FOREMAN CLARK CORPORATION v. <<

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Court of Appeal, Second District, Division 1, California.

FOREMAN & CLARK CORPORATION, Plalntiff, Cross-Defendant, Respondent and Appellant, v.

Madeleine FALLON, Floyd H. Norris and Martha B. Norris, Defendants, Cross-Complainants, Appellants and Respondents, v. Phillip LYON, dba Phillip Lyon Company, Cross-Defendant and Respondent.

Civ. 34649.

Decided: February 25, 1970

Gibson, Dunn & Crutcher and John L. Endicott, Los Angeles, for appellant and respondent, Foreman & Clark Corp. O'Melveny & Myers and Louis T. LaTourette, Los Angeles, for respondent Lyon. Henry C. Rohr and Floyd H. Norris, Los Angeles, for respondents and appellants.

Involved here are separate appeals from a judgment in an action arising from the lease of certain business property in downtown Los Angeles. When defendants failed to deliver possession of the premises pursuant to the parties' agreement, plaintiff sought damages for breach of contract and was awarded a sum substantially less than that prayed for; it appeals from such award. Defendants, on the other hand appeal from the denial of any relief on their cross-complaint seeking a judicial declaration that the lease was null and void and, additionally, damages from plaintiff as well as cross-defendant Lyon, the broker participating in the transaction.1

We first consider the appeal of plaintiff corporation. It was awarded judgment by way of general damages in the sum of $25,000 as well as certain special damages and a sum representing reasonable attorneys' fees; only that portion of the judgment fixing general damages is here challenged. By an appropriate finding of fact, and the conclusion of law drawn therefrom, such sum ($25,000) was declared to be ‘the difference between the lease rental and fair rental value of the leased premises.’ Except for the claim that plaintiff is entitled to an award of attorneys' fees in connection therewith, the only contention advanced on this appeal is the sufficiency of the evidence to support the award; according to plaintiff, the general damages awarded should have been at least $350,000 under the undisputed evidence received below. We think this contention must be sustained.

By its minute order, following submission of the cause, the trial court made reference to the measure of damages in apposite situations, citing McCulloch v. Liguori, 88 Cal.App.2d 366, 199 P.2d 25, which holds that ‘The general damage for breach of an agreement to lease is the difference between the agreed rental and the rental value for the term at the time of the breach. [Citation.]’ (P. 375, 199 P.2d p. 31) The lease here, dated October 20, 1964, was for 15 years, providing for occupancy on January 1, 1966, at a rental of $3,750 per month. This being the ‘agreed rental’ referred to above, testimony was taken to ascertain the ‘rental value for the term at the time of the breach.’ Three witnesses, whose qualifications apparently were not challenged and whose testimony went in without objection, fixed such rental value (at the time of the breach) in varying amount; when the agreed value ($3,750) is subtracted therefrom, there is a corresponding variance in the present value of the lease compensable in general damages under the formula or rule mentioned in McCulloch v. Liguori, supra. See chart below, the figures in which include adjustments for lessee improvements and (when applied) appropriate discount factors.2

No other evidence as to value was produced at the trial, defendants presumably adhering to the view that plaintiff's claim could be completely defeated upon theories of defense now to be stated.3 In addition to their cross-complaint which sought cancellation of the lease upon the ground of plaintiff's misrepresentations, defendants contended at the trial, as well as here, that plaintiff did not establish any right to recovery of general damages because it did not prove the cause of action for specific performance set forth in its original complaint, relying on Eagle Oil & Refining Co. v. James, 52 Cal.App.2d 669, 126 P.2d 880, which in turn relied upon two cases (Hupp v. Lawler, 106 Cal.App. 121, 288 P. 801 and Morgan v. Dibble, 43 Cal.App. 116, 184 P. 704) later disapproved by the Supreme Court in Pascoe v. Morrison, 219 Cal. 54, 57–58, 25 P.2d 9. Since Pascoe, it is now settled in this jurisdiction that a plaintiff may obtain damages even though he cannot obtain specific performance of the contract sued upon. (Long Beach Drug Co. v. United Drug Co., 13 Cal.2d 158, 173, 88 P.2d 698, 89 P.2d 386; Brandolino v. Lindsay, 269 Cal.App.2d 319, 75 Cal.Rptr. 56.) As succinctly stated in Brandolino, ‘A complaint may allege inconsistent theories of a cause of action in the alternative [citation], including theories seeking specific performance of an agreement, or in the alternative, damages for the breach thereof. [citations]; and, the court may award damages if plaintiffs are not entitled to specific performance. [Citations.]’ (P.324, 75 Cal.Rptr. p. 59.)

Furthermore, even if the foregoing rule did not here control, there is no basis in law or in fact for defendant's claim that the consideration for the lease was inadequate. In Cushing v. Levi, 117 Cal.App. 94, 100–101, 3 P.2d 958, 960, the court had this to say about a similar contention: ‘Appellants seem to contend that, if the value of the land at the time of the execution of the contract was a few thousand more than the price named in the contract, then the consideration is not adequate. This is not the law. The requirement of an adequate consideration in an action for specific performance does not mean that the contract price shall measure up to the highest market value of the property, but merely that it shall be a substantially just and fair valuation under all the circumstances of the case. [Citation.]’ Nor is there any factual basis for the claim of inadequacy of consideration in light of the following evidence. Upon the trial defendant Floyd Norris testified that the agreed monthly rental ($3,750) was reached by taking the difference between $3,675, the amount being received for the space in question at the time of the lease negotiations, and $3,875, the amount of rental for the same space some time prior to the above negotiations. The mere fact, of course, that there may have been an increase in the property's value subsequent to its execution—in our case the breach occurred more than 14 months after the lease was executed—is wholly immaterial with respect to the question of adequacy of consideration. (Schwartz v. Shapiro, 229 Cal.App.2d 238, 255, 40 Cal.Rptr. 189.)

Wholly apart from the foregoing discussion, it further appears that trial of plaintiff's claims was had upon its amended and supplemental complaint which contained no claim for specific performance; as appears therein, there was no longer any need for specific performance since plaintiff, in view of defendants' alleged breach, had been compelled to lease other but comparable space albeit at a greater rental than that provided for in the agreement. Under the circumstances it is settled that ‘Such amended pleading supplants all prior complaints. It alone will be considered by the reviewing court. [Citations.]’ (O'Melia v. Adkins, 73 Cal.App.2d 143, 147, 166 P.2d 298, 301.) Accordingly, unless defendants were entitled to prevail on the demands for rescission contained in their cross-complaint, and our subsequent consideration of that appeal will show the portions of the judgment thereby challenged must be affirmed, there remains with respect to plaintiff's appeal the question whether, if the rule stated in McCulloch v. Liguori, supra, 88 Cal.App.2d 366, 375, 199 P.2d 25, is here applicable, it was error for the trial court to disregard evidence of value produced pursuant thereto and arrive at its own opinion of value determinative of the general damages to be assessed.

We are persuaded that the measure of damages applied in McCulloch should be applied here, namely, the difference between the agreed rental and the rental value for the term at the time of the breach. Subsequent cases, presented with the same problem, have not deviated from the above resolution of the issue. For example, see Handley v. Guasco, 165 Cal.App.2d 703, 332 P.2d 354, and Lewis v. James, 134 Cal.App.2d 15, 22, 285 P.2d 86, the latter decision quoting from McCulloch. Although all of these cases seem apposite, involving (as they do) leasing agreements, defendants nevertheless contend that the measure of damages in the present controversy is governed by section 3306, Civil Code, pertaining to the breach of an agreement to sell real property. The agreement here, of course, was not one of sale; too, no California authority is cited for the instant claim which is wholly inconsistent with the holdings already mentioned.

As its minute order discloses, the trial court took cognizance of the correct measure of damages to be applied, received evidence enabling the assessment of damages based thereon, but then fixed such damages in a sum representing but a small fraction of the lowest valuation testified to by any witness. Certain condemnation cases are cited by plaintiff for the proposition that the jury's verdict must be within the range of the expert testimony produced (Redevelopment Agency, etc. v. Modell, 177 Cal.App.2d 321, 326 –327, 2 Cal.Rptr. 245; People ex rel. Department of Public Works v. McCullough, 100 Cal.App.2d 101, 105–106, 223 P.2d 37), neither more than the highest nor less than the lowest value fixed. (See also People ex rel. Department of Public Works v. Hayward Bldg. Materials Co., 213 Cal.App.2d 457, 467, 28 Cal.Rptr. 782.) Thus in the Redevelopment Agency case, the lowest market value assigned to the property was $47,500 and the jury's award was $45,000. Citing an Illinois case to the effect that a verdict beyond the maximum, or less than the minimum fixed by the testimony will not be sustained (177 Cal.App.2d p. 327, 2 Cal.Rptr. 245), the court reversed as to the issue of damages. The above analysis of the problem seems proper here despite defendants' seeming argument that such analysis should be limited to actions in eminent domain, although a similar rule also exists in workmen's compensation cases. (See Liberty Mut. Ins. Co. v. Industrial Acc. Comm., 33 Cal.2d 89, 93–94, 199 P.2d 302.)

Governing all types of litigation is the principle that the uncontradicted and unimpeached opinion of an expert may not be arbitrarily disregarded. (See Witkin, Cal.Evidence [Second Edition], p. 388.) No question is raised as to the qualifications or probity of the three experts, one of whom (as stated earlier) was a defendant in the action while a second (Mr. Moss) was a defense witness. Nor does the minute order disclose any reasonable explanation for the sum awarded as general damages notwithstanding the court's awareness of the correct rule here governing. Reese v. Smith, 9 Cal.2d 324, 70 P.2d 933, declares that “A judgment cannot be based on guesses or conjectures. [Citation.]” (P. 328, 70 P.2d p. 935.) While not implying that such was here the case, certainly absent any evidence of sufficient substantiality tending to overthrow plaintiff's proof of general damages, the portion of the judgment in that respect must be reversed.

Since plaintiff has indicated that it will accept the lowest sum set forth in the chart (fn. 2), to avoid the needless time and expense incident to another trial (thus following the procedure adopted in the McCulloch case), the judgment will be reversed insofar as it denies recovery in excess of $25,000 general damages with directions to the trial court to amend its findings of fact and conclusions of law and enter judgment for $350,000 general damages in plaintiff's favor; provisions should also be made for an award of reasonable attorney's fees in connection with services rendered on this appeal (as covered by the provisions in the instant lease)—See Berven Carpets Corp. v. Davis, 210 Cal.App.2d 206, 216, 26 Cal.Rptr. 513.

We now consider defendants' (cross-complainants') appeal. Unlike that of the piaintiff, where certain crucial evidence was undisputed, the record reveals testimony either in conflict or subject to conflicting inferences which the court resolved against defendants as cross-complainants; too, and also dissimilar to plaintiff's appeal, certain legal propositions were advanced in support of defendants' cross-demands which lacked legal sanction and were properly rejected.

As amended, the cross-complaint prayed for a declaratory judgment decreeing that the lease was null and void by reason of certain misrepresentations in the inducement thereof; additionally, damages were asked from both cross-defendants, as well as the return of sums previously paid cross-defendant Lyon on account of his commission. The misrepresentations, three in number, relate to (1) the lessee's expected sales, (2) contemplated remodeling expenses, and (3) demolition of the mezzanine; the sole ground of appeal with respect thereto is the insufficiency of the evidence to support the adverse findings thereon. Contrary to the accepted rule of appellate practice, cross-complainants merely set forth evidence favoring their side of the controversy; but, as declared in 4 California Jurisprudence 2d, Appeal and Error, section 606, at page 487, ‘Before an appellate court is justified in reversing a judgment on the ground of insufficiency of evidence, it must appear from the record that, accepting the full force of the evidence adduced, together with every inference favorable to the prevailing party that may be drawn therefrom, and excluding all evidence in conflict therewith, it still appears that the law precludes that prevailing party from recovering a judgment. The evidence must be considered by the appellate court, but not weighed as against the conflicting evidence, and it is immaterial that the appellate court would have determined that the weight of the evidence favored the appellant.’

First, as to the evidence of expected sales, the lease provided for a minimum rent and then additional rental if sales exceeded $900,000 per year, the lessors being entitled to 5% of such excess. It is contended that representations were made, upon which cross-complainants had reason to rely, that such sales would exceed $1,500,000 at some time in the future. Contrary to such assertion, while four witnesses testified on behalf of the lessee as to future sales, none of them stated that sales would be in excess of $1,000,000. For example, lessee's president (Marcell Weiss) rendered the opinion that the move into the new premises would increase sales from 50% to 100%; since prior sales were approximately $421,000 per year, the future sales would thus be within a $630,000 to $840,000 annual range. Too, the trial court found that any representations which might have been made as to annual sales were expressions of opinion only, that they were not material, were not relied on by the cross-complainants and that it would not have been reasonable for them so to do. The propriety of the above determinations can be illustrated by the following: If there had been an actual representation that yearly sales would not be less than $1,500,000, the lease would have provided for a minimum rental of $75,000 per year (5% x $1,500,000), and not a minimum of $45,000 (5% x $900,000). Too, ‘What amounts to an expression of opinion as compared with a positive statement of fact depends upon all the circumstances of the case, and is question for the trial court to determine.’ (French v. Freeman, 191 Cal. 579, 585, 217 P. 515, 517.) In this connection, it should be pointed out that negotiations for the lessor were conducted over a period of some six months by defendant, Floyd Norris, an attorney for over 30 years with considerable experience in the real estate field; he admitted that he made no inquiry of the lessee to ascertain if the representations as to potential sales volume were accurate, from which admission it could have been fairly inferred not only that the lessors did not rely thereon but, also, that it would not have been reasonable for them to do so.

The next representation concerns the lessee's asserted certain remodeling expenses; according to cross-complainants; the lessee represented that it would cost $250,000 approximately to remodel the premises whereas, in fact, such actual costs approximated only $81,000. Without reciting the parties' respective versions, it appears that there was at least conflict in the evidence with respect thereto. In this regard, the following comments of the trial court become significant: ‘Now, as to the other two representations, the one about the spending $250,000 on remodeling, I'm hard put, really, with the negotiations between these parties to believe that this figure was ever mentioned or regarded as a representation, because if it was something that was material, it would have been very simple to have put it in the lease, if this was the figure that was to be spent. It's possible in their discussions Mr. Lyon may have mentioned some figure that he thought they would spend, but it's probably more likely that as Mr. Norris testified in his deposition there wasn't any figure mentioned but that he assumed it would cost that from the description of the work.’

The third representation relates to the demolition of the mezzanine. In this regard there was evidence that defendant Floyd Norris first drafted a lease which did not include the mezzanine as part of the demised premises; indeed, it expressly provided that the mezzanine would be demolished. A revised lease, however, was prepared by the lessee which included the mezzanine and deleted the provision dealing with its destruction. Such circumstances, standing alone, support an appropriate finding that, prior to the executing of the agreement, the lessors had knowledge of the fact that the lessee was not going to demolish the mezzanine. Again we quote from the court's oral comments: ‘I have never heard any testimony or anything in the arguments that would explain to me why Mr. Norris, if this was so material and so important to this lease, didn't at least question the striking of that clause * * * What possible reason could this difficult New York lawyer have to strike that paragraph? * * * But there isn't a single reason, legal reason or reason, that would appeal to any lawyer or make any sense why the other clause would be stricken and left out without at least being discussed. * * *’

In summary, the questions as to the asserted misrepresentations are factual in nature and were properly disposed of on that basis in the court below.

The only point on the appeal of cross-complainants involves the claim that plaintiffs (cross-defendants) were first required to prove a case for specific performance; this, they argue, was not done. In our determination of plaintiffs' appeal, we discussed rules and principles dispositive of the instant point, and they need not be repeated at this juncture.

Further, in resisting this appeal, plaintiffs assert their right to an award of reasonable attorneys' fees for legal services in connection therewith; for reasons stated in our treatment of a similar request relating to plaintiff's appeal, the trial court is directed to fix such reasonable fee when the cause is remanded for other appropriate action.

The judgment is reversed insofar as it denies recovery of general damages in excess of $25,000 with directions to the trial court to amend its findings of fact and conclusions of law and enter judgment for $350,000 general damages in plaintiff's favor, and to fix reasonable attorneys' fees for services on both appeals in a sum fixed by the trial court thereafter to be added to the principal amount of the judgment; in all other respects the judgment is affirmed. Plaintiff will recover costs on appeal.

FOOTNOTES

1.  The lease having been found to be valid, judgment was given to Lyon for the undisputed balance due him as and for his commission.

2.  Difference Between AgreedPresent ValueRental ValueRental and Rental Valueof Lease(Monthly)(Monthly)(15 years)THOMAS$7,070.00$3,300.00$350,000.00NORRIS$7,520.00$3,770.00$405,780.00MOSS$8,930.00$5,180.00$572,875.00COURT$ 25,000.00

3.  Illustrative of defendants' trial tactics is the fact that one of the experts named in footnote 2, supra, is defendant Floyd Norris, his testimony as to value being elicited under direct examination by co-counsel.

LILLIE, Associate Justice.

WOOD, P. J., and THOMPSON, J., concur.