Hornwood v. Smith's Food King No. 1, 21084

• Citation: 107 Nev. 80,807 P.2d 208
• Decision Date: 06 March 1991
• Docket Number: No. 21084,21084
• Parties: Sanford and Rita HORNWOOD, Appellants, v. SMITH'S FOOD KING NO. 1 and Smith's Management Corporation, Respondents.
• Court: Supreme Court of Nevada

Page 208

807 P.2d 208

107 Nev. 80

Sanford and Rita HORNWOOD, Appellants, v. SMITH'S FOOD KING NO. 1 and Smith's Management Corporation,

Respondents.

No. 21084.

Supreme Court of Nevada.

March 6, 1991.

Rehearing Denied May 2, 1991.

Marquis, Haney & Aurbach, Las Vegas, for appellants.

Jolley, Urga, Wirth & Woodbury, Las Vegas, for respondents.

OPINION

PER CURIAM:

THE FACTS

In June 1975, respondent, Smith's Food King No. 1 (Smith's), executed an agreement to lease 28,000 square feet of space in a 145,000 square foot shopping center now owned by Sanford and Rita Hornwood (Hornwoods). ¹ The thirty year lease required Smith's to pay approximately $92,398.00 in minimum annual rent as well as "percentage rent" calculated at 1.5% of sales generated by the store during the previous calendar year, less the aggregate amount of annual minimum rent paid. ² On November 1, 1986, Smith's ceased its grocery operations at the Hornwoods' shopping center. Thereafter, the Hornwoods did not attempt to evict Smith's, and Smith's retained possession of the demised premises while continuing to pay minimum rent. ³

The Hornwoods filed a suit approximately one month after Smith's ceased its operations in their shopping center, alleging, among other things, that Smith's had breached an implied covenant of continuous operation when it vacated the premises, and that this breach had caused the shopping center to decline $2,500,000.00 in value, because Smith's was the shopping center's "anchor tenant". ⁴

At the conclusion of a bench trial, the trial court agreed that Smith's had breached an implied covenant of continuous operation when it vacated the premises; however, the trial court concluded that the Hornwoods were not entitled to damages for this breach because: (1) Smith's had continued to pay minimum rent; (2) the evidence did not support damages for percentage rent; and (3) "[a]s a matter of law, diminution of property value to the shopping center as a result of the closure of Smith's ... [was] not compensable due to the unforeseeable nature of such damages."

The Hornwoods appealed the trial court's ruling, and this court partially reversed, holding that the diminution of value of the Hornwoods' shopping center caused by Smith's breach of the implied covenant of continuous operation was not unforeseeable as a matter of law. See Hornwood v. Smith's Food King, 105 Nev. 188, 772 P.2d 1284 (1989). This court found the remaining issues raised in the Hornwoods' appeal to be without merit. Id. at 192, 772 P.2d at 1287.

The matter was remanded to the district court for a determination of damages for the diminished value of the shopping center. Id. However, before the district court had an opportunity to consider this On September 5, 1989, the Hornwoods filed their motion for entry of judgment with the district court, seeking $1,425,000.00 in damages. At the Hornwoods' request, the trial judge did not conduct an evidentiary hearing, but instead relied upon the evidence produced at the trial to assess damages. Thereafter, the trial court awarded the Hornwoods $5,000.00 for the diminished value of their shopping center, without prejudgment interest, and assigned to the Hornwoods the rents from two subleases secured by Smith's for Smith's shopping center space. The trial court also awarded the Hornwoods $12,916.60 in costs and $50,000.00 in attorney's fees. This appeal followed.

                issue, the Hornwoods petitioned the Nevada Supreme Court for a rehearing, asserting that the measure of damages in Hornwood v. Smith's Food King did not fit the case, and that Hornwood v. Smith's Food King should be modified to allow damages for lost future "percentage rent."   This court denied the petition for rehearing for procedural reasons.  See Order Denying Rehearing, Case No. 18980, filed on June 23, 1989
                

COMPENSATORY DAMAGES

Compensatory damages are awarded to make the aggrieved party whole and, where contracts are involved, these damages should place the plaintiff in the position he would have been in had the contract not been breached. Dalton Properties, Inc. v. Jones, 100 Nev. 422, 425, 683 P.2d 30, 31 (1984). The primary concern in this case then, asks whether the Hornwoods were adequately compensated for their loss.

The Hornwoods argue the district court damage award for the diminished value of their shopping center was inadequate, and insist that to be adequately compensated for their loss, they should receive: (1) $1,425,000.00 for the diminished value of the shopping center; (2) $301,354.00 for lost "percentage rent" on the contract; and (3) $258,000.00 for lost rent and other expenses incurred on other tenancies in the shopping center. We will assess each claim for damages separately.

A. Damages for Diminished Value.

In the first appeal of this case, we remanded the matter back to the district court and cited Washington Trust Bank v. Circle K Corp., 15 Wash.App. 89, 546 P.2d 1249 (1976), for the appropriate measure of damages. Washington Trust assessed damages by the difference between the "present worth of the property with the lease less the present worth of the property without the lease." Id. 546 P.2d at 1252. Upon remand, the district court below evidently felt compelled to ignore the existence of Smith's lease on the subject property in applying the Washington Trust damage formula. We conclude that this was a misapplication of the Washington Trust measure of damages in light of the facts of this case.

1.

"When an appellate court states a principle or rule of law necessary to a decision the principle or rule becomes the law of the case and must be followed throughout its subsequent progress, both in the lower court and upon subsequent appeal." Wickliffe v. Sunrise Hospital, 104 Nev. 777, 780, 766 P.2d 1322, 1324 (1988). However, "[i]n law as elsewhere words of many-hued meanings derive their scope from the use to which they are put." Powell v. U.S. Cartridge Co., 339 U.S. 497, 529, 70 S.Ct. 755, 772, 94 L.Ed. 1017 (1950) (dissenting opinion). The clear intent of Washington Trust, as well as our prior ruling in this matter, was to place the aggrieved party in the position they would have been in had the breach of contract not occurred.

After it assumed the nonexistence of Smith's lease on the subject property, the district court accepted an appraisal that likewise assumed the nonexistence of Smith's lease. Following these assumptions, the property was valued based upon market value rents that the Hornwoods could obtain on the property if Smith's lease did not exist. Thereafter, the Hornwoods' However, the market value rents used to reach this damage award were substantially greater than the minimum rent Smith's continued to pay the Hornwoods on Smith's lease because Smith's had executed their lease years earlier and paid lower than average rents as an anchor tenant. Obviously, the Hornwoods could not mitigate their damages by releasing the subject property for its market value because of Smith's lease. Thus, to make the facts of this case fit the district court's assumption that Smith's lease did not exist, the district court ordered Smith's to assign its subtenant rents on the property over to the Hornwoods. This, however, did not make the facts of the case fit the district court's assumptions.

damages for the diminished value of the shopping center were set at $5,000.00.

First, The Hornwoods are not guaranteed market value rents on the subject property for the duration of Smith's lease: the Hornwoods do not have privity of contract or privity of estate with Smith's subtenants and, accordingly, must depend upon Smith's to maintain current and future subleases on the property. We conclude it would be improper to force the Hornwoods into such a precarious position. Second, the district court order awarding damages to the Hornwoods does not guarantee the quality of future subleases on the subject property, or even require Smith's to sublease this property upon the termination of current subleases. Finally, questions arise regarding Smith's obligations to: (1) collect rents from subtenants; (2) cure future injury to the property caused by the subtenants; or (3) resolve disputes between subtenants and the Hornwoods. We believe the Hornwoods are justified in their concern that Smith's may consider itself relieved of all future liability if the district court's order is affirmed.

In short, we conclude that the district court damage award is mired in confusion and illusory assumptions that beg for future litigation and court intervention. We likewise conclude that the district court damage award does not guarantee the accuracy of the court's assumption that the Hornwoods would continuously receive market value rents on the subject property for the duration of Smith's lease. Accordingly, we believe the district court should have interpreted the Washington Trust measure of damages to fit the facts of this case, rather than manipulating the facts of the case to fit the damage formula.

2.

It is clear from our prior ruling that the Hornwoods were to receive adequate compensatory damages upon remand. Therefore, the district court should have construed the Washington Trust measure of damages as the difference between the value of the shopping center immediately before and immediately after the breach that caused the injury. See 22 Am.Jur.2d Damages § 401 (1988). In other words, damages in this case should be assessed as the present worth of the property with the anchor tenant less the present worth of the property without the anchor tenant. Further, we define "without the anchor tenant" in this opinion to exclude any value the shopping center may derive from Smith's current subtenants, or from any subtenants Smith's acquires for the demised premises in the future. We so define "without the anchor tenant" because of uncertainties created by Smith's breach of contract and to insure the Hornwoods adequate compensatory damages.

Theref...