BVT Lebanon Shopping Center v. Wal-Mart

BVT LEBANON SHOPPING )
CENTER, LTD., a Tennessee Limited )
Partnership, )
)
Plaintiff/Appellee,
)
) FILED
Appeal No.
01-A-01-9710-CV-00607
v. ) April 23, 1999
) Wilson Circuit
WAL-MART STORES, INC., a ) No. 9113 Cecil Crowson, Jr.
corporation; and KUHN'S-BIG-K ) Appellate Court Clerk
STORES CORP., a Tennessee )
corporation, )
)
Defendants/Appellants. )

COURT OF APPEALS OF TENNESSEE

APPEAL FROM THE WILSON COUNTY CIRCUIT COURT
AT LEBANON, TENNESSEE

THE HONORABLE BOBBY CAPERS, JUDGE

THOMAS V. WHITE
KENNETH F. SCOTT
Tune, Entrekin & White, P.C.
21st Floor, First American Center
315 Deaderick Street
Nashville, Tennessee 37238
ATTORNEYS FOR PLAINTIFF/APPELLEE

JON B. COMSTOCK
702 S.W. 8th Street
Bentonville, Arkansas 72716

THOMAS W. LAWRENCE, JR.
Parker, Lawrence, Cantrell & Dean
200 Fourth Avenue North
Fifth Floor
Nashville, Tennessee 37219

NEAL AGEE, JR.
Agee, Agee & Lannom
P. O. Box 649
Lebanon, Tennessee 37088-0649
ATTORNEYS FOR DEFENDANTS/APPELLANTS

AFFIRMED AS MODIFIED,
AND REMANDED

WILLIAM B. CAIN, JUDGE
 OPINION

This is a suit by a limited partnership as owner of a shopping center in
Lebanon, Tennessee against Wal-Mart Stores, Inc. alleging breach of a lease
contract.

In 1968, J.R. Freeman, Trustee as lessor, entered into a lease agreement
with Kuhn Brothers Co., Inc. as lessee of certain premises in a commercial
shopping center known as The Center of Lebanon. This lease was to expire in
1984. The lease provided a guaranteed minimum annual rent of $70,000.00,
together with 2 ½% of all gross receipts over $2,333,000.00 per annum.

Wal-Mart acquired Kuhns and the 1968 lease agreement was amended in
1981 with Freeman, Trustee still as landlord and Wal-Mart as lessee. In this
1981 amendment to the lease the term thereof was extended from 1984 through
1996. The guaranteed minimum rent was increased from $70,000.00 per annum
to $136,000.00 per annum with gross receipts percentage rent declining
incrementally with increased gross receipts. The permitted "use" was changed
from a "retail promotional type store" to a "discount department store."

BVT acquired The Center of Lebanon from Freeman Trustee, and in 1985
Wal-Mart determined a need to expand the leased premises. This resulted in a
1985 amendment to the lease whereby the size of Wal-Mart's premises was to be
expanded from 50,000 square feet to 84,000 square feet with the cost of such
expansion to be borne by BVT. This necessitated the purchase of additional real
estate and the buyout by BVT of the Foodtown lease which was adjacent to the
existing Wal-Mart premises. Wal-Mart supplied the plot plans and
specifications for the expansion and BVT paid approximately $1,500,000.00 to
complete the Wal-Mart expansion.

The 1985 lease amendment extended the term of the lease for nine
additional years to 2005. The guaranteed minimum rent was changed from
$136,000.00 annually to $272,000.00 with an incremental reduction in
percentage of gross receipts rental tied to increased gross receipts of Wal-Mart.

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 Wal-Mart was quite successful at The Center of Lebanon. By 1994, the
gross-receipts percentage rental by Wal-Mart to BVT comprised approximately
37% of the total rent paid annually.

In 1994, Wal-Mart determined to vacate The Center of Lebanon and
relocate to a new super center to be constructed within a short distance of the
demised premises. Negotiations between BVT and Wal-Mart failed, and BVT
filed suit October 6, 1994 in anticipatory breach of contract.

On May 24, 1995, over the objections of BVT, Wal-Mart ceased
operations and vacated The Center of Lebanon premises, continuing to pay the
$272,000 annual minimum rent. Five months later it opened a "Bud's Discount
City" in the space vacated by Wal-Mart. "Bud's Discount City" is wholly owned
by Wal-Mart and had generated from two to three million dollars in gross
receipts per annum at the time of the trial of this case.

BVT asserts that Wal-Mart breached the express "use" clause of the lease
and an implied covenant of continuous occupancy. Non-jury trial in April, 1997
resulted in an August 27, 1997 judgment in favor of BVT for compensatory
damages in the amount of $2,507,674.00, together with $108,759 plus interest
for failure to include third party receipts, attorney fees, sanctions and costs. The
trial court found breach of the express "use" covenant and breach of an implied
covenant of continuous occupancy. From this judgment Wal-Mart has appealed.
BVT asserts error as to the amount of damages awarded.

I. PROCEEDINGS IN THE TRIAL COURT
This court marks with empathetic chagrin the acrimonious and heated
nature of the proceedings below. Wal-Mart complains with considerable
justification that the findings of fact and conclusions of law contained in the
August 27, 1997 order are inconsistent with findings announced by the court at
various stages of the trial and appearing in the evidentiary transcript. Because
of these inconsistencies, Wal-Mart urges in its brief that the findings of fact and
conclusions of law in the August 27, 1997 order should be disregarded by this
court. The law of Tennessee, however, is well settled to the contrary.

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 Cases predating the Tennessee Rules of Civil Procedure left no room for
doubt on this point, and as this court has observed:
A judgment must be reduced to writing in order to be valid.
It is inchoate, and has no force whatever, until it has been reduced
to writing and entered on the minutes of the court, and is completely
within the power of the judge or Chancellor. A judge may modify,
reverse, or make any other change in his judgment that he may
deem proper, until it is entered on the minutes, and he may then
change, modify, vacate or amend it during that term, unless the term
continues longer than thirty days after the entry of the judgment,
and then until the end of the thirty days.

Broadway Motor Co., Inc. v. Fire Insurance Co., 12 Tenn. App. 278, 280 (1930).

This rule survived the adoption of the Tennessee Rules of Civil Procedure.
Sparkle Laundry and Cleaners, Inc. v. Kelton, 595 S.W.2d 88, 93 (Tenn. App.
1979); Evans v. Perkey, 647 S.W.2d 636, 641 (Tenn. App. 1982).

As observed by the Court of Appeals for the Western Section: "We do not
review the court's oral statements, unless incorporated in a decree, but review the
court's order and judgments for that is how a Court speaks." Shelby v. Shelby,
696 S.W.2d 360, 361 (Tenn. App. 1985).

The proposed findings of fact and conclusions of law and the order of
August 27, 1997, were prepared by the attorney for the plaintiff and adopted by
the court. Prior to the adoption of the Tennessee Rules of Civil Procedure, this
procedure was an improper action and reversible error. Nashville, Chattanooga
and St. Louis Railway Co., et al v. Price, 125 Tenn. 646, 148 S.W. 219 (Tenn.
1911).

The adoption of Rule 52 of the Tennessee Rules of Civil Procedure
modified Price and the supreme court has held:
Although we believe Price was correctly decided, we think
the adoption of the Rules of Civil Procedure calls for modification
of its holding. We agree that the preparation of findings and
conclusions is a high judicial function. We are committed to the
requirement that the trial court's findings and conclusions be its
own. However, we are also aware that the thorough preparation of
suggested findings and conclusions by able counsel can be of great
assistance to the trial court. In an effort to strike a balance between

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 these considerations, we hold that although it is improper for the
trial court to require counsel to prepare findings, it is permissible
and indeed sometimes desirable for the trial court to permit counsel
for any party to submit proposed findings and conclusions.
Findings prepared by the trial judge which represent his
independent labor are preferable, however we do not disapprove of
party-prepared findings. This is a modification of Price which we
feel is more consonant with the Rules of Civil Procedure. We wish
to point out that before adopting findings prepared by counsel, the
trial judge should carefully examine them to establish that they
accurately reflect his views and conclusions, and not those of
counsel. He should also ascertain that they adequately dispose of
all material issues, and to assure that matters not a proper part of the
determination have not been included.

Delevan-Delta Corp. v. Roberts, 611 S.W.2d 51, 52-3 (Tenn. 1981).

The order in this case prepared by counsel for the plaintiff was the subject
of extensive discussion between counsel and the court before it was entered. At
the end of this discussion counsel for the defendant attempted to have the court
enter a simple order granting judgment without findings of fact or conclusions
of law. The record reflects:
THE COURT: Now, what else, sir?
MR. AGEE: That's all on their proposed order, Your
Honor. I would tender to the Court a draft order that I would give
to the Court which --
MR. WHITE: Judge, we've never seen it.
THE COURT: All right.
MR. COMSTOCK: That's correct. But it's a very
simple order, and what it really does is [is] it allows all the findings
that the Court has made on the record to be the Court's findings, and
it allows the order to simply reflect the ultimate decisions that are
being made.
THE COURT: Let me suggest this to you: I like Mr.
White's order fine because everybody wanted the findings of the
facts and all of these other issues. That's what you wanted the
Court to do, make specific findings of fact, and that's exactly what
you sat here and asked me as relates to this order today that I
specifically make that finding of fact and all these other things.
And I've addressed that issue, and they are in there. And you have
originally requested that, and I'm going to hold you to that request.
So Mr. White's order properly reflects what's been requested by the
defendant in this matter. So for that reason, I'm more inclined to
accept Mr. White's order, to be an order, and it also reflects the
findings of fact by the Court. Now, what else?
MR. COMSTOCK: May I on my original simply put
"Wal-Mart draft," and then file that with the clerk?

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 THE COURT: You certainly may. Okay. Now --
MR. COMSTOCK: Your Honor, that's all on that.
THE COURT: All right. Well, then the Court is going
to sign the order.

This court recognizes the marked discrepency between the written findings
of fact and the trial court's oral findings throughout the transcript. Although
puzzling in result, the only conclusion to be drawn from the difference is that, for
whatever reason, the court below changed its mind.

Under the foregoing rules, the findings of fact and conclusions of law
reflected by the order of August 27, 1997 are the only findings of fact and
conclusions of law of the trial court. They alone are reviewable on appeal under
Rule 13(d) of the Rules of Appellate Procedure with a presumption of
correctness unless the evidence preponderates to the contrary. Foster v. Bue, 749
S.W.2d 736 (Tenn. 1988).

The conclusions of law drawn by the trial court are reviewable de novo on
appeal without presumption of correctness. Tennessee Farmers Mutual Ins. Co.
v. Moore, 958 S.W.2d 759 (Tenn. App. 1997).

The findings of fact and conclusions of law of the trial court reflected by
the order of August 27, 1997 are:
(a) The lease at issue contains a percentage rent clause and
the intent of the parties at the time the lease was executed was that
both base rent and percentage rents would be realized during the
term of the lease; be it provided by the existing "Wal-Mart"
discount department store, another discount department store, or
any other lawful use acceptable to the landlord that would generate
the same amount of percentage rent income that was capable of
being generated by the "Wal-Mart" discount department store that
ceased to operate in the demised premises.

(b) The premises were expanded at Wal-Mart's request and
according to Wal-Mart's plans as reflected in the 1985 Lease
Amendment. Although the 1985 Amendment extended the lease
term to twenty years, the increase in base rent alone would not have
amortized the cost of the expansion over the twenty years.

(c) The plaintiff would not have made the expenditures of
approximately $1.5 million to expand the premises except in

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contemplation of receiving a percentage of sales in addition to base
rents.

(d) Bud's is not a "discount department store" as
contemplated by the parties at the time they entered into the lease.
Therefore, Bud's does not meet the requirements of the lease. The
Court bases this conclusion in part upon Wal-Mart's own
admissions in its letters, communications and advertising both by
flyer and on the Internet.

(e) Gross sales in the demised premises increased each
year from 1981, the first year Wal-Mart, Inc. operated its "Wal-
Mart" discount department store in the premises until FYE January
31, 1995, the last full year that Wal-Mart operated its "Wal-Mart"
discount department store in the demised premises. Although the
threshold for percentage rent was increased from $6.825 million to
$18.133 million, contemporaneous with the 1985 Amendment and
expansion, gross sales again exceeded the $18.133 million
threshold within two years after the expansion in 1986. Percentage
rents were generated starting in FYE 1988 and increased every year
thereafter including FYE January 31, 1995.

(f) "Discount Department Store" is a business term used
in the retail industry which the Court has no independent
qualification to define. However, the Court finds that the parties
contemplated a definition more specific than the broad combination
of the definitions of "discount" and "department" found in
Webster's Dictionary. The Court further finds that the parties
contemplated that a "Discount Department Store" would posses[s]
the characteristics offered by plaintiff's expert, Wayne Tomlinson
and, therefore, adopts the following definition: "a large, high-
volume merchandising establishment that (I) presents an accurate
image to the consumer that it is a discount department store, (ii)
sells basically the same type new high quality soft and hard goods
day in and day out, (iii) sells at a discount and at a minimal markup,
and (iv) is open to the public seven days a week (usually 9 a.m. to
9 p.m. six days and Noon to 5 p.m. on Sundays." Large would
mean approximately 10,000 square feet and larger and high volume,
would mean annual sales greater than 5 times its inventory value.
(Typically between 150-400/Square foot using 1995 published
data). It is a store that carries the same type quality new goods from
week to week and is open typically seven days a week, in some
instances twenty four hours a day.

(g) Except for the square footage, the Bud's at Lebanon
does not meet any of the criteria of a "discount department store" as
contemplated by the parties.

(h) No retail sales were conducted from the premises for
a period of four months when the "Wal-Mart" discount department

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store ceased operations until the "Bud's" operation began.

(i) Defendants have provided plaintiff with multiple and
conflicting reports of gross sales, some years including third-party
drug sales and some years excluding third-party drug sales.

(j) It was necessary for the plaintiff/lessor to employ
counsel and otherwise incur expenses in connection with
defendants anticipatory breach and subsequent actions regarding the
demised premises and the subject lease.

2. The Court makes the following conclusions of law:
(a) This is a contract construction case and the Court has
to determine the intent of the parties at the time the contract was
entered into from the entire contract and construe the contract such
that its terms are in harmony with each other.

(b) The Bud's operating in the demised premises is not a
"discount department store" as required under the subject lease,
and, therefore, the defendants have breached the "use" clause of the
subject lease.

(c) There is an implied covenant by the defendants to
continuously operate either a discount department store, as
contemplated by the parties in 1985 and as previously described in
this order, or any other lawful business that would make reasonable
commercial sense for the plaintiff to accept. The Court further
finds that the defendants have breached this covenant and that it
would be reasonable for the landlord to withhold consent for the
operation of a Bud's as a replacement tenant.

(d) The defendants have improperly withheld percentage
rent attributable to third-party sales conducted within the demised
premises. Furthermore, defendants failed to disclose to plaintiff
that they changed their position relative to these third-party sales at
some time after the 85 amendment.

(e) Defendants have admitted, pursuant to Kandy Beaver's
affidavit and deposition that they have erroneously deducted certain
items in addition to third-party gross sales from gross receipts when
reporting and paying percentage rents.

(f) The plaintiff has been damaged as a result of the
defendants' breaches of the lease.

(g) Per the lease and pursuant to the Court's inherent
authority, given the circumstances of this case regarding the
withholding of accurate gross receipt information by defendants,
the plaintiff is entitled to audit the defendants' records to determine
the amount of gross receipts from the demised premises; including

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 third-party drug sales and otherwise, to ascertain the amount of
percentage rent that should have been paid plaintiff from 1985 to
present.
(h) Pursuant to the lease, Plaintiff is entitled to attorneys'
fees and expenses.

Based upon the foregoing findings of fact and conclusions of law the trial
court entered a compensatory damage award in the amount of $2,507,674.00,
representing the present value of lost future percentage rents for the duration of
the lease.

The August 27, 1997 order further provided:
5. By previous Order, this Court granted the plaintiff's
motion for partial summary judgment on the issue of the defendants'
failure to include gross receipts (and to pay the plaintiff their
respective part of these gross receipts) of third-party tenants, and,
based upon statements of counsel for both parties, a review of the
file, and the testimony before this Court, this Court grants an award
of $108,759.00 plus interest at 10 percent through 1/31/97, for a
total of $144,689.75 plus $39.64 per diem for every day thereafter
until paid. This award is primarily based upon the Court's
acceptance of the testimony of Sam Boles, the witness for the
plaintiff with respect to the calculation of these monies and the
interest on these monies from January 1 of each of the years
referenced in trial Exhibit B, which is attached to this Order and
incorporated herein by reference. The Court further awards
attorneys' fees in the amount of $10,125.00 (67.5 hours at $150/hr.)
plus expenses in the amount of $828.75, for a total of $10,953.75.

By supplemental order entered September 9, 1997 plaintiff was awarded
attorneys' fees in the amount of $170,042.61 for the period through June 30,
1997 and sanctions against defendant Wal-Mart in the amount of $6,240.00,
representing fees due to auditors for work done in Bentonville, Arkansas.

II. ISSUES ON APPEAL
The first issue on appeal asserted by Wal-Mart is its proposition number
one that "Wal-Mart's act of ceasing its 'Wal-Mart Discount Store' operation, and
commencing its 'Bud's Discount City' operation is not a breach of any express or
implied term of the contract."

This issue comprises the heart of this case. The trial court has held: 1)

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'Bud's Discount City' is not a 'discount department store' within the meaning of
the 'use' clause of the lease agreement and, 2) Wal-Mart breached an implied
covenant of continuous occupancy under the lease.

Generally the law recognizes two distinct types of implied contracts:
contracts implied in fact and contracts implied in law, commonly referred to as
quasi contracts. Paschall's, Inc. v. Dozier, 407 S.W.2d 150, 153 (Tenn. 1966).

The differences between contracts implied in fact and contracts implied
in law was delineated by the court of appeals in the context of a phosphate
mineral lease in Weatherly v. American Agricultural Chemical Co., 65 S.W.2d
592 (Tenn. App. 1933). The court observed:
In none of these provisions was the defendant expressly
obligated to mine and remove from the complainants' premises all
of the specified mineral within the term of twenty years. Contracts
implied in fact arise under circumstances which, according to the
ordinary course of dealing and the common understanding of men,
show a mutual intention to contract. Such an agreement may result
as a legal inference from the facts and circumstances of the case.
6 R. C. L. 587; 13 C. J. 241. "Contracts implied in law, or more
properly quasi or constructive contracts, are a class of obligations
which are imposed or created by law without the assent of the party
bound, on the ground that they are dictated by reason and justice
and which are allowed to be enforced by an action ex contractu."
13 C. J. 244. With these definitions in mind, we must determine
whether or not such an agreement as is insisted upon was implied.

The doctrine of duty upon the lessee of minerals to develop
the leased premises to the mutual profit of himself and the lessor by
exercising reasonable diligence has been applied in many cases
upon the theory of implied contract and upon principles of equity
and justice; but the court can declare implied covenants to exist
only when there is a satisfactory basis in the express contract of the
parties which makes it necessary to imply certain duties and
obligations in order to effect the purposes of the parties to the
contract made. And before a covenant will be implied in the
express terms of a contract, or in view of the customs and practices
of the business to which the contract relates, it must appear
therefrom that it was so clearly in the contemplation of the parties
that they deemed it unnecessary to express it, or that it is necessary
to imply such covenant in order to give effect to the purpose of the
contract as a whole.

Weatherly v. American Agricultural Chemical Co., 65 S.W.2d 592, 598 (Tenn.

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App. 1933).

These general rules provide the parameters within which the question of
the existence or nonexistence of an implied covenant of continuous occupancy
must be determined.

It is well to observe at the outset that although the lease documents in issue
did contain "use" clauses, none contained express covenants of continued
occupancy. Nor is the lessor attempting a right of re-entry pursuant to the use
clause as such right is incorporated into the 1968 lease and both the 1981 and
1985 amendments. Since Wal-Mart is continuing to pay the $272,000.00 per
annum "minimum rent" set by the 1985 amendment, it matters little whether
"Bud's Discount City" is an operation in violation of the "use" clause of the lease
in the absence of an implied covenant of continuous occupancy. By the express
terms of the lease as amended, there is no prohibition against Wal-Mart vacating
the premises in its entirety, thus producing no gross receipts at all. Wal-Mart
would, of course, be obligated under the terms of the 1985 amendment to
continue paying the $272,000.00 per year rental through the end of the term of
the lease in 2005. The case thus turns on whether or not there is an implied
covenant of continuous occupancy as found by the trial court and whether or not
"Bud's Discount City" qualifies as a tenant under such an implied covenant.

This inquiry begins with Kroger v. Chemical Securities Co., 526 S.W.2d
468 (Tenn. 1975).

In Kroger, the Tennessee Supreme Court correctly noted the general
disfavor accorded to such implied covenants, saying:
. . . such implied covenants must arise from the terms of the lease
itself.

One clause which might, arguably, support such covenants is
the percentage rental clause. However the Court of Appeals did not
rely on this provision in reaching its conclusion, and considering
the substantial sum set as the base rental and the small and
speculative nature of the override, we likewise do not find that
clause determinative.

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Kroger Co. v. Chemical Securities Co., 526 S.W.2d 468, 471-72 (Tenn. 1975).
First and foremost among circumstances supporting the implied covenant is a
percentage rental clause such as exists in the case at bar. The Kroger court
recognized but distinguished Slidell Investment Co., Inc. v. City Product Corp.,
202 S.2d 323 (La. App. 1967) involving a substantial percentage override of the
"minimum rent" under the lease.

We begin this discussion by stating that: ". . . The decision whether to
imply a covenant of continuous operation must be evaluated at the time the
parties signed the agreement." Nalle v. Taco Bell Corp., 914 S.W.2d 685, 688
(Tex. App. 1996). The critical time is June of 1985 when the parties executed
the "third amendment to lease".

In this 1985 amendment,
(1) BVT agreed at the request of the Wal-Mart to expand the Wal-Mart
premises from 50,000 to 84,000 square feet. This was accomplished at a cost to
the BVT of approximately $1,500,000.00.
(2) The Wal-Mart agreed to operate a "discount department store" on
the premises.
(3) The term of the lease was extended for an additional nine years to
expire January 31, 2005.
(4) The "fixed annual minimum rent" was increased from $136,000.00
to $272,000.00.
(5) The percentage rent was set at one and one-half percent of gross
receipts in excess of $18,133,333.00 to and including $20,000,000.00 in gross
receipts and thereafter one percent of gross receipts in excess of $20,000,000.00.

The Court of Appeals of Idaho stated in synopsis the rules applicable to
lease provisions similar to the one agreed to by BVT and Wal-Mart.
[5] The major prerequisite for a finding of an implied
covenant in a percentage rental agreement is that the stipulated
minimum rental must not be substantial consideration. See Archer
v. Mountain Fuel Supply Co., supra, 102 Idaho at --- - ---, 642 P.2d
943; Professional Building of Eureka v. Anita Frocks, Inc., 178
Cal.App.2d 276, 2 Cal.Rptr. 914 (1960); Lippman v. Sears Roebuck
& Co., 44 Cal.2d 136, 280 P.2d 775 (1955); Masciotra v. Harlow,

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 105 Cal.App.3d 376, 233 P.2d 586 (1951); Kroger v. Bonny Corp.,
supra; Stop & Shop, Inc. v. Ganem, 347 Mass. 697, 200 N.E.2d 248
(1964); PBJ Company, Inc. v. Ben Duthler, Inc., 89 Mich.App. 767,
282 N.W.2d 216 (1979); Bobenal Investment Inc. v. Giant Super
Markets, Inc., 79 Mich.App. 31, 260 N.W.2d 915 (1977);
Crestwood Plaza, Inc. v. Kroger Co., 520 S.W.2d 93
(Mo.App.1974); Kretch v. Stark, 193 N.E.2d 307 (Ohio
Com.Pl.1962); Brown v. Safeway, supra. Parol evidence is properly
admitted to determine whether minimum rentals are substantial.
Werry v. Phillips Petroleum Co., 97 Idaho 130, 135, 540 P.2d 792,
797 (1975); Anita Frocks, Inc., 178 Ca.App.2d at 278-79, 2
Cal.Rptr. at 916; Lippman, 280 P.2d at 780- 81; PBJ Company, 282
N.W.2d at 218. The burden of showing a disparity between the
fixed minimum rent and fair rental value sufficient to furnish
grounds for implying a covenant is on the lessor. Stop & Shop Inc.,
200 N.E.2d at 252.

Bastian v. Albertson's, Inc., 643 P.2d 1079, 1082-1083 (Idaho 1982).

We must first determine whether or not the $272,000.00 per year is
"substantial consideration."

At the time of the June, 1985 amendment to the lease, all parties were
aware of the prior history of percentage rental experience under the lease.

Fiscal Year Adjusted Sales Base Percent Amount Paid

1981

1982 2,047,072.56 1,361,110.0 2.50% 17,149.06
0

1983 4,931,115.09 6,825,000.0 2.00%
0

1984 7,539,155.97 6,825,000.0 2.00% 14,283.12
0

1985 8,981,538.49 6,825,000.0 2.00% 43,130.77
0

Thus is reflected the continued growth of Wal-Mart sales and
corresponding percentage rent payments to the lessor prior to the June, 1985
amendment to the lease. Percentage rentals during this period increased from
$17,149.06 in 1982 to $43,130.77 in 1985. Gross sales increased four fold from
1982 through 1985.

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 The 1985 amendment to the lease which increased the base rental from
$136,000.00 to $272,000.00 corresponded with the increased base sales that
would be required before any percentage rent would be paid to the lessor after
the expansion.

From 1986 to 1990, Wal-Mart's adjusted gross sales did not exceed the
amount required to trigger percentage rent. However, the minimum amount was
triggered by the adjusted gross sales in 1990. The 1990 through 1995 experience
shows:

Fiscal Year Adjusted Sales Base Percent Amount Paid

1990 19,485,627.52 18,133,333.00 1.50% 20,284.41

1990 Total 20,284.41

1991 20,524,449.94 18,133,333.00 1.50% 28,000.00

1991 20,000,000.00 1.00% 5,244.49

1991 Total 33,244.49

1992 22,409,535.46 18,133,333.00 1.50% 28,000.00

1992 20,000,000.00 1.00% 24,095.36

1992 Total 52,095.36

1993 25,376,102.00 18,133,333.00 1.50% 28,000.00

1993 20,000,000.00 1.00% 53,761.02

1993 Total 81,761.02

1994 26,298,243.00 18,133,333.00 1.50% 28,000.00

1994 20,000,000.00 1.00% 62,982.43

1994 Total 90,982.43

1995 29,551,354.91 18,133,333.00 1.50% 28,000.00

1995 20,000,000.00 1.00% 95,513.55

1995 Total 123,513.55

The term "fixed annual minimum rent" used in the 1985 amendment to
describe the $272,000.00 per annum base rental has no fixed legal meaning. As
the Supreme Court of California has held:
The term "minimum monthly payments" has no fixed legal
significance; its meaning can be ascertained only by reference to the
circumstances in which the lease was executed. Extrinsic evidence,
therefore, was properly admitted to show those circumstances.

Sears maintains that the evidence does not support the finding that
$285 per month "was intended to be and was, in fact, a nominal
rental and was not a substantial or adequate minimum rental."

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 Ordinarily, when used in connection with monetary obligations, the
word "nominal" denotes "a trifling sum" (Black's Law Dic. 4th Ed.
1951, p. 469), and Sears is correct in the contention that more than
that amount was required by the lease. But a finding that, within
the contemplation of the parties, $285 per month was not a
substantial and adequate minimum rent to be paid in lieu of a
percentage of the sales is a sufficient basis for a determination that
Sears impliedly covenanted to use the demised premises for the sale
of merchandise during the entire term of the lease. It was not
necessary that the trial court go farther, and the characterization of
the minimum rent as nominal is superfluous.

Lippman v. Sears Roebuck & Co., 280 P.2d 775, 780-781 (Cal. 1955).

The "substantial-insubstantial" question is tied closely to market value in
the law governing implied covenants of continuous occupancy.
The plaintiff contends that notwithstanding the interest of the
lessors in having the premises operated so as to give it the benefit
of possible percentage rent, the absence of an express requirement
to operate together with a more than nominal minimum rent exclude
the implication of a covenant to continue operations.

This may state too broad a rule. For even if there is a more
than nominal minimum rent, other circumstances such as that the
fixed rent is significantly below the fair rental value of the property
might justify the conclusion that the parties intended that the lessors
have the benefit of the percentage rent throughout the term.

Stop & Shop, Inc. v. Ganem, 200 N.E.2d 248, 251 (Mass. 1964).

The evidence in this case indicates that the $272,000.00 per annum
minimum rent was well below the fair market rental in Lebanon and the
surrounding areas at the time the parties agreed to the 1985 amendment.
Converted to square foot rental the base rent paid by Wal-Mart in this case was
$3.40 per square foot. The proof showed that the market value in Lebanon and
the surrounding areas ranged from $4.59 to $5.40 per square foot. The record
further shows that the $136,000.00 per annum increase in the base rent standing
alone would be insufficient to amortize the $1,500,000.00 cost of expansion of
the Wal-Mart leased property which expansion was accomplished at the request
of Wal-Mart and paid for by BVT.

In First American Bank & Trust Co. v. Safeway Stores, Inc., 729 P.2d 938

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(Ariz. App. 1986), the trial court made the following pertinent findings of fact:
The trial court found that the four gentlemen who negotiated the
lease on behalf of Betz were experienced shopping center
developers. It also made the following pertinent findings of fact:

16. The base rent of $1.46 per square foot per year
was not in itself a fair, adequate, or market rent when
the lease was made.

17. Defendant has continued to pay the base rent,
which amounts to $2,500 per month, but has generated
and paid no percentage rents for the period from
December 24, 1983, to date.

***

19. A covenant of continuous operation arises
from and is implied by the language and the provisions
of the lease, particularly the clauses providing for
percentage rent, requiring the landlord to build to suit
as a grocery store (paragraph 5), and restricting
competition in the shopping center (paragraph 14) and
on adjacent property (paragraph 29) and it appears
from the language of the lease that Defendant's
continuous operation was so clearly within the
contemplation of the parties that they deemed it
unnecessary to express it.

20. The subject of continuous operation was never
discussed between the parties and is not completely
covered by the lease. A covenant of continuous
operation would have been made or required by the
landlord if attention had been called to it. . . .

729 P.2d 938, 940.

The Safeway court, adopting the same factors to be considered on the
question of implied covenants of continuous operations relied upon by Lippman
v. Sears Roebuck Co., 280 P.2d 775, 779 (Cal. 1955), stated the following:
(1) the implication must arise from the language used ...; (2) it must
appear from the language used that it was so clearly within the
contemplation of the parties that they deemed it unnecessary to
express it; (3) implied covenants can only be justified on the
grounds of legal necessity; (4) a promise can be implied only where
it can be rightfully assumed that it would have been made if
attention had been called to it; (5) there can be no implied covenant
where the subject is completely covered by the contract.

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Safeway, 729 P.2d 938, 940 (Ariz. App. 1986).

With these factors in mind the Safeway court concluded:
Safeway contends that the testimony of Betz' expert appraisal
witness does not support the trial court's conclusion that the base
rent was inadequate and that the provision of the lease allowing
Safeway to assign the lease precludes the trial court from finding
the existence of an implied covenant of continuous operation. We
do not agree. The expert witness unequivocally testified that the
base rent was not equal to the fair rental value of the premises
leased to Safeway. He testified that the percentage clause of the
lease had to be considered in calculating the fair rental value of the
property and, absent the percentage provisions, the monthly
minimum rental was not sufficient to satisfy the obligations that the
landlord would incur in financing the construction and development
of the property.

The court found that there was no incongruity between
paragraph 13 of the lease, which allowed Safeway to sublet and
assign the lease, and an implied covenant of continuous operation.
Safeway argues that an implied covenant of continuous operation
is repugnant to the provision of the lease allowing it to assign the
entire lease. On that issue, we agree with the conclusion of law
made by the trial court:

The presence of a right to assign or sublet is not
necessarily inconsistent with an implied covenant of
continuous operation. The two covenants can be
harmonized to permit subletting or assignment to a
business of the same character.

Safeway, 729 P.2d 938, 940-41 (Ariz. App. 1986).

The "risk sharing factor" inherent in a percentage rental lease is a part of
the consideration mutually agreed to between the parties:

The issue of whether there is an implied covenant of
continued operation arises because the lease did not fix the rent, but
guaranteed a minimum payment plus a percentage based upon the
gasoline delivered. In having a percentage lease, the parties
contemplated a lengthy association (20 years) during which rents
would periodically be established by the market place.

A percentage lease provides a lessor with a hedge against
inflation and automatically adjusts the rents if the location becomes
more valuable. (Resolving Disputes Under Percentage Leases
(1967) 51 Minn.L.R. 1139, 1139; see also Powell on Real Property

-17-
 (1986) vol. 2, § 242[1], pp. 372.15-372.20.) It is advantageous to
the lessee if the "location proves undesirable or his enterprise
proves unsuccessful." (Id.) Thus, both parties share in the inherent
business risk. (51 Minn.L.R., supra, at p. 1150, fn. 62.) Inherent
within all percentage leases is the fundamental idea that the
business must continually operate if it is to be successful. To make
a commercial lease mutually profitable when the rent is a minimum
plus a percentage, or is based totally on a percentage, a covenant to
operate in good faith will be implied into the contract if the
minimum rent is not substantial. (Lippman v. Sears, Roebuck & Co.
(1955) 44 Cal.2d 136, 280 P.2d 775.)

In interpreting contracts, "[t]he whole of a contract is to be
taken together, so as to give effect to every part . . . each clause
helping to interpret the other." (Civ.Code, § 1641.) Further,
contracts are to be interpreted so as to make them reasonable
without violating the intention of the parties. (Civ.Code, § 1643.)
To effectuate the intent of the parties, implied covenants will be
found if after examining the contract as a whole it is so obvious that
the parties had no reason to state the covenant, the implication
arises from the language of the agreement, and there is a legal
necessity. (Lippman, supra, 44 Cal.2d at p. 142, 280 P.2d 775.) A
covenant of continued operation can be implied into commercial
leases containing percentage rental provisions in order for the lessor
to receive that for which the lessor bargained.

College Block v. Atlantic Richfield Co., 254 Cal.Rptr. 179, 182 (Cal. App. 2d
1988).

Of similar import though in the context of summary judgment is Leeds v.
Alpha Beta Co., 75 Cal.Rptr.2d 162 (Cal. 1998) wherein the court holds:
The lease required the property owner to build a supermarket
pursuant to Alpha Beta's design. The parties agreed to a long term
lease during which the rent was primarily based on a percentage of
sales. Moreover, as the anchor tenant, Alpha Beta's continued
business operation was important in ways other than its increased
rental payments. Abandonment of the premises could certainly be
found to deny the landlord the benefit of its bargain.

75 Cal.Rptr.2d 162, 164 (Cal. 1998).

The United States District Court for the Eastern District of Kentucky in
Lagrew, et al v. Hooks-SupeRx, Inc., further refined the Bastian factors:
To determine whether to imply a covenant of continuous
operation, the courts look to the terms of the lease and the
surrounding circumstances. Generally, the courts take several

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 factors into account: (1) whether base rent is below market value,
(2) whether percentage payments are substantial in relation to base
rent, (3) whether the term of the lease is lengthy, (4) whether the
tenant may sublet, (5) whether the tenant has rights to fixtures, and
(6) whether the lease contains a noncompetitive provision.

Lagrew, et al v. Hooks SupeRx, Inc., 905 F.Supp. 401, 405 (E.D. Ky. 1995).

These factors were recently applied by the Appellate Court of Connecticut
in Pequot Spring Water Co. v. Brunelle, et al, 698 A.2d 920 (Conn. App. Ct.
1997) in declaring the existence of an implied covenant of continuous operations.
The Supreme Court of Connecticut granted an application to appeal in the
Brunelle case on September 30, 1997 (701 A.2d 658), but the case was settled
before argument in March, 1998 and the appeal withdrawn.

The first three factors of Lagrew are well established in this case as the
base rent is below market value, the percentage payments are substantial in
relation to the base rent, and the term of the lease is lengthy.

The fourth Lagrew factor is "whether the tenant may sublet". Wal-Mart
may do so but under an even more restrictive basis than is set forth in Lagrew.
Paragraph 1(c) of the 1985 amendment to the lease must be read in conjunction
with the "assign or subletting" provisions on page six of the original Big K lease
since such previous provision was incorporated by reference in the 1985
amendment.

Paragraph 1(c) of the 1985 amendment provides:
It is understood and agreed that the Demised Premises being leased
shall be used by lessee in the operation of a discount department
store, but Lessor agrees that the Demised Premises may be used for
any lawful purpose, except for any purpose which is in conflict or
competition with the Cowan's lease (apparel) and except for a
grocery store or supermarket; any use by Lessee other than as a
discount department store shall require the prior written approval
of Lessor, which approval shall not be unreasonably withheld
except in the case of prohibited uses aforesaid.

The assign or subletting provision of the original Big K lease provides:
The Lessee covenants not to assign, mortgage or encumber this

-19-
 agreement or sublet or use or permit the demised premises, or any
part thereof, to be used by others without the prior written consent
of the Lessor, which consent shall not be unreasonably withheld.
However, Lessor expressly agrees that Lessee may, without Lessor's
consent, sublease or assign this lease to an affiliate or subsidiary.

There has been no consent at all by BVT and thus the right to sublease
without consent to an affiliate or subsidiary as provided in the "assign or
subletting" provision of the original lease is restricted by the section 1(c)
provision of the 1985 amendment prohibiting use other than as "a discount
department store".

Given these circumstances, the discussion in Lagrew is particularly
pertinent:
Fourth, while the limited sublease provision theoretically
supports SupeRx's contention that the lease does not contemplate
continuous operation by the lessee, the sublease term is so narrowly
tailored that it implies that some suitable replacement business
would occupy the leased space if not SupeRx. Thus, a more precise
statement of the implied covenant is that the lessee, or some
suitable sublessee, will continuously operate on the premises.

Defendants attempt to persuade the Court that their right to
sublease was not narrowly tailored and that the landlord's
willingness to include this provision negates a finding of an implied
covenant. SupeRx was prohibited from subleasing to a food store,
department store, variety store, skating rink, beer tavern, liquor
store, discount store, or any other business which would conflict
with the exclusive rights granted by the landlord in leases to other
tenants. "The presence of a right to assign or sublet is not
necessarily inconsistent with an implied covenant of continuous
operation. The two covenants can be harmonized to permit
subletting or assignment to a business of the same character." First
American Bank & Trust Co., 729 P.2d at 941. Obviously, the
plaintiffs' predecessors intended for a SupeRx, or another fitting
business, to occupy these premises.

Lagrew, et al v. Hooks-SupeRx, Inc., 905 F.Supp. 401, 406-07 (E.D. Ky. 1995).

The trial court held that the 1985 amendment to the lease contained an
implied covenant of continuous occupancy, and the preponderance of the
evidence supports this conclusion.

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 Since this court affirms the finding that an implied covenant of continuous
occupancy exists, the next question is whether or not "Bud's Discount City" is
a "discount department store" within the contemplation of the parties at the time
of the execution of the 1985 amendment to the lease. The trial court found as a
fact that "Bud's" was not and the evidence does not preponderate against such
finding. The "discount department store" contemplated by the parties in 1985
was the discount department store that since 1982 had more than quadrupled its
gross receipts from $2,047,072.56 to $8,981,538.49. It was the "discount
department store" that had increased percentage rentals to the landlord from
$17,149.06 in 1982 to $43,130.77 in 1985. It was the "discount department
store" that the parties, based on experience, had every right to believe would
continue to grow and thereby benefit both BVT and Wal-Mart. True to its
history after the 1985 amendment authorizing expansion, Wal-Mart increased its
gross receipts to $29,551,354.91 and increased percentage rent to $123,513.55.

The "discount department store" known as "Bud's Discount City", the
wholly owned subsidiary of Wal-Mart occupying the premises subsequent to
1995 has gross revenues of approximately $3,000,000.00 per annum.

"Bud's" did not exist in 1985 and is best characterized by the witness Tom
Seay who was the author of the "Bud's" concept. He testified:
THE COURT: When were they first created?
THE WITNESS: Oh, gosh, I don't know the exact year. But
I would say it had to be --
THE COURT: Early '90s?
THE WITNESS: Early '90s, yes, sir.
THE COURT: Okay. For what purpose were they created?
THE WITNESS: Well, actually, they were my idea.
THE COURT: And I've got a pretty good idea of why you
did it, but go ahead and tell me why.
THE WITNESS: Well, what happened was, I approached
David Glass, who is our president, and I told him that I thought we
had an opportunity in some of the buildings that were vacant for us
to put in another operation so we could make more money.
I said, [s]ome of these markets are so good that we could put
in another operation, similar to the Wal-Mart, and I said, I think we
could make a lot of money doing that. And so what we did was, we
looked at all of our vacant stores and said, Okay, on a market-by-
market basis, do we think we could make money? And the ones
that we thought we could, we opened up the Bud's Discount Stores

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 in. It was strictly to make money.
THE COURT: I understand. Okay. But you didn't create a
competitor for yourself. You didn't do that? That wasn't done?
THE WITNESS: No, sir. But what we saw is, we saw a
market opportunity.
THE COURT: Oh, I realize -- I understand that. But if
there's a market opportunity there for a Wal-Mart, then it looks like
to me it makes sense to put a Wal-Mart store there as opposed to
something entirely different, you know.
THE WITNESS: But we already -- we would have a Wal-
Mart.
THE COURT: You have a Wal-Mart --
THE WITNESS: This is in addition to the Wal-Mart.
THE COURT: Well, I understand that. But you've also got
many Wal-Mart stores around in different cities, do you not?
You've got more than one in a lot of different cities, do you not?
THE WITNESS: Yeah. But not in a town like Lebanon,
Tennessee.
THE COURT: Well, I realize that. I understand that. But
you did not create Bud's -- well, I guess I need to ask you. Did you
create Bud's to be a competitor of Wal-Mart in a small town? That's
really what you're talking about.
THE WITNESS: What we did was, we created Bud's to put
in these stores because, number one, they were good locations;
number two, the market would justify an additional discount store
in the market; number three, we thought if we could put Bud's in
and be successful, then maybe we would eliminate another
competitor from coming in and picking up the void in the market;
and, number four, we thought we would make money. 1

A 1999 Lincoln Town Car is an automobile. A 1925 Model T Ford is an
automobile. They are not the same. The question whether "Bud's Discount City"
is called a "warehouse" or a "discount department store" does not matter. Bud's
clearly is not what was contemplated as a "discount department store" by the
parties in 1985 and thus not the type of store contemplated by the 1985 implied
covenant of continuous occupancy. The assignment by Wal-Mart to Bud's was
not an ". . . assignment to a business of the same character". First American
Bank & Trust Co. v. Safeway Stores, Inc., 729 P.2d 938, 941 (Ariz. App. 1986).

Wal-Mart has breached the implied covenant of continuous occupancy and

1
An obvious side effect of this arrangement is that Wal-Mart retains 84,000 square feet
in Lebanon Shopping Center at a fixed annual rental somewhere between 63% and 74% of the
square foot market value of the space in 1985 for a period extending through the year 2005.
It also has a cushion of over $15,000,000 per annum gross receipts before "Bud's" would ever
reach the $18,133,333 percentage rental threshold.

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is liable to the landlord for resulting damages.

III. MEASURE OF DAMAGES FOR BREACH OF AN IMPLIED
COVENANT OF CONTINUOUS OCCUPANCY

"The measure of damages for breach of any contract is that which was
reasonably contemplated by the parties. The general principle for assessment of
damages for breach of contract is that the plaintiff is entitled to be placed, so far
as can be done by money, in the same position he would have been in if the
contract had been performed." Hawkins v. Reynolds, 62 Tenn. App. 686, 697,
467 S.W.2d 791, 795 (1971); see also Chambliss, Bahner & Crawford v. Luther,
531 S.W.2d 108 (Tenn. App. 1975); Wilhite v. Brownsville Concrete Co., 798
S.W.2d 772 (Tenn. App. 1990) and Action Ads, Inc. v. William B. Tanner Co.,
592 S.W.2d 572 (Tenn. App. 1979).

This is in keeping with the "expectation interest" or "benefit of the
bargain" rule generally applicable in sister jurisdictions. See 22 AmJur2d
"Damages", section 45, p. 68.

This court has held: ". . . that our Tennessee decisions are firmly
committed to the policy of granting the victim of a breached lease all of the
damages which he sustained as a proximate result of the breach, so long as such
damages are reasonably shown and capable of reasonably accurate
ascertainment." Ferrell v. Elrod, 63 Tenn. App. 129, 153, 469 S.W.2d 678, 689
(1971).

We now address the issue of damages when an anchor tenant in a shopping
center breaches a covenant of continuous occupancy express or implied. In the
last decade, appellate courts of Nevada, Indiana, and North Carolina, as well as
the 10th Circuit of the United States Court of Appeals, applying Oklahoma law,
have addressed the issue.

The lineage of the difference-in-value measure begins with what a cynic
might call the "Snake-bit Hornwood Trilogy" from Nevada. Hornwood v.
Smith's Food King No. 1, was first decided by the Supreme Court of Nevada on

-23-
April 25, 1989. In this opinion, reported in 772 P.2d at 1284, the Supreme Court
of Nevada held the proper measure of damages for breaching the covenant of
continuous occupancy to be the difference between the value of the shopping
center with anchor tenant and the value without the anchor tenant. The case was
re-tried in the district court and appealed. On March 6, 1991, the Nevada
Supreme Court held that the trial court had failed to properly assess the
Hornwood's damages for the diminished value of the shopping center.
Hornwood v. Smith's Food King No. 1, 807 P.2d 208 (Nev.1991). In the
meantime, the incumbent trial judge lost his bid for re-election and the case came
on for a third trial before his successor. On this third trial, the successor judge
did not hold an evidentiary hearing but simply adopted the plaintiff's proof as to
damages and entered judgment for $1,425,000.00. On appeal, the Supreme
Court of Nevada on August 28, 1992 reversed and remanded for a third time.
Hornwood, 836 P.2d 1241 (Nev. 1992). In each of the Hornwood decisions, the
Nevada Supreme Court reaffirmed its measure of damages set forth in the first
decision in 772 P.2d 1284.

In holding that the diminution in value of the entire shopping center was
the proper measure of damages, the Nevada Supreme Court stated:
Smith's is a sophisticated business entity. Smith's knew that
its presence as the anchor tenant had a critical impact on the
shopping center's success. Without an anchor tenant, obtaining
long-term financing and attracting satellite tenants is nearly
impossible for a shopping center. Perhaps most importantly, the
anchor tenant insures the financial viability of the center by
providing the necessary volume of customer traffic to the shopping
center. Therefore, we find that the district court clearly erred in
concluding, as a matter of law, that the diminution in value of the
Hornwoods' shopping center was unforeseeable. Conner, 103 Nev.
at 356, 741 P.2d at 801. Accordingly, we reverse that portion of the
district court's ruling and remand to the district court for an
assessment of the Hornwoods' damages as a consequence of the loss
of their anchor tenant.

Hornwood v. Smith's Food King No. 1, 772 P.2d 1284, 1286 (Nev. 1989).

In Pleasant Valley Promenade v. Lechmere Inc., 464 S.E.2d 47 (N.C.App.
1995), the North Carolina Court of Appeals, in reversing judgment non obstante
veredicto following an $8,000,000 verdict for the plaintiff, determined this

-24-
question of first impression with reliance on Hornwood. Said the court:
In the context of a breach of contract between the anchor
store and the shopping center in which it resides, we recognize
there are often extensive damages. See Hornwood v. Smith's Food
King No. 1, 107 Nev. 80, 807 P.2d 208 (1991); Tyson, Drafting,
Interpreting, and Enforcing Commercial and Shopping Center
Leases, 14 CAMPBELL L.REV. 275 (1992). These damages result
because the shopping center is a "cooperative enterprise, with each
store's success dependent on the continued operation of the other
stores . . . ." Dover Shopping Center, Inc. v. Cushman's Sons, Inc.,
63 N.J.Super. 384, 164 A.2d 785, 790 (Ct.App.Div.1960). The
contribution of each store determines the flow of business of the
entire shopping center, and likewise, a store leaving affects the
center as a whole. See W & G Seaford Associates, L.P. v. Eastern
Shore Markets, Inc., 714 F.Supp. 1336, 1348 (D.Del.1989).
Though a shopping center is 'cooperative" in nature, the anchor
store is the focal point of the entire shopping center. Tyson, 14
CAMPBELL L.REV. 301-303. The function of the anchor is "to
provide certainty of income stream, an identity and stability for the
center which, in turn, draws customers, attracts other tenants and
increases overall sales." Id. at 303. Further, without an anchor
store long-term financing is virtually impossible to obtain.
Hornwood v. Smith's Food King No. 1, 105 Nev. 188, 772 P.2d
1284, 1286 (1989). Therefore, the anchor's loss has been described
as "worse than a flood, fire or tornado, because usually there is
insurance to cover [natural] disasters." Tyson, 14 CAMPVELL L .REV.
at 303.

Pleasant Valley installed Lechmere as the Center's anchor
store based on Lechmere's product mix, value offered, aggressive
advertising method, and regional drawing power. Lechmere, in
breach of the Agreement, abandoned the Center. As a result of
Lechmere's abandonment, Pleasant Valley claimed damages arising
from: (1) harm to the overall probability of success of the Center;
(2) harm to the fair market value of the Center; and (3) harm to the
Center's ability to attract and retain non-anchor tenants and a
corresponding reduction in customer traffic and the attendant
decrease in sales revenue.

Therefore, consistent with the guidance of our Supreme
Court, we believe a damages remedy should be available to Pleasant
Valley which promotes the frequently declared objective of placing
"the injured part[y] in as good a position as they would have been
in if the contract had not been breached . . . ." Knapp, COMMERCIAL
DAMAGES: A GUIDE TO REMEDIES IN BUSINESS LITIGATION, § 1.02
(Matthew Bender 1995). Accordingly, we conclude the damages
measure asserted by Pleasant Valley, diminution in market value,
is recoverable in a breach of contract action.

Pleasant Valley Promenade v. Lechmere Inc., 464 S.E.2d 47, 61-62 (N.C. App.

-25-
1995). An appeal of Lechmere was granted by the Supreme Court of North
Carolina (472 S.E.2d 18), but on December 10, 1996 before argument in the
supreme court the case was settled and the appeal withdrawn. Pleasant Valley
Promenade v. Lechmere Inc., 345 N.C. 346, 484 S.W.2d 92 (N.C. 1996).

Almost simultaneously with Lechmere, the Court of Appeals of Indiana
decided Scott-Reitz Ltd. v. Rein Warsaw Associates, 658 N.E.2d 98 (Ind. 1995).
Again, relying on Hornwood, the Indiana Court of Appeals established a
diminution of value approach involving the entire shopping center. This was
done in part by an income capitalization approach similar to the plaintiff's proof
in the case at bar. In adopting the diminution of market value approach to
damages the court stated:
Scott argues the trial court's award contains anticipated lost
future rental profit, from the B tenants, which is too speculative an
amount to properly base an award of damages. Evidence of future
profits was relevant, insofar as it applied to the value of the Lease
on the date of the breach. Rein's evidence of future profits was
relevant not as to anticipated lost profits as such, but rather as going
to the fair market value of the Lease. See Annon II 597 N.E.2d at
326-238.

Scott -Reitz Ltd. v. Rein Warsaw Associates, 658 N.E.2d 98, 106 (Ind. Ct. App.
1995).

The trial court in the case at bar awarded compensatory damages in the
amount of $2,507,674 representing the present value of lost future percentage
rents for the duration of the lease. This was apparently based upon the
alternative measure of damages testimony offered by the witness Samuel R.
Boles.

In the examination of the witness Boles the record shows:
Q. Now, let me ask you, please, sir, with respect to damages here
-- and I'll just tell the Court initially, we've calculated the damages
in two different manners. Let me ask you first whether or not
you've done these calculations. The first one, Mr. Boles, is the
difference in the value to this center, to the owners, BVT, the
plaintiff here, with and without Wal-Mart in place. Have you done
that calculation?

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 ***

Q. What's the number, Mr. Boles?
A. 4.7 million.
Q. And that is what the center is worth less as a result of Wal-
Mart not being there?
A. Right.
Q. Tell the Court how you calculated that number.
A. Using actual scheduled rents and actual experience of
expenses and capitalizing the net income.
Q. Have you done this more than once in your life?
A. Many, many times. As an example, and to answer Mr.
Comstock, I have within the last 24 months bought and/or sold
eight different retail investments. I have two currently under
contract. This is something I do frequently is value property, both
for acquisition and sales.
Q. Let me ask you, please, sir, this is a big number. I want you
to concisely but adequately explain to the Judge exactly how you
calculated it. You said you took projected rents, actual rents. Walk
us through that. Just take a couple of minutes and walk us through
that.

***

A. Your Honor, what I did is in the last year of operating, which
was 12/31/96 on the calendar year, when Bud's was obviously
operating in the premises, I took the base and actual scheduled
rents, I took the expense reimbursements, the actual ones, I took the
actual vacancy, and come up with the total receipts, actual receipts
for 1996, which is $785,264.
I took the actual expenses, Your Honor, of 204,585, which is
a net income of 580,679. We had capital expenses, Your Honor, of
tenant improvements and replacement reserve which is computed
at 10 cents per square foot, totaling 56,420, leaving a net cash flow
of $524,259.
I researched the market to find out what capitalization rate
would be used, Your Honor, for properties with a Bud's operating
in the premises. And the research in the marketplace told me at
minimum it would be 12 ½ to 15 percent. And in this analysis, I
used 14 percent. And I came up with a value, Your Honor, of
3,745,000 as a Bud's.
I took the last full year of operating year, Your Honor, for the
Wal-Mart store. I took the actual scheduled leases that were at the
shopping center.

***

Q. Okay, Mr. Boles. You've given us an evaluation on the
method described by you that showed the value of the center
without Wal-Mart there in the sum of $3,745,000; correct?

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 A. Correct.
MR. WHITE: I think Mr. Agee wants to look at my
chart that they didn't want us to see. But that's fine. We'll note that.
BY MR. WHITE:
Q. Now, I'm asking you, please, sir, about your evaluation of
this center had Wal-Mart stayed. And I've cut you off in this
dialogue, but start one more time.
A. I used the last full year, fiscal year that Wal-Mart -- excuse
me, calendar year, '94, that Wal-Mart was operational. I took the
actual scheduled leases of the existing tenants as well as their
option terms. More in particularly, I was looking at this particular
year.
I took the base rent and the percentage rent that Wal-Mart
paid or would have owed for that year, the expense reimbursements
that would have been paid for that year, less the vacancy of 4 ½
percent. The total receipts were $1,072,779.
The expenses were increased to 223,131 as a result of the
increase in tax base subsequent to Wal-Mart being operational. The
net income was 849,648. The capital expenses and the replacement
reserves totaled 26,535, resulting in a net cash flow of $823,113.
Now, similarly, as I did the other example, I questioned
investors. And with Wal-Mart operational and Wal-mart as an
integral part of this investment, capitalization rates ranged from 9
and a quarter to 9 and three-quarters.
I used the top end of that spectrum. And I come up with a
value of $8,440,000, for a difference in value of 4,695,000 or
$4,700,000.
Q. I'm sorry?
A. Rounded to 4,700,000.
Q. But the precise number in difference in this center without a
Wal-Mart present is a decrease in value of $4,695,000; correct?
A. That's correct.

While Mr. Bole's testimony was admitted over the repeated objections of
Wal-Mart, it is consistent with the market value approach of Hornwood,
Lechmere, supra, Scott-Reitz Ltd., supra, and John A. Henry & Company, Ltd.
v. TG&Y Stores, 941 F.2d 1068 (10th Cir. 1991).

Since no other evidence in the record addresses diminution of market
value of the shopping center as the measure of damages, and since this court
finds diminution in market value of the shopping center to be the proper measure
of damages for breach of the implied covenant of continuous occupancy, the
judgment of the trial court will be modified to reflect such damages in the
amount of $4,695,000.

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IV. THIRD PARTY RECEIPTS
Within the leased premises, Wal-Mart allowed Medco Drugs, Inc. to
operate a pharmacy. During the last two years that Wal-Mart and Medco
occupied the leased premises, percentage rent was not paid by Wal-Mart on gross
receipts attributable to Medco sales.

The trial court granted partial summary judgment to BVT holding that the
applicable lease agreement in this respect was unambiguous. This holding is
clearly correct.

The assigning and subletting provision of the agreement states:
The Lessee covenants not to assign, mortgage or encumber
this agreement, or sublet or use or permit the demised premises, or
any part thereof, to be used by others without the prior written
consent of the Lessor, which consent shall not be unreasonably
withheld. However, Lessor expressly agrees that Lessee may,
without Lessor's consent, sublease or assign this lease to an affiliate
or subsidiary.

If Medco is in fact a third party, no written consent of the lessor was ever
sought or received. If Medco is an operating department of Wal-Mart, then its
gross receipts are Wal-Mart's gross receipts and Wal-Mart, within the demised
premises, cannot divide itself into component parts to the end of reducing its
gross receipts.

We observe that Wal-Mart did not segregate its gross receipts attributable
to Medco sales until the last two years of its operations, which was after the
lawsuit at bar had been filed.
'Parties are far less liable to have been mistaken as to the
meaning of their contract during the period while harmonious and
practical construction reflects that intention, than they are when
subsequent differences 'have impelled them to resort to law, and
one of them then seeks a construction at variance with the practical
construction that they have placed upon it of what was intended by
its provisions.'

Pigg v. Houston & Liggett, 8 Tenn. App. 613, 633-34 (1928). (citing 6 R.C.L.
p. 853 sec. 241.) See also McDowell v. Rambo, 21 Tenn. App. 448 111 S.W.2d
892, 899 (1937).

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 Having affirmed the trial court's determination that Wal-Mart is liable for
percentage rent based on Medco's gross receipts, this court moves to determine
the amount underpaid, which should be a simple matter of mathematics. Indeed,
the affidavit of Kandy Beaver, supervisor of the accounting department of Wal-
Mart, given February 25, 1997, would appear conclusive on this point. She
states, "Attached hereto . . . is a computation reflecting (a) historically, what
Wal-Mart actually paid (b) what additional should have been paid if third party
receipts are to be included ($108,759.23); and (c) what should have been paid
(and what is due Wal-Mart, $186,501.77) if third party receipts are not to be
included."

The court has determined that third -party receipts are to be included and
the figure provided by Wal-Mart and used by the trial court in its judgment for
third party receipts rentals is $108,759.23.

The judgment of the trial court in this respect is affirmed.

V. THE RIGHT TO A JURY TRIAL
Neither party asked for trial by jury in their original pleading. By amended
complaint, BVT sought the recovery of percentage rental on "third party"
receipts realized by Medco.

In its answer to this amended complaint on July 5, 1996, Wal-Mart noted
on the face of such answer "Jury Trial Requested". Such a demand is adequate
under Rule 38.02 if, in fact, the amended complaint and the answer thereto
present additional questions of fact. The trial court held that no such additional
facts were presented by the amended complaint and answer thereto but only
issues of law were tendered.

This issue involves contract interpretation for the court. If BVT was
correct in its interpretation (acquiesced in by Wal-Mart until after suit was filed)
Wal-Mart owed BVT for Medco sales subsequent to the reversal of position by
Wal-Mart. If Wal-Mart's interpretation of the contract was correct, and such
"third party" receipts were not includable in Wal-Mart's gross receipts, then BVT

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owed Wal-Mart reimbursement for previously paid percentage rent based upon
Medco gross receipts. There being no dispute as to the applicable contract
provisions, and no ambiguity therein, the interpretation thereof is a question of
law for the court. Petty v. Sloan, 197 Tenn. 630, 277 S.W.2d 355 (1955).

Once the court determines the question of law as to contract interpretation
the amount owed should be and in fact is, under this record, a mathematical
certainty. Such is established by Wal-Mart's own proof in the form of the Kandy
Beaver affidavit of February 25, 1997. If BVT's interpretation is correct, the
amount owed by Wal-Mart is $108,759.23. If, on the other hand, Wal-Mart is
correct in its interpretation of the contract, BVT owes Wal-Mart $186,501.77.
There simply is no factual dispute.

This mathematical certainty is explicitly recognized in Wal-Mart's brief
wherein it is stated at footnote 11 on page 39 of the brief: "This should include
a judgment on Wal-Mart's counter-claim for its position that it inadvertently
overpaid BVT for a number of years; it is undisputed that amount of such
overpayment is $186,501.77 . . . ." (emphasis added). It is equally undisputed
that the amount owed to BVT, if the contract interpretation question of law is
decided in its favor, is $108,759.23. It is exactly this latter amount plus
calculable interest thereon that was awarded by the trial court. The third party
complaint, the answer thereto, and the counter-complaint raised only issues of
law and not issues of fact.

"There is no right to jury trial where there is no issue of fact but only a
question of law in a case. State v. Moore, 206 Tenn. 95, 332 S.W.2d 176-77
(1960) (citations omitted).

"In order to create a jury question there must be a conflict in substantial
evidence. Accordingly, the right to trial by jury does not apply when there is no
genuine issue of fact to be tried, nor does it apply to issues that are matters of
law." 47 AmJur.2d Jury, § 16, p. 724.

The chancellor was correct in denying Wal-Mart's request for trial by jury.

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VI. SANCTIONS
By order entered on September 9, 1997, the trial court imposed sanctions
against Wal-Mart in the amount of $6,240, representing auditors fees for work
done in Bentonville, Arkansas, on May 27, 28, and 29, 1997.

This court can find no justification for the imposition of such sanctions
under the record in this case. The audit was for the purpose of calculating the
amount of "third party" sales of Medco. This court has affirmed the
mathematical certainty of this amount in our discussion of the jury trial right.
Unless there were questions of fact still to be resolved following the Kandy
Beaver affidavit, there was no reason for the May, 1997 audit in the first place.
If such questions of fact existed as would justify further audit, it would
necessarily follow that Wal-Mart's answer to the third party complaint tendered
issues of fact and Wal-Mart's jury demand was well taken. The record at trial,
however, does not bear out such fact issues that would justify the audit, and
comments by the court at the hearing of July 15, 1997, relative to these sanctions
is revealing.

The patience of the trial judge with counsel and with Wal-Mart reached its
breaking point at this hearing which resulted in an extended lecture to counsel
for Wal-Mart relative to its alleged failures to produce proper records at the May,
1997 audit. After the trial court had, at length, vented its frustration upon
counsel for Wal-Mart about the proposed audit of these "third party" receipts of
Medco, the following exchange occurred:
MR. WHITE: When we started the trial, Your Honor had
already granted our motion for partial summary judgment and had
denied the motion of Wal-Mart to reconsider. We put Mr. Boles on
the stand.
Mr. Boles testified that he took the -- he did a calculation of
the damages. Your Honor listened to it. He started with the
$108,000, which was admitted by Wal-Mart was the amount in their
calculation that was owed. He put interest on that. It was tendered
as an exhibit.
And the number that he gave, may it please the Court, and I'm
reading specifically from the transcript, the number that he
calculated was $144,689.75. And he testified, quote, "that is
through January 31st of 1997. We have a per diem figure of $39.64
per day."

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 May it please the Court, I took the months of February,
March, April, May, and June, which total exactly 150 days. So that
would be through the end of the month of June. That's 150 days
times the per diem figure of $39.64. That is an additional $5,946.
And when that is added to the testimony that Your Honor heard and
approved when this man testified, that gives the number that's set
out in that order of $150,635.75.
THE COURT: Well, Mr. White, is this what we're talking
about now? What is this for?
MR. WHITE: This is for the partial summary judgment.
THE COURT: I realize that. Is that for the sales of the
drugstore?
MR. WHITE: Yes, Your Honor.
THE COURT: Well, what are we doing? Why have I just
got through talking to Mr. Comstock about all these matters if
you've done figured it out?
MR. COMSTOCK: That's exactly right, Your Honor.

BVT asserts correctly that the $108,759.23 figure set forth in the affidavit
of Kandy Beaver of February 25, 1997 is conclusive and indeed undisputed as
to the amount of Medco sales to be included in gross receipts if the BVT
interpretation of the contract is correct. The BVT interpretation of the contract,
accepted by the trial court and accepted by this court, results in the mathematical
certainty evidenced by the Kandy Beaver affidavit. Thus, the answer of Wal-
Mart to the BVT amended complaint tendered no issue of fact for trial by jury.
BVT cannot have it both ways. Either the Kandy Beaver affidavit is conclusive
of the fact issue about the extent of Medco gross receipts for all purposes or it is
simply evidence of such gross receipts to be considered along with other
evidence in which case the sanctions imposed would be in the sound discretion
of the court. The other edge of this sword is that in such case, issues of fact were
tendered by the answer to the amended complaint and Wal-Mart's demand for
trial by jury on all issues would be well taken. This court concludes that there
is no genuine dispute of the figures in the Kandy Beaver affidavit and that the
imposition of sanctions was improper and should be reversed.

VII. ATTORNEY FEES
The trial court awarded attorney fees under the lease contract in favor of
BVT in the amount of $170,042.61 through June 30, 1997.

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 The awarding of these attorney fees is provided for in the contract, and the
amount thereof is generally within the discretion of the trial judge. The factors
identified for guidance of the trial judge are set forth in Conners v. Conners, 594
S.W.2d 672 (Tenn. 1980). The award of attorney fees will be modified to
disallow any attorney fees for work done on the "third party" receipts issue,
subsequent to the filing before the trial court of the Kandy Beaver affidavit of
February 25, 1997. In all other respects the award of attorney fees is affirmed.

VIII. CONCLUSION
In this case, the court adopts a measure of damages conforming to the
diminution of value of the entire shopping center rule, having its recent genesis
in Hornwood. This diminution of value rule was further developed in the 1995
cases of Pleasant Valley Promenade v. Lechmere, Inc., 464 S.E.2d 47, 61-62
(N.C. App. 1995) and Scott-Reitz Ltd. v. Rein Warsaw Associates, 658 N.E.2d
98 (Ind. 1995).

It must again be noted that the Supreme Court of North Carolina granted
an appeal from Lechmere but before argument could be held before that court of
last resort, the parties settled the case and the appeal was withdrawn. The
diminution of value of the entire shopping center approach appears to this court
to be consistent with Ferrell v. Elrod, 63 Tenn. App. 129, 154-55, 469 S.W.2d
678, 689 (1971).

Under the facts presented herein, this court finds, applying the factors
recognized by the Supreme Court of Tennessee in Kroger v. Chemical Securities
Co., 526 S.W.2d 468 (Tenn. 1975), an implied covenant of continuous
occupancy. Perhaps most expressive of the developing law relative to such
implied covenants is the rule articulated by the court in Pequot Spring Water Co.
v. Brunnell, 46 Conn. App. 187, 698 A.2d 920 (1997). It is again well to note
that the Supreme Court of Connecticut granted an application to appeal in the
Brunnell case but that before the case could be argued in the Supreme Court of
Connecticut it was settled and the appeal withdrawn in March, 1998.

This court having found an implied covenant of continuous occupancy

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under the facts of this case, and having adopted the diminution of market value
of the entire shopping center as the proper of damages, the judgment of the trial
court as to damages is modified to reflect total damages for such diminution in
value in the amount of $4,695,000.

The award of damages by the trial court for "third party" receipt rentals as
to Medco sales is affirmed.

The award of sanctions by the trial court against Wal-Mart is reversed.

The award of attorney fees to BVT is modified to disallow attorney fees
to the extent such fees reflect work on the "third party" receipts issue past the
time when the Kandy Beaver affidavit of February 25, 1997 was filed with the
court.

As modified herein, the decree of the chancellor is affirmed and the case
is remanded for further proceedings in conformity with this opinion.

Costs of the appeal are assessed against Wal-Mart.

________________________________
WILLIAM B. CAIN, JUDGE

CONCUR:

__________________________________
WILLIAM C. KOCH, JR., JUDGE

__________________________________
DAVID WELLES, SPECIAL JUDGE

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