Camacho v. L & T Int'l Corp.

Camacho v. L & T Int’l Corp., 4 N.M.I. 323 (1996) Carlos S. Camacho, Plaintiff/Appellee, v. L & T International Corporation, Defendant/Appellant. Appeal No. 94-050 Civil Action No. 93-0820 February 9, 1996 Argued and Subm itted January 17, 1996 Counsel for appellant: Steven P. Pixley (Law Offices of Robert J. O’Connor), Saipan. Counsel for appellee: Douglas F. Cushnie, Saipan. BEFORE: TAYLOR, Chief Justice, and VILLAGOM EZ and ATALIG, Justices. VILLAGOM EZ, Justice: The appellant, L & T International Corporation (“L & T”), appeals the Superior Court’s entry of sum m ary judgm ent and award of dam ages in favor of the appellee, Carlos S. Cam acho (“Cam acho”), in an action arising from a lease agreem ent. W e have jurisdiction under 1 CM C § 3102(a). W e reverse as to one issue and affirm as to the other four. ISSUES & STANDARDS OF REVIEW L & T raises five issues for our review: I. W hether the Superior Court erred in denying L & T’s counterclaim for restitution because it was based on erroneous findings of fact. W e review the trial court’s decision not to award restitution for an abuse of discretion.1 The underlying findings of fact are reviewed under the clearly erroneous standard. Thus, we will not reverse unless, after reviewing all the evidence, we are left with a firm and definite conviction that a mistake has been made.2 II. W hether the award of $10,000 to reconvert the barracks to a theater, as dam ages for waste, was erroneous because it was based on a misconstruction of the lease agreement. A written lease is a contract, subject to the same rules of construction as contracts.3 W e review the application of contract law under the de novo 1 Rosario v. Quan, 3 N.M.I. 269, 280-81 (1992). 2 Pangelinan v. Itaman, 4 N.M.I. 114, 120 n.33 (1994). 3 Bates v. Indus. Property Holding Co., 318 P.2d 741, 743 (Cal. Ct. App. 1957); see Borja v. Rangamar, 1 N.M.I. 347, 356-57 (1990). standard, and any findings based on extrinsic evidence under the clear error standard.4 III. W hether the Superior Court erred in awarding com pensation for unreturned personal property by basing the award on the property’s 1987 value, rather than its 1993 value. The tim e as of which property is valued for purposes of determ ining dam ages for breach of contract is within the discretion of the trial court.5 W e review such awards, therefore, to determ ine whether there has been a manifest or gross abuse of discretion.6 IV. W hether the Superior Court erred in finding that L & T was an improper holdover tenant. This is a m ixed question of law and fact reviewable de novo.7 V. W hether the attorney’s fees related to: (a) L & T’s counterclaim and term ination of the lease should be stricken because they are not provided for in the lease; and (b) waste and unlawful detainer should be stricken because they are based on the trial court’s erroneous holdings. W e review de novo the Superior Court’s construction of the attorney’s fees provision of a lease.8 FACTUAL & PROCEDURAL BACKGROUND Cam acho leased to L & T a lot in Garapan, Saipan, on which stood a movie theater, for a ten-year period beginning on July 1, 1983, for $2,021 per month. The lease agreement contained an option to renew for an additional five years. To exercise the option, L & T had to give notice one year in advance of the expiration of the lease. The lease also covered certain personal property, such as theater equipm ent. The terms of the lease obligated L & T either to purchase or return to Camacho any personal property that it decided not to use. L & T operated the m ovie theater until Typhoon Kim dam aged it 1986. At that point, L & T converted the theater into barracks. Cam acho was aware of this conversion and had the new barracks inspected by his engineer. During the spring of 1992, L & T renovated and improved the barracks at a cost of approximately $43,000. On February 20, 1993, L & T sent Cam acho a letter giving notice that it was exercising its option to renew the lease. Camacho received the letter on M arch 4, 1993, eight months past the one-year deadline specified in the lease. On July 13, 1993, Cam acho sued L & T, seeking a declaration that the lease had expired, dam ages for unlawful detainer, and attorney’s fees. L & T counterclaim ed for restitution based on the im provements it had m ade in renovating the barracks in 1992. In October 1993, the Superior Court granted Cam acho partial sum m ary judgm ent, concluding that L & T gave its renewal notice too late and, therefore, failed to exercise its option. The court declared the lease to have expired on June 30, 1993, and ordered L & T to vacate the premises. L & T vacated the premises in Decem ber 1993, six months after expiration of the lease. In September 1994, Cam acho filed a supplem ental com plaint seeking dam ages for waste and com pensation for the unreturned personal property. Following a hearing in Novem ber 1994, the Superior Court denied L & T’s counterclaim for restitution, concluding that the $43,000 renovation did not benefit Cam acho. The Superior Court awarded Cam acho $10,000 in order to reconvert the barracks to a theater. It found 4 Pangelinan, 4 N.M.I. at 117. 5 Fairway Builders, Inc. v. Malouf Towers Rental Co., Inc., 603 P.2d 513 (Ariz. Ct. App. 1979); Anchorage Asphalt Paving Co. v. Lewis, 629 P.2d 65 (Alaska 1981). Cf. Reyes v. Ebeteur, 2 N.M.I. 418, 424 (1991) (citing First Nat’l Bank of Chicago v. Material Service Corp., 597 F.2d 1110 (7th Cir. 1979)) (holding that amount of damages assessed by trial court rests on determinations of fact, reviewed under clear error standard). 6 Robinson v. Robinson, 1 N.M.I. 81, 86 (1990). 7 Apatang v. Mundo, 4 N.M.I. 90, 92 (1994). 8 Bates, 318 P.2d at 743; Borja, 1 N.M.I. at 356-57.  Camacho v. L & T Int’l Corp., 4 N.M.I. 323 (1996) that the conversion of the prem ises to a barracks “rendered the property of no practical use” 9 to Cam acho. The Superior Court also awarded Cam acho $18,750 for the personal property that L & T did not return. Additionally, for the six-m onth period of tim e that L & T continued to occupy the premises after the lease expired in June 1993, the court awarded Cam acho $3,000 per month, for a total of $18,000. Finally, because Cam acho prevailed in the action, the Superior Court awarded him attorney’s fees in the am ount of $11,229. This am ount was based on the statem ent of fees and costs filed by Cam acho’s counsel. L & T tim ely appealed. ANALYSIS I. Denial of L & T’s Counterclaim L & T claim s that Camacho has been unjustly enriched because in regaining possession of the leased prem ises he received a benefit in the form of “the [$43,000] im provem ent of the existing barracks.” Appellant’s Reply Brief at 4. The Superior Court erred, L & T contends, in finding that It is clear from the facts of this case that the option was not renewed one year in advance. Instead of defendant trying to iron out that problem with the lessor, the defendant went ahead and converted the theater into a barracks in the middle of a comm ercial area in Saipan. He did the conversion knowing that the option has not been renewed on tim e, has not been ironed out, and went ahead and expended roughly $44,000 in converting the theater to a barracks. Transcript of Proceedings at 184. L & T does not challenge the Superior Court’s finding that it failed to exercise its renewal option on tim e. Rather, L & T asserts that the Superior Court confused the 1987 conversion of the theater into a barracks with the 1992 renovation of the barracks. L & T bases its counterclaim for restitution on the 1992 renovation, not on the 1987 conversion. As a result of the Superior Court’s confusion, maintains L & T, it wrongfully denied L & T’s counterclaim. W e conclude that the Superior Court did not err. First, the Superior Court also said “[u]nder these facts, [L & T] assumed the risk of expending [m oney on] the renovation or conversion of the building and that when he com es to court, he may or may not get it back.” Id. (em phasis added). The reference to the renovation in this statem ent indicates that, when denying the counterclaim , the court had in mind L & T’s 1992 expenditure of about $43,000. Second, the factual finding which L & T essentially challenges is that L & T undertook the alteration of the prem ises at its own financial risk. The term s of the lease agreem ent and other evidence support this finding. Paragraph six of the lease provides that Lessee shall, at his own expense, have the right to make im provem ents and alterations to the prem ises. All buildings and improvements, excluding rem ovable personal property and trade fixtures, on the prem ises shall remain on the premises after the termination of this Lease Agreem ent and shall becom e the property of Lessor unless agreed to otherwise in writing by the Lessor. Lease Agreem ent at 3, ¶ 6 (em phasis added) in Excerpts of Record at 8. L & T renovated the barracks believing 9 Camacho v. L & T Int’l Corp., Civ. No. 93-0820 (N.M.I. Super. Ct. Nov. 23, 1994) (order at 2). that its lease would be renewed. The record on appeal does not show that Cam acho induced this belief. 10 L & T, by its own inaction, subsequently failed to renew the lease in a tim ely fashion. There is no legal or factual basis to force Cam acho to repay L & T approxim ately $43,000 for renovations authorized by a lease which specifies that such improvem ents are to be made “at [L & T’s] own expense” and are to “rem ain on the prem ises.” 11 L & T, not Cam acho, must bear the consequences of the risk it assum ed. II. Award of $10,000 to Reconvert the Barracks to a Theater In his supplem ental com plaint, Cam acho requested com pensation for waste allegedly com m itted by L & T through its alteration of the premises. The Superior Court awarded Camacho $10,000 in damages “to put that building back to its original state as a theater.” Transcript of Proceedings at 185. On appeal, L & T challenges the Superior Court’s award of dam ages for waste on the ground that under the term s of the lease as understood by the parties, the alterations made by L & T cannot be characterized as waste. W e agree. Under the applicable rule, an im perm issible “change in the physical condition of . . . leased property” 12 m ay constitute waste.13 Additionally, under certain circum stances, even a permissible change may constitute waste: Except to the extent the parties to a lease validly agree otherwise, there is a breach of the tenant’s obligation [not to com m it waste] if he makes perm issible changes in the leased property and does not, when requested by the landlord, restore, where restoration is possible, the leased property to its form er condition . . . .14 Here, although L & T expressly agreed not to com m it waste (see Lease Agreem ent ¶ 12 in Excerpts of Record at 10), the term s of the lease agreem ent also authorized L & T to use the leased prem ises “for any lawful purpose.” Id. at ¶ 2 in Excerpts of Record at 7. The lease also entitled L & T “to make im provem ents and alterations to the premises.” Id. at ¶ 6 in Excerpts of Record at 8. Such alterations, if made, were to “rem ain on the prem ises after the termination of . . . [the] Lease Agreem ent and . . . becom e the property of [Cam acho] unless agreed to otherwise in writing by [Camacho].” Id. The Superior Court stated that Camacho “found out that the theater ha[d] been converted to a barracks.” Transcript of Proceedings at 185. The parties do not dispute that the use of the prem ises as a barracks was lawful, or that conversion of the theater to a barracks was a perm issible alteration under the term s of the lease. The evidence before the Superior Court indicates that, at the tim e L & T converted the prem ises, Camacho acknowledged that such an alteration was perm issible under the term s of the lease. See, e.g., Letter from Dr. Carlos P. Cam acho to M r. Raym ond Tan, L & T International Corporation 1 (Dec. 29, 1986), in Supplemental 10 See George W . Thompson, 3 T H O M PSO N ON R EAL P RO PERTY § 1140 (Grimes repl. ed. 1959) (where a landlord encourages a tenant to make improvements by leading the tenant to believe that a renewal or extension of the lease will be granted, equity may protect the tenant by granting compensation for the improvements). 11 Woodson v. Harris, 615 So. 2d 93, 94 (Ala. Civ. App. 1992) (the rule that, where one renders valuable services knowingly accepted by another, the law implies an obligation to pay a reasonable value for the improvements, in the absence of express contract, does not apply to improvements on leased land voluntarily made by a lessee). 12 R ESTATEM ENT (S ECO N D ) O F P RO PERTY : L AN D LO RD AN D T EN AN T § 12.2 cmt. a (1977). The R ESTATEM ENT (S ECO N D ) O F P RO PERTY : L AN D LO RD AN D T EN AN T supplies the law we apply in this case. See 7 CMC § 3401 (in the absence of written law or local customary law, the rules of the common law, as expressed in the Restatements of the Law, are the rules of decision in Commonwealth courts). 13 R ESTATEM ENT (S ECO N D ) O F P RO PERTY : L AN D LO RD AN D T EN AN T § 12.2(2) (1977). 14 Id. § 12.2(3) (emphasis added).  Camacho v. L & T Int’l Corp., 4 N.M.I. 323 (1996) Excerpts of Record at 7. There is no evidence in the record either that Camacho objected to the conversion, or that he requested that the barracks be reconverted to a theater, at any tim e prior to the filing of this lawsuit. Cam acho did not com m unicate to L & T that either the barracks were to be reconverted to a theater prior to the expiration of the lease or L& T was to pay for the reconversion expense subsequent to the expiration. Under the facts of this case, L & T did not have a duty to restore the prem ises to their original state as a theater. W e hold that the Superior Court erred in concluding that L & T com m itted waste, within the m eaning of the lease agreem ent, by converting the leased prem ises from a theater to a barracks, and by not reconverting the prem ises to a theater. III. Valuation of Personal Property L & T argues that the Superior Court should have based its award of dam ages for Camacho’s unreturned personal property on the property’s value in 1993, which is when L & T breached the lease. The Superior Court awarded dam ages based on the property’s value in October 1987, which is when, contends L & T, it converted the theater to a barracks. W e find no abuse of discretion. Cam acho met his burden of introducing evidence to establish the am ount of his loss with reasonable certainty. His evidence included calculations of the property’s value in 1987. L & T attacked the credibility of this evidence during cross-exam ination of witnesses, but did not introduce any evidence of the property’s value in 1993. Thus, even if the damages were to have been based on the property’s 1993 value, there was no evidence upon which to base such calculation.15 Consequently, L & T has no room to com plain that the Superior Court abused its discretion by basing its calculation of dam ages on Cam acho’s 1987 figures. IV. Holdover Tenancy W ith respect to Camacho’s unlawful detainer claim , the Superior Court awarded Camacho $3,000 per m onth in dam ages from the tim e of the expiration of the lease agreem ent in June 1993 until L & T vacated the barracks in Decem ber 1993. The $3,000 am ount was established by expert testim ony as the fair market rental for the property. The Superior Court rejected L & T’s contention that it should continue to pay the rent rather than dam ages. L & T asserts that the Superior Court erred in awarding dam ages because it was not an im proper holdover tenant.16 Rather, L & T continued to occupy the prem ises after Cam acho gave it a notice to vacate, because L & T believed in good faith that it had properly exercised its option to renew. Not until the Superior Court determ ined that the option had not been exercised, and the lease expired in June 1993, did L & T know it had no legal right to rem ain on the prem ises. L & T com plied with the court’s order to vacate the prem ises, a process which took a reasonable period of two months. Under the circum stances, L & T contends, it should be held liable only for rent. W e find no error. A lessee who im properly remains on the leased premises after term ination of the lease is a holdover tenant.17 The landlord may elect either to impose another lease term on a tenant im properly holding over, or to treat the holdover tenant as a trespasser and take action to recover possession of the property.18 15 See Mikol v. Vlahopoulos, 340 P.2d 1000, 1001 (Ariz. 1959). 16 The trial court did not expressly find that L & T was an improper holdover tenant, but such a finding may be implied because it is a necessary precursor to an award of damages for unlawful detainer. 17 R ESTATEM ENT (S ECO N D ) O F P RO PERTY : L AN D LO RD AN D T EN AN T § 14.1 introductory note (1977). 18 Id. at § 14.1, 14.4; Pima County v. Testin, 840 P.2d 293, 295 (Ariz. Ct. App. 1992).  A landlord who, like Cam acho, chooses to recover possession of the prem ises is entitled to com pensation “for the use and occupation of the leased property during the holdover period at a rate based on the previous rental rate, or on the proven reasonable value independently established if that differs from the previous rental rate.” 19 This rule “provides a standard restitution rem edy. Since it lies outside any agreem ent by the parties, it is not lim ited by the term s of the lease. It sim ply requires the tenant to pay for what [the tenant] got during the holdover period.” 20 The negotiated rental rate in the lease generally determ ines the rate at which the landlord is to be com pensated for the holdover tenant’s continued occupation and use of the premises. 21 However, either the tenant or the landlord may introduce evidence, as Cam acho did, that independently establishes the reasonable value of the use and occupation. This value m ay be m ore or less than the rental rate specified in the term inated lease.22 The record on appeal contains no evidence supporting L & T’s contention that the option to renew the lease had been properly exercised. Based on the evidence, the Superior Court found that the notice to renew was given too late, the lease expired of its own term s, and L & T rem ained on the property against Cam acho’s will. Camacho then treated L & T as a holdover tenant and took action to recover the property. The Superior Court correctly held that L & T becam e an unlawful holdover tenant from the tim e that the lease expired. V. Attorney’s Fees Cam acho prevailed on all issues before the Superior Court and the court awarded him attorney’s fees. L & T argues that the amount of the award should be reduced because the Superior Court erroneously included fees and costs associated with: (1) L & T’s counterclaim ; (2) the issue of waste, on which L & T should prevail; (3) Camacho’s request that the status of the lease be determ ined; and (4) the issue of unlawful detainer, on which L & T should prevail. W e find no error and affirm . Under the relevant portion of the attorney’s fees provision of the lease: 18. [L & T] shall pay all reasonable attorney’s fees and costs on behalf of [Cam acho] if (a) [Cam acho] institutes litigation against [L & T] for a breach of the term s and conditions of [the] lease, and [Camacho] prevails, (b) [Camacho] institutes litigation against [L & T] for an unlawful detainer of the demised premises, and [Camacho] prevails, (c) [L & T] institutes litigation against [Camacho] for a breach of the term s and conditions of [the] lease, and [Ca- m acho] is not at fault . . . . The reasonable attorney’s fees and costs incurred by [Cam acho] herein shall be paid by [L & T] whether litigation is prosecuted to judgm ent or not. Lease Agreem ent ¶ 18 in Excerpts of Record at 12-13. In his prayer for relief, Cam acho requested, am ong other things, “[t]hat [L & T] be required to vacate said prem ises and the lease at issue herein be determ ined to be of no further force and effect,” Supplemental Com plaint and Summ ons at 4 in Excerpts of Record at 4, and “[t]hat [Camacho] receive damages for unlawful detainer.” Id. W e held above (see analysis section IV), that the Superior Court did not err in assessing dam ages for unlawful detainer. The determ ination that the lease ended in June 1993 was an inseparable part of the unlawful detainer action: Since unlawful detainer is an action to oust a tenant whose lease has expired or been term inated, it follows that plaintiff must show that defendant’s lease has term inated. In this cause, that termination depended upon the term s of the contract of lease. . . . To determine therefore whether defendant was in unlawful detainer the court must determ ine the m eaning and effect of 19 R ESTATEM ENT (S ECO N D ) O F P RO PERTY : L AN D LO RD AN D T EN AN T , § 14.5 & reporter’s note 2 (1977). 20 Id. 21 Id. at § 14.5 cmt. a. 22 Id.  Camacho v. L & T Int’l Corp., 4 N.M.I. 323 (1996) the [lease provision], but that does not change the action from one in unlawful detainer. It is m erely deciding a question the decision of which is necessary in making a determination as to whether defendant is in unlawful detainer.23 Therefore, Cam acho was entitled, under paragraph eighteen, subsections b and a 24 of the lease, to attorney’s fees for his unlawful detainer action and attendant request for a determination of the lease’s status. W ith respect to the attorney’s fees award based on L & T’s counterclaim and Cam acho’s claim that L & T com m itted waste in violation of paragraph seventeen of the lease, we decline to reverse the Superior Court. L & T brought its counterclaim in the broader context of litigation instituted by Cam acho for unlawful detainer. Cam acho successfully defended against the counterclaim . W e reversed the Superior Court on the m erits of the cause of action based on waste, but the lease specifies that Camacho is entitled to attorney’s fees if he “institutes litigation . . . and prevails.” Prevailing in litigation differs from prevailing on a cause of action. Thus, a “prevailing party” m ay be the party prevailing in interest, and not necessarily the prevailing person. To be such does not depend upon the degree of success at different stages of the suit, but whether, at the end of the suit, . . . the party who has m ade a claim against the other, has successfully m aintained it.25 Cam acho rem ains the prevailing party in this lawsuit and rem ains entitled to attorney’s fees under the term s of the lease agreem ent.26 CONCLUSION W e AFFIRM as to issues I, III, IV, and V. W e REVERSE as to issue II, and REM AND for the Superior Court to enter a judgm ent consistent with this opinion. 23 Brandley v. Lewis, 92 P.2d 338, 339-40 (Utah 1939) (internal citation omitted). 24 In paragraph seventeen of the lease, L & T covenanted to “peaceably and without legal process deliver up the possession of the premises in good condition.” Paragraph eighteen a of the lease provides for the award of attorney’s fees for litigation concerning the breach of such “terms and conditions” of the agreement. 25 B LACK ’S L AW D ICTION ARY 1188 (6th ed. 1990). 26 See Szoboszlay v. Glessner, 664 P.2d 1327, 1334-35 (Kan. 1983) (“Viewing the case in its entirety, it is without doubt the [plaintiff] . . . was the successful party. The [defendant] . . . was denied recovery in any form on her counterclaim . . . . The [plaintiff’s] judgment was expressly affirmed, but was reduced by a small amount . . . . The [plaintiff] prevailed on the main issue presented and therefore was the successful party”).