Cornerstone Equities, LLC v. Mahlen Investments, Inc.
34828-8
| Wash. Ct. App. | Sep 26, 2017Background
- Mahlen Investments leased commercial space from Cornerstone for five years beginning Sept. 1, 2013; Exhibit C required Cornerstone to complete several landlord improvements, including paving a 12-foot drive-through within 90 days after possession.
- Possession occurred Oct. 18, 2013; Cornerstone completed eight of nine items but did not pave the drive-through (Exhibit C item 8).
- Cornerstone and Mahlen executed a Feb. 24, 2014 written amendment acknowledging permit delays and reducing base rent by half ($2,185 → $1,092.50) "until the proper permits are issued and this improvement is completed."
- In June 2014 Mahlen notified Cornerstone by phone it would vacate; Mahlen stopped paying July rent and gave written notice (Aug. 1, 2014) it would vacate Aug. 31, 2014.
- Cornerstone sued for breach and to enforce a personal guarantee; after a bench trial the court found Mahlen breached (anticipatory repudiation and nonpayment), awarded Cornerstone damages but reduced them to the half-rent in the February amendment.
- Both parties appealed: Mahlen challenged facts/conclusions on breach and misrepresentation; Cornerstone cross-appealed the rent-reduction ruling. The appellate court affirmed and awarded Cornerstone fees on appeal.
Issues
| Issue | Plaintiff's Argument (Mahlen) | Defendant's Argument (Cornerstone) | Held |
|---|---|---|---|
| Whether Cornerstone breached by failing to complete the drive-through within a reasonable time (or under the original 90-day term) | The amendment did not eliminate Mahlen's right to terminate under original paragraph 5.3; Cornerstone failed to complete paving within a reasonable time and thus breached. | The Feb. 2014 amendment acknowledged permit delays and changed remedies; Cornerstone acted in good faith and was given time to cure under lease provisions. | Court: Amendment removed the 90-day deadline and imposed a reasonable-time standard; Cornerstone did not breach and had been working in good faith. |
| Whether Mahlen provided required written notice and allowed Cornerstone opportunity to cure before terminating/abandoning | Mahlen contends its June phone notice and subsequent conduct sufficed as notice. | Article 37 and Article 22 require written notice specifying default and time to cure; Mahlen never gave proper written notice and also defaulted by nonpayment. | Court: Phone notice was insufficient; Mahlen failed to give the written notice and cure opportunity required by the lease and therefore breached; nonpayment further supported breach finding. |
| Whether Cornerstone made negligent or intentional misrepresentations inducing Mahlen to lease or remain | Cornerstone misrepresented feasibility/timing of drive-through construction and permit status; Mahlen relied to its detriment. | Representations related to future events and estimations, not present facts; evidence showed Cornerstone took steps and did not knowingly misrepresent; Mahlen failed to prove tort elements by clear, cogent, convincing evidence. | Court: No negligent or intentional misrepresentation; promises about future events do not support fraud/negligent-misrepresentation where essential elements are unmet. |
| Proper measure of damages (full original rent vs. reduced rent per amendment) | Mahlen argued offsetting issues (deposit, CAM charges) and contested some charges; generally argued Cornerstone shouldn’t recover full rent. | Cornerstone argued Mahlen’s anticipatory breach excused further performance so Cornerstone was entitled to full lease rent. | Court: Mahlen breached; but the Feb. 2014 amendment expressly reduced base rent until completion. Award reduced to half-rent as amended; Cornerstone prevails and is entitled to appellate fees. |
Key Cases Cited
- Willener v. Sweeting, 107 Wn.2d 388 (re: treating mislabeled findings/conclusions as findings)
- City of Tacoma v. State, 117 Wn.2d 348 (standard of review for bench trial findings)
- Moreman v. Butcher, 126 Wn.2d 36 (unchallenged findings are verities on appeal)
- Pepper & Tanner, Inc. v. KEDO, Inc., 13 Wn. App. 433 (court-implied reasonable-time standard when contract silent)
- Jarstad v. Tacoma Outdoor Recreation, Inc., 10 Wn. App. 551 (reasonable time is mixed question; factfinder decides)
- Mike M. Johnson, Inc. v. County of Spokane, 150 Wn.2d 375 (requirement to enforce procedural contract notice requirements)
- Lawyers Title Ins. Corp. v. Baik, 147 Wn.2d 536 (elements and burden for negligent misrepresentation)
- Elcon Constr., Inc. v. Eastern Wash. Univ., 174 Wn.2d 157 (fraud requires clear, cogent, convincing proof)
- Havens v. C&D Plastics, Inc., 124 Wn.2d 158 (promises about future conduct do not establish misrepresentation of present fact)
- W. Coast, Inc. v. Snohomish County, 112 Wn. App. 200 (fraud elements framework)
- Viking Bank v. Firgrove Commons 3, LLC, 183 Wn. App. 706 (context on recoverability of certain management/common-area charges)
- Wagner v. Wagner, 95 Wn.2d 94 (contract interpretation; courts must honor parties’ language)