BVT Lebanon Shopping Cehter, Ltd. v. Wal-Mart Stores, Inc. ( 2000 )

IN THE SUPREME COURT OF TENNESSEE
AT NASHVILLE
May 24, 2000 Session
BVT LEBANON SHOPPING CENTER, LTD. v. WAL-MART
STORES, INC., ET AL.
Appeal by Permission from the Court of Appeals, Middle Section
Circuit Court for Wilson County
No. 9113 Hon. Bobby Capers, Judge
No. M1997-00059-SC-R11-CV - Filed March 1, 2001
WILLIAM M. BARKER, J., concurring.
I join in the majority’s conclusion that diminution-in-value damages may be awarded in cases
where an anchor tenant breaches a commercial lease. I write separately, however, because I believe
that the majority’s opinion has rewritten the law of contract damages in this area by unintentionally
changing the standards for establishing certain types of damages. Today, the majority “adopt[s]
diminution in value as the measure of damages for breach of a covenant of continuous occupancy,”
and in doing so, the majority appears to suggest that lost future percentage rent is included within
this calculation of special damages. Because lost future rent is not an element of special
damages—it is a measure meant to directly compensate for the defendant’s failure to perform—it
is not subject to the heightened proof and pleading requirements that traditional contract law requires
of special damages. Yet, because the majority opinion can be read as accomplishing precisely this
result, I write separately in the hopes of eliminating any confusion that such was our intention.
I.
The majority correctly states the general goal of contract damages, which is to place the
“injured parties ‘in as good a position as they would have been in if the contract had not been
breached.’” (quoting Pleasant Valley Promenade v. Lechmere, Inc., 464 S.E.2d 47, 62 (N.C. Ct. App.
1995); see also Adams TV of Memphis, Inc. v. ComCorp of Tennessee, Inc., 969 S.W.2d 917, 922
(Tenn. Ct. App. 1997). Indeed, the majority cites the test for expectation damages in section 347
of the Restatement (Second) of Contracts as a correct formulation of this general goal. The
Restatement measure of expectation damages provides, in a simple and straightforward manner, that
the injured party has a right to damages based on his expectation interest as measured
by
(a) the loss in the value to him of the other party’s performance caused by its
failure or deficiency, plus
(b) any other loss, including incidental or consequential loss, caused by the
breach, less
(c) any cost or other loss that he has avoided by not having to perform.
Having cited the Restatement test as the proper standard to calculate damages, however, the majority
does not appear to have properly applied it. In writing separately, I wish to convey my view that by
expressly adopting a Restatement approach, we could provide for a more simple and direct resolution
of the issues in this case, and we would necessarily eliminate the potential for confusing the
standards for pleading and proving different types of contract damages.
Under section 347(a) of the Restatement test, I would first permit a plaintiff to recover lost
future percentage rental income as the “loss in the value . . . of the other party’s performance caused
by its failure or deficiency.” As is the case in virtually all lease contracts, the lessee’s primary
obligation of performance is the payment of rents to the lessor, and as a corollary to this principle,
the loss in value of the lessee’s performance may be measured in part by the lost future rent
occasioned by the breach of the lease. Cf. Ferrell v. Elrod, 469 S.W.2d 678, 690 (Tenn. Ct. App.
1971) (permitting, among other things, loss rent from a breach of a lease). Because these damages
represent the loss in value of performance, a plaintiff need only show that these damages can be
proven with a reasonable degree of certainty. In this case, the lease included a percentage of the
defendant’s gross receipts as part of the rental payments. Although this measure of damages is not
as precise as a fixed monthly amount, lost percentage rental income is clearly available when it can
be proven to a reasonable degree of certainty, and the plaintiff has proven these damages to my
satisfaction.
Second, under section 347(b) of the Restatement test, I would also permit a plaintiff to
recover the diminution in the market value of the shopping center as an element of special or
consequential damages. As the cases cited by the majority recognize, diminution-in-value damages
are in fact a measure of special damages, see Hornwood v. Smith’s Food King No. 1, 772 P.2d 1284(Nev. 1989); Lechmere, Inc., 464 S.E.2d at 62-63, and as such, these damages are properly awarded
in this state only when the damages are (1) plead with specificity, Tenn. R. Civ. P. 9.07; (2) proven
that they were within the contemplation of the parties at the time of the contract, Turner v. Benson,
672 S.W.2d 752, 755 (Tenn. 1984); and (3) proven with reasonable degree of certainty, Chisholm
& Moore Mfg. Co. v. United States Canopy Co., 111 Tenn. 202, 211, 77 S.W. 1062, 1064 (1903);
Wachtel v. Western Sizzlin Corp., 986 S.W.2d 2, 6 (Tenn. Ct. App. 1998). I agree with the Court’s
resolution of these issues in this case, and I concur in the Court’s remand to the trial court to
determine the appropriate amount of these damages.1
1
The trial court, of course, would then be required to determine, under section 3 47(c), the amount of the co st
or other los s that the plaintiff has av oided b y not having to perform and to subtract this amount from the total amount
derived fro m the lost rent an d the diminu tion in value of the shopping center.
-2-
Rather than following the comparatively simple and logical approach of the Restatement to
resolve the issue of proper damages in this case, however, the majority has instead consolidated the
available damages in cases involving an anchor tenant’s breach of a commercial lease under a single
heading labeled “diminution in value” damages. In so doing, the majority has included more than
just traditional damages for the diminution in value of the shopping center; the majority’s measure
also includes the lost future percentage rent of the breaching lessee. While I take no issue with
permitting the plaintiff to recover both types of damages in this case—to be clear, this is precisely
my view—I differ with the majority’s analysis to the extent that it sees no meaningful distinction
between the different types of contract damages involved here.
Damages for the diminution in value of a shopping center recognize that a plaintiff is harmed
in ways other than the prospect of losing the future rent payments of the lessee. As the North
Carolina Court of Appeals succinctly articulated these concerns,
These damages result because the shopping center is a “cooperative enterprise, with
each store’s success dependent on the continued operation of the other stores. . . .”
The contribution of each store determines the flow of business of the entire shopping
center, and likewise, a store leaving affects the center as a whole. Though a shopping
center is “cooperative” in nature, the anchor store is the focal point of the entire
shopping center. The function of the anchor is “to provide certainty of income
stream, an identity and stability for the center which, in turn, draws customers,
attracts other tenants and increases overall sales.” Further, without an anchor store
long-term financing is virtually impossible to obtain. Therefore, the anchor’s loss
has been described as “worse than a flood, fire or tornado, because usually there is
insurance to cover [natural] disasters.”
Pleasant Valley Promenade, 464 S.E.2d at 61 (citations omitted). Because diminution-in-value
damages, as special damages, flow from the unique circumstances or conditions of the particular
case, though, these damages must have been contemplated by the parties at the time of the contract.
See Hornwood, 772 P.2d at 1286 (finding that diminution-in-value damages must have been
foreseeable); Pleasant Valley Promenade, 464 S.E.2d at 63 (finding that diminution-in-value
damages are special damages and must be foreseeable).
By including lost future percentage rent payments into the calculation of these special
damages, however, the majority presumably now requires that lost future rental payments must meet
all of the additional conditions required to obtain special damages, i.e., proof of special pleading,
proof that such damages were within the contemplation of the parties, and proof that the damages
can be determined with reasonable certainty. To be sure, I do not believe that the majority actually
intends such a result, but by not adopting the precise analysis of the Restatement, the majority has
needlessly introduced an element of uncertainty in this regard. By consolidating all of the plaintiff’s
damages into a single category of “diminution-in-value damages,” the majority appears to have
confused damages which are based on the value of the performance itself with those damages based
on the value of some consequence which that performance may produce. Because I believe that the
-3-
majority’s analysis is unnecessarily confusing as to the burdens and standards needed to obtain
remedy for a breach of a commercial lease, I would prefer that the Court expressly adopt the
Restatement approach to measure expectation damages to avoid any misunderstanding.
II.
While the majority notes that the plaintiff requested lost future percentage rentals and
diminution in value as alternative forms of relief, I agree with the majority that this fact does not
preclude an award of both types of damages in this case. Although the majority does not devote very
much attention to this issue, Tennessee Rules of Civil Procedure 54.03 provides that
Except as to a party against whom a judgment is entered by default, every final
judgment shall grant the relief to which the party in whose favor it is rendered is
entitled, even if the party has not demanded such relief in the party’s pleadings; but
the court shall not give the successful party relief, though such party may be entitled
to it, where the propriety of such relief was not litigated and the opposing party had
no opportunity to assert defenses to such relief.”
(emphasis added); see also Tenn. R. Civ. P. 15.02 (“When issues not raised by the pleadings are tried
by express or implied consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings.”). In this case, the defendant had ample notice and opportunity to assert
defenses as to both types of relief sought, and in fact, it did present proof and argument as to both
types of damages. Moreover, at the close of the proof of damages, the plaintiff moved to amend the
pleadings to conform to the evidence presented pursuant to Rule of Civil Procedure 15.02, and as
such, the issue of loss percentage rentals should be treated by this Court as if the issue were raised
in the initial pleadings. See Electric Controls v. Ponderosa Fibres of America, 19 S.W.3d 222, 227
& n.3 (Tenn. Ct. App. 2000) (recognizing that when parties have actually litigated the issues, Rule
15.02 provides an exception to the general rule “that irrespective of what may be proved a court
cannot decree to any plaintiff more than he claims in his bill or other pleadings”). Accordingly,
because the parties litigated the issues concerning both types of damages and because the complaint
was amended to conform to the proof, I agree that the Rules of Civil Procedure do not prohibit the
plaintiff from recovering both types of damages under traditional contract law.2
2
A different problem may be presented if the remedies sought were inconsistent and irreconcilable, and in such
a case, the plaintiff wo uld need to elect the remedy sought in order to p revent the po ssibility of a doub le recovery.
Concrete Spaces, Inc. v. Sender, 2 S.W.3d 9 01, 906 (T enn. 1999). Ho wever, recovery for dam ages based upon lost
percentage rentals and fo r damage s based o n diminution in value of the sho pping cen ter in no way p ermits the plain tiff
to achieve a double recovery. To the contrary, damages for lost percentage rentals seek to remedy the defendant’s failure
to perform u nder the leas e agreeme nt itself, and dam ages for dim inution in value of the shopping center seek to remedy
the effects from the breach of the implied co venant of continuous occupa ncy. Contr ary to the settled law of contract
remedies, to permit one measure o f damages without the othe r is to prohibit a plaintiff from being placed in as good a
position as if the c ontract had been fully perfo rmed.
-4-
For these reasons, I concur in the judgment of the Court remanding this case to the trial court
for further hearings on diminution-in-value damages. I also agree with the decision of the Court to
let stand the trial court’s award of lost future percentage rent. I respectfully disagree, however, with
the majority’s decision not to apply the test as set forth in section 347 of the Restatement (Second)
of Contracts. In my opinion, the Restatement test provides for a clear method of analysis, and it
avoids any potential misunderstandings which the majority decision may unintentionally help to
create.
_________________________________
WILLIAM M. BARKER, JUSTICE
-5-