Austin Hill Country Realty, Inc. v. Palisades Plaza, Inc.

• Decision Date: 27 September 1995
• Docket Number: No. 03-94-00485-CV,03-94-00485-CV
• Citation: 938 S.W.2d 469
• Parties: AUSTIN HILL COUNTRY REALTY, INC. d/b/a Re/Max Austin Hill Country Realty, Inc., Barbara A. Hill, Annette V. Smith, and David J. Jones, Appellants, v. PALISADES PLAZA, INC. d/b/a The Palisades, Appellee.
• Court: Texas Court of Appeals

Page 469

938 S.W.2d 469

AUSTIN HILL COUNTRY REALTY, INC. d/b/a Re/Max Austin Hill Country Realty, Inc., Barbara A. Hill, Annette V Smith, and David J. Jones, Appellants, v. PALISADES PLAZA, INC. d/b/a The Palisades, Appellee.

No. 03-94-00485-CV.

Court of Appeals of Texas Austin.

Sept. 27, 1995.

Geoffrey D. Weisbart, William R. Hemphill, Jr., Hance, Scarborough, Woodward & Weisbart, L.L.P., Austin, for Austin Hill Country Realty and Barbara A. Hill.

Barry Bishop, Clark, Thomas & Winters, Austin, for Annette V. Smith and David J. Jones.

Kenneth D. Lerner, Blazier, Rutland & Lerner, Austin, for appellee.

Before CARROLL, C.J., and POWERS and KIDD, JJ.

POWERS, Justice.

Barbara A. Hill, Annette V. Smith, David J. Jones, and Austin Hill Country Realty, Inc., conducting business under the name Re/Max Austin Hill Country Realty, Inc. ("Re/Max"), appeal from a district-court judgment recovered by Palisades Plaza, Inc., ("Palisades") after a jury trial. We will affirm the trial-court judgment.

THE CONTROVERSY

Appellants entered into a five-year lease contract with Palisades for office space. The contract, dated September 15, 1992, required monthly rental payments of $3,128 beginning around November 15, 1992. An addendum to the contract provided that rental payments would increase on November 15, 1993, to $3,519. The contract provided that the lease term would begin on the "earlier of the date the Tenant begins operating its business in the Leased Premises or the 'completion date' as stated in the Leasehold Improvements Agreement." If no improvements were necessary the lease was to begin on November 15, 1992 or earlier if Re/Max began operating from the leased quarters. Hill, Smith, and Jones, partners in the Re/Max franchise, guaranteed Re/Max's obligations under the lease.

By the middle of October 1992, Palisades had almost completed construction and "build out" in preparation for the appellants' entering into possession on November 15, 1992. Palisades stopped construction on October 21, 1992, however, because appellants gave Palisades conflicting instructions on how they wished the office space finished out. In two letters, one dated October 21, 1992 and another October 27, 1992, Palisades notified appellants that it had ceased working on the office space and would not resume until Hill, Smith, and Jones designated in writing a single representative authorized to make final decisions concerning the completion of construction. Appellants did not reply.

Palisades sued appellants on an action for anticipatory breach of the lease contract. The jury returned a verdict awarding Palisades $29,716 in damages and $16,500 in attorney's fees. The trial court rendered judgment on the verdict.

DISCUSSION AND HOLDINGS

In their first point of error, appellants complain the trial court erred in overruling their objections to jury question number two. The objections pertained to an asserted landlord's duty to make reasonable efforts to mitigate damages following anticipatory breach of a lease contract. ¹ Appellants concede that "traditional" landlord-tenant law does not impose a duty upon the landlord to mitigate damages unless a contract imposes such a duty. See Metroplex Glass Ctr., Inc. v. Vantage Properties, Inc., 646 S.W.2d 263, 265 (Tex.App.--Dallas 1983, writ ref'd n.r.e.). And if a landlord elects to sue for damages based upon anticipatory breach, he is under no duty to exercise due diligence to find replacement tenants. White v. Watkins, 385 S.W.2d 267, 270 (Tex.Civ.App.--Waco 1964, no writ). ²

Appellants rest their point of error on Judge Kilgarlin's concurring opinion in Brown v. RepublicBank First National Midland, 766 S.W.2d 203, 204 (Tex.1988), in which he noted the absence of a landlord's duty to mitigate damages in "traditional" Texas case law and urged that Texas should "abandon [this] antiquated rule of property law in favor of more contemporary contract principles." Id. at 206. He added: "I would hold the landlord to a duty to make reasonable efforts to mitigate his damages and would not permit the landlord to recover avoidable damages, i.e., the increased damages caused by his failure to mitigate." Id. Three judges joined Judge Kilgarlin's concurring opinion and Chief Justice Phillips stated in dissent that "as a matter of public policy this court should create an implied condition obligating a landlord to make reasonable efforts to mitigate its damages following a tenant's default."

Judge Kilgarlin also stated, in obiter dicta, that an exception to the traditional rule had been recognized in those instances where a landlord pursues a remedy in contract, citing Employment Advisors, Inc. v. Sparks, 364 S.W.2d 478 (Tex.Civ.App.--Waco), writ ref'd n.r.e., 368 S.W.2d 199 (Tex.1963). The court of civil appeals stated in Sparks that the "damages recoverable are those that would have been recoverable if the party guilty of the anticipatory breach of contract had waited until the appointed time for performance before breaching the agreement, and they are subject, of course, to the usual rules concerning mitigation of damages." 364 S.W.2d at 480 (emphasis added). The supreme court, expressing no opinion regarding the appellate court's statement in Sparks concerning mitigation of damages in an anticipatory breach context, refused the application for writ of error, no reversible error, because the petitioner had not properly objected to the special issue regarding the measure of damages.

Twenty-five years after the Sparks decision, Judge Kilgarlin, in his Brown concurrence, stated his belief that although the supreme court expressed no opinion in the Sparks decision on the issue of mitigation, "Had we done so, we would have explained that the remedy sought by the landlord was exclusively in contract and incompatible with the traditional view grounded in the law of property; hence, the contractual principle of mitigation was applicable." Brown, 766 S.W.2d at 205.

The fact remains that neither Judge Kilgarlin's nor Judge Phillips' views have ever attracted a majority of the supreme court. Their opinions do not have stare decisis effect. Rather, stare decisis binds us to the "traditional" rule that the landlord owes no duty to mitigate, for the supreme court established that principle by its refusal of writ of error in Early v. Isaacson, 31 S.W.2d 515, 517 (Tex.Civ.App.--Amarillo 1930, writ ref'd). See Tex.R. Civ. P. 483 (1927, repealed 1986). Consequently, no appellate court since the Brown decision has imposed a duty to mitigate damages in a property-law context. The courts have adhered instead to the "traditional" rule. See Cassidy v. Northwest Tech Ctr. Assocs., Ltd., 785 S.W.2d 407, 412 (Tex.App.--Dallas 1990, writ denied) (landlord had no duty to mitigate in landlords' suit against lease guarantors); Cocke v. Meridian Sav. Ass'n, 778 S.W.2d 516, 520 (Tex.App.--Corpus Christi 1989, no writ) ("We decline to create a duty to mitigate in property law."); Marynick v. Bockelmann, 773 S.W.2d 665, 673 (Tex.App.--Dallas 1989), rev'd on other grounds, 788 S.W.2d 569 (Tex.1990) ("Until the supreme court expressly addresses the issue, we are constrained to follow the traditional rule that a landlord need not mitigate damages."); see also Resolution Trust Corp. v. Cramer, 6 F.3d 1102, 1108 (5th Cir.1993) ("Texas intermediate appellate courts still adhere to the rule that Texas common law does not impose on landlords a duty to mitigate their damages once the leased premises has been abandoned."). We therefore are not free to create the new common-law duty for which appellants contend. ³ We overrule appellants' first point of error.

In their second point of error, appellants complain there is no evidence ⁴ or in the alternative insufficient evidence ⁵ to support the jury's answer to question number two regarding damages. Their third point of error complains the trial court erred in overruling their objection and their requested jury instruction regarding question number two because that question did not include an instruction on the proper measure of damages. Appellants group for argument these two points of error regarding the proper measure of damages. We will follow suit. The substance of appellants' argument is that the measure of damages pled and proved by Palisades was not a proper measure of damages. ⁶ See Speedee Mart, Inc. v. Stovall, 664 S.W.2d 174, 177 (Tex.App.--Amarillo 1983, no writ). Speedee Mart declared as follows:

When a tenant breaches a lease by abandoning the property and terminating rental payments, the landlord has four options: (1) The landlord may decline to repossess the property, electing instead to maintain the lease in full force and effect. Under that option, he can sue on the contract for the rent as it comes due and recover the contractual rent.... (2) The landlord may treat the tenant's conduct as an anticipatory breach of contract, and repossess and retain the property for his own purposes. Under that option, he can recover the present value of the rentals that accrue under the lease contract, reduced by the reasonable cash market value of the lease for the unexpired term.... (3) The landlord may treat the tenant's conduct as an anticipatory breach of contract, repossess the property and lease it to another tenant. Under that option, he can recover the contractual rental reduced by the amount to be received from the new tenant.... (4) The landlord may declare the lease forfeited. Under that option, he relieves the tenant of liability for future rental payments.

664 S.W.2d at 177 (citations omitted) (emphasis added). In a footnote, the Speedee Mart court stated: "The four options are common law remedies available unless the parties contract otherwise." Id.

Appellants argue that because Palisades sued for anticipatory breach their recovery was limited to either option (2) or (3) under Speedee Mart or a hybrid of the two under Maida v. Main Building, 473 S.W.2d 648, 651 (Tex.Ci...