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CITY OF VISTA, Plaintiff and Respondent, v. W.O. FIELDER et al., Defendants and Appellants.
W.O. Fielder and Lee Bittner (collectively, Tenants) appeal a judgment in favor of the City of Vista (City), condemning property leased by Tenants. The judgment awarded $159,000 to Robin Johnson, the owner of the property, a mortgagee, and the Internal Revenue Service, but nothing to Tenants. At trial, the court found a provision in Tenants' lease which automatically terminated the lease upon condemnation, impliedly waived Tenants' right to share in the eminent domain compensation. That lease provision reads, “Should building be condemned thru [sic] no fault of tenant this lease will be terminated.” Tenants contend the court erred in admitting certain deposition testimony of Johnson, and in applying rules of contract interpretation and case law regarding eminent domain. They also contend the court erred by exceeding the scope of the issues presented and denying them any compensation for goodwill allegedly lost due to condemnation of the property. For the following reasons, we affirm the judgment.
On or about July 1, 1984, Tenants leased the property known as the “Big Red Barn” located within the City, intending to operate a restaurant equipment and supply business. After inspecting the property, they were concerned about its condition and the possibility the City's fire or building department might cause them to shut down their operations. Johnson disclosed a previous tenant, apparently a wood or painting contractor, had to cease operations because of such problems. He also informed them the City planned to widen the street which would result in it taking 12 feet from the front of the building. The term of the lease apparently was from September 1, 1984 through September 1, 1986, although one provision indicated it was a month-to-month lease which could be terminated by either party upon 30 days notice. Five additional terms and conditions were added to the printed lease form, including the following lease termination provision: “5. Should building be condemned thru [sic] no fault of tenant this lease will be terminated.”
On or about July 1, 1986, an addendum among Johnson and Tenants extended the term of the lease from June 1, 1986 through June 1, 1989, expressly providing that all other terms and conditions of the original lease remained the same except for increased rent.
On February 7, 1987, Robert Perdue, a real estate appraiser, spoke with Fielder and explained to him he was appraising the property for eminent domain purposes. Subsequently, during the period of February through May 1987, he met with Bittner and repeated the purpose of his appraisal. Perdue arrived at a total value of the fee simple in the amount of $160,000.
On July 10, 1987, Johnson and Tenants entered into another addendum to the lease extending the term for five additional years from June 1, 1989 through June 1, 1994. All other terms and conditions of the original lease remained the same, including the rent.
On March 31, 1989, the City filed an eminent domain complaint to acquire the property. Tenants vacated the property a few months later pursuant to a court order. In September and October 1989, Johnson and his wife, Cal–West Mortgage Company, Rancho Vista National Bank, and Tenants entered into a settlement agreement pursuant to which $159,000 of the $160,000 in probable compensation deposited by the City was to be distributed $125,933.66 to Rancho Vista National Bank and $13,503.35 to the Internal Revenue Service to pay off their respective liens on the property, with the remainder of $19,562.99 to be paid to the Johnsons. All parties waived their rights to further compensation, except for Tenants who expressly retained their rights to seek compensation from the City for termination of their leasehold. The other parties released and assigned to Tenants all rights to compensation in excess of $159,000.
The court granted summary judgment against Tenants finding no triable issues of fact regarding whether termination of the lease by eminent domain condemnation deprived Tenants of any claim for compensation.
On appeal, in an unpublished opinion, we reversed the summary judgment, concluding triable issues of fact existed regarding the interpretation of “condemned” which had two plausible interpretations based upon the summary judgment papers (e.g., depositions and declarations) which we considered most favorably to Tenants. (City of Vista v. Todo, Inc. (Jan. 28, 1993) D015711 [nonpub. opn.] pp. 9–12.) In so holding, we refrained from expressing an opinion as to the meaning of “condemned” as used in the lease, leaving that factual issue for resolution by the trier of fact. We also did not address whether the lease provision in question was an “automatic termination upon condemnation” clause which deprives Tenants of any right to share in the condemnation award. (Id. at pp. 12–13, fn. 8.)
Upon remand, the trial court bifurcated the action and conducted a bench trial upon the issue of whether the lease termination provision precluded any claim by Tenants for compensation before proceeding. If necessary, a jury trial was preserved for the issue of appropriate compensation. The court denied Tenants' motion for summary judgment on this first issue. A bench trial resulted in a “take-nothing” judgment as to Tenants.
The court heard testimony from eight witnesses and reviewed a number of exhibits. By stipulation, the court's oral ruling constituted its statement of decision. The court found, in part, the lease termination provision was an automatic termination clause triggered by an eminent domain taking and constituted an implied waiver of Tenants' right to share in any condemnation compensation. In so ruling, the court discussed the evidence at trial and the effect of certain statutory contract interpretation rules and case law regarding the rights of tenants to share in condemnation awards upon termination of their leases. In particular, the court found Tenants knew when they signed the lease that eminent domain condemnation was a possibility, so the termination provision's use of the term “condemned” was intended to include such an event.
II & III **
Tenants also meritlessly contend the court erred in misapplying case law regarding the interpretation and effect of the lease termination provision. Specifically, they assert the court erred in concluding under applicable case law the lease termination provision effected a waiver of their claim to condemnation compensation.
The court concluded the lease provision automatically terminated the lease upon condemnation and operated to deprive Tenants of any claim to compensation in an eminent domain action. It stated in pertinent part:
“The court finds that the clause in this contract from the evidence before me is in fact an automatic termination clause, it's not limited to its application. As a matter of fact, in its language it says, the last three words, “will be terminated.” It doesn't say may be terminable by motion, it doesn't make the termination conditional; it indicates it will be terminated.
“The court also finds that ․ the eminent domain proceedings[ ] trigger [ ] this automatic termination clause. And that this, in effect, under the majority rule of the law and California law, waives the tenant's claim to any compensation award for any eminent domain.
“The court finds the legal effect of an automatic termination clause on eminent domain to be consistent with the Dix Box vs. Stone case which is mentioned in tab one. And, as such, that case is also an offshoot of the County of Los Angeles vs. Stone, 244 Cal.App.2d, ․ page 69 [52 Cal.Rptr. 847], which cites the majority rule that an automatic termination clause will apply to eminent domain. And the court also cites tab 31, the Petty case.
“And if the lease is automatically terminated, as the court has found, in its own language that it is mandatory where it says it “will be terminated,” the court finds application of the general rule that a lessee has no interest in property condemned where the lease automatically terminates upon a taking.
“And the authorities in support of that are Fiberglass [Fibreglas] Fabricators, Inc. vs. Kylberg, a 1990 Colorado case, 799 [P.]2d 371; United States vs. Petty, which is also found at tab 31 in the court's notebook, which is 327 U.S. 372 at page 376 [66 S.Ct. 596 at page 599, 90 L.Ed. 729]. And also in 2 Sackman, ․ Nichols' The Law of [Eminent] Domain, which is in tab one, sections 5–06 at 5–97, which runs to 5–117.
“So the court finds that other cases are in consonance with the majority rule. The Appeal of Scholl, 292 [Pa.]  282 [141 A. 44] Capitol Monument Co. vs. State Capitol Grounds, 220 [Ark. 946] 948 [251 S.W.2d 473] Carroll Weir Funeral Home [v. Miller], which I have already cited, 2 Ohio [St.]2d, 189 [207 N.E.2d 747]․ And the majority rule I find applies that holds that an automatic termination clause deprives a tenant of compensation as an implied waiver of the right to share in the proceeds. And I find that the lease terminates at the time of the condemnation, and that that thereby divests the tenant [of] any claim for compensation from the eminent domain proceedings.
“The court finds that the minority rule cases, the Belmont case and the Maxey case are not controlling, nor are they persuasive to the court.”
Tenants assert the question of whether the lease termination provision effected a waiver of their right to compensation is a question of law that we should independently review. Further, they contend the judgment results in a forfeiture of their right to compensation. We conclude the court did not err in applying the law to the lease provision in this matter.
California law clearly permits landlords and tenants to contractually provide for allocation or waiver of damages awarded in eminent domain actions. (New Haven Unified School Dist. v. Taco Bell Corp. (1994) 24 Cal.App.4th 1473, 1481–1483, 30 Cal.Rptr.2d 469; People ex rel. Dept. Pub. Wks. v. Amsden Corp. (1973) 33 Cal.App.3d 83, 88, 109 Cal.Rptr. 1.) Although a tenant/lessee is generally entitled to compensation upon condemnation for the value of its unexpired leasehold, the Colorado Supreme Court notes:
“it is well established that a lessee may forego his or her right to compensation—and permit the landlord to receive all the condemnation proceeds—where the lease agreement contains a legally adequate ‘condemnation clause’ or ‘automatic termination clause.’ [Citations.]” (Fibreglas Fabricators, Inc. v. Kylberg (Colo.1990) 799 P.2d 371, 375.)
Further, “[a] condemnation clause operates to terminate the lease agreement between the landlord and lessee upon the taking of the leased premises through eminent domain.” (Ibid.) More importantly, that court observed:
“Most jurisdictions that have considered the legal effect of a condemnation clause providing only for automatic termination of the lease upon condemnation have held that because the lessee's leasehold interest is destroyed at the time of condemnation, the lessee no longer has any interest in the condemned property for which he or she should be compensated, and the lessee is foreclosed from sharing in the condemnation proceeds.” (Id. at pp. 375–376; see also United States v. Petty Motor Co. (1946) 327 U.S. 372, 376, 66 S.Ct. 596, 599, 90 L.Ed. 729.)
We adopt this majority rule and conclude under California law a tenant has no claim to share in a condemnation award if the lease provides it automatically terminates upon condemnation and fails to contractually allocate part of the condemnation award to the tenant. Our position is consistent with the Restatement Second of Property (§ 8.2, com. f) which provides in relevant part:
“An agreement that the tenant is not entitled to any part of the condemnation award may be implied from a provision in the lease that the lease is to terminate in the event of a taking by eminent domain.”
On substantial evidence the court found the lease termination provision in this matter is such an automatic termination clause.
The lease termination provision is not written as an option or some other non-automatic clause which requires some other action to effect termination of the lease upon condemnation. Rather, the provision is self-executing, in that whenever the property is condemned the lease automatically terminates. Thus, applying the majority rule which we adopted above, the automatic termination provision of the lease resulted in an accompanying “automatic” waiver of Tenants' right to share in the condemnation proceeds as the lease failed to expressly allocate any part of a condemnation award to Tenants.4
The judgment is affirmed.
FOOTNOTE. See footnote *, ante.
4. Tenants assert we should follow the holdings in Carlstrom v. Lyon Van & Storage Co. (1957) 152 Cal.App.2d 625, 313 P.2d 645 and Costa Mesa Union Sch. Dist. v. Security First Nat. Bk. (1967) 254 Cal.App.2d 4, 62 Cal.Rptr. 113. However, we conclude such cases, as well as the other “minority rule” cases cited by Tenants, are inapposite to this case. Also, we reject their contention the judgment results in a forfeiture, because no forfeiture results when the terms of the lease itself effects a waiver of compensation. Tenants fail to cite any compelling case to the contrary.
FOOTNOTE. See footnote *, ante.
WORK, Acting Presiding Justice.
BENKE and NARES, JJ., concur.
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Docket No: No. D021014.
Decided: April 19, 1995
Court: Court of Appeal, Fourth District, Division 1, California.
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