Jaffe v. Bolton

• Decision Date: 09 April 1991
• Citation: 817 S.W.2d 19
• Parties: Paul H. JAFFE and Sol I. Jaffe, Individually and d/b/a S & B Properties, A Joint Venture, Plaintiffs/Appellants, v. Charles Earl BOLTON and James N. Bolton, Defendants/Appellees.
• Court: Tennessee Court of Appeals

Page 19

817 S.W.2d 19

Paul H. JAFFE and Sol I. Jaffe, Individually and d/b/a S & B Properties, A Joint Venture, Plaintiffs/Appellants, v. Charles Earl BOLTON and James N. Bolton, Defendants/Appellees.

Court of Appeals of Tennessee,

Western Section, at Jackson.

April 9, 1991.

Application for Permission to Appeal

to Supreme Court Denied Sept. 9, 1991.

Erich W. Merrill, Memphis, for plaintiffs/appellants.

Leo Bearman, Jr., Charles F. Morrow, Memphis, for defendants/appellees.

FARMER, Judge.

The plaintiffs, Paul H. Jaffe and his brother, Sol I. Jaffe, own certain property known as 3585 and 3595 Southern Avenue and 585 Patterson Street in Memphis, Tennessee. In May of 1983, Charles Bolton (hereinafter "Chuck") contacted Paul Jaffe (hereinafter "Jaffe") about leasing this property. Jaffe and Chuck had an initial meeting in which they reviewed a set of plans of the property. After reviewing the plans, Chuck decided he could do something productive with the property. Specifically, Chuck wanted to open a restaurant and nightclub. There had been a large fire in the buildings on this property in March of 1983. Therefore, the property was basically in an untenable condition at this time. Chuck got a set of keys from Jaffe after their initial meeting and immediately began a cleanup process.

Chuck and a friend cleaned up a considerable amount of the debris from the fire, filling thirty dumpsters and hauling off some forty truckloads. The cleanup lasted approximately two and one-half months. During this period the parties discussed the terms of a proposed lease. A letter of intent dated June 29, 1983 was eventually signed by the parties. Ultimately, on September 21, 1983, the parties executed a lease agreement.

After signing the lease Chuck and his father, James Bolton, made significant improvements to this property. James Bolton paid for all of these improvements. Allegedly, the Boltons made improvements to the leasehold totaling $185,109.84. Among other things, Chuck discovered that the roof on the buildings had to be replaced. The only leaks that Jaffe allegedly pointed out to Chuck and circled on the plans were three leaks on the east building and one on the west. In addition, Jaffe allegedly told Chuck that there was a "small" problem with the air conditioning. In reality, all of the air conditioning systems with the exception of one had to be replaced. Furthermore, Chuck had planned to make a circular bar in the middle of one of the buildings. On the plans Jaffe showed Chuck, this wall was designated a non-load-bearing wall. However, when Chuck went on the premises and began to tear down the wall, bricks started falling. An engineer was called and informed Chuck that the wall was, in fact, a load-bearing wall. Therefore, it could not be torn down unless an I-beam was installed at a cost of $17,000. As a result of this discovery the whole layout of the building was changed and additional expense incurred. Chuck also determined that the plumbing and the electrical system in the buildings would not pass code inspection; therefore, he had to do extensive repair to bring them up to code.

Prior to the execution of the lease, Jaffe informed Chuck that a guarantor would be necessary as security to the lease. Chuck informed Jaffe that Daniel Cane had agreed to sign as guaranty. In reliance upon this, Jaffe included the following provision in the lease agreement:

32. This agreement is contingent upon Daniel A. Cane and wife signing the attached guaranty (no. 33); in the event they do not sign guaranty by October 12th, 1983, this agreement is null and void and tenant forfeits his deposit of $8,000.--

Daniel Cane and his wife ultimately refused to sign as guarantors on the lease. In December of 1983, Jaffe demanded that Chuck produce a guarantor. On January 27, 1984, Chuck and Jaffe entered into an agreement whereby Chuck was given until February 29, 1984 to comply with the guarantor provision of the lease. Jaffe met with Chuck on February 23, 1984 and informed him that if James Bolton did not sign as guarantor then he would lease the property to someone else. Thereafter, James Bolton signed as guarantor. However, at the time he was signing he told Jaffe that it's "like you've got a gun to my head, and remember, this is duress." James Bolton had personally invested $350,000 of borrowed capital and $100,000 cash in his son's operation.

Subsequently, the restaurant closed at the end of July or the beginning of August of 1984. The corporation under which the business was operating filed Chapter 11 bankruptcy and Chuck defaulted on the rent. Thereafter, Jaffe filed suit in the Chancery Court of Shelby County against the defendants, Charles Bolton and James Bolton, seeking recovery of past due rents. Additionally, Jaffe alleged that an air conditioning contractor had filed a mechanics lien suit against the real estate leased to the defendants for repairs made at the defendants' request and sought recovery for the amount of the mechanics claim in the sum of $500. Furthermore, Jaffe sought recovery for an increase in insurance premiums due to the buildings being unoccupied.

A hearing was held in this matter on June 28, 1985, and the trial court found: (1) that the lease and guaranty provision were entered into in a businesslike manner without any fraud or overreaching; (2) that Jaffe had failed to mitigate his damages; (3) that Jaffe was entitled to a judgment against both of the defendants for $4,000 per month from September 21, 1983, through June 28, 1985, less the deposit of $8,000, also less the three months allowed for improvements by Jaffe, plus the mechanics lien of $500; (4) that the plaintiff was unjustly enriched and the court ordered a reference to the Clerk and Master to determine the enhanced value of the improvements made on the property by the Boltons and a determination of reasonable attorney's fees.

On August 7, 1989, a report of the Master was filed wherein he found that:

Defendants spent a total of $175,527.61 in cleaning, demolishing, remodeling and repairing of the premises. The Master finds that the defendants did not carry their burden of proof in regard to the enhancement of value of the improvement except as to....

TOTAL: $69,871.12.

In addition, the Master found that reasonable attorney's fees plus expenses were equivalent to $12,307.79. The Chancellor thereafter entered a judgment for the defendants because the amount of rents, attorney's fees, and expenses which plaintiffs were entitled to was less than the value of the enhancements, $69,871.12.

It is from this judgment that the parties have appealed. The issues on appeal are:

1. Did the trial court err in allowing defendants to set off, against the rent they owe plaintiffs under the lease here involved, part of the amount defendants spent in remodeling defendants' building, for their own impractical, specialized restaurant operation, when the lease, Trial Exhibit 3, specifically provided that (a) the premises were leased "as is"; (b) the tenant would "repair, remodel, and maintain premises during the term of lease"; (c) the landlord would forgive three months' rent in consideration of the tenant's repairing and remodeling the premises; and (d) that all additions and improvements, except furniture or movable trade fixtures, "shall be the property of the landlord and shall remain upon ... the premises as a part thereof at the termination of this Lease, without compensation to the Tenant," and plaintiffs had no use for the specialized restaurant building that was designed and remodeled by defendants?

2. Did the trial court err in holding that plaintiffs failed to mitigate their damages, where there was no showing that plaintiffs could have found another tenant for the premises as amateurishly remodeled by defendants, nor was there any proof as to how much plaintiffs could have leased the premises for, and where the defendants' proof showed that defendants kept possession of the property up to the time of trial, that defendants had ten different real estate brokers trying to sublease the premises, and contacted 40 to 50 individuals in an effort to sublease the premises, but were unable to find anyone who was interested in subleasing the restaurant that had been remodeled by defendants, who had had no experience in the restaurant business?

3. Did the actions of plaintiffs constitute economic duress and overreach the bounds of fairness?

4. Did the trial court err in failing to allow plaintiffs interest on the rent due plaintiffs?

5. Did the trial court err in affirming the report of the Master, finding that some of defendants' remodeling expenses enhanced the value of the improvements to the extent of $69,871.12, where the Master also found that plaintiffs had been offered $345,000 for this property before the lease with defendants was executed, and further found that this property was sold by plaintiffs for $329,000 for a florist shop, after defendants had remodeled the premises for a highly specialized restaurant that quickly failed?

6. Did the trial court err in allowing defendants to amend their answer so as to plead defendants' expenses incurred in remodeling the premises for a fancy restaurant as an affirmative defense and set-off against rent they owed to plaintiffs under the lease here involved, and so as to plead as an affirmative defense that plaintiffs had failed to mitigate their damages, by order entered approximately nine months after the trial, and four months after the court had entered a decree ruling on the rights of the parties, where these affirmative defenses were not raised in the defendants' answer, as required by Rules 8 and 12 of the Tennessee Rules of Civil Procedure, and were not litigated at the trial?

I. Set-off

As we have noted, the trial court allowed the Boltons a "set-off" against their damages as a result of the "enhanced value of the improvements made on said property by defendants." The general rule...