Alex WEINSTEIN and Benjamin Weinstein
v.
John W. GRIFFIN and Donald F. Williams.
No. 454.
Supreme Court of North Carolina.
November 24, 1954.*551 J. C. B. Ehringhaus, Jr., Raleigh, for plaintiffs, appellees.
Allen Langston, Raleigh, for defendant Griffin, appellant.
J. C. Keeter and Ellis Nassif, Raleigh, for defendant Williams, appellant.
HIGGINS, Justice.
Section 10 of the lease provides for liquidated damages in case of breach. The section, standing alone, is confusing. Yet, considered in the light of other provisions, its purport becomes reasonably clear; that *552 is, it fixes a rule for determining liquidated damages for the unexpired term in case of breach. Stripped of its unnecessary verbiage, the section provides that liquidated damages shall be determined for the remainder of the term after breach by allowing the defendants credit for the reasonable rental value of the premises for the unexpired portion of the lease, less a discount of four per cent per annum, or the difference between the reasonable rental value and the rent provided in the contract. The difference between the reasonable rental value thus discounted, when deducted from the contract price of $300 per month, shall be the liquidated damages for the unexpired term. The plaintiffs, therefore, if their contention prevails, would be entitled to recover $300 per month rent from the beginning of the renewal period until the breach, which they allege occurred in November, 1952, and then recover liquidated damages for the remainder of the year calculated according to the rule above given.
Realizing there is room for misunderstanding in the statement of mathematical problems, we are offering a sample solution for the problem here presented. Assuming the defendants are bound for the additional year of the lease beginning August 15, 1952, and that the breach occurred on November 15, 1952, and assuming the jury should find the reasonable rental value of the premises to be $200 per month, the defendants' liability would work out in this manner: For the four months before the breach the plaintiffs would be entitled to recover rent at the rate of $300 per month, or $1,200. For the remaining eight months the reasonable rental value would be $1,600. The difference between the rent provided in the contract and the $1,600 would be $800. The discount on $800 for eight months at the rate of four per cent per annum would be $21.33. Deducting the discount from the $800 would fix the liquidated damages for the eight months at $778.67. This, when added to the rental for the four months before breach, would fix the total liability of the defendants at $1,978.67, assuming, of course, all issues were answered in their favor.
While liquidated damages, if in the nature of a penalty, are not favored, Crawford v. Allen, 189 N.C. 434, 127 S.E. 521, the liquidated damages fixed in the contract are not less favorable to the defendants than the rule of law would impose in the absence of any provision for liquidated damages. The rule fixed in the lease gives the defendants credit for the reasonable rental value from the date of the breach. The law, in the absence of Section 10 of the lease, would require only that the plaintiffs exercise reasonable diligence to relet the property and thus minimize the defendants' loss. After due diligence the plaintiffs might not be able to relet immediately or they might not be able to find a tenant who would pay the reasonable rental value for the remaining part of the term, in which event the defendants would get no credit at all. In no wise could the liquidated damages fixed in the lease be considered unreasonable or oppressive, or "arbitrarily adopted without reference to the loss actually suffered and liable to arise in case of breach." Horn v. Poindexter, 176 N.C. 620, 97 S.E. 653.
There appears no reason, therefore, why the formula fixed by the parties for determining damages should not be allowed.
The trial court charged the jury as follows: "Now, if you come to the sixth issue, `In what amount, if any, are the defendant John W. Griffin and defendant Donald F. Williams indebted to the plaintiffs,' the burden of that issue is upon the plaintiffs to satisfy you from the evidence and by its greater weight; that is to say, if you have heretofore found that neither Griffin nor Williams were released, but that they were both bound under the extension agreement as they were under the original agreement, then you would answer the sixth issue against both defendants in the sum of $3,600.00."
The court, in giving the instructions, neither took into account Section 10 in the lease with respect to liquidated damages for the unexpired term, nor the fact plaintiffs received possession of the leased premises and had the benefit of such use.
*553 There is no finding in the verdict that the contract was breached, or, if so, when the breach occurred. The plaintiffs allege that the contract was breached and that they re-entered on November, 1952. The defendants deny the breach in their pleadings, and nowhere in their testimony do they admit that they breached the contract. In fact, they claim they never went into possession for the unexpired term but that they surrendered the premises on August 15, 1952, the day the original term expired, and this was done with plaintiffs' approval.
There is doubt, also, as to whether the court was sufficiently explicit in its instructions to the jury as to the law arising upon defendants' contentions and evidence with respect to agreement of the plaintiffs to release them from their obligations under the lease agreement and the renewal thereof. Exceptions in the record raise these questions.
For the reasons indicated, it is ordered that there be a
New trial.