Gordon v. J. C. Penney Co.

• Decision Date: 05 May 1970
• Court: California Court of Appeals Court of Appeals
• Parties: Kenneth W. GORDON, Juanita N. Gordon and Eunice F. Ashley, Plaintiffs and Appellants, v. J. C. PENNEY COMPANY, Defendant and Respondent. Civ. 12073.

Page 604

86 Cal.Rptr. 604

7 Cal.App.3d 280

Kenneth W. GORDON, Juanita N. Gordon and Eunice F. Ashley, Plaintiffs and Appellants, v. J. C. PENNEY COMPANY, Defendant and Respondent.

Civ. 12073.

Court of Appeal, Third District, California.

May 5, 1970.

Rehearing Denied June 1, 1970.

Hearing Denied July 1, 1970.

Long & Levit by John B. Hook, San Francisco, for plaintiffs-appellants.

Fitzwilliam, Memering, Stumbos & DeMers, by John D. Stumbos, Sacramento, for defendant-respondent.

PIERCE, Presiding Justice.

Plaintiff-appellants (Gordons) are the owners of Marysville store premises. Those premises were leased from the Gordons by defendant-respondent J. C. Penney Company (Penney). The written lease was drawn by Penney. On July 9, 1964, the premises were damaged by fire. The agreed insured loss was $174,645.52. Gordons filed an action against Penney to recover those and other losses. The complaint alleged that the damage was due to Penney's negligence. Penney's answer included an affirmative defense. It asserted the release of liability of Penney under the 'damage' and 'insurance' clauses of the written lease.

The 'damage' clause was an agreement by Gordons to 'repair and/or rebuild' the leased premises in the event of any loss The 'insurance' clause obligated Gordons to keep the leased premises fully insured against loss or damage by fire 'and it is agreed that such insurance shall be carried for the mutual benefit of Landlord and Tenant * * *.' ²

from fire or any other cause regardless of the extent of such loss. ¹

After the execution of the lease, and in accordance with its terms, Gordons obtained fire insurance. Gulf Insurance Company (Gulf) was its insurer. Gulf paid to Gordons the full insured value of the loss.

The case was tried to the court. The trial was bifurcated. First tried was the issue raised by the complaint that the fire damage was caused by Penney's negligence. The trial court found that it was so caused. Issues affecting Gordons and Penney were the subject of a settlement between those parties. Gulf became the real plaintiff contending it was entitled to recover its outlay to Gordons for insurance upon the theory that it had become subrogated to a right enjoyed by Gordons against Penney for the latter's negligence. On this issue no evidence was taken. ³ The court found that Penney was, under the terms of its lease with Gordons, absolved from liability to Gulf. That insurer had no subrogation right because Gordons, its subrogor, had had no right against Penney.

THE CHAPIN CASE

Both parties rely, without recourse to extrinsic evidence, upon the language of the lease. Specifically, reliance is upon just two of the clauses of the lease--the 'damage' repair clause and the 'insurance' clause. (See footnotes 1 and 2, supra.) Effectually, except for two differences, these clauses here are the same as those in Fred A. Chapin Lumber Co. v. Lumber Bargains, Inc. (1961) 189 Cal.App.2d 613, 11 Cal.Rptr. 634.

There, as here, the lessor had agreed to maintain fire insurance to cover the value of the leased building. A fire occurred caused by the lessee's negligence. It was the lessor's position that the parties had not intended by lessor's agreement to carry fire coverage to include fires for which the lessee was negligently responsible. To do so, lessor contended, would be contrary to the policy of Civil Code, section 1668. ⁴ In reply, lessee contended the provision was an agreement by lessor to provide mutual protection by purchase of insurance against insurable losses, the premiums for which were to be payable by lessor. Notwithstanding Civil Code, section 1668, losses caused by an insured's negligence are insurable and another may agree to pay the premiums on such insurance. (see cases cited in Chapin, supra, on p. 616, 11 Cal.Rptr. 634.) The trial court accepted lessee's contention in Chapin, and the appellate court affirmed. The latter court reasoned that it was obvious from a reading of the lease that the insurance clause had been intended as mutual protection for both lessor and lessee which, absent such insurance, could not have been effected.

One of the two differences between the facts in Chapin and the facts in the instant case is that here the parties expressly stated the insurance was to be for their mutual benefit. But in Chapin mutuality was inferred from the nature and purpose of the agreement.

It is upon the second difference that Gordons base their whole case; in Chapin the lessee had agreed to restore and repair fire damage to the leased premises. Here lessor had assumed that obligation.

According to Gordons that is a distinguishable difference. It explains, they say, the meaning of a lease provision calling for the purchase of insurance for the 'mutual' benefit of both lessor and lessee in terms other than insurance covering loss caused by lessee's negligence. Insurance, it is urged, is still for the benefit of lessee even though it does not protect him against his own negligence because it affords a fund out of which the insured premises can be restored--even though lessee ultimately has to replenish that fund by refunding to the insurance company its original outlay to lessor in payment for the loss.

This court does not accept that as a reasonable interpretation of the intent of the lessee in drafting the 'damage repair' and 'insurance' clauses of the lease. Restoration of the leased premises would indeed be small comfort to a lessee who ultimately had to bear the restoration expense. Insurance so providing has scant 'mutual' benefit.

Effectually, the same argument had been advanced in Chapin. There it was argued that had it been the intention of the parties to give the lessee an interest in the insurance proceeds the lessee would have had some voice in determining whether to repair or rebuild after a fire...