Ablett v. Clauson

• Decision Date: 23 July 1954
• Citation: 272 P.2d 753,43 Cal.2d 280
• Court: California Supreme Court
• Parties: ABLETT et al. v. CLAUSON et al. (two cases). CLAUSON et al. v. GLENDALE ESCROW CO. CLAUSON et al. v. SPOT DRIVE IN, Inc., et al. CLAUSON et al. v. ABLETT et al. L. A. 22756, 22757.

Page 753

272 P.2d 753

43 Cal.2d 280

ABLETT et al. v. CLAUSON et al. (two cases).

CLAUSON et al. v. GLENDALE ESCROW CO.

CLAUSON et al. v. SPOT DRIVE IN, Inc., et al.

CLAUSON et al. v. ABLETT et al.

L. A. 22756, 22757.

Supreme Court of California, In Bank.

July 23, 1954.

Hiram T. Kellogg, Los Angeles, for appellants.

Freston & Files, Los Angeles, amicicuria on behalf of appellants.

Fizzolio & Fizzolio, Los Angeles, Carl B. Sturzenacker, Hollywood, and Walter Monarch, Los Angeles, for respondents.

EDMONDS, Justice.

Ernest L. Clauson and his wife, who are the owners and lessors of certain real property, have appealed from a judgment which declares their rights under a lease. The appeal is also from a judgment in an action for unlawful detainer brought by them against Cyril and Kathleen Ablett, who claim as assignees of the interests of the original lessees. The principal question concerns the Abletts' right, if any, to a renewal of the lease.

Much of the evidence is sharply conflicting, but the following facts appear without substantial dispute:

The Clausons by a written agreement leased a building used for a restaurant to a group of persons whom the parties have designated the 'Rite Spot People'. The lease was for a term of five years, ending on August 31, 1951. It was agreed that the lessees 'shall have the first right and a prior option to secure a lease upon said premises before the same are offered to any other person, firm or corporation for lease or rental and that said option shall contemplate a lease for a period of five (5) years upon terms to be then agreed upon.'

Shortly after the Rite Spot lessees took possession, the building and an adjacent parking lot were modified for use as a drive-in restaurant. Thereafter the premises were used in that way. The lessees then formed a corporation and transferred to it the assets of the business. The record does not show either a transfer of the lease to the corporation or the Clausons' consent to make such a transfer.

In the latter part of 1948, the Abletts began negotiating with the Rite Spot lessees to purchase the business. The negotiations resulted in a sale of the business to the Abletts, and the execution by the lessees of an instrument by which they 'assigned' all their 'right, title and interest' in the lease to the Abletts. The Abletts took possession of the premises and continued the business, as found by the trial court, with the knowledge and acquiescence of the Clausons.

Some time later, a dispute arose between the Clausons and the Abletts concerning the performance of certain grading operations on the parking area adjacent to the restaurant building. There was also another controversy relating to the Abletts' refusal to permit Clauson to remodel the restaurant building. In January, 1951, Mr. Clauson informed the Abletts that he would not renew the lease upon its expiration and since that time he has continually refused to do so.

The Abletts then commenced an action for 'declaratory relief, trespass, injunction.' Named as defendants were the Clausons, each of the original lessees and the corporation formed by them, and several other persons. The principal relief sought was a declaration that they have a valid option to renew their lease 'at the same terms' and for an additional five years, and that the Clausons 'by their acts and conduct are estopped from denying the existence of such option.' As an alternative the Abletts asked for judgment that the defenants are liable to them for fraud and misrepresentation. The Clausons then sued the Abletts for unlawful detainer. The actions were consolidated for trial and appeal.

In the action commenced by the Abletts, judgment was rendered in favor of all of the defendants, except the Clausons, and against the Abletts. Their rights against the Clausons were declared to be as follows: The Abletts are assignees of all of the rights of the original lessees in the lease with the consent of the Clausons. As assignees of the lease, the Abletts 'are entitled to a renewal thereof for an additional five-year term * * * pursuant to the terms and provisions of Clause 17 of the lease.'

The judgment in the unlawful detainer action was in favor of the Abletts. The court held that they are entitled to a renewal of the lease for an additional five-year term, 'pursuant to the terms of the lease.'

The Clausons challenge the portions of the declaratory judgment relating to the purported assignment of the lease, the right of the Abletts to obtain a renewal of it, and the extend and nature of the lessees' rights in the leasehold under a renewal. They also contend that the provision concerning an option does not prevent the lessors from taking possession of the premises upon the termination of the original lease.

The decisive question here presented concerns the provision of the lease which the Abletts contend granted to the original lessees an option for an additional term of five years. According to the Clausons, the evidence indisputably shows that the Abletts obtained only a sublease of the premises. If that is the legal effect of the transaction between the parties, the Abletts have no right to any option given by the leave. Only if they are assignees may they enforce an obligation of the lessors to a further term.

But if it be assumed that the Abletts are assignees of the lease, the provision here in controversy does not meet the requirements of an option which may be enforced. It does not purport to grant an absolute right to an additional term of five years or any other period. As the Clausons correctly state, it gives the lessees only 'the first right and a prior option to secure a lease upon said premises before the same are offered to any other person, firm or corporation for lease or rental. * * *' It does not specify the terms for such a lease but provides that it shall be for five years 'upon terms to be then agreed upon.'

The Abletts contend that the provision, 'first right and prior option', does not in any way qualify the right of renewal. They rely upon the statement in Butt v. Maier & Zobelein Brewery, 6 Cal.App. 581, 92 P.2d 652, that '(t)he word 'prior,' * * * does not qualify the right of renewal. The right given the lessee to lease for a further term of five years must necessarily be prior to the right of other parties to lease the property.' 6 Cal.App. at page 585, 92 P. at page 653. In that case, the lease included an option to the lessor to terminate the lease at the end of the original term by purchasing the improvements made by the lessee. In another clause of the lease, the lessee was given a 'prior right' to lease the premises for an additional term, subject to the lessor's right to claim the improvements at the end of the term without payment of their reasonable value. It was the latter clause to which the court referred.

In Falkenstein v. Popper, 81 Cal.App.2d 131, 183 P.2d 707, the lease gave the lessee "the first opportunity" to purchase the property. The court reviewed extensively the decisions which discuss the meaning of such terms as 'first privilege', and 'first right', and concluded that the weight of authority holds that such provisions do not give the lessee an absolute right to a renewal, but one conditioned upon the lessor's leasing the property, in which case the lessee may have first refusal. Quoting from a leading New York case, R. I. Realty Co. v. Terrell, 254 N.Y. 121, 172 N.E. 262, the court said: "In construing the clause in question, the court is required to give some meaning to all the words used. The construe the clause in accordance with the contention of the respondent (lessee) would require that the word 'first' be eliminated. With that word eliminated, the privilege to buy would be absolute and enforceable. (Citations.) Therefore, it must have been used to prevent the agreement from constituting an absolute option to sell. The phrase 'first privilege to buy' and the words 'privilege to buy' have an entirely different meaning; one is conditional and the other absolute." 81 Cal.App.2d at p. 135-136, 183 P.2d at page 709. The Butt case was distinguished, the court pointing out that the options given the lessor and the lessee in that case were conflicting, both apparently giving an absolute right at the termination of the orginal lease. Use of the word 'prior' might have been explained as indicating the supremacy of the lessee's option over that of the lessor.

In the present case, the option is a 'first right and prior...