## Facts

- On September 30, 1953, Marcovich (landlord) leased commercial premises in the Indiana Harbor area of East Chicago, Indiana, to J.J. Newberry Company (tenant) under a long-term written lease.
- The lease contemplated operation of a retail variety store at that location and provided for rent consisting of a fixed monthly amount plus a percentage of the store’s gross annual income.
- The lease included a casualty (“fire”) clause stating that if the premises were damaged or destroyed by fire, the landlord would repair or reconstruct the premises at the landlord’s expense.
- On December 31, 1971, a fire of unknown origin completely destroyed the building and improvements covered by the lease.
- Marcovich did not rebuild. The landlords (including successors in interest) viewed reconstruction as commercially unfeasible; evidence indicated rebuilding would cost at least about $452,000.
- Because the building was not rebuilt, Newberry could not resume operating its store at the leased site.
- Newberry sued seeking enforcement of the reconstruction obligation and, alternatively, damages for lost business profits resulting from Marcovich’s refusal to rebuild.
- The trial court found the lease enforceable, held that the fire clause required the landlord to reconstruct after total destruction, and awarded Newberry lost net profits for a three-year period (approximately $117,000).
- Marcovich appealed, challenging the interpretation and enforceability of the fire clause and the award of lost profits.

## Issues

1. Whether the lease’s fire clause obligated the landlord to reconstruct the premises after the building was totally destroyed by fire.
2. Whether doctrines such as impossibility, commercial impracticability, or frustration relieved the landlord of an express contractual duty to rebuild when reconstruction was expensive and considered economically unattractive.
3. Whether the tenant could recover lost business profits as consequential damages for the landlord’s failure to reconstruct, and whether a three-year period of lost profits was supported by the evidence.

## Decision

- The Indiana Court of Appeals affirmed the judgment for Newberry.
- The court held that the lease’s fire clause imposed a binding obligation on the landlord to repair or reconstruct even after total destruction by fire.
- The court rejected the landlord’s excuse defenses, concluding that the fire was a contingency the contract expressly addressed and that increased cost or reduced economic desirability did not discharge the duty to rebuild.
- The court upheld the award of lost profits for a three-year period, finding the damages recoverable and supported by sufficient proof.

## Legal Principles

- An express lease provision requiring the landlord to repair or reconstruct premises “damaged or destroyed by fire” can require rebuilding after a total loss, not merely partial repairs.
- When a contract expressly allocates the risk of a stated casualty (such as fire), a party generally cannot avoid that allocation by invoking impossibility, impracticability, or frustration based on later economic disadvantage.
- Mere hardship, increased cost, financing difficulty, or changed neighborhood/business conditions ordinarily do not excuse performance of an unambiguous reconstruction covenant triggered by the very event the parties contemplated.
- Lost profits may be recovered as consequential damages for breach when they are a natural result of the breach and are proven with reasonable certainty; an established operating history can supply a reliable basis for projecting profits for a limited period.

## Conclusion

Marcovich enforced a commercial lease’s fire clause as written, holding that a landlord who promised to reconstruct premises damaged or destroyed by fire remained bound to rebuild after a total fire loss despite claimed economic unfeasibility, and affirming an award of three years of lost profits to the tenant for the business interruption caused by the landlord’s breach.


Marcovich Land Co. v. J.J. Newberry Co., 413 N.E.2d 935 (1980)