MEDICO DENTAL BLDG CO OF LOS ANGELES v. HORTON CONVERSE

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District Court of Appeal, Second District, Division 3, California.

MEDICO–DENTAL BLDG. CO. OF LOS ANGELES v. HORTON & CONVERSE.*

Civ. 12749.

Decided: March 31, 1942

Louis M. Lissner and Laurence M. Weinberg, both of Los Angeles, for appellant. J. Harper Shoop, of Los Angeles, for respondent.

Plaintiff sued for rent under a lease dated July 1, 1934, of space on the ground floor of an office building which was used by defendant in conducting a prescription drug business. Judgment was given for defendant on the ground that plaintiff itself had violated the lease in material respects, that because of such violations defendant had the right to rescind and did rescind its lease, and was therefore not liable for rent accruing after it vacated the premises immediately following the rescission.

In the lease between plaintiff and defendant there was a provision that the landlord would not lease any portion of the building “for the purpose of maintaining a drug store or selling drugs or ampoules or for the purpose of maintaining a cafe, restaurant or lunch counter therein during the term of its lease.” On December 30, 1937, plaintiff leased the ninth floor to one Dr. Boonshaft, who headed a medical group composed of six or eight doctors. This lease contained the following provisions: “The premises demised hereby are to be used solely as offices for the practice of medicine and dentistry and lessee agrees that he will not maintain therein or thereon, nor permit to be maintained therein or thereon, a drug store or drug dispensary, nor will lessee compound or dispense, or permit to be compounded or dispensed, drugs or ampoules except in connection with the regular course of treatment of lessee's own patients. Lessee agrees not to display any sign or advertisement on the inside or outside of the demised premises or the building of which the demised premises are a part enbodying the words ‘Pharmacy,’ ‘Drug Store,’ ‘Dispensary’ or words of like import. Lessee understands that lessor has heretofore executed a lease to Horton & Converse granting to said Horton & Converse the exclusive privilege of conducting a drug store business on the ground floor of said Medico–Dental Building, and lessee agrees that he will not do, nor permit to be done, anything in connection with the premises demised hereby which would in any way conflict with, or constitute a breach by the lessor therein of said Horton & Converse lease.”

The court found that on December 30, 1937, by executing said lease “plaintiff did lease a part or portion of the Medico–Dental Building to a tenant other than the defendant for the purpose of maintaining a drug store and selling drugs on the premises demised in said lease and said lessee so understood said provision, and in this respect the court finds that on December 30, 1937, plaintiff breached its lease with the defendant in a material respect and that such breach was not waived by the defendant; that the plaintiff by virtue of one of the provisions of said lease intended to and did give Louis D. Boonshaft, M. D., the right and privilege of maintaining a drug store, selling drugs and compounding prescriptions on said leased premises, and by so doing failed to protect the defendant against competition.”

The court further found that during the month of May, 1938, a drug store in charge of a registered pharmacist was opened by Dr. Boonshaft, registered as a pharmacy with the State Board of Pharmacy with a state sales tax permit, and that goods were sold in said drug store and prescriptions were being compounded and filled and a charge was being made for said prescriptions in said drug store during said month of May, 1938, and that “plaintiff in not taking immediate action to abate said drug store by exercising the authority given it by the provision in its lease with Louis D. Boonshaft, M. D., whereby said Louis D. Boonshaft, M. D., agreed that he would not do, nor permit to be done, anything in connection with the premises demised to him by plaintiff, which would in any way conflict with or constitute a breach by plaintiff of defendant's lease, and, finally, on August 19, 1938, advising defendant that it, the plaintiff, could make no arrangements with Dr. Boonshaft and could not do anything with him regarding the selling of drugs and the maintaining of the drug store on his premises, violated and breached its lease with defendant in a material respect, and that such violation or breach was not waived by defendant.”

It was further found that “plaintiff failed, refused and neglected to conform and comply with the restrictive covenant in the lease between plaintiff and defendant and that by reason of such failure, refusal and neglect plaintiff breached its lease with defendant in a material respect, in that it failed to protect the defendant against competition, and the court further finds that such breach was not waived by the defendant.”

We shall first take up the question whether the evidence was sufficient to prove any violation by plaintiff of defendant's lease. Preliminarily it is necessary to understand what was meant by the restrictive covenant in question. The trial court found that plaintiff leased space to Dr. Boonshaft “for the purpose of maintaining a drug store and selling drugs.” This finding is not supported by the evidence. The space was not leased for the purpose of maintaining therein a drug store. Its use for that purpose was expressly prohibited in positive language. From the wording of the lease it seems clear that Dr. Boonshaft was given implied permission to compound and dispense drugs and ampoules in connection with the regular course of treatment of his own patients. Since this is all that he intended, or was given permission to do, it is apparent from the findings that no distinction was drawn by the trial court between the right so extended to him and the privilege of operating a drug store. This fact is emphasized by the additional finding that the parties to the lease understood that Dr. Boonshaft would have the right to operate a drug store. These findings illustrate the theory of the case which led to the conclusion that plaintiff violated its lease with defendant in leasing to Dr. Boonshaft. This conclusion, in our opinion, is not tenable.

It is conspicuous in the record that throughout the trial it was assumed that a physician who furnishes medicines to his patients is thereby conducting a drug store. That this is not true, as a matter of fact, is of common knowledge. That it is not true as a matter of law is made perfectly clear by the language of provisions of the Business and Professional Code to which we shall refer. A decision based upon findings to the contrary would be novel, to say the least.

A Mr. Walsh, vice president of defendant, and a member of the State Board of Pharmacy, was called as a witness for defendant. He testified as follows: “Now Mr. Walsh, when did it first come to your attention that what in your opinion was a pharmacy, was located on the ninth floor of the Medico–Dental Building?” He answered that he had been so advised by the manager of the store in the building in April or May. The court had previously ruled, over appellant's objection, that Mr. Walsh could testify by way of stating his opinion that a pharmacy was being operated by Dr. Boonshaft. This was not a subject matter for expert testimony. Whether Dr. Boonshaft was given a lease by plaintiff with knowledge that he intended to operate a drug store and whether he operated one were questions of fact for the court to decide. They went to the very essence of the case and were to be decided upon the evidence as to what was actually done in the premises. All of the facts necessary to a decision were before the court; there was no occasion to receive the opinion of any witness as to whether the facts in evidence proved that Dr. Boonshaft was operating a pharmacy or drug store. People v. Overacker, 1911, 15 Cal.App. 620, 632, 115 P. 756; Coelho v. Judson Mfg. Co., 1916, 30 Cal.App. 39, 156 P. 1005; Wilkerson v. City of El Monte, 1936, 17 Cal.App.2d 615, 622, 62 P.2d 790.

From comments made by the trial judge in connection with the receipt of this expert testimony it would appear that the opinion expressed by the witness was thought to have no little evidentiary value. That the testimony contributed to the erroneous conclusion of fact may fairly be inferred. Furthermore, as will later appear, the opinion, if it had been admissible, was rested so heavily upon the issuance of a pharmacy license to Dr. Boonshaft, rather than upon the manner in which the latter operated his business, as to detract greatly from any force it might otherwise have had.

Another finding was that in his lease Dr. Boonshaft was given permission to compound and sell drugs. This was true if the words “compound and dispense” mean “compound and sell.” Let us assume that they do, and let us assume that in a purely technical sense “selling” means every disposition except giving away without charge, direct or indirect. We then come to the question whether compounding and dispensing medicines and ampoules by a physician to his own patients in the course of treatment would be the sale of drugs which was prohibited by the provision of defendant's lease. That provision must be so interpreted as to give effect to the mutual intention of the parties (Civil Code, section 1636), so as to make it reasonable (Civil Code, section 1643), and with reference to the circumstances under which it was made and the matter to which it relates (Civil Code, section 1647). As so construed we believe it to be clear that it must have been the intention to prohibit the carrying on of the business of selling drugs but not to prohibit those practices which as a matter of law under their professional licenses could be followed by physicians as such. The Medico–Dental Building was what its name implies––one primarily operated for the occupancy of physicians and dentists. That fact is emphasized by defendant and is pointed out as the reason for its maintaining its drug store in the building. There are several pertinent sections of the Business and Professional Code, St.1937, p. 1230 et seq. They are important because they state the law under which physicians dispense medicines and define terms as the parties no doubt understood them, but which were used loosely in the testimony and the findings.

Sec. 4030. “Except as otherwise provided in this chapter, it is unlawful for any person to manufacture, compound, sell or dispense any drug, poison, medicine or chemical, or to dispense or compound any prescription of a medical practitioner, unless he is a registered pharmacist or a registered assistant pharmacist under the provisions of this chapter.”

Sec. 4031. “This chapter does not apply to or interfere with any one, who holds a physician's and surgeon's certificate and who is duly registered as such by the Board of Medical Examiners or the Board of Osteopathic Examiners of this State, with supplying his own patients with such remedies as he may desire if he acts as their physician and is employed by them as such and if he does not keep a pharmacy, open shop or drug store, advertised or otherwise, for the retailing of medicines or poisons.”

Sec. 4035. “As used in this chapter, pharmacy means and includes every store or shop where drugs, medicines or chemicals are dispensed or sold at retail, or displayed for sale at retail, or where prescriptions are compounded, which has upon it or in it as a sign, the words ‘pharmacist,’ ‘pharmaceutical chemist,’ ‘apothecary,’ ‘druggist,’ ‘pharmacy,’ ‘drug store,’ ‘drugs,’ or any of these words.”

Sec. 4036. “Every store, dispensary, pharmacy, laboratory or office for the sale, dispensing or compounding of drugs, medicines or chemicals, or for the dispensing of prescriptions of medical practitioners, shall be in charge of a registered pharmacist or a licentiate in pharmacy. No registered assistant shall conduct a pharmacy.”

It seems that the parties must have had the foregoing statutory provisions in mind when the Boonshaft lease was drafted. Plaintiff was scrupulously careful to provide that Dr. Boonshaft's practices in the dispensing of drugs should be confined to those which are permitted by law to physicians to the exclusion of other practices which pertain to the pharmacy or drug business. It was lawful for Dr. Boonshaft to supply to his own patients, as their physician, such remedies as he might desire to prescribe for them (section 4031) if he did not also “keep a pharmacy, open shop or drug store, advertised or otherwise, for the retailing of medicines or poisons.” He had the right to compound prescriptions if he did not also maintain a “store” or “shop” where medicines, etc., were dispensed or sold at retail having upon it as a sign the words “pharmacist,” “pharmaceutical chemist,” “apothecary,” “druggist,” “pharmacy,” “drug store,” or “drugs” (section 4035, Business and Professional Code). He agreed not to display any such sign and never did display one. No doubt he intended to employ a pharmacist, as he would have been required to do under section 4036, because he had a laboratory or office for the compounding of drugs and the dispensing of prescriptions. But this did not constitute having or operating a pharmacy as defined by section 4035. In other words, there was nothing in the lease which gave him the right to do anything which physicians could not legally do, nor was he given permission to operate a pharmacy or drug store. Nor is there any evidence that he intended in the beginning to do or that he did anything that other physicians in the building could not lawfully do. The reasonable construction of the Horton & Converse lease is that it was not thereby intended to deprive future tenants in the building of rights and privileges to dispense medicines to their patients which were enjoyed by the physicians and dentists who were already there and other practitioners who were purchasing drugs and medicines from respondent. The evidence clearly shows that the executives of Horton & Converse so understood their lease for several months after Dr. Boonshaft moved in. He took possession of the ninth floor of the building April 15, 1938. He then began purchasing drugs at retail from defendant's store in the building. He had to pay a sales tax on his purchases and complained of this to Mr. Walsh, the vice president of defendant. The latter told him that sales tax was charged on all retail purchases but not on wholesale purchases. Thereupon Mr. Walsh took the matter up with Mr. Binder, who was the manager of the Boonshaft group, with the result that he received full information as to the manner in which the group of doctors was operating, namely, that it was rendering services on a monthly payment basis, was treating a large number of people, and desired to buy drugs at wholesale to be supplied to the patients. In the latter part of April or early part of May Mr. Walsh saw the drug room and the medicines on the shelves in the Boonshaft suite. He testified that at about that time he had been advised by the manager of the store in the building that Dr. Boonshaft had received quite a quantity of pharmaceuticals, drugs and medicines; that he intended to operate his own pharmacy and had employed a pharmacist. He communicated these facts to the representative of appellant, who read to him pertinent provisions of the Boonshaft lease and explained how Dr. Boonshaft was operating. Mr. Walsh had previously discussed with Mr. Binder and Dr. Boonshaft the possibility of an arrangement under which Dr. Boonshaft would purchase his drugs at a discount from defendant and credit was established as of June 25, 1938, for purchases at wholesale. Defendant continued to sell drugs at retail to Dr. Boonshaft until the wholesale purchases were commenced after the 25th of June, and thereafter sold them at wholesale up to the time of trial. Mr. Walsh testified that Horton & Converse sold drugs, medicines, etc., to Dr. Boonshaft just as they sold them to other physicians. Of course defendant knew during all of this period that the Boonshaft group were supplying drugs to their patients. As a matter of fact Dr. Boonshaft on May 10, 1938, obtained a pharmacy license from the State Board of Pharmacy, of which Mr. Walsh was a member. Mr. Walsh's signature was attached to this license. Although Horton & Converse knew that drugs were being purchased at retail and were to be purchased from them at wholesale to be dispensed to patients, they made no objection to Dr. Boonshaft or his representatives nor did they, until early in August under circumstances to be related, make any objection to the representatives of plaintiff. They knew from having had the Boonshaft lease read to them in part that the group of doctors were not operating a pharmacy or drug store and were doing no more than supplying drugs or medicines to their patients. They were satisfied with this condition of things. Since Mr. Walsh was a member of the State Board of Pharmacy, and since defendant had been in the drug business for a great many years, it is to be presumed that they were well informed of the difference between the drug store or pharmacy business and the distinctly different vocation of the practice of medicine, which involves to some extent the dispensing of medicines. As we have seen, they were satisfied with the practices that were being followed by Dr. Boonshaft. We cannot find in this evidence any support for the finding that the making of the lease itself or the practices followed thereunder amounted to maintaining a drug store or selling drugs. If the dispensing of drugs to patients was competition with defendant, then all of the other physicians in the building who followed the common practices of medical men––and which are commonly known, as well––would likewise have been in competition with defendant. The executives of defendant changed their minds about their own rights in the premises under the following circumstances: on July 1, 1937, occupancy of the Medico–Dental Building had fallen to a level of 50% and for that reason defendant's rent was reduced from $600 to $500 a month for one year, with a proviso that for each 5% of increase over the level of July 1, 1937, the rent would be increased at the rate of $16.66 per month, not to exceed a fixed rental of $600 per month, although the lease also provided for rental equal to 7% of gross sales.

On July 1, 1938, defendant was billed for the July rent in the amount of $658.31, $100 being a restoration of the fixed rental and $58.31 being an amount previously accrued and including, apparently, an increase due to Dr. Boonshaft's occupancy of space. Mr. Horton, president of defendant, then called up plaintiff's representative to make complaint of the charge for rent, saying, “You are not only operating a pharmacy up there but you are raising our rent on the strength of it.” Aside from Mr. Walsh's inquiry of plaintiff's representative as to whether Dr. Boonshaft was operating a pharmacy, Mr. Horton's complaint was the first one made to plaintiff as to the practices of the Boonshaft group and no complaint whatever had been made to Dr. Boonshaft. Defendant apparently was satisfied to have Dr. Boonshaft for a customer for the drugs which he was dispensing to his patients. The rent matter appears to have had an illuminating effect.

Clearly the acts of defendant which we have stated were, in themselves, such as to estop it from claiming, as it later on proceeded to do, that the lease to Dr. Boonshaft, or his practices in the dispensing of medicines, constituted a breach of the covenant of defendant's lease. We should look at certain of the findings in this connection. They cover certain facts which were relied upon by plaintiff to establish an estoppel against defendant but they do not cover or purport to cover other matters relating to knowledge and acquiescence discussed herein which we think do support the claim of estoppel. There was testimony for plaintiff that the restrictive provision of the Boonshaft lease had been read to an executive of defendant and that the latter had approved it before the lease was executed. The court found this to be untrue. It had also been testified that Mr. Walsh advised Dr. Boonshaft that it would be necessary for him to obtain a pharmacy license and sales tax permit and that he outlined the procedure to be followed and promised to assist in the obtaining of said licenses. The court found that Mr. Walsh did not give such advice or make such promises and that it was not true that he or any person on behalf of defendant “did assist or encourage Mr. Binder or anyone to establish or maintain or acquiesce in the maintaining of a drug store or selling of drugs in any part or portion of the Medico–Dental Building other than the premises demised by plaintiff to defendant.” The first portion of this finding, that relating to the statements of Mr. Walsh, finds support in the evidence because Mr. Walsh as a witness denied having made the statements. The remainder of the finding has technical support in the evidence, because of course it was not contended that defendant assisted or encouraged Dr. Boonshaft to maintain a drug store or sell drugs. But the pertinent facts with relation to defendant's knowledge of and acquiescence in Dr. Boonshaft's practices were established by the testimony of Mr. Walsh and other witnesses for defendant and stand uncontradicted. From the latter part of April or the early part of May until the rent controversy arose on the 1st of August, respondent knew the terms of the Boonshaft lease, had been informed of the employment of a pharmacist as early as April or May, not only knew of the dispensing of drugs to Dr. Boonshaft's patients but also sold him the drugs first at retail and later at wholesale, obtained such benefits as accrued from this business, and yet uttered no word of complaint or remonstrance except to inquire whether a pharmacy, or in other words, a drug store or shop for the sale of drugs to the public, was being maintained. The court found that defendant during the last week of July, 1938, learned of the “activities with reference to the aforesaid drug store,” but the facts with reference to defendant's knowledge that Dr. Boonshaft had a pharmacist in his employ and was supplying his patients with medicines purchased from defendant for several months before any complaint was made were established without conflict.

Mr. Walsh denied having had “definite” knowledge of the issuance of pharmacy and sales tax licenses until the last week of July, although he admitted having had knowledge of the employment of a pharmacist early in May. The denial is of an immaterial fact in view of his full knowledge of the manner in which drugs were being dispensed. There is no pretense that defendant's executives were so naive as to believe that the physicians during the several months in question were purchasing large quantities of medicines and giving them away to their patients. Nor does it appear that such is the common practice among physicians. It is true as found by the court that defendant did not encourage Dr. Boonshaft to maintain a drug store or sell drugs, but it unquestionably did, by its silence and its sales of drugs to him encourage him to continue to furnish medicines to his patients and to believe and to proceed in the belief that his methods of doing business did not conflict with defendant's rights under its lease. There was no finding to the contrary. Equally significant was defendant's silence with respect to registering a complaint with plaintiff until after a controversy arose over the amount of rent. The plainest principles of equity preclude defendant from taking advantage of a situation which by its silence and acquiescence it encouraged. The estoppel arose from a waiver of the right to assert that its lease had been broken. It was such a waiver as was to be implied from the conduct of its agents and did not need to be express or intentional as long as others acted in the belief that a waiver was intended. Jones v. Della Maria, 1920, 48 Cal.App. 171, 191 P. 943; Johnson v. Kaeser, 1925, 196 Cal. 686, at page 698, 239 P. 324. If Horton & Converse had proceeded against Dr. Boonshaft, the latter would have had a good defense upon the foregoing facts. How can Horton & Converse have greater rights against plaintiff, or how could plaintiff have had greater rights to compel Dr. Boonshaft to change his practices?

There is another reason why we think the evidence was insufficient to support a conclusion that any breach of defendant's lease was of a substantial nature. The only evidence in the record as to the amount or value of drugs dispensed by Dr. Boonshaft to his patients was to the effect that they amounted to from $2 to $5 a day. This apparently was at some time prior to the purchases that were made at wholesale. However, there was no evidence that the sales were ever any greater than that, nor was there any evidence as to the nature of the medicines dispensed which would have enabled the court to know whether they differed from those ordinarily supplied by physicians to their patients nor was there any evidence whatever as to what proportion of the medicines was supplied under the monthly charge and what medicines, if any, were charged for separately. In other words, while under its arrangement with Dr. Boonshaft defendant was profiting satisfactorily in the sale of drugs to him, its detriment, if any, through loss in the filling of prescriptions was not proved or attempted to be proved. Plaintiff was under no obligation to lease to a tenant who would trade with defendant, nor even to lease to a physician. Dr. Boonshaft's advent as a tenant was distinctly advantageous to defendant. It is to be presumed that defendant's sales to him were profitable. The contention is that Dr. Boonshaft should not have been allowed to supply medicines to his patients at all but should have issued prescriptions for such as were needed, which prescriptions, presumably, in part, at least, would have been filled in defendant's store. This was the excuse which defendant offered for the attempted rescission of its lease. This diaphanous screen cannot hide the nakedness of the claim of damage. Nothing of substance in the way of detriment was proved. It is just as reasonable to infer from the facts in evidence that defendant's profits from the sale of drugs and medicines exceeded its possible profits from filling prescriptions as to infer the contrary.

If it were possible to see in the situation some detriment to defendant's business based upon fact and not pure theory, it would be, upon the facts in evidence, insignificant and trivial and would not have warranted a rescission of the lease. Keating v. Preston, 1940, 42 Cal.App.2d 110, 117, 118, 108 P.2d 479. From the fact that a contract is breached by one party it does not necessarily follow that the other thereby becomes entitled to rescind. A breach of a contract in some trivial or minor respect may in some cases be regarded as if it were the breach of an independent covenant. See discussion by Justice Cardozo in Jacob & Youngs v. Kent, 1921, 230 N.Y. 239, 129 N.E. 889, 23 A.L.R. 1429. If the breach of an independent covenant or one which does not run to the whole consideration for the contract does not warrant a rescission of the contract, by like reasoning a breach of a dependent covenant so trivial in amount and consequence that it does not materially affect or interfere with the primary purposes of the covenantee in entering into the contract should not give the latter the right to rescind. In no proper sense can it be said that the sale of medicines by physicians or dentists in the Medico–Dental Building to their own patients constituted a practice which would bring them in competition with defendant's drug business, and no more can it be said that because Dr. Boonshaft employed a pharmacist to compound prescriptions, the insignificant amount of business done with his patients, assuming that it was all through the medium of prescriptions, constituted competition with defendant's business within the meaning of the covenant, in the absence of any showing whatever that the amount involved exceeded the amounts of medicines and drugs which other physicians and dentists in the building were accustomed to furnish and were furnishing to their patients without objection on defendant's part. This feature of the case seems to have been inadequately presented to the trial court, although it was an important one.

There is yet another finding which we think is unsupported by the evidence, and that is that plaintiff breached its lease by failing to take more vigorous action against Dr. Boonshaft to compel him to change his practices. On August 3, Mr. Horton addressed a letter to plaintiff reading as follows: “Some time ago, prior to the execution of your lease with the Louis D. Boonshaft Medical Group, the manager of your building, Mr. Naylor, called our Mr. Walsh and assured him that the Boonshaft Group would not be allowed to operate a drug store, or dispensary, in the building, and read a portion of the clause in the Boonshaft lease to him over the telephone that would protect us. However, it has come to our attention that Dr. Boonshaft has purchased a stock of drugs, taken out a pharmacy permit, employed a pharmacist, has a State Sales Tax permit, fills prescriptions and sells drugs, and charges for the same, which is in direct violation of our lease, and that this was being done with the full knowledge of your building manager. According to the terms of our lease, we must insist that you immediately put a stop to this practice.” Plaintiff's representatives immediately contacted Dr. Boonshaft, with the result that on August 8 there was a meeting in the offices of defendant attended by its officers, Dr. Boonshaft, Mr. Binder, and representatives of plaintiff. Dr. Boonshaft denied that he was violating his own lease or that he was maintaining a drug store or selling drugs or ampoules in violation of defendant's lease. At the suggestion of Mr. Horton, negotiations were undertaken toward an arrangement for Dr. Boonshaft to have his prescriptions filled by defendant. From then on until August 19 plaintiff's representatives were diligent in trying to bring about such an arrangement. They were at all times in sympathy with the claims of defendant, although denying any responsibility for the causes of the complaints, and sincerely endeavored to satisfy the demands that defendant was making. One of the plans was to persuade Dr. Boonshaft to submit a list of the most commonly used prescriptions and drugs to defendant for the purpose of getting prices thereon. This was pursuant to a suggestion made by Mr. Horton. Plaintiff endeavored to obtain such a list but on August 19 its attorney advised Mr. Horton by telephone that he had been unable to do anything with Dr. Boonshaft, that “there could not be any arrangements made,” and Mr. Horton then said he thought they would move out, to which the attorney said, “Use your own judgment about that.” Upon the following day defendant closed its store, placed a sign on the door announcing its removal to one of its other stores, and piled the store full of packing boxes. On August 24 Mr. Horton wrote to plaintiff stating, “In our letter to you, dated August 3, 1938, we notified you that one of your tenants had purchased a stock of drugs, taken our a pharmacy permit, employed a pharmacist, has a State Sales Tax permit, fills prescriptions and sells drugs in direct violation of our lease. We now take the position that you have had a reasonable time to comply with the provisions of our lease but have failed to do so. We, therefore, advise that such failure compelled termination of performance on our part. You are hereby notified that we will vacate the premises located at 947 West Eighth Street before the first day of September, 1938.” The premises were vacated before the end of the month of August.

Plaintiff took the position with Dr. Boonshaft that he was violating the lease, and in the ensuing controversy took the side of defendant. That only goes to establish plaintiff's good faith toward defendant. It does not prove that Dr. Boonshaft was violating his lease. Instead of taking extreme measures, plaintiff endeavored in apparent good faith and with commendable diligence to bring the parties to some sort of agreement. Defendant does not advise us just what plaintiff should have done that it did not do. It was simply assumed by defendant that plaintiff intended to do nothing more than had already been done to bring about a settlement of the dispute. That is not a fair inference from the facts disclosed by the evidence. Immediately upon being notified that Dr. Boonshaft's consent could not be obtained to the purchasing of his drugs on prescriptions from defendant, the latter abruptly closed its doors and abandoned all further effort to otherwise assert its rights under the lease.

A most important fact in this connection is that plaintiff had committed no wrong. As already noted, leasing to Dr. Boonshaft violated no right of defendant; the lease in terms respected and provided against violation of defendant's exclusive privilege. Plaintiff never had any more knowledge of Dr. Boonshaft's practices than defendant had, if indeed, as much, until the matter was discussed in conference in the month of August. Under the view most favorable to defendant, plaintiff's conduct could not have constituted a breach of its covenant unless such conduct amounted to a consent to a breach of defendant's exclusive privilege by Dr. Boonshaft, manifested by refusal or persistent failure to make reasonable efforts to put an end to such violation. In other words, Dr. Boonshaft's violation, assuming one for the moment, could not have become plaintiff's violation until plaintiff in effect adopted it as its own. Conceding that this could have been done through inaction (University Club v. Deakin, 1914, 265 Ill. 257, 106 N.E. 790, L.R.A.1915C, 854), the evidence was clearly insufficient to show that it was done or that plaintiff had abandoned its efforts to find a solution for the disagreement between the tenants. While plaintiff was under an express obligation not to lease space to a competitor of defendant, there was, at most, but an implied obligation to see that other tenants did not become such competitors by reason of practices adopted, without plaintiff's knowledge or consent. And if it be the law that a landlord has a duty in such situations, beyond those he has consciously assumed, a breach of that obligation should not be hastily declared against him without a showing that he has been guilty of bad faith or deliberate violation of his duty.

If defendant's understanding of its rights was correct, it could have enjoined Dr. Boonshaft from the practices which constituted a violation of defendant's lease. Pappadatos v. Market St. Bldg. Corp., 1933, 130 Cal.App. 62, 19 P.2d 517; Waldorf–Astoria Segar Co. v. Salomon et al., 1905, 109 App.Div. 65, 95 N.Y.S. 1053, at page 1056, affirmed in 184 N.Y. 584, 77 N.E. 1197; Standard Fashion Co. v. Siegel–Cooper Co., 1898, 157 N.Y. 60, 51 N.E. 408, 43 L.R.A. 854, 68 Am.St.Rep. 749. We do not say that it was obliged to do so, but it cannot be questioned that a greater measure of cooperation with plaintiff would have strengthened its claim that it acted in good faith. At any rate the precipitate and summary action which it did take was wholly unjustified under the circumstances. It must be remembered that up until the time that it closed its store, defendant had not given plaintiff any notice that it contemplated rescinding its lease nor had it made any complaint whatever that plaintiff was not proceeding diligently to remove the cause of the controversy. It was at Mr. Horton's suggestion that negotiations were taken up toward a settlement of the controversy. Plaintiff was not allowed a reasonable time, or any time at all, within which to take further action after Dr. Boonshaft had declined to enter into an agreement, before defendant closed its store. Defendant's contention in this respect does not compare favorably with the good faith shown by plaintiff throughout the controversy. Defendant had no right under the circumstances shown here to rescind its lease as long as plaintiff was diligently and in good faith endeavoring to remove the cause of defendant's complaint. However, as already pointed out, plaintiff was under no obligation to bring the two tenants to an agreement, or to interfere with Dr. Boonshaft's methods, which did not interfere with the rights of defendant under its lease.

Appellant argues another point which should be decided, inasmuch as it may be pertinent upon a retrial of the case. It is contended that the covenant of the lessor not to lease any part of the building for the purpose of its use as a drug store or for the sale of drugs, and the lessee's covenant to pay rent are independent of each other and therefore that if the former was breached, such breach would not give the lessee the right to terminate or rescind the lease or relieve it from liability to pay rent during the remainder of the term. Two California cases are relied upon, neither of which is in point. They are Arnold v. Krigbaum, 1915, 169 Cal. 143, 146 P. 423, Ann.Cas.1916D, 370, and Exchange Securities Co. v. Rossini, 1919, 44 Cal.App. 583, 186 P. 828. In the first of these cases it was held that a counterclaim for damages for failure to make repairs could not be asserted in an action of unlawful detainer. In the other it was held that a covenant to pay rent was not dependent upon a covenant of the lessor to give the lessee an opportunity to purchase the property in case of sale and that a breach of the latter covenant did not relieve the lessee of his obligation to pay rent. It was also held that a breach of an independent covenant in a lease does not give the right to rescind or terminate the lease in the absence of an agreement between the parties granting such right.

In Lunn v. Gage, 1865, 37 Ill. 19, 87 Am.Dec. 233, in construing a lease the court approved a statement to the effect that “covenants are to be construed to be dependent or independent, according to the intention of the parties, and the good sense of the case; and that technical words should give away to such intention.” Other cases to the same effect are collected in 32 Am.Jur., section 134. It seems to us to be a wholly satisfactory rule. Leases of real property create distinct sets of rights and obligations, namely, those depending upon privity of estate and those depending upon privity of contract. Samuels v. Ottinger, 1915, 169 Cal. 209, 211, 146 P. 638, Ann.Cas.1916E, 830. Those features of the lease which are strictly contractual in their nature should be construed as other contracts are construed and in accordance with the fundamental principle that the intentions of the parties should be given effect as far as possible. It is an established rule that those covenants which run to the entire consideration of a contract are mutual and dependent. Ernst v. Cummings, 1880, 55 Cal. 179; Brennan v. Ford, 1873, 46 Cal. 7; Osborn v. Henry Cowell Lime, etc., Co., 1918, 37 Cal.App. 67, 70, 173 P. 492. Undoubtedly the covenant in defendant's lease was of such a nature. The exclusive right to conduct a drug store in the building was the thing contracted for. The business was derived largely from tenants in the building and when vacancies occurred defendant's income from the store suffered to such an extent that the rent was temporarily reduced. This fact, of course, is but corroborative of the contention that the business was not of a transient nature and that it was of prime importance that no competitor be rented quarters in the building. Where a covenant of a lessor is of such a nature that its breach will defeat the entire purpose of the lessee in entering into the lease, such as rendering his further occupancy of the premises a source of continuing financial loss incapable of satisfactory measurement in damages, it must be said that the covenant goes to the entire consideration for the lease upon the lessee's part. University Club v. Deakin, 1914, supra; Hiatt Investment Co. v. Buehler, 1929, 225 Mo.App. 151, 16 S.W.2d 219. See also cases cited supra.

The appeal presents no other questions.

The judgment is reversed.

I dissent. For dissenting opinion see 125 P.2d 610.

SHINN, Justice.

SCHAUER, P. J., concurred.