KULAWITZ v. PACIFIC WOODENWARE PAPER CO (1943)

Plaintiff, as lessee, sued defendant, as lessor, seeking rescission of a lease entered into by the parties on June 20, 1938. Said lease was for the term of four years commencing on July 1, 1938. Defendant filed an answer and cross–complaint seeking to recover the amount provided as rental in said lease and also to recover counsel fees. By its findings of fact and conclusions of law, the trial court determined that plaintiff should take nothing by his complaint; that defendant should have judgment for rental in the total sum of $1,050, being rental at $350 per month for the months of February, March and April, 1941; that defendant should have judgment for counsel fees in the sum of $300; and that the lease had been “terminated” on May 1, 1941. Judgment was entered accordingly. Defendant appeals from those portions of the judgment adjudging that the lease had been terminated on May 1, 1941; denying to defendant the recovery of rent accruing after that date; and denying to defendant counsel fees in excess of $300.

The lease covered a large store on East 14th Street in Oakland, which store constituted only a portion of the building owned by the lessor. A pertinent portion of the lease read as follows: “Said Lessee agrees not to underlet said premises as a whole or in part or to assign this lease or to allow any sale of property by auction, except upon retiring from business, on said premises * * * or to use said premises for any purpose other than conducting a General Furniture Business without written consent of the Lessor first had and obtained. And the Lessor agrees that he will not during the term of this lease * * * permit any space or store room in the same building wherein the premises demised are located, to be used or occupied for the purpose of conducting therein a furniture store without the consent in writing of the Lessee first had and obtained.”

Plaintiff went into possession of said premises in 1938 and conducted a furniture store therein until January 1941. In that month plaintiff conducted a “Public auction” extending over several days in which he sold his entire stock after advertising extensively that he was: “Quitting Business––Everything Must Go to the Bare Walls––We're closing out our entire stock with a whirlwind finish.” Plaintiff paid no rent thereafter but he endeavored to sublet the premises through the agent of defendant who had negotiated the original lease with plaintiff. Plaintiff offered to accept $250 per month but was apparently unsuccessful in his efforts to sublet. In April 1941, defendant had an opportunity to rent the adjoining store in the same building and on April 2, agreed by letter to rent said adjoining store to one Smith on a month to month basis at a rental of $75 per month. Said letter stated that the store was rented “for the purpose of conducting therein the sale of linoleum and kindred products”. It further stated that possession would be given to Smith immediately for the purpose “of preparing said store room for business to start on May 1st, 1941, on which date the rent shall commence”. The evidence shows that defendant did not know that plaintiff had previously sold linoleum in connection with his furniture business. Upon plaintiff's learning of the renting of the adjoining store and of the preparation by Smith to start business there, plaintiff's counsel phoned to defendant on April 21 and wrote to defendant under date of April 24 claiming that defendant had committed a breach of the lease by renting to Smith for the purpose of conducting a “furniture store” in the adjoining store and giving notice that plaintiff would “no longer be bound to the provisions of the lease on his part to be performed.” Defendant's counsel replied by letter to plaintiff's counsel on April 29 denying that any breach of the lease had been committed by defendant; denying the right of plaintiff to declare a breach for the reasons stated or otherwise; and insisting that plaintiff was bound by the terms of the lease and was obligated to pay the rent as therein provided. Said letter stated that the new tenancy “does not in fact authorize the new tenant to conduct therein a furniture store or to conduct any business therein except the business of selling linoleum. In this connection we are also advised that even while your client was in business in the leased premises he did not handle linoleum. We are advised further that your client wholly discontinued business at the leased premises before the new tenancy was created and that as very persuasive evidence of said discontinuance your client conducted an auction on the premises––something that your client expressly agreed by the terms of his lease not to do, ‘except upon retiring from business'. Under all the circumstances, it appears obvious that the new tenancy is merely an excuse and not the reason for your client's denial of obligation under the lease. The lessor is unwilling to accept any such excuse.” It does not appear that there was any further communication between the parties or their counsel prior to the filing of plaintiff's complaint herein on October 18, 1941.

Upon the trial, several amended and supplemental pleadings were filed by the parties. The trial court denied plaintiff any relief upon his complaint for rescission but nevertheless adjudged that the lease had been terminated on May 1, 1941, upon the theory that plaintiff had abandoned the lease and that defendant had accepted the abandonment. The trial court found “that in the month of January, 1941 plaintiff did retire from said furniture business on said premises and plaintiff did in and during said month of January, 1941 hold a public auction in said premises at which auction plaintiff sold and disposed of all plaintiff's furniture and personal property connected with the plaintiff's said furniture business on said premises and thereafter plaintiff discontinued his said furniture business on said premises: * * * that after holding said auction and on the first day of February, 1941 plaintiff abandoned said leasehold and the premises described in said lease.” The trial court further found “that by conducting an auction in January of 1941 plaintiff did give notice to the defendant that plaintiff was retiring from business and discontinuing the conduct of a furniture store in the leased premises” but that prior to the time defendant rented the adjoining store to Smith and during the latter part of the month of March 1941, “plaintiff was engaged in reestablishing the furniture business of plaintiff in the premises described in said lease to plaintiff”. The trial court further found that the covenant against the use of any other part of the building for conducting a furniture store was “a material and essential part of the lease, and was a material part of the inducement and consideration of said lease”; that defendant rented the adjoining store to Smith on May 1, 1941, for the purpose of selling linoleum and kindred products; that Smith entered said store on May 1, 1941, and commenced to sell and thereafter continued to sell linoleum and kindred products; that plaintiff had sold linoleum and kindred products in conducting his furniture business on the premises during the time he occupied the same; that on the 18th day of April, 1941, plaintiff did “abandon said premises leased to plaintiff upon receiving information that Smith was to use said adjoining store in said building for the sale of linoleum and kindred products as aforesaid”; and “that by said renting to said Smith said defendant on the first day of May 1941, accepted the abandonment by plaintiff of the premises leased to plaintiff under the terms of the lease and evicted plaintiff therefrom.” It was further found “that said lease was terminated May 1, 1941 and it is true that defendant violated the covenant of quiet enjoyment and evicted plaintiff on said first day of May 1941 and did on said first day of May, 1941 accept the abandonment by plaintiff of the premises described in said lease”.

Defendant's main contention is that the material portions of said findings are not supported by the evidence and that the trial court erred in adjudging that the lease had been terminated on May 1, 1941, and in denying to defendant recovery of rent after that date. Defendant also calls attention to a claimed inconsistency in the findings in that the trial court found an abandonment by plaintiff on February 1, 1941, and also an abandonment by plaintiff on April 18, 1941. In view of the conclusions we have reached, we may assume, in discussing defendant's main contention, that the covenant against permitting the use of any other portion of the premises for conducting a furniture business was a material inducement and consideration to plaintiff in executing said lease; that said restrictive covenant was valid and that it remained operative when the Smith tenancy began despite the fact that the trial court found that plaintiff had previously retired from business and had “abandoned said leasehold and the premises” (see, however, Ullman & Co. v. Levy, 172 La. 79, 133 So. 369; 17 C.J.S., Contracts, p. 630, § 246; 6 Cal.Juris., p. 134; Gregory v. Spieker, 110 Cal. 150, 42 P. 576, 52 Am.St.Rep. 70); and that the act of defendant in renting the adjoining store to Smith for the purpose of selling linoleum and kindred products constituted a breach of said restrictive covenant. We find no evidence, however, to sustain the finding that plaintiff abandoned the leasehold on February 1, 1941, or to show any attempted abandonment by plaintiff until plaintiff sought to rescind after learning of the renting of the adjoining store to Smith. Nor do we find any evidence to show that defendant ever intended to accept any alleged abandonment, all of the evidence being to the contrary. While the evidence shows that plaintiff did retire from business on or before February 1, 1941, it further shows that plaintiff did not then abandon the leasehold but, on the contrary, he first attempted to sublet the premises and later started preparations to reestablish his furniture business in the premises in the latter part of March, 1941, as found by the trial court. And as the only evidence in the record tending to show any attempted abandonment by plaintiff is the evidence showing that plaintiff claimed a breach of the restrictive covenant and a right to rescind after defendant had rented to Smith and as the only evidence in the record claimed by plaintiff to sustain the findings relating to an acceptance of the alleged abandonment, or the findings relating to eviction, or the findings relating to the breach of the covenant of quiet enjoyment, is the evidence showing that defendant rented the adjoining store to Smith in April, 1941, for the purpose of selling linoleum and kindred products, we come to a discussion of the rights and duties of the parties arising out of such alleged breach by defendant of the restrictive covenant of the lease.

We believe that these right and duties are clearly indicated in Strong v. Morrison, 87 Cal.App. 169, 261 P. 1051, 1052. In that case, which involved the lease of space in a public market, the lease provided that the lessee should have “the exclusive grocery privilege”. In an action brought by the lessor to recover rent, the lessee sought rescission and damages because of the alleged infringement of this restrictive covenant. It was not claimed that the lessors had entered into any other lease permitting any other lessee to engage in the general grocery business but it was claimed that certain other lessees were permitted to sell and were selling a few of the many articles falling in the general category of groceries. The lessee had complained to the lessors but had failed to furnish the lessors with any specific statement showing the nature and extent of the claimed infringement. It was held that it was the lessee's “duty to point out to the lessors the specific articles and give them an opportunity to correct the condition”. As the lessee had failed to do so, it was held that he was not entitled to either rescission or damages.

In our opinion, the rule of the cited case is sound and should be applied at least in cases such as the present one where the alleged infringement by the lessor consists not in permitting another lessee to engage in the same general business as that specified in the restrictive covenant but merely in permitting another lessee to sell one, or perhaps a few, of the numerous articles which are sometimes but not invariably sold by persons conducting such general business. This rule imposes no undue burden upon the lessee and any other rule would impose an undue burden on the lessor. As the lessee in the present case failed to perform this duty of pointing out to the lessor the “specific articles” and of giving the lessor an opportunity to correct the condition, he was not entitled to rescind or to repudiate his obligations under the lease or to have the lease declared terminated or to recover damages by reason of the alleged breach. We are further of the opinion that as there was no evidence to show that the lessor ever intended to accept any alleged abandonment by the lessee, the mere act of the lessor in renting the adjoining store to Smith cannot be relied upon to sustain the finding that the lessor accepted any alleged abandonment.

Plaintiff states that all questions involved on this appeal have been determined in Medico–Dental Bldg., etc., Co. v. Horton & Converse, 21 Cal.2d 411, 132 P.2d 457, and Pappadatos v. Market St. Bldg. Corp., 130 Cal.App. 62, 19 P.2d 517. In fact, plaintiff claims that Strong v. Morrison, supra, is inapplicable in the light of these more recent cases. We find nothing in the cases cited by plaintiff which is inconsistent with or which renders inapplicable the rule enunciated in Strong v. Morrison, supra, In the Medico–Dental Co. Building case [21 Cal.2d 411, 132 P.2d 468], no question was involved concerning any failure of the lessee to give the lessor notice and a reasonable opportunity to remedy the condition of which the lessee complained. On the contrary, ample notice was there given and the parties met and discussed the situation at length. It was only after some time had elapsed and after the lessor had advised the lessee “that negotiations were ended, and that nothing could be done with Dr. Boonshaft, and that it could use its own judgment about moving from the building”, that the lessee rescinded, vacated the premises and ceased to pay rent. In the Pappadatos case, the lessee sought an injunction to prevent the lessor from entering into another lease which he claimed would infringe the restrictive covenant in his own lease. These cases are clearly distinguishable as the lessee in the Medico–Dental Building Co. case had fully performed the duty imposed upon him before attempting to rescind and in the Pappadatos case, the lessee did not attempt to rescind but stood upon his rights under his lease and sought to prevent by injunction the infringement by the restrictive clause.

In view of the conclusions which we have reached, we deem it unnecessary to discuss the other points raised by defendant except the point with respect to counsel fees. By the terms of the lease, the lessee agreed to pay counsel fees “in the event that said Lessor shall bring an action at law against said Lessee to enforce the payment of any rent due * * *”. The trial court allowed counsel fees but fixed the amount at $300 upon the assumption that the total rent due was $1,050. As the portions of the judgment declaring that the lease had been terminated on May 1, 1941, and denying to defendant rent after that date must be reversed, we are of the view that the portion denying counsel fees in excess of $300 must likewise be reversed. In this connection, plaintiff takes the position that as plaintiff brought the action and defendant merely cross–complained in the action brought by plaintiff, he should not have been awarded any counsel fees. We are of the opinion that plaintiff's position is untenable as it places an unreasonable interpretation upon the provision of the lease relating to counsel fees. While we find no authorities directly in point, it has been said that where a cross–complaint is filed, “for all practical purposes * * * the situation involves the consolidation of two independent actions arising out of, or relating to, the same transaction” (Millar v. Millar, 51 Cal.App. 718, 722, 197 P. 811, 813; see also Pacific Finance Corp. v. Superior Court, 219 Cal. 179, 25 P.2d 983, 90 A.L.R. 384), and it has been held in other jurisdictions that where a mortgage provides for the payment by the mortgagor of counsel fees in an action brought by the mortgagor to foreclose, the mortgagee is entitled to such counsel fees when foreclosure is obtained through a cross–bill. Shaffner v. Appleman, 170 Ill. 281, 48 N.E. 978; Town v. Alexander, 185 Ill. 254, 56 N.E. 1111; Building & Loan Ass'n v. Griffin, 90 Tex. 480, 39 S.W. 656. We conclude that the filing by defendant of the cross–complaint in this action to enforce the payment of the rent due from the lessee, constituted the bringing of an action at law to enforce the payment of such rent within the meaning of the provisions of the lease relating to counsel fees.

The portions of the judgment from which defendant has appealed are reversed.

SPENCE, Justice.

NOURSE, P. J., and DOOLING, Justice pro tem., concur.