Pennsylvania Supreme Court Reports

2005. Supreme Court of Pennsylvania, Middle District.
Argued: December 5, 2005. Decided: December 27, 2006.

Appeal from the Order of the Superior Court entered October
28, 2004, at No. 1552 EDA 2003, which affirmed in part;
reversed in part; remanded in part the Order of the Court
of Common Pleas of Monroe County, Civil Division, entered
April 16, 2003 at No. 6338 Civil 1998. 863 A.2d 23
(Pa.Super. 2004).

Appeal of PNC Bank National Association.




We granted allowance of appeal in this dispute between J.
Carl Kohl, a landowner (“Landowner”), and PNC Bank
(“Bank”), which eventually became Landowner’s tenant, to
consider the test applied by the Superior Court in its
determination that Landowner did not breach the implied
covenant of quiet enjoyment by pursuing litigation against
Bank. The Superior Court concluded that “a suit by a
landlord which substantially impairs a tenant’s possessory
interest in a leasehold, brought in bad faith, maliciously,
or otherwise without probable cause and primarily for a
purpose unrelated to seeking legal redress, constitutes a
breach of the landlord’s covenant of quiet enjoyment.” Kohl
v. PNC Bank Nat’l Ass’n., 863 A.2d 23, 31 (Pa. 2004).
Applying that test to the instant case and concluding that
the record did not support the trial court’s determination
of a breach of the covenant of quiet enjoyment, the
Superior Court reversed the judgment entered in favor of
Bank and remanded for entry of judgment in favor of
Landowner and assessment of damages. After review, we adopt
the test espoused by the Superior Court but reverse the
court’s holding that the record did not support the
determination of a breach of the covenant of quiet enjoyment
based on bad faith litigation. Instead, we remand to the
trial court to allow the parties to develop the record
regarding the issue of bad faith litigation and for further
proceedings based upon the trial court’s determination of
that issue.

Although this case involves a convoluted fact pattern
discussed in full below, we begin by reproducing the apt
summary presented by the trial court:

When [the original lessees] defaulted on their Lease and
filed bankruptcy, [Landowner] was left with an empty
building and [Bank] was left with a bad loan authorized by
its predecessor. Although approximately ten years have
passed since the occurrence of their business
disappointment, the landowner and the bank have not
attempted any cooperative effort to cut their losses.
Instead, they have assumed intransigent positions through
almost ten years of litigation[,] which has only
increased their respective losses from this transaction.

Trial Ct. Slip Op., 12/4/02, at 5.

The case involves a tract of land in Monroe County that is
improved with a 10,000 square foot commercial building. In
1979, Landowner, the appellee in the case at bar, entered
into a ninety-nine year lease with the predecessors of the
lessees relevant to the current dispute. The 1979 lease
(the Lease) contained the following provisions regarding
the payment of taxes and termination:

(5) TAXES All Taxes, if any, imposed upon the land
comprising the leased premises and the building and
improvements erected thereon shall be the obligation of
the Lessee.

(11) TERMINATION This lease shall terminate upon the
occurrence of any of the following:

(a) The expiration of the first term hereof without
renewal by Lessee as herein provided.

(b) The expiration of the second term hereof.

(c) The abandonment of the premises by Lessee without
first having subleased the premises as herein provided.

(d) Failure of the Lessee to pay the rental as herein
provided for a period in excess of thirty (30) days from
the date of written notice of non-payment given by Lessor
to Lessee.

(e) The bankruptcy or insolvency of Lessee while in
occupancy of the premises.

(f) Election by Lessee of its desire to terminate the
lease at any time during the term hereof provided that
notification be given to Lessor in writing not less than
six (6) months from the date of termination.

Lease, 7/16/79, at 2-5.

In 1990, the leasehold was assigned to William and Marilyn
Schmidt, nominal appellees in the case at bar (Lessees),
who obtained a mortgage on the leasehold interest of
$800,000 from Bank, the litigating appellant herein.[fn1]
In addition, Landowner, Bank, and Lessees entered into a
Nondisturbance and Attornment Agreement containing the
following relevant provisions:

H. Bank desires to be assured of continued rights to
utilize the Premises in the event Bank succeeds to the
interests of [Lessees] under the Loan between Bank and
[Lessees], either by way of foreclosure, assignment in
lieu of foreclosure, or otherwise.

3. Nondisturbance. In the event that Bank succeeds to the
interests of the [Lessees] under the Lease Agreement, Bank
and [Landowner] hereby agree to be bound to one another
under all of the terms, covenants, and conditions of the
Lease Agreement; accordingly, from and after such event
Bank and [Landowner] shall have the same remedies against
one another for breach of the Lease Agreement just as if
Bank had been the original Lessee under the terms and
conditions of the Lease Agreement, provided, however, Bank
shall not be:

(i) liable for any act or omission of [Lessees] or any
prior tenant; or

(ii) subject to any offsets or defenses which [Landowner]
might have had against [Lessees]; or

(iii) bound by any amendment or modification of the Lease
Agreement made subsequent to the date of this instrument
without Bank’s prior written consent.

Nondisturbance and Attornment Agreement, 9/28/90, at 2-4.

In June 1992, Landowner filed a complaint against Lessees
seeking approximately $33,000 for the unpaid taxes,
termination of the Lease, and possession of the property
based on the claim that Lessees breached the Lease by
non-payment of taxes.[fn2] In October 1992, after Lessees
defaulted on the mortgage but prior to a decision in
Landowner’s action, Bank confessed judgment in ejectment
and took possession of the property. In December 1992, Bank
filed a mortgage foreclosure action against Lessees.[fn3]

Without joining Bank, Landowner then filed for default
judgment in its action against Lessees seeking the unpaid
taxes and possession of the property, which was entered on
January 8, 1993, thus putatively terminating the Lease
between Landowner and Lesees.[fn4] A week later, on January
15, 1993, Bank obtained default judgment in its mortgage
foreclosure action against Lessees.

In October 1993, Landowner commenced a declaratory judgment
action against Bank seeking a declaration that Bank had no
interest in the leasehold due to the Lessees’ failure to
pay property taxes since 1991 in violation of the Lease and
the resulting judicial termination of Lessee’s leasehold
interest. (1993 Litigation) The case turned on whether
Landowner’s default judgment against the Lessees was valid
despite Landowner’s failure to join Bank. If the Lessees’
failure to pay taxes automatically terminated the lease
prior to Bank’s taking possession, then Landowner did not
have to join Bank because Bank could never have taken
possession of the land. Otherwise, the default judgment was
arguably invalid for Landowner’s failure to join Bank, the
party in possession of the land. See Bannard v. New York
State Natural Gas Corp., 172 A.2d 306, 310 (Pa. 1961)
(requiring notice to the party in possession of land prior
to any ejectment action).

In January 1996, the trial court entered a verdict in favor
of Bank and against Landowner, finding that non-payment of
taxes did not result in an automatic termination prior to
Bank taking possession under the terms of the Lease, and
that the default judgment was invalid under caselaw and the
Nondisturbance and Attornment Agreement due to Landowner’s
failure to join Bank before taking it.

Landowner appealed, and the Superior Court affirmed. The
court held that the trial court properly determined that
the Lease was never terminated because (1) it did not
terminate automatically under the terms of the Lease and
(2) the Lease did not terminate by default judgment because
Landowner failed to join Bank. We concluded the first round
of litigation in July 1997, when we denied Landowner’s
petition for allowance of appeal.

Shortly after our denial, Landowner commenced a second
action in September 1998 (1998 Litigation), which is the
action currently before this Court. In the new action,
Landowner sought ejectment against Bank (and the Lessees)
for continuously failing to pay taxes notwithstanding
thirty days’ notice from Landowner, the declaration of
bankruptcy by the Lessees, and abandonment of the
property.[fn5] The complaint also asserted breach of the
contract for failure to pay taxes. Landowner additionally
filed a lis pendens[fn6] against Bank’s interest in
property. Bank counterclaimed, asserting that Landowner
breached the implied covenant of quiet enjoyment and the
Nondisturbance and Attornment Agreement. Bank argued that
the ongoing litigation impeded Bank’s ability to exercise
its property rights under the long-term lease by
restricting its ability to market the property. At the time
of the trial in the 1998 Litigation, the property had not
been leased for nearly seven years, had deteriorated, and
had been vandalized. As a result, it allegedly had no
rental value. Moreover, property taxes had not been paid
since 1993, with a total delinquency in 2001 of $262,011.
The property had been scheduled for a tax sale, but the
property received no bids. A judicial sale was scheduled
for April 16, 2003.[fn7]

In deciding the case, the trial court first expressed
dismay that Landowner was again seeking termination of the
lease for non-payment of taxes, which the prior court had
determined could not result in automatic termination of the
lease.[fn8] The court however accepted Landowner’s other
basis for termination, noting that the Lease did provide
for automatic termination in the event of “abandonment of
the premises by Lessee without first having sub-leased the
premises.” Lease, Paragraph 11(c). Consequently, the court
found in favor of Landowner on the ejectment count. The
court found in favor of Bank on the breach of contract
claim (non-payment of taxes), concluding that Landowner
“continually breached the implied covenant of quiet
enjoyment of the premises by his persistent litigation
which precluded [Bank] from marketing the property.” Trial
Ct. Slip Op., 12/4/02, at 6-7. The court continued, “A lis
pendens indexed against a commercial property is an
effective death knell. Therefore we decline to reward
[Landowner] for his litigious interference with [Bank’s]
equity by awarding damages for unpaid taxes.” Id. at 7. The
court additionally noted that Landowner had never paid the
taxes and thus was not entitled to reimbursement.

Landowner subsequently filed motions for post-trial relief.
In its opinion in response to the post-trial motions, the
trial court noted that it found credible the testimony of
Bank’s officer regarding the impact of the 1993 Litigation.
The officer averred that no one “in their right mind” would
consider purchasing either the property or the leasehold
interest when the property was subject to a lawsuit that
threatened to extinguish the mortgage and leasehold,
effectively leaving Bank’s interest unsecured and
consequently unmarketable. Tr. Ct. Slip. Op., 4/16/03, at 5
(citing Notes of Testimony (N.T.), 10/28/02, at 125-26).
Moreover, the court “determined that banks are generally in
the business of selling their interests in leaseholds, and
the litigation impaired this right.” Trial Ct. Slip Op.,
4/16/03, at 5. Although the court acknowledged that “the
effect on the bank’s physical possession was slight,” it
concluded that “the litigation paralyzed the bank’s
constructive possession.” Id. (emphasis in original).
Concluding that Landowner acted in bad faith, the court
rejected Landowner’s assertion that he had a right to bring
the litigation following the Bank’s failure to pay taxes
and abandonment of the property:

We cannot find any such right was being asserted as the
[1993] litigation began only a few months after the bank
took possession. Also, the judgment of the Superior Court
in prior litigation between the parties plainly states
that [Landowner] was seeking declaratory judgment for a
determination that [Bank’s] lease was void because it was
terminated prior to the Bank’s succession. In view of the
fact that the litigation was incessant, unrelated to the
Bank’s performance, and virtually meritless, we think it
is reasonable to infer bad faith on the part of
[Landowner] and thus, a wrongful act. As stated in the
verdict, a lis pendens indexed against a commercial
property is an effective death knell. As such, the
litigation significantly impaired [Bank’s] free use of the
property to the extent [Landowner] breached the implied
covenant of quiet enjoyment.

Id. at 6 (emphasis added, citation to record omitted).[fn9]
The court thus denied Landowner’s breach of contract action
for non-payment of property taxes finding that the
Landowner’s breach of the implied covenant of quiet
enjoyment relieved Bank of its obligations under the Lease.

The court also denied damages resulting from Bank’s
abandonment of the property because the court reasoned that
Landowner was responsible for any damages following
abandonment. The court distinguished this case from our
decision in Stonehedge Square Limited Partnership v. Movie
Merchants, Inc., 715 A.2d 1082 (Pa. 1998), where we held
that a non-breaching landlord has no duty to mitigate
damages when a tenant abandons a property in violation of a
lease. According to the trial court, Stonehedge Square did
not control this case because Landowner breached the
covenant of quiet enjoyment and because the terms of the
Lease specifically contemplated that the lease would
terminate automatically upon Bank’s abandonment and
responsibility of the property would return to

On appeal, the Superior Court reversed in part and affirmed
in part. The court devoted the bulk of its opinion to the
trial court’s holding that Landowner breached the implied
covenant of quiet enjoyment. The court presented a detailed
discussion of the concept, noting that the covenant exists
in any lease of real property and is breached by the
occurrence of “any wrongful act of the lessor that
interferes with the lessee’s possession, in whole or in
part.” Kohl, 863 A.2d at 27 (citation omitted). The court
observed that an impairment of quiet enjoyment does not
need to be total to constitute a breach, but rather that
the “utility of the premises must be substantially decreased
by the landlord’s interference with a right or privilege
which is necessary to the enjoyment of the premises.” Id.
The court cited Pennsylvania caselaw supporting the
conclusion that both constructive and actual eviction may
constitute a breach of the covenant of quiet enjoyment.

The court then considered whether litigation may
constitute constructive eviction sufficient to breach the
implied covenant of quiet enjoyment. The court discussed
the only Pennsylvania case in which this issue has been
addressed previously, Raker v. G.C. Murphy Co., 58 A.2d 18
(Pa. 1948), analyzed in detail infra, and concluded that it
“stands for the proposition that wrongful litigation
impairing a tenant’s possessory interest can breach the
covenant of quiet enjoyment.” Kohl, 863 A.2d at 30
(emphasis in original).

The Superior Court also surveyed the law of our sister
courts regarding litigation’s potential impact on the
implied covenant of quiet enjoyment:

The majority of cases from other jurisdictions which
address this issue are in accord, and focus on whether the
litigation was brought in bad faith, maliciously, or
without probable cause. These cases hold either (1) that
ejectment actions, or other suits for possession, brought
in bad faith, maliciously, or without probable cause can
constitute a breach of the covenant of quiet enjoyment, or
(2) have left the issue open by finding that in the
absence of malice related to the commencement of such
proceedings, no breach has occurred.

Id. (collecting cases).[fn11]

In developing its own test, the court considered the need
to protect a litigant’s free access to the courts under
Article 1, Section 11 of the Pennsylvania
Constitution.[fn12] The court noted that the law does not
punish parties who avail themselves of the courts except in
very limited circumstances manifesting bad faith in order
to avoid the potential chilling effect on individuals’
willingness to seek legal redress. Accordingly, the court
enunciated its test:

In line with Raker, supra, and following the reasoning of
the majority view expressed in the cases . . . from other
jurisdictions, we hold that a suit by a landlord which
substantially impairs a tenant’s possessory interest in a
leasehold, brought in bad faith, maliciously, or
otherwise without probable cause and primarily for a
purpose unrelated to seeking legal redress, constitutes a
breach of the landlord’s covenant of quiet enjoyment. We
find this strikes a proper balance between a policy
allowing substantially unfettered access to our courts
with a tenant’s rights to undisturbed possession.

Kohl, 863 A.2d at 31.

In applying this test to the facts in the case at bar, the
court agreed with the trial court that the litigations
substantially interfered with Bank’s possessory interest
but disagreed with the trial court’s conclusion of bad
faith. The court first concluded that the 1998 Litigation
could not be deemed in bad faith given that the abandonment
claim was resolved in favor of Landowner. In considering
the significance of the lis pendens to the trial court’s
finding of bad faith, the panel noted that Landowner lodged
the lis pendens in the meritorious 1998 Litigation, rather
than the unsuccessful 1993 Litigation.

After considering the absence of bad faith in the 1998
Litigation, the court next considered whether Landowner
brought the earlier 1993 Litigation in bad faith, and
concluded that he did not. Although noting that the claims
were not meritorious, the court found “no indications that
[the 1993 Litigation] was brought maliciously or without
probable cause.” Kohl, 863 A.2d at 32. The Superior Court
acknowledged the arguably incessant quality of the
litigation but noted the distinctions between the1993
Litigation, which was unrelated to the Bank’s performance,
and the 1998 Litigation, which was directly related to the
Bank’s actions in abandoning the property and failing to pay
taxes. Accordingly, the court reversed the trial court’s
denial of recovery on Landowner’s breach of contract claim,
which the trial court had based upon its finding that
Landowner breached the covenant of quiet enjoyment.
Instead, the court remanded for an assessment of damages on
the breach of contract claim. The Superior Court also
remanded for assessment of damages due to Bank’s
abandonment of the property, which the trial court in part
denied based on its finding of a breach of the covenant of
quiet enjoyment.[fn13]

Then-President Judge Del Sole filed a brief concurring and
dissenting opinion in the matter. He concluded that while
the first litigation had not been filed in bad faith, it
nonetheless lacked probable cause, and thus constituted a
violation of the covenant. Judge Del Sole observed that
Landowner’s first litigation lacked probable cause in that
it sought a declaration that Bank did not obtain possession
because the Lease terminated automatically due to Lessees’
failure to pay taxes, where the Lease clearly did not so

Before this Court, Bank asserts that the Superior Court
erred by focusing its test on the intent of the landowner
in bringing an action. Bank argues that the body of law
addressing breaches of the covenant of quiet enjoyment
focuses not on the landowner’s intent but rather on whether
the terms of the lease permitted the landowner’s actions
and whether the actions substantially impaired the tenant’s
possession of the leased property.

Bank next contests the Superior Court’s reliance on Raker
to support the bad faith aspect of the court’s test.
Instead, Bank reads Raker to support a test based on the
permissibility of a landowner’s actions under the lease,
rather than on the maliciousness of conduct.[fn14] Thus,
Bank asserts that bad faith need not be shown to establish
a breach of the covenant of quiet enjoyment. Applying its
version of the holding of Raker to the facts at bar, Bank
contends that Landowner violated the covenant of quiet
enjoyment simply because Landowner sought a remedy —
automatic termination for non-payment of taxes-that was not
permitted under the Lease and the resulting 1993 Litigation
paralyzed Bank’s ability to utilize its property rights.

Alternatively, assuming arguendo the propriety of the
Superior Court’s test, Bank asserts that the court
improperly disregarded the evidentiary conclusions of the
trial court, which found that Landowner acted in bad faith
in bringing the two lawsuits.[fn15] Bank then details the
evidence it contends supports the trial court’s finding the
Landowner acted in bad faith: (1) the 1993 Litigation
seeking automatic termination of the lease for the Lessees’
non-payment of taxes even though the Lease did not support
such a remedy and the Non-Disturbance and Attornment
Agreement absolved Bank of any liability for acts of the
prior tenants; (2) Landowner’s filing of the 1998
Litigation the day after receipt of a letter from Bank to
Landowner acknowledging responsibility for the taxes as of
this Court’s denial of review of the 1993 Litigation; (3)
the reliance on the non-payment of taxes as the basis for
the 1998 Litigation despite the determination in the 1993
Litigation that non-payment of taxes could not result in
termination of the Lease; (4) the facts at the time of the
filing of the complaint did not justify a claim of
abandonment based solely on the lack of tenants for three
years, which Bank contends resulted from its inability to
market the property as a result of the pendency of the
first litigation; and (5) the two litigations seeking to
terminate the leasehold rendered the property unmarketable.
Based on these assertions, Bank contends that the evidence
supports a finding of bad faith on the part of Landowner as
found by the trial court.

Finally, Bank contends that the Superior Court erred in
applying its new test to this case rather than reserving
the test for prospective application. Accordingly, Bank
urges that the establishment of a new test, at a minimum,
calls for a remand to the trial court for a hearing on the
issue of bad faith. Bank argues that a remand is especially
important in this case because the trial court cut short its
attempt to cross-examine Landowner regarding his purpose
for filing the lawsuits. Bank cites our decision in Lamp v.
Heyman, 366 A.2d 882 (Pa. 1976), as evidence of this
Court’s practice of applying tests prospectively in
fairness to plaintiffs who may have relied upon an old rule.

Conversely, Landowner argues that the Superior Court did
not construct a new test for a breach of the implied
covenant of quiet enjoyment, but rather relied on
established precedent requiring a demonstration of a
“wrongful act of the lessor that interferes with the
lessee’s possession.” Brief for Landowner at 11 (quoting
Branish v. NHP Prop. Mgmt., Inc., 694 A.2d 1106, 1007
(Pa.Super. 1997) (holding covenant breached by landowner’s
restriction on who could visit tenant despite contrary
provision in lease)). Although Landowner acknowledges that
the covenant of quiet enjoyment is breached when a
landowner’s actions substantially decrease the utility of
the lessee’s possession of the leased property, Landowner
notes that the covenant is not absolute and may be limited
by the terms of the lease. See Checker Oil Co. of Del.,
Inc. v. Harold H. Hogg, Inc., 380 A.2d 815, 818 (Pa.Super.

Landowner asserts that a breach cannot be deemed to occur
merely because a landowner pursues litigation that impairs
the lessee’s possession, but rather must be limited to
litigation conducted in bad faith such that it constitutes
“wrongful” conduct. To rule otherwise, Landowner maintains,
would prevent landowners from enforcing their contractual
rights under leases. Landowner contends that this test
protects landowners’ right of access to the courts to
enforce leases and protect property rights while also
protecting tenants’ right to be free from malicious and
vexations litigation. Moreover, Landowner relies on the
Superior Court’s analysis of other jurisdictions who have
adopted similar standards for breach of the covenant of
quiet enjoyment in cases of landowner litigation. In
addressing this Court’s decision in Raker, our only case
involving the effect of litigation on the tenant’s right to
quiet enjoyment, Landowner stresses this Court’s focus on
the wrongful conduct of the landowners who exploited the
situation for their own profit rather than abiding by the
terms of the lease.

Landowner argues that the Superior Court correctly
determined that he brought neither litigation in bad faith.
Landowner contends that the 1993 Litigation seeking
declaratory judgment, while unsuccessful, was nonetheless
not brought in bad faith but failed merely because
Landowner did not join Bank in the initial default judgment
action against the Lessees. Likewise, Landowner asserts
that he brought the 1998 Litigation in good faith to
enforce the terms of the Lease regarding abandonment of the
property and payment of taxes, and in fact, prevailed.
Moreover, he notes that the lis pendens was filed in 1998
after six years of non-payment of taxes by the Lessees and
Bank, which threatened Landowner’s title to the leased
property. Finally, he contends there is no need for a
remand because the test does not establish new law but
rather relies upon the established precedent requiring
“wrongful action” by a landowner. He notes that the parties
fully argued, and the Superior Court correctly determined,
the issue of Landowner’s alleged bad faith.

As stated by the Superior Court, there is a dearth of law
in the Commonwealth regarding when litigation may
constitute a breach of the covenant of quiet enjoyment.
However, there is no shortage of law regarding violations
of the covenant in general.[fn16] First, the covenant is
implied in all leases. See Raker, 58 A.2d at 19. Moreover,
“it is settled in this state that any wrongful act of the
landlord which results in an interference of the tenant’s
possession, in whole or in part, is an eviction for which
the landlord is liable in damages to the tenant.” Kelly v.
Miller, 94 A. 1055, 1056 (Pa. 1915); see 2401 Pennsylvania
Ave. Corp., 489 A.2d at 739 (finding breach of covenant of
quiet enjoyment where tenant prevented from taking
possession of leased premises by affirmative act of lessor
in extending lease to prior tenant). In Kelly, this Court
held that the covenant was breached when the landowner
closed several openings joining the leased premises, a
theater, with other adjoining premises that were owned or
otherwise leased by the tenant. The court found that by
obstructing access to the adjoining premises, which were
not encompassed in the relevant lease, the landowner denied
the tenant direct access to rooms necessary to the
functioning of the theater such as storage rooms, dressing
rooms, and bathrooms. We concluded that these actions
interfered with the tenant’s possession of the leased
premises even though they did not evict the tenant from the
theater building covered by the lease.

From Kelly, the Superior Court has concluded repeatedly
that a breach of the covenant can be demonstrated through
constructive eviction, if the tenant establishes that the
utility of the premises has been substantially decreased.
See Branish, 694 A.2d 1106 (finding breach of covenant of
quiet enjoyment where landowner threatened eviction if
tenant’s boyfriend visited tenant at the property); Jonnet
Dev. Corp. v. Dietrich Indus., Inc., 463 A.2d 1026, 1033
(Pa.Super. 1983) (noting that earlier cases required
physical disposition or actual disturbance but that “the
great weight of authority now is that a constructive
eviction” will suffice); Checker Oil Co. of Dela., 380 A.2d
at 819 (holding landowner’s erection of guardrail blocking
access from public highway to tenant’s gasoline station
constituted breach of covenant of quiet enjoyment because
the alteration deprived the tenant of a “valuable feature
of the plot” and “substantially reduced its utility”);
Pollock v. Morelli, 369 A.2d 458 (Pa.Super. 1976)
(collecting cases and finding breach of covenant where
landowner erected mini-mall around formerly easily
accessible dry-cleaning establishment because the
structural alteration substantially decreased the utility of
the property). However, a cloud over the title, by itself,
does not constitute sufficient impairment absent some other
actual impairment. See Rittenhouse v. Barclay While Inc.,
625 A.2d 1208 (Pa.Super. 1993) (declining to find breach
where landowner’s failure to secure proper occupancy
permits did not interfere with tenant’s occupancy of leased
premises); Derrickheim Co. v. Brown, 451 A.2d 477 (Pa.Super.
1982) (distinguishing oil and gas lease law from standard
landowner and tenant law, under which cloud over title does
not constitute a breach of the covenant of quiet

Unlike the cited cases, the asserted breach in this case
does not involve a structural change resulting in a
diminishment of the utility of the leased premises, an
overt restriction placed on the use of property, or actual
eviction, but instead involves litigation, which Bank
asserts substantially infringed the utility of the property
by limiting Bank’s ability to market its leasehold. The
parties and the Superior Court agree that the only case
applying the covenant to a landowner’s legal actions
against a leasehold is this Court’s 1948 decision in Raker,
58 A.2d 18.

In Raker, the landowner created a mortgage on the property
with a bank. Years later, the landowner entered into a
twenty-one-year lease with a tenant for a portion of the
building. At the same time, the landowner entered into a
ten-year agreement with the lessee and the bank whereby the
bank agreed that prior to taking any foreclosure action it
would first offer to assign the mortgage to the lessee and,
moreover, agreed not to foreclose the mortgage, assign it,
or dispossess the lessee so long as the lessee complied
with the terms of the lease. The lessee abided by all the
terms. Approximately four years later, upon landowner’s
death, landowner owed bank a substantial sum, secured by
the relevant mortgage. The bank agreed with the heirs to a
reduction and payment of the indebtedness, and an
assignment of the mortgage to two of the landowner’s sons
(“Sons”). Sons then instituted a foreclosure action against
landowner’s estate, without making the lessee a party to
the action. Following acceptance of service by the heirs
and judgment against the estate, Sons purchased the
property at a sheriff’s sale. Asserting a right prior to
the lessee, they disaffirmed the lease.

After litigation, this Court concluded, “[i]t is obvious
that when title to the property descended to [landowner’s
heirs] they could not have repudiated the lease which
[landowner] had made.” Id. at 19. Accordingly, when the
heirs inherited the reversionary interest in the property,
they too were bound by the covenant of quiet enjoyment.

Since the [heirs] could not, prior to their acquisition
of the mortgage have disaffirmed the lease and evicted the
tenant, they cannot accomplish the same result by the
transparent devise of acquiring the mortgage, foreclosing
it, buying in the property, and then claiming that their
rights were paramount to those of the lessee because of
the original priority of the mortgage over the lease in
point of time. That all the proceedings they instituted
were designed for the sole purpose of freeing themselves
from the [lessee’s] lease is so obvious as to preclude
the necessity of discussion. Having paid off the mortgage
to the [b]ank there could have been no other reason for
their failure to have it cancelled and satisfied of record
instead of taking it over by way of assignment and then
foreclosing it against themselves.

Id. at 20. This Court held that the heirs were liable for
the full value of the leasehold due to the breach of the
covenant of quiet enjoyment.

Accordingly, while this Court did not frame its review
specifically in terms of bad faith, our holding focused not
on the conclusion that the actions would not have been
proper under the lease, but rather on the improper purpose
implicit in the Sons’ convoluted attempt to free themselves
of their obligations under the lease. We do not find our
decision in Raker contrary to the Superior Court’s test
restricting the finding of breaches of the covenant of
quiet enjoyment relating to landowner litigation to those
cases “brought in bad faith, maliciously, or otherwise
without probable cause and primarily for a purpose
unrelated to seeking legal redress.” Kohl, 863 A.2d at 31.
Instead, it merely demonstrates that cases involving such
conduct constitute a breach of the covenant.

While Bank urges us to conclude that the Superior Court
erred by focusing on the intent of the landowner rather
than the effect on the tenant, the Superior Court’s test
plainly does consider the litigation’s effect on the
tenant. Indeed, the bad faith element of the test applies
only to a “suit by a landlord which substantially impairs a
tenant’s possessory interest in a leasehold.” Kohl, 863
A.2d at 32 (emphasis added). On the other hand, if we were
to focus exclusively on the effect on a tenant, one could
argue that the covenant could be breached where the result
of the litigation impairs the rights of a tenant even if
the landowner’s litigation results in a judgment against
the tenant. We cannot permit the covenant of quiet
enjoyment to crowd out even meritorious litigation.
Accordingly, the Superior Court appropriately required more
than mere infringement of the tenant’s rights.

We next turn to the question of how to evaluate the
propriety of the landowner’s actions. Established precedent
regarding a breach of the covenant of quiet enjoyment
requires a “wrongful” act of the landowner. See Kelly, 94
A. 1055. Whether this litigation is wrongful, however, is
considerably less quantifiable than the affirmative
intrusions, actual and constructive, illustrated by the
above-cited cases. Bank urges us to view the term broadly
to include any litigation that is “wrong,” — i.e.,
any litigation seeking a remedy not supported by the lease
or the factual situation. This interpretation fits prior
cases considering actions by landowners resulting in
structural alterations or other overt impediments to
occupancy or enjoyment of the leased premises, where the
inquiry need not reach the tenor of the conduct of the
landowner. See, e.g., Kelly, 94 A. 1055, 2401 Pennsylvania
Ave. Corp., 489 A.2d at 739. Conversely, Landowner urges us
to adopt the Superior Court’s test limiting the term to the
subset of such cases, embodied by Raker, where a landowner
pursues a “wrong” remedy with full knowledge of the
litigation’s lack of merit merely to harass the tenant.

As have many of our sister states, see supra note 11, we
find that the first meaning paints with too broad a brush.
While the meaning would encompass those cases that are
brought maliciously, it would also penalize landowners who
pursue litigation with a good faith belief that their
complaint presents a meritorious argument, even if it
strains the current confines of the law. Such an
interpretation imposes too heavy a burden on a landowner to
ascertain whether his or her complaint will be deemed to
present a winning argument. To require that a landowner be
“right” to avoid breaching the covenant of quiet enjoyment
would potentially infringe a landowner’s constitutional
right of access to courts and impede the orderly
development of the law.

We find far more salutary the solution articulated by the
Superior Court, which it distilled from our decision in
Raker. We conclude that to show “wrongful conduct” in the
context of landowner litigation requires a demonstration
that suit has been “brought in bad faith, maliciously, or
otherwise without probable cause and primarily for a
purpose unrelated to seeking legal redress.” Kohl, 863 A.2d
at 31.

Turning to the case at bar, we conclude that this test need
not be limited to prospective application because it is
entirely consistent with this Court’s prior holding in
Raker. However, we cannot affirm the Superior Court’s
application of the test in this case based on its
determination that the record did not support the trial
court’s inference of bad faith. Instead, we note that the
trial court’s inference in its opinion in response to
post-trial motions and its limitation of the Bank’s attempt
to explore the motivations of Landlord in filing the
litigation, see supra 9 n. 9, did not allow the necessary
development of the record. Accordingly, we reverse the
decision of the Superior Court holding that the record did
not support the determination of a breach of the covenant
of quiet enjoyment based on a finding of bad faith and
remand to the trial court to allow development of the
record by the parties and for further proceedings following
the trial court’s determination of whether Landlord
breached the covenant of quiet enjoyment.

Mr. Chief Justice Cappy, Mr. Justice Castille, Madame
Justice Newman and Mr. Justice Eakin join the opinion.

Mr. Justice Nigro did not participate in the consideration
or decision of this matter.

Mr. Justice Saylor files a concurring and dissenting

[fn1] Lessees in fact obtained the mortgage from First
Eastern Bank, which was acquired by Defendant/Appellant PNC
Bank, National Association, while the litigation at bar was
progressing through the appellate system. For ease of
discussion, we will refer to both entities as Bank.

[fn2] The certified record before this Court does not
reference the June 1992 filing date. However, the parties
do not contest that a complaint was filed by Landowner
against Lessees or that the trial court entered a default
judgment in Landowner’s favor on January 8, 1993.

[fn3] We note that upon a mortgagor’s default, a mortgagee
has three remedies available: an action at law on the
mortgage debt, an action to gain possession, and an action
of mortgage foreclosure. See 22 Standard Pennsylvania
Practice 2d § 121:3. The two remedies at issue in
this case are not mutually exclusive because the actions
differ in their objects where the purpose of foreclosure is
to effect a judicial sale of the real estate and the
purpose of ejectment is to gain possession of the property.
See id. § 121:3, 121:26.

[fn4] As discussed infra, in relation to Landlord’s
litigation against Bank in 1993, the trial court later
declared the termination of the Lease invalid because
non-payment of taxes could not terminate the Lease
automatically, and because default judgment was not proper
under the facts of this case where Landowner failed to join
Bank as a party when Bank was in possession of the
property, and thus an indispensable party in an ejectment
action under Pennsylvania law and when the Nondisturbance
and Attornment Agreement required Landlord to include Bank
in the proceedings. The certified record in this case does
not provide all the details relevant to the court’s
decision. While some documents included in the reproduced
record suggest that Bank was not the party in possession at
the time of the filing of the complaint and that Bank had
notice of Lessee’s default, there is no debate that
Landowner failed to include bank as a party, which the trial
court found to be required by paragraph H of the
Nondisturbance and Attornment Agreement, set forth above.
In any event, at this juncture, the validity of the
decision in the 1993 litigation is neither in question nor
before us. Rather, our grant of review concerns whether
Landowner’s litigation in 1993 and the present litigation
violated Bank’s right to quiet enjoyment of the property.

[fn5] Landowner alleged that Bank abandoned the property
because no tenant occupied the property for three years
prior to the filing of the complaint. 1998 Litigation
Complaint at 7.

[fn6] “[T]he effect of a lis pendens is not to establish
actual liens upon the properties affected nor has it any
application as between the parties to the action
themselves; all that it does is to give notice to third
persons that any interest they may acquire in the
properties pending the litigation will be subject to the
result of the action.” Dice v. Bender, 117 A.2d 725, 726-27
(Pa. 1955).

[fn7] The parties in the present appeal fail to inform the
Court whether this sale occurred. It is apparent from a
recently filed Petition for Allowance of Appeal that the
property interest in the ground lease was sold at a
judicial sale by the Tax Claim Bureau in May 2005 to
Nations First Realty Corp. Kohl v. Nations First Realty
Corp., 814 MAL 2006. The judicial sale did not relate to
Kohl’s fee simple interest in the property, which was
listed at a separate tax identification number. In the
Nations First litigation, the trial court noted that the
litigation between Kohl and Bank resulted in the termination
of the ground lease upon abandonment of the property by
PNC. Given the termination of the ground lease, the court
determined that the property interest in the ground lease
merged with Kohl’s fee simple interest in a greater piece
of property that consisted of nine acres and included the
lesser area covered by the ground lease. On appeal to the
Superior Court, Nations First contested the trial court’s
conclusion that Kohl had a fee simple ownership interest in
the whole property and the conclusion that Nations First
could not recover any monies for improvements to the
property. The Superior Court affirmed in an unpublished
decision, 2040 E.D.A. 2005. Nations First has limited its
petition for allowance of appeal to the recovery of
improvements, and accordingly, has not maintained its
challenge to Kohl’s ownership of the property.

We do not speak in this opinion to the merits of the
Nations First litigation but merely note it does not effect
this litigation, which addresses the rights and obligations
of Kohl and Bank at a point prior to the judicial sale. We
additionally observe that the courts deciding the Nations
First litigation apparently were unaware of the pending
appeal of Bank’s litigation currently before this Court. We
encourage parties to be forthcoming to courts about related

[fn8] It appears that the trial court’s dismay is misplaced
given that the original trial court merely held that the
Lease could not terminate automatically because of
non-payment of taxes, not that non-payment could never
result in termination.

[fn9] As is relevant to our holding, we note that the trial
court never made a factual finding that Landlord’s actions
constituted bad faith but rather merely inferred bad faith
as a reason to justify its determination of a breach of the
covenant of quiet enjoyment. This inference was first
stated in its opinion following post-trial motions, thus
preventing the parties from challenging the conclusion
before the trial court as fact finder. Indeed, we emphasize
that the trial court previously limited discussion of
Landlord’s motivations. Specifically, the court prevented
Bank from cross-examining Landlord regarding the purpose of
the 1993 Litigation:

Wasn’t the purpose of that lawsuit to terminate the
[Bank’s] tenancy and return that property to you?

[Kohl]: The tenancy [sic] of the lawsuit that I did was
simply for one reason. You know, here I sit with the
[P]roperty. [The Bank] has taken over, and now [the Bank]
does not want to pay their [sic] taxes, and what am I
supposed to do, leave everything go? No, I was just
protecting my rights.

[Counsel for the Bank]: Well, wasn’t the purpose of that
lawsuit and —

[Trial court]: Let me interrupt here. I have your
question. I have your answer. Let’s move on. I don’t need
a debate between the two of you. He’s given me his
version. I have a record of the pleadings. I can make a
judgment, can’t I? Is there any reason to pursue this?
I’ll have the record, the Complaint, what it says. I’m
sure he signed some verification for it. I’ve heard him
say what he intended, but you fellows, I assume, have
different opinions as to what that was.

Reproduced Record at 325a.

[fn10] While we ultimately remand for further proceedings,
we nonetheless acknowledge the court’s laudable attempt to
resolve this protracted dispute by, in essence, splitting
the difference between the parties, both of whom bear some
responsibility for the litigation that allowed the property
to sag into ruination. However, we note several
inconsistencies in the opinion and the order. Most
significantly, while the court found that Landowner’s
breach absolved Bank of its responsibility to pay taxes, it
failed to explain why the same analysis would not absolve
Bank of compliance with the terms of the Lease relieving
Bank of upkeep responsibility subsequent to abandonment.
Additionally, while the court’s conclusion that Landowner
breached the implied covenant of quiet enjoyment is central
to its opinion, the attached order states that the court
found in favor of Landowner with respect to Bank’s
counterclaim, which sought damages for lost rents and
profits as a result of the breach of the implied covenant of
quiet enjoyment.

[fn11] See Guntert v. City of Stockton, 126 Cal. Rptr. 690
(Cal.Ct.App. 1976) (“The arbitrary and unreasonable notice
of termination violated the lessor’s implied obligation to
abstain from interference with the tenant’s use and
enjoyment of the premises.”); Kuiken v. Garrett, 51 N.W.2d
149, 159 (Iowa 1952) (noting that “a landlord has a right
to attempt to oust his tenant, if he thinks he has just
grounds therefor; and in such case he is not to be held
liable for damages if he fails,” but, otherwise, malice may
be found) (emphasis in original) (superseded by statute on
other grounds regarding the standard for recovery of
punitive damages); Rahman v. Federal Mgmt. Co., Inc., 505
N.E.2d 548, 551 (Mass.App.Ct. 1987) (collecting cases and
concluding “that commencement of an eviction proceeding, at
least where done, as here, without malice, does not violate
the covenant of quiet enjoyment” in case where landowner’s
litigation failed as a result of inadvertence or
sloppiness); Roseneau Foods, Inc. v. Coleman, 374 P.2d 87
(Mont. 1962) (“A suit brought by a landlord to obtain
possession of the premises does not constitute a breach of
a covenant of quiet enjoyment unless the suit was
instituted maliciously and without probable cause.”); D.M.
Dev. Co. v. Osburn, 625 P.2d 157 (Or.Ct.App. 1981) (“The
general rule is that the mere commencement of an action to
evict does not constitute a breach of [the covenant of
quiet enjoyment] at least in the absence of some showing
that the lawsuit was groundless and maliciously brought.”
(citations omitted)). The court notes that at least two
courts have focused their analysis on the actual removal of
possession from the tenant, citing Weisman v. Middleton, 390
A.2d 996 (D.C. 1978) and Bowers v. Sells, 123 N.E.2d 194
(Ind.Ct.App. 1954).

[fn12] § 11. Courts to be open; suits against the

All courts shall be open; and every man for an injury
done him in his lands, goods, person or reputation shall
have remedy by due course of law, and right and justice
administered without sale, denial or delay. Suits may be
brought against the Commonwealth in such manner, in such
courts and in such cases as the Legislature may by law

Pa. Const. 1, § 11.

[fn13] The Superior Court did not speak to the trial court’s
second rationale for denial of damages for abandonment
based on the Lease’s provision for automatic termination
and the resulting return of the responsibility of the
property to the Landowner.

[fn14] In brief, Raker involved a landowner who secured a
mortgage from a third party bank prior to leasing a
property to a tenant. Upon their inheritance of the
property, the landowner’s heirs attempted to circumvent the
lease and evict the tenant by acquiring the mortgage,
foreclosing upon it while it remained in their father’s
estate, buying the property at a sheriff’s sale incident to
the foreclosure, and then claiming their rights were
paramount to those of the lessee based upon the mortgage’s
priority in time. Id. at 19-20.

[fn15] We observe that the Superior Court concluded that the
record supported the trial court’s finding that the 1993
Litigation substantially infringed Bank’s ability to market
the property and thus substantially interfered with Bank’s
possessory interest. Kohl, 863 A.2d 32.

[fn16] As this appeal arises from a non-jury trial, “the
Court is bound by the trial judge’s findings of fact unless
those findings are not based on competent evidence.
Conclusions of law, however, are not binding on an
appellate court whose duty it is to determine whether there
was a proper application of law to fact by the lower
court.” 2401 Penna. Ave. Corp. v. Federation of Jewish
Agencies of Greater Phila., 489 A.2d 733, 736 (Pa. 1985).
On pure questions of law, such as the determination of the
appropriate test to apply, our review is plenary. See
Buffalo Township. v. Jones, 813 A.2d 659, 664 n. 4 (Pa.


I agree with the majority that the Superior Court
articulated the correct legal standard, which follows
naturally from Raker v. G.C. Murphy Co., 358 Pa. 339, 58
A.2d 18 (1948), and appropriately balances the need for
access to the courts with a tenant’s right to undisturbed
possession. See Majority Opinion, slip op. at 22. For the
reasons articulated by the Superior Court, however, I would
additionally conclude that Kohl did not act in bad faith.
See Kohl v. PNC Bank Nat’l Assoc., 863 A.2d 23, 32-33
(Pa.Super. 2004). Accordingly, I would affirm the order of
the Superior Court. I therefore respectfully dissent from
the portion of the majority opinion remanding the case to
the trial court for further proceedings.