STOCKTON DRY GOODS CO v. GIRSH (1950)

Plaintiff and respondent, a corporation operating a department store in the City of Stockton, brought this action against its tenant, defendant and appellant, Stanley Girsh, for declaratory relief. It sought judicial interpretation of the written lease between the parties. Specifically, it sought to have the court declare that it could operate within its department store one or more shoe departments, notwithstanding the lease gave to its tenant a right to conduct such an enterprise therein. The court by its decree declared that it had such a right and from this judgment Girsh appealed. We will hereafter refer to the appellant as lessee and the respondent as lessor.

The lease in question was entered into between the present lessor's predecessors in interest, and the lessee, and recited that the lessors were conducting and maintaining a ‘so-called department store’ in the City of Stockton and that the lessee was desirous of renting a portion of the store premises for the purpose of conducting a shoe department. The term granted was for five years, with option to renew for an additional five-year term. The rent to be paid was fixed at a sum equal to ten per cent of all net cash sales and eleven per cent of all net charge sales. Neither minimum nor maximum rental was specified. The lessee agreed to live up to the rules of the lessor in conducting its department store and to permit all adjustments to be made by the store manager; the lessee further agreed to submit all advertising copy to the manager and that such must be approved by him before it could be published.

The trial court found to be true all of the allegations of the complaint, including the specific allegation that the lessor had, under the lease, the right to operate and conduct one or more shoe departments in the department store and in competition with the business being conducted by the lessee. The trial court rendered its declaratory judgment as prayed for in the complaint, decreeing that the lessor had rights as above alleged, and that, conversely, the lessee did not have the sole and exclusive right to operate the shoe department.

While the lessee, in support of his appeal from said judgment, advances a number of contentions having to do with rulings made by the court during trial, it is unnecessary, we think, to deal with those matters. The principal contention which the lessee urges concerns the court's construction of the lease; and since we believe the trial court erred therein and that its judgment must, therefore, be reversed, we will proceed in this opinion to discuss that matter only.

It is a basic rule in the interpretation of contracts that stipulations which are necessary to make a contract reasonable are implied ‘in respect to matters concerning which the contract manifests no contrary intention’, and that ‘All things that in law or usage are considered as incidental to a contract, or as necessary to carry it into effect, are implied therefrom, unless some of them are expressly mentioned therein, when all other things of the same class are deemed to be excluded.’ Civ.Code, §§ 1655, 1656.

Concerning this lease it is apparent that, because the rental payable thereunder consists of a substantial portion of the gross business done in the shoe department, the lessee is burdened with the implied covenant that he will, during the term of the lease, conduct the business of vending shoes in the space allotted to him and further that he will so conduct such business as to maintain as large a trade as could be done with reasonably active and competent management. This is so because it is the evident purpose of both parties, as gathered from the conditions expressed in the lease, that such business should be conducted. We do not have here a lease under which the lessee is free to either occupy and use the leased premises or leave them vacant and unused, as is the general right of a lessee under the ordinary lease. Selber Bros. v. Newstadt's Shoe Stores, 203 La. 316, 14 So.2d 10; Mayfair Operating Corp. v. Bessemer Properties, 150 Fla. 132, 7 So. 2d 342; Cissna Loan Co. v. Baron, 149 Wash. 386, 270 P. 1022, and Garden Suburbs Golf & Country Club v. Pruitt, 156 Fla. 825, 24 So.2d 898; see, also, annotation to report of same case in 170 A.L.R. at 1107, et seq. In saying that the contract between the parties here, although containing no express statement of an agreement on the part of the lessee that such business would be conducted for the mutual benefit of both parties, nevertheless contained an implied condition to that effect, we are not unmindful of such cases as Cousins Inv. Co. v. Hastings Clothing Co., 45 Cal.App.2d 141, 113 P.2d 878. There it was held that where a minimum rental was to be paid, of such amount as to justify a conclusion that the parties had fixed upon such minimum amount as the chief consideration moving to the lessor, then there was no implied obligation to conduct business in the leased premises, notwithstanding a stipulation that the lessor should share in the gross sales returns. Such a rule has no application where the sole rental is a percentage of the sales made.

But a covenant on the part of the lessee, either express or implied, to conduct a shoe vending business in the leased space within the lessor's store, carried with it the reciprocal implied obligation on the part of the lessor to place no obstacle in the way of the lessee in his performance of that covenant. Competition by the lessor through independently conducted shoe departments, free and unlimited, such as is permitted by the decree of the trial court, is utterly inconsistent with the duty which the lessor under this lease assumed toward the lessee and would be destructive of the relationship intended by the parties. This becomes apparent when we consider what is involved in competition.

Competition means striving for something that is sought by another at the same time; a contention of two or more for the same object or for superiority; rivalry as between aspirants for honors or for advantage in business. Merchants' Nat. Bank of Glendive v. Dawson County, 93 Mont. 310, 19 P.2d 892, 896. Competition is the struggle between rivals for the same trade at the same time. Ferd. Heim Brewing Co. v. Belinder, 97 Mo.App. 64, 71 S.W. 691, 695. It is the effort of two or more parties acting independently to secure the custom of a third party by the offer of the most favorable terms. It is the struggle between rivals for the same trade at the same time. ‘At common law a trader, * * *, in order to get another man's customers, could use any means not involving violation of the criminal laws, or amounting to ‘fraud,’ ‘duress,’ or ‘intimidation,’ * * *. The trader may boast untruthfully of the merits of his wares, so long as it does not take the form of false statements, amounting to slander or willful misrepresentation of the quality of a rival product, or a libel upon the character, business standing, and credit of his rival, or an effort to induce the public to believe that the product he sells is that manufactured and sold by the rival. He may send out circulars, or give information verbally, to customers of other men, knowing they are bound by a contract for a definite term, although acting upon the expectation and with the purpose of getting the trade of such persons for himself. He may use any mode of persuasion with such a customer, keeping within the limitations stated, which appeals to his self-interest, reason, or even his prejudicies. He may descant upon the extent of his rival's facilities compared with his own, his rival's means, his insolvency, if it be a fact, and the benefits which will result to the customer in the future from coming to the solicitor rather than remaining where he is. He may lawfully, at least so far as his rival is concerned, cut prices to any extent, to secure his trade. So long as what he does is done to benefit his own trade, and, in taking over the customers of another, he keeps within the limitations heretofore defined, he is safe from legal restraint at the instance of a competitor in following ‘the law of competition,’ which takes little note of the ordinary rules of good neighborhood or abstract morality. The person whose customers are thus taken from him cannot complain, for no right of action lies in his favor against him who solicitated his customer, since the solicitor exercised a legal right in a legal way, and the exercise of a legal right in a legal way, for a lawful purpose, will not give a cause of action.' Citizens' Light, Heat & Power Co. v. Montgomery Light & Water Power Co., C.C., 171 F. 553, 560.

We have referred to the meaning of the word ‘competition’ in order to emphasize the character of action which the trial court has found respondent may indulge in towards its lessee notwithstanding its lease with him. It appears from the lease that respondent's space is located on the mezzanine floor within the respondent's department store. Within the lawful limits of competition, therefore, when customers enter respondent's store and ask its employees and salesmen where the shoe department is to be found, respondent, if it be competitng for that trade, may have such people so answered as to direct them to its own department; it could even have such persons informed that the best bargains in shoes were in its department rather than in that of its lessee; it could place directive and solicitous signs at the entrance to its department store, directing patrons to its own shoe department. Enough has been said to show that this decision that the respondent lessor here can enter into open competition with its lessee is a matter of serious and vital import to the lessee. We hold that under this lease the lessor would violate its own covenant with the lessee by running a competitive shoe vending business within the confines of its department store.

There is yet another reason in law why the trial court's interpretation of the contract between the parties here cannot be upheld. It has been said that every grant of right, interest or benefit in land carries with it an implied undertaking on the part of the grantor that the grant is intended to be beneficial and that so far as the lessor is concerned he will do no act to interrupt the free and full enjoyment of the thing granted, Dexter v. Manley, 1849, 4 Cush. 14, 58 Mass. 14; and that if the lessee's ordinary and lawful enjoyment of the demised land is substantially interfered with by the acts of the lessor or those lawfully claiming under him, although neither the title to the land nor the possession thereof is otherwise affected, this implied covenant is breached. Sanderson v. Berwick [1884], L.R. 13 Q.B.Div. [Eng.] 547–C.A.; 62 A.L.R. 1257; Winchester v. O'Brien, 266 Mass. 33, 164 N.E. 807, 64 A.L.R. 900. These implied undertakings are often called covenants of quiet enjoyment and acts in violation thereof may amount to eviction, actual or constructive. ‘Not only actual expulsion may amount to an eviction, but there may be constructive eviction by wrongful acts, or failure to act on the part of the landlord which essentially deprives the tenant of beneficial enjoyment of the premises.’ Williston on Contracts, Sec. 892; see, also, Grinnell Bros. v. Asiuliewicz, 241 Mich. 186, 216 N.W. 388; Civ.Code § 1927; Mills v. Richards, 84 Cal.App. 52, 257 P. 542; Landon v. Hill, 136 Cal.Ap. 560, 29 P.2d 281; Aaker v. Smith, 87 Cal.App.2d 36, 196 P.2d 150.

We hold that, under the terms of this lease, for the lessor to compete with its lessee, as the trial court has decreed that it has the right to do, could well amount to a constructive eviction through violation of the covenant of quiet enjoyment implied in the lease, and hence that the judgment of the trial court cannot be upheld.

The judgment is reversed, with directions to the trial court to enter a decree adjudging and declaring that the lessor, respondent herein, does not have the right under the lease in question to conduct a business of selling shoes in its department store in competition with appellant, and that appellant, as lessee of respondent, does have the sole and exclusive right to operate such business in the department store of respondent to the exclusion of all others.

VAN DYKE, Justice.

ADAMS, P. J. and PEEK, J., concur.