Summary of Reid v. Mutual of Omaha INS, S. Ct. Utah [1989]

Relevant Facts: Df Mutual, tenant, and Pl, Reid, Ll entered into a 5 year lease @ $1100/mo.  Soon after Mutual moved in an adjacent tenant, Inmtn, moved in.  Mutual made numerous complaints that Inmtn’s personnel were excessively noisy and occupied all of Mutual’s parking spaces, thus interfering w/ Mutual’s business.  Reid did not sufficiently remedy the situation, Mutual gave notice and vacated the premises after 1.5 to 2 yrs of the lease.  While litigation proceeded Reid remodeled and leased them to Inmtn for the remaining term.

Legal Issue(s): Whether Utah law imposes a duty upon LL to mitigate their damages by reletting the premises after Mutual has wrongfully vacated and defaulted on the covenant to pay rent?

Court’s Holding: Yes, but reletting alone is insufficient evidence to show LL intended to accept a surrender of the premises and free T from all obligation for future rent : (1) evidence supported finding that there was no constructive eviction; (2) lessors’ conduct was reletting without termination under surrender and acceptance doctrine; and (3) lessors have duty to mitigate damages after lessee wrongfully vacates and defaults on covenant to pay rent.

Procedure: Bench trial for Pl breach of lease; Affirmed on breach, reversed on amt damages.

Law or Rule(s):   A party injured by a K breach may not recover damages that he or she, w/ reasonable effort, could have avoided = avoidable consequences.

Court Rationale: The traditional rule is an anachronistic model.  The modern rule is persuasive b/c the economics of both the state and the nation benefit from a rule that encourages reletting, which returns the property to a productive use.  Current legal policy is against contractual penalties.  Liquidated damages provisions are limited to an amt estimated, at the time of drafting, of what would be necessary to compensate for loss resulting from a breach.  Also allowing a LL to let the property sit idle while the forcing the tenant to pay rent when the LL could’ve profitably leased it is a disfavored penalty.  The trend rule is more in line w/ the policy favoring mitigation adopted in other areas of the law.   A LL is obligated to take reasonable steps in letting, or re-letting out the property in the same market conditions to mitigate the damages.  Those costs in seeking out new tenants, repairs, or alterations are recoverable from the breaching tenant.

The Pl’s damages are limited to rent that has accrued through the time of trial, and those damages for future rents accruing, minus mitigation, established through supplemental proceedings with the court.

Plaintiff’s Argument: Pl is entitled to recover all future rent under the lease after the breach of the Tenant’s covenant to pay.

Defendant’s Argument: Pl is only entitled to recover those damages that remain after reasonably attempting to re-let the premises.