Farmers and Bankers Life Insurance Company v. St. Regis Paper Company v. F & H Warehouse Company, Third Party
456 F.2d 347
3rd Cir.
1972
Check Treatment

*2 THORNBERRY, Before MORGAN CLARK, Judges. Circuit Judge: THORNBERRY, Circuit This ease involves extent Regis) Paper (St. Company’s liability growing repudiation out of the under a lease contract light of the lease the destruction premises but before the end of the lease term.1 Texas, controversy courts there is no is in the federal the sub 1. This See, jurisdiction. controlling. diversity law stantive of Texas is virtue of g., Op Ray, e. Consolidated Sun the lease contract 1332. As § U.S.C. penstein, 8th Cir. 335 F.2d 801. located executed and February 27, 1959, On F & H Ware- theory measure of based on a Company (Warehouse Company) house agreed Lubbock, warehouse March, The case was tried in Bag Company Texas to Lubbock damage special answered two years period twenty April issues, theory both based on an- 1959 to March *3 1979. For the first 31, 1970, ticipatory breach. On March years stipulat- ten of the lease term the judgment the district court entered monthly $1,000.00, ed rent was to in- against Regis $95,000.00 part, St. in creasing $1,500.00 during the second jury’s based on determination of years. pay ten Lessee was to all taxes July value of the lease to the lessor from property on the and maintain the ware- I, 31, 1979, 1968 to March fair less the house. period. value for same We corporate merg- As a result of various affirm. ers, Regis obligated St. became as lessee Regis first St. contends that there December, 1968, in 1959. In Warehouse anticipatory has been no breach of assigned the lease contract argument lease. This on the is based Farmers & Bankers Life Insurance contention that lease contract re- B) (F security a as May 11, mained in force on and 1970 Regis occupy loan. St. continued to was the destruction of the terminated 1968, July, pay and warehouse rent until premises. undisputed It is lease Regis that St. it when abandoned May repudiated prior to the lease alleged basis of an constructive eviction. argues II, Regis, however, 1970. St. 6, 1968, accept repudia- On F B December & filed suit F B that & failed against Regis in keep St. state court to collect tion and instead chose unpaid July, rents accrued and in effect after its termination. until through December, Regis 1968 1968. St. applicable law, Texas an Under third-party answered and filed a action requires both a re breach against seeking Company, Warehouse pudiation acceptance by an the inno and liability. avoid double Com- party. Humphrey v. Placid Oil cent pany responded by claiming Company, E.D.Tex.1956, F.Supp. anticipatory breach. 184; 246, 1957, 5th Cir. F.2d aff’d, March, 1970 F B& filed its First Tarbutton, Warncke v. S.W.2d court, Amended in Petition the state (Tex.Civ.App. 1969, Antonio writ — San amending plea its for relief to include n.r.e.); Blakeway ref’d General Elec accruing rents since the ini- date Corporation, tric Credit pleading. damages sought tial thus 1968, ref’d writ — Austin $10,000.00, exceeded there- St. Casualty Company Continental upon removed the case to federal court Boerger, (Tex.Civ. diversity citizenship. on the basis of dism’d). App. 1965, Until — Waco May On acceptance by lessor, a tornado struck the lease is Lubbock, Texas, intervening purposes, the warehouse in effect for all completely destroyed. may breaching party On events relieve the February 19, 1971, F B& amended its contract de of his pleading prior repudiation. once more to include rents ac- Greenwall spite through May, crued 1970 and for the Markow Theatrical Circuit incorporated itz, (1904); first time an alternate 97 Tex. S.W. where, recognize States, 576; We as in the instant F.2d In 5th Cir. case, Erectors, a federal court is faced with a Wilhoit lack ternational Inc. v. Steel controlling judicial Serv., authority, state it 5th Cir. Erectors & Rental 465; Industries, must determine as best can what 400 F.2d Stevens Co., Maryland state court would F. decide confronted with Cas. 5th Cir. the same set of facts. v. United Cox 2d 411. right, (Tex. Pollack, purport Fto B all to transfer Pollack v. 39 S.W.2d 853 agreement. Foster, Com.App.1931); S. the lease Vise title and interest provided: It instead W.2d 274 — Waco n.r.e.). assignment shall constitute the issue The resolution of involved authority full to and to the direction must, therefore, turn the instant ease assignee upon pay lessee to demand acceptance St. whether there was all signee and other to as- benefits rents Regis’ repudiation prior termina- assignee shall or to whomever tion of the lease.2 hereby Further, owner, empower. assignee, option, at its authorizes F & B It is clear that did default,shall un- occur time accept Regis’ repudiation prior provisions this der the terms February Pleading Second Amended mortgage note, assignment or of the *4 19, time, F B had 1971. Until that & instruments, security to enter or other maintained course of con a consistent by mortgaged upon the said evidencing to desire intent duct agents employees officers, its or keep and effect the lease in full force operation of said and maintenance bring only pay rental and to suit mortgage premises. they v. as See Perkins ments accrued. (Tex.Civ.App. Harper, 241 330 S.W.2d assignment on its face shows thus The 1959, ref’d —San Antonio writ only in an that it was made to secure Kingsbery Compa Phillips v. Petroleum by Company Warehouse debtedness owed ny, (Tex.Civ.App 315 S.W.2d 561 only by F acquired . —Aus to F & The B. 1958, n.r.e.); Marathon tin writ ref’d assignment by to B & virtue Company Rone, Oil 83 S.W.2d 1028 v. have its debt out of reimbursed (Tex.Civ.App. 1935, writ Worth proceeds. — Ft. did not transfer Warehouse It ref’d); Kendall, Leonard v. 190 S.W. Company’s F B. lessor to & status as 1916, (Tex.Civ.App. writ 786 ref’d). 383, Perry, — Dallas 13 See v. 76 Tex. Cawthorn argues, F however, & B that Gillard, Lewy (Tex.1890); v. S.W. 268 Company’s Warehouse patory claim for antici 1890); 400, (Tex. 76 13 304 Tex. S.W. December, 1968, in breach Company Railway Ft. Worth & Denver action, Regis’ third-party answer to St. (Tex.Civ. Ferguson, v. S.W.2d Regis’ operated acceptance as an of St. dism’d). App. 1953, writ Worth — Ft. repudiation. assignment Regis that contends St. assignment prohibit operated surrender at The least to contract between by Company F & B not of the lease Warehouse Warehouse did Taylor, Corp. B F & contends that no election of rem v. 448 S.W.2d Credit necessary writ) ; 1969, (Tex.Civ.App. Tyler edies is until time trial. no of — Lines, Ads, ordinarily Rapid true. Transit McKenzie Transit (Tex.Civ.App.— Carte, Inc., (Tex.Civ.App.— S.W.2d writ); Haddaway Corpus e.) ; Christi writ ref’d n. r. Eastland (Tex.Civ.App.— Tarbutton, Smith, Warncke 277 S.W. writ) ; of Antonio writ Restatement Amarillo — San n, e.) ; Williams, 320; r. Williston Wood v. 46 S.W. on Contracts § Contracts Ed.). (3d § 2d 332 Antonio — San dism’d). by Only F & if failure authorities cited to elect Xone of the intervening B, however, repudiator act is relied or if the involve ui>on itself, repudiation prior might, agency ter- is withdrawn to ac which and of appear ceptance party normally cases the innocent lease. Xo Texas minate the circumstances, point. First Nat’l of bound. Johnson v. Bank be in to courts, gen- Marlin, (Tex.Civ.App.— S.W. 990 believe that Texas previously, ref’d) ; would Austin Lumbermen’s enunciated eral rules prior Klotz, Mutual Cas. 5th Cir. hold that termination Co. repudia- acceptance F.2d induce de 499. Efforts lessee’s lessor’s any faulting party negate operate claim its do contract tion would not waive offered breach. Commercial lessor express without consent F B. shall be extended for a like Assuming Regis standing that period St. of time. Should [Warehouse complain of F Company] & B’s failure to consent elect not to rebuild said im- Company’s acceptance provements Warehouse , . . . then this Regis’ repudiation 3, St. dowe think lease shall terminate language assignment op- that payments provided hereunder shall thought by Regis. erates as St. cease as of the date of such destruc- added) (Emphasis tion .... assignment destroys face general Company’s none of proof Warehouse provided No has been F rights Any right entry as lessor. or B or Warehouse elected at granted B, forfeiture F & ex- premises. Surely time even not to rebuild the Regis, clusive as contended did St. such an election cannot inferred from option, take until “at effect the mere failure of Warehouse any time after default Regis’ repu- Warehouse [of to rebuild in the face of St. Company] provision shall occur.” This diation. had withdrawn its prior should the issue settle once and for all. and Warehouse Com- alleged Compa- pany It is not rebuild, Warehouse had refused we would ny had defaulted on its note or its obli- have less trouble with this contention. gation Fto & B. Until such occurrence Under the circumstances of the instant Company by plain case, however, terms no such offer to withdraw *5 assignment specifically reserved inappro- was made. We thus find it premises the to priate penalize the enter and ac- to cept Regis’ repudiation. St. for the in the mere failure rebuild to Regis’ pay face of St. to rent. refusal We therefore hold that Warehouse Foster, supra See Vise v. 247 S.W.2d at Company, in accordance with its status (motion rehearing). 282 for rights assign- as lessor and its under the agreement, accepted repudia- ment the Regis St. next contends that the by Regis prior tion St. termina- by measure of district used the tion of the lease. harmony general court is not in with the damage compensatory principles ef in gratuitously point We out that even involving for cases fect breach of con it could be determined no such ac- damage purpose tract. The awards ceptance prior occurred to the destruc- admittedly compen in such cases is May 11, tion of the warehouse on injured party sate for loss the occa dispositive. we would not find this fact by breaching sioned the conduct the We are further- unconvinced that wrongdoer party, penalize lease was terminated on that date. The plaintiff to allow a windfall. recover pertinent provides lease g., Blakeway E. v. General Electric part: Corporation, Credit 429 S.W.2d 925 premises Should the leased be de- (Tex.Civ.App. ref’d writ — Austin stroyed by windstorm or . . . n.r.e.); Adams v. Eastex Finance Com ., act of God . . [Warehouse (Tex.Civ.App.— pany, 379 S.W.2d 355 Company] may, option, re- Tyler 1964, history) ; Manney no writ v. premises, in which event build such Burgess, (Tex.Civ.App. payable the rent hereunder shall abate 1961, writ). —Ft. Worth beginning period for time terminating Regis, with such destruction and St. basis of these again premises principles, for when the are fit claims that district court occupancy term of this taken should have the ultimate destrue- authority Ry. Ferguson, 3. There is some to the effect that Worth Denver Co. Regis only protection (Tex.Civ.App. St. is entitled S.W.2d 874 Worth —Ft. dism’d). paying obligations from the risk of un- agreement der its lease twice. Cf. Ft. into do His failure to do so before the consideration so. tion of warehouse damages. cannot, therefore, assessing theo time trial serve to Under this any mitigate obligation. Regis’ Regis ry, be liable for would not St. St. damage May 11, All cases after judg A examination close proposition this cited St. ment’s effect on Warehouse breach, after in which involve situations B F will reveal that no windfall intervening trial, events but before lease, Under accrued. Ware party performance the innocent made house would have entitled been must be impossible.4 A distinction amount of to receive lease rentals authorities these made between $189,000.00, plus taxes and maintenance the inno effect Texas cases to the building on its remainder for the re party is not cent term. The benefit of Warehouse anticipatory quired, in order to recover Company’s bargain by the found was damages, un $95,000.00. in the amount of The lessor need der the contract. charged consider premises for the les maintain the leased of income that Warehouse Com amount Blake see under such circumstances. pany expect could way Corporation, Credit General Electric remainder of the lease term. Advisors, pra; Employment In su computation method of assumes that Sparks, corporated 364 S.W.2d at Warehouse warehouse will be rebuilt ref’d 1963, writ — Waco comports Company’s expense with Winkler, 388 S.W.2d Evons v. generally accepted dam measure of (Tex.Civ.App. Corpus Christi — ages See, g., e. n.r.e.). also Roehm See Watkins, White Horst, L.Ed. 178 U.S. S.Ct. writ); — Waco Mining (1899); Company v. Anvil (1961). Comment, Baylor L.Rev. Humble, 876, 38 540, 14 153 U.S. S.Ct. Regis can for no more. ask (1894); Theatrical L.Ed. Greenwall *6 Markowitz, Company 97 Tex. Circuit dissenting all to our With deference Young 479, (1904); 79 S.W. jury colleague, further consid- we think Watson, (Tex.Civ.App.— S.W. warehouse will eration of whether the ref’d); 1911, Williston Galveston unnecessary. likely In- is rebuilt be ed.) (3d on Contracts § depreciable the is asset here a volved going con- which in a business cost of im- does not The instant case involve always, of ex- in the absence cern can possibility performance an auto- or of recouped. traordinary circumstances, be upon the of the matic termination lease Company the rebuilds If specified in- Warehouse happening It a event. of of the term will at the end only obligation warehouse it lessor volves have, will possess asset and fully capable per- a valuable of which lessor was depre- remaining during term, Although the forming all Ware- at times. remaining no There is cost. ciated the Company had instant case house the disagree, doubt, not right and the dissent does capacity the contractual the jury the under circumstances obligation, these that it is clear hand, If, other obligation correct. on the verdict is he had no Texas law that N.J.Super. Stanisci, Vending, v. Island Oil & New York Trust Co. (1962) (destruction 12, of Corp., A.2d 393 34 F.2d 653 Trans. 2d Cir. rebuild) ; right by fire, party) ; no (bankruptcy v of innocent Jones Corp., Fuller-Garvey (Al S.D. Corp., Internat’l v. Hoffman Hodes N.Y.1968, P.2d 838 F.Supp. 252; (bankruptcy prem (destruction 1963) leased aska of plaintiff). Con by rebuild) ; also 6 Williston fire, See Fratelli of ises no 1938) (Ref. ed. Pantanella, at 4996 tracts § S.A. v. International Comm’l illegality supervening (rule only applies (Sup.Ct.1945) Corp., 89 N.Y.S.2d 736 impossibility). (failure govt, rendered of obtain license impossible) ; Model consummation of sale rebuild, it not does Antonio — San nothing, spends n.r.e.); Allen, has no assets at the end writ ref’d Heller & Co. gets term, depreciation of (Tex.Civ.App.— the lease no gains expense, only Corpus the amount of Christi gain the Watkins, verdict. Ware- net White writ). house would thus be identical — Waco reaped Thus, present re- that the warehouse is if the value of the remain ing built. indeed if it is rentals zero —or any figure of less than the market value circumstances, Under these there plaintiff unexpired lease term —then is no cause further for considera recovery, permitted can because be proof tion in the absence damaged. Thus, the dif has not been peculiar some that because of circum the Tex ference between us is what gener particular stances in this case have how been as law is but it should ally accepted damages measure will applied to this case. plaintiff offer a windfall. This measure Ordinarily, simply— assumes that either the warehouse will advantageous lessor have such an did the be rebuilt least that it will make at he, that the les- with contract lessee Any no economic as difference. other sor, get premises if less he would for sumption part on our be deter would today, than when he first relet them mination from the re failure to mere so, with the lessee? contracted Regis’ repudia build in the face of St. breaching pay old horn- lessee must tion elect that Warehouse price “difference between book ed to rebuild trial. time of price.” In the normal situa- market would, An election after the time of trial tion, jury’s be a calculation will not course, damages not affect an an one, Step calculate the difficult one. ticipatory complete ab remaining present rentals. value tending sence of evidence to show two, Step what (cid:127)'lessee determine negative consequences economic get open mar- could option rebuild, exercise only generally today. This ket must decline to so assume. By very prediction. definition judgment Accordingly, dis- awards, is all it breach trict court is affirmed. today compensation can be— period. likely future will in a accrue CLARK, Judge (concurring in Circuit jury’s will function cases the In a few part dissenting part). *7 if lessor the further: reduced even be longer perform Judge Thornberry’s I concur in all some reason can of for opinion except under and the part that related the man- his of the to payments, presented ner in which further the was lease forfeits resolving It is this present their is zero. task of the of dam- value issue then the ages resulting aptly Regis’s majority des- anticipa- type the has of case tory perform- “impossibility agreement. ignated of breach of the As an agree option majority points the to the I that out, for case. the basis ance” premises event of in the damages the the measure of in such rebuild rule lease, takes this a in this situation Tex- their destruction well-settled under category. “impossibility” compensation penal- as of the law —it case out not agreement Proper damages ends. equal point ization. the our this But analogized a represents to which cannot amount difference case be the This “duty present maintain” between to the value of remain- of the claim of breach a party ing lease, innocent rentals contracted “the for in case wherein clause the in required, or- the of is not reasonable cash value market damages, unexpired the for term. der recover Tarbutton, con- the Warncke tract,” “only assessment, an obli- that involves initial or it Without that no intel- ligent gation present lessor was of the lessor which estimation of the of value rentals, fully performing capable times.” of at all future the reasonable cash unexpired market value of the term agree apropos, I would were this possibly could That crucial made. “(t)he the maintain that lessor need not consideration was omitted from the premises leased lessee under for the jury’s charge deliberations. The in- However, circumstances.” with such deference, granted structed the to take for analysis an mischarae- such rebuilt, that the warehouse would be terizes the case. The situation before simply might opt because re- lessor a of main- us does not involve charge build. a Such divides all cases taining premises, there were for genre groups: impossibili- this into two premises it left Nor does to maintain. ty performance certainty per- obligation that of the lessor involve formance. I would refuse invade the might require it think it futile to jury’s province They in such a fashion. breach, light perform in lessee’s the prediction should make of fact. the company has no obli- for the warehouse I would affirm as ac- to breach and gation option has an to revive —it ceptance judgment but reverse Here, there a total destruc- lease. was remand to the lim- lower court for trial object contract, an tion of damages. ited to the issue of by the les- event which if not rectified permit parties would introduce sor, specifically parties pro- have upon evidence the likelihood that suspension of vided will effect—not a warehouse would have been rebuilt. penalty lease, not a for failure to jury then could consider evidence perform, a not sue determining amount, any, complete a termination con- —but plaintiff damaged by which tract.

Thus, though agree I it in- would be plaintiff find

correct us to damaged by breach,

not been theory impossi- that it would have been perform,

ble for I think we commit presuming conclusively

error it would agreement revivify

have acted to remaining plaintiff-les- term. For facing problem merely sor was Ward, Mary J. Truman WARD M. maintaining good work- Plaintiffs-Appellants, ing order; to have demanded order single dollar of rent after date of de- America, UNITED STATES struction, plaintiff faced the would have Defendant-Appellee. reconstructing task of ware- entire No. 71-1242. implication I house. make no whatever Appeals, United States Court of plaintiff would have rebuilt. *8 Sixth Circuit. appellate That is not a for this Feb. jury. court. It is one for a trial But was the court—not decid- the —that

ed it in the case at bar. important most element of the

jury’s prediction in this case concerned comparable

the likelihood that a ware- produce

house needed to income during unexpired term of brought would be back into existence.