McAulay v. Jones

• Decision Date: 08 April 1952
• Citation: 242 P.2d 650,110 Cal. App. 2d 302
• Court: California Court of Appeals
• Parties: McAULAY et al. v. JONES et al. Civ. 14941.

Page 650

242 P.2d 650

110 Cal.App.2d 302

McAULAY et al. v.JONES et al.

Civ. 14941.

District Court of Appeal, First District, Division 1, California.

April 8, 1952.

Foster & Redhead, Pacific Grove, for appellants.

Thompson & Thompson, Monterey, W. H. Orrick, San Francisco, of counsel, for respondentOrville B. Jones.

Campbell & McHarry, Monterey, for respondentsIrene Winslow McAulay, individually, and as trustee for Kathleen McAulay.

BRAY, Justice.

Plaintiffs appeal from a judgment in favor of defendants holding that the term of a certain lease had been extended.

Question Presented.

Was the term of the lease extended?

Record.

Plaintiffs brought an action for declaratory relief to determine primarily if defendantOrville Jones was entitled to remain in the leased premises.DefendantAlfred Williams was alleged to be Jones' manager of the motel on the leased premises.The other defendant is a devisee with plaintiffs of the improvements by reason of the decree of distribution in the Estate of Martin McAulay, deceased.Defendant Jones answered and cross-complained, setting up his claim to an extended term of the premises by reason of a certain lease.DefendantIrene McAulay, individually, and Ione Fosmark as trustee for Irene McAulay and Kathleen McAulay, answered, alleging among other things that defendant Jones duly exercised 'his option to extend the period of such lease for an additional ten years.'The court found that the term had been extended.

Facts.

On November 1, 1939, defendant Jones entered into a lease with plaintiffs and Martin McAulay(since deceased), for the lease of certain real property in Monterey County.Under it, Jones was to clear the ground and build an auto court on it.Lessors were to furnish the material from time to time.Jones was to furnish his labor free of charge.Labor necessary to the operation of the court, other than that of Jones, was to be a charge against income.As rental, lessors were to receive 50 per cent of the net income, the remaining 50 per cent to be retained by Jones.Rental was to be paid every month, submitted with a statement of income and disbursements.This statement was not to be binding until approved, such approval to be made within 15 days after submission.At termination of the lease, Jones was to receive 40 per cent of the appraised value of the auto court.Expense of replacement of improvements was to be a charge against income.If 'the lessee does not elect to exercise the option of renewing said lease as hereinafter provided'he is to deliver premises in reasonably good condition.PlaintiffHoward McAulay was appointed their agent by the lessors.The real property is owned by plaintiffs.The improvements are owned 6/14ths by plaintiffs and 8/14ths by Ione Fosmark as trustee for Irene McAulay and Kathleen McAulay.

The renewal clause which caused this litigation follows: 'In the event that the lessee should desire to secure an additional ten years' lease upon the termination of the term herein granted upon the same terms as provided for in this lease, lessee shall notify the lessors in writing during the eighth year of the term of this lease of his desire for an additional ten years' lease.Lessors, upon receiving said written request for an additional ten years' lease, shall notify lessee in writing within ninety days from the receipt of said request advising the lessee whether or not lessors will accept or reject said request for an additional ten years' lease from the expiration of the term herein granted.'¹

Jones testified, corroborated by his wife and defendantIrene McAulay, and the court found, that on November 7, 1946, he sent Howard a three months' statement of income and disbursements and appended thereto the following statement: 'Also under our lease I believe that it is necessary for us to make written request if we wish to re-new our lease for another Ten Year Period.Please consider this as my request for a re-newal of our Lease with you and the McAulay Estate and concerning the El Rio Carmelo Motor Court.The terms and wording of the Lease of course to remain the same.'Irene McAulay testified that she mailed at the Monterey post office the envelope containing the renewal request, directed to Howard.A check was enclosed which later was received back cancelled.Howard replied to matters in the statement other than the request.Howard denied receiving this part of the statement.Howard produced the statement but it shows that the bottom portion had been torn off.Howard claimed he received it that way.Howard never answered this request for renewal.The court found that the request was made and received by Howard.

Jones had new roofs put on some of the buildings at a cost of $1,332, which he testified he would not have put on the buildings had he thought he was not to be in possession for another ten years.Howard knew about this and in fact sent the man out who put on the roofs.This cost was paid out of income of the motor court.Jones never consulted Howard about other expenditures hereafter named, but they were apparently listed in the monthly reports.Such other items were a new water heater and a new septic tank, although there is testimony that its replacement was needed in September, 1948.The water heater was not necessary, but was put in as more convenient in capacity.Insurance policies were taken out by Howard in November, 1947, July, 1949, and April, 1949, for three year periods.He sent the bills to Jones, who paid them, deducting them from income.Howard testified that he considered no expenditures out of the ordinary except the roofs.

The court found that replacement of water heaters, roofs, septic tank, the obtaining of long term insurance, 'and portions of other effort and expense' done by Jones were done and incurred in reliance upon the express acknowledgment of Irene (who was then trustee for herself and Kathleen McAulay and as such owner of 8/14ths of the improvements) and upon his belief that he had the implied acquiescence of plaintiffs.

Did the Circumstances Constitute an Acceptance of the Renewal Request?

As there is substantial evidence to support the court's finding that the statement of November 7, 1946, did have attached to it the renewal request and that Howard, the agent for plaintiffs and with whom all the business between Jones and plaintiffs was transacted, received it, we start with the premise that he did.Secondly, it is obvious that the renewal clause does not provide an option to renew in the usual sense.It provides a means by which the lessee may offer to renew and requires the affirmative act of the lessee to make that offer.In the event he does the lessors agree that they, too, will act affirmatively.Within 90 days, they'will accept or reject said request.'This agreement they very definitely violated.The situation is different from that in LaSalle Theatre v. Taft, 156 Ill.App. 356, where the notice which was held to give no right to renew was to be given the landlord 'for his consideration.'The landlord there had not promised to act on the notice.

The contention of plaintiffs that the requirement that their acceptance be in writing and within 90 days is a condition to the renewal is not well founded.It was merely a covenant to act in writing and within the 90 days.A reasonable interpretation of it is, that if no communication as to the offer is given within the time specified, it must be considered that the offer is accepted.'A contract must receive such an interpretation as will make it lawful, operative, definite, reasonable * * *', Civ.Code, § 1643, and '* * * the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist.'Civ.Code, § 1654.Here, the Lessors.(The lease was drafted by the lessors' attorneys.)Moreover, 'It is generally held that in construing provisions of a lease relating to renewals, if there is any uncertainty, the tenant rather than the landlord is to be favored.Streicher v. Heimburge, 205 Cal. 675, 683, 272 P. 290.'Erickson v. Boothe, 79 Cal.App.2d 266, 272, 179 P.2d 611, 615.

Here there was a duty to speak.For upwards of seven years the parties had dealt with one another.Numerous reports were made by Jones to Howard.The lessors knew that Jones was expending time, money and effort to build up the business, most of which would be lost to him if the lease was not renewed, even though at termination he was to receive 40 per cent of the appraised value.Although the parties were in the relationship of landlord and tenant there was also considerable of a partnership relation included.They shared the expense and the profit.The situation was one which calls for the application of the rule quoted in Wood v. Gunther, 89 Cal.App.2d 718, 731, 201 P.2d 874, 882:

"The rule which must be deemed controlling in this case is well-established.In Hobbs v. Massasoit Whip Co., 158 Mass. 194...