GIORGIO VOZZA V ROBERT GARROW
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STATE OF MICHIGAN
COURT OF APPEALS
GIORGIO VOZZA and LAURIE VOZZA, d/b/a
G.L. INVESTMENTS,
UNPUBLISHED
October 5, 1999
Plaintiffs-Appellees,
v
ROBERT L. GARROW and SHERRON L.
GARROW,
No. 209893
Grand Traverse Circuit Court
LC No. 96-015563 CK
Defendants-Appellants,
and
GARROW & ASSOCIATES,
Defendant.
Before: Bandstra, C.J., and Markman and Meter, JJ.
PER CURIAM.
This case involves defendant tenants’ alleged breach of a lease agreement for premises used in
the operation of an ice cream shop. Following a bench trial, the court entered a judgment in favor of
plaintiff lessors in the amount of $47,748.38, including attorney and accountant fees. Defendants appeal
as of right from the judgment and a pretrial decision partially denying their motion for summary
disposition. We affirm.
Defendants first contend that the trial court erred in concluding that a consent judgment entered
in a prior lawsuit between the parties was not res judicata with regard to this action and that the terms of
the consent judgment did not preclude the trial court from awarding plaintiffs attorney and accountant
fees in this case. We find no error. For res judicata to apply, defendants must establish that: (1) the
former suit was decided on the merits, (2) the issues in the second action were or could have been
resolved in the former action, and (3) both actions involved the same parties or their privies. Phinisee v
Rogers, 229 Mich App 547, 551; 582 NW2d 852 (1998).
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Here, the former lawsuit was decided on the merits and both the former and present lawsuits
involved the same parties. Thus elements (1) and (3) were established. However, unlike this case, the
former lawsuit only involved the collection of rents due and owing under an ongoing lease agreement.
“A landlord’s action for rent has been recognized as a distinct cause of action that differs from other
available remedies for breach of a lease contract.” M & V Barocas v THC, Inc, 216 Mich App 447,
450; 549 NW2d 86 (1996). In the instant case, defendants not only failed to pay rent, but they also
vacated the premises and attempted unsuccessfully to obtain plaintiffs’ agreement to terminate the lease.
Plaintiffs accordingly sued for damages associated with defendants’ breach of the lease agreement,
including defendants’ anticipatory repudiation of their future rent obligations and their abandonment of
the premises, as well as for termination of the lease. Because this case was a substantively different
cause of action involving issues that had not been resolved in the former proceeding, res judicata did not
bar plaintiffs’ lawsuit. Id.
Further, because defendants disputed their obligations under the lease by claiming their
obligations were terminated by the operation of a legal surrender, legal proceedings were necessary to
settle the nature of defendants’ obligations. For the court to decide this issue, plaintiffs hired an
accountant to certify that the records of the ice cream business were properly kept and that the business
was run separately and apart from plaintiffs’ other businesses. These expenditures were reasonably
related to the termination of the lease, rather than to the mere collection of unpaid rent. Therefore, the
doctrine of res judicata did not bar plaintiffs from seeking reimbursement for fees paid to their attorneys
and accountants in the present action, and we remand for a determination by the trial court of
reasonable fees, including attorney’s fees attributable to the instant appeal.1
Defendants also contend that the trial court erred in rejecting defendants’ theory that plaintiffs
possession of the leasehold following defendants' abandonment constituted a legal surrender and waived
any rent due under the lease. Again, we disagree. This issue involves review of the trial court’s
application of the law to the facts. The trial court’s findings of fact are reviewed for clear error and its
legal determination is reviewed de novo. Omnicom of Michigan v Giannetti Investment Co, 221
Mich App 341, 348; 561 NW2d 128 (1997).
The trial court ruled that plaintiffs’ act of taking possession of and continuing to operate the ice
cream business “was a reasonable attempt on [their] part to mitigate [their] damages and did not
operate as a surrender.”
Surrender of a lease involves more than mere abandonment of the premises by the
tenant; it requires a mutual agreement between landlord and tenant to terminate the
lease. . . . No surrender occurs where the landlord refused to accept the tenant’s
surrender of the premises. . . . The burden of proving surrender is on the party asserting
surrender. . . . [M & V Barocas, supra at 450; citations omitted.]
In this case, when plaintiffs were notified that defendants’ sub-lessee was quitting the property,
plaintiffs responded by notifying the sub-lessee’s attorney that they still considered defendants, not the
sub-lessee, responsible for complying with the terms and obligations of the lease. During the pendency
of plaintiffs lawsuit for unpaid rent, defendants informed plaintiffs that defendants were not asserting a
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claim to possession of the premises; plaintiffs responded by advising defendants they were in default
under the lease, that plaintiffs regarded this as a breach of contract and an anticipatory repudiation of the
lease agreement, and that action would be necessary to terminate the lease. Plaintiffs were unable to
find a new lessee, and were finally forced to operate the business themselves. Under these
circumstances, defendants did not demonstrate a mutual agreement between the parties to terminate the
lease; instead plaintiffs refused to accept surrender of the premises and only occupied them in a
reasonable effort to mitigate their damages. As the trial court noted, plaintiffs were, in effect, acting as
agents for defendants in re-letting the premises to their corporation in order to generate revenue and
thereby reduce defendants’ liability on the lease. Stewart v Sprague, 71 Mich 50, 52-7; 38 NW 673
(1988); Briarwood v Faber’s Fabrics Inc, 163 Mich App 784, 787-89; 415 NW2d 310 (1987).
Further, plaintiffs kept the business records associated with the ice cream business completely separate
from those relating to their other businesses. The trial court therefore correctly held that there was no
legal surrender of the leasehold. Defendants did not demonstrate a mutual agreement between the
parties to terminate the lease; instead plaintiffs refused to accept surrender of the premises and only
occupied them in an effort to mitigate their damages.
Defendants also argue that the trial court erred in determining that plaintiffs’ new “lease”
between their two closely held corporations was undertaken merely to mitigate damages because the
court previously ruled that plaintiffs’ occupation and operation of the business without an arrangement to
pay themselves rent would constitute a waiver of any rent due from defendants. However, this
mischaracterizes the court’s original ruling. Rather, the initial ruling was simply an indication that
evidence or authority would have to be presented on this issue.2 Plaintiffs’ presentation of
uncontroverted evidence on this point at trial resolved the issue. Accordingly, the trial court correctly
concluded, after considering the evidence at trial, that plaintiffs properly attempted to mitigate their
damages by operating the ice cream business, that they paid themselves no rent because no profits were
generated, and that no waiver of rent owed by defendants resulted.
Affirmed in all respects, except that we remand for a determination of attorney’s fees in
accordance with the terms of this opinion. We do not retain jurisdiction.
/s/ Richard A. Bandstra
/s/ Stephen J. Markman
/s/ Patrick M. Meter
1
Paragraph 23 of the lease agreement provides that “[u]pon termination of this lease, the Landlord . . .
shall be entitled to reimbursement from Tenant for any costs it may incur, including attorney fees, in the
enforcement of the terms of this Lease.” We believe that this paragraph is applicable to the instant
action which clearly seeks to terminate the lease, in contrast to the prior District Court action which was
directed toward the enforcement of the lease through the collection of unpaid rent. When the prior civil
action was concluded, plaintiffs collected unpaid rents but defendants remained the assignees of the
lease with the right to possess the premises, and they continued to be liable for the payment of rent in
the future. We agree with plaintiffs that, if the prior consent judgment controlled this case, defendants
here would not have denied that they were liable under the lease and the present action would not have
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needed to be commenced. We also agree that the costs recovered by plaintiffs, including the
accountant costs, were reasonably connected to the termination of the lease, rather than to the mere
collection of unpaid rent.
2
The trial court stated in this regard:
The Court believes that there are these then remaining factual issues regarding the
absence of a rental payment and legal questions regarding the ability to pursue
differential rent where the landlord charges none to his own corporation, that at least at
this point the Court is not going to grant either motion as it relates to surrender or
abandonment, but will require that the parties brief that specific issue further.
In the absence of authority for the landlord to collect differential damages without
charging his own corporation rent, the Court would advise the parties it is inclined to
find if not an accepted surrender of the premises, estoppel from the ability to claim the
damages where the landlord has not charged its own corporation rent.
The trial court thus did not rule that plaintiffs’ failure to collect rent from its corporation absolved
defendants from any liability for unpaid rent, but rather only indicated that this was its “inclination” in the
absence of any other evidence or authority. At trial, plaintiffs presented the testimony of their
accountant, Lane, who stated that there were no irregularities or improprieties in plaintiffs’ bookkeeping,
that there was no evidence that the business was being operated to avoid or hide income, that the gross
profits generated were typical for this type of business, and that the business incurred net operating
losses in 1996 and 1997. Lane further stated that, although it was not an ideal situation from the
standpoint of the IRS, the business arrangement chosen by plaintiffs was an acceptable process under
the circumstances-- those circumstances being that it was futile to make journal entries for rent that
would not be paid because there was no profit from which to pay it. Defendants failed to present any
evidence to contravene Lane’s testimony. The trial court’s original ruling was simply an expression of its
inclination and an indication that evidence or authority would have to be presented on this issue.
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