Philadelphia. Photo: Shutterstock

The Pennsylvania Supreme Court has upheld a ruling that a trial judge in a commercial landlord/tenant contract dispute rendered an inconsistent award for the tenant that simultaneously rescinded and enforced the lease contract.

The justices' ruling Sept. 26 affirmed the state Superior Court's holding in Gamesa Energy v. Ten Penn Center.

In that case, a Philadelphia trial judge found the landlord had breached the lease contract by failing to timely respond to its tenant's request to sublease part of its premises. The judge retroactively rescinded the contract and awarded the tenant damages for unjust enrichment. But the judge also awarded the tenant damages equal to the amount it would have received under the proposed sublease.

In March 2018, the state Superior Court reversed in part and denied in part the trial judge's ruling in favor of Gamesa Energy USA in its case against Ten Penn Center Associates. The high court agreed with the Superior Court's reasoning, according to Justice Kevin Dougherty, who wrote the court's Sept. 26 majority opinion.

"We hold a non-breaching party to a contract may, by its conduct following a breach, conclusively elect its remedy and be bound by it to one theory for recovery of damages," Dougherty said. "The Superior Court correctly determined the trial court erred by retroactively terminating the lease agreement between the parties, and by awarding Gamesa damages for both breach of and rescission of the lease."

Chief Justice Thomas Saylor issued a separate, concurring opinion, in which he supported the majority's conclusion. However, Saylor said the issue was one better suited for the legislature.

Gamesa alleged Ten Penn breached the lease by failing to make a decision on a proposed sublease with another company, BSI, within the timeframe dictated by the lease. Gamesa claimed that Ten Penn had broken the terms of the lease and demanded damages based on expectation. But Gamesa also sought a ruling that the lease had been rescinded as of the date Ten Penn failed to accept or reject the sublease request. Based on a theory of unjust enrichment, Gamesa sought reimbursement of the rent it paid after that point.

The trial judge held that Ten Penn breached the lease contract, that the breach effectively rescinded the contract and that Ten Penn was unjustly enriched by any rent payments it subsequently received from Gamesa. But the judge also awarded Gamesa the amount it would have received under the three-year sublease with BSI.

Judge Jack Panella wrote in the Superior Court's opinion that those rulings were inconsistent and noted the plaintiff can only recover for breach of contract because that was the remedy it chose by continuing to pay rent to Ten Penn and collect rent for its sublease following the breach.

"The remedy Gamesa had chosen for trial was to enforce the contract and recover based on expectation, i.e., recover the expected rent from the BSI sublease. Thus, the trial court's actions in retroactively terminating the contract and awarding Gamesa damages based upon a theory of unjust enrichment was clearly in error," Panella said.

The Superior Court upheld the trial court's determination that Ten Penn imposed unreasonable conditions for subleasing and affirmed the judge's award of $265,000 damages based on the amount due under the BSI sublease.

Jeffrey Batoff of Obermayer Rebmann Maxwell & Hippel represents Gamesa and William Hangley of Hangley Aronchick Segal Pudlin & Schiller represents Ten Penn. Neither responded to requests for comment.