Mitchell v. Lovato

• Citation: 640 P.2d 925,1982 NMSC 18,97 N.M. 425
• Decision Date: 17 February 1982
• Docket Number: No. 13645,13645
• Parties: J. C. MITCHELL, Plaintiff-Appellant and Cross-Appellee, v. Julio LOVATO, Doris Lovato, Eloy Baca, Edward J. Waldroop and Tedra G. Waldroop, Defendant-Appellees and Cross-Appellants.
• Court: New Mexico Supreme Court

Page 925

640 P.2d 925

97 N.M. 425

J. C. MITCHELL, Plaintiff-Appellant and Cross-Appellee, v. Julio LOVATO, Doris Lovato, Eloy Baca, Edward J. Waldroop and Tedra G. Waldroop, Defendant-Appellees and Cross-Appellants.

No. 13645.

Supreme Court of New Mexico.

Feb. 17, 1982.

Modrall, Sperling, Roehl, Harris & Sisk, George T. Harris, Jr., Susan Stockstill Julius, Albuquerque, for J. C. Mitchell

William F. Webber, Gallagher & Walker, Peter E. Gallagher, Morris Stagner, Albuquerque, Jeff Bingaman, Atty. Gen., Santa Fe, for Julio Lovato et al.

OPINION

FEDERICI, Justice.

Plaintiff-appellant (Mitchell) brought suit in district court seeking injunctive relief, damages and attorney fees arising out of an alleged breach of a commercial lease. Following a non-jury trial, the court granted judgment in Mitchell's favor as to only a portion of the relief sought and he appealed. We affirm.

Mitchell leased premises in Albuquerque to the Waldroops for the years 1970-1985. Waldroops covenanted to use the building as a package liquor store/cocktail lounge only and not to remove the liquor license from the premises during the term of the lease. The lease provided that the premises would be returned in the same condition in which they had received them, reasonable wear excepted, and Waldroops acknowledged that they received the premises in good condition. The Waldroops assigned their interest under the lease to their co-defendants-appellees (Lovatos), who assumed all obligations and covenants under the lease. Mitchell consented to this assignment.

Several acts occurred on the premises in 1980, which led the Department of Alcoholic Beverage Control to order the Lovatos to transfer the liquor license. Mitchell sought a preliminary injunction against the removal of the license, alleging that it was subject to his landlord's lien and that if removed, the State Liquor Department and City had indicated that no other liquor license would be allowed to transfer to the premises. The injunction was denied and the Lovatos transferred the license to third persons and to another location. Mitchell then terminated the lease.

At trial, Mitchell sued for damages for breach of the lease covenants. He also alleged damages resulting from a wrongful removal of fixtures from the property. The Lovatos filed a counterclaim seeking damages for alleged wrongful termination of the lease.

Relevant findings of the court include: (1) Lovatos were fully responsible for all covenants in the lease; (2) Lovatos breached the lease by transferring the license but there were no damages incurred because they would continue to pay the rent; (3) Lovatos breached this lease by removing fixtures in the amount of $3,800 and are liable in damages in this amount to Mitchell; (4) Mitchell is not entitled to damages for loss of use of the premises during renovation nor for renovation costs; (5) Mitchell's election to terminate the lease forecloses any claim for damages and future rent; (6) Lovatos are entitled to no damages on their counterclaim.

We note from the record that the Lovatos had a tenant ready to assume the lease and willing to make $20,000 worth of improvements on the property.

I.

The first issue we address is whether Mitchell is entitled to damages for breach of the express covenant not to transfer the liquor license. In his brief in chief, Mitchell conceded that where a lessor terminates the lease, the lessee's obligation to pay future rent terminates. See 3A G. Thompson, Commentaries on the Modern Law of Real Property § 1299 at 471 (1981). Mitchell asserts, however, that termination of this lease did not end his right to collect damages for breach of the express covenant not to transfer the liquor license from the premises. The Lovatos contend that Mitchell is not entitled to damages for breach of this covenant because no damages were proven at trial.

We recognize that leases commonly include a multitude of covenants which the lessee agrees to perform. If the lease contains nothing more, a violation of one of the covenants gives to the lessor an action for breach of contract but no power to end the relationship. 2 R. Powell, The Law of Real Property § 231(3)(a) (1981 ed.). Accordingly, despite Mitchell's termination of the lease, he may still maintain an action for breach of covenants contained in the lease.

It is a basic tenet of contract law, however, that a party suing for specific damages has both the burden of proving the existence of injuries and the burden of proving damages with reasonable certainty so that the determination of the amount of damages by a judge or jury will not be based upon speculation or conjecture. Bank of New Mexico v. Rice, 78 N.M. 170, 429 P.2d 368 (1967); Louis Lyster, Gen. Con., Inc. v. Town of Las Vegas, 75 N.M. 427, 405 P.2d 665 (1965); Gulf Refining Company v. Etcheverry, 85 N.M. 266, 511 P.2d 752 (Ct.App.), cert. denied, 85 N.M. 639, 515 P.2d 643 (1973). See D. Dobbs, Handbook on the Law of Remedies § 3.3 at 151 (1973 ed.).

Mitchell has fulfilled the first burden, that of proving the existence of injury. It would be unrealistic to fail to recognize that a liquor license is of peculiar value to these premises. We realize that this property, equipped for use as a lounge and package store and long operated as such, depreciated upon the transfer of this license. However, as the court held in Ritz v. Rafail, 366 Pa. 274, 77 A.2d 411, 413 (1951), under a similar set of facts, "an exact, or even approximate measure of the lessors' damages could not be formulated * * * for breach of the lessees' covenant (not to transfer the liquor license from the premises), for they are necessarily speculative and indeterminate * * *."

In this case, Mitchell was unable to overcome the inherent speculative nature of these damages. If proof of the cause of damages is certain, "mere uncertainty as to the actual amount will not preclude recovery." Jackson v. Goad, 73 N.M. 19, 23, 385 P.2d 279, 283 (1963); Bank of New Mexico v. Rice, supra. Mitchell, however, failed to prove by reasonable certainty the extent of the diminution in the market value of the property. There was no proof of the market value of the premises before and after the transfer of the license. He provided only the estimated costs of transforming the building into a different kind of building, one which would generate a slightly higher income than he received at the time he terminated the Lovatos' lease. This estimated cost ranged from $78,955.00 to $125,356.00 and although coupled with a real estate appraiser's opinion that the building should be renovated into retail space, which would entail $92,350.00 in total damages, this proof does not meet the "reasonably certain" standard for damages discussed above.

Accordingly, we uphold the trial court's finding that Mitchell is not entitled to damages for breach of the covenant not to transfer the liquor license.

II.

We next address the issue of whether Mitchell is entitled to damages for the lessees' breach of the express covenant to return the premises in their original condition.

This Court has held that generally, the measure of damages for breach of a covenant to surrender in a prescribed condition is the cost of putting the premises in the prescribed condition. Cruzan v. Franklin Stores Corporation, 72 N.M. 42, 380 P.2d 190 (1963); Snider v. Town of Silver City, 56 N.M. 603, 247 P.2d 178 (1952). A covenant similar to the...