Smith v. Arthur D. Little, Inc.

• Decision Date: 24 September 1969
• Court: California Court of Appeals Court of Appeals
• Parties: Kenneth D. SMITH, Plaintiff and Appellant, Chemold Company, a California corporation, Cross-defendant and Appellant, v. ARTHUR D. LITTLE, INC., a corporation, Defendant, Cross-complainant and Respondent. Civ. 32985.

Page 140

81 Cal.Rptr. 140

276 Cal.App.2d 391

Kenneth D. SMITH, Plaintiff and Appellant, Chemold Company, a California corporation, Cross-defendant and Appellant, v. ARTHUR D. LITTLE, INC., a corporation, Defendant, Cross-complainant and Respondent.

Civ. 32985.

Court of Appeal, Second District, Division 5, California.

Sept. 24, 1969.

Felixson, Reinstein, Lande & Katz and Maurice H. Katz, Beverly Hills, for plaintiff and cross-defendant and appellants.

Marvin E. Levin, Santa Monica, for defendant-cross-complainant and respondent.

AISO, Associate Justice.

Plaintiff Kenneth D. Smith (hereinafter Smith) and cross-defendant Chemold Company (hereinafter Sublessor), a California corporation, appeal from a judgment, rendered in a non-jury trial, declaring in effect that defendant and cross-complainant Arthur D. Little, Inc. (hereinafter Sublessee), a Massachusetts corporation, ¹ was entitled to cancel and did cancel its sublease, effective June 30, 1964, in consideration of its forfeiting its $6,000 deposit held by Sublessor and further adjudging that on its counterclaim Sublessee recover from Smith the sum of $6,600 overpayments of rent made under mistake, together with $1,241.32 interest and $113.90 costs of suit.

Facts

The facts are set forth in the light most favorable to respondent Sublessee as required on appellate review. (Waller v. Southern Pacific Co. (1967) 66 Cal.2d 201, 204, 57 Cal.Rptr. 353, 424 P.2d 937; BOYLE V. HAWKINS (1969) 71 CAL.2D ---, ---,⁴,^A 78 Cal.Rptr. 161, 455 P.2d 97; Marshall v. Marshall (1965) 232 Cal.App.2d 232, 236, 42 Cal.Rptr. 686.) We refer to G. Robert Smith, ² not related to the other Smith and who was a real estate broker involved in the case, as the 'Broker.'

Smith, a certified public accountant, was the organizer and president of the Sublessor corporation. In 1960, Sublessor occupied the premises at 2000 Colorado Avenue in the City of Santa Monica, under a master-lease from an E. B. Ruppenthal. ^{3 3} Culminating negotiations through Broker, who was paid a commission by Smith, Sublessor leased to Sublessee the major portion of the leased premises for a period commencing January 1, 1961, and ending October 30, 1963, a period coterminus with the remaining period on Sublessor's master-lease. Rental was $2,000 per month. $8,000 was paid at the commencement of the first month; $2,000 as rental for the first month and the balance of $6,000 as a deposit for the last three months' rent or for cancellation of the sublease. Clauses of the sublease relevant to this action are:

From printed portion: 'Tenth: That should the (sub)lessee occupy said premises after the expiration date of this lease, with the consent of the (sub)lessor, expressed or implied, such possession shall be construed to be a tenancy from month to month and said (sub)lessee shall pay said (sub)lessor for said premises the sum of $2400.00 per month for such period as said (sub)lessee may remain in possession thereof (.)'

From typewritten addendum: 'Twentieth: Sublessor grants right to sublessee to cancel this sublease, at any time during this leasehold period, after the expiration of one year, providing that sublessee gives to the sublessor a written 120 day notice addressed to the office of the sublessor and further providing that the sublessee pays to the sublessor the sum of $6,000.00 representing cancellation penalty. If all terms and conditions have been met as to this leasehold the $6,000.00 consideration deposited on this sublease is to be applied to said cancellation penalty.

'Twenty-one: Sublessor grants to sublessee option to renew and/or extend this lease for an additional five year period at the rate of $2,200.00 per month, subject to sublessors' (sic) consumation (sic) of option in master lease, Which sublessor undertakes to do if sublease (sic) gives timely notice to sublessor as provided in Section 22 hereof. ⁴ (Italics added.)

'Twenty-two: Sublessor requires a six month written notice prior to the expiration date of this sublease addressed to sublessors' (sic) office, and a copy thereof addressed to sublessors' (sic) agent G. Robert Smith Company, Santa Monica, California, by sublessee of sublessee's intent to exercise option as set-out in paragraph No. 21 hereof.'

On April 26, 1963, Sublessee's main office in Massachusetts telegraphed Sublessor advising: 'ADL INC. WILL EXERCISE OPTION TO EXTEND LEASE OF 2000 COLOCADO (sic) AVENUE, SANTA MONICA. FORMAL EXTENSION AIRMAILED YOU TODAY.'

Sublessee's letter, dated April 26, 1963, enclosing the 'formal extension' read in relevant part: 'Enclosed is written notice of our intent to exercise option to renew our sublease * * * for an additional five-year period. ( ) A copy of this notice and letter is being sent to your agent, G. Robert Smith Company, in compliance with Article 22 of the sub-lease. ( ) We would appreciate your signing the enclosed extension of lease and returning it to the writer.'

The document referred to in the telegram as the 'formal extension' was entitled, 'EXTENSION OF LEASE' and was also dated April 26, 1963. It read in parts germane to this case: 'This will notify you of the sub-lessee's exercise of the option to renew and extend the sub-lease for an additional five-year period at the rental rate of $2200 per month as provided in Article 21 of the base lease. ( ) In exercising this option and thereby extending the sub-lease, it is understood that all applicable terms and provisions of the sublease of 14 December 1960 are appropriately continued and extended. Specifically it is agreed that Article 20th, which grants the sub-lessee the right to cancel and terminate the sub-lease subject to the provisions of Article 20th are expressly continued in effect. (Emphasis added.) ( ) This notice of exercise of the option is forwarded in accordance with the provision of Article 22 of the sub-lease. As evidence of the timely exercise of the necessary extensions or other actions on the part of the sub-lessor with respect to the Master Lease, we hereby request that this notice of extension be executed by the sub-lessor also.'

Below and to the left of the Sublessee's signature was the notation: 'This exercise of option is acknowledged and it is hereby affirmed that the sub-lessor has taken the necessary actions to continue its rights to the extent necessary to confirm extension of the term of the sub-lease (,)' followed by a blank line for Sublessor's signature.

Neither the Sublessor nor Smith executed this acknowledgment as requested. Neither Smith nor Broker or anyone acting for Sublessor communicated any objection to the cancellation clause being carried over into the extended term, until some time after receipt of the Sublessee's letter of January 24, 1964, which will be detailed below. Broker, however, did speak orally to one David Acker, then acting as business manager of Sublessee's Santa Monica office, a few days after receipt of the notice of exercise of option, stating that the 'Extension of Lease' did not specifically mention disposition of the $6,000 deposit; that 'it was important' that the $6,000 deposit be retained to preserve Sublessee's privilege of cancellation during the renewal term. Acker relayed this message to Sublessee's office in Massachusetts. In response to the demand made through Broker, monthly rentals of $2,000 each for August, September, and October of 1963 (totalling $6,000) were paid by Sublessee without resort to the $6,000 deposit as credit against the rentals payable for those three months of the original term. Sublessor never returned nor offered to return the $6,000 deposit.

On November 1, 1963, and for all months following, Sublessee paid to Sublessor rentals at the new increased rate of $2,200 per month as mentioned in the 'Extension of Lease.'

On January 3, 1964, Sublessor wrote Sublessee: 'You are hereby notified that payments required under lease dated December 14, 1960 as extended by letter April 26, 1963 between (Sublessor) and (Sublessee) have been assigned to (Smith). ( ) You are therefore requested to make such future payments directly to: (Smith) 437 10th Street Santa Monica, California unless further advised to the contrary.'

Sublessee responded on January 21, 1964, requesting a copy of the Sublessor's corporate resolution authorizing the assignment of the rentals to Smith. The penultimate paragraph of this letter stated: 'We note your assurance that the December 14, 1960, lease has been extended by our letter of April 26, 1963. As we do not have a copy of this extension executed on behalf of (Sublessor) in our file, we would appreciate your sending us a replacement copy in due course.'

On January 24, 1964, Sublessor furnished the requested corporate resolution and from February of 1964, all rental payments were made directly to Smith.

It was not until shortly after Smith received the Sublessee's letter of January 21, 1964, and Helge Holst, general counsel of Sublessee in Massachusetts, called advising him that they still had not received a copy of the 'Extension of Lease' executed by the Sublessor that Smith informed Holst that while he had agreed that the sublease be extended, he 'did not concur in the period of the right of cancellation and that * * * (he) would not sign the particular extension that they had sent.'

On February 28, 1964, Sublessee wrote Smith and Sublessor notifying them that Sublessee would vacate the subleased premises on or before June 30, 1964, and that 'Our lease agreement will be considered cancelled as of that date.' Shortly thereafter, Smith indorsed his copy of this letter, 'Receipt of letter acknowledged; cancellation not accepted.'

Sublessee vacated the subleased premises around June 15, 1964, and delivered its keys to Sublessor. In the meantime Acker, to whom the rental checks had been sent by the Massachusetts office for delivery to Sublessor or Smith, had been transferred to the Massachusetts office. Sublessee's controller's office in...