Kishan, Inc. & a. v. Margaret L. Jalbert & a.

THE STATE OF NEW HAMPSHIRE

SUPREME COURT

In Case No. 2016-0463, Kishan, Inc. & a. v. Margaret L.
Jalbert & a., the court on March 24, 2017, issued the following
order:

Having considered the briefs and record submitted on appeal, we
conclude that oral argument is unnecessary in this case. See Sup. Ct. R. 18(1).
We affirm.

The plaintiffs, Kishan, Inc. (Kishan), Shreya Corporation, and Chankya
Investment, LLC, appeal a verdict, entered following a jury trial in Superior
Court (Tucker, J.), awarding them $10,000 for breach of contract by the
defendants, Margaret Jalbert (Margaret) and Joseph Jalbert, and awarding the
defendants $65,000 for Kishan’s breach of the same contract. The plaintiffs
argue that the trial court erred by: (1) not utilizing their proposed special
verdict form which, they assert, would have directed the jury to rule upon the
defendants’ counterclaims only if it first rejected the plaintiffs’ claims; (2) not
granting their motion for judgment notwithstanding the verdict on the basis
that, pursuant to the material breach doctrine, the record compelled a finding
that the defendants were in material breach of the contract and, thus, that
Kishan’s performance thereunder was excused; (3) not ruling on their request
for a declaratory judgment that Kishan’s performance was excused as a matter
of law; and (4) awarding the defendants attorney’s fees under the contract.

“A breach of contract occurs when there is a failure without legal excuse
to perform any promise which forms the whole or part of a contract.” Lassonde
v. Stanton, 157 N.H. 582, 588 (2008) (quotation and brackets omitted). Under
the material breach doctrine, a breach that is sufficiently material and
important to justify ending the whole transaction constitutes a total breach
that discharges the injured party’s contractual obligation to perform. Fitz v.
Coutinho, 136 N.H. 721, 725 (1993); see 14 Richard A. Lord, Williston on
Contracts § 43.5, at 614-25 (4th ed. 2013). A breach that is not material will
not discharge the injured party’s obligation to perform; however, the injured
party may still recover damages for the breach. See Fitz, 136 N.H. at 724-25;
14 Williston on Contracts, supra § 43.5, at 617-24; cf. Robinson v.
Crowinshield, 1 N.H. 76, 79 (1817) (holding that, although the defendant had
already recovered against the plaintiffs for breach of contract, the plaintiffs
were entitled to recover against the defendant for breach of a different
obligation under the same contract so long as they substantially performed).
 “For a breach of contract to be material, it must go to the root or essence
of the agreement between the parties, or be one which touches the
fundamental purpose of the contract and defeats the object of the parties in
entering into the contract.” Found. For Seacoast Health v. Hosp. Corp. of
America, 165 N.H. 169, 181-82 (2013) (quotation and brackets omitted).

A breach is “material” if: (1) a party fails to perform a substantial
part of the contract or one or more of its essential terms or
conditions; (2) the breach substantially defeats the contract’s
purpose; or (3) the breach is such that upon a reasonable
interpretation of the contract, the parties considered the breach as
vital to the existence of the contract.

Id. at 182 (quotations omitted). Whether a particular breach constitutes a
material breach is a question of fact for the trier of fact to resolve. Id. at 181;
see also Fitz, 136 N.H. at 725.

Because the material breach doctrine excuses a party’s performance
under a contract, it constitutes an affirmative defense when asserted in
response to a claim for breach of contract. See Meaney v. Rubega, 142 N.H.
530, 532 (1997) (defining “affirmative defense” to mean any matter raised by a
defendant that admits the plaintiff’s allegations but provides an excuse or
justification for the allegations or otherwise defeats the plaintiff’s claim); Favor
v. Philbrick, 7 N.H. 326, 335 (1834) (stating that any legal excuse for non-
performance of a contract was a matter for the defendant to raise and did not
impose any burden of proof upon the plaintiff); cf. Veino v. Bedell, 99 N.H. 274,
276 (1954) (holding that lack of consideration and illegal consideration are
affirmative defenses to an action on a promissory note). As such, any party
claiming that its contractual performance is excused due to the other party’s
material breach bears the burdens of production and persuasion as to the
defense, and is obligated to timely raise it. See Akwa Vista v. NRT, 160 N.H.
594, 600 (2010); Goudreault v. Kleeman, 158 N.H. 236, 256 (2009).

The contract at issue in this case was a lease for real property owned by
the defendants consisting of two first-floor commercial units and an un-
insulated garage used for storage; residential units, which were not subject to
the lease, were located above the leased space. An interior wall separated the
commercial units, and a structural wall separated one of the commercial units
from the garage. In total, the leased property comprised approximately 4,000
square feet, 1,500 square feet of which was the garage. Kishan planned to
renovate the leased space and utilize it for a convenience store.

Under the terms of the lease, the defendants were responsible for
removing the wall that separated the two commercial units and replacing some
damaged ceiling tiles. Kishan was responsible for making all other alterations
and improvements, and was obligated to obtain the defendants’ prior written

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consent for any such improvements or alterations. The lease provided that, if
the property were partially destroyed, but could still be occupied, rent would be
abated until the defendants could repair the property, and that if they could
not repair it within sixty days, Kishan had the option to terminate the lease.
Upon termination of the lease “for any reason,” Kishan was required to “return
the Leased Premises to [the defendants] in substantially the same state of
repair as existing upon the date set for the commencement of the initial term,
or as such may have been subsequently improved . . . .”

The lease was for an initial seven-year term beginning on March 1, 2014,
and was renewable for up to three additional seven-year terms. The rent was
set at $3,250 per month for the first year of the lease, with the exception of the
first four months of the lease term when Kishan was obligated to pay only
$1,625 per month. The parties anticipated that Kishan would be renovating
the property during the initial four-month period, and would open the
convenience store by July 1. In negotiating the initial rent of $3,250 per
month, the parties agreed upon a rate of $12 per square foot for the
commercial space and $6 per square foot for the storage space.

In early March 2014, a motorist crashed into the exterior wall of one of
the commercial units. After a municipal building inspector examined the
damage and ensured that the building was secure and structurally-sound,
Margaret negotiated with the contractor who was going to perform Kishan’s
renovation work to also repair the damage caused by the crash.

Kishan did not perform any renovation work until May 2014. On May 2,
Margaret provided written approval for detailed renovation plans submitted by
Kishan’s contractor. The plans did not indicate that any changes would be
made to the structural wall separating the garage from the commercial units.
Around the end of June or early July, Margaret discovered that the contractor
had removed the sheetrock, insulation, and support boards from the structural
wall separating the commercial space from the garage, leaving only the framing
in place. She then learned that Kishan’s plan was to remove a portion of that
wall in order to install a “beer cave”—a walk-in cooler, accessible to customers,
holding beer and other cold beverages—inside the garage. Although the
plaintiffs claimed that Margaret had verbally approved their plan to remove
that wall, Margaret denied that she had ever granted such approval, and there
is no dispute that she had not provided prior written approval for the wall’s
demolition.

Margaret testified that, because Kishan planned to use a portion of the
garage for the “beer cave,” and because the parties had negotiated a lower
rental rate for the garage as storage space, she told Kishan’s representatives
that she thought an increase in rent would be fair. She acknowledged at trial,
however, that under the terms of the lease, she could not insist upon an
increase in rent. Kishan’s representatives, by contrast, testified that Margaret

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demanded an increase in rent in exchange for her permission to alter the wall.
After Margaret raised the issue of increased rent, Kishan stopped all work and
abandoned the site. When Kishan left the property, it was in a state of
demolition, and was not rentable. In order to comply with the building code,
the defendants were required to install a firewall in place of the wall that
Kishan had removed, costing the defendants more than $9,000.

On July 8, 2014, Kishan, through counsel, sent the defendants a
document entitled “Construction Assent,” which purported to authorize Kishan
“to make all alterations or improvements” to the property “as set forth in” a
building permit and floor plan, and which Kishan asserted would have allowed
the alterations to the wall. Margaret replied on July 25, stating that she
“need[ed] to see the written permission for the opening up and moving the wall
between the garage and storefront.” Kishan’s counsel threatened to declare a
default of the lease and to file suit. Margaret responded that Kishan was in
default because it had not paid rent for August. At that point, the defendants
had not yet repaired the damage caused by the car accident.

The plaintiffs filed suit on August 6, 2014, seeking damages for breach of
contract, and a declaratory judgment that: (1) they were not in breach of the
lease for not paying rent or for “their work done in anticipation of building the
convenience store”; (2) the defendants had “acted in a commercially
unreasonable fashion”; and (3) the plaintiffs were “relieved of any future
obligation under the Lease.” The defendants asserted counterclaims seeking
damages for breach of the lease. At trial, the plaintiffs claimed that the
defendants had breached the lease by: (1) refusing to allow them to use the
garage as part of the convenience store without an increase in rent; and (2)
failing to repair the damages from the car crash in a timely manner. The
defendants countered that the plaintiffs had breached the lease by: (1) making
alterations to the wall between the commercial space and the garage without
approval; (2) failing to pay rent; and (3) abandoning the property during the
lease term and not restoring it. The parties additionally each asserted claims
for breach of the implied covenant of good faith and fair dealing.

The trial court instructed the jury as follows as to the meaning of breach
of contract:

To establish its breach of contract claim, the party must
prove it is more probable than not that the other party failed to
fulfill the obligations it has assumed under the contract and that
the failure was important to the purpose of the contract and not
merely technical or incidental to it.

A breach of contract occurs when there is a failure without
legal excuse to perform any promise that forms the whole or part of
the contract.

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At no point did the trial court instruct the jury as to the material breach
doctrine. Instead, it directed the jury to consider each of the breach of contract
claims, and to “determine what amount of damages, if any,” that a party was
entitled to recover if the jury found that that party had “proved any of its
breach of contract claims.”

The trial court also reviewed the special verdict form with the jury during
its instructions. That form directed the jury to answer the following four
questions: (1) had Kishan proved more probably than not “that Margaret . . .
breached the lease”; (2) if yes, what were Kishan’s damages; (3) had Margaret
proved more probably than not “that Kishan . . . breached the lease”; and (4) if
yes, what were Margaret’s damages. The form did not direct the jury to make
specific findings as to any of the claimed breaches, to determine whether any of
the claimed breaches was material, or to decide which party breached the lease
first. Nor did the form direct the jury to consider any party’s claims only if it
found that that party was not already in material breach of the lease at the
time of the claimed breaches. At the close of the instructions, counsel for the
plaintiffs stated that he had no objection to the instructions.

During its deliberations, the jury posed the following question to the trial
court: “Was the lease legally terminated when [Kishan’s counsel] claimed
default on July 25th through email to [Margaret], or is the lease still in effect?”
The trial court responded as follows: “A claim of default does not terminate a
lease. The claim of each side is that the other breached the lease, so you must
decide what breach, if any, occurred and not whether the [lease is] terminated.”
Counsel for the plaintiffs stated that he did not object to the response.

The jury returned the special verdict form, specifically finding that
Kishan had proved that Margaret breached the lease, that Kishan’s damages
were $10,000, that Margaret had proved that Kishan breached the lease, and
that Margaret’s damages were $65,000. The plaintiffs moved for judgment
notwithstanding the verdict, arguing that the jury had found that Kishan had
“proved a material breach of contract,” that that finding necessarily meant that
the jury had rejected the defendants’ claim that Kishan breached the contract
by removing the wall, that the other breaches claimed by Kishan occurred after
the defendants were in material breach of the lease, and that, therefore, the
defendants were not entitled to any damages under the material breach
doctrine. This analysis, according to the plaintiffs, was supported by the
“strange question” posed by the jury during its deliberations. The trial court
denied the motion, finding that the evidence, viewed most favorably to the
defendants, supported a finding that Kishan had materially breached the lease
first either by demolishing the structural wall without written consent or by
failing to pay August rent by its July 25 due date. Although the trial court
acknowledged that the special verdict form could have been more specific, it
noted that the parties had “agreed to the instructions and the verdict format

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before they were presented to the jury,” and that the parties had not objected
“when given the opportunity at the close of the instructions.”

The plaintiffs moved for reconsideration, arguing that the trial court was
obligated to rule upon their request for a declaratory judgment, that the court
was required, based upon the jury’s verdict, to grant a declaratory judgment
that Kishan was not in material breach when the defendants breached, and
that, in light of the jury’s question during deliberations, the plaintiffs were
entitled to a new trial due to mistake. In denying the motion, the trial court
observed that the request for declaratory relief presented the same issues
raised by the counterclaims, that at no time during trial did the plaintiffs insist
upon a declaratory ruling as opposed to a jury verdict on the counterclaims,
and that the plaintiffs did not object to the instructions directing the jury to
decide the counterclaims. Had the plaintiffs insisted on a ruling upon their
declaratory judgment petition at trial, the trial court noted that it likely would
have dismissed the declaratory judgment request because it presented the
same issue as the counterclaims. The trial court further noted that “[t]o the
extent that the declaratory judgment claim included a request for a finding on
whether Kishan was absolved of liability if [Margaret] breached the lease, that
issue could have been addressed in the jury instructions.”

Upon this record, we conclude that the plaintiffs have waived their
arguments that the trial court erred by not utilizing their proposed special
verdict form, by not ruling that, as a matter of law, their performance was
excused pursuant to the material breach doctrine, and by not ruling on their
request for a declaratory judgment. It is a longstanding rule that parties may
not have review of matters they did not timely raise in the trial court. See Bean
v. Red Oak Prop. Mgmt., 151 N.H. 248, 250 (2004). “Issues must be raised at
the earliest possible time, because trial forums should have a full opportunity
to come to sound conclusions and to correct claimed errors in the first
instance.” O’Hearne v. McClammer, 163 N.H. 430, 438 (2012) (quotation
omitted); see also Transmedia Restaurant Co. v. Devereaux, 149 N.H. 454, 458-
59 (2003) (holding that challenge to trial court’s failure to provide a jury
instruction was not preserved by raising issue in post-trial motions). It is the
appealing party’s burden to establish that the issues raised on appeal were
timely raised in the trial court. Bean, 151 N.H. at 250.

In this case, the instructions and special verdict form directed the jury to
consider all breach of contract claims, and to decide simply whether each of
the parties had “breached the lease,” and what damages resulted. The jury
was not directed to find which specific breaches occurred, whether any of those
breaches was material, or which material breaches occurred first. The
plaintiffs did not object, either to the instructions or to the special verdict form.
To the contrary, the plaintiffs’ counsel affirmatively stated that he had no
objection to the instructions. Likewise, when the jury asked whether the lease
was still in effect after Kishan declared default, the plaintiffs’ counsel

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affirmatively stated that he had no objection to the trial court’s instruction to
“decide what breach, if any, occurred and not whether the is lease terminated.”
As the trial court observed, to the extent the plaintiffs’ theory was that Kishan’s
performance was excused by virtue of the defendants’ material breach, that
theory could have been presented through the jury instructions.

We reject the plaintiffs’ argument that they preserved their challenges to
the special verdict form by proposing their own special verdict form. Merely
proposing a special verdict form or jury instructions is not sufficient to alert
the trial court to alleged error contained within the special verdict form or
instructions utilized at trial. See State v. Nightingale, 160 N.H. 569, 577
(2010); Berliner v. Clukay, 150 N.H. 80, 84-85 (2003); Chadwick v. CSI, Ltd.,
137 N.H. 515, 520-21 (1993).

Nor did the plaintiffs’ initial request for a declaratory judgment or post-
trial motions preserve their arguments that the trial court erred by not ruling,
as a matter of law, that their obligations under the lease were discharged. The
trial court’s instructions and special verdict form allowed the jury to rule
precisely as it did. See Berliner, 150 N.H. at 85 (finding that defendant waived
argument that the evidence did not support jury’s selection of statutory
damages multiplier because the jury instructions, to which the defendant did
not object, allowed the jury to apply the statutory multiplier that it selected).
Having acquiesced in jury instructions and a special verdict form that directed
the jury to consider all breach of contract claims and to determine the damages
that each party was entitled to recover, the plaintiffs cannot insist upon the
post-trial application of their material breach defense. See id.; see also Akwa
Vista, 160 N.H. at 600 (holding that, because defendants had not raised statute
of frauds defense either before or during trial, they could not preserve it by
raising it in a post-trial motion for judgment notwithstanding the verdict).

We note, however, that even if the plaintiffs had preserved their
arguments that their obligations under the lease were excused as a matter of
law, the jury did not necessarily find, as the plaintiffs contend, that the
defendants materially breached the contract before Kishan breached it.
Rather, we agree with the trial court that the jury reasonably could have found
that Kishan materially breached the contract first by removing the structural
wall without approval. Similarly, the jury reasonably could have found, upon
this evidence, that although the defendants breached the lease, they did not
materially breach it. We further agree with the trial court that, because the
defendants’ breach of contract counterclaims raised the same issues that were
the basis of the plaintiffs’ request for a declaratory judgment, the plaintiffs were
not entitled to a ruling on their request for a declaratory judgment. See Coyle
v. Battles, 147 N.H. 98, 100 (2001).

Finally, we address the plaintiffs’ argument that the trial court erred by
awarding the defendants attorney’s fees under the lease. The plaintiffs’ only

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argument as to this issue is as follows: “Once the court determines [the issues
raised by the plaintiffs on appeal as to the material breach doctrine] then the
[trial court] order for attorney[’s] fees can be modified as on its face the new
Judge just followed the previous decision of the trial court.” Because we
conclude that the trial court did not err by denying the plaintiffs’ motions for
judgment notwithstanding the verdict and for reconsideration, we reject their
argument that the trial court erred by awarding the defendants attorney’s fees.

We grant the defendants’ request for an award of attorney’s fees incurred
in defending this appeal pursuant to paragraph 20 of the parties’ lease. On or
before April 3, 2017, the defendants shall submit an affidavit of attorney’s fees
and costs incurred in defending this appeal.

Affirmed.

Dalianis, C.J., and Hicks, Conboy, Lynn, and Bassett, JJ., concurred.

Eileen Fox,
Clerk

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