Opinion
No. 70-232 (Supreme Court No. 23270)
Decided May 19, 1970.
Action for damages resulting from breach of contract brought by lessor against guarantor of lessee. From judgment awarding lessor damages for unpaid rental, reimbursement for taxes paid, and cleaning and restoring expense, defendant appealed. From denial of award under the terms of the lease providing for additional payment upon non-renewal of the lease, plaintiff appealed.
Affirmed in Part, Reversed in Part.
1. DAMAGES — Unpaid Rental — Express Lease Provisions — Total Lease Obligation — Credit — Rentals Received — Award Affirmed. Where the trial court gave full weight to the express provisions of the lease by crediting against the total lease obligation all rental amounts which were proved as having been paid to the lessor and by holding the defendant liable only for the remaining deficiency of the total rental, the damage award for unpaid rental is held to be affirmed.
2. LANDLORD AND TENANT — Payment of Outstanding Taxes — Lessor — Consistent — Obligation to Mitigate Damages — Lease Provisions. Where tax authorities informed lessor that they would invoke their powers of lien, distraint, and sale to obtain the unpaid taxes on the leased property, and where an express provision of the lease provided that all the leased property would be returned to the lessor in as good order and condition as on the beginning of the lease, the lessor was acting consistent with the lease provisions and its own implied obligation to mitigate damages when it paid the outstanding taxes.
3. APPEAL AND REVIEW — Constitutionality — Statutes and Ordinances — Not Raised at Trial — Not Considered On Appeal. Since the constitutionality of certain statutes and ordinances was not raised at the trial level it may not be considered upon appeal.
4. GUARANTY — Guarantor — All Covenants of Lease — Liable — Change and Repair Expenses — Upon Reentry — In Accordance — Lease Provisions. Where guarantor, by express provisions of the agreement, guaranteed, not only the payment of rent, but also the performance by lessee of all the covenants of the lease, guarantor necessarily became liable for change and repair of the leased premises performed by lessor in accordance with the reentry provisions of the lease.
5. LANDLORD AND TENANT — Lease Terms — Provided — If In Default Opted — Pay $1000 — Intent of Parties — Should Be Enforced. Where terms of the lease provided that if lessee were in default at the end of lease term he would be conclusively presumed to have opted to pay lessor $1000 rather than renew at a higher rental, the language represented a clear expression of the intent of the parties and should be enforced as written.
Error to the District Court of the City and County of Denver, Honorable, Edward J. Keating, Judge.
Norton Frickey, for plaintiff in error.
Gorsuch, Kirgis, Campbell, Walker and Grover, James H. Turner, Bruce Ducker, for defendant in error.
This case was originally filed in the Supreme Court of the State of Colorado and was subsequently transferred to the Court of Appeals under the authority vested in the Supreme Court.
The plaintiff in error, Stanley Horacek, whom we shall refer to herein as "Horacek," was the defendant below. He, together with other parties who are not parties to this appeal, was sued for damages arising from breach of a business lease. The action was brought by Cherry Creek Corporation, which corporation is the defendant in error here and shall be referred to as "Cherry Creek."
Horacek was the guarantor to a certain lease agreement between Cherry Creek as lessor and a corporate lessee, El Cid, Inc. Under the terms of this guaranty agreement, Horacek guaranteed the payment of the rent payable under the provisions of such lease agreement, and also guaranteed the performance by the lessee of all covenants and agreements contained within the lease agreement.
Under the provisions in the lease agreement, El Cid, Inc., was obligated to pay a total rental in the amount of $9,900 for an eleven-month term, which rental was to be paid in monthly installments of $900 per month. Under the terms of a rider attached to the lease document and executed by Cherry Creek and the lessee, provision was made for the renewal of the lease for a two-year term. This provision appeared as a subparagraph designated as "(a)" in the rider. Following such clause appears this subparagraph:
"(b) In the event that the lessee shall not renew this lease for the above mentioned two-year term, the lessee shall pay to the lessor the sum of $1,000.00 as additional consideration for the leasing of the premises. Said sum shall be due and payable at the end of the initial term."
Thereafter the lease rider specifies as follows:
"If at the end of the initial term of this lease, the lessee is in default in the payment of the rent or in any of the covenants and agreements on its part to be performed, or if this lease has been previously terminated, or if the lessee shall fail to notify the lessor of the option to be exercised by it within the 60 days prior to the expiration of the initial term of this lease, then the lessee shall be conclusively deemed to have exercised the option (b) hereinabove stated. . . ."
The only tangible evidence submitted at trial established that El Cid, Inc., paid a total of $6,300 to Cherry Creek. Possession of the leased premises appears to have been retaken by Cherry Creek sometime during the month of December 1964 after rentals were not paid for the months of September, October, November and December of that year. The premises were subsequently relet to a new tenant who paid rental to Cherry Creek in the amount of $1,200 for the months of January and February 1965. Prior to the reletting, Cherry Creek performed certain restoration and cleaning work within the leased premises.
Trial of the matter was to the court. On conclusion of the trial, the trial court entered the following judgment amounts against all of the defendants in the proceeding, including the guarantor Horacek: (a) The sum of $2,400 for unpaid rental, which was computed on the basis that the total rental under the lease was $9,900 and that deductible from such amount was the $6,300 proved as having been paid to Cherry Creek by the lessee and also $1,200 proved as having been paid to Cherry Creek by the subsequent lessee; (b) the sum of $929.75, being the aggregate amount of taxes paid by Cherry Creek to the State of Colorado and the City and County of Denver for withholding, sales and use taxes which were owed to these authorities by the lessee, El Cid, Inc.; and (c) the amount of $4,609.58 to compensate Cherry Creek for expenses incurred by it in cleaning and restoring the leased premises after it retook possession.
In addition to awarding Cherry Creek the above damage amounts, the trial court's order specifically denied that Cherry Creek had any right to recover the $1,000 payment provided for in subparagraph (b) of the lease rider. In so holding, the trial court reasoned that since the lessee was not in possession of the leased premises during its renewal option period it could not renew the lease term. Also certain expenditures for plumbing and temperature control which were paid by Cherry Creek were denied by the trial court.
Horacek contends on this appeal that the trial court erred in entering any of the above judgment amounts in favor of Cherry Creek. By way of cross-error, Cherry Creek contends that the trial court erred in denying its right to recover the $1,000 payment provided for in the lease rider.
1. DAMAGES FOR UNPAID RENT
We hereby affirm the damage award made by the trial court for unpaid rental. Under the provisions of the lease, the parties agreed that in the event the leased premises were left vacant and any part of the total rental was unpaid, the lessor could retake possession of the premises and rent the same for such rent and upon such conditions as the lessor thought best, making such changes and repairs as might be required. In connection with these covenants, the lease parties also agreed that such actions on the part of the lessor could be performed without termination of the lease and that the lessee would remain liable for the balance of the total rental reserved in the lease document, with the exception that credits would be given for any amounts received from subsequent renting of the leased premises. The validity of lease provisions of this type has been expressly upheld by our Supreme Court. Ruston v. Centennial Real Estate and Investment Co., 166 Colo. 377, 445 P.2d 64.
It is clear here that the trial court gave full weight to these express provisions in the lease by crediting against the total lease obligation all rental amounts which were proved as having been paid to Cherry Creek and by holding El Cid, Inc., liable only for the remaining deficiency of the total rental.
2. DAMAGES FOR LESSEE'S UNPAID TAXES
The premises which were leased by Cherry Creek to El Cid, Inc., consisted of a building owned by Cherry Creek and previously used as a restaurant and cocktail lounge. The use of the premises by El Cid, Inc., was for these purposes, and when the premises were relet, it was for such purposes. The parties agree that all of the restaurant and lounge fixtures and equipment utilized by El Cid, Inc., were owned by Cherry Creek, and it appears these same fixtures and equipment, after cleaning and restoration, were utilized by the tenant to whom the leased premises were relet. Uncontradicted testimony at trial was to the effect that in January 1965 tax officials of the State of Colorado and also tax officials of the City and County of Denver contacted the officers of Cherry Creek demanding the payment of withholding, sales and use taxes which had accrued as a result of El Cid, Inc.'s operations in the leased premises. The State of Colorado, by virtue of the provisions of C.R.S. 1963, 138-5-23(1)(a), claims, for unpaid sales and use taxes, a first and prior lien upon the goods and fixtures "of or used by any retailer under lease." Similarly, under the provisions of C.R.S. 1963, 138-1-61(7), which is controlling in this case, the State of Colorado claimed a lien for unpaid withholding taxes upon "all of the assets of the employer and all property, including stock in trade, business fixtures, and equipment, owned or used by the employer in the conduct of his business. . ." The City and County of Denver, under § 166.38-1 of its Ordinances, also asserts a power of lien for collection of City sales and use taxes upon the goods and merchandise, furniture and fixtures, tools and equipment of any retailer or used by any retailer in conducting his business under lease. Under these statutes and such ordinance, it is clear that mere use of personal property subjects it to lien, notwithstanding lack of ownership in the using party.
The evidence in this case was clear that tax authorities of both the State of Colorado and the City and County of Denver advised officers of Cherry Creek that they would invoke their powers of lien, distraint and sale for the purpose of seizing and selling the fixtures and equipment used by El Cid, Inc., in the operation of its business under the lease, notwithstanding the fact that such personalty was owned by Cherry Creek. In view of the express covenant contained in the lease that the lessee would redeliver to Cherry Creek the leased premises, including the furniture, fixtures, equipment, goods, chattels and other personal property therein, in as good order and condition as the same were upon commencement of the lease, it is our opinion that Cherry Creek was acting consistent with the lease provisions and consistent with its implied obligation to mitigate its own damages when it rendered payments of taxes to the taxing authorities in order to avoid loss of the personal property which had been leased to El Cid, Inc., and which was to be redelivered at the end of the lease term.
In this appeal Horacek has questioned the constitutionality of the cited statutes of the State of Colorado and the ordinance of the City and County of Denver. However, the question of the constitutionality of these statutes and such ordinance was not raised at the trial level and cannot be considered here. Johnson v. People, ex rel Kelly, 96 Colo. 175, 40 P.2d 615.
3. DAMAGES FOR RESTORATION AND CLEANING
As to this item of damages, Horacek contends principally that he has no liability with respect to the payment of the same, because it is not an item of damage for which he as a guarantor has any liability. Secondly, he asserts that the evidence did not support such damage award and that El Cid, Inc.'s use of the leased premises did not inflict any damage upon the leased premises and personal property beyond that of normal wear and tear.
As to his initial contention, we feel the express provisions of the agreement of guaranty are controlling insofar as defining the scope of his liability. Under the provisions of the agreement, he guaranteed, not only the payment of rent, but also the performance by lessee of all the covenants of the lease. As noted heretofore, under the provisions of this lease agreement Cherry Creek had a valid contractual right upon re-entry to change and repair the leased premises following retaking and to charge El Cid, Inc., with all necessary expenses incurred by reason of such changes and repairs. Horacek having guaranteed all covenants of performance and payment, he necessarily becomes liable for the payment of all amounts for which El Cid, Inc., was primarily liable.
As to Horacek's other contentions, our examination of the record discloses that there was substantial evidence upon which the trial court based its finding as to the amount of this damage item and that its finding should be upheld. Ruston v. Centennial Real Estate and Investment Co., supra. Additionally, the evidence here is such that we cannot conclude, as a matter of law, that the damages to the leased premises and the personal property therein was tantamount to normal wear and tear.
4. LIABILITY FOR NONRENEWAL PAYMENT
In our opinion the trial court erred in concluding that Horacek and the other defendants were not liable for the payment of the $1,000 amount provided for in subparagraph (b) of the lease rider, which was to be paid in the event the lease was not renewed for an additional two-year term. The trial court's conclusion in this regard was based upon the concept that, since lessee was not in occupancy of the leased premises at the time of the initial lease termination date, it could not exercise its renewal rights. The court's conclusion in this respect, however, overlooks the express provisions of the lease rider which specify that if the lessee is in default as of the end of the initial term it would be conclusively presumed that the lessee had exercised its option provided for by subparagraph (b) of the lease rider, namely, to pay the sum of $1,000 rather than to renew at a higher monthly rental. The language was a clear expression of the intent of the parties and should be enforced as written. Denver Plastics v. Snyder, 160 Colo. 232, 416 P.2d 370.
The judgment of the trial court is affirmed in all respects with the exception that so much thereof which denies the plaintiff, Cherry Creek, any recovery of the $1,000 nonrenewal payment provided for in the lease rider is hereby reversed, and this cause is remanded with directions that the trial court enlarge the amount of its original judgment from the date of entry by the amount of $1,000.
JUDGE COYTE and JUDGE PIERCE concur.