CCS NORTH HENRY, LLC v. Tully

• Decision Date: 14 December 2000
• Docket Number: No. 00-0546.,00-0546.
• Citation: 2001 WI App 8,624 N.W.2d 847,240 Wis.2d 534
• Parties: CCS NORTH HENRY, LLC, Plaintiff-Respondent, v. Marge TULLY d/b/a By the Light of the Moon, Defendant-Appellant.
• Court: Wisconsin Court of Appeals

240 Wis.2d 534

2001 WI App 8

624 N.W.2d 847

CCS NORTH HENRY, LLC, Plaintiff-Respondent, v. Marge TULLY d/b/a By the Light of the Moon, Defendant-Appellant.

No. 00-0546.

Court of Appeals of Wisconsin.

Submitted on briefs July 20, 2000.

Decided December 14, 2000.

On behalf of the defendant-appellant, the cause was submitted on the briefs of David L. Mandell of Mandell, Ginsberg & Meier of Madison.

On behalf of the plaintiff-respondent, the cause was submitted on the brief of Cora L. Higginbotham of Cora L. Higginbotham Law Office of Madison.

Before Roggensack, Deininger, JJ. and William Eich, Reserve Judge.

¶ 1. ROGGENSACK, J.

Marge Tully appeals the judgment for damages awarded by the circuit court for her breach of a lease with CCS North Henry, LLC. She claims that because a successor tenant's monthly payments were greater than those due under her lease, as well as being for a longer period of time, the amount of the excess in monthly payments received from that tenant over those that had been due from her should have been offset against the amount of rent owed by her before the successor tenancy began. Because the circuit court refused to make such an offset, she claims error. However, because we conclude as a matter of law that CCS North Henry elected to accept surrender of the premises, it owed no offset to Tully. Therefore, we affirm the judgment of the circuit court.

BACKGROUND

¶ 2. On May 22, 1997, Tully entered into a commercial lease with 202 North Henry Street Joint Venture which was assigned to CCS North Henry, Tully's landlord at all times material to this lawsuit. Her tenancy began June 1, 1997, and was to terminate May 31, 2002. Tully breached the lease by moving out on February 3, 1999, and ceasing to pay rent. Rental payments under the lease were $1,362.90 per month for 1999 and increased incrementally each year thereafter.

¶ 3. CCS North Henry re-let the premises to the State Street Army Store at $1,785 per month rent beginning May 1, 1999. The lease was to terminate April 30, 2003. As with Tully's lease, Army Store's lease had an escalation clause that increased the monthly rent each year according to a schedule set out in the lease. However, to obtain this new tenant, CCS North Henry paid $3,780 to a realtor and paid $88.41 to change the locks.

¶ 4. On June 10, 1999, CCS North Henry sued Tully in small claims court for breach of the lease. When CCS North Henry did not obtain a judgment it believed was sufficient, it requested a trial de novo in circuit court. After a trial to the court held December 29, 1999, the circuit court entered a judgment for $4,953.31 in rent lost before Army Store's tenancy began and partial expenses.¹ The court also awarded attorney's fees of $1,322.70, for a total judgment against Tully of $6,276.02.²

¶ 5. On appeal, Tully argues that because Army Store's tenancy began June 1, 1999 and garnered $474.60 more per month in rent during the first year than Tully was obligated to pay, the excess of Army Store's rental payments over those that had been due from Tully should have been offset against the amount of rent owed by Tully prior to Army Store's tenancy. She points out that at the time of trial, CCS North Henry had already collected $3,322.20 in rent above that which she had been obligated to pay for the last seven months of 1999. In support of her argument, Tully cites common law from other jurisdictions, WIS. STAT. § 704.29(2) (1997-98)³ and the written lease.

¶ 6. The circuit court concluded that CCS North Henry had the option of continuing to hold Tully to the full term of the lease, thereby leaving open the possibility of damages above those awarded, to which future damages Army Store's rent payments would have been an offset. Or, CCS North Henry could terminate Tully's lease when Army Store's tenancy began and sue for damages that had accrued only up to that time. On appeal, Tully argues that CCS North Henry cannot make that election, but rather it must credit all amounts received from Army Store against damages accruing under her lease, yet she implies that she should be released from obligations accruing after Army Store took over the premises. CCS North Henry contends that the circuit court correctly decided Tully's liability and that Tully's appeal is frivolous. It asks for attorney's fees and costs necessitated by the appeal.

DISCUSSION

Standard of Review.

[1, 2]

¶ 7. The interpretation of WIS. STAT. § 704.29 is a question of law, which we review de novo. Shelton v. Dolan, 224 Wis. 2d 334, 337, 591 N.W.2d 894, 895 (Ct. App. 1998). We also decide as a matter of law whether an appeal is frivolous. J.J. Andrews, Inc. v. Midland, 164 Wis. 2d 215, 225, 474 N.W.2d 756, 760 (Ct. App. 1991) (citing Vierck v. Richardson, 119 Wis. 2d 394, 399, 351 N.W.2d 169, 172 (Ct. App. 1984)).

Damages.

¶ 8. This appeal focuses on whether the circuit court correctly calculated the damages due to CCS North Henry because of Tully's breach of her lease. In Wisconsin, damages for the breach of a written lease when a successor tenant takes possession of the premises during a period of time coextensive with the original lease are impacted upon by three areas of law: (1) landlord/tenant law, (2) WIS. STAT. § 704.29, and (3) contract law. We conclude that all three areas support the judgment of the circuit court in this case.

¶ 9. To better explain the impact of the statutes and contract provisions relevant to this appeal, we begin with a general review of the common law of remedies available to landlords and how Tully's contention fits within them.

1. Landlord/Tenant Law.

¶ 10. After a tenant has breached its lease and vacated the premises, a tenant's liability for the breach is evaluated in part by determining whether the landlord has accepted the tenant's return in a manner that effects a legal surrender of the premises. 51C C.J.S. Landlord & Tenant § 122 (1968). "Surrender" entails the tenant's giving up of the lease before its expiration and the landlord's acceptance of the tenant's relinquishment of rights, either in fact or as implied at law. 49 AM. JUR. 2D Landlord & Tenant § 242 (1995).

¶ 11. Once the premises have been returned to the landlord before the expiration of the lease, a landlord may either: (1) accept the tenant's surrender and re-enter the premises to re-let them for the landlord's own account, thereby releasing the tenant from any further liability for rent, or (2) notify the tenant that it is re-entering and re-letting the premises for the tenant's benefit and therefore the monies received from the successor tenancy will be fully credited to the initial tenant's obligation under the lease. See Kersten v. H.C. Prange Co., 186 Wis. 2d 49, 53, 520 N.W.2d 99, 101 (Ct. App. 1994); First Wis. Trust Co. v. L. Wiemann Co., 93 Wis. 2d 258, 271, 286 N.W.2d 360, 366 (1980). If the premises are re-rented for the initial tenant's account, that tenant remains responsible for the payments due on the underlying lease until its term has concluded. 49 AM. JUR. 2D Landlord & Tenant § 243.

¶ 12. Most legal treatises agree that the question of whether a re-letting shows an acceptance of surrender depends on whether the landlord has re-let the property for his own account or for the tenant's account. 49 AM. JUR. 2D Landlord & Tenant § 252. Ordinarily, executing a new lease for a term that extends beyond that term set out in the original lease indicates the landlord's intent to accept surrender. 51C C.J.S. Landlord & Tenant § 125(8).

[3]

¶ 13. In this case, we consider whether CCS North Henry took possession of the premises for the purposes of mitigating damages and thereby entered into a lease with Army Store for the account of Tully or whether it accepted surrender of the premises and rented to Army Store for its own account, because those are mutually exclusive choices. See First Wis. Trust Co., 93 Wis. 2d at 271, 286 N.W.2d at 366; WIS. STAT. § 704.29(4)(b). As the court stated in First Wisconsin Trust:

The right to elect which course he will pursue remains with the landlord until he makes his election by taking some step which clearly evidences an intent to make a choice between the two inconsistent remedies that are open to him.

First Wis. Trust, 93 Wis. 2d at 271, 286 N.W.2d at 366 (quoting Weinsklar Realty Co. v. Dooley, 200 Wis. 412, 415, 228 N.W. 515, 517 (1930). However, as the court instructs, the mere entry and taking possession of the premises does not necessarily constitute acceptance of surrender as a matter of law. That act is equivocal, as the landlord's obligation to mitigate damages by reletting the premises could cause it to re-rent without the intent to accept the surrender of the premises, and it is the landlord who has the right to elect which remedy it will select.

[4]

¶ 14. Here, CCS North Henry has refused to apply the rents received from Army Store to Tully's obligation under her lease, even though Tully requested that it do so. Additionally, it rented to Army Store for a period of time beyond that covered by Tully's lease. Therefore, under the undisputed facts of this case, we conclude that, as a matter of law, CCS North Henry elected to accept surrender when it obtained Army Store as its tenant for the premises. In making this election, it capped Tully's damages at the date of Army Store's tenancy, and therefore it cannot look to Tully for any damages beyond June 1, 1999.⁴ Accordingly, because CCS North Henry elected to rent the premises for its own account, it has no obligation under the common law to credit Tully with any rents it received from Army Store.

[5]

¶ 15. Tully argues that Wanderer v. Plainfield Carton Corp., 351 N.E.2d 630 (Ill. App. 1976), suggests an opposite result. However, our reading of Wanderer shows that it, too, recognizes the election of remedies for a landlord. Therefore, if a landlord rents for the tenant's account, the tenant gets credited for rents received but stays liable on the lease,...