Overcast v. Akra ( 1982 )

No. 80-426
I N THE SUPREME COURT OF THE STATE O F MONTANA
1981
KENNETH OVERCAST,
P l a i n t i f f and R e s p o n d e n t ,
L I L A AKRA & BETTY ACHER, a s T r u s t e e s
of t h e E s t a t e of E F F I E C. McGHUEY,
D e f e n d a n t s and A p p e l l a n t s .
Appeal from: D i s t r i c t C o u r t of t h e T w e l f t h J u d i c i a l D i s t r i c t ,
I n and f o r t h e C o u n t y of B l a i n e , T h e H o n o r a b l e
L e R o y M c K i n n o n , Judge p r e s i d i n g .
C o u n s e l of R e c o r d :
For A p p e l l a n t :
B u r n s , S o l e m & pqacKenzie, Chinook, Montana
Morrison, E t t i e n & Barron, Havre, Montana
For R e s p o n d e n t :
W. A r t h u r Graham, M i s s o u l a , Montana
S u b m i t t e d on B r i e f s : M a y 1, 1 9 8 1 -
Decided: M a r c h 25, 1 9 8 2
Filed; MAR 2 5 1982
Mr. Justice Daniel J. Shea delivered the Opinion of the Court.
The defendant lessors appeal from a jury verdict and
judgment of the Blaine County District Court in which they
were found to owe the lessee $20,000 as payment for removable
and nonremovable improvements the lessee had placed on the
farm during the period of his lease. The jury wrote on its
own verdict form that "[wle also award Mr. Overcast the
right to remove his two grain bins, Powder River Gate, and
four stock tanks."
The lessors raise several issues as grounds for reversal,
but we recite only what we consider to be the dispositive
issues. We reverse and grant a new trial for several reasons.
First, the trial court erred by permitting the jury to consider
the costs of nonremovable improvements, although it is
demonstrably clear that at the time the lease was signed, the
parties did not contemplate recovery for such permanent improve-
ments. Second, the trial court erred by allowing the jury to
consider costs incurred by the lessee for seed, fertilizer,
and fence maintenance, although the lease specifically stated
that these costs would be borne by the lessee. Third, the
trial court erred in permitting the jury to consider the theory
of unjust enrichment as a permissible method of compensating
the lessee for the improvements he made to the land, although
this theory of recovery was neither pleaded, nor supported by
the evidence.
In March 1974, Kenneth Overcast (the lessee), renewed
a five year lease of the farm land involved. At the lease
renewal time, the lessor, Effie C. McGhuey, was somewhat
incapacitated and her daughters, Lila Akra and Betty Acher,
negotiated the lease on behalf of their mother. The renewal
agreement was, in substance, the same as the previous five
year lease, and provided that the lessee would pay an annual
rent of $2,500. Two clauses of the renewed lease are especially
important in this lawsuit--the clause relating to operating
costs (which was identical to the clause in the first five
year lease) and the clause relating to maintenance and improve-
ments (which was a new clause).
The clause relating to operating costs stated:
"5. OPERATING COSTS: The Lessee shall pay all
of the costs and expenses of all types in the
operation of farming leased lands, including but
not being limited to: expenses for seed, chemicals,
sprays, machinery, repairs, labor, fuels and any
improvements that Lessee so desires to make upon
said premises. Provided, however, that Lessee
shall -- riuht upon termination - -
--
have the d &
of this
Lease, to remove any improvements - -he has
that -
--
made inconnection with- premises, - - -
- the or to sell
- - - - the Lessor, - - -
the same to at his cost, - - Lessor,
to the
- - - heirs - assigns, including any individual
or to her or
who may purchase said property - - Lessor. In
from the
addition, all utilities furnished to the premises
during the term of this Lease shall be the
responsibility of and be paid by the Lessee. "
(Emphasis added.)
The emphasized sentence in this paragraph was added after
the lessee had requested the lessor to make certain improvements
but the lessor had declined because she could not afford to
make them. The undisputed evidence shows that the daughters
and their attorney met with the lessee and added this sentence
at the lessee's insistence after he told them that he planned to
erect some grain bins and water tanks on the farm, and that he
wanted either to remove them at the end of the lease term or
to be paid for them. The lessee confirmed that the grain bins,
and possibly, the water tanks were the only improvements
discussed before the signing of the renewal lease.
The clause relating to maintenance and improvements
stated:
"6. MAINTENANCE OF IMPROVEMENTS: The Lessee shall
keep and maintainany structures, improvements and
fences located on the leased land in substantially
the same condition as they now are, reasonable wear
and tear excepted. The cost of furnishing materials
and labor necessary for the repairs and for maintaining
the fences on the premises, shall be borne by the
Lessee. I'
The lessee hoped that he might someday purchase this farm,
but this prospect was not discussed by the parties at the time
the renewal lease was signed. Shortly after the renewal lease
was signed, the lessor was confined to a rest home and her
daughters were appointed trustees of her real property. When
the second five year lease term was due to expire, the daughters
offered to sell the farm to the lessee but the terms of the sale
were apparently too high for him. He told the daughters he
could not buy the farm at that price, but then asked them to
offset the purchase price against the value of the improvements
which he claimed he had made to the land during the term of
the lease. The daughters refused and the lessee immediately
demanded that he be paid his costs for the improvements--removable
and nonremovable. They refused, and the lessee filed suit,
claiming he was entitled to recover costs for the following
improvements:
Install Drains and Culverts $1,090.00
Construction of 2 Grain Bins 3,500.00
Construction of Fence 1,015.00
Install Water Tanks and Lines 1,300.00
Construction of Bridge, Pens and Chute 1,500.00
Construction of Root Cellar 350.00
Floodlights 400.00
Land Leveling and Raised Ditch 24,525.00
Alfalfa and Grass Seeding 1,814.00
Several questions were presented at trial regarding lease
paragraphs 5 and 6,supra. One of the main questions was
whether the parties, in drafting the improvements clause,
had contemplated nonremovable as well as removable improvements.
The lessor contended that the lessee could recover his costs
for only removable improvements, and the lessee contended
that he could recover his costs for both removable and
nonremovable improvements. The second sentence of paragraph
5 states:
". . . Provided, however, that Lessee shall have
the right upon termination of this Lease, to remove
any improvements that he has made in connection with
the premises, - - - - the- - to the Lessor, at
or to sell - same
his cost, to the Lessor . .
-- . ."
(Emphasis add)
de.
Needless to say, each party interprets this clause to his
advantage. The lessors contend that the disjunctive "or"
refers back only to improvements that are removable, and the
lessee contends that he was given the broader right to
remove "any improvements" or to sell them to the lessors.
-
As to the nonremovable improvements, he therefore argues
that he can compel the lessor to pay for them at his cost.
The trial court failed to rule as a matter of law upon
whether the jury could consider whether the parties contemplated
nonremovable as well as removable improvements. The trial
court simply allowed the lessee to testify about the costs he
incurred in making both nonpermanent and permanent improvements.
In addition, the trial court also instructed the jury (Instruction
31) that it could award the lessee compensation based upon
not just his incurred costs, but also upon the increased
value of the farm caused by the improvements. In effect,
the jury was told that it could find damages based on the
theory of unjust enrichment.
Assuming that this clause is ambiguous and therefore in
need of extrinsic evidence to explain its terms, the lessee
did not sustain his burden of proof in showing that the
parties contemplated nonremovable improvements; he at no
time testified that the parties contemplated payment for
nonremovable improvements at the end of the lease term. In
fact, he agreed with the lessors' testimony that the grain
bins and the water tanks--obviously removable improvements--
in all probability were the only improvements the parties
discussed when he insisted that the improvements clause be
inserted into the lease. The lessors, on the other hand,
testified that nonremovable improvements were not in the
parties' contemplation when this improvements clause was
discussed and the renewal lease signed. We therefore hold
that the parties contemplated only removable improvements,
and the lessee is entitled to recover his costs for only
those removable improvements not specifically excluded by
the terms of the lease.
The lessee cannot, therefore, recover for costs of
seeding and fertilizing. Paragraph 5 of the lease states
that the lessee is to bear the costs of seed and fertilizer
(chemicals). The lessee, however, sought to avoid the application
of this clause by relying on the improvements clause of the
lease, contending that he was entitled to $2,000 for seeding
and fertilizing because they constituted the addition of
permanent improvements to the value of the land. ~ssuming
this to be the case, the lessee nonetheless cannot recover
for these costs because we hold that the parties did not
contemplate nonremovable improvements when the improvements
clause was inserted into the lease.
The same reasoning applies to the lessee's claimed
costs for fencing. Paragraph 6 of the lease requires the
lessee to bear the costs for maintaining all fencing.
Although the lessee eventually claimed $860 for fencing
costs, the testimony shows that most of those costs were for
repairs rather than for the erection of fences where none
had been before. Again, the trial court should have ruled as
a matter of law that fence repair costs were to be born by
the lessee. Assuming that the lessee made some fencing
improvements that would not be classified as repairs, he
still could not recover their costs because we hold that
the parties contemplated only removable improvements. He
presented no evidence that the fences were removable, nor
did he present any evidence of the costs attributable to the
erection of fences that would not be classified as fence repairs.
This brings us to the largest claim--that the lessee is
entitled to $24,525 for land leveling and the raising of a
ditch. Because these are also nonremovable improvements, the
lessee, as we have already held, cannot recover their costs
because the parties did not contemplate nonremovable improve-
ments. We note, furthermore, that the lessee presented
almost no records of his costs incurred in leveling the land
and raising the ditch. Most of this claim was for the 870
man-hours (at $25 per hour) it allegedly took the lessee to
level the land and raise the ditch. Yet, the lease does not
permit a recoupment of expenses based on the number of hours
spent on improving the property. And the record is also
silent about whether the land leveling and ditch raising
actually increased the value of the farm, and, if so, by
what value. The trial record does not give the slightest
indication that the parties contemplated payment at the end
of the lease terms for land leveling or ditch raising as a
permanent improvement. It is abundantly clear, therefore,
that the lessee should not be permitted to recover for land
leveling and ditch raising.
Additional factors bear on our decision that the parties
did not, as a matter of law, contemplate nonremovable improve-
ments within the scope of the lease's improvement clause.
When the lease was renewed, the lessee knew that the lessor
could not herself afford to make any improvements, and there
is no evidence to indicate that she would be in any better
position at the end of the lease term to pay for any improvements
he made. For example, the lessor had specifically rejected
the lessee's request that she reroof a lean-to on the barn.
Even though the lessee claimed a right to recover costs
for many improvements, he failed to present convincing
evidence that he had increased the value of the land by
making these improvements. He presented little or no evidence,
for example, that the land leveling, the ditch raising, the
fencing repairs, repairs of the building, or the seeding or
fertilizing, actually increased the value of the land. An
improvement must be permanent and it must enhance the value
of the premises for general purposes. 41 Am.Jur.2d Improvements
§ 1; 42 C.J.S. Improvements § 1. In fact, if the tenant has
not made the premises more valuable to the owner, the owner
has no obligation to make compensation, however great the
expenditures may have been. 41 Am.Jur.2d Improvements § 23.
Here the lessee not only failed to place a monetary figure
on the value of the land as increased by his improvements,
but he also presented no evidence that the improvements
actually increased the value of the land. For example, no
figures were presented to the jury that the claimed $22,000
spent for land leveling increased the value of the land in
any amount. The same is true of the claimed fencing improve-
ments, This lack of evidence left the jury with no basis
to determine whether the value of the land had been increased.
Nor can we ignore the fact that the lessee kept poor
records or no records at all of his claimed expenditures.
He presented the jury with few bills, receipts, or cancelled
checks which would tend to prove that his claimed costs were
actually expended. Instead, the jury had only the lessee's
word that he spent so much money in making each of his
claimed improvements. While this method of proof is not
impermissible in an appropriate case, here the lessee gave
no explanation for why he had no written evidence of his
expended costs. If he had believed that he would be entitled
to recover all these expended costs at the end of the lease
term, the likelihood is that he would have kept better
records to support his claims.
Finally, the trial court erred by permitting the jury
to base a verdict on the theory of unjust enrichment--a
theory which was neither pleaded nor proved. The jury was
instructed that if the lessee expended money and labor on
the strength of an agreement which later became unenforceable,
he could recover either - - - - value of the improve-
the cost or the
ments he had placed on the land. This instruction was not
applicable under the lessee's theory of recovery, for the
lessee was no longer relying on the written lease, which for
some reason, became unenforceable. Yet, he and the lessors
necessarily relied on the terms of the lease in their other
arguments although each had different interpretations of
those terms.
The lessee argues not only that the instruction was
proper, but also that it was harmless error because the jury
did not return a verdict based on the claimed theory of
unjust enrichment. The lessee has not explained how he knows
which theory the jury used in arriving at its verdict. It
is clear to us that this instruction could have confused the
jury on the extent of the lessee's right to recover. It is
possible that the jury decided the lessors' interpretation
of the lease to be the correct one. And it is also possible
that the jury then decided that although the lessee could
not enforce the lease according to his own interpretation,
he could nonetheless recover on the theory of unjust enrich-
ment. Because the jury was instructed in this manner, under
whatever interpretation of the lease it adopted, the lessee
could not lose. If the jury believed the lessee's inter-
pretation that he was entitled to recover for - improvements
all
--removable and nonremovable--it could have decided the case
on the basis of the lease itself, but if the jury believed
the lessors' interpretation, it nonetheless could have ruled
in the lessee's favor on the basis of the unjust enrichment
instruction. We cannot, under these circumstances, determine
that Instruction 31 was harmless error.
The trial court is instructed to hold a new trial and
rule as a matter of law whether each of the lessee's claimed
improvements is of a permanent nature. Where, however, the
nature of the claimed improvement is not so clear that only
one conclusion can be reached, the question should be left
for the jury with instructions to specifically decide that
issue on their verdict.
We vacate the District Court's judgment and order a
new trial consistent with this opinion.
Just
We Concur:
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Chief Justice
I concur i n t h e r e s u l t .
C h i e f Justice \