Grenfell v. Anderson

• Decision Date: 09 November 1999
• Docket Number: No. 98-577.,98-577.
• Citation: 1999 MT 272,989 P.2d 818
• Parties: 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.
• Court: Montana Supreme Court

989 P.2d 818

1999 MT 272

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.

No. 98-577.

Supreme Court of Montana.

Submitted on Briefs March 18, 1999.

Decided November 9, 1999.

Linda Osorio St. Peter, St. Peter & Warren, Missoula, Montana, for Appellants.

P. Mars Scott, Mulroney, Delaney & Scott, Missoula, Montana, for Respondent.

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 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.

¶ 2 We affirm in part and reverse in part and remand for further proceedings.

¶ 3 We consolidate and review the following issues raised by Anderson on appeal:

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

¶ 4 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.

¶ 5 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.

¶ 6 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.

¶ 7 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 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.

¶ 8 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.

¶ 9 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.

¶ 10 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.

¶ 11 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, Anderson canceled the lease and sought to lease the entire premises to Bice. This offer was refused and the premises remained vacant.

¶ 12 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.

¶ 13 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.

¶ 14 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.

¶ 15 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....