Appeal by defendants from orders entered 2 December 2005 by
Judge W. Douglas Albright and 13 December 2005 by Judge Lindsay R.
Davis in Guilford County Superior Court. Heard in the Court of
Appeals 11 January 2007.
Winfree & Winfree, by Charles Winfree, for plaintiff-appellee.
Pinto Coates Kyre & Brown, P.L.L.C., by Brady A. Yntema, for
Phases, L.L.C., Cynthia M. Estes, and Donna McNeal,
defendants-appellants.
GEER, Judge.
Defendants Phases, L.L.C., Cynthia M. Estes, and Donna McNeal
(collectively the "Phases defendants") appeal from orders granting
summary judgment and attorneys' fees to their former landlord,
plaintiff Kotis Properties, Inc., for breach of a commercial lease
agreement. While the Phases defendants do not dispute that Phases
breached its lease with Kotis, they argue that Kotis failed to
mitigate its damages. In Sylva Shops Ltd. P'ship v. Hibbard, 175 N.C. App. 423, 623
S.E.2d 785 (2006), we recognized the enforceability of commercial
lease provisions that expressly exempt a landlord from mitigating
its damages in the event of a tenant's breach. Because the record
establishes that the parties' lease contains such a provision, and
the Phases defendants failed to demonstrate that this provision was
inapplicable to their circumstances, we hold that the trial court
did not err in granting summary judgment to Kotis and awarding the
landlord attorneys' fees in accordance with the terms of the lease.
Facts
In April 2002, Kotis entered into a commercial lease agreement
(the "Lease") with Casey's, Inc. for property owned by Kotis in
Greensboro, North Carolina. Under the Lease, Casey's agreed to
rent the property for a five-year term, beginning 1 May 2002, for
$3,237.05 per month. The performance of the Lease was guaranteed
by Robert L. Casey, Jr., Lauren D. Casey, and Andrew K. Parker.
(See footnote 1)
Although the Lease prohibited Casey's from assigning or
subleasing the property to another party, Kotis consented in July
2003 to a proposed assignment of the Lease by Casey's to Phases,
which intended to operate a restaurant on the property. Casey's
and its guarantors "remain[ed] bound to perform all of the Tenant's
obligations under the Lease . . . ." Under a separate agreement,
entitled "Assignment of Tenant's Interest in Lease," Phases"assume[d] all rights and obligations of [Casey's] under the Lease
and agree[d] to comply with all terms of the Lease, including any
provision requiring that the Premises be used for a specific
purpose." Defendants Cynthia M. Estes and Donna McNeal guaranteed
performance of Phases' obligations as the new tenant. Both Casey's
and Phases agreed to be held jointly and severally liable in the
event of a breach of the Lease.
Phases defaulted on rent payments beginning in May 2004, with
three years still remaining on the Lease. Casey's did not cover
the lapsed payments. That same month, Phases began negotiating to
sell its assets to a businessman, Anthony Quick. Phases and Mr.
Quick entered into an agreement under which Mr. Quick not only
purchased Phases' assets, but also agreed to assume Phases' lease
obligations from June 2004 through the expiration of the Lease,
provided that Kotis approved the lease assignment.
Although Mr. Quick, who intended to operate a restaurant and
bar on the premises, met with Kotis representatives and believed
Kotis was "fine" with his plan to take over the Lease, Kotis
ultimately refused to consent to the lease assignment. On the same
date, in early June 2004, Kotis also formally placed both tenants
_ Casey's and Phases _ in default. Kotis began to market the
property to prospective tenants sometime in June or July 2004. The
space, however, remained vacant for over a year until a new
restaurant moved in and began paying rent in August 2005. Unpaid
rents totaling $56,534.84 and unpaid interest totaling $10,136.23
accrued during this period. On 11 August 2004, Kotis filed suit against the Casey's
defendants and the Phases defendants for breach of the Lease.
Kotis sought the accrued unpaid rent together with interest and
attorneys' fees. The Casey's defendants and Phases defendants
answered and asserted claims against each other. On 17 November
2005, Kotis filed a motion for summary judgment. Prior to the
hearing on its motion, Kotis voluntarily dismissed its claims
against the Casey's defendants with prejudice.
On 2 December 2005, the trial court granted summary judgment
in favor of Kotis and against the Phases defendants. The court
entered judgment in the amount of $44,671.07, the total past due
rent less $22,000.00 that Kotis had received from the Casey's
defendants. On 13 December 2005, the trial court also awarded
Kotis $6,700.66 in attorneys' fees pursuant to the terms of the
Lease. The Phases defendants and the Casey's defendants filed
voluntary dismissals without prejudice of their still pending
claims against each other. Thereafter, the Phases defendants filed
a timely appeal to this Court from the trial court's summary
judgment and attorneys' fees orders.
Discussion
Summary judgment is appropriate "if the pleadings,
depositions, answers to interrogatories, and admissions on file,
together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that any party is entitled to a
judgment as a matter of law." N.C.R. Civ. P. 56(c). The party
moving for summary judgment has the burden of establishing the lackof any triable issues.
Collingwood v. Gen. Elec. Real Estate
Equities, Inc., 324 N.C. 63, 66, 376 S.E.2d 425, 427 (1989). Once
the moving party meets its burden, then the non-moving party must
"produce a forecast of evidence demonstrating that [it] will be
able to make out at least a prima facie case at trial."
Id. In
opposing a motion for summary judgment, the non-moving party "may
not rest upon the mere allegations or denials of his pleading, but
his response, by affidavits or as otherwise provided in this rule,
must set forth specific facts showing that there is a genuine issue
for trial." N.C.R. Civ. P. 56(e). This Court reviews de novo a
trial court's decision to grant summary judgment.
Howerton v. Arai
Helmet, Ltd., 358 N.C. 440, 470, 597 S.E.2d 674, 693 (2004).
On appeal, the Phases defendants do not dispute their
liability for breach of the Lease, but rather argue that the trial
court erred in granting summary judgment on the issue of damages
because a genuine issue of material fact exists with respect to
whether Kotis adequately mitigated its damages.
See Isbey v.
Crews, 55 N.C. App. 47, 51, 284 S.E.2d 534, 537 (1981) ("With
respect to the question of mitigation of damages, the law in North
Carolina is that the nonbreaching party to a lease contract has a
duty to mitigate his damages upon breach of such contract.").
Specifically, the Phases defendants point to Kotis' rejection of
Mr. Quick's offer as evidence of its failure to mitigate the
damages that ensued when the property remained vacant for
approximately another year. Both Kotis and the Phases defendants acknowledge
Sylva Shops,
in which this Court held "that a clause in a commercial lease that
relieves the landlord from its duty to mitigate damages is not
against public policy and is enforceable." 175 N.C. App. at 430,
623 S.E.2d at 791. The Phases defendants claim that the Lease in
this case contains no such clause and, as a result, Kotis was not
relieved of its duty to mitigate. Kotis, however, contends that
the Lease specifically waived the landlord's duty to mitigate
damages upon a tenant's breach and, therefore, it is unnecessary to
consider the Phases defendants' arguments as to whether Kotis
properly mitigated its damages. Based upon our review of the
Lease, we believe that the parties did agree to waive Kotis' duty
to mitigate, but
only if Kotis reentered the premises without
termination of the Lease.
Under Section 21 of the Lease, addressing the tenant's
default, the parties agreed to the following pertinent provisions:
If Tenant defaults, then without further
notice or demand, Landlord also may:
(1) Termination. Declare the Lease
terminated, in which event Tenant's right to
possess the Premises ceases and this Lease
terminates as if Lease expired on the date set
by Landlord for such termination. If this
Lease so terminates, Tenant remains liable to
Landlord for Tenant's accrued, but unperformed
obligations under this Lease, plus damages
equal to the rent and other sums that would
have been due for the balance of the Lease
Term,
less the net proceeds, if any, of any
reletting of the Premises by Landlord
subsequent to the termination, after deducting
all of Landlord's expenses in connection with
the reletting, including the expenses in 2(ii)
below. Tenant shall pay those damages monthlyon the days on which the rent and other
amounts were payable under this Lease.
However, in lieu of such damages,
Landlord may require Tenant to pay the Worth
at the Time of Award of:
(i) the unpaid rent that had been
earned at the time of termination; plus
(ii) the amount by which the unpaid
rent that would have been earned after
termination until the time of award exceeds
the amount of the rent loss that Tenant proves
could reasonably have been avoided; plus
(iii) the amount by which the
unpaid rent for the balance of the term of
this lease after the time of award exceeds the
amount of the rent loss that Tenant proves
could reasonably be avoided; plus
(iv) any other amount necessary to
compensate Landlord for all the detriment
proximately caused by Tenant's default or that
in the ordinary course of things would be
likely to result from that default.
. . . .
(2) Reentry without termination.
(i) Reenter and take possession of
the Premises or any part of the Premises;
repossess the Premises as of Landlord's former
estate; expel Tenant and those claiming
through or under Tenant from the Premises; and
remove the effects of both or either, without
being deemed guilty of any manner of trespass
and without prejudice to any remedies for
arrears of rent or preceding breach of
covenants or conditions. If Landlord so
elects to reenter or if Landlord takes
possession of the Premises pursuant to legal
proceedings or pursuant to any notice provided
by law, Landlord may, from time to time,
without terminating this Lease, relet the
Premises or any part of the Premises, either
alone or in conjunction with other parts of
the building of which the Premises are a part,
in Landlord's or Tenant's name but for the
account of Tenant, for such term or terms(which may be greater or less than the period
that would otherwise have constituted the
balance of the term of this lease) and on such
terms and conditions (which may include
concessions of free rent, and the alteration
and repair of the Premises) as Landlord, in
its uncontrolled discretion, may determine.
Landlord may collect and receive the rents for
the Premises.
Landlord will not be
responsible or liable for any failure to relet
the Premises, or any part of the Premises, or
for any failure to collect any rent due upon
reletting. No reentry or taking possession of
the Premises by Landlord, including under a
forcible entry and detainer statute or similar
law, constiues [sic] Landlord's election to
terminate this Lease without Landlord's notice
to such effect to Tenant. No notice from
Landlord constitutes Landlord's election to
terminate this Lease unless the notice says
so. However, after any reentry, Landlord may
declare the Lease terminated.
. . . .
Each right and remedy in this lease will
be cumulative and will be in addition to every
other right or remedy in this lease or
existing at law or in equity or by statute or
otherwise, including suits for injunctive
relief and specific performance. The exercise
or beginning of the exercise by Landlord of
any right or remedy will not preclude the
simultaneous or later exercise by Landlord of
any other rights or remedies.
(Emphases added.) In short, upon default, Kotis could choose to
terminate the Lease or to reenter the property without termination.
Each option sets forth different rights and remedies.
We agree with Kotis that the provision under the "Reentry
without termination" subsection, providing that "Landlord will not
be responsible or liable for any failure to relet the Premises,"
may only be construed as a waiver of Kotis' duty to mitigate.
See
Sylva Shops, 175 N.C. App. at 426, 623 S.E.2d at 789 (clauserelieving landlord of duty to mitigate stated "that Landlord shall
have no obligations to mitigate Tenant's damages by reletting the
Demised Premises").
Subsection 21(1) regarding "Termination" does not, however,
include a similar waiver of the duty to mitigate. To the contrary,
the provision specifies that Kotis may, following termination of
the Lease, require that Phases pay an award that takes into account
"(ii) the amount by which the unpaid rent that would have been
earned after termination until the time of award exceeds the amount
of the rent loss that Tenant
proves could reasonably have been
avoided; plus (iii) the amount by which the unpaid rent for the
balance of the term of this lease after the time of award exceeds
the amount of the rent loss that Tenant
proves could reasonably be
avoided . . . ." (Emphases added.) This provision expressly
anticipates proof of a failure to mitigate. Even if Kotis elected
not to require Phases to pay this award, the termination provision
includes no other language that could be construed as a waiver of
the duty to mitigate.
The absence of any such language is significant when
juxtaposed with the express inclusion of a waiver in section 21(2).
We must presume that inclusion of this waiver in one part of the
Lease, but not in a corollary part, reflects the deliberate intent
of the contracting parties.
See Walton v. City of Raleigh, 342
N.C. 879, 881, 467 S.E.2d 410, 411 (1996) ("If the plain language
of a contract is clear, the intention of the parties is inferred
from the words of the contract.");
Renfro v. Meacham, 50 N.C. App.491, 496, 274 S.E.2d 377, 379 (1981) ("Where the language of a
contract is clear and unambiguous, the court is obligated to
interpret the contract as written . . . ."). We thus have a lease
agreement that waives the duty to mitigate damages when, upon
default, the landlord reenters the premises
without termination,
but does not waive this duty if the landlord formally terminates
the Lease.
The Phases defendants bore the burden of proof on its
affirmative defense that Kotis failed to mitigate its damages.
See
Isbey, 55 N.C. App at 51, 284 S.E.2d at 538 ("the burden is on the
breaching party to prove that the nonbreaching party failed to
exercise reasonable diligence to minimize the loss"). Accordingly,
the Phases defendants were required to present evidence that Kotis
had terminated the Lease _ rather than reentering _ and, therefore,
there was no waiver of the duty to mitigate. The Phases defendants
did not meet their burden. They have pointed to nothing in the
record _ and we have found nothing _ that would support a finding
that Kotis terminated the Lease.
The Lease specifically provides that "[n]o reentry or taking
possession of the Premises by Landlord . . . constitutes Landlord's
election to terminate this Lease without Landlord's notice to such
effect to Tenant." Further, "[n]o notice from Landlord constitutes
Landlord's election to terminate this Lease unless the notice says
so." Since the record contains no notice specifying that it is a
termination of the Lease and since Kotis' taking of possession of
the premises does not, standing alone, amount to an election toterminate, we conclude that the Phases defendants have not provided
any forecast of evidence showing that Kotis actually terminated the
Lease as opposed to reentering under section 21(2) of the Lease.
Without a showing of termination, section 21(2) of the Lease
applies. In accord with
Sylva Shops, we must give effect to the
clause in the Lease that exempts Kotis from mitigating its damages
when it reenters the premises
without termination. Consequently,
we need not reach the issue whether the Phases defendants presented
sufficient evidence to raise a genuine issue of material fact as to
whether Kotis made reasonable efforts to mitigate its damages and
hold that the trial court did not err in entering summary judgment
in Kotis' favor.
See Sylva Shops, 175 N.C. at 432, 623 S.E.2d at
792 ("Because the clause in the contract alleviating plaintiff's
duty to mitigate is enforceable, plaintiff was entitled to judgment
on its breach of contract claim without any offset for a failure to
mitigate.");
Isbey, 55 N.C. App. at 52, 284 S.E.2d at 538 (summary
judgment in landlord's favor was appropriate where "defendants . .
. offered in opposition to the motion for summary judgment no
evidence with respect to plaintiffs' failure to exercise reasonable
diligence to mitigate their loss").
We, therefore, affirm the trial court's summary judgment
order. Since the Phases defendants concede that the only basis for
challenging the subsequent order awarding attorneys' fees was their
objection to the granting of summary judgment, we also affirm the
award of attorneys' fees to Kotis.
Affirmed.
Judges CALABRIA and JACKSON concur.
Footnote: 1