No. 83-145
IN THE SUPREIIE COURT OF THE STATE OF NONTANA
1 9 83
BRIGHAM YOUNG UNIVERSITY, a c o r p . ,
P l a i n t i f f and A p p e l l a n t ,
SHIRLEY M. SEbfAN, JAMES R . KOONTZ ,
and ALLEN H . BLOOTlGREN,
D e f e n d a n t s and R e s p o n d e n t s .
APPEAL FROJJ: D i s t r i c t Court o f t h e E i g h t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e County o f C a s c a d e ,
The H o n o r a b l e John 1 . McCarvel , J u d g e p r e s i d i n g .
1
COUNSEL OF R E C O R D :
For A p p e l l a n t :
Cure C B o r e r ; lilaxon D a v i s , G r e a t F a l l s , Montana
,
For Respondents :
S m i t h , B a i l l i e 6 Walsh; James R . TYalsh, G r e a t F a l l s ,
Vent a n a
S u b m i t t e d on B r i e f s : July 21, 1983
Decided: November 3 , 1 9 8 3
Filed:
NOV 3 - 1983
Mr. Justice John C. Sheehv delivered the Opinion of the
Court.
This is an appeal by Brigham Young University from a
judgment in its favor against the defendants in the sum of
$1,897.20 entered in the District Court, Cascade County. The
respondents Shirley M. Seman, James R. Koontz, and Allen H.
Bloomgren (SKB) have cross-appealed from the same judgment.
This controversy arises out of a written lease agreement
between Brigham Young University as lessor and SKB as lessees
or tenants of office space described as suite no. 306 of the
Strain Building, Grea.t Falls, Montana. The lease provides
for a term from January 1, 1979 to January 1, 1984.
The first principle issue arises from a lease provision
which provided that SKB would not assign the lease nor
sublease the same without the consent of BYU, "which consent
shall not be unreasonably withheld." The second principle
issue is the amount of damages to be awarded, depending upon
our decision as to the effect of the consent provision.
We affirm the judgment of the District Court but find
that revision of the damages awarded is necessary and remand
for that purpose.
SKB occupied the leased office space from January I,
1979 until late 1980 when SKB relocated their firm's offices
to another building in Great Falls, the executive plaza.
Thereafter, SKB endeavored to find a new tenant to take over
the Strain Building lease for the balance of the lease term.
In June 1981, SKB proposed to BYU's building manager, Lester
R. Rodger, that suite 306 be sublet to the Montana Board of
Parole and Probation, a state agency.
Rodger testified that at about the same time as he was
approached by SKB for consent to the sublease, he was also
stopped by a number of existing tenants in the Strain
Building who indicated opposition to the possible tenancy of
the parole board. Rodger consulted counsel, and thereafter
circulated a questionnaire to the existing tenants. A number
of the tenants indicated on their returns to the
questionnaire that they opposed the sublease to the state
agency. One tenant in particular, Dr. James Crouch,
threatened to file a lawsuit if consent were granted and the
parole board became a tenant of the Strain Building.
Following the return of the questionnaires, BYU advised
SKB that the consent of BYU to the proposed sublease was
denied. In response, SKB advised BYU that it considered the
lease terminated as a result of the refusal and that thereby
SKB was relieved of any further obligation to pay rent,
effective July 2, 1981. SKB returned the keys to suite no.
306.
The proposed sublease would have commenced on August 1,
1981 for a period of two years to August 1, 1983. The
sublessee would have commited itself to Pay $850 per month
for the first year to SKB. The second year payments would
have included an increase equal to six to ten percent of the
first year's recital. These rental payments were less than
those agreed to under the primary lease between BYU and SKB.
Under the sublease, the parole board would occupy only eight
of the ten rooms contained in suite no. 306.
After the refusal of SKB to pay rent after July 2, 1981,
BYU attempted to rent suite no. 306 in an effort to mitigate
damages. Eventual-ly, the tenants who occupied a smaller
suite, no. 304 in the building, Waddell and Reed moved from
suite no. 304 to suite no. 306. That move took place on June
1, 1982. Thereafter BYU filed suit against SKB seeking
$11,624.39 for unpaid rent from July 3, 1981 to June 1, 1982
and an additional $5,900.00 representing the difference
between the rent received from Waddell and Reed on suite no.
306 and the losses incurred because of the vacancy in suite
304, after Waddell and Reed moved.
BYU claimed in the District Court, and now claims that
the withholding of consent to the sublease was not
unreasonable because (1) the parole board was not paying
enough to SKB to cover SKB's obligations under the primary
lease; (2) two rooms of the suite would not be occupied by
the parole board under the sublease; (3) tenants had come to
the BYU building manager to express concern about the rumor
that the parole board would be moving into the building; (4)
negative responses were received in writing from a number of
the tenants who were polled in the questionnaire and who
opposed the occupancy of the office space; (5) one tenant
threatened to file a lawsuit if the sublease were consented
to; (6) BYU could have lost Waddell and Reed as tenants, who
were renting on a 30 day, month-to-month basis; and (7) there
was a possibili-ty that other tenants would not renew their
leases at the end of their terms if the sublease was
consented to by BYU.
The District Court found that the Montana Board of
Parole and Pardons had rented offices in the Central Plaza
Building in Great Falls for several years and that no
complaints had been made by other tenants in the building of
misconduct on the part of persons who visited their offices;
it had also occupied leased offices in the Great Falls
Savings and Loan Building, with no complaints by other
tenants of misconduct by persons visiting their offices;
and
/there were several a-ttorneys who practiced 1a.w and
represented criminal defendants who occupied space in the
Strain Building at the time of the proposed sublease, three
of the whom were fulltime public defenders. The court found
as a fact that although BYU permitted its tenants to make the
decision as to whether to allow SKR to sublease, the
questionnaire used was biased in that it was not d-esigned to
evoke a favorable response. Thus no competent evidence was
presented to show that the parole board was an undesirable
tenant. The District Court therefore found that BYU's
withholding of consent to the sublease was unreasonable.
As a preface to the issues here, BYU contends on appeal
that this Court owes no deference to the finding of the
District Court that BYU's withholding of consent was
unreasonable. It contends that the determination of
reasonableness is a question of law or at best a mixed
question of facts and law and that the resolution of such is
not binding upon the reviewing court, relying on Schuldes v.
Wubbolding (1971), 15 Ariz.App. 527, 489 P.2d 1229; Sharp v.
Hoerner Waldorf Corporation (1978), 178 Mont. 419, 584 P.2d
1298; and Sanborn v. Lewis and Clark County (1942), 113 Mont.
1, 120 P.2d 567.
Under Rule 52(a), M.R..Civ.P., this Court may not set
aside the findings of fact of a trial court in a nonjury
trial unless the findings are clearly erroneous. We have
stated in numerous cases that we will review the evidence in
the light most favorable to the prevailing party to sustain
the District Court findings, that substantial credible
evidence will support such findings, and that conflicts which
may exist in the evidence presented at the trial are to be
resolved by the trial judge as a part of the trial judge's
duty and function. Particularly we have stated that the
trial court's function in nonjury cases is to find ultimate
facts from conflicting evidence and its findings are
sufficient if sustained by competent, substantial, although
conflicting evidence. Holloway v. University of Montana
(1978), 178 Mont. 198, 582 P.2d 1265.
Here we have a lease which provides that the consent of
the lessor to a proposed assignment or sublease shall not be
unreasonably withheld. Whether the withholding of the
consent was reasonable is a determination that must be made
as an ultimate fact. It is true that a statement of ultimate
fact, such as the finding that RYU was unreasonable in
withholding consent, might also be read as a conclusion of
law. We held in Holloway that the statement does not thereby
lose its character as a finding of ultimate fact because of
such dual nature. 178 Mont. at 203, 582 P.2d at 1268.
In this case, the finding of the District Court that
BYU1s withholding of consent was unreasonable is an ultimate
fact supported by evidence of record, and is not clearly
erroneous. The decision of the District Court on this point
must therefore be sustained by us.
A lessor has an undoubted right to control what lawful
use his property may be put to, and what persons may lawfully
possess the same. When a lessor agrees in the lease that he
will not unreasonably withhold his consent to an assignment
or sublease of the premises he thereby makes a new promise
which impinges on his full right of control and which must be
given some legal effect. At the least it appears to us that
in a commercial lease such as this, such a provision in the
lease means that the lessor, in determining whether to
withhold consent, will be governed by principles of fair
dealing and commercial reasonableness. From that viewpoint
also, we sustain the finding of the District Court that as a
matter of law BYU unreasonably withheld its consent here. A
factor in this determination is that RYU itself had attempted
earlier to lease the same premises to the same state agency
before leasing to SKB.
We adopt a astandard of reasonableness under a clause
s
such as this conduct of a reasonably prudent person in the
landlord's position exercising reasonable commercial
responsibility. See Chanslor-Western Oil and Development
Company v. Metropolitan Sanitary District (1970), 131
Ill.App.2d 527, 266 N.E.2d 405; American Book Company v.
Yeshiva University Development Foundation, Inc. (1969), 59
Misc.2d 31, 297 N.Y.S.2d 156. Arbitrary considerations of
personal taste, sensibility or convenience are not proper
criteria for the landlord's consent, nor is personal
satisfaction the sole determining factor. The financial
responsibility of the proposed sublessee, the character of
his business, its suitability for the building, the legality
of the proposed use, and the nature of the occupancy are
among the proper criteria.
We turn now to determine the damages, if any, allowable
to the parties in this case. The core of that determination
is the position taken by SKB when it notified BYU that
because of the breach of the consent clause, any further of
SKB's obligations under the lease agreementwere terminated.
Naturally we look first to the lease agreement to see
what it provides. The lease gives the lessor the right to
terminate the lease after fifteen days written notice. It
also requires corrective action for any breach of covenant by
SKB which could be corrected. No reciprocal right is
provided to SKB as lessee for any breach of covenant that may
be committed by BYU under the lease. SKB cannot point,
therefore, to a lease provision which would give it the right
to terminate its obligations to pay accruing rentals after
the breach of the consent clause by BYU.
Can SKB terminate its rentalpayment obligation because of
this breach absent a lease provision permitting the same?
Although there is some caselaw to the contrary, we think
properly not. When BYU breached the consent clause, SKR had
several options: (1) it could sue for specific performance;
(2) assign or sublet the premises to the parole board and
leave the legality of the sublease to a court determination;
(3) sue for a declaratory judgment; or (4) offset the
landlord's claim for rent. The District Court here, in
determining the damages, pursued the fourth course and we
agree.
We determine in this case that the refusal by BYU to
consent to the sublease was not an interference by the
landlord with the leasehold estate of the lessee which would
justify a cancellation of the lease by the lessee. No power
to terminate the lease by the lessee is provided by the lease
agreement, and even where the lessor unreasonably withholds
consent contrary to a specific provision of the written
lease, the consent clause has been construed to be an
independent clause, not mutually dependent on other clauses
in the lease. A substantial breach of the independent
covenant not to withhold consent unrea.sonably to a sublease
does not excuse the lessee from further performance of his
duties under the lease. Rock County Savings and Trust
Company v. Yost's, Inc. (1967), 36 Wis.2d 360, 153 N.W.2d
594. In effect the District Court here, by using the measure
of damages it applied, gave effect to section 27-1-311, MCA,
which provides for the measure of damages for breach of
contract. The District Court determined that SKB was
entitled to those amounts which would compensate it for all
the detriment which was proximately caused by the breach of
the consent agreement by BYU or which in the ordinary course
of things would be likely to result therefrom.
Accordingly, in this case, BYU is entitled to recover
from S K B the rentals which would have accrued from and after
the refusal to pay by S K B on July 2, 1981, reduced by those
rentals which S K B would have received from the parole board
during the term of the parole board.'s lease if B Y U had
consented. Further the rentals paid by Waddell and Reed
during the remainder of the primary lease term would likewise
reduce the rental obligation of S K B to B Y U .
However, BYU contends in this case that in addition to
its accrued rentals for the remaining term of the written
lease, it should also recover its damages for rentals it
would have received from Waddell and Reed in suite no. 304,
amounting to $5,900, incurred because of the vacancies suite
no. 304 caused by the Waddell and Reed move. The District
Court ruled out such recovery and we agree. The answer again
is found in section 27-1-311, MCA, providing for damages for
a breach of contract. Thus damages must be proximately
caused under the statute whereas the damages claimed by BYU
for the vacancy in the Waddell and Reed suite are remote.
Moreover, they are not clearly ascertainable both in their
nature and origin as a. result of any breach of contract by
the lessee and therefore cannot be recovered by BYU.
We have not overlooked SKB's contention that in the
Restatement (2d) of Property S 15.2, page 106 (comment h), it
is stated that a breach of a landlord by withholding its
consent to a proposed transfer leased premises unreasonably
gives a right to the other party to terminate the lease.
There may in a proper ca.se arise such a right, but as we have
indicated above, it would be in a situation where a breach of
the clause constituted an unjustifiable interference with the
leasehold estate in the premises possessed by the lessee.
It is likewise contended by BYU in this case that our
holding in Lemley v. Bozeman Community Hotel Company (Mont.
1982), 651 P.2d 979, 39 St.Rep. 1877, controls this case on
whether the landlord breached the consent clause. The
difference between L e y and this case is that in Lemley,
the District Court found that the landlord's refusal to
permit subletting was reasonable. We stated in our opinion
that substantial evidence supported that finding. 651 P.2d
at 982, 39 St.Rep. at 1882. It is important for counsel in
appellate cases to recognize the effect of Rul-e 52(a),
M.R.Civ.P. In Lemley, the District Court held that the
landlord's refusal to consent was reasonable. Under Rule
52(a), we may not set that finding of fact aside unless it is
clearly erroneous. In the case at bar, the District Court
found that the refusal to consent was unreasonable. Again,
Rule 52(a) controls our examination, and if substantial
evidence supports the District Court's finding so that it is
not clearly erroneous, the District Court's findings of fact
control our appellate review.
The final contention of BYU is that the District Court
improperly calculated the damages in any event. BYU contends
that the court did not give effect to the escalator clause
contained in the lease, and that it should have been awarded
rentals for the period of time that suite no. 306 was
occupied by Waddell and Reed. SKB agrees that the court did
overl-ook the effect of the escalator clause, but denies that
any rental should be considered as accruing during the period
that Waddell and Reed occupied the lease premises. The
parties agree, therefore, that some revision of the damages
must be made, but disagree as to the effect of the occupancy
of the lease premises by Waddell and Reed.
What we have said foregoing, with respect to damages
controls this last dispute. BYU is entitled to the rentals
accruing under the lease for the full term after the
attempted termination by S K B . Whatever rentals were paid by
Waddell and Reed to B Y U for the period of its occupation
during the primary lease term between B Y U and S K B are to be
treated as a mitigation of damages allowable to BYU.
The judgment of the District Court is affirmed, but the
cause is remanded to the District Court for a redetermination
of the damages allowable, in accordance with this opinion.
Costs to S K B .
We Concur:
34 4 J&d.
Chief Justice