Mitchell v. Exhibition Foods, Inc.

• Decision Date: 26 August 1986
• Citation: 229 Cal.Rptr. 535,184 Cal.App.3d 1033
• Court: California Court of Appeals Court of Appeals
• Parties: Mitchel L. MITCHELL, Plaintiff, Cross-Defendant, and Appellant, v. EXHIBITION FOODS, INC., et al., Defendants, Cross-Complainants, and Respondents. AO11984.

Page 535

229 Cal.Rptr. 535

184 Cal.App.3d 1033

Mitchel L. MITCHELL, Plaintiff, Cross-Defendant, and Appellant, v. EXHIBITION FOODS, INC., et al., Defendants, Cross-Complainants, and Respondents.

AO11984.

Court of Appeal, First District, Division 4, California.

Aug. 26, 1986.

Thelen, Marrin, Johnson & Bridges, Ronald F. Sullivan, Wynn S. Carvill, San Francisco, for plaintiff, cross-defendant, and appellant

Leland, Parachini, Steinberg, Flinn, Matzger, & Melnick, Harvey L. Gould, San Francisco, for defendants, cross-complainants, and respondents.

SABRAW, Associate Justice.

The major issue on this appeal by plaintiff Mitchel L. Mitchell from a judgment requiring him to execute a new lease of real property to defendants Exhibition Foods, Inc., and Jax Steak House--San Francisco, Inc., is the construction of a "first right of refusal" provision in the antecedent lease between the parties.

I

The original lease executed in February of 1968 concerned a parcel of improved real property located in downtown San Francisco. The lease, whose term would end on January 31, 1979, was thereafter amended in two pertinent particulars. First, Exhibition Foods, the original lessee, assigned "all of its right, title and interest" in the lease to Jax Steak House. Plaintiff consented to this substitution, subject to the proviso that "Exhibition Foods ... shall assume all responsibility under the terms of the ... lease agreement in the event of default by Jax Steak House." ¹ Second, the lease was modified to include the "first right of refusal" provision. As relevant here, it reads as follows:

"Right to lease for an additional period. Lessee shall have the first right of refusal to lease for an additional five years under the following conditions: ... [p] At any time during the tenth year of the lease term, the Lessor may present a bona fide lease offer from others to the Lessee and the Lessee shall have forty-eight hours in which to elect in writing to lease on terms and conditions contained in said other[ ] offer. If Lessee elects not to lease, then Lessor shall thereafter be free to lease the premises to others."

Defendants thereafter entered into possession of the premises and began installing a number of improvements, among which were a forced air ventilation system, piping, a sprinkler system, hot water heaters, restrooms, a basement office, a freight elevator, a dumbwaiter, walk-in freezers, and a new electrical system. The cost to defendants of these improvements was approximately $200,000. Commencing in February of 1969, defendants operated a restaurant on the premises. A display grill used in preparing food was prominently visible to pedestrians, as was a distinctive exterior sign. In October of 1974, after receiving indications that plaintiff would be agreeable to extending the term of the lease, defendants spent about $12,000 repainting the interior and exterior of the premises.

In about December of 1977, plaintiff began negotiating a possible lease of the premises to Alexander Kindler. A formal and detailed offer was reduced duced to writing and submitted by Kindler to plaintiff in May of the following year. The "Use of Premises" provision recites Kindler's intention to establish a "food market" after the ground floor is "subdivided and subleased" to a described variety of food-related retailers. Kindler would pay a monthly rent of $4,750 "[f]or a term of five (5) years." The critical provision of the Kindler offer concerned extensions of this term. As pertinent here, it provided in relevant part:

"9) Option: Lessor shall grant the Lessee the right to extend this lease to the demised premises for three (3) consecutive periods of five (5) years[,] each commencing at the termination of the original five year lease, said extensions shall be subject to all of the terms and Kindler's offer also included an acknowledgment of "the right of the present tenant (Jax) to match this offer to lease the premises for five (5) years."

conditions contained in the original lease except as to a further option to extend the term thereof...."

On May 24, 1978, plaintiff executed a written acceptance of Kindler's offer, which was accompanied by a receipt for a check in the amount of $4,750. Plaintiff presented the offer to defendants' president Herman Likerman (see fn. 1, ante ) on the same day. Within the approved period for acceptance, Likerman dispatched to plaintiff a letter which read as follows:

"Exhibition Foods, Inc. dba Jax Steak House, hereby accepts the conditions of the offer that you have received from Alexandre [sic ] Kindler, but wishes to call to your attention one aspect of the Kindler offer which is inapplicable to its tenancy.

"Paragraph 8 of said offer would not apply, since exterior signs already exist under the present tenancy, and have been previously approved. Accordingly, those exterior signs presently in existence could remain.... I trust ... that the offer would be established as being a bona fide one. Based on that presumption, and subject to the further condition noted respecting paragraph 8 of the offer, Jax hereby accepts the conditions of the Kindler offer."

Plaintiff thereafter submitted a proposed lease for Likerman's signature. The details of the lease need not be recounted here: it suffices to characterize it as incorporating various provisions from the Kindler offer which defendants deemed disadvantageous (i.e., paragraph 8) while omitting others (especially paragraph 9) which defendants considered beneficial. Likerman sent plaintiff a letter advising him of these "deficiencies," together with the proposed lease as interlineated with "proposed modifications." Plaintiff responded with a letter in which he in essence told Likerman to "execute this new lease" or "I shall proceed with the necessary legal action." ² Likerman did not comply with the former directive, whereupon plaintiff commenced this action.

The case was tried in two phases. Plaintiff's complaint for unlawful detainer was submitted to a jury, which heard testimony from plaintiff, Kindler, Likerman, and an expert real estate appraiser. The jury returned a general verdict in favor of defendants. The equitable issues framed by defendants' "Cross-Complaint for Specific Performance, Declaratory Relief and Injunctive Relief" were then decided by the trial court on the additional basis of briefs and argument. The court filed findings of fact and conclusions of law to the general effect that there did exist a new lease between the parties which incorporated some provisions of the Kindler offer (most particularly paragraph 9) and excluded others (e.g., paragraph 8, dealing with the matter of signs). ³ Defendants were awarded This timely appeal followed.

                attorneys' fees, based upon [184 Cal.App.3d 1040]   provisions of the original and the new leases, for both phases of the trial.  The court thereafter entered a judgment directing plaintiff to prepare a new lease with specified provisions and to submit it to defendants for execution
                

REVIEW

II

Plaintiff's attack on the judgment is not total. He does not dispute the verdict on his unlawful detainer complaint. Nor does he contest that part of the judgment in which the trial court declared the existence of a new lease between the parties for a term of five years. (See Conclusions of Law Nos. 4 and 12 quoted in fn. 3, ante.) He does, however, challenge the inclusion of the three five-year extensions derived from paragraph 9 of the Kindler offer.

Much of plaintiff's challenge is devoted to his construction of the first right of refusal provision. Neither side presented evidence at the trial on the issue of the parties' intentions regarding the provision at the time of its negotiation and execution. We are therefore not required to accept the trial court's interpretation of the agreement; instead, it is this court's function to make an independent determination of the provision's meaning. (See Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 439, 204 Cal.Rptr. 435, 682 P.2d 1100; State of California v. San Luis Obispo Sportsman's Assn. (1978) 22 Cal.3d 440, 451, 149 Cal.Rptr. 482, 584 P.2d 1088; Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865-866, 44 Cal.Rptr. 767, 402 P.2d 839; Hudson Properties Co. v. Governing Board (1985) 168 Cal.App.3d 63, 71, 213 Cal.Rptr. 909; Rollins v. Stokes (1981) 123 Cal.App.3d 701, 709, 176 Cal.Rptr. 835.) We now examine the various arguments pressed by plaintiff.

A

The first wave of plaintiff's assault on the judgment pertains to the interpretation of the first right of refusal provision. Although stated in differing ways, it boils down to a single simple proposition: the provision expressly limits an extension of defendant's tenure to "an additional five years," a restriction which cannot be ignored but must be respected. This is the same argument plaintiff has asserted from the start of his dispute with defendants. (See fn. 2, ante.) We turn to some of the rules governing contract interpretation to assist our resolution of this argument. "A contract must be so interpreted as to give effect to the mutual intention of the parties as it existed at the time of contracting, so far as the same is ascertainable and lawful." (Civ.Code, § 1636.) ⁴ "The language of a contract is to govern its interpretation, if the language is clear and explicit, and does not involve an absurdity." ( § 1638.) "When a contract is reduced to writing, the intention of the parties is to be ascertained from the writing alone, if possible...." ( § 1639.) As previously mentioned, no extrinsic evidence regarding the parties' intentions was introduced at trial. Our analysis is consequently confined to the words of the provision and whatever general principles of law are applicable.

The first sentence of the provision--"Lessee shall have the first right of refusal to lease for an additional five years"--seems to support plaintiff's construction. But our inquiry does...