after inspecting the building you occupy [107

E. Holland Street] . . . the following is a list of problems we found that will need to be

corrected . . . . "

        A letter from defendant's regional administrator dated September 30, 1993 states

in part:

              This letter is a follow-up of Mr. Ed Augustine's letter dated August
        9, 1993, identifying deficiencies and hazards in the building leased by
        Century Home Health Care of South Tennessee, Inc., located at 107 E.
        Holland Street.

This letter also threatened that if certain corrections of the deficiencies were not carried

out within a specific tim e, Century would "begin evacuation of this building."

        A portion of the letter dated November 29, 1993 from an official of defendant to

plaintiff's attorney sheds more light upon the status of defendant as plaintiff's lessee:

                                             5
       [Y]ou should be aware that your client, Mrs. Blankenship, has been notified
       of her continued failure to m eet the terms of the lease on 107 E. Holland
       Street. As a result, the lease on 107 E. Holland Street is no longer in effect
       and we are presently renting the subject building on a month to month basis.

       By letter of December 13, 1993 to plaintiff, the chief financial officer of Century

referred to the status of the parties as follows:

              We have been advised . . . that the building Century Home Health
       Care has leased from you at 107 E. Holland Street, Shelbyville, Tennessee
       has structural problem s in the area of the rear basement w all. . . .

              As you know, paragraph 7 of the Lease provides that all structural
       repairs are the responsibility of the lessor.

       Finally, in a letter from Century from defendant's secretary to plaintiff dated

Decem ber 16, 1993, the author makes the following references:

              By letter dated December 13, 1993, I advised you of significant
       structural problems with the building Century leases from you under the
       terms of the lease dated January 1, 1992.

              ....

             Accordingly, due to your breach of the lease and the condition of the
       premises, please be advised the Century is terminating the lease effective
       Sunday, January 9, 1994. . . .

       In Sander v. Piggly Wiggly Stores, Inc., 95 S.W.2d 1266, 1270 (Tenn. App. 1936),

the middle section of this court held that where defendant Southern Stores Corporation

went into possession of the premises, acknowledged the lease, and paid rent for more than

two years, an assignm ent of the lease was presum ed where the assignor goes into

possession and pays rent. In addition, this court cited with approval a New York case to

the effect that where a person other than the lessee is shown to be in possession of the

leasehold premises the law presumes that the lease has been assigned to him. Id. (citing

Mann v. Ferdinand M uch Brewery, 121 N.E. 746, 747 (N.Y. 1919)).

       In considering the record, particularly, the language used by defendant in the

various letters written to plaintiff and plaintiff's lawyer, defendant stands in the position

                                              6
of an assignee and a privity of estate is therefore created between defendant and plaintiff

as lessor. In our opinion, the evidence does not preponderate against the finding of the

trial court that defendant was bound by the term s of South Central's lease with plaintiff.

Defendant's reliance upon First American Nat'l Bank v. Chicken Sys. of America., Inc.,

616 S.W.2d 156, 158 (Tenn. App. 1980) is misplaced. There was a second assignm ent,

or ?reassignment” of the lease in First American, which we do not have in this case. The

defendant's contention that the abandonm ent of the premises by itself constitutes a

reassignment is without merit.      Defendant's relinquishment of the leased prem ises

amounted to nothing m ore than abandonment. In order for this type of relinquishment of

the lease to terminate defendant's duty to pay rent for the remainder of the lease term,

there must be some proof to the effect that the lessor, plaintiff in this case, agreed to

terminate the lease, or that defendant assigned the lease to another tenant. Charleston

Mining & M fg. Co. v. American Agricultural Chem. Co., 150 S.W. 1143, 1145 (Tenn.

1911). Defendant has cited no authority for its proposition that its relinquishment of the

leased prem ises amounted to a "reassignm ent" to plaintiff.

       We now consider the remaining portion of this issue to the effect that defendant

was justified in terminating the lease based upon the building code violations found by

the City of Shelbyville's representative. In essence, what defendant seeks to have this

court hold is that the discovery of building code violations during the term of an existing

lease provides the innocent party an imm ediate excuse of either not performing or

terminating a lease. The record reflects that the code violations were not discovered until

some twenty months after plaintiff and South Central entered into the lease and several

months after defendant occupied the premises under the lease and paid its rent to plaintiff.

Defendant presented no evidence to the effect that the "violations" actually constituted

such an unreasonable interference with its use and enjoyment of the building as to

constitute a constructive eviction. There was no evidence presented regarding the extent

of the structural damage, the magnitude of the water leak, or whether defendant had

supplies stored in the affected areas, nor was there any evidence that any of its supplies

or computers had been an any way adversely affected by this condition. D efendant's

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prediction that the code violations could conceivably affect their business is nothing more

than speculation.

       Defendant relies upon Smith v. Owen, 841 S.W.2d 828 (Tenn. App. 1992) for its

contention that property owners are barred from leasing property to another unless the

conditions of the property com ply in every respect to certain sections of the Standard

Housing Code, adopted by the City of Shelbyville. This is an exaggerated stretch of the

holding of the middle section of this court in Sm ith. As to this issue, Sm ith stands for the

proposition that it is against the law —i.e., a duty placed on the property owner, to lease

to another any existing building unless that building complies with each and every

requirement enum erated in Chapter 3 of the Housing Code. Id. at 831. The effect of this

prohibition is the creation of negligence per se liability upon the lessor in the event

dam age or harm is done to another growing out of the occupancy and use of the leasing

of these premises to another. Id. We find that this aspect of this issue is w ithout m erit.

                                 II. Mitigation of Damages

       We next consider whether the trial court erred in finding that plaintiff had mitigated

her damages. The rule in this state as to the duty to mitigate on the part of the non-

breaching party is as follows:

              Generally, one who is injured by the wrongful or negligent act of
       another, whether by tort or breach of contract, is bound to exercise
       reasonable care and diligence to avoid loss or to minimize or lessen the
       resulting damage, and to the extent that his dam ages are the result of his
       active and unreasonable enhancement thereof, or due to his failure to
       exercise such care and diligence, he cannot recover.

Cook & N ichols, Inc. v. Peat Marwick, Mitchell & Co., 480 S.W.2d 542, 545 (Tenn. App.

1971). The burden is on the defendant who breached the contract to prove what amount

should be offset in m itigation dam ages. State ex rel. Chapdelaine v. Torrence, 532

S.W .2d 542, 550 (Tenn. 1975), cert. denied, 425 U.S. 953 (1976).

                                              8
       Plaintiff testified that after defendant vacated the premises in January 1994, she

placed a ?for rent” sign in the building w indow and in addition ran a five (5) day classified

ad in the Shelbyville newspaper. She stated that she also spoke with a local banker and

a businessman about leasing the premises. Plaintiff also offered to rent the building to a

prospective tenant for $600 to $700 per month, a significant decrease from the $1,650 per

month rent under the lease. Notwithstanding, she was not able to rent the building during

the balance of defendant's term. Defendant stated no evidence of any other type of

advertising that plaintiff could have done that might possibly have rented the building.

Rather, defendant contends that because of its interpretation of Smith v. Owen, plaintiff

was barred from renting the premises because of building code violations, and therefore

plaintiff would not be entitled to any damages. We have reread Smith v. Owen, and do

not find such a holding in that case nor do we deem it subject to interpretation that

defendant would have us give it. Therefore, we will not extend the rule in Sm ith to

support defendant's contentions. In our opinion, the evidence does not preponderate

against the trial court's finding in this regard nor has defendant met its burden placed upon

it by our case law. This issue is without m erit.

                         III. The Aw ard of Future Rent Payments

       In the event of a breach of the lease, it was provided therein that plaintiff should

receive the "worth" of rent payments due at the time of termination, the time of award,

and for the remainder of the lease period.1 The trial court awarded plaintiff rent in the

stated lease amount of $1,650 per month from January 9, 1994, the date defendant

1
 The applicable portion of the lease reads as follows:
19. Remedies of Owner on Default: In the event of any breach of this lease by
Lessee, Lessor may, at his option, terminate the lease and recover from Lessee:
(a) the worth at the time of award of the unpaid rent which was earned at the time
of termination;
(b) the worth at the time of award of the amount by which the unpaid rent would
have been earned after termination until the time the award exceeds the amount of
such rental loss that the Lessee proves could have been reasonably avoided; and
(c) the worth at the time of award of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of such rental loss
that Lessee proves could have reasonably avoided . . . .

                                               9
abandoned the premises, until October 20, 1994, the date of the award. In addition the

court awarded plaintiff $1,650 per month from October 20, 1994 until December 31,

1995, the expiration date of the lease. Defendant contends that the trial court erred in so

doing, asserting that the court should have discounted to their present value future rent

payments due under the lease.

       We agree. We have no Tennessee case directly on point but we have found what

we consider to be relevant and persuasive authority. In In re United American Financial

Corp., 55 B.R. 117, 119-20 (Bankr. E.D. Tenn. 1985), the court had under consideration

the very sam e issue we are considering here—whether a party can be given an accelerated

recovery in full of all rental payments under a lease or whether the court will reduce the

deficiency to a sum equivalent to the present cash value of the accelerated rental

payments. The court stated:

               To the extent that the plaintiff's recovery will encompass damages
       reflecting future rental payments which would not yet have come due under
       the lease, that recovery must be discounted to present value.

               The parties have not cited, and the court is not aware of, any
       Tennessee authority specifically addressing this question. However, under
       the most basic principle of contract damages the injured party is entitled
       only to be placed, as nearly as possible, in the same position as he would
       have been had the contract been performed. He is not entitled to be placed
       in a better position by the recovery of damages than he would have been had
       the contract been fully perform ed. Action Ads, Inc. v. William B. Tanner
       Co., 592 S.W .2d 572, 575 (Tenn. App. 1977); Great American M usic
       Machine, Inc. v. Mid-South Record Pressing Co., 393 F. Supp. 877 (M.D.
       Tenn. 1975); Clark v. Ferro Corporation, 237 F. Supp. 230 (E.D. Tenn.
       1964). See also Restatem ent (Second) of Contracts § 344 (1981).

Id. at 119.

       In addition, the bankruptcy court stated that in discounting the future rental

paym ents to present value, the court should utilize a rate of interest statutorily mandated

for the calculation of post-judgment interest. Id. at 120. With this we also agree.

Accordingly, we reverse the trial court's judgment in this respect pertaining to the

accelerated balance of rent due under the lease from the date of judgment until the

                                            10
expiration date of the lease, and remand this case to the trial court, as to this issue, with

instructions to discount the future rental payments to be awarded utilizing the interest rate

mandated for post-judgm ent interest in accordance with T.C.A. § 47-14-121 (1995).

                               IV. Plaintiff's Attorney Fees

       Finally, defendant contends that the trial court erred in awarding attorney's fees to

plaintiff's counsel in the amount awarded, and, in light of this record in awarding attorney

fees at all. To keep matters in context, the lease under which the parties are operating

provided that,

       In case suit should be brought for recovery of the premises, or for any sum
       due hereunder, or because of any act which may arise out of the possession
       of the premises, by either party, the prevailing party shall be entitled to all
       costs incurred in connection with such action, including a reasonable
       attorney's fee.

At trial, plaintiff put on no proof as to the amount of time and labor expended on this case

or what a "reasonable" fee under those circumstances would be. The only mention of

attorney fees by plaintiff was in his closing and opening arguments. Plaintiff’s counsel

concluded his opening statement to the court with the following:

              I guess the last item on my list, and first in my heart, would be that
       the lease calls for attorney's fees; and we would ask the court for reasonable
       attorney's fees; and we would subm it to the court that this has been an on-
       going process from about August of '93 to date.

In the trial court's memorandum opinion the court said simply: "an attorney's fee of 15%,

standard in this jurisdiction, will be added pursuant to paragraph 22 of the lease."

       We think this was error on the part of the trial court, not only in aw arding plaintiff

a fee of 15% of the amount of the judgment, but in awarding an attorney fee at all. W e

base this conclusion upon a holding by the western section of this court in Cummings &

                                             11
Co. v. Mascari, 402 S.W.2d 719, 727 (Tenn. A pp. 1965). In Cummings, the contract sued

on provided that in the event the lessor was required to institute suit w ith the enforcement

of any obligations of the lease of the lessee, and lessee agreed to pay "a reasonable

attorney's fee." Id. at 722. The trial court entered judgment for defendant and dismissed

plaintiff's suit. Id. at 722-23. On appeal, this court determined that plaintiff was entitled

to a reversal by the trial court and have a judgm ent entered in this court. Id. at 727. In

considering the various elements of plaintiff's damages, this court stated:

             We cannot, how ever, allow attorney's fees in the instant case,
       because the contract provides merely for a "reasonable attorney's fee" and
       no proof was offered in the lower court as to what would constitute a
       reasonable attorney's fee.

Id.

       This Court disallowed the recovery of attorney's fees based upon an earlier opinion

of this court in Nu-Way Ice Cream Mach. Co. v. Pig’n W histle, wherein we stated in part:

       In the absence of any proof as to what would be a reasonable attorney's fee,
       and the failure upon the part of com plainant to m ake any proof on that
       subject, we think that it stands as waived, and the chancellor was in error in
       fixing any amount unless there was an agreement by both parties that the
       chancellor could fix the amount without evidence, and no such agreement
       appears to have been made.

Cummings & Co., 402 S.W.2d at 727 (quoting Nu-W ay Ice Cream Mach. Co. v. Pig-n

Whistle, 65 S.W.2d 575, 579 (Tenn. App. 1933). We resolve this issue in favor of

defendant.

       Accordingly, we reverse the trial court’s award of future rent payments and remand

this aspect of the case to the trial court for further action not inconsistent with this

opinion. We reverse the award of attorney fees to plaintiff. Otherwise, we affirm the trial

court in all respects. Costs in this cause are taxed one-half to plaintiff and one-half to

defendant, for which execution may issue if necessary.

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______________________________________
                                         TOM LIN, Sr. J.

______________________________________
                                         HIGH ERS, J.      (CONCURS)

_____________________________________
                                         FARMER, J.        (CONCURS)

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