Marcovich Land Co. v. J. J. Newberry Co.

Indiana Court of Appeals · Contracts

Contractsleasefire clauserebuild covenanttotal destructionimpossibilitycommercial impracticabilityunconscionability

Facts

Newberry leased a variety store building under a 25-year written lease containing a fire clause stating that if the demised premises were damaged or destroyed by fire, the landlord shall immediately repair, reconstruct, and replace them at its own expense. The building was completely destroyed by fire on December 30, 1971, with about six years and nine months left on the lease, and Newberry promptly requested rebuilding under the lease. The landlords demanded that Newberry provide architectural plans and extend the lease term, though the lease contained no such requirements, and on May 9, 1972 informed Newberry they intended to do nothing further under the lease. The property was later condemned on June 16, 1976, making specific performance unavailable, so Newberry sought lost profits for the period it would have operated had rebuilding occurred.

Issue

Did the lease's fire clause require the landlord to rebuild after the premises were totally destroyed by fire, and were the landlords excused from performance by unconscionability, impossibility or commercial impracticability, or by the tenant's alleged failure to cooperate? The appeal also asked whether the trial court abused its discretion on certain discovery and evidentiary rulings.

Rule

An unambiguous lease provision requiring a landlord to 'repair, reconstruct and replace' premises that are 'damaged or destroyed' by fire applies according to its terms, including total destruction, and extrinsic evidence is neither required nor permitted to alter that meaning. Unconscionability is judged by circumstances existing at contract formation, particularly unequal bargaining power or lack of knowledge. In Indiana, impossibility excuses performance only when performance is not merely difficult or relatively impossible but absolutely impossible because of act of God, act of law, or destruction of the contract subject matter; even assuming commercial impracticability could apply, relief requires an unexpected contingency, a risk not allocated by agreement or custom, and performance rendered commercially impracticable by extreme and unreasonable difficulty or expense.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Lena Ortiz leased a retail building in Toledo, Ohio from Riverfront Holdings LLC under a 20-year lease. The lease states that if the premises are "damaged or destroyed by fire or other casualty," the landlord shall "promptly repair, reconstruct, and replace the premises at its sole expense." A fire leaves only the foundation standing, and the landlord argues the clause covers repairs after partial damage, not a full rebuild.

If Lena sues for breach after the landlord refuses to rebuild, which argument is strongest under the governing rule?

Explanation. The majority enforced unambiguous lease language according to its terms. A clause requiring the landlord to "repair, reconstruct and replace" premises that are "damaged or destroyed" by fire applies to total destruction, not merely partial damage. Extrinsic evidence is neither required nor permitted to vary that plain meaning. (Derived from Marcovich Land Co. v. J. J. Newberry Co. (n.d.).)