NELSON v. REISNER

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District Court of Appeal, Fourth District, California.

M. C. NELSON and W. K. Dunne, Plaintiffs, Cross-Defendants and Appellants, v. C. H. REISNER, Defendant, Cross-Complainant and Respondent.*

Civ. 5607.

Decided: March 11, 1958

Albert Picard, San Francisco, Mack, Bianco, King & Eyherabide, Bakersfield, Burton M. Greenberg, San Francisco, for appellants. Hackett & Hubbard, Los Angeles, Borton, Petrini, Conron & Brown, Bakersfield, for respondent.

This is an appeal from a judgment based on the alleged breach by plaintiffs of defendant's ‘right of first refusal of a new lease.’

The plaintiffs leased 160 acres of land to one Schnaidt for a period of five years beginning August 15, 1947 and ending August 14, 1952. The lease provided that the lessee should drill a well of sufficient size and capacity to irrigate all of said land; that he should then level the land in such a manner as to enable it to be irrigated; that he should pay a rent of $7 per acre per year; that he sould cultivate the land in a good and farmerlike manner; and that he should have the right to place other improvments on the land, and to remove them at the expiration of the lease unless the lessors elected to buy them at their cost price less depreciation. The lease also contains this provision:

‘Lessors covenant and agree to extend to lessee the right of first refusal in the event of the sale of the premises during the term of this lease and the right of first refusal of a new lease at the expiration of the term of this lease.’

The plaintiffs later leased an adjoining 160 acres to Schnaidt for the term beginning February 1, 1949, and ending January 31, 1952. This lease provided that the lessee agreed to level said land so that it could be irrigated by gravity, to drill a well and install pipelines sufficient to irrigate the property and to cultivate the land in a good and farmerlike manner. This was a ‘share crop lease’ and it contained no provision for the right of first refusal of a new lease.

Both of these leases were assigned by Schnaidt to the defendant Reisner on December 29, 1950, with the consent of the lessors. The defendant paid Schnaidt $28,000 for these leases, including the crops then on the land. The expiration day of the first lease was extended to December 31, 1952, with a reasonable time thereafter to harvest and remove any crops then on the land.

The plaintiffs brought this action for damages on April 12, 1954, alleging with respect to the first lease that the defendant had failed to remove a reservoir which the plaintiffs were compelled to remove at their own expense, that he had failed to properly maintain certain water stacks and pipes, and that he had damaged the land by double cropping it. In a second cause of action, it was alleged that the defendant had not paid the plaintiffs the full amount due under the share crop lease, and that he had damaged that land by double cropping it. The defendant answered and also filed a cross-complaint alleging that he had taken an assignment of the first lease in reliance on the promise of the plaintiffs to give the lessee the right of first refusal for a new lease; that he had paid Schnaidt about $28,000, and had expended large sums of money in developing and improving said property; that the plaintiffs knew that he desired and intended to make a new lease at the expiration of the old lease; that before such expiration the plaintiffs entered into a new lease with one Virgil Smith; that within a year thereafter the plaintiffs entered into another lease with one Walter Bonkosky; that at all material times the defendant was ready, willing and able to enter into a new lease on the same terms as those in any of the leases entered into by the plaintiffs with other persons; that the plaintiffs did not give the defendant notice as to the terms of any of said leases, and did not give him the right of first refusal or an opportunity to accept or reject a lease on such terms; that by reason of the failure of the plaintiffs to give this right or opportunity to the defendant the plaintiffs breached the covenant relating to a new lease; and that by reason of said breach defendant has been damaged in the sum of $300,000. A second cause of action for declaratory relief is based on a controversy between the parties with respect to their obligations under this first right of refusal clause.

The court found against the plaintiffs on all of the issues raised with respect to the items of damage claimed by them, and found that the defendant had cultivated the property in a good and farmerlike manner. With respect to the share crop lease it was found that the defendant had paid the plaintiffs their full share of the returns from the crops. (At the hearing of the motion for a new trial it was agreed by both parties that checks totaling $2626.26 covering a balance due under the share crop lease had been sent by defendant to plaintiffs and not cashed by them, and that this amount was still owed to them.) It was further found that defendant remained in possession under the first lease until April 5, 1953, which was the reasonable time required to remove the crops; that the plaintiffs were informed by the defendant and knew at all material times, including February 20, 1953, that the defendant ‘desired and intended to make a new lease’ for said property; that the defendant at all times kept and performed his covenants under this lease; that on February 20, 1953, without the knowledge of the defendant, the plaintiffs entered into a share crop lease with one Wirgil Smith covering both properties, to run three years with the right to renew for seven years, and did not offer the property described in the first lease to the defendant on the same terms as those contained in the Smith lease; that on March 23, 1953, the plaintiffs informed the defendant in writing that they had not executed a new lease but that they contemplated doing so, and that they thereby gave the defendant his right of first refusal for a new lease on the condition that the new lease would cover the land described in both prior leases, and be for a term of ten years at $100 per acre per year; that said offer of a new lease was not made in good faith, was exorbitant and unreasonable, and was made by the plaintiffs for the purpose of defeating defendant's rights under said first refusal clause; that the defendant was ready, willing and able at all times to enter into a new lease with the plaintiffs upon the same terms as those contained in the Smith lease; that the plaintiffs did not extend to the defendant the right of first refusal of a new lease of the property described in the first original lease; that by reason of the failure of the plaintiffs to give the defendant the right to enter into a new lease on the same terms as those contained in the Smith lease the plaintiffs breached this right of first refusal clause; that as a direct and proximate result thereof the defendant was damaged in the sum of $30,643.00; that defendant, with plaintiffs' knowledge, paid Schnaidt $28,000 for the two leases and expended large sums of money and time in farming the property covered by the first lease in reliance on his rights under the right of first refusal clause and plaintiffs' representations that they would give him such right of refusal; that defendant would not have taken this assignment or done these things had the plaintiffs not so represented and had the right of first refusal clause not been a part of said lease; and that by reason thereof the plaintiffs are estopped to deny the validity of said first refusal clause, and estopped to deny defendant's right to a new lease to the property covered by the first lease upon the same terms as those contained in the Smith lease. Judgment was entered ordering that the plaintiffs take nothing and that the defendant recover $30,643 on his cross-complaint. In denying a motion for a new trial the court ordered the findings and judgment amended to reduce the judgment to $28,016.73. The plaintiffs have appealed from that judgment.

The appellants' contentions, while not expressly so designated, are in fact attacks upon certain of the findings as not supported by the evidence. It is contended that the evidence clearly shows that they were damaged in the sum of $895 by the respondent's failure to remove the reservoir from the land, and further damaged in that the respondent failed to cultivate the property in a good and farmerlike manner. With respect to the right of first refusal of a new lease it is contended that the respondent waived that right, that since he had not faithfully performed the covenants of the lease his option had terminated, and that he had surrendered the premises to the appellants. It is then contended that the evidence is not sufficient to support the amount of damages allowed. In this connection it is argued that a new lease for any term, no matter how short or how long, would have been a sufficient compliance with the lease provision for the right of first refusal of a new lease; that any lease between appellants and a third party could not affect the amount of damage sustained by the respondent; that there was no evidence to show that the respondent was willing to negotiate any particular lease with the appellants; that there was no evidence to show any basis for the calculation of damages except the testimony of people farming other property; that the respondent produced no books and gave no testimony showing what he actually made on this property during the two years he farmed it; that there was no evidence showing what portion of the 160 acres involved in this issue would have been planted to potatoes, cotten or other crops; that there was no evidence upon which the net profits for farming this 160 acres could be computed, and none from which it could be calculated with any degree of certainty what the future net profits would have been; and that the award of damages here could have been based only upon speculation and conjecture.

While not without conflict, the evidence amply supports the findings to the effect that the appellants had not been damaged in any of the respects claimed by them, and that the respondent had cultivated the property in a good and farmerlike manner. While more conflicting, the evidence also supports the findings to the effect that the respondent informed the appellants that he desired a new lease and intended to exercise his right under the said right of first refusal clause; and that the plaintiffs did not extend to him the right of first refusal of a new lease of this property.

A closer question is presented as to the sufficiency of the evidence to sustain the finding that respondent was damaged in the sum of $30,643. The usual rule applicable to the loss of future profits is that there must be evidence disclosing a satisfactory basis for estimating what the probable earnings would have been, and that the award must be predicated on something more than mere possibilities. Natural Soda Products Co. v. City of Los Angeles, 23 Cal.2d 193, 143 P.2d 12; Caspary v. Moore, 21 Cal.App.2d 694, 70 P.2d 224. On the other hand, where prospective profits can be related naturally and directly to the breach of a contract the guilty party may not wholly escape on account of the difficulties of devising a perfect measure of the damages caused by his own wrong. Hoag v. Jenan, 86 Cal.App.2d 556, 195 P.2d 451; Unruh v. Smith, 123 Cal.App.2d 431, 267 P.2d 52. There was evidence here of what other lands in this area had produced in various years, with the cost of production, some of which were under varying terms of rental. There was evidence of profits and losses in different years in connection with similar land planted to potatoes and to cotton, one being more profitable than the other in some years, but the evidence was not very satisfactory as to what proportions of the land here in question had been or should be planted to either of those crops. There was evidence that the year 1952 was a good year for these crops and that the years 1951 and 1953 was unprofitable years. The respondent had farmed over 1100 acres in 1951 and 1952, including his 160 acres, but his records could not be segregated to show the actual results on this land for those years. The court apparently took into consideration the evidence relating to production on other lands during the years 1953 to 1955, as he stated he would not consider the possible extension of the Smith lease beyond its first three-year period.

Assuming that the evidence as to prospective profits might be held sufficient under some circumstances, a different situation here appears in the these parties had never agreed on any of the terms of such a new lease. How long it should run and the amount and form of the rental to be paid were vital factors in estimating and determining what the probable profit would have been. This element of uncertainty was overlooked, apparently on the theory that under the clause in question the respondent was entitled to a new lease upon any terms on which the appellants should become willing to lease the property to someone else. There is no evidence supporting that theory in the right of first refusal clause or elsewhere. This right of first refusal of a new lease did not provide for an extension or renewal of the existing lease, thus disclosing the terms of a new lease, and it did not provide that such lease should be on the terms on which the lessors were willing to lease it to someone else. None of the terms of such a new lease were in any way indicated or suggested, and neither the parties nor anyone else knew or could know what the terms of ‘a new lease’ were supposed to be. Damages for the loss of future profits must be shown with reasonable certainty. Under the clause in question this could not be shown with any certainty because such future profits would so largely depend upon the rental to be paid and the length of the new lease. This first refusal clause left all of the terms of a new lease to the future agreement of the parties, and there is no evidence or suggestion that such an agreement was ever reached.

A court may not fix all the terms of a new lease without ascertainable standards in the option agreement, and this option clause was not sufficient to establish a contract right. Ablett v. Clauson, 43 Cal.2d 280, 272 P.2d 753, 757; Bonk v. Boyajian, 128 Cal.App.2d 153, 274 P.2d 948; Belcher v. Williams, 151 Cal.App.2d 615, 311 P.2d 861; A.B.C. Distributing Co. v. Distillers, etc., Corp., 154 Cal.App.2d 175, 316 P.2d 71. In the Ablett case, where the agreement set forth none of the terms of a new lease except its duration, it was held that ‘* * * the terms of the option are too uncertain to make it enforceable as a contract right.’ After quoting the general rule as follows, ‘* * * if an essential element is reserved for the future agreement of both parties, the promise can give rise to no legal obligation until such future agreement.’, it is there stated that this rule is well established in this state.

The clause of the lease here in question, being too uncertain to be ‘enforceable as a contract right’ and being one which could ‘give rise to no legal obligation’, it would seem to follow that an alleged breach of that clause could not, in itself, give rise to an obligation based upon the claim that an enforceable contract existed. Not only was this element of uncertainty and absence of terms entirely overlooked, but the consideration of the results on other lands over a three-year period was improper since a one-year lease would have been a sufficient compliance if the agreement had otherwise been valid. The evidence relating to that one year, 1953, would not have supported a judgment for anything like the amount awarded.

Assuming that an estoppel might be shown, the evidence here was not sufficient to support this judgment on the ground of estoppel. The court's finding of an estoppel related only to respondent's right to a new lease on the same terms as the Smith lease, and was based upon his reliance on the said right of first refusal clause and the appellants' representation that they would give him such right of first refusal. Aside from other considerations there was no evidence of any representation giving him a right to a lease on the terms of the Smith lease or on any other stated terms at the time he took the assignment, or subsequently, and no evidence of any agreement of that nature other than the refusal clause in the lease itself. Estoppel was not pleaded, the case was tried on the issue as to whether or not the refusal clause had been breached, and no claim with respect to an estoppel is made in briefs on this appeal. On the record before us, the evidence is not sufficient to support the judgment as entered.

The judgment is reversed.

BARNARD, Presiding Justice.

GRIFFIN and MUSSELL, JJ., concur.