Wright v. Baumann

• Citation: 239 Or. 410,398 P.2d 119
• Parties: , 21 A.L.R.3d 527 W. C. WRIGHT, Jeanetta Wright, B. L. Wright, Genevieve L. Wright, Guy S. Wright, Shirley Jane Wright, Harry N. Wright and Mildred Wright, Respondents, v. George R. BAUMAN, Appellant.
• Decision Date: 13 January 1965
• Court: Supreme Court of Oregon

Page 119

398 P.2d 119

239 Or. 410, 21 A.L.R.3d 527

W. C. WRIGHT, Jeanetta Wright, B. L. Wright, Genevieve L Wright, Guy S. Wright, Shirley Jane Wright, Harry N. Wright and Mildred Wright, Respondents, v. George R. BAUMAN, Appellant.

Supreme Court of Oregon, Department 2.

Argued and Submitted Oct. 6, 1964.

Decided Jan. 13, 1965.

E. L. Kincaid and Frank B. Reid, Eugene, argued the cause and submitted briefs for appellant.

Robert W. Hill, Eugene, argued the cause for respondents. With him on the brief were Hill & Pearson, Eugene.

Before McALLISTER, C. J., and PERRY, O'CONNELL and DENECKE, JJ.

O'CONNELL, Justice.

Plaintiffs seek to recover for a breach of agreement under which plaintiffs agreed to erect an office building and defendant, a dentist, agreed to enter into a lease of one of the offices after the building was constructed. Both parties waived a jury trial. Defendant appeals from a judgment for plaintiffs.

Defendant's principal assignments of error are directed at the trial court's rejection of evidence tending to show that plaintiffs had the opportunity to mitigate damages but refused to do so. Plaintiffs' objections to defendant's questions relating to mitigation were sustained by the trial court, apparently on the ground that the instruments signed by the parties was a lease rather than a contract and that, being a lease, the lessor had no obligation to mitigate damages. Defendant contends that the rule relied upon by plaintiffs is inapplicable because the 'Agreement' in question is not a lease but is a contract to make a lease, and that therefore plaintiffs are required to mitigate as in any other contract case. Finally, plaintiffs counter with the contention that the case was tried by defendant upon the theory that the 'Agreement' was a lease and that he is now estopped to assert that it is a contract to enter into a lease.

Defendant's offer of proof clearly indicates that he made a reasonable effort to mitigate the damages resulting from his refusal to take possession of the part of the premises intended for his occupancy. The offer of proof showed that plaintiffs notified defendant on August 27, 1956, that the building would be ready for occupancy on September 24, 1956. On September 6, 1956, defendant notified plaintiffs that he did not desire to enter into a lease of any part of the building. It was further shown that defendant informed two doctors that the space allotted to him was available and that during September, 1956, the two doctors had offered to lease the space allotted to defendant on the terms and conditions specified in the 'Agreement' in question but that plaintiffs refused to lease the office space to them, giving no reasons for the refusal to do so.

A majority of the courts, including Oregon, hold that a lessor is not required to mitigate damages when the lessee abandons the leasehold. ¹ In a few states it is incumbent upon the lessor to use reasonable means to mitigate damages. ² If the transaction is a contract to make a lease rather than an executed lease, it is universally recognized that the landowner has an obligation to mitigate damages upon a breach of the contract by the promisor. ³

The majority view, absolving the lessor from any obligation to mitigate is based upon the theory that the lessee becomes the owner of the premises for a term and therefore the lessor need not concern himself with lessee's abandonment of his own property. That view might have some validity in those cases where there is simply a lease of the land alone with no covenants except the covenant to pay rent. But a modern business lease is predominantly an exchange of promises and only incidentally a sale of a part of the lessor's interest in the land. As 2 Powell on Real Property, p221, p. 182 (1950) observes, the 'growth in the number and detail of specific lease covenants has reintroduced into the law of estates for years a predominantly contractual ingredient' and that as a consequence '[i]n practice, the law today concerning estates for years consists chiefly of rules determining the construction and effect of lease covenants.' These covenants in a modern business lease, particularly where only a part of the space in a building is leased, relate for the most part to the use of the space. The lessor's duties do not end with the execution of the lease. The case of Whitaker v. Hawley, 25 Kan. 674, 687 (1881) expresses this view as follows: '* * * a lease is in one sense a running rather than a completed contract. It is an agreement for a continuous interchange of values between landlord and tenant, rather than a purchase single and completed of a term or estate in lands.'

The covenants in the instrument in the present case relate to the continuing obligations of the respective parties. The transaction is essentially a contract. ⁴ There is no reason why the principle of mitigation of damages should not be applied to it. '* * * [I]t is important that the rules for awarding damages should be such as to discourage even persons against whom wrongs have been committed from passively suffering economic loss which could be averted by reasonable efforts * * *.' McCormick, Damages, p. 127 (1935).

Lessors as well as contract promisors should be made to serve this salutary policy. To borrow again from McCormick, 'the realities of feudal tenure have vanished and a new system based upon a theory of contractual obligations has in general taken its place.' He reminds us that in disregarding the contractual nature of modern leases we have 'neglected the caution of Mr. Justice Holmes, 'that continuity with the past is only a necessity and not a duty.'' Writing in 1925, McCormick predicted that eventually 'the logic, inescapable according to the standards of a 'jurisprudence of conceptions' which permits the landlord to stand idly by the vacant, abandoned premises and treat them as the property of the tenant and recover full rent, will yield to the more realistic notions of social advantage which in other fields of the law have forbidden a recovery for damages which the plaintiff by reasonable efforts could have avoided.' ⁵ We believe that it is time for McCormick's prediction to become a reality.

It does not seem that the burden imposed upon a lessor in mitigating damages would ordinarily be any greater than that imposed upon promisees of contracts not relating to the occupancy of land. However, if it could be said that it is unreasonable to require the lessor to seek out other tenants, ⁶ plaintiffs in the present case would not be benefited by that argument because defendant presented a willing and, we may assume, suitable substitute tenant. If defendant had entered into possession and thereafter had offered the landlord a person willing to sublet the premises, plaintiffs under the terms of the 'Agreement' could not have refused to accept the new tenant without reasonable grounds for doing so. The situation is essentially the same when the proposed new tenant is offered for the purpose of reducing the tenant's damages. ⁷ Even if we were to perpetuate the distinction between a lease and a contract in the application of the principle of mitigation of damages, we would reach the same result. The agreement in question is a contract to make a lease rather than a lease. ⁸ At the time the agreement was entered into the office building had not been constructed, and the office which was to constitute defendant's leasehold could not then be identified. Consequently, there was nothing that could constitute the subject matter of a conveyance at that time. Conceding that one may make a present demise of a term to begin in the future, ⁹ it is difficult to conceive of the present transfer of the title (or a part of it in the case of a lease) when that which is to be transferred has no existence. ¹⁰ The analogy to mortgages on after acquired property immediately suggests itself. Such mortgages do not transfer a legal estate or interest; they create only an equitable mortgage. ¹¹ And whether they are regarded as arising out of contract or conveyance, ¹² a court of equity should require the plaintiff seeking equity to do equity by making a reasonable effort to avoid damages.

Plaintiffs contend that defendant should not now be permitted to argue that the transaction was a contract to make a lease because the case was tried on the theory that the transaction was a lease. We have found nothing in the transcript indicating that defendant treated the instrument in question as creating a lease rather than a contract to make a lease. Neither defendant's pleadings ¹³ nor his conduct in the course of trial clearly points one way or the other with respect to the character of the transaction. In his motion for a new trial defendant admitted that the question of the character of the instrument was not 'squarely' presented to the court. But there was nothing to suggest that defendant...