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United States Gypsum Co. v. Schiavo Brothers Inc.


decided: November 30, 1981.



Before Aldisert, Higginbotham and Sloviter, Circuit Judges.

Author: Higginbotham



While one man's junk may be another man's profit, there comes a point where clearing junkyard remnants constitutes a substantial financial cost. Here we are required to decide whether under Pennsylvania law the landlord or the primary lessee should bear the costs of clearing the junk left by the sublessees in this case. During the last three years, two district judges have been sorting out the appropriate property and damage doctrines to determine who pays for removal of the junk and other alleged damages arising out of the tenancy. We will affirm the rulings of the district court except as to its decision not to consider the issues of holdover rent and loss-of-use of purchase monies, and we will remand for further proceedings on those two claims.


The facts of this case have been set forth twice, at length, in two different district court opinions, reported at 450 F. Supp. 1291 (E.D.Pa.1978) and 485 F. Supp. 46 (E.D.Pa.1979). We therefore only summarize them here.

The plaintiff, United States Gypsum Company (Gypsum) owned a landfill in southwest Philadelphia. In 1966, it entered into a lease agreement with the defendant Schiavo Brothers, Inc. (Schiavo). Gypsum and Schiavo also agreed by separate contract that Schiavo, a waste hauling firm, would haul waste for Gypsum. Schiavo sublet part of the property to automobile junkyard operators. Schiavo's lease with Gypsum was lawfully terminated by Schiavo, effective January 1, 1974, but most of the junkyard dealers (the sublessees) refused to leave until well into the summer of 1974. Meanwhile Gypsum had agreed to sell the property to Swann Oil Company, but the sale was delayed, allegedly because Swann would not accept transfer of the property until all of the debris left by the junkdealers had been cleared. That debris covered most of the property and included car seats, tires and other by-products of junkyard dealing. When the junkdealers finally left, Gypsum was obliged to hire a contractor to clear the debris. After the debris was cleared, Gypsum transferred the property to Swann in September, 1974, almost four months later than both parties had planned.

Gypsum sued Schiavo for the cost of the cleanup, for holdover rent*fn1 and for damages compensating it for the loss of the use of the money due from Swann that was not received until after the clean-up. Jurisdiction was founded on diversity of citizenship, and the law of Pennsylvania governs the action.

The case was assigned to the calendar of Judge Herbert A. Fogel, who ordered that liability and damages be tried separately. Trial on liability issues began in November, 1975 and continued, intermittently, into January, 1976. Judge Fogel filed his judgment shortly before he resigned in May, 1978.

Judge Fogel ruled that under Pennsylvania law there was, implied in the lease between the parties, a covenant by Schiavo to return the leasehold property in the condition in which it received it, reasonable wear and tear excepted. He ruled that that covenant is a part of a tenant's obligations under a lease unless it is negated by contrary language in the lease, and that no such contrary intent was expressed in the lease at issue. He also found, however, that Schiavo had not breached the contract, and that in the context of the junkyard industry, the leaving of the debris was reasonable wear and tear to the property. He entered judgment in favor of Schiavo without mentioning the issues of holdover rent and loss of use of purchase monies.

Judge Louis H. Pollak was assigned the case after post-trial motions had been filed by both sides. He agreed with Judge Fogel that the implied covenant existed, but he reversed Judge Fogel's conclusion that Schiavo had not breached the covenant. He ruled that the debris exceeded reasonable wear and tear, and he therefore ordered a trial on damages relating to breach of the covenant. He also ruled, initially, that Judge Fogel should have entered findings on holdover rent and loss of use of purchase monies. However, upon a motion for reconsideration filed by Schiavo, Judge Pollak decided that Gypsum had not placed its claims "in so clear a focus as to warrant my concluding that (1) the claims were actually litigated, and (2) Judge Fogel erred in not ruling on them." 485 F. Supp. at 56. He therefore denied Gypsum any relief on the claims of holdover rent and loss of use of purchase monies.

After trial of damages Judge Pollak awarded Gypsum $96,815.00 to compensate it for its expenditures in clearing the debris caused by Schiavo's subtenants. He denied Gypsum's request for an award of prejudgment interest. He also dismissed, on the basis of res judicata, a second complaint brought by Gypsum seeking to recover holdover rent and loss of use of purchase monies.

Both parties appealed. Schiavo challenges the rulings of Judge Fogel and Judge Pollak that any implied covenant existed. Gypsum challenges Judge Pollak's rulings precluding recovery for holdover rent and loss of use of purchase monies, his dismissal of the second action, his refusal to award prejudgment interest, and his refusal to disburse to Gypsum certain escrow funds held by Schiavo.


Existence of the Implied Covenant

Schiavo vigorously disputes the rulings of both Judge Fogel and Judge Pollak that there existed an implied covenant in the agreement between the parties that Schiavo would return the property in the condition in which it received it, reasonable wear and tear excepted.

Schiavo implicitly concedes that under Pennsylvania law, the covenant exists unless it is, in some manner, negated. However it argues that the integration clause in the lease did negate any implied covenants. The integration clause said in part:

It is expressly understood and agreed by and between the parties hereto that this lease and the riders attached hereto and forming a part hereof set forth all the promises, agreements, conditions and understandings between the Lessor and or its Agent and Lessee relative to the demised premises, and that there are no promises, agreements, conditions, or understandings, either oral or written between them other than are herein set forth.

Although there is some force to Schiavo's contention, we have concluded that the courts of Pennsylvania would hold that the covenant was not negated by the integration clause at issue. The obligation of a tenant to return the leasehold property in the condition in which it was received, reasonable wear and tear excepted, is fundamental to the landlord-tenant relationship, even in a commercial setting. A landlord is entitled to presume that the tenant has implicitly promised not to waste the property. For that reason, only the clearest negation of the obligation will overcome the landlord's lawful expectation. We agree with Judge Fogel's discussion of the issue (450 F. Supp. at 1304), and affirm the district court's ruling on the point.


Breach of the Implied Covenant

Schiavo also appeals Judge Pollak's determination that it is liable for $96,815.00, Gypsum's costs in clearing the debris that was left by Schiavo's subtenants.

Judge Fogel placed great weight on the trial evidence showing that "upon termination of a junkyard lease, the dealer rarely, if ever, cleared the property of accumulated debris...." 450 F. Supp. at 1306. He ruled that the implied covenant to return the property in the condition in which Schiavo received it, reasonable wear and tear excepted, had not been breached:

We find ... that USG has failed to meet its burden of establishing that, in the context of the junk car industry, the wear and tear to the land was excessive or unreasonable.

450 F. Supp. at 1305.

Part of Gypsum's timely motion for a new trial sought reconsideration of Judge Fogel's finding that the wear and tear inflicted on the property was reasonable. In a thoughtful opinion Judge Pollak ruled that he was empowered to reconsider Judge Fogel's conclusion on reasonableness; that, in his opinion, the Pennsylvania courts would not give controlling effect to industry custom; and that the wear and tear inflicted by Schiavo was not reasonable.

The parties disagree on whether the "reasonableness" determination is a finding of fact or a conclusion of law. Generally, where the primary facts are undisputed and only ultimate inferences and legal consequences are in contention, a question of law is presented; or, by some formulations, a mixed question of fact and law subject to review as a question of law. Ross v. Commissioner of Internal Revenue, 129 F.2d 310, 312 (5th Cir. 1942). See also 9 Wright and Miller, Federal Practice and Procedure (2d Ed.), § 2589, at 753; Fleer Corporation v. Topps Chewing Gum, Inc., 658 F.2d 139, 154 (3d Cir. 1981); Shultz v. Wheaton Glass Co., 421 F.2d 259, 267 (3d Cir. 1970), cert. denied, 398 U.S. 905, 90 S. Ct. 1696, 26 L. Ed. 2d 64 (1970).*fn2

In this case, only the legal consequences of Schiavo's conduct, and not the particulars of the conduct itself, were in issue before Judge Pollak. He was asked to decide whether the law of landlord and tenant in Pennsylvania would hold Schiavo liable for damages because of the undisputed condition of the property after the termination of the lease. That determination is essentially a legal one.

We conclude that where a successor judge is asked by timely and proper motion to reconsider the legal conclusions of an unavailable predecessor, he or she is empowered to reconsider those issues to the same extent that his or her predecessor could have. Our conclusion rests on three grounds. First, we are bound by clear precedent of this court:

The petitioners base their claim for relief ... upon the rule that judges of co-ordinate jurisdiction sitting in the same court and in the same case should not overrule the decisions of each other .... (citations omitted)


(T)here may be exceptional circumstances under which the rule is not to be applied. Such circumstances exist when the judge who made the original decision is not available to consider the application to rehear and reverse his decision. If the judge who made the decision dies or resigns from the court he obviously is no longer available to consider it and such consideration must perforce be by another judge if it is to be had at all.

TCF Film Corporation v. Gourley, 240 F.2d 711, 713-14 (3d Cir. 1957) (affirming successor judge's reversal of a denial of leave to amend complaint). We have held the rule to apply where a "mixed question of fact and law" is presented; that is, where the primary facts are not in dispute but ultimate inferences and legal conclusions are. Ryans v. Blevins, 258 F.2d 945, 946 (3d Cir. 1958) (successor judge's reversal of his predecessor's application of the "last clear chance" doctrine to undisputed facts).

Second, were we to hold that Gypsum was not entitled to have its request considered by Judge Pollak, we would effectively be denying it its right to move for reconsideration-a right recognized by the Federal Rules,*fn3 and the Local Rules of Civil Procedure of the Eastern District of Pennsylvania, where this case was tried.*fn4 A litigant's right to try to persuade a court that it has erred should not be denied simply because of the unavoidable unavailability of the judge who rendered the original decision.

Third, we agree with the succinct reasoning of the Seventh Circuit in a similar case:

Regardless of the impact of any law-of-the-case rule, our duty is to determine whether the judgment of Judge Miner (a successor judge) is correct. In fact we should sustain any judgment from which an appeal has been taken if it is supported by the record and the law .... Obviously we cannot be expected to reverse a correct decision by one district judge simply because we find that it is contrary to a prior ruling by another district judge in the same case ...

Parmelee Transportation Co. v. Keeshin, 292 F.2d 794, 797 (7th Cir. 1961). It remains for us to decide, however, whether we agree with the legal determination of Judge Pollak, who ruled as follows:

(T)he fact that ... junkdealers are "in general, an extremely difficult group with whom to deal ... and that upon termination of a junkyard lease, the dealer(s) rarely, if ever, cleared the property of accumulated debris", should not, without more, immunize them (or those responsible for them) from liability. Such behavior was not "reasonably necessary in order for the (junk car dealers) to use the leased property in a manner that (was) reasonable under all the circumstances." Restatement 2d of Property, Landlord-Tenant, Section 12.2.

485 F. Supp. at 52. *fn5

Although Judge Pollak's interpretation of the obligations imposed on a tenant by § 12.2 is phrased somewhat differently from Judge Fogel's discussion of the "reasonableness" of the wear and tear, supra, in fact each used virtually the same standard. Comment d to § 12.2 provides in relevant part:

No matter what use of the leased property is determined to be reasonable under all the circumstances, normal wear and tear on the leased property by that use is not only reasonably necessary, but reasonably to be expected by the parties, absent an agreement otherwise....

Because "normal wear and tear" is per se a part of that which is "reasonably necessary in order for the tenant to use the leased property in a manner that is reasonable under all the circumstances," the fundamental question decided by both Judge Fogel and Judge Pollak was whether the wear and tear imposed on the property was "reasonable." Restatement (Second) of Property, Landlord-Tenant, § 12.2(3).

When determining what constitutes "wear and tear" for a junkyard or landfill we write on a clean slate, since we have not found, and no one has called to our attention, any prior cases defining "wear and tear" in such a context. Even the references to wear and tear in the Comments to the Restatement include such traditional examples as the wearing down of refinished floors and the leaving of holes caused by picture hooks-instances in which wear and tear seems to imply some gradual wearing. In this case instead of wear and tear we have a "dump and add" phenomenon. Nevertheless, the central issue is the same as that in more traditional wear and tear cases, i.e., whether the condition of the property, viewed in light of its potential for sale or re-rental, has deteriorated so unreasonably that the tenants, rather than the landlord, should be required to pay for its restoration. We therefore have little difficulty in concluding that "wear and tear" is at issue.

In this case a landlord leased a largely vacant piece of land in January of 1966. 450 F. Supp. at 1298. A relatively small part of that property was sublet to junkdealers. The land was returned about one hundred and three months later, sometime in the summer of 1974, with debris "spread generally throughout the leasehold area."*fn6 Id. at 1301. Gypsum received ninety-six months' rent for its property, a total of about $191,500. Yet Gypsum was required to pay $96,815.00-more than half of the rent it received during the eight years-to clean the debris caused by Schiavo's subtenants.*fn7 Moreover, Gypsum was saddled with the dual aggravations of arranging for the clearing of the property and having to wait for that process to be completed. We agree entirely with Judge Pollak that the Pennsylvania courts would not require a landlord to pay for the kind of behavior engaged in by the junkdealers in this case. The leaving of massive amounts of debris on otherwise vacant property to the significant detriment of the landlord is, in our crowded age, unreasonable wear and tear, regardless of whether the industry involved makes a habit of it. As between Gypsum and Schiavo it is Schiavo who must bear the cost of the clean-up because it was Schiavo who chose to rent to the largely judgment-proof junkdealers. Certainly, Gypsum foresaw that Schiavo would lease to junkdealers, but that foresight hardly solves the problem of which party to the agreement ought to pay for the conduct that occurred. We conclude that under the law of Pennsylvania, the wear and tear inflicted was unreasonable, and Schiavo should compensate Gypsum for it.


Gypsum's Requests for Rulings on Claims

It is often difficult for a trial judge hearing a case to determine whether counsel has presented a claim with sufficient specificity to put opposing counsel on notice to defend it, or whether in the course of pretrial and trial proceedings counsel has waived the claim. The problem of ascertaining whether there was or was not a waiver of a claim is even more difficult when a judge must decide on a cold record what was waived or litigated before his or her predecessor. Yet, this is the troublesome problem that Judge Pollak was required to adjudicate-i.e. whether "the Court (Judge Fogel) failed to rule on two of its (the plaintiff's) damage claims," 485 F. Supp. at 51, or whether " "the failure to enter findings with respect (to these claims) is tantamount to findings adverse to (the claimant)' " Id., quoting Switzer Brothers, Inc. v. Locklin, 297 F.2d 39, 46 (7th Cir. 1961).

Judge Pollak originally concluded that "the failure to enter findings on these two claims was oversight, and one which Judge Fogel would have been required to correct had he still been on the bench when plaintiff's motion was filed. As his successor, I am equally obliged to reopen the judgment ..." 485 F. Supp. at 51-2. However, upon a motion for reconsideration filed by Schiavo Judge Pollak reversed his ruling:

I have concluded that the presentation of these two damage claims (holdover rent and loss of use of purchase monies) at the trial before Judge Fogel did not place them in so clear a focus as to warrant my concluding that (1) the claims were actually litigated, and (2) Judge Fogel erred in not ruling on them. It was, therefore, inappropriate for me to re-open the record as to these claims. I will vacate that portion of my May 22 order.

Id. at 56.

After Judge Fogel's findings were filed, Gypsum presented a motion and memorandum of law captioned "Motion for a New Trial" (essentially, a Rule 59 motion) as a part of which it sought additional findings of fact and conclusions of law under Rule 52, Fed.R.Civ.P.*fn8 Rule 52(a) provides in part:

In all actions tried upon the facts without a jury or with an advisory jury, the court shall find the facts specially and state separately its conclusions of law thereon, and judgment shall be entered pursuant to Rule 58; .... Requests for findings are not necessary for purposes of review....

Rule 52(b) provides in part:

Upon motion of a party made not later than 10 days after entry of judgment the court may amend its findings or make additional findings and may amend the judgment accordingly. The motion may be made with a motion for a new trial pursuant to Rule 59 ...

The claims on which Gypsum sought rulings in its post-trial motion were those relating to Schiavo's liability for holdover rent and loss of use of purchase monies.


Holdover Rent

Two years after the conclusion of a complex trial, Judge Fogel rendered findings of fact and conclusions of law which omitted any discussion of the issue of holdover rent that Gypsum believed it had litigated. The Rules recognize that judges will occasionally overlook issues, especially in a complex case. In a jury case Rule 51 affords counsel the opportunity during trial to call the court's attention to claims upon which counsel believe the jury should be charged, even after the court has given all of the instructions that it had intended to give. In a non-jury case, of course, counsel will not always know which issues the court has been considering until it has rendered its findings of fact and conclusions of law, and, normally, a judgment. Rule 52(b) was designed to deal with exactly the sort of problem raised by Gypsum in its post-trial motion. It permits counsel to ask the court to correct, on the non-jury record before it, any errors of law, mistakes of fact or oversights that require correction.*fn9

Rule 59(a) complements Rule 52. When the trial record before the court in a non-jury case is infected with "manifest errors of law or fact," 6A Moore's Federal Practice P 59.07 (2d Ed.) (and cases cited), the court may order a new trial on some or all of the issues in the case. A new trial is sometimes the only effective way to cure the prejudice resulting from errors or oversight, and if that is the case a new trial must be ordered. Very often, however, corrections can be made without reopening the trial record.

Where a new trial is not ordered, the trial record must support whatever additional findings of fact or conclusions of law a party seeks under Rule 52(b) or it is certainly not entitled to them. That entitlement also depends, as Judge Pollak recognized, on what the trial court required the moving party to prove. See Rule 16, Fed.R.Civ.P.

This case therefore compels us to examine, in some detail, exactly the situation Gypsum faced at the beginning of trial. Judge Fogel bifurcated the trial into liability and damages phases.*fn10 Indeed, that was Judge Fogel's practice in virtually every civil case on his calendar, as reflected in his standing pretrial order. (App. at 32). Gypsum alleged in its complaint that "As a result of defendant's breach of its covenants to surrender complete possession of the premises to the plaintiff on the date of termination, January 1, 1974, plaintiff has suffered damages in the amount of the rental value of the property from the date of termination to the date Swann was ready, willing and able to proceed to settlement under the agreement of sale of the leasehold property, but for the presence of the debris." (Complaint P 23).*fn11 Gypsum included, in its pretrial Proposed Findings of Facts, a finding that "Schiavo notwithstanding that it terminated the lease with Gypsum, did not vacate the leasehold property as of January 1, 1974." Gypsum listed as "Contested Issues" in the joint pretrial order "Whether Schiavo is liable to United States Gypsum for damages .... (b) for rent from February 1, 1974 to September 26, 1974, at $1,667.67 per month (and) (c) For the loss of the use of $1,282,895 from June 1, 1974 to September 26, 1974."

Gypsum proved that the lease existed, that Schiavo terminated it, and that the termination was effective as of January 1, 1974, or at the latest, February 1, 1974. 450 F. Supp. at 1299; Exh. P. 58. Gypsum also proved that "only one of the dealers vacated his lot (as of December 31, 1973)", 450 F. Supp. at 1300; that the "other dealers formed an association to fight eviction," Id.; and that "during the course of the summer of 1974, the junk car dealers gradually vacated the premises," Id.

Unfortunately, one lawyer's liability issue is another lawyer's damages issue. For example, a claim for five months of holdover rent can be viewed in at least two ways. There can be liability for some holdover rent, with the length of the holdover being a damages issue; or there can be liability for five different months of holdover tenancy, with a later damages determination involving, in a simple case, only a multiplication of a monthly number by five.

In discussing bifurcation of liability and damages under Rule 42(b) in a slightly different context (an antitrust case in which proof of injury was an element of liability) the Fifth Circuit observed:

The use of this trial procedure (bifurcation of liability and damages) must be grounded upon a clear understanding between the court and counsel of the issue or issues involved in each phase and what proof will be required to pass from one phase to the next.

Response of Carolina, Inc. v. Leasco Response, Inc., 537 F.2d 1307, 1324 (5th Cir. 1976).

In this case, Judge Fogel made it clear at the final pretrial conference that liability and damages issues would be strictly separate:

MR. ELLIOTT (counsel for Schiavo): This is a bifurcated trial. I think damages are inappropriate. I haven't put any facts in as to the damages because of the standing pretrial order which says-

THE COURT: I think that's right. That is correct because I said I want to bifurcate as to liability first.

MR. BAYLSON (counsel for Gypsum): Does that mean I don't have to be prepared for damages?

THE COURT: No, because what I will do is when the testimony is completed, obviously, I think in a case of this importance to both sides you would probably want the transcript with a right to submit any supplemental data you may want as to what develops.


THE COURT: Therefore, you don't have to go to the expense or trouble of putting on any damage witnesses.


Unfortunately, Judge Fogel did not clarify with counsel where the dividing line between liability and damages was to be.

The touchstone, in reviewing bifurcated proceedings, is whether the party bearing the burden of proof was unfairly prejudiced by the procedures employed. Rule 42(b) permits bifurcation to "avoid prejudice," not to create it.

Judge Fogel's standing pretrial order, the joint pretrial order and the transcript of the pretrial conference do not reflect the clear separation of issues into liability and damages, nor the "clear understanding (of) ... what proof will be required to pass from one phase to the next" (Response of Carolina, Inc., 537 F.2d at 1324), that would have been necessary before Gypsum could be charged with having waived certain points by not having litigated them aggressively enough in the liability phase.*fn12

Counsel for Gypsum could reasonably have concluded that his obligations during the liability phase were to plead the holdover tenancy,*fn13 to offer to prove a failure to surrender possession, and to prove that Schiavo failed to surrender possession of some part of the premises for some period of time after the termination of the lease. Gypsum, in fact, met each of those requirements. Calculations of the time of the holdover and the acreage unlawfully possessed are reasonably susceptible of being called questions of damages.

Certainly, Judge Fogel could have required more extensive proof of "liability" for holdover tenancy, for example, proof of the number of months the sub-tenants were in possession. Nevertheless, he did not, and it would be unfair to penalize Gypsum for not having done what it was never required to do.

A holdover tenant is one who unjustifiably refuses to surrender possession of a leasehold premises at the end of the term of the lease. See n. 1, supra; Restatement (Second) of Property, Landlord and Tenant, § 14.1. The landlord may sue such a holdover for possession and to recover whatever damages it suffered as a result of the tenant's actions. Taylor v. Kaufhold, 368 Pa. 538, 544, 84 A.2d 347, 350 (1951). Schiavo chose, as a tenant, to sublet the property to subtenants, and their presence after January 1, 1974 is imputable to Schiavo. Id. Certainly it appears that Schiavo wrongfully denied Gypsum possession of some part of the leasehold property for some period of time after the termination of the lease.

We conclude, therefore, that Judge Pollak could have entered a conclusion of law on Schiavo's liability vel non for holdover rent; that is, there is a sufficient record upon which to base such a determination. It would be inappropriate, however, for us to make that determination, because we have not been briefed as to what legal defenses Schiavo may have had, given Judge Fogel's findings of fact and other facts not in dispute.*fn14 Moreover, Rule 52(a) reposes in the district court the responsibility for entering initial rulings on each issue raised at trial. We will therefore remand the case to the district court for an examination of the record of the trial before Judge Fogel, a conclusion of law as to liability for holdover rent, and, if necessary, further proceedings on damages for the holdover.


Loss of Use of Purchase Monies

Much of our discussion of the holdover rent issue applies to Gypsum's claim for loss of use of purchase monies. Judge Fogel did not reach the issue, and Judge Pollak ruled that Gypsum had waived it. Judge Fogel had found that

"... USG had arranged for the sale of the leasehold property to Swann Oil Company (Swann), as part of the agreement of sale, dated January 18, 1974; closing was made conditional upon all debris being removed from the land. It was thus vital to USG's interests that the property be cleaned.


During the period when the dealers were vacating the premises, Schiavo denied that it was its responsibility to remove the debris left by the dealers, or the debris accumulated through fugitive dumping. As a result, in order to guarantee that the sale of the property to Swann would go through, USG was forced to hire a private contractor, George Hunter, to clear the debris. Hunter performed this work at a total cost of $144,500; the closing on the sale of the property to Swann was held on September 30, 1974.

450 F. Supp. at 1300.

Gypsum introduced evidence that the agreed purchase price was $1,282,895, and that representatives of Swann refused to proceed to settlement until the debris had been cleared, as was its right under the contract of sale. (App. at 849).

Moreover, Gypsum had raised the issue in its complaint, in its pretrial Proposed Findings of Fact and in its pretrial "Statement of Contested Issues":

(Complaint, P) 24. By failing to remove the debris as of the date of termination of the Lease, defendant has breached its duty to surrender the premises in substantially the same condition that it was in at the time defendant took possession, reasonable wear and tear excepted. As a result of such breach, plaintiff has sustained damages in the amount of:


(b) the loss of the use of the purchase monies under the agreement of sale with Swann from June 1, 1974, the date on which Swann was ready to settle but for the presence of the debris and scrap, to September 26, 1974, when plaintiff conveyed the leasehold property to Swann and received the purchase monies.


(Proposed Finding of Fact) 58. As of June 1, 1974 Swann Oil Co. was ready, willing and able to proceed to closing on the Agreement of Sale dated January 18, 1974, but for the debris on the leasehold property which had not been removed.


61. USG, in order to complete the sale ... to Swann Oil, was forced to undertake ... the clearing of the leasehold property.... The sale of the leasehold property took place on September 26, 1974.


(Contested Issue) 5. Whether Schiavo is liable to United States Gypsum for damages.


(c) For the loss of the use of $1,282,895 from June 1, 1974 to September 26, 1974.

Gypsum therefore did not in any sense waive the issue during the liability phase.

In any event, we think the issue should be treated in the way it was raised by Gypsum-as a damage issue. Loss-of-use is very arguably an element of the damages proximately caused by Schiavo's breach of the implied covenant, that is, its failure to clear the debris. Gypsum's complaint (P 24(b), supra) alleged exactly that.*fn15 Counsel for Gypsum could justifiably have assumed that the Swann Oil sale was purely a question of damages for breach of the implied covenant as to which he had no obligation to present evidence during the liability trial. It is perfectly clear that that was counsel's understanding, since, in the pretrial order, he had offered testimony as to the "cost of delay (in clearing the debris) to United States Gypsum in loss of use of funds from June 1, 1974 to September 26, 1974" under the caption "Plaintiff's Witnesses-Damages." In fact, Judge Fogel at one point indicated that the issue was one of damages while a witness from Swann Oil was testifying. (App. at 848-9).

Equally important is that Judge Fogel might well have entered a finding on loss-of-use if it had been germane to his holding on the lease-related issues. As it was, his finding that the implied covenant was not breached eliminated any reason for him to consider whether there was "liability" for various damages resulting from the breach. After Judge Pollak reversed Judge Fogel's liability finding, he was obliged to consider Gypsum's timely raised claim for loss-of-use damages. We will therefore remand the loss-of-use issue to be considered in the first instance by the district court.*fn16


Other Issues

Judge Pollak dismissed a second complaint which was filed by Gypsum after he had refused to consider holdover rent and loss-of-use in the main action. The new complaint simply renewed those two claims. Judge Pollak ruled, in accordance with his earlier ruling, that the issues were res judicata and could not be raised in a second complaint, because they "should have been fully litigated" in the first action, citing, Bearoff v. Bearoff Bros., Inc., 458 Pa. 494, 498, 327 A.2d 72, 74 (1974). One of the requirements for concluding that a matter is res judicata is, of course, that there be an extant final judgment from an earlier action on the matters at issue, which is unreversed on appeal. Bearoff, 458 Pa. at 498, 327 A.2d at 74-75. With our decision, that is no longer the case as to the first action. We will therefore vacate Judge Pollak's ruling and remand the second case to the district court so that it can decide whether to consider it or dismiss it anew on a basis other than res judicata.

We have considered Gypsum's arguments anent the district court's denial of prejudgment interest and its refusal to order the disbursement to Gypsum of certain escrow funds and find them to be without merit.



We will affirm the district court's judgment in part and reverse it in part, and we will remand both cases for further proceedings, consistent with this opinion, on the plaintiff's claims for holdover rent and loss of use of purchase monies.*fn17

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