No
No. 98-577
IN THE SUPREME COURT OF THE STATE OF MONTANA
1999 MT 272
296 Mont. 474
989 P.2d 818
ROGER GRENFELL,
Plaintiff and Respondent,
v.
GARY ANDERSON, individually, GARY
ANDERSON, d/b/a PG&L MARKETING,
INC., and PG&L, INC.,
Defendants and Appellants.
APPEAL FROM: District Court of the Fourth Judicial District,
In and for the County of Missoula,
The Honorable Douglas G. Harkin, Judge presiding.
COUNSEL OF RECORD:
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For Appellants:
Linda Osorio St. Peter, St. Peter & Warren, Missoula, Montana
For Respondent:
P. Mars Scott, Mulroney, Delaney & Scott, Missoula, Montana
Submitted on Briefs: March 18, 1999
Decided: November 9, 1999
Filed:
__________________________________________
Clerk
Justice James C. Nelson delivered the Opinion of the Court.
¶ Defendants and Appellants Gary Anderson and PG&L, Inc. (Anderson) appeal from a
judgment by the Fourth Judicial District Court, Missoula County, in favor of Plaintiff and
Respondent Roger Grenfell (Grenfell). Following a bench trial, the District Court ordered that
the lease agreement between the parties was terminated, and Grenfell was entitled to $4,148.78 in
damages for unpaid rent and utilities, as well as attorney’s fees and costs. The District Court
further concluded that Anderson had failed to present credible evidence to support his claim for
damages.
¶ We affirm in part and reverse in part and remand for further proceedings.
¶ We consolidate and review the following issues raised by Anderson on appeal:
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1. Did the District Court err in concluding that in the absence of controlling provisions in
the lease mailing a certified letter provided Anderson with actual notice?
2. Did the District Court err in concluding that Anderson had constructive notice of the
contents of the October 17, 1991 certified letter?
3. Did the District Court err in calculating damages resulting from Anderson’s failure to
cure his defaults?
4. Did the District Court err in concluding that Anderson did not present credible evidence
to support his claim for damages?
Background Facts
¶ On January 18, 1989, Grenfell, the lessor, and Anderson, the lessee, signed a commercial lease
agreement for property located on 3213 Brooks Avenue in Missoula, Montana. The leased
premises were part of Grenfell’s property from which he operated his own paint and glass
business.
¶ The term of the lease was for three years, from February 1, 1989, to January 31, 1992. Rent
included payment of $800.00, which would increase pursuant to a cost-of-living index provision.
At the time relevant to the claims in this law suit, the base monthly rent was $884.00 per month.
Additionally, Anderson was obligated to pay a one-third share of utilities and maintenance "due
as rent on the first of each month following Lessor’s notification of such expenses to Lessee." All
rental payments were due "in advance on or before the first day of each month for which the
payment is due." If payments were not received within 10 days, a $25 late penalty could be
assessed; payments overdue beyond 30 days could be assessed an interest penalty of 12 percent.
¶ On June 15, 1990, the parties signed an addendum, which clarified the handwritten option
found beneath the signature lines of the original lease. The addendum stated that "Both parties
agree that the first five year option commences on February 1st, 1992." The addendum does not
provide for how the option would be exercised, whether orally, in writing, or by some other
action or inaction on the part of Anderson. Although the record indicates that the parties
contemplated an additional five-year option, the foregoing is the only written documentation of
an option agreement between the parties.
¶ Critical to the dispute is a mutual covenant found in the lease agreement that stated if the
lessee, Anderson, was in default at any time for the failure to pay rent or otherwise perform
under the lease, and failed "to remedy such default within . . . 10 days after written notice thereof
from Lessor," then it was:
[L]awful for Lessor to enter upon the leased premises, and again have, repossess and enjoy
the same as if this lease had not been made, and thereupon this lease and everything
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contained herein on the part of Lessor to be done and performed shall cease and terminate,
without prejudice however, to the rights of Lessor to recover from Lessee all rent due up to
the time of such entry . . .
The method for providing this written notice was not described in the lease. Anderson’s address found
in the lease agreement is "1937 Ernest" Avenue, in Missoula. It is not clear from the record whether
this address pertained to a business operated by Anderson, or was ever contemplated as a designated
mailing address by the parties. The record indicates, however, that invoices for utilities and rent, as
well as other communications were either hand delivered or mailed to Anderson at either the leased
premises, or at other businesses operated by Anderson in Missoula.
¶ The lease also contained a provision that "[t]his Lease Agreement shall not be assignable by
Lessee without the prior written consent of the Lessor." The lease provided no such restrictions
on subleases. Also, a covenant required that "Lessee’s use of the premises is subject to Lessor’s
prior approval, as is any subsequent change of use by Lessee." Precisely what "use" was
contemplated by the parties, or what would be deemed a "change in use," or what constituted
"approval," or how this approval would be obtained, was not expressed in the lease. The record
indicates that the parties are in agreement that the property would be used for commercial
purposes only.
¶ Precisely how the parties dealt with each "change of use" by Anderson is mixed. From the start
of the lease, Anderson occupied only half of the entire leased premises. He operated a business
Pictures, Pictures, a poster and framing shop. With Grenfell’s apparent approval--there is no
evidence that it was in writing--Anderson leased the other half of the premises in February of
1989 to Rick Bice (Bice), who operated a print shop. This sublease was a month-to-month
tenancy, and no written agreement was executed between Anderson and Bice. With Grenfell’s
approval, a partition between the two businesses was erected, dividing the premises in two.
¶ In February of 1991, Anderson relocated his business, Pictures, Pictures, to a nearby building.
At this time, invoices for rent and utilities continued to be either hand delivered--usually by one
of Grenfell’s employees--or mailed to Anderson’s new business location. It is apparent that
formal approval was not sought or given for this move. It is equally apparent that Grenfell was
aware of the move and did not express any objections.
¶ Upon moving from the premises, Anderson sublet his half to George Fritz (Fritz), who planned
to open a take out pizza business. The record indicates that, again, approval for this sublease or
use of the premises was neither sought nor given. Testimony elicited at trial indicates that
Grenfell became aware through sources other than Anderson that another tenant was preparing
to use the premises. Grenfell had previously testified that another retail business would
"probably not" be a change of use in the premises. By late summer of 1991, Fritz had not yet
opened the business. Due to Fritz’s problems in complying with the sublease agreement,
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Anderson canceled the lease and sought to lease the entire premises to Bice. This offer was
refused and the premises remained vacant.
¶ On October 20, 1991, Anderson executed a five-year sublease agreement with Richard
Houldson (Houldson), who intended to operate a computer equipment repair shop. The
agreement, signed by both parties, was for the entire premises, and would have taken effect
December 1, 1991. Anderson then sent written notice to Bice, dated October 24, 1991, he had
rented the entire building, and Bice had 30 days to vacate. In turn, the record indicates that
shortly thereafter Bice informed Grenfell of this notice, apprising him that Anderson intended to
terminate the month-to-month tenancy with Bice, and sublease the entire premises to another
tenant. Anderson informed Grenfell of this as well, sometime in early-to-mid November. The
record shows that Grenfell, with notice of this potential change in use of the premises, did not
give his approval prior to Houldson taking possession. To the contrary, Grenfell had already
chosen a course of action that would serve as an ultimate rejection of Anderson’s sublease with
Houldson.
¶ The record indicates that on October 17, 1991, Grenfell sent a notice of default via certified
mail to Anderson’s address at 1937 Ernest Avenue in Missoula. The notice stated that Anderson
was in default for failure to pay October rent, and past-due utility bills, and Anderson had until
October 28, 1991, to bring the balance current or Grenfell would "take possession of the building
and its leases." Although not listed specifically, the record indicates that Grenfell’s calculations
included May through September utilities, late penalties, and interest. The record further
indicates that it was undisputed at the time that Anderson owed May, June and August utilities.
Anderson would later claim he did not receive a notice for July utilities, and that September
utilities had not yet been invoiced, and therefore he was not in default for these amounts. The
certified letter was returned to Grenfell "unclaimed." The record provides no evidence that a
person at the Ernest Avenue address actually rejected the letter.
¶ Noteworthy, is the fact that Grenfell had, on one other occasion in late 1989, served default
notice by certified mail on Anderson at the Ernest Avenue address. This notice was returned
unclaimed as well, although the parties were able to later reconcile past due rent between
themselves.
¶ On October 28, 1991, Grenfell changed the locks on the leased premises. At that time, Grenfell
had made no other attempts to provide Anderson with written notice of the alleged default. The
next day, Grenfell sent a letter to Bice, Anderson’s sublessee, instructing him to remit rent and
utility payments directly to Grenfell. Grenfell maintains that pursuant to the express terms of the
lease agreement, his right to repossess included the right to take over any lease agreement that
existed at the time between Anderson and other parties.
¶ On that same day, October 29, 1991, Anderson (allegedly unaware of the lockout) sent Grenfell
notice that Grenfell was in default for not providing heating and air conditioning, and had
damaged Anderson through his "direct tampering" with Anderson’s sublet that allegedly hurt
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"any ongoing negotiation with sublet." Allegedly, Grenfell had also "discouraged a second sublet
to abandon his sublet agreement" although the letter does not mention the sublet by name.
¶ Grenfell then served another default notice on Anderson on October 30, 1991, essentially
making the same allegations as the October 17, 1991 notice, although the utility bill was reduced
from $921.63, to $719.10, after Grenfell chose not to pursue late penalties and interest fees. This
notice was personally served on Anderson at one of his places of business.
¶ As of November 9, 1991, Anderson had tendered payment for all but the July and September
utilities, which remained in dispute. Anderson, in fact, made this lingering dispute clear in a
letter to Grenfell dated November 6, 1991. The issue of whether Anderson received proper notice
of July and September utilities, and therefore cured the undisputed portion of the default, as
identified in the October 30, 1991 notice, currently remains in dispute, although Anderson
undeniably is obligated to pay these bills.
¶ On November 15, 1991, Anderson sent notice to Bice that he, Anderson, was not in default with
Grenfell, and that rent under the sublease was due--which Bice apparently had remitted to his
attorney in light of the ongoing dispute. Eventually, by court order, Bice would pay rent to the
court pending the outcome of this litigation. Anderson also sent a letter to Grenfell, on November
15, demanding a key to the premises and for Grenfell to cure "all defaults." Grenfell asserted at
trial that the new keys to the premises were at all times available to Anderson at Grenfell’s place
of business--on condition that Anderson cure the default. The District Court found that Grenfell
did not advise Anderson of this, although Grenfell testified that on the day the locks were
changed, he left phone messages for Anderson at three different locations. Grenfell testified
further that if Anderson had cured his default, at any time following the lockout, he could have
retaken possession.
¶ On November 25, 1991, Grenfell filed suit against Anderson, alleging breach of the lease
agreement, unlawful detainer, and violation of the implied covenant of good faith and fair
dealing. Grenfell was granted a temporary restraining order that day against Anderson. The
order prevented Anderson from terminating his sublease with Bice, and, consequently, from
subleasing to Houldson. On January 16, 1992, the District Court granted Grenfell’s preliminary
injunction, which provided the same restraints on Anderson as the temporary restraining order,
pending the outcome of this litigation.
¶ On February 21, 1992, Anderson filed his answer and counterclaim, which alleged damages for
forcible entry, unlawful detainer, breach of contract, breach of the covenant of good faith and
fair dealing, and tortious interference with Anderson’s contractual relations. Anderson’s
requested damages included lost profits under the sublease with Houldson.
¶ On July 8, 1994, the District Court granted Anderson’s motion for partial summary judgment
and determined that the options found in the Grenfell-Anderson lease could be automatically
exercised and were therefore enforceable in this case.
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¶ A bench trial was conducted on May 7 and 8, 1998. The District Court issued its findings of
fact, conclusions of law, and order on June 17, 1998, in favor of Grenfell. From that decision,
Anderson now appeals.
Standard of Review
¶ This Court reviews the findings of a trial court sitting without a jury to determine if the court's
findings are clearly erroneous. Rule 52(a), M.R.Civ.P. A district court's findings are clearly
erroneous if they are not supported by substantial credible evidence, if the trial court has
misapprehended the effect of the evidence, or if a review of the record leaves this Court with the
definite and firm conviction that a mistake has been committed. Whalen v. Taylor (1996), 278
Mont. 293, 299, 925 P.2d 462, 465. Additionally, in determining whether the trial court's findings
are supported by substantial credible evidence, this Court must view the evidence in the light
most favorable to the prevailing party. Roberts v. Mission Valley Concrete Indus., Inc. (1986), 222
Mont. 268, 271, 721 P.2d 355, 357.
¶ We review a district court's conclusions of law to determine whether those conclusions are
correct. Hollister v. Forsythe (1995), 270 Mont. 91, 93, 889 P.2d 1205, 1206.
¶ In this instance, Anderson has appealed both findings of fact and conclusions of law reached by
the District Court in favor of Grenfell. Accordingly, we will review each issue applying both
standards in determining whether the findings of fact can be supported, and in turn whether the
conclusions of law based on the findings are correct.
Issue 1.
Did the District Court err in concluding that in the absence of controlling provisions in the lease
mailing a certified letter provided Anderson with actual notice?
¶ The District Court concluded that Anderson had actual notice that he was in default under the
terms of the lease once the notice of default had been mailed to him. The findings of fact
supporting this conclusion indicate that:
On October 17, pursuant to the terms of the lease, Lessor sent Lessee a certified letter outlining such
defaults and stating that if the balances (including late charges) were not brought current by October 28, 1991,
Lessor would take possession of the building. Lessee did not claim the certified letter.
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¶ The findings further indicate that "common law notice requirements are controlling," due to
the lack of guiding statutes or an express provision in the lease. Consequently, the District Court
followed the rule that "written notices should be sent in a manner that is reasonably calculated to
place a party on notice." This rule, however, does not address when such a notice can be deemed
effective as a matter of law; rather, it addresses how such notices should be sent. Thus, the
District Court’s finding that the "certified letter sent by Lessor to Lessee was reasonably
calculated to notify Lessee of the alleged default and was in substantial compliance with the
terms of the lease," fails to properly address the issue of whether written notice under the lease
requires actual receipt by Anderson.
¶ In order to shed some clarity on the issue of notice, we must first distinguish between
"knowledge of default" and "notice of default," which seems to have influenced the District
Court in its findings. Obviously, Anderson knew that he was late in paying October rent. Under
the terms of the lease, he would likewise know that Grenfell could exercise his right under the
terms of the lease to lawfully "enter upon the leased premises," and repossess the premises "as if
this lease had not been made." But Anderson would have no knowledge of whether Grenfell had
so elected unless he received written notice, and thereby was afforded a 10-day grace period to
cure the alleged default. Although the record indicates that from time to time Anderson was late
in paying rent--particularly the utilities portion--the 10-day cure provision had been exercised by
Grenfell only once prior to October of 1991--in December of 1989. Therefore, Anderson’s
knowledge that he was late in paying rent is irrelevant to the discussion of whether he received a
default notice. With this said, we now address what constitutes effective notice under the lease in
question.
¶ Anderson suggests that the common law "notice to quit" rule should apply. This rule states
that "notice is generally held to be sufficient if it is served in such a way as will cause it to come
into the hands of the party served . . ." 49 Am.Jur.2d Landlord and Tenant § 274 (1995).
Anderson then directs our attention to Hotel Hay Corp. v. Milner Hotels, Inc. (Wisc. 1949), 39 N.
W.2d 363, which held that a similar 20-day default cure period did not commence until the lessee
was in actual receipt of the notice. Finally, he cites to the Restatement (Second) of Property for
the rule that if notice of termination is mailed "the notice is not effective until it is received by the
addressee." Restatement (Second) of Property, Landlord and Tenant § 1.5 cmt.f (1977). This rule
is intended to govern periodic tenancies, which have no fixed ending term.
¶ Grenfell, in his brief to this Court, likewise argues that the common law rule for sufficient
default notice is controlling in this case. Grenfell’s authority in support of this contention,
however, pertains to other states’ statutes that abridge the common law by specifically
authorizing that notice is effective upon mailing. Grenfell distinguishes the authority presented
by Anderson by stating the rule that "where the notice has been properly mailed, its receipt will
be presumed, in the absence of evidence to the contrary." In re Leterman, Becher & Co., Inc. (2d
Cir. 1919), 260 F. 543, 548 (cited in Hotel Hay Corporation, 39 N.W.2d at 366) (emphasis added).
In turn, Grenfell provides the evidence to the contrary by stating that "Anderson did not receive
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the October 17, 1991 certified letter," and that the letter was returned to Grenfell on November
4, 1991 "unopened," thus nullifying the presumption that Anderson was in receipt of a properly
mailed notice.
¶ While we often look to other jurisdictions and learned treatises for guidance where Montana
case law is insufficient--as the briefs by both parties suggest we should--in this instance we in fact
find compelling authority in our own state reporter not cited by either party. In a similar case
involving sufficient notice, we affirmed a district court’s finding that a 10-day right of first
refusal found in a lease, premised on the giving of written notice "by registered mail, addressed
to Lessees at the said premises" was still insufficient where the tenants did not actually receive
the notice. Hill v. Zuckerman (1960), 138 Mont. 230, 236, 355 P.2d 521, 525.
¶ Hill involved a commercial lease for a bar in Great Falls between Zuckerman, the lessor, and
Hill, the lessee. The conflicting facts indicated that Zuckerman mailed notice to William Earl (a
predecessor in interest to Hill), and alleged that Earl "wouldn’t accept it." Hill, 138 Mont. at 235,
355 P.2d at 524. Earl testified, however, that he "never refused to claim the letter because he was
not at the given address when it was supposed to have been delivered." Hill, 138 Mont. at 236,
355 P.2d at 524. Similar to the case here, the facts showed that the registered mail was returned
"unclaimed," and that Zuckerman sent the letter to the home address of Earl rather than the
bar as contemplated by the terms of the lease. Hill, 138 Mont. at 234, 355 P.2d at 523.
¶ The foregoing accords with what this Court views as the "common law rule" that controls this
issue in Montana, which we find most clearly and succinctly stated by the following:
Where a statute or rule merely states that written notice must be given, without stating how it is to
be given, it is not enough that the notice is mailed. It must also be received. In other words, the
effective date of the notice is the day it is received, rather than the day it is mailed. The same rule
applies in the case of a contract, in the absence of express provisions to the contrary.
58 Am.Jur.2d Notice § 35 (1989). See also 66 C.J.S. Notice § 28 (1998) (stating that "[i]n the absence of a statute
providing otherwise, notice . . .is not given until it is received by the person to be notified . . .").
¶ We therefore conclude that absent a statutory mandate or a controlling provision in the lease, Grenfell’s
decision to enforce the 10-day default cure period was effective only upon actual receipt of a written notice by
Anderson--whether hand delivered, mailed, or otherwise. The record clearly indicates that Anderson never
actually received the October 17, 1991 notice prior to the October 28, 1991 lockout. Grenfell in fact testified that
the certified letter was returned to him unclaimed and unopened. We therefore must hold that the District
Court’s conclusion that Anderson had actual notice, effective by Grenfell’s certified mailing alone, was
incorrect. This conclusion is reversed.
Issue 2.
Did the District Court err in concluding that Anderson had constructive notice of the contents of
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the October 17, 1991 certified letter?
¶ The District Court concluded that Anderson had constructive notice that he was in default. This conclusion
renders the actual notice finding irrelevant. Constructive receipt of the notice would impute to Anderson
knowledge of the contents of Grenfell’s certified letter, whether or not it was actually received, and thereby
commence the 10-day default cure period.
¶ In its findings of fact, the District Court stated that "Lessee’s refusal to claim the certified default letter that
was sent by Lessor, at a time when the parties were aware that lease payments were owed, is an unreasonable
act by the Lessee which deprives the Lessor of the benefits of the notice provision of the lease" (emphasis
added). The District Court also stated that "Lessee did not claim the certified default letter."
¶ We agree with the District Court that under such circumstances, a party may not "escape the effect of the
giving of a written notice by refusing to receive it when it is presented in person as a notice." 58 Am.Jur.2d
Notice § 33 (1989). Accordingly, the District Court was correct in finding that "a person may not profit from his
own wrongful act." We further conclude, however, that in the context of giving notice by certified mail, this rule
requires an actual refusal to accept. On this point, we must turn to other jurisdictions for guidance. See Long v.
Crum (Iowa 1978), 267 N.W.2d 407, 411; Helland v. Larson (Ill. App. 1985), 485 N.E.2d 457, 459-60 (applying the
rule that refusal to accept certified letter constituted constructive receipt of notice); Hignell v. Gebala (Cal. App.
1949), 202 P.2d 378, 382 (concluding that defendant was bound by notice although she refused to accept it).
¶ In Long, the Supreme Court of Iowa determined that where a statute required a landlord to send notice of
termination of tenancy by restricted certified mail, and there was proof of the tenant’s refusal to accept the
notice, "that statute is satisfied and the notice becomes effective." Long, 267 N.W.2d at 411. The court in Long
noted, however, in the context of certified mail, letters that are returned "unclaimed" are not evidence of a
refusal to accept delivery; rather, "unclaimed" typically means that the postal service left notice at the address
that it had attempted to deliver the certified mail, and that the mail subsequently could be retrieved at a
designated post office. Therefore, the party’s receipt of the notice is one step removed and constructive
knowledge cannot be imputed. Long, 267 N.W.2d at 411.
¶ The foregoing returns us to our discussion in Hill. As previously noted, a party in Hill testified that he "never
refused to claim the letter because he was not at the given address when it was supposed to have been
delivered." Hill, 138 Mont. at 236, 355 P.2d at 524. Similar to the facts here, the registered mail in Hill was
returned "unclaimed," namely because Zuckerman, the lessor, sent the letter to a home address rather than the
address contemplated by the terms of the lease. Hill, 138 Mont. at 234, 355 P.2d at 523. Applied to the facts here,
there is no indication that the Ernest Avenue address was ever contemplated as a proper place of serving notice.
¶ Due to the patent uncertainty regarding written notice in the lease between Grenfell and Anderson--an
uncertainty acknowledged by both parties as well as the District Court--we are inclined to look to the
"interpretation that the parties, in performance of the lease, have placed on such provisions." 49 Am.Jur.2d
Landlord and Tenant § 59 (1995). See also Billings Clinic v. Peat Marwick Main & Co. (1990), 244 Mont. 324, 336,
797 P.2d 899, 907 (stating the general rule that where contractual duties are ambiguous, the intent of the parties
may be derived by examining their conduct); Johansen v. State, 1999 MT 187, ¶¶ 14-17, ___ Mont. ___, ¶¶ 14-
17, 983 P.2d 962, ¶¶ 14-17 (affirming District Court’s finding that course of dealing between parties established
that lease payment was effective the day it was placed in the mail).
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¶ Anderson asserts that he "was available at all times for service of Grenfell’s notice of default at his places of
business," and his "employees had accepted all of Grenfell’s prior business matters concerning this lease which
included bills, invoices, and statements." Grenfell for the most part admits the same: that during the course of
the lease, he had hand-delivered or mailed all bills and invoices to one of Anderson’s places of business.
Ultimately, this course of performance between the parties was demonstrated by the fact that while the certified
mailing to the Ernest Avenue address was ineffective, personal service of the October 30, 1991 notice at one of
Anderson’s places of business was accomplished by one of Grenfell’s employees.
¶ Grenfell claims that "Anderson has a history of not claiming certified letters, which is his choice." Likewise, in
light of the parties’ prior course of performance under the lease, it was Grenfell’s choice to inexplicably serve
the default letter on Anderson in a manner that Grenfell acknowledged would not be effective--having failed on
the one occasion prior to 1991 to serve notice in the same manner. Grenfell further suggests that Anderson was
avoiding contact with Grenfell during the month of October, 1991, leaving him no choice but to send the notice
by certified mail. Even so, the governing practice by the parties would have permitted personal service of the
default notice on one of Anderson’s employees, at one of Anderson’s well-known places of business.
¶ On this issue, we conclude that the District Court's determination that Anderson refused Grenfell's notice of
default is not supported by substantial evidence in the record. The underlying facts related to this issue do not
demonstrate that Anderson actually refused receipt of the certified mail, contrary to the District Court’s
finding. In other words, if Grenfell had provided the court with evidence that a postal worker had handed
Anderson the certified letter from Grenfell at the Ernest Avenue address, and Anderson had refused to accept
it, then the District Court’s finding that he "refused to claim the certified default letter" would stand, as would
its conclusion that Anderson was in constructive receipt of the default notice. Likewise, any evidence that
Anderson avoided or refused service of notice pursuant to the well-established course of performance between
the parties would also support a conclusion that he could be charged with constructive receipt of the default
notice. Indeed, Anderson would not be permitted to profit from such wrongs.
¶ We do agree with the District Court that the evidence shows that Anderson "did not claim the certified default
letter." But pursuant to the Iowa court’s reasoning in Long, which we find persuasive on this issue, this act
alone is insufficient to impute the notice of default to Anderson, and thereby commence his 10-day cure period.
¶ Consequently, the District Court’s conclusion that Anderson had constructive notice was incorrect, and is
therefore reversed.
Issue
3.
Did the District Court err in calculating damages resulting from Anderson’s failure to cure his
defaults?
¶ The District Court concluded that Anderson did not cure his defaults. The court does not, however, reference
to which 10-day period this conclusion applies, the one following the October 17, 1991 notice--which the District
Court concluded was sufficient--or the October 30, 1991 notice, which the parties discuss at length in their briefs
on appeal. Regardless, the District Court concluded that Grenfell was entitled to damages for unpaid rent and
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utilities for the full term of the lease, and for rents received by Anderson from his subtenant. We agree with
Anderson that this assessment, totaling $4,148.78, was incorrectly calculated.
¶ As a preliminary matter to this issue, several key points of law need to be addressed.
¶ First, and foremost, the October 30, 1991 default notice to Anderson, and all those subsequent, are irrelevant
as a matter of law, because by that date Grenfell had terminated the lease and Anderson was no longer in
possession of the premises. Likewise, this conclusion nullifies Anderson’s argument that Grenfell’s October 30,
1991 notice waived or revoked the October 17, 1991 notice.
¶ Grenfell’s changing the locks on the premises on October 28, 1991, pursuant to the express terms of the lease,
effectively terminated the lease between Grenfell and Anderson. In LIC, Inc. v. Baltrusch (1985), 215 Mont. 44,
48, 692 P.2d 1264, 1266, we concluded that by changing the locks a party had as a matter of law repossessed the
premises. See also Deeb v. Canniff (Colo. App. 1971), 488 P.2d 93, 95 (holding that changing the locks by
sublessor terminated sublease agreement, and trial court properly withdrew sublessor’s counterclaim for rent
from the jury); Towers Co. v. Trinidad and Tobago (S.D.N.Y. 1995), 903 F.Supp. 515, 527 (stating that
changing the locks to rented premises constitutes an eviction so long as evidence sufficiently demonstrates intent of
the landlord to keep the tenant out by reason of this action). That this act conclusively
terminated the lease is enhanced by the fact that on October 29, 1991, Grenfell sent a letter to
Bice, Anderson’s sublessee, instructing him to remit rent and utility payments directly to
Grenfell, under the theory that his repossession entitled him to take over Anderson’s subleases.
In all respects, the evidence demonstrates that the these acts were intended by Grenfell to
terminate the lease in accordance with the lease’s terms.
¶ Second, once Grenfell changed the locks, took possession, and thereby terminated the lease,
Anderson’s obligations, including payment of rent, ended as a matter of law. In determining
damages in LIC, the lease, unlike the one in question here, provided that the landlord could
retake possession "without terminating the lease." LIC, 215 Mont. at 47, 692 P.2d at 1266.
Therefore, the tenant could still be held accountable for rent under the remaining lease term. See
also Gallatin Valley Medical Dental Center, Inc. v. Lemley (1983), 206 Mont. 241, 245-46, 670 P.2d
83, 85 (holding that the lessee was liable for future rent following termination where the lease
provided for this right).
¶ We thoroughly addressed the consequences of a lease that does not expressly provide for the
continuing right to receive rent following termination in Knight v. OMI Corp. (1977), 174 Mont.
72, 568 P.2d 552. In Knight, OMI, the lessee, was delinquent in its rent payments under a
commercial lease. The Knights, following their termination of the lease, reentry, and
repossession, sought damages for being deprived of future rent throughout the entire term of the
lease, less any sums recoverable in mitigation. In affirming summary judgment for OMI, we
stated the rule that "[i]n the absence of clear language expressly preserving such right, courts
generally will not construe a lease as providing that, upon reentry or forfeiture, the tenant shall
remain liable for unaccrued rent." Knight, 174 Mont. at 75, 568 P.2d at 554. We held that "a
lease must contain clear language to the effect that a tenant is to remain liable for rent accruing
subsequent to the landlord’s cancellation, if such liability is to be imposed." Knight, 174 Mont. at
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77, 568 P.2d at 555.
¶ Here, the lease expressly provides that upon taking repossession, the landlord was entitled to
"enjoy" the premises "as if the lease had not been made," reserving the right to "recover from
Lessee all rent due up to the time of such entry" (emphasis added). Consequently, we conclude
that the award for unpaid rent and utilities to Grenfell cannot be sustained beyond the date he
took repossession. Likewise, we conclude that Grenfell’s claim for unlawful detainer is void as
well, under the logical conclusion that once locked out, Anderson could in no sense unlawfully
detain the premises absent a showing of his reentry. What remains to be determined, therefore, is
what damages Grenfell may still be entitled to.
¶ The District Court stated in its findings of fact that as of November 9, 1991, within the 10-day
period afforded by the effective notice given to Anderson on October 30, 1991, Anderson owed
$256.91 for July and September utilities. Grenfell agrees that this is the amount Anderson owed
at the time. Anderson, upon tendering payment for the past-due sums, asserted that he was never
billed for July, and that pursuant to the ordinary billing cycle, he could not have been in default
as of October 17th or 30th, for September utilities.
¶ We conclude that the District Court was correct in assessing that the amount Anderson owed
to Grenfell as of November 9, 1991, was $256.91. Whether Anderson was in default as to those
amounts is irrelevant. Grenfell had a right, following the October 28, 1991 reentry--whether or
not his default notice to Anderson was sufficient--to recover all rent due, including the utility
payments. We are left, however, with a definite and firm conviction that a mistake has been
committed as to the District Court’s determination that Anderson owed Grenfell future rent,
including utilities, interest and penalties--for November, December and January. Based on the
foregoing, this conclusion was incorrect and, consequently, any additional amount of damages
based in these findings was incorrect.
¶ We therefore affirm the portion of the District Court’s findings that the sum, $256.91,
represents the amount recoverable in damages by Grenfell resulting from the October 28, 1991
termination of the lease agreement.
Issue 4.
Did the District Court err in concluding that Anderson did not present credible
evidence to support his claim for damages?
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¶ The District Court concluded that Anderson did not present credible evidence to support his claim for
damages against Grenfell. In its findings of fact, the District Court stated that "a false and misleading
description of the use of the property cannot provide a credible basis for damage calculation." This finding
resulted from evidence at trial that the sublease agreement between Anderson and Houldson, which is the basis
for Anderson’s claim of lost profits, stated that the "premises are in fit condition for use by Lessee as a print
shop." Evidence showed that Houldson, to the contrary, intended to use the premises as a computer equipment
repair shop. The District Court further relied on an earlier order, which granted a preliminary injunction in
favor of Grenfell, that found that "there is no evidence before this Court that . . . Anderson will be damaged in
any way by the issuance of this temporary injunction." The injunction prevented Anderson from terminating
his sublease with Bice, and thereby prevented him from subletting to Houldson.
¶ Anderson, in his counterclaim, alleged that Grenfell was liable for forcible entry, unlawful detainer, breach of
contract, breach of the covenant of good faith and fair dealing, and tortious interference with his contractual
relations. We hold that Anderson has presented sufficient credible evidence to support his claims for damages,
which must be weighed against the foregoing conclusions of law addressed thus far.
¶ First, in light of our holding that Grenfell’s October 17, 1991 notice was insufficient, his subsequent lockout of
Anderson, on October 28, 1991, lends merit to Anderson’s forcible entry and unlawful detainer claims. The
same holds true for Anderson’s claims that the lockout was a breach of the lease agreement and the covenant of
good faith and fair dealing. Accordingly, on remand, these claims should be addressed in this new light.
¶ As for Anderson’s claim for lost profits, resulting from Grenfell’s alleged interference with Anderson’s
sublease with Houldson, the District Court’s findings suggest that the sublease between Anderson and Houldson
was defective, in that it contained "a false and misleading description of the use of the property." This finding
correlates with the "change of use" covenant in the lease, which required Grenfell’s "prior approval" of any
"subsequent change of use" of the premises.
¶ In order to recover for lost profits, this Court requires that a party establish them with some certainty as well
as prove the source of the lost profits. See Sage v. Rogers (1993), 257 Mont. 229, 241, 848 P.2d 1034, 1041. In the
past, we have upheld an award of lost profits to a lessee, once liability for a breach of the lease agreement by the
lessor was established. See generally Lee v. Kane (1995), 270 Mont. 505, 893 P.2d 854. Further, the rule as stated
in the Restatement is that, when the leased property is used for business purposes, damages include "loss of
anticipated business profits proven to a reasonable degree of certainty, which resulted from the landlord’s
default, and which the landlord at the time the lease was made could reasonably have foreseen would be caused
by the default." Restatement (Second) of Property, Landlord and Tenant § 10.2(5) (1977). Here, the District
Court concluded that with or without Grenfell’s approval, a sublease with a "false and misleading description"
fails to provide credible evidence for the purposes of damage calculation.
¶ The language found in the Anderson-Houldson sublease, however, is irrelevant in determining whether
Grenfell is liable to Anderson for lost profits. Grenfell was not a party to the sublease. At no time did Anderson
present the sublease agreement to Grenfell for his approval, and thereby mislead Grenfell as to the nature of the
sublease. Furthermore, no specific provision in the Grenfell-Anderson lease required that Anderson seek
approval--and by inference seek review--of any subleases he may have entertained. Rather, the lease only
permitted Grenfell to approve or disapprove the lessee's "use" or change in the "use" of the premises. Even so,
it is unclear from the lease, as well as the course of performance between the parties, under what circumstances
a "change of use" would occur requiring Grenfell’s approval--let alone a review and approval of a sublease
agreement between Anderson and a third party.
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¶ The record indicates that in October of 1991, Anderson used the same sublease agreement that had been
rejected by Bice (who owned the print shop), and merely struck out certain provisions in negotiating the
sublease with Houldson. Although the District Court is correct that the Anderson-Houldson sublease provided
that "the premises are in fit condition for use by Lessee as a print shop," and that Houldson’s intended use was
for a computer equipment repair shop, the sublease also provided that "Lessee may use the premises for any
lawful purpose," which would include a computer equipment repair business. The only party who could
rightfully claim that he was misled by a false description, therefore, would be Houldson, not Grenfell.
¶ The clear facts remain that Anderson entered into a valid sublease agreement with Houldson on October 20,
1991, that Grenfell was made aware of this sublease by Bice shortly after October 24, 1991, and by Anderson in
early-to-mid November prior to Houldson taking possession on December 1, 1991, and that due to Grenfell’s
lockout and attempts to take over Anderson’s sublease with Bice, Anderson was prevented from subleasing the
premises to Houldson. Accordingly, we again conclude that the District Court erred in its determinations. We
conclude that Anderson, contrary to the District Court’s conclusion, has presented credible evidence to support
his claim for lost profits. Whether Grenfell is in fact liable for damages under any of Anderson’s claims, as well
as whether he could have foreseen Anderson’s lost profits at the time their lease was made, are matters that
should be addressed upon remand.
¶ The District Court also relied on an order granting Grenfell a preliminary injunction in reaching its
conclusion that Anderson had not presented credible evidence to support his claim for damages. That order,
however, contains several key errors in light of the conclusions reached here. The order stated that Anderson
gave notice to Bice to vacate the premises even though he was not in default under the terms of his lease with
Anderson. This is incorrect as a matter of law because the tenancy was month-to-month and could be
terminated upon 30-days notice. The order found that Grenfell did not receive notice of the termination of
Bice’s subtenancy in accordance with the lease. Whether such notice was necessary under the terms of the lease
remains unclear and, regardless, the record shows that both Bice and Anderson informed Grenfell of the
termination of the subtenancy prior to any attempt by Houldson to take possession. The order further states
that there was "no evidence" that Anderson had a "legally bound alternative subtenant to lease the said
premises." The record shows that Anderson in fact had executed a lease with Houldson, and had received an
advance rent payment. Thus, the order does not provide current credible evidence that Anderson was not
damaged as a result of being prevented from entering the sublease with Houldson. Accordingly, the District
Court was mistaken in its reliance on this order in concluding that Anderson did not present credible evidence
to support his claim for damages.
¶ Finally, in addressing the issue of Anderson’s alleged damages, we affirm certain legal consequences found by
the District Court concerning the sublease agreement between Anderson and Houldson. The sublease was
signed by both Anderson and Houldson on October 20, 1991. The term of the lease was from December 1, 1991,
to January 31, 1996, or for four years and two months. Anderson alleges that due to Grenfell’s various means of
interference, his damages should include the lost profits from this lease, as well as the five-year option that
would have commenced January 31, 1996. We affirm the District Court’s finding that this option, which was
never signed by Houldson, is too speculative to support a damage calculation.
¶ We reverse and remand for further proceedings in accordance with the provisions of this opinion.
/S/ JAMES C. NELSON
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We Concur:
/S/ J. A. TURNAGE
/S/ KARLA M. GRAY
/S/ WILLIAM E. HUNT, SR.
/S/ W. WILLIAM LEAPHART
/S/ JIM REGNIER
/S/ TERRY N. TRIEWEILER
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