Opinion
Civ. No. 284.
March 2, 1945.
W. Thomas Knowles (of Knowles Allmond), of Wilmington, Del., for plaintiff.
Thomas M. Keith and Leighton S. Dorsey, both of Wilmington, Del., for defendant.
Action by Richard Paul, Inc., against Union Improvement Company for damages for breach of covenant in a written lease and for breach of an alleged collateral oral agreement wherein the defendant filed a counterclaim.
Judgment for plaintiff.
See, also, 3 F.R.D. 372.
This is an action tried to the court by a tenant against defendant-landlord to recover damages in the amount of $17,050, for breach of covenants in a written lease and for breach of an alleged collateral oral agreement. The lease was executed on May 11, 1942. Under its terms plaintiff was to have possession of the basement, first and second floors, together with an areaway, necessary stairways, etc., of a building located at Ninth and Walnut Streets, in the city of Wilmington, for a term of three years, commencing June 1, 1942. The third paragraph of the lease, the main source of dispute between the parties, provides:
"3. The Lessor agrees to renovate and put in order the present heating and plumbing system, and the elevator, and immediately after the execution of this Lease, further agrees to spray with lime, the interior of the premises herein demised; to replace all broken glass; and to make such other minor repairs as are necessary to the interior of the premises herein demised, provided, however, that if the costs of the repairs set out in this paragraph exceed the sum of Twelve Hundred Dollars ($1200.00), the Lessee will pay one-half of the costs in excess of the sum of Twelve Hundred Dollars ($1200.00), but it is mutually agreed and understood that the aforesaid repairs shall in no case exceed the sum of Eighteen Hundred Dollars ($1800.00). Lessor also agrees to keep the roof of said premises in repair."
Plaintiff claims the provisions were not complied with by defendant and plaintiff was required to make the repairs contemplated by this clause.
At trial it appeared an officer of plaintiff inspected the premises some time prior to the execution of the lease. He testified that under his interpretation of the lease various specific repairs were to be made, but that the major part of the $1,200 mentioned was to be allocated to certain minor repairs. There is some dispute of fact as to what repairs were made. Plaintiff introduced evidence which showed it made certain repairs to the extent of $565.63 and claims this was necessary because defendant failed, in breach of its covenant, to make these repairs. This work was completed on June 20, 1942. Defendant introduced evidence showing it spent the sum of $1,218.13, but after cross-examination it appears this sum was spend on the entire building and not merely in connection with the demised premises. Since defendant's evidence is inconclusive as to the exact apportionment of the amount expended on the demised premises and on the rest of the building, the court concluded that the sum of $478.25, which amount was specifically shown to have been expended on the demised premises, is the sum properly allocated to this item.
At trial it was shown the keys to the property were delivered by defendant to plaintiff on June 1, 1942, and plaintiff paid the first monthly installment of rent on that day. On or about June 3, 1942, or 22 days after the execution of the lease, plaintiff made an inspection of the demised premises. Plaintiff testified the inspection indicated the premises were wholly unfit for the use to which plaintiff intended them to be put. The evidence indicated plaintiff intended to use the premises for the purpose of manufacturing a textile which sells under the trade name of "Peds" and plaintiff desired the specific premises in order to satisfy expansion of its business. "Peds" is a trade name for a textile product used by ladies who do not wear stockings, in the inside of their shoes and which has become popular as a result of the wartime scarcity of women's hosiery. The evidence shows defendant knew of plaintiff's intended use of the premises and of its particular needs.
Paragraph 4 of the lease provides as follows:
"4. It is further understood and agreed that the Lessee shall use the herein demised premises for the purpose of carrying on its business of manufacturing and dealing in textile products, or other products, the the manufacture of which will not be detrimental to the aforesaid premises, and for no other purpose whatsoever."
On June 11, 1942, plaintiff by letter complained to defendant about its failure to put the premises in a proper condition. The letter also gave quotations for certain repairs which plaintiff deemed "absolutely necessary before we can occupy the building."
On June 18, 1942, before the repairs were completed, the building inspector of the city of Wilmington notified defendant corporation that it was lawful for any person to occupy the demised premises for two reasons: (1) that the alteration work was being done in violation of the city building code and (2) that the building as it stood constituted a fire hazard. On July 23, 1942, defendant proceeded to do certain construction work required by the building inspector. This work was completed on September 9, 1942. At trial plaintiff sought to establish a collateral agreement between the parties to the effect that, prior to the execution of the lease, the building complied with the building code of the city of Wilmington. The basis of this alleged agreement is that defendant's agent was requested to see whether the building complied with all the fire ordinances and his reported reply, after he had "made a visit to the City Hall," was that the building was satisfactory in every respect. Plaintiff also seeks to rest the collateral agreement upon its interpretation that the lease contains an implied warranty that the building was satisfactory for the particular purpose mentioned in the lease. Rent for the demised premises was paid on the first day of June, July, August and September. Concededly, the payments made on the first day of August and September were made under protest; and the June 1st payment of rent was not made under protest. Plaintiff claims the rent paid on July 1, 1942 was paid under protest by virtue of the language of a certain letter, a portion of which is set forth in the margin. Plaintiff claims it had the right to make these payments under the lease and apparently made them in affirmance of the lease.
The letter in question was sent to George C. Hering, Esq., who at the time served as counsel for defendant. It reads as follows:
"In line with the conversation we had with you last week we went ahead and hired a contractor to clean up the building and constructed partitions so it will be in a tenantable condition as specified in the lease. After the completion of this work we will submit bills to you for reimbursement. A lot of valuable time has been lost. The building will not be ready for our use before July 15, 1942.
"In addition to this, the Union Improvement Co. has to do some reconstruction work on the elevator to comply with the city fire and safety laws, but as of today we have had no word from Mr. Hance when this repair work will be started or completed. Again this might interfere with our factory operation, and we feel it is Mr. Hance's obligation to notify us in that respect.
"So far we have made two monthly rental payments totalling $600.00, without having the possibilities to occupy the premises. Naturally you understand that we cannot tolerate this lax handling on the part of the Union Improvement Co. in the future and pay rent if the building cannot be occupied by us. We ask you to use your influence to get this matter settled as quickly as possible."
During July and August, part of the demised premises were occupied by plaintiff, but is was impossible to occupy all the premises and maintain its business of manufacturing its product in accordance with plaintiff's desires. Much evidence was introduced showing plaintiff's intention to expand its business, various steps taken in that direction, and of the loss of profits resulting from its inability to expand, as a result of defendant's alleged breach of its covenant.
In view of the holding made herein, it will be unnecessary to consider this evidence.
Plaintiff claims defendant broke the covenants contained in the written lease and in the alleged collateral agreement, and that it is entitled to recover (a) the money expended in making the repairs; (b) portions of the rent paid since the building was not fully occupied; and (c) loss of profits which it could reasonably have made if the facilities of the premises had been properly at his disposal. Defendant takes the negative of all these contentions.
1. There was a breach of covenant on the part of defendant. It is clear from the evidence that defendant failed to make the minor repairs contemplated in the lease. This is shown by the nature of the repairs made and paid for by plaintiff, which included cleaning the demised premises. It is equally apparent there was no collateral agreement that the building met the requirements of the various building ordinances of the city of Wilmington. There is no implied warranty that the premises are fit for the particular purpose to which they are to be put. Stein v. Bell Telephone Co. of Pa., 301 Pa. 107, 151 A. 690; Gellis v. Claremont Masonic Ass'n, 85 N.H. 416, 150 A. 295; Bernstein v. Karr, 34 A.2d 651, 22 N.J.Misc. 1.
Jurisdiction in this case is based upon diversity of citizenship. This court is bound by the rule of Erie Railroad Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, to follow the law of the state of Delaware on the landlord and tenant relationship and the other problems of substantive right discussed herein. Fidelity Union Trust et al., etc., v. Field, 311 U.S. 169, 61 S.Ct. 176, 85 L.Ed. 109; Meredith v. Winter Haven, 320 U.S. 228, 64 S.Ct. 7, 88 L.Ed. 9; Huddleston et al., etc., v. Dwyer et al., 322 U.S. 232, 64 S.Ct. 1015. 88 L.Ed. 1246; Barrett et al. v. Denver Tramway Corporation, D.C.Del., 53 F. Supp. 198, affirmed 3 Cir., 146 F.2d 701, though neither of the parties approached the problem in this light. In many situations discussed herein there is no applicable Delaware law. In such situations I have examined the general authority (and all other available data) on the point and accept that authority as the law of Delaware. Stentor Electric Mfg. Co. v. Klaxon Co., 3 Cir., 125 F.2d 820; Moyer v. Van-Dye-Way Corp., 3 Cir., 126 F.2d 339.
The basis of this result is that the rule of caveat emptor ordinarily applies between landlord and tenant and, in the absence of fraud, there is no liability on the part of the landlord even in situations where the premises are so unsafe or unhealthy that habitation is impossible. The case of Leech v. Husbands, 4 W.W.Harr. 362, 152 A. 729, 731, while not directly in point, holds that the rule of caveat emptor applies between landlord and tenant in the absence of fraud. In that case the court said: "It, therefore, necessarily follows that in the absence of fraud, there is no implied covenant or representation of any character that a house or apartment is free from vermin, bugs, or disease germs, and that such conditions should usually be guarded against by express covenants. Hart v. Windsor, 12 Mees. W. 68; Naumberg v. Young, 44 N.J.L. 331, 43 Am.Rep. 380; Cutter v. Hamlen, 147 Mass. 471, 18 N.E. 397, 1 L.R.A. 429; 36 C.J. 47, citing Brown v. Delmos, 27 B.C. 471." The landlord, here, did not covenant that the premises satisfied any particular requirements. Paragraph 4 of the agreement which provides that "the Lessee shall use * * * premises for the purpose of carrying on its business of manufacturing and dealing in textile products or other products the manufacture of which will not be detrimental to the aforesaid premises and for no other purpose whatsoever" obviously is for the protection of the landlord and is not an implied promise that the premises meet any definite standard of requirements. The landlord did not covenant, then, that the premises satisfy any particular requirements. Liability can be imposed upon the landlord by express contract, but in the absence of this there is no implied warranty that the building is fit for the purpose for which it is intended to be used, or that it complies with the requirements of public regulatory bodies. The conclusion, therefore, is that there has been a violation of the written lease through failure to make the necessary minor repairs but that this is the sole breach committed by defendant. The question remains as to what damages plaintiff may recover.
The Leech case illustrates that absent any Delaware precedent, the Delaware courts follow the general authority.
Of course, if extraordinary repairs are required by regulatory bodies it may be true that this cost must be assumed by the landlord, but this does not mean that the tenant is relieved from the obligation to pay rent during the period of the repairs or that the tenant can require the landlord to assume the burden of loss of profits during the period of the repairs.
2. Clearly, plaintiff is entitled to recover the amount, to-wit $565.63, which it expended in making the minor repairs which defendant had wrongfully failed to make. In fact, in such situations there is a duty on the part of plaintiff to make these repairs. But, to what other damages is plaintiff rightfully entitled? It is entitled to no other damages. When plaintiff accepted the keys on June 1, 1942, and paid the rent it truly had possession of the premises and defendant did all that was required to deliver possession to plaintiff. Although at this time defendant had failed to make the repairs it had agreed to make it was plaintiff's duty to make those repairs and charge defendant with them, because the value of the repairs which had to be made was insignificant in relation to plaintiff's expectations as to the amount of money which it could reasonably make by a utilization of the additional plant facilities of the demised premises. The rule is that where a covenant is broken, the covenantee must mitigate his damages or, more accurately, that he can recover only for those losses which he could not avoid. Wise v. Western Union Telegraph Co., 7 W.W.Harr. Del., 209, 181 A. 302; Clark v. Marsiglia, 1845, 1 Denio, N.Y., 317, 43 Am.Dec. 670. This rule is based upon the immutable principle that the community's economic energies are not to be thrown away or mis-directed. In other words, contracts are not enforced by courts merely because the parties made them; the law asserts only such quantum of damages for breach of promises as seem most likely to promote the orderly efficient conduct of the community's economic life. Now, it is manifest that where the cost to a plaintiff is between $700 and $1,000 to alleviate the wrong of defendant, plaintiff cannot fail to make those repairs and charge defendant with upward of $15,000 of damages.
Defendant expended approximately $500. All the lease contemplated was $1,200, which would be $700 additional, and the maximum was to be $600 more, which was to be shared equally between the parties, which would make $700+$300 or $1000.
True, plaintiff could not have effectuated the repairs immediately. It must, however, have been within the contemplation of the parties that all the repairs could have been made within a period of twenty days, for the lease was made on May 11, 1942, and possession was to be delivered on June 1, 1942. But, even if plaintiff be allowed a period of twenty days within which to make the repairs, still it can not recover for loss of profits during such a period. There was an obvious and flagrant breach of covenant according to plaintiff's own contention; hence, plaintiff was under a duty to inspect the premises at the time it accepted possession on June 1, 1942. By paying rent on that day it waived defendant's breach of covenant. Moreover, after breach became obvious even to plaintiff, it nevertheless paid rent on July 1, 1942. The letter set forth above, dated July 1, 1942, cannot be construed to have the effect of making the payment on that day a payment under protest. Furthermore, it appears from the letter itself that the rent had already been paid at the time the letter was written. We have, then, a situation where the tenant continues in possession and pays rent after the covenant is fully broken. In such a situation the breach is waived. Meyers v. Johnson, 186 Ill. App. 37; Deuster v. Mittag, 105 Wis. 459, 81 N.W. 643. Cf. the converse situation in Lofland v. Emory, 2 Har., Del., 297.
While there is no precise Delaware authority, the rule stated is nothing but a particularized example of the general rule of waiver of requirements by conduct inconsistent with their enforcement. See Shepard Land Co. v. Banigan, 36 R.I. 1, 87 A. 531. Cf. Randel v. President, etc., Chesapeake D. Canal, 1 Har., Del., 233; Crumlish v. Wilmington W.R.Co., 5 Del. Ch. 270. See the excellent discussion of the rule in Curran v. Connecticut Indemnity Co. of New Haven, 127 Conn. 692, 20 A.2d 87.
The conclusion is that plaintiff is not entitled to recover any damages for loss of reasonable anticipated profits as a result of defendant's breach.
3. Plaintiff also claims that it should have certain rebates of the rent which it paid because the premises during the period (June to September) were not occupied, or at least not fully occupied. But plaintiff can not recover these payments. The whole theory of the plaintiff's case is the affirmance of the lease. Plaintiff's covenant to pay rent is an independent covenant and not dependent upon defendant's independent covenant to make repairs. Exchange Securities Co. v. Rossini, 44 Cal.App. 583, 186 P. 828. Of course, whether a covenant is dependent or independent is a question of intention of the parties to be gathered from the instrument as a whole. But courts lean to a construction which holds that covenants in a lease are independent rather than dependent. See Susswein v. Pennsylvania Steel Co., C.C., 184 F. 102, affirmed 2 Cir., 186 F. 1023; Meredith Mechanic Ass'n v. American Twist Drill Co., 67 N.H. 450, 39 A. 330; Brady v. Brady, 140 Md. 403, 117 A. 882. Here the covenants to pay rent and make repairs are independent, not only because of the particular language used, but also because a breach of the covenant to make repairs could be readily compensated for in damages.
4. Defendant's counterclaim is bottomed on the argument that the shaftway had to be installed solely as a result of plaintiff's wrongful alterations. Defendant argues it made all the repairs contemplated by the lease and plaintiff had no right to make repairs; but defendant did not make the repairs contemplated by the lease Plaintiff was accordingly justified in making the repairs and, as all repairs made by plaintiff were contemplated by the lease, they should have been made by defendant. Therefore, it is apparent that, if defendant had made the repairs in accordance with its agreement, it too would have been obliged to construct the shaftway, for the building inspector of Wilmington would have made an inspection before granting defendant the right to make the repairs. But it is unnecessary to resort to such metaphysical reasoning, for the plain fact is that defendant was under a legal duty to conform the shaftway to the law. That plaintiff, by its complaint to the building inspector, started steps looking to compliance is unimportant. The defendant was under an absolute and independent legal duty to make the shaftway conform to the requirements of the building code. Even if it were true that had not plaintiff made the alterations, the building inspector would not have required construction of the shaft-way, defendant's position is still no better for plaintiff's alterations were a direct result of defendant's breach of its agreement. The conclusion is that defendant is not entitled to recover under its counterclaim.
Of course, it must be assumed that defendant would inform the building inspector and secure a permit before making the agreed repairs.
The building inspector at the trial testified that the shaftway did not conform to the building code. This was the reason for his requirement that it be changed. No appeal was taken from his order of change of the shaftway. Hence, I shall assume that he correctly interpreted the requirements of the building code.
Judgment should be awarded to plaintiff for $565.63.