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Longs Drug Stores California, Inc. v. Schwab

California Court of Appeals, Fourth District, First Division
Mar 14, 2008
No. D049436 (Cal. Ct. App. Mar. 14, 2008)

Opinion


LONGS DRUG STORES CALIFORNIA, INC., Plaintiff and Respondent, v. MICHAEL SCHWAB et al., Defendants and Appellants. D049436 California Court of Appeal, Fourth District, First Division March 14, 2008

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

APPEAL from a judgment of the Superior Court of San Diego County, Jeffrey B. Barton, Judge. Super. Ct. No. GIN850420

O'ROURKE, J.

Defendants Michael Schwab, Cheryl Schwab and Michael Smooke appeal from a summary judgment in favor of plaintiff Longs Drug Stores California, Inc. (Longs) on Longs' declaratory relief action relating to the parties' long term commercial lease of real property. Longs sought a judicial declaration that it had the right to exercise a renewal option in the lease despite its breach of a lease provision requiring it to give notice and obtain defendants' consent before beginning certain improvements. On the parties' cross-motions, the court granted summary judgment in Longs' favor on grounds it had not lost its right to exercise the renewal option despite the breach because it had attempted to cure its default and the lease was still in effect.

On appeal, defendants contend that because Longs' right to exercise the option was expressly conditioned upon its faithful performance of all covenants of the lease, its breaches prevented it from satisfying conditions precedent to the right to renewal. They further contend the trial court improperly rewrote the lease by extending its cure provision to performance of the conditions precedent for option renewal. Finally, defendants contend Longs cannot invoke Civil Code section 3275 and equitable principles to excuse its breaches. We conclude the undisputed facts presently entitle Longs to relief from the effective forfeiture of its right to exercise the option under Civil Code section 3275, and that ground alone supports the trial court's grant of summary judgment. We therefore affirm the judgment.

FACTUAL AND PROCEDURAL BACKGROUND

We set out the undisputed facts from the parties' separate statements and other unchallenged evidence presented in their cross-motions for summary judgment/summary adjudication. (Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 843 (Aguilar); Cotta v. City and County of San Francisco (2007) 157 Cal.App.4th 1550, 1553, fn. 2; Alexander v. Codemasters Group Limited (2002) 104 Cal.App.4th 129, 139.) While defendants asserted written objections to some of Longs' opposing summary judgment evidence, they did not ask for, and the trial court did not make, express rulings on those objections. Thus, the evidence to which Longs objected is considered part of the record on appeal and defendants' evidentiary objections are deemed to have been waived and not preserved for appeal. (See Sharon P. v. Arman, Ltd. (1999) 21 Cal.4th 1181, 1186, fn. 1, disapproved in part on other grounds in Aguilar, at pp. 853, 854, fn. 19; Ann M. v. Pacific Plaza Shopping Center (1993) 6 Cal.4th 666, 670, fn. 1; Demps v. San Francisco Housing Authority (2007) 149 Cal.App.4th 564, 566.) We note that the preservation of evidentiary objections for appeal under these circumstances is presently before the California Supreme Court in Reid v. Google, Inc. (2007) 155 Cal.App.4th 1342, review granted Jan. 30, 2008, S158965.

Defendants and Longs, lessors and lessee respectively, are successors in interest to a 50-year lease of certain real property in La Jolla on which Longs operates a retail drug store (La Jolla Store 310). The lease term began on January 1, 1961, and ends December 31, 2010, with renewal options for two 20-year terms. In particular, the lease provides that at the expiration of the lease (or renewal) term, on specified notice, the lessee shall have the "right and option" to renew "[i]n the event that at the expiration of the term hereof the Lessee is not in default and has faithfully performed all of the covenants and conditions of this lease. . . ." In an article entitled "Building and Improvements," the lease requires Longs to maintain the buildings and structures in "first class condition," and make all alterations, additions, improvements, and changes required by "public authority. . . ."; prohibits Longs from demolishing any building or structure or making alterations costing in excess of $5,000 without defendants' prior written approval of the plans and specifications; and requires Longs to give defendants at least ten days written notice before commencing construction of any improvements costing in excess of $5,000. Under that provision, the lessor "shall not unreasonably withhold approval of plans and specifications." The lease also contains a "Forfeiture and Default" section stating: "Subject to the provisions of Article XIII hereof [relating to sublessees], if any default be made in the payment of rent and if Lessee fails to cure such default within eighteen (18) days after receipt of written notice to Lessee, or if default be made in the performance of any other condition, covenant or agreement herein, and if Lessee fails to cure such default, or commences the cure of such default and diligently proceeds to completion, within thirty-five (35) days after written notice to Lessee, then Lessor may immediately terminate this lease and re-enter and take possession of the leased premises, or else at its option pursue any other remedy or enforce any other right to which it may be by law entitled."

The entire "Buildings and Improvements" provision of the lease reads: "Subject to the provisions of Article VI hereof [pertaining to public liability insurance], Lessee at its own cost and expense, shall maintain the demised premises, buildings and structures in first class condition and in a proper state of repair throughout the term of this lease and as it may be extended, making all necessary repairs of every kind, nature and description, ordinary as well as extra-ordinary, structural and non-structural, and shall make all alterations, additions, improvements and changes thereto required by public authority and, at the expiration of said term, shall yield and surrender said premises, buildings and structures to Lessor in at least as good state and condition as same now are, reasonable wear and tear excepted. [¶] Lessee shall not demolish any building or structure on the demised premises or make any alterations therein costing in excess of Five Thousand ($5,000) Dollars, or make additions thereto other than those required by public authority as aforesaid, without the prior written consent of Lessor. No alteration in excess of Five Thousand ($5,000) Dollars shall be made without the prior written approval by Lessor of the plans and specifications therefor. In the performance of all work done or required to be done by Lessee under the provisions of this Article, Lessee shall comply with all laws, ordinances, rules and regulations of the City of San Diego, County of San Diego, State of California and the United States Government. Lessor shall not unreasonably withhold approval of plans and specifications. [¶] Lessee shall give to Lessor at least ten (10) days' written notice prior to the commencement of construction of any improvements to cost in excess of Five Thousand ($5,000) Dollars, and agrees to keep any improvements constructed on the premises in good condition and repair, normal wear and tear, acts of God and action by the elements excepted. [¶] Any buildings so erected and all improvements made on the demised premises shall remain upon and be surrendered with the premises as a part thereof, in good condition and repair, reasonable wear and tear excepted, at the expiration or other termination of this lease."

In or about May 2005, Longs began what it described as a "Total Visual Appeal" (TVA) remodel project at La Jolla Store 310, which included a new layout and front door; new floors, ceiling, paint and décor; creation of a restroom in compliance with the Americans with Disabilities Act (ADA) in place of a waiting room; and addition of a restroom on the sales floor. These renovations cost more than $5,000. Although Longs' project/facilities department project manager claimed he notified "the landlord" orally about 4 to 5 months beforehand that Longs would be "doing . . . repair work" on the premises (intending to refer to the TVA remodel), Longs did not give landlords any advance notice in writing before beginning construction.

In late May, defendants learned of the work on the premises through one of their independent contractors, who had asked the store manager if Longs had obtained consent to conduct the construction. In early June, Michael Schwab asked a Longs representative for a set of plans. On June 7, 2005, Longs transmitted a copy of its construction plan to Schwab. About a week later, Smooke advised Longs by letter that it had committed "multiple, non-curable breaches of the Lease" and that defendants elected to declare the lease terminated and forfeited. Following an exchange of letters in which Longs unsuccessfully sought defendants' approval of its project documents, Longs commenced the present action for declaratory relief. Among other things, Longs sought a judicial declaration that it did not breach the lease and was not required to get defendants' approval of its renovations, and that if Longs breached the lease, the breach was curable and in fact cured. It also asked the court to declare that any breach was immaterial and insufficient to justify forfeiture.

Defendants responded to Longs' complaint by filing an unlawful detainer action, which they later dismissed without prejudice.

In December 2005, Longs' vice president of real estate advised defendants by letter that Longs was exercising its right under the lease to extend the lease term for 20 years. Defendants responded that the exercise was without force and effect because Longs was currently in default and had not faithfully performed all of the lease covenants and conditions.

Defendants and Longs each moved for summary judgment; Longs alternatively moved for summary adjudication of issues. Defendants argued that because Longs had failed to comply with a clear condition of the lease requiring prior approval for construction and 10-days notice, it had not faithfully performed all of the lease's covenants and conditions and thereby lost its right to exercise its renewal option at the end of 2010. For its part, Longs argued that assuming it was required to give notice and obtain defendants' prior approval (an issue it did not concede), its default was curable under the lease and in fact timely cured by submitting plans and specifications for the improvements in June 2005 and by following up ten days later. Longs asked the court to declare that Longs' construction was subject to the lease cure provisions and was timely cured. In opposition to defendants' motion, Longs further argued it should be found to have faithfully performed its lease obligations under equitable principles against forfeiture embodied in Civil Code section 3275 (section 3275). In reply, defendants argued in part that California does not recognize cure rights or apply section 3275 with respect to the exercise of options to renew a lease.

After Longs filed its summary judgment motion, it amended its complaint to add a cause of action for breach of contract. It also added to its prayer for relief requests that the court declare that Longs: was not in default under the lease; had "faithfully performed all of the covenants and conditions of the Lease"; had "properly exercised the first of its two options to extend by 20 years the term of the Lease"; had "performed all of its obligations under the Sublease"; and had "not incurred any liability under the Deed of Trust." Defendants filed a cross-complaint for declaratory relief, which Longs answered with affirmative defenses including one invoking Civil Code section 3275. Although not entirely clear, the record indicates the trial court treated the operative pleadings as Longs' March 22, 2006 first amended complaint and defendants' April 21, 2006 cross-complaint. Longs' breach of contract cause of action was dismissed without prejudice following entry of summary judgment.

In a tentative ruling on the matter, the trial court questioned whether it could proceed on the motions in view of procedural infirmities in the parties' respective supporting separate statements, among other deficiencies. Noting the first renewal option was "not set to take effect" until the year 2010, the court also questioned whether a justiciable controversy existed for purposes of the parties' requested declaratory relief. The court permitted the parties to waive the procedural infirmities in their papers and stipulate that Longs' cause of action for declaratory relief would be completely disposed of within the meaning of Code of Civil Procedure section 437c, subd. (f)(1) and former California Rules of Court, rule 342(b) (now rule 3.1350(b)) by resolution of the following question: "Do Longs' construction activities and claimed 'cure' relating to the [TVA] remodel that took place at Longs' La Jolla Store 310 during the period May-June 2005 prevent Longs from exercising its options to extend the Lease beyond December 31, 2010?"

The court found neither party specified in their notices of motion the issues they sought adjudicated, Longs' motion did not encompass all of its requested judicial declarations set out in its prayer for relief preventing complete disposal of the declaratory relief cause of action, and defendants' reply exceeded length requirements of former California Rules of Court, rule 313(d) (now rule 3.1113(d)). The court also found both parties' separate statements noncompliant with the California Rules of Court; these statements are particularly unhelpful because neither party separately identifies each claim or affirmative defense so as to designate the facts related to those claims and defenses. (Cal. Rules of Court, rule 3.1150(d).) We note defendants also improperly specified as "undisputed material facts" legal propositions such as "Longs did not faithfully perform all of the covenants and conditions of the Lease" or "Longs breached the lease by failing to request and obtain the landlords' written (or any other) permission to undertake alterations of the leased premises in excess of $5,000."

On that question, the trial court granted Longs' motion for summary judgment. The court found on the "narrow issue of whether Longs was prevented from exercising its option based solely on the conduct to date," that Longs was not prevented from exercising the renewal option. Observing it was prohibited by the ripeness doctrine from making a specific determination as to whether Longs' exercise of its option would be valid in 2010, the court stated its ruling was "without prejudice to any final determination as to whether the option will be effectively exercised in 2010." Following entry of judgment in Longs' favor, defendants filed the present appeal.

DISCUSSION

I. Standard of Review

The court properly grants summary judgment if the record establishes no triable issue as to any material fact and the moving party is entitled to a judgment as a matter of law. (Code Civ. Proc., 437c, subd. (c).) "[T]he party moving for summary judgment bears an initial burden of production to make a prima facie showing of the nonexistence of any triable issue of material fact; if he carries his burden of production, he causes a shift, and the opposing party is then subjected to a burden of production of his own to make a prima facie showing of the existence of a triable issue of material fact. . . . A prima facie showing is one that is sufficient to support the position of the party in question." (Aguilar, supra, 25 Cal.4th at pp. 850-851, fns. omitted.) Although the burden of production shifts, the moving party always bears the burden of persuasion. (Id. at p. 850.) "There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof." (Ibid.) Our review is de novo. (Id. at p. 860; Kahn v. East Side Union High School District (2003) 31 Cal.4th 990, 1003.)

Our resolution of defendants' appeal is complicated by the fact that the parties authorized the court, on their procedurally deficient cross-motions, to adjudicate Longs' declaratory relief cause of action on a single question: Whether Longs' "construction activities and claimed 'cure' " relating to the remodel in May and June of 2005 prevent it from exercising its options to extend the lease beyond December 31, 2010. The parties' waiver of the defects in their summary judgment papers gave the trial court broad discretion in considering the entirety of the undisputed evidence before it in order to adjudicate the issue.

In reviewing the trial court's decision, we will consider all of the evidence offered in connection with the parties' cross-motions, as well as uncontradicted inferences the evidence reasonably supports, without weighing the evidence or conflicting inferences. (Code Civ. Proc., § 437c, subd. (c); Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476-477; Aguilar, supra, 25 Cal.4th at p. 856.) Nonetheless, because Longs prevailed on the motions, we will view the evidence in the light most favorable to defendants, strictly construing Longs' evidence and liberally construing defendants' evidence as the losing party. (Gafcon Inc. v. Ponsor & Associates (2002) 98 Cal.App.4th 1388, 1402; Aguilar, supra, 25 Cal.4th at p. 843; Woodridge Escondido Property Owners Ass'n. v. Nielsen (2005) 130 Cal.App.4th 559, 567-568). Applying these principles, we will uphold the trial court's summary judgment ruling on any undisputed evidence appearing in the record before us.

II. Contentions

Pointing to Longs' breach of the lease covenants to provide advance notice and obtain defendants' approval before construction, and urging the importance of such lease provisions, defendants contend Longs cannot exercise the lease renewal option in the year 2010 in accordance with the lease terms and thus on our de novo review we should reverse the judgment and order the trial court to grant summary judgment in their favor.

This contention rests on the following subsidiary arguments. First, defendants maintain that the faithful performance of all lease covenants and conditions is a condition precedent to exercise of the renewal option with which Longs is strictly bound to comply, and given Longs' admitted breaches of lease covenants, its right of renewal cannot arise. As defendants put it, "[O]nce Longs breached the lease, Longs could no longer satisfy the condition precedent of faithful performance of all covenants, so the options to renew simply ceased to exist by their own terms." By this argument, defendants ask us to hold the undisputed facts entitle them to a judicial declaration that, as a matter of law, Longs' noncompliance with the notice and prior approval provisions of the lease negates faithful performance irrespective of anything Longs does between now and the end of the lease term in 2010.

Otherwise, defendants would be asking for an impermissible advisory opinion. An action for declaratory relief "must be based on an actual controversy with known parameters. If the parameters are as yet unknown, the controversy is not yet ripe for declaratory relief." (Sanctity of Human Life Network v. California Highway Patrol (2003) 105 Cal.App.4th 858, 872.) "The 'actual controversy' referred to in [Code of Civil Procedure section 1060, the declaratory relief statute] is one which admits of definitive and conclusive relief by judgment within the field of judicial administration, as distinguished from an advisory opinion upon a particular or hypothetical state of facts. The judgment must decree, not suggest, what the parties may or may not do." (Selby Realty Co. v. City of San Buenaventura (1973) 10 Cal.3d 110, 117.) The trial court recognized, and we agree, a court cannot at this time decide that Longs has validly exercised the lease renewal option when the lease requires that Longs not be in default and have faithfully performed all of the lease covenants and conditions "at the expiration of the term [of the lease]" in 2010. We cannot know whether Longs will meet those conditions as a result of its conduct between now and the end of the lease term.

Second, defendants argue the trial court impermissibly rewrote the lease by extending its cure provisions to Longs' performance of the conditions precedent to renewal. Specifically, defendants argue there is a difference between a breach of a covenant justifying forfeiture that can be waived by the landlord or subject to cure by the tenant, and a failed condition precedent to exercise of an option, which in this particular case cannot be cured.

Finally, defendants argue Longs cannot rely upon section 3275 to provide it relief from its failure to meet the condition precedent, which they characterize as based upon willful and grossly negligent conduct.

III. The Undisputed Facts Entitle Longs to Relief from Forfeiture Under Section 3275

We need not reach defendants' first two subsidiary contentions if we conclude that under the undisputed facts, Longs is entitled to relief under section 3275 from its noncompliance with the written notice and prior approval covenants of the lease and the renewal condition that it faithfully perform all covenants and conditions of the lease. (E.g., Barkis v. Scott (1949) 34 Cal.2d 116, 118 [decision that section 3275 applied rendered it unnecessary to decide whether plaintiff owner waived the a prospective purchaser's defaults]; Holiday Inns of America, Inc. v. Knight (1969) 70 Cal.2d 327, 329 (Holiday Inns) [decision that section 3275 applied rendered it unnecessary to decide whether plaintiffs/optionees timely made payments under an option to purchase].) Defendants concede that the sole default they have identified for purposes of summary judgment is Longs' undertaking of renovations without giving them prior notice or obtaining their approval. Longs contends section 3275 prevents the forfeiture that defendants seek in cases like this one, where the issue involves a lease renewal due to an immaterial, infrequent or cured breach.

The trial court did not base its ruling on the application of section 3275. However, the relevant facts are undisputed, and we may uphold the summary judgment on this ground even though the trial court did not reach it because the parties briefed the issue both in the trial court below and on appeal. We hold the equitable relief provided by that statute compels the same conclusion reached by the trial court.

Code of Civil Procedure section 437c, subdivision (m)(2) authorizes the reviewing court to affirm an order granting summary judgment on a ground not relied upon by the trial court, but states that the parties shall be afforded "an opportunity to present their views on the issue by submitting supplemental briefs." Having received briefing on the issue, there is no issue as to compliance with that provision.

Section 3275 provides: "Whenever, by the terms of an obligation, a party thereto incurs a forfeiture, or a loss in the nature of a forfeiture, by reason of his failure to comply with its provisions, he may be relieved therefrom, upon making full compensation to the other party, except in case of a grossly negligent, willful, or fraudulent breach of duty." (Emphasis added.) To obtain relief under section 3275, "it is necessary for [the party] to plead and prove facts that will justify its application." (Barkis, supra, 34 Cal.2d at p. 120; Holiday Inns, supra, 70 Cal.2d at p. 330; Hendren v. Yonash (1966) 243 Cal.App.2d 672, 676.)

Here, Longs pleaded for relief under section 3275 in its answer to defendants' cross-complaint, and defendants do not challenge application of the statute on grounds Longs did not raise it. We hold Longs and defendants, in their respective separate statements and by other unchallenged evidence, presented facts justifying section 3275's application. Specifically, the undisputed evidence shows that Longs conducted the type of remodel on La Jolla Store 310 that averaged $500,000 in cost (Longs admitted in discovery responses that as of June 24, 2005, it had incurred in excess of $200,000 in remodel costs). As described by a Longs representative, the remodel was part of a corporate initiative to change the visual environment, or the "look and feel" of the stores; it did not encompass heating or air conditioning, for example. At the subject store, the remodel encompassed replacing the store's entry door system, making an existing restroom ADA compliant, and adding a second ADA compliant restroom, among other things. Within a month after commencing construction and immediately after defendants requested a copy of the plans, Longs sent a copy of its construction plan to defendants and followed with a letter specifically asking for their approval of the remodel plans and specifications, which defendants refused to do. There is no evidence in this record establishing (or from which a trier of fact may infer) problems with the particular proposed work that would justify defendants withholding approval of Longs' construction plans and specifications. Indeed, Longs' senior real estate counsel, Sandra Rosen, advised defendants that Longs would be amenable to remedying any concerns or objections of defendants about the completed work without response from defendants. The evidence shows Longs expended substantial monies for permanent and valuable improvements to the leased premises that would unjustly inure to defendant's benefit if defendants were to refuse to permit Longs to exercise its 20-year renewal option in 2010. Concededly, as defendants do not declare a present forfeiture of the lease, the benefit to them would not occur until 2010, but it would be an unjust benefit nonetheless.

Further, in opposition to defendants' summary judgment motion, Longs asserted that its undertaking renovations without prior notice had not harmed defendants. The record shows that as of January 2006, well after the remodel's completion, all defendants admitted in verified discovery responses that they were not presently aware of any state or local building code violations, housing or health code violations, dilapidated conditions, or other conditions in need of repair in the rental unit or common areas affecting the rental unit during Longs' possession. Michael Schwab admitted in his deposition he never conveyed any concerns to Longs about the work they had completed, nor did he have to pay anything out of pocket as a result of the construction. Though Schwab reviewed the plans when he received them, he never tried to determine whether they were acceptable because he felt that question was irrelevant due to Longs' breach.

The circumstances here are analogous to Holiday Inns, supra, 70 Cal.2d 327, in which the plaintiffs brought an action seeking a judicial declaration that a contract containing an option to purchase realty was still in effect. There, plaintiffs were successors in interest to the optionee under a contract granting an option to purchase real property owned by defendants. The option could be exercised by giving written notice by a particular date and making an initial payment of $10,000 with four additional $10,000 payments on July 1 of each successive year, unless the option was exercised or cancelled before the next payment became due. (Id. at p. 328.) The contract contained a cancellation provision providing that the parties mutually understood that failure to make payments on or before the prescribed date would automatically cancel the option without further notice. (Ibid.) The plaintiffs made the initial payment and two additional payments in 1964 and 1965, and also spent " 'great amounts of money' " to develop a major residential and commercial center on the land adjacent to the option property. (Id. at p. 329.)

In 1966, the plaintiffs mailed its fourth $10,000 check to one of the defendants, who received it on July 2, 1966. (Holiday Inns, supra, 70 Cal.2d at p. 329.) The defendant returned the check to plaintiffs on July 8, stating that the option contract was cancelled. (Ibid.) On July 8, 1966, plaintiffs tendered another check to defendant who again refused it. (Ibid.) Plaintiffs finally deposited a $10,000 check with Security Title payable to defendant, who, on receipt of that check, advised the title company through his attorney that the contract was terminated under the cancellation provision. (Ibid.)

On cross-motions for summary judgment, the trial court granted judgment in defendants' favor. (Holiday Inns, supra, 70 Cal.2d at p. 328.) On appeal, plaintiffs argued their payment was timely by reason of its mailing, but in any event they should have been relieved from default under section 3275. (Id. at p. 329.) The California Supreme Court agreed that the "undisputed facts establish[ed] that plaintiffs are entitled to relief from forfeiture pursuant to section 3275" and thus it did not reach the plaintiffs' other contentions. (Ibid.) It stated: "In determining whether a given case falls within section 3275 . . . it is necessary to consider the nature of the contract and the specific clause in question. Although the contract in the instant case is an option contract, the question is not whether the exercise of the option was timely, but whether the right to exercise the option in the future was forfeited by a failure to pay the consideration for that right precisely on time." (Id. at p. 330, italics added.) The court found misplaced the defendants' reliance upon cases involving "the time within which an option must be exercised . . . ." (Ibid.) The court reasoned those cases "correctly held that such time cannot be extended beyond that provided in the contract. To hold otherwise would give the optionee, not the option he bargained for, but a longer and therefore more extensive option. In the present case, however, plaintiffs are not seeking to extend the period during which the option can be exercised but only to secure relief from the provision making time of the essence in tendering the annual payments. [Citations.] In a proper case, relief will be granted under section 3275 from such a provision." (Id. at pp. 330-331, italics added.) Finding it clear that the $10,000 payments were partially for the option to buy the land during that year and partially for a renewal of the option for another year, the court observed that had a forfeiture been declared, plaintiffs would have forfeited their rights to a substantial part of their payment if required to pay strictly on time. (Id. at p. 331.) The court concluded: "Plaintiffs have at all times remained willing and able to continue with the performance of the contract and have acted in good faith to accomplish this end. Defendant has not suffered any injury justifying termination of the contract, and none of his reasonable expectations have been defeated. . . . '[W]hen the default has not been serious and the vendee is willing and able to continue with his performance of the contract, the vendor suffers no damage by allowing the vendee to do so.' " (Holiday Inns, at p. 332, quoting Barkis, supra, 34 Cal.2d at p. 122.)

Holiday Inns persuasively supports application of section 3275 to relieve Longs from forfeiture in this case. Like Holiday Inns, the question here is not whether Longs timely exercised its option, but whether Longs' "right to exercise the option in the future" was lost by its failure to strictly comply with the notice and approval provisions of the lease. Where Longs expended substantial monies on permanent improvements, forwarded construction plans immediately to defendants on their request, and otherwise sought to remedy any issues defendants might have about the construction to no avail, defendants cannot be found to have suffered damage. These circumstances, as in Holiday Inns, warrant relief under section 3275.

Defendants would counter our conclusion by asserting that an option to renew a lease is different; that it must be accepted in strict accordance with its terms and, as an executory contract, cannot be subject to equitable relief because no right or vested interest is at stake. We agree with the basic and settled principle "that when the provisions of an option contract prescribe the particular manner in which the option is to be exercised, they must be strictly followed." (Palo Alto Town & Country Village, Inc. v. BBTC Company (1974) 11 Cal.3d 494, 498, emphasis added; see also Hayward Lbr. & Inv. Co. v. Const. Prod. Corp. (1953) 117 Cal.App.2d 221, 227; Bekins Moving & Storage Co. v. Prudential Ins. Co. of America (1985) 176 Cal.App.3d 245, 251 ["tenant must apprise the lessor in unequivocal terms of his unqualified intention to exercise his option, within the time, in the manner, and on the terms stated in the lease"]; Simons v. Young (1979) 93 Cal.App.3d 170, 182, 187.) But that principle has been applied, at least in the more recent California authorities we have found, to very specifically described obligations of the option's acceptance, i.e., the timing and manner by which it is exercised. (E.g., Bekins, at p. 251; Simons at pp. 182, 189.) We distinguish these cases as did the Holiday Inns court because in those, unlike here, the option period had expired. Longs is not seeking to extend the period for the option's exercise, but only to obtain relief from its failure to timely give notice and obtain prior approval for the improvements made to the premises. (Holiday Inns, supra, 70 Cal.2d at pp. 330-331.)

In Behrman v. Barto (1880) 54 Cal. 131, the court reversed an unlawful detainer judgment for a defendant who had not timely paid rent due at the very end of a ten-year lease term (the defendant was 4 to 5 days late in payment) and who had also not paid taxes and assessment liens. (Id. at p. 134.) The court held, in a very cursory opinion, that the defendant's continued possession of the premises would not operate as notice of her election to continue the term nor did it work a renewal of the lease, when performance of lease covenants was a condition precedent to exercise of a renewal right. (Ibid.) In Behrman, as in the cases relied upon by defendants, the lease term had expired and the defendant effectively sought to extend the lease or the option term in requesting equitable relief.

Defendants further assert section 3275 is not applicable to a breach of duty that is willful or grossly negligent, or for which full compensation is not possible. Defendants assert a "willful" breach does not have to be malicious or with the intent to injure; it cites to case law interpreting the term as meaning, "voluntary, spontaneous, intentional [or] designed." (Wilson v. Security-First Bank of Los Angeles (1948) 84 Cal.App.2d 427, 431; see also Taylor v. United States F. & G. Co. (1927) 86 Cal.App. 382, 390.) By this definition, defendants argue, Longs' decision to proceed with the remodel several months before work began, and the actual commencement of work, were willful acts bringing Longs outside section 3275. Defendants further assert without record citation that "Longs knew it gave landlords no advance notice of the proposed changes . . . ."

We have found no evidence in the record to support the latter assertion. Further, Wilson does not assist defendants. While the court stated the word " 'wil[l]ful' " did not necessarily imply anything blameworthy or malicious, it further explained that in civil cases the word means " 'merely that the thing done or omitted to be done, was done or omitted intentionally. It amounts to nothing more than this: That the person knows what he is doing [and] intends to do what he is doing. . . .' " (Wilson v. Security First Bank of Los Angeles, supra, 84 Cal.App.2d at p. 431, italics added, quoting Davis v. Morris (1940) 37 Cal.App.2d 269, 274.) In Wilson, the court held that a prospective real estate purchaser's decision to breach a purchase contract by sending a written notice cancelling escrow was "voluntary, intentional and so deliberate as to be evidenced by a carefully drawn written instrument," and it rejected the buyer's contention that she was entitled to return of her deposit under section 3275. (Wilson, 84 Cal.App.2d at pp. 430-432.) The court further noted that the buyer had testified to the reason why she did not sign up for a 90 day extension offered by the seller: "Because I didn't want the property." (Id. at p. 430.)

Defendants have not pointed to any evidence demonstrating any intent by Longs to not provide advance notice to defendants or obtain defendants' written approval. Indeed, a trier of fact may reasonably infer, and there is no direct evidence to the contrary, that Longs' breach was an unintentional error. In her letter to defendants following defendants' assertion of forfeiture, Longs' senior real estate counsel Rosen referred to Longs' breach as an "oversight." Tim Hansen, a member of Longs' capital committee and Longs' vice president of real estate, who was present when that committee approved the remodel, testified in his deposition that based on the lease terms, he would have expected Longs to have obtained defendants' prior written approval. He explained that Longs' failure to do so was a "mistake." We conclude as a matter of law under the uncontested facts that Longs' failure to comply with the lease terms amounted to at most "simple negligence." (Barkis v. Scott, supra, 34 Cal.2d at p. 123.)

Our conclusion is consistent with the California Supreme Court's decision in Barkis v. Scott, supra, 34 Cal.2d 116, in which the defendants, prospective buyers of real property, sought relief under section 3275 when two of their purchase payments were dishonored for insufficient funds. The seller elected to declare a forfeiture of their interest, refusing to accept the buyers' certified checks that were tendered immediately upon receipt of the forfeiture notice. (Id. at pp. 117-118.) The California Supreme Court held the evidence did not support the trial court's finding that the purchasers' failure to meet their obligation by issuing the checks was grossly negligent, as both defendants testified they did not know the checks had been dishonored until they received the forfeiture notice and they believed they had sufficient funds in the bank to cover them. (Ibid.) The court rejected the plaintiff's argument that a willful default should be found because the defendant's husband "voluntarily failed to make inquiry when the June check was not returned marked 'paid' with his June bank statement" and the statement contained a charge for an unidentified overdraft. (Ibid.) The court stated, "The issue is not . . . whether defendants voluntarily failed to investigate whether the June check had been honored but whether they willfully or as a result of gross negligence breached their contract. [Citation.] That defendants in good faith believed they had sufficient funds to cover the checks prevents their breach from being willful, and their failure fully to investigate the implications of their June bank statement at most amounts to simple negligence. It does not evidence that 'entire want of care which would raise a presumption of a conscious indifference to consequences' necessary to constitute gross negligence." (Id. at p. 123.)

Under Wilson and Barkis, the question here is whether Longs' breach was intentional and thus willful, i.e., whether it intended to forego providing defendants with notice, not whether Longs purposefully or intentionally approved and started the remodel project. We conclude the evidence presented on the parties' competing summary judgment motions does not show such a willful and intentional breach. Based upon the same evidence, we conclude Longs' failure to obtain advance notice does not evidence "that 'entire want of care [that] would raise a presumption of a conscious indifference to consequences' necessary to constitute gross negligence." (Barkis v. Scott, supra, 34 Cal.2d at p. 123.)

Nor are we persuaded that section 3275 does not apply because Longs cannot give defendants full compensation. First, there is no evidence that defendants suffered a loss for which monetary compensation should be given. But that is not the rule in any event expressed by defendants' cited authority, Parsons v. Smilie (1893) 97 Cal. 647. The Parsons court recognized that equity will relieve when the obligation can be later performed: "The general doctrine is, that equity will relieve where the thing may be done afterwards, or compensation can be made for it, but that unless a full compensation can be given, so as to put the party in precisely the same situation, a court of equity will not interfere; for such jurisdiction would be arbitrary." (Id. at p. 653, italics added.) Here, Longs' transmittal of the plans and specifications and its offer to correct any deficient work identified by defendants was sufficient to put defendants in the same situation as if Longs' breaches had not occurred.

Defendants argue that even if relief from a merely negligent oversight is available to Longs, the balance of equities does not favor it. In part, this argument is based upon facts not appearing in the record or which defendants have not asked us to judicially notice, namely, that Longs will continue to occupy the premises at a substantially below-market rent. Further, we disagree about the balance of equities. Defendants learned of Longs' construction work in progress on or about May 26, 2005, but did nothing to stop the activity, permitting Longs to continue to expend substantial monies completing the improvements. Had defendants been truly concerned about the scope of Longs' work, they could have instructed Longs to cease construction while they obtained and reviewed the plans and specifications for issues that would reasonably justify withholding their approval.

Based on the foregoing conclusions, we need not reach defendants' arguments that Longs cannot rely upon general principles of equity separate and apart from section 3275, arguments that are in large part based on nonbinding out-of-state authorities.

In keeping with the parties' limiting stipulation, we hold Longs is entitled to summary judgment on the question of whether its noncompliance with the lease's notice and prior approval provisions for its TVA remodel conducted in May and June 2005 prevents its ability from exercising its options to extend the lease. The undisputed facts entitle Longs to relief from these particular defaults and, by themselves, the defaults cannot provide the basis for defendants' refusal to accept Longs' exercise of the option.

DISPOSITION

The judgment is affirmed.

WE CONCUR: McDONALD, Acting P. J., McINTYRE, J.


Summaries of

Longs Drug Stores California, Inc. v. Schwab

California Court of Appeals, Fourth District, First Division
Mar 14, 2008
No. D049436 (Cal. Ct. App. Mar. 14, 2008)
Case details for

Longs Drug Stores California, Inc. v. Schwab

Case Details

Full title:LONGS DRUG STORES CALIFORNIA, INC., Plaintiff and Respondent, v. MICHAEL…

Court:California Court of Appeals, Fourth District, First Division

Date published: Mar 14, 2008

Citations

No. D049436 (Cal. Ct. App. Mar. 14, 2008)