Northern Indiana Steel Supply Co. v. ChrismanNorthern Indiana Steel Supply Co. v. Chrisman
— This is an appeal from an action instituted by plaintiff-appellant, a lessor corporation, against defendant-appellee for damages arising from an agreement by the
The pertinent facts as set forth in the court’s special findings in this case are as follows:
On January 19, 1955, appellant leased by a written leasing-agreement to Pal Products, Inc., certain real estate, fixtures and personal property. The realty contained factory buildings and other improvements. Also included in the agreement was a lease of an amount of machinery and equipment totaling two hundred and twenty-one (221) items and office furniture and fixtures.
In consideration of the leasing, the lessee Pal Products, Inc., agreed to pay lessor the sum of Sixty-Eight Thousand ($68,000.00) Dollars per year for the premises and equipment for a term of three (3) years from January 19, 1955 to January 18, 1958. This annual rent was payable in monthly installments of Five Thousand Six Hundred and Sixty-Six Dollars and Sixty-Seven Cents ($5,666.67). Part of the consideration for the lease was the lessee’s promise to keep the premises in a satisfactory state of repair.
Concurrent with the execution of the leasing agreement, John Chrisman, the appellee executed a written guaranty by which he guaranteed all the covenants of the lease.
The lessee, Pal Products, Inc., paid to the lessor all monthly rental payments due under the lease to and including March 18, 1956. Before that date, on February 27, 1956, appellant-
The court found from the evidence that on March 13, 1956, lessor sold and allowed the removal of substantially all the machinery, equipment, furniture and fixtures that was the subject matter of the lease, such sale and removal being accomplished without the knoioledge, consent or ratification of the guarantor. Thereupon, lessor, again without the consent of either the lessee or the guarantor, demanded a lesser rental figure for the property without an agreed change being made in either the leasing agreement or the contract of guaranty. Upon all of the special findings of fact, the court stated the following conclusions of law.
“1. The lease between plaintiff as lessor and Pal Products, Inc., as lessee, terminated on the 13th day of March, 1956, by an acceptance of the surrender of said lease.
2. Regardless of the termination of the lease as aforesaid the defendant, as guarantor, is not (and would not be) liable for any default of the lessee, Pal Products, Inc., after the date of March 13, 1956.
3. The law is with the defendant on all issues involved in this action with the exception that the defendant is liable to the plaintiff in the sum of Four Thousand Seven Hundred Fifty-five Dollars ($4,755.00) for damages suffered by plaintiff by reason of the failure of lessee Pal Products, Inc., to keep the leased premises in a satisfactory state of repair during the said lessee’s occupancy of the leased premises prior to March 13, 1956.”
Appellant asserts four (4) assignments of error for reversal : they are that
(1) The trial court erred in overruling the motion of plaintiff (appellant) for a new trial;
(2) the trial court erred in its conclusion of law No. 1;
(3) the trial court erred in its conclusion of law No. 2; and
(4) the trial court erred in its conclusion of law No. 3.
Did the trial court err in holding that the lessor and lessee had acted sufficiently to terminate the guarantor’s obligations on the lease?
Appellee guaranteed performance of all the covenants of the lease by written guarantee as an absolute guarantor. The liability of a guarantor is usually measured by the liability of the principal. 38 C. J. S., Guaranty, § 50, p. 1203, citing
Spitz
v.
Nunn,
Therefore, discharge of the principal from its obligation on a contract will ordinarily discharge the guarantor.
Indianapolis Morris Plan Corp.
v.
Sparks
(1961),
We must thus examine the law as to what constitutes a surrender and acceptance of a lease by operation of law such as would relieve a lessee from his liability thereon. These principles must guide us in the determination of the validity
When there exists an express covenant of lease on property, there are present between the lessor and lessee two types of relationship, (1) privity of estate (the leasehold), and (2) privity of contract (the lease).
Powell
v.
Jones
(1912),
In order that there be a surrender and acceptance of a lease, there must be some form of mutual agreement between the parties to the effect that the léase should cease to be binding on them. This agreement must cause a separation of the privity of contract when there is a written lease. Such a covenant releasing lessee’s liability may be either (1) express, or (2) by operation of law.
Miller Jewelry Co.
v.
Dickson
(1942),
Various factual situations have been considered by our Indiana courts in regard to surrender ■ and- acceptance of leases. In Powell v. Jones, supra, the court held that by the sole act of collecting rent from a sub-lessee of the leased premises, the landlord did not act sufficiently to discharge the original lessee from his obligation. Also see Heller v. Dailey, supra, where it is stated that where there is a sub-lease, the original lessee is discharged only when the lessor assumes an attitude inconsistent with the continuance of the contract relation between lessor and original lessee, and has treated the sub-lessee as his own tenant.
In
Donahoe et al.
v.
Rich
(1891),
Our Supreme Court considered the adequacy of findings of facts, which the trial court had concluded constituted a surrender by operation of law in
Paxton Realty Corp.
v.
Peaker
(1937),
From our examination of the diverse facts and holdings of the decisions in Indiana on the question of surrender and acceptance by operation of law, we can only conclude that each case must stand upon its own facts, these facts being the acts of the parties.
Appellant urges that the facts in the instant case do not support the trial court’s holding that there was a surrender and acceptance by operation of law. There is evidence in the record to support the special findings of fact, thus these findings are not open to attack.
Lessor then without consent of appellee or lessee demanded a new rental figure despite a lack of an agreed modification of the lease; nor was there any standard clause of apportionment in the lease which took into account the lessened value of the property after the sale of substantially all of the manufacturing equipment and miscellaneous property related thereto.
Because of the sale and removal of the equipment and furniture from the premises, the nature and utility of the property was changed from that of a substantially equipped metalworking factory to a virtually empty building. Later, in September, 1957, still within the term of the lease, lessor sold the remaining property that had constituted the subject matter of the lease.
Appellant wishes us to consider facts other than the court’s findings, asserting that the additional facts plus the findings do not support the trial court’s decision: The additional consideration requested centers around the fact that the lessee corporation would become bankrupt, and would inevitably have been in default on the lease. The fact of impending bankruptcy of the lessee does not seem to be material to the question of acceptance of the lease by lessor.
Especially by the act of altering the premises so that it was reduced to a “shell,”
the lessor must be deemed to have accepted the surrender. See
Paxton Realty Corp.
v.
Peaker, supra,
where one of the principal acts showing acceptance was the altering of the premises. Also see 110 A. L. R., Landlord and Tenant, § 71, p. 369, and 32 Am. Jur., Landlord and Tenant, § 913, p. 774-775. The parties have thus attained a relationship so inconsistent with the subsisting relationship of landlord and tenant that we must imply that both - iessor and lessee have agreed to consider the lease as ended; stated in another manner, after surrender by lessee, there has been an acceptance by lessor of an exclusive character with the apparent intention of occupying and controlling the premises as its own to the exclusion of the lessee, in case the latter should desire to return.
Babsdon Co.
v.
Thrifty Parking Co.
(1963), Fla. App.,
We therefore hold that the trial court did not err in its conclusion of law that the lease was terminated by reason of the surrender of such by the lessee and acceptance thereof by the lessor. '
Appellant further insists that a covenant in the lease commonly entitled a “savings clause” should be enforced notwithstanding any termination of the lease by operation of law. The covenant sought to be enforced reads as follows:
“15. If the lessee shall neglect or fail to make any of the payments of the rent, or any part thereof, within ten (10)days after the same become due, or if the lessee shall neglect or fail to perform or observe any of the covenants . . . the lessor may lawfully enter into and upon the said premises or any part thereon in the name of the whole, and repossess the same . . . and without prejudice to any remedies which might otherwise be used for arrears of rent or preceding breach of covenant, and upon entry as aforesaid, this lease shall terminate and wholly expire, and the lessee covenants that in case of such termination, it will indemnify the lessor against all loss of rent which the lessor may incur by reason of such termination during the residue of the term above specified . . .” (our emphasis)
To determine whether this clause should be effective although there has been a surrender and acceptance of the lease by operation of law, let us first examine the effect of such a termination of a lease. This court has held in Donahoe et al. v. Rich, supra, at p. 545:
“It is well settled that if the tenant surrender the premises and yields up the possession, and the same are accepted by the landlord, the lease and all liability under it for the future rent are extinguished.” (citing Terstegge v. The First German Mutual Benevolent Society et al. (1883),92 Ind. 82 .) (our emphasis)
This rule is stated with approval in Weil v. Waterhouse, supra; Heller v. Dailey, supra, at p. 569; Carp & Co. v. Meyer, supra, at p. 493; Paxton Realty Corp. v. Peaker, supra, at p. 491; Miller Jewelry Co. v. Dickson, supra, at p. 687. Also see 18 A. L. R. 960 III (a) 1. Liability of Tenant, and 58 A. L. R. 906.
We point out that no Indiana case has been cited dealing with clause of this exact nature; nor have we found Indiana authority specifically construing the effect of such a clause where there is a surrender and acceptance of a lease, either express or by operation of law. However, we have discovered one case which indicates what we believe is a correct approach to this problem.
In the factual situation in
Carp, supra,
at p. 491, there is a type of savings clause providing that if the premises is
“. . . right to terminate the lease by a thirty-day notice served personally or by registered mail on lessee, or the lessor, at his option, might relet the demised premises as the agent of the lessee, the rent received therefor to be applied, first, to payment of expenses incurred in reletting, then to payment of rent due to the lessor under the lease to appellant, balance to be retained for account of appellant.”
While citing the rule of the Donahoe case, supra, the court held that a judgment for an amount of rent to the time a second tenant took possession, although within the term of the original lease, was a valid judgment and within the evidence. Thus, the court in the Carp case, supra, evidently treated the “savings clause” as ineffectual after the acceptance of the surrender by the landlord, which occurred when he re-leased the property.
In
Siller
v.
Dunn
(1930),
This court has recognized that a clause in a lease for the benefit of one of the parties to such contract, may be waived by that party.
Miller
v.
Ready
(1915),
Appellant-lessor also asserts that the trial court erred in not assessing damages for the 1955 taxes. A covenant in the lease provided that the “Lessee shall pay before they become delinquent all state, county and city real estate or personal property taxes levied against the real estate . . .”
In view of our holding that lessee and the guarantor were released- from all of the covenants of the lease on March 13, 1956, guarantor was thus released from the above covenant on that date; and, since the taxes were not delinquent until the first Monday in May, 1956 as to a first installment, Acts 1935, ch. 166, § 1, p. 824 being § 64-2015, Burns’ 1961 Replacement, appellee could not be liable under the covenant to pay taxes.
There is even more reason for denying damages to appellant herein. Appellant relied upon the “savings clause” quoted above as a partial basis for liability and damages. The clause is clear in stating that lessee would be liable for loss of rent that lessor may incur. The trial court stated in its special finding of fact No. 17:
“17. That by its voluntary act of making said sale the plaintiff made it impossible and impracticable to determine whether the plaintiff incurred any damages during the residue of the stated term of said lease by reason of loss of rent during such period following March 13, 1956; and there is insufficient evidence in the record of this cause to enable the Court to fix any damages accruing to the plaintiff from and after the date of March 13, 1956, even if plaintiff were entitled to damages for said period.”
Moreover, under the terms of the “savings clause,” the lessor, to recover any damages, was required to prove that it exercised reasonable diligence in re-letting the premises, it being allowed under that provision the right to recover the difference between the rent received after such proof of reasonable diligence in re-letting and the contract rental.
Waffle
v.
Ireland
(1927),
“Under the law governing cases of this character, the burden of proof is on the appellee (lessor) to prove due diligence in reletting in order to relieve the appellant (lessee) of such liability as he could and save him harmless so far as he could by using due diligence and care in renting to a responsible party and for such an amount as he could reasonably obtain.”
In the instant case, the trial court’s finding No. 17 indicates that appellant has failed to meet the burden of proof as required by the Waffle case, supra, and the appellant has failed to demonstrate in his brief that reasonable diligence was used in re-letting the premises.
Appellant also asserts that the trial court erred in excluding evidence of admission of alleged independent facts by appellee made during a conversation of compromise. Appellant admits that the evidence excluded was a series of statements by
The following statements were made which were not admitted, and which appellant argues should have been admitted by the trial court.
“Q. 551. ‘In addition to the taxes, was anything else discussed in respect to what you owed?
Mr. Link: This witness if permitted to answer this question would answer ‘yes.’
Q. 552. What were these items?
Mr. Link: This witness if permitted to answer this question would answer “There was some liability on monthly rent.”
Q. 553. For what period?
Mr. Link: This witness if permitted to answer this question would answer ‘Well, within the date of the last rental payment by Pal Products up until this time.’ ”
Appellant agrees that other offers of proof from the meeting sought to be admitted continue along the lines of negotiating a figure for a settlement of the various elements of the controversy.
The general rule as to the competency of evidence of an admission stated in the course of a compromise is found in
Nat. Life, etc., Ins. Co.
v.
Williams
(1925),
“. . . ‘an offer, concession or admission, made in the course of an ineffectual treaty of compromise, and constituting, in itself, the point yielded for the sake of peace, and not because it was just or true, is not competent evidence against the party making it; but the law is otherwise with regard to an independent fact admitted to be true, but not constituting such yielded point.’ Kintz v. R. J. Menz Lumber Co. (1911),47 Ind. App. 475 ; Louisville, etc., R. Co. v. Wright (1888),115 Ind. 378 , 7 Am. St. 432.”
Obviously, the reason for the rule is that the law favors compromises out of court, and a party to a controversy should not be prejudiced when yielding certain points to effectuate the compromise if his efforts should fail.
Further reason for our holding on this question can be seen by reference to the question and answer following the offer of proof that appellant states in his brief, which is as follows:
“Q. 554. Do you know what the date of the last rental payment by Pal Products was ?
A. I am refreshing my recollection by referring to a copy of a letter, February 27th, from Northern Indiana Steel Supply Company addressed to Pal Products, Inc. which states that Pal Products, Inc. failed to pay the monthly installment on rent due January 19, 1956, which would indicate the last payment was made December 19, 1955.”
Appellant admits that the rent was paid
to
March 19, 1956. Therefore, appellee at the time he made the statement was laboring under the wrong assumption that the rent was paid
only to January 19, 1956.
Thus, there was
some
liability for rent under appellee’s thinking at the time of the compromise meeting because the obligations on the lease did not cease until March 13, 1956. Therefore, conceding for the purpose of argument that appellee’s statement could be ad-missable, its exclusion was not harmful to appellant because
For all of the foregoing reasons, the judgment of the trial court should be affirmed.
Affirmed.
Bierly, P. J. and Smith, J., concur. Mote, J., concurs in result.
Note. — Reported in