Guntert v. City of Stockton

• Decision Date: 12 January 1976
• Citation: 55 Cal.App.3d 131,126 Cal.Rptr. 690
• Court: California Court of Appeals Court of Appeals
• Parties: Ronald M. GUNTERT et al., Plaintiffs and Respondents, v. CITY OF STOCKTON, California, a Municipal Corporation, Defendant andAppellant. Civ. 14752.

Page 690

126 Cal.Rptr. 690

55 Cal.App.3d 131

Ronald M. GUNTERT et al., Plaintiffs and Respondents, v. CITY OF STOCKTON, California, a Municipal Corporation, Defendant andAppellant.

Civ. 14752.

Court of Appeal, Third District, California.

Jan. 12, 1976.

Rehearing Denied Feb. 9, 1976.

See 127 Cal.Rptr. 602.

Hearing Denied April 22, 1976.

Brobeck, Phleger & Harrison, by Thomas A. Welch, San Francisco, for plaintiffs-respondents.

Monroe Langdon, City Atty., and Wilson & Hoslett, by John A. Wilson, Stockton, for defendant-appellant.

FRIEDMAN, Acting Presiding Justice.

Plaintiff Guntert and two wholly-owned corporations operate a steel construction and machinery business on a seven-acre tract called Banner Island leased from the City of Stockton. A clause of the lease permits termination by the lessor on 18 months' written notice when and if the city decides to accept a bona fide development offer from third parties. ¹ In March 1972 the city received what its governing officials viewed as an attractive development offer. They gave Guntert notice of termination. Guntert and his two corporations filed an injunction and damage suit, charging invalidity of the notice of termination.

A bifurcated trial took place. The first phase of the trial dealt with the parties' substantive claims and with Guntert's prayer for injunctive relief against the city's termination effort. At the conclusion of the first trial phase, the court entered findings declaring that the city had acted unreasonably, arbitrarily, without good faith and in breach of its contractual duty to inquire into the bona fides of the third parties' development offer. The court concluded that the notice of lease termination was a nullity and issued an injunction against dispossession of Guntert. In November 1974 we affirmed the judgment of injunction. (Guntert v. City of Stockton, 43 Cal.App.3d 203, 117 Cal.Rptr. 601.)

In the meantime the trial of Guntert's damage claim had gone forward. The trial culminated in findings and a judgment awarding Guntert $553,812.81 (representing lost profits and out-of-pocket losses to the date of trial) plus a monthly sum of $13,442.53 (representing future lost profits) from February 1974 through December 1979, or until earlier termination of the lease. We now consider the City's appeal from the money judgment.

I

The City claims lack of substantive liability for damages. It points out that Guntert did not vacate the leased property but remained in possession. The city's thesis runs approximately as follows--no cause of action for constructive eviction arises unless the tenant vacates the premises; a lessor who does not physically eject the tenant but rather seeks to oust him through an invalid notice of termination or an unsuccessful lawsuit is liable for damages only if his action was malicious; the trial court's findings of unreasonableness and even of lack of good faith are not tantamount to a finding of malice.

The city's position is not well taken. In every lease the landlord impliedly covenants that the tenant shall have quiet enjoyment and possession of the premises. In California this covenant is partially expressed in Civil Code section 1972, which guarantees the tenant against rightful assertion of a paramount title. Beyond the statutory covenant, the landlord is bound to refrain from action which interrupts the tenant's beneficial enjoyment. (Brown Derby Hollywood Corp. v. Hatton, 61 Cal.2d 855, 858, 40 Cal.Rptr 848, 395 P.2d 896; Carter v. Adler, 138 Cal.App.2d 63, 70--71, 291 P.2d 111; 49 Am.Jur.2d, Landlord and Tenant, § 336, p. 351.) As construed by the trial court and by this court on the prior appeal, the Guntert lease imposed upon the lessor an obligation whose breach profoundly impaired the tenant's beneficial enjoyment.

A preliminary provision of the lease recited that the lessee would use the property for heavy steel construction and for constructing barges and other watercraft, Guntert's business included construction of ships, tugs, barges, floating cranes, dredges and specially designed equipment. It built and rented out highway and canal paving machines. According to the findings, many of the 'to order' products required extended completion time; income from a particular job might be received months, even years, after its completion; a sustaining backlog of major work was required in order to provide a continuing flow of income.

As construed on the earlier appeal, the termination clause imposed upon the City a duty to investigate and make a reasonable determination of the bona fides of the development proposal for whose sake it was terminating Guntert's tenancy. (43 Cal.App.3d at p. 213, 117 Cal.Rptr. 601.) The city did not fulfill that duty; rather, with no investigation of the developer's financing ability, it arbitrarily and unreasonably gave Guntert the 18-month termination notice. (43 Cal.App.3d at p. 216, 117 Cal.Rptr. 601.) Immediately after the March 1972 termination notice, Guntert filed suit, seeking an adjudication of the notice's invalidity.

The termination notice initiated a state of uncertainty which seriously damaged Guntert's business. Pending the outcome of the lawsuit, Guntert had no assurance that his manufacturing plant could occupy the leased premises past the threatened date of eviction, i.e., September 1973. The trial court found that this uncertainty prevented Guntert from undertaking commitments and from bidding on manufacturing jobs. Although the court issued its permanent injunction in April 1973, the city's appeal perpetuated Guntert's inability to predict continued access to his manufacturing plant. Not until January 1975, 60 days after we affirmed the injunction judgment, was the nullity of the termination notice finally adjudicated.

The trial court found that the city's invalid notice of termination directly caused an unanticipated 'wind-down' of Guntert's business. The arbitrary and unreasonable notice of termination violated the lessor's implied obligation to abstain from interference with the tenant's use and enjoyment of the premises. Upon a lessor's breach of lease, the tenant has a choice of remedies. If the broken covenant is a condition precedent in the contract sense, he may elect to move out, cease payment of rent and under some circumstances seek damages. (3 Witkin, Summary of Cal.Law, Real Property, §§ 505, 506.) He also has the alternative of continuing under the lease and suing for breach-of-contract damages. (Kulawitz v. Pacific etc. Paper Co., 25 Cal.2d 664, 672, 155 P.2d 24; see also, McAlester v. Landers, 70 Cal. 79, 82--84, 11 P. 505.) Guntert chose the latter alternative. At no point did he surrender possession of the leased premises.

A number of decisions describe a rule declaring that a nonphysical interference with the tenant's enjoyment constitutes a constructive eviction; that the tenant may not recover for the eviction unless he first vacates the premises. (Veysey v. Moriyama, 184 Cal. 802, 805--806, 194 P. 1003; Clark v. Spiegel, 22 Cal.App.3d 74, 79--80, 99 Cal.Rptr. 86; Slater v. Conti, 171 Cal.App.2d 582, 585, 341 P.2d 395; Lori, Ltd. v. Wolfe, 85 Cal.App.2d 54, 65, 192 P.2d 112; 3 Miller and Starr, Current Law of California Real Estate, § 1022, p. 442; see also, Green v. Superior Court, 10 Cal.3d 616, fn. 10, at pp. 625--626, 111 Cal.Rptr. 704, 517 P.2d 1168.) Another version of the rule is that the covenant of quiet enjoyment is not breached until there has been an actual or constructive eviction. (Standard Livestock Co. v. Pentz, 204 Cal. 618, 625, 269 P. 645, 62 A.L.R. 1239; Petroleum Collections Inc. v. Swords, 48 Cal.App.3d 841, 847, 122 Cal.Rptr. 114; see Annots., 62 A.L.R. 1257, 41 A.L.R.2d 1414.)

Stated in these flat terms, the rule would preclude a tenant from seeking damages for a breach of quiet enjoyment not amounting to an eviction. Stated in these terms, the rule is incomplete, for it fails to recognize the tenant's choice of remedies for breach of the lease, namely, his option to stand upon the lease and sue for damages. (Kulawitz v. Pacific etc. Paper Co., supra.) Decisions in other states draw a distinction--the rule demanding surrender of the premises preceding a suit for impairment of quiet enjoyment is inoperative where the tenant elects to stand upon the lease and claim damages. (Carner v. Shapiro (Fla.App.) 106 So.2d 87, 89; Keating v. Springer, 146 Ill. 481, 34 N.E. 805; Kuiken v. Garrett, 243 Iowa 785, 51 N.W.2d 149, 155, 41 A.L.R.2d 1397; Winchester v. O'Brien, 266 Mass. 33, 164 N.E. 807, 64 A.L.R. 895; Moe v. Sprankle, 32 Tenn.App. 33, 221 S.W.2d 712; Ennis v. Ring, 56 Wash.2d 465, 353 P.2d 950, 953; see also, 1 Tiffany, Landlord and Tenant (1910) § 79, p. 540.)

Several California cases pursue a parallel line but without explicating the distinction. The lessor's covenant of quiet enjoyment may be breached by something less than complete ouster, that is, 'some act of molestation, affecting, to his prejudice, the possession of the covenantee.' (Black v. Knight, 176 Cal. 722, 725, 169 P. 382, 383 quoting Levitzky v. Canning, 33 Cal. 299. In Levitzky the landlord's activities deprived the tenant of the economic benefits of the lease; the tenant's claim to damages was upheld even though he remained in possession of the premises. Similarly, Agoure v. Lewis, 15 Cal.App. 71, 76, 113 P. 882, holds that a tenant in possession may recover damages for breach of the covenant of quiet possession.

Other cases voice a rule upon which the city relies--that a landlord's unsuccessful attempt to oust the tenant by a notice of termination or lawsuit is not actionable unless characterized by bad faith or malice. (See, e.g., Lindenberg v. MacDonald, 34 Cal.2d 678, 683, 214 P.2d 5; Black v. Knight, supra, 176 Cal. at p. 726, 169 P. 382; Asell v. Rodriguez, 32 Cal.App.3d 817, 824--825, 108 Cal.Rptr. 566.) That rule holds sway where the tenant quits the premises and sues for wrongful eviction. Guntert is not suing...