Rabinowitch v. California Western Gas Co.

Decision Date19 December 1967
Citation65 Cal.Rptr. 1,257 Cal.App.2d 150
CourtCalifornia Court of Appeals Court of Appeals
PartiesBernard Z. RABINOWITCH, Trustee for Ida Brodsky, of property leased, Plaintiff, Respondent and Appellant, v. CALIFORNIA WESTERN GAS COMPANY, a corporation, and Atlas Propane & Gas Co., a corporation, Defendants, Appellants and Respondents. Civ. 24042.

Schumann & Ziering, San Francisco, for California Western Gas Co., etc., et al.

Betts & Deane, Concord, for Bernard Z. Rabinowitch, etc.

CHRISTIAN, Associate Justice.

In this action for rent due under a lease, the trial court awarded the lessor $28,325 rent and $2,500 attorneys' fees. On appeal, the lessee contends that the award of rent involved, in effect, an unauthorized rewriting of the lease by the court and that attorneys' fees should not have been allowed as they had been waived by stipulation. The lessor's cross-appeal attacks both the trial court's failure to award interest upon unpaid rent which accrued before the date of entry of judgment, and the court's disallowance of $2,585 accounting fees as costs.

In his capacity as trustee for the benefit of Ida M. Brodsky, Rabinowitch leased to Atlas Propane and Gas Company a liquified petroleum gas distribution facility near Reno, Nevada. Performance of the lessee's obligations was guaranteed by its parent corporation, California Western Gas Company. The lease resulted from negotiations over an extended period between officers of the lessee corporations and Henry Brodsky, acting for Ida Brodsky before the establishment of the trust. At that time and for some years previously, Henry Brodsky had been operating a gas distribution business from the Reno plant. After preliminary drafts had been modified several times, the parties entered into a written lease by signing a text prepared by counsel for lessee. This case arose because the parties disagree as to the interpretation of contradictory language in the instrument governing the computation of rent.

The lease called for an undisputed basic rent of $350 monthly, plus 'gallonage' of 3.2 cents for each gallon of gas sold by lessee within a designated marketing area. With regard to the accrual and payment of this part of the rent, the lease provided:

'a) With respect to the first 562,500 gallons sold during the fiscal year July 1 and ending the following June 30, said 3.2 cents per gallon shall be paid as follows: 1.6 cents of the per gallon rent charge shall be waived so long as Lessee or any of its affiliate companies or its parent company employs Henry H. Brodsky, as a consultant, at a monthly salary of not less than $750.00 per month.

'The remaining 1.6 cents of the per gallon rental charge shall be retained by Lessee for the benefit of Lessor, provided that said retained funds shall be used solely for the purchase of tanks, cylinders and meters or other capital improvements, * * *.

'b) With respect to all gallonage sold in excess of 562,500 gallons, said 3.2 cents per gallon rental charge shall be payable as follows: 1.6 cents of the per gallon rental charge shall be accumulated and shall be paid annually to Lessor at the expiration date of each fiscal year ending June 30 on the basis of gallonage sold during said year. The remaining 1.6 cents of the per gallon rental charge shall be retained for the identical purposes for which the 1.6 cents per gallon retention is to be used for the first 562,500 gallons sold per year.'

In parenthetical language the lease recited:

'(it being understood that during the fiscal year, Lessee shall pay to Lessor only the basic rent of $350.00 plus $750.00 per month on account of minimum guaranteed sales as provided in the following paragraph, payment of which $750.00 is waived so long as Henry H. Brodsky is employed as provided in paragraph (a) above.)'

It was further provided that 'Lessee guarantees that it will make sales of not less than 281,250 gallons per year, * * *.'

Arithmetical calculation shows the ambiguity of these provisions. Under paragraph 'a' above, the one-half apportionment of gallonage which is to be paid in cash (1.6 cents per gallon for 562,500 gallons) equals $9,000 per year, or $750 per month, the same amount which was to be waived during Henry Brodsky's employment by lessee at a salary of $750 per month. Of course, the remaining 1.6 cents per gallon for the retained fund also amounts to $9,000 per year. Although paragraph 'a' does not specifically state whether the 3.2 cents per gallon is to be paid annually or monthly, paragraph 'b' refers to annual payment of a sum representing 3.2 cents per gallon for sales in excess of 562,500 gallons. A later paragraph of the lease provides that during the fiscal year lessee shall pay lessor the $350 ground rent 'plus $750.00 per month' on account of minimum guaranteed sales, $750 being waived so long as Henry Brodsky is employed. It is in the immediately following paragraph that 281,250 gallons, or one-half of the 562,500 gallons previously mentioned, is fixed as the minimum guaranteed gallonage. But if 281,250 gallons were sold, or gallonage therefore paid pursuant to the guarantee, the 1.6 cents per gallon payable as cash rent would amount to only $375 per month. The other 1.6 cents per gallon, of course, was to be paid into the retained fund annually. Therefore, the latter $375 could not be a Monthly payment on account of minimum guaranteed sales.

Henry Brodsky's employment was terminated after the first half of October, 1963. The lessee had paid him $750 per month while he was employed and had also paid 1.6 cents per gallon into the retained fund. Lessee contends that after Henry Brodsky's employment was terminated it was only required to pay $375 cash per month to lessor, i.e., 1.6 cents times the guaranteed minimum gallonage of 281,250 gallons, plus 1.6 cents per gallon credited annually to the retained fund. Lessor, however, points to the provision, quoted above, that 'Lessee shall pay to Lessor only he basic rent of $350.00 plus $750.00 per month on account of minimum guaranteed sales. * * *'

In order to resolve these ambiguities in the document, the trial court received extensive testimony regarding the negotiations which led to the execution of the lease. This evidence indicated that after desultory negotiations a first draft was prepared which contained a guarantee that lessee would sell not less than 562,500 gallons per year. This provision was in keeping with lessor's desire to be sure that monthly rent would be not less than $350 plus a further $750 cash which was subject to waiver during Henry Brodsky's employment. When lessee's attorneys had prepared the final form of the lease, Brodsky pointed out that the minimum gallonage had been cut in half. He accepted the explanation that if 562,500 gallons was guaranteed that effect would be a fixed liability of $1,500 monthly instead of $750. (This is because a full $750 would accrue to the retained fund.) Henry Brodsky testified that he and Ida accordingly understood that sufficient gallonage was guaranteed to produce cash rent, at 1.6 cents per gallon, amounting to $750 monthly, but that for purposes of computing amounts to be credited to the retained fund at a further 1.6 cents per gallon the guarantee of sales was limited [257 Cal.App.2d 156] to 281,250 per year. The tendency of the evidence given by witnesses called in behalf of the lessee was generally inconsistent with the sequence related above; however, it was neither so clear nor so cogent as to compel the trial court to reject Brodsky's testimony.

Although the lessee's answer alleged that the lease 'has been, or should by this action be, rescinded' the parties tried the case and argued the appeal upon the common assumption that the lease is a valid and subsisting instrument, the ambiguous provisions of which are to be construed by the court. According to the construction adopted by the trial court, the lessee was obligated to pay, in addition to the $350 per month ground rent: (1) $750 minimum rental monthly to the lessor, after the termination of Henry Brodsky's employment; (2) 1.6 cents per gallon sold during the year, annually to the retained fund; and (3) annually, the amount by which 1.6 cents per gallon sold during the year exceeds the total of $750 per month minimum rental payments made during the year.

Lessee contends that the trial court's findings are contrary to the general intent of the parties as expressed in the lease, claiming that extrinsic evidence of the parties' intention was improperly used by the trial court to vary the terms of the written agreement. But when the language used in a written instrument is ambiguous, parol evidence may be received to aid the trial judge in ascertaining the true intent of the parties, that is, to determine what the parties meant by what they said. (Waverly Productions, Inc. v. RKO General, Inc. (1963) 217 Cal.App.2d 721, 727--728, 32 Cal.Rptr. 73.) 'A contract may be construed and explained by reference to surrounding circumstances under which it was made and the matters to which it relates. (Civ.Code, § 1647; Code Civ.Proc. § 1860.)' Kwikset Locks, Inc. v. Stewart Commissaries (1964) 225 Cal.App.2d 146, 149, 37 Cal.Rptr. 248, 250.) Evidence relating to prior negotiations may be used to resolve ambiguities in the language of a contract. (Du Frene v. Kaiser Steel Corp. (1964) 231 Cal.App.2d 452, 457, 41 Cal.Rptr. 834.)

In the present case, the language used in the lease creates an ambiguity regarding the computation of rent. If lessee must pay the lessor $750 per month, then the clause of the lease which guarantees minimum sales of 281,250 gallons per year is rendered nugatory. On the other hand, if, as asserted by the lessee, only $375 per month need be paid, then no effect is given to the clause relating to monthly payments of $750. The trial court resolved this ambiguity by reference to a prior draft of the lease and...

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