C. D. Stimson Co. v. Porter. in Re Save-Rite Drug Stores, 195 F.2d 410, 10th Cir. (1952)

195 F.
2d 410
C. D. STIMSON CO.
v.
PORTER.
In re SAVE-RITE DRUG STORES.
No. 4365.
United States Court of Appeals, Tenth Circuit.

March 7, 1952.
Rehearing Denied April 11, 1952.
G. A. Marr, Salt Lake City, Utah (C. W. Wilkins, Salt Lake City, Utah,
was with him on the brief) for appellant.
D. A. Skeen, Salt Lake City, Utah, for appellee.
Before BRATTON, HUXMAN and MURRAH, Circuit Judges.
MURRAH, Circuit Judge.
This is an appeal by C. D. Stimson Company from a final order of the District

Court of Utah, entered in the matter of Save-Rite Drug Stores, an involuntary
bankrupt, affirming an order of the Referee denying the claim of the appellant
based on the breach of a lease of real property.
The following facts are not in dispute: On March 30, 1946, appellant entered
into a lease with one Max Ingalls covering an L-shaped building to be
constructed by appellant on designated premises fronting on Main and Second
South Streets in the City of Salt Lake City, Utah. The lease was to run for a
period of approximately ten years, commencing when the building was
completed for occupancy and ending at midnight on December 31, 1956. It
provided for the payment of a minimum yearly rental of $15,000, in monthly
installments of $1250 each and for an additional percentage rental in the event
sales exceeded $500,000 per annum.
The lease further provided for return of the leased premises to the lessor upon
expiration or sooner termination of the lease in as good condition as when

possession was taken; that filing of a petition in bankruptcy should be deemed
to constitute a breach of the lease 'and thereupon ipso facto and without entry or
other action by the lessor this lease shall become and be forfeited; and,
notwithstanding any other provisions of this lease, the lessor shall forthwith
upon such forfeiture, be entitled to recover damages for such breach.' And, the
lessee agreed to deposit with the Tracy-Collins Trust Company of Salt Lake
City, Utah, the sum of $7,500 'to guarantee the performance' of the lease.
4
With the consent of the lessor, the lease was assigned by Ingalls to the SaveRite Drug Stores, which company entered into possession of the leased
premises on or about October 1, 1946. On August 8, 1949, a petition in
involuntary bankruptcy was filed in the District Court of Utah against the the
bankrupt Save-Rite Drug Stores, and on August 30, 1949, the Drug Company
was adjudged a bankrupt. D. K. Porter, first as Receiver, and later as trustee,
took possession of its assets and of the property of the appellant covered by the
lease, and remained in possession of the leased premises until February 1, 1950,
when he surrendered possession to the appellant lessor. During this period, and
in pursuance to orders of the Referee, the appellant received the agreed
minimum rental provided in the lease. Thereafter, and on March 27, 1950,
appellant filed its claim for damages for breach of the rental contract in the
bankruptcy proceedings, in the sum of $18,000, less the sum of $7,500, held by
Tracy-Collins Trust Company as security under the lease.
On hearing, the Referee held that since the lease contract failed to set forth any
formula for determining damages upon the 'ipso facto' breach of the same by
the filing of the petition in bankruptcy, and no Utah case had been found giving
a formula to be applied in the circumstances, the applicable and controlling
formula in determining damages for the loss of rentals, is the difference
between the rental value of the remainder of the lease term and the rental
reserved therein, both discounted to present worth. And, applying this formula
to appellant's proof the Referee found that the reserved rental of $1250 per
month was also the fair rental value of the premises for the remainder of the
lease term, and concluded that appellant had suffered no damages by reason of
the termination of the lease. The Referee also denied that part of appellant's
claim, alleged to have been spent in putting the premises 'in as good condition
as the same were when taken possession of by the lessee,' and for alterations
and changes required in re-renting the premises. The Referee was of the view
that the appellant had failed to offer proof upon which damages for the breach
of the covenant to return the premises in good condition could be computed;
and, that under the terms of the lease, the lessee was not liable for the changes
and alterations made for the purpose of rerenting the premises. Since in the
view of the Referee, no damages had been suffered by the lessor, the $7,500 on
deposit with the Tracy-Collins Trust Company was ordered turned over to the
Trustee in Bankruptcy, and an order was entered denying appellant's claim in
its entirety. On petition to review the District Court adopted the findings and
conclusions of the Referee, and affirmed his order based thereon.
6
The lease having been forfeited under its terms by reason of the institution of
bankruptcy proceedings, appellant had a provable claim under Section 63, sub.
a(9) of the Bankruptcy Act, as amended June 22, 1938, c. 575, Sec. 1, 52 Stat.
873, 11 U.S.C.A. 103, sub. a(9), ' * * * for damages or indemnity under a
covenant contained in such lease * * * in an amount (not) exceeding the rent
reserved by the lease, without acceleration, for the year next succeeding the
date of the surrender of the premises to the landlord or the date of reentry of the
landlord, whichever first occurs, * * * plus an amount equal to the unpaid rent
accrued, without acceleration, up to such date: * * * .'
The Federal law provides no formula for the ascertainment of the allowable
damages. It merely qualifies and limits the lessor's claim for damages to a
maximum of one year's reserved rent. See City Bank Farmers Trust Company
v. Irving Trust Company, 299 U.S. 433, 57 S.Ct. 292, 81 L.Ed. 324; Rocky
Mountain Fuel Co. v. Whiteside, 10 Cir., 110 F.2d 778, 129 A.L.R. 698; In re
Benguiat, D.C., 20 F.Supp. 504, at page 507. And, the burden is upon the lessor
to prove and substantiate his claim both as to incidence and measure of
damages. Palmer v. Connecticut Railway & Lighting Co., 311 U.S. 544, 61
S.Ct. 379, 85 L.Ed. 336; Kessler v. Jefferson Storage Corporation, 6 Cir., 125
F.2d 108; Collier on Bankruptcy, 14th Edition, Vol. 3, par. 63.33, p. 1907.
Subject to the limitations inherent in all contracts, the parties to a rental lease
are free to stipulate as to the method for ascertaining the damages sustained by
the lessor upon a breach thereof. But, when as here, the parties fail to provide a
contractual formula, the principles of damages generally applicable under the
law of the state where the contract was made have controlling effect. See
Collier on Bankruptcy, 14th Edition, Vol. 3, par. 63.33, pp. 1907 and 1908;
Am. Jur., Damages, Vol. 15, Sec. 161. Like the trial court and the parties, our
search has not uncovered any Utah case prescribing a formula for the
ascertainment of damages resulting from an anticipatory breach, or premature
termination, of a lease or rental contract. We agree, therefore, with the trial
court that the general rule is to the effect that the appellant's damage is
measured by the difference between present value of reserved rent and the
present fair rental value of the remainder, the two of which are presumed to be
the same. Palmer v. Connecticut Ry. Co., 311 U.S. 544, 61 S.Ct. 379, 384, 85
L.Ed. 336; Sedgwick Damages, 9th Ed. 610. In other words, it is presumed
that in the event of a breach that the lessor will be able to re-rent the leased
premises for the amount of the reserved rent without loss or damage. But, this
presumption, as all other presumptions in law and fact, may be dissipated or
rebutted by competent and relevant facts.
9
The appellant was permitted to show that the premises covered by the lease,
remained vacant from the time possession was surrendered by the Trustee in
Bankruptcy on February 1, 1950, until October 1, 1950, despite all efforts to
rent the same. On October 1, 1950, a portion of the premises was rented for the
sum of $833.33 per month, but only after material alterations were made. Under
the undisputed evidence appellant has been unable to rent the remaining portion
of the premises or obtain a prospective tenant. Appellant introduced into
evidence a calculation of its rental loss, based upon accumulated rental under
the lease, less probable rental to be received, showing a total loss of $16,091.99.
10
Three witnesses qualified as experienced in the management of business

properties testified that, in their opinion, the calculated loss sustained by the
appellant by reason of the breach of the lease was most fair to the Trustee.
These witnesses testified that the $1250 reserved rental was a fair rental value
of the property. But, one stated that it was the present fair rental value, if a
tenant could be found; another stated that there was no way of telling how long
the property would remain vacant; that the lease contract was made during
'peak years' for rentals, and vacancies were now occurring; that he had
encountered difficulty in renting property to the west of the premises described
in the lease, but that he would estimate $1250 per month as a present fair rental
value for the leased premises 'if I could get a tenant at that.' The third witness
stated that he thought $1250 a fair present rental value, but as stated by witness
Whitney 'rentals are fixed in the main by the market price of adjoining property
in close proximity.'
11
From this testimony it becomes manifest that a judgment based upon the
hypothesis that the present rental value of the leased premises is exactly equal
to the reserved rent, cannot stand. While certainty of the fact of damage is
essential to the right of recovery, the amount of damages is seldom capable of
exact proof. 'All that can be done is to place before the court such facts and
circumstances as are available to enable an estimate to be made based upon
judgment and not guesswork.' Palmer v. Connecticut Ry. Co., supra; Story
Parchment Co. v. Paterson Co., 282 U.S. 555, 563, 51 S.Ct. 248, 75 L.Ed. 544;
Eastman Kodak Co. v. Southern Photo Material Company, 273 U.S. 359, 47
S.Ct. 400, 71 L.Ed. 684.
12
Appellant offered proof showing that after termination of the lease and before
the property could be rerented, it was required to spend approximately

$5600.00 in remodeling the premises, and repairing damage to the interior by
reason of the lessee's tenancy. If the lessee breached the covenant in the lease
to return the premises in good condition, as contended by appellant, it failed to
prove the extent or amount of the damage resulting from such breach. The sum
expended on the premises and which appellant seeks to recover, includes the
costs of dividing the premises into two rental units, putting in two rest rooms
and other major alterations. Undoubtedly, the expenses reasonably necessary in
order to obtain a tenant and mitigate damages under the lease should be
assessed against the lessee. But, changes like these, of such substantial and
permanent character, redounding as they do to the benefit of the lessor, are not
proper items of damages.
13
The judgment is reversed and remanded with directions to enter judgment in

conformity with the proof and within the limitations of Section 63, sub. a(9) of
the Bankruptcy Act, supra.

C. D. Stimson Co. v. Porter. in Re Save-Rite Drug Stores, 195 F.2d 410, 10th Cir. (1952)

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C. D. Stimson Co. v. Porter. in Re Save-Rite Drug Stores, 195 F.2d 410, 10th Cir. (1952)

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195 F.

United States Court of Appeals, Tenth Circuit.

This is an appeal by C. D. Stimson Company from a final order of the District

expiration or sooner termination of the lease in as good condition as when

Three witnesses qualified as experienced in the management of business

the property could be rerented, it was required to spend approximately

The judgment is reversed and remanded with directions to enter judgment in

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