Central States Health & Life Co. of Omaha v. Miracle Hills Ltd. Partnership

• Decision Date: 15 June 1990
• Docket Number: No. 88-458,88-458
• Citation: 456 N.W.2d 474,235 Neb. 592
• Parties: CENTRAL STATES HEALTH & LIFE COMPANY OF OMAHA, Appellee, v. MIRACLE HILLS LIMITED PARTNERSHIP, a Nebraska Limited Partnership, Appellant.
• Court: Nebraska Supreme Court

Page 474

456 N.W.2d 474

235 Neb. 592

CENTRAL STATES HEALTH & LIFE COMPANY OF OMAHA, Appellee, v. MIRACLE HILLS LIMITED PARTNERSHIP, a Nebraska Limited Partnership, Appellant.

No. 88-458.

Supreme Court of Nebraska.

June 15, 1990.

Syllabus by the Court

1. Appeal and Error. In an action at law, where a jury has been waived and evidence is in conflict, the Supreme Court, in reviewing the judgment, will presume that controverted facts were decided by the trial court in favor of the successful party, and those findings will not be disturbed on appeal unless clearly wrong; it is not within the province of the Supreme Court to resolve conflicts in or reweigh evidence.

2. Appeal and Error. On questions of law, the Supreme Court has an obligation to reach a conclusion independent of that reached by the trial court.

3. Contracts. As a general rule, a contract for an illegal purpose is void and unenforceable.

4. Leases. Ordinarily, if premises are leased for a purpose prohibited by law, the lease is void and unenforceable by either party thereto against the other.

5. Leases: Zoning. When a lease restricts the use of the premises to a single purpose, a prohibition in the zoning regulations against such use terminates the lease and generally relieves the parties of all obligations thereunder.

6. Contracts. When the parties are asserting rights founded upon an illegal and void contract, the court leaves the parties to such a situation just where they placed themselves and as the court found them.

James F. Fenlon of Harris, Feldman Law Offices, Omaha, for appellant.

Gregory J. Benak of Hotz, Kizer & Wintz, P.C., Omaha, for appellee.

HASTINGS, C.J., and BOSLAUGH, WHITE, CAPORALE, SHANAHAN, GRANT, and FAHRNBRUCH, JJ.

HASTINGS, Chief Justice.

This action involves a lease agreement which was rendered nonperformable because of a then-existing zoning regulation prohibition. Central States Health & Life Company of Omaha (Central States), the lessee, filed an action against Miracle Hills Limited Partnership (Miracle Hills), the lessor, to recover prepaid rent and a security deposit and seeking reimbursement for utilities expenses and money spent to improve the leased premises for their intended use. Miracle Hills counterclaimed for the money it had expended in preparing the property for the tenancy of Central States and for the rent which Miracle Hills lost as a result of Central States' failure to perform under the lease. Miracle Hills appeals the judgment of the district court awarding Central States the amount of $8,348.19 and dismissing Miracle Hills' counterclaim.

On September 9, 1985, Miracle Hills and Central States entered into a written lease agreement for four bays in the Miracle Hills shopping center in Omaha for a term of 3 years. Paragraph 3 of the lease agreement provided that Central States would use the premises for "printing and storage of related items and no other purpose." The same paragraph provided that Central States "shall not use the premises nor permit them to be used for any unlawful business or purpose whatsoever." Paragraph 12 of the lease provided:

Lessee shall keep the premises and operate his business therein in a manner which shall be in compliance with all applicable laws, ordinances, rules and regulations of the city, county, state and federal government and any department thereof, will not permit the premises to be used for any unlawful purpose, and will protect the Lessor and save Lessor and the premises harmless from any and all fines and penalties that may result from or be due to any infractions of or non-compliance with such laws, ordinances, rules and regulations.

As provided by the lease, each party made and paid for certain improvements and modifications to the premises. Before Central States moved in, the parties learned in December 1985 that the city of Omaha would not grant Central States a certificate of occupancy because the premises were zoned first commercial (C-1) and the use intended by Central States was not allowed in a C-1 zone.

The intended use of the premises communicated by Central States to Miracle Hills was for a printshop and storage. The lease which the parties executed provided at paragraph 3: "USE: The Lessee shall use and occupy the premises for printing and storage of related items and no other purpose. The Lessee shall not use the premises nor permit them to be used for any unlawful business or purpose whatsoever."

After execution of the lease agreement, each party spent certain sums of money adapting the premises to the use for which Central States intended to use the premises. The parties stipulated that Central States spent $5,629 for improvements to the premises, $2,383.33 for prepaid rent and a security deposit, and $335.86 for utilities. Miracle Hills spent $18,569.23 for improvements to the premises.

Central States was never able to move into the premises. It received a letter dated December 6, 1985, from the city of Omaha's planning department, stating that the "property is zoned First Commercial which does not allow a print shop or storage use unless approved by the Zoning Board of Appeals." Miracle Hills filed an application with the zoning board of appeals requesting a variance to permit Central States' intended use of the premises. At a hearing held on December 19, 1985, which was attended by representatives of both Central States and Miracle Hills, the request for a variance was denied. That decision was not appealed to the district court by either party.

On January 22, 1986, Central States wrote a letter to Miracle Hills attempting to rescind the lease from its inception. Central States requested $8,068.88 as a refund for expenses incurred, including rent, security deposit, improvements, and utilities. On April 3, 1986, Miracle Hills responded, demanding full performance by Central States of its obligations under the lease, i.e., payment of $9,100 for improvements made by Miracle Hills and $5,729.15 for rent due from December 1985 through April 1986. A replacement tenant entered the premises in April 1986.

Central States filed suit against Miracle Hills on November 13, 1986, alleging that Miracle Hills represented that the premises were fit for Central States' intended use and that Miracle Hills knew or should have known of the C-1 zoning that would prohibit Central States from making use of the premises. Central States prayed for damages of $8,348.19, covering the prepaid security deposit and rent, utilities expenses, and improvements.

In its answer, Miracle Hills alleged that it made no representations to Central States and that under the provisions of the lease agreement, Central States assumed the obligation of determining that the business it wished to conduct on the premises was lawful and permitted by the ordinances of the city of Omaha. Miracle Hills counterclaimed for $16,224.98 in rent and $9,100 for reimbursement for certain improvements to the premises.

Although the pleadings do not specifically so allege, it is apparent that the parties tried this case on the theory of rescission and restitution. The trial court determined that the landlord (Miracle Hills) was in a better position to determine at the outset whether a contemplated use is violative of zoning regulations. Accordingly, following a waiver of a jury, trial was held and the court entered a judgment in favor of Central States in the amount of $8,348.19 and dismissed Miracle Hills' counterclaim.

On appeal, Miracle Hills assigns as error (1) the entry of judgment in favor of Central States, (2) the dismissal of the counterclaim of Miracle Hills, and (3) the overruling of Miracle Hills' motion for a new trial.

There is little, if any, disagreement on the facts. Central States told Miracle Hills or its representative that it wanted the premises for a printshop and storage. The lease agreement recites that purpose. An agreement was reached as to what improvements each party would make to the premises. Central States did not know of the zoning and the prohibition as to its use of the premises until after the lease was made and it was getting ready to move in. The representative of Miracle Hills testified that prior to the denial of the certificate of occupancy by the city of Omaha, he did not know that the use intended to be made of the premises by Central States was prohibited under the Omaha city ordinances.

In an action at law, where a jury has been waived and evidence is in conflict, the Supreme Court, in reviewing the judgment, will presume that controverted facts were decided by the trial court in favor of the successful party...