Lemon Grove Plaza v. Jonker

Filed 7/17/06 Lemon Grove Plaza v. Jonker CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

A tenant makes a business decision to breach a commercial lease and move to nearby property he has purchased. The terms of the breached lease provide that rent consists of a base sum plus a percentage of gross profits. Tenant agrees to continue to pay the base rent specified in the breached lease but refuses to pay the portion of the rent computed on gross sales. Appellant Willem Jonker appeals from a judgment awarding damages to respondent Lemon Grove Plaza, Inc. (Lemon Grove) for breach of a commercial lease. We affirm.

STATEMENT OF FACTS AND PROCEDURAL HISTORY

Lemon Grove is the owner of a shopping center in Oxnard. Since 1982, Jonker operated a pizza restaurant at the shopping center under the name "Toppers Pizza Place." The rent consisted of a minimum monthly rent to be applied against a percentage rent based on 6 percent of sales. From 1982 until 1992, Toppers was operated as a traditional pizza restaurant with sit-down and take-out customers. The operation was moderately successful.

In 1992, Toppers began offering pizza delivery service. As a result, Toppers' sales increased substantially and Lemon Grove received proportionally higher percentage rent.

In 1997, Jonker purchased property across the street from Lemon Grove on which he intended to develop a shopping center. In 1998, Jonker and Lemon Grove agreed to a five-year extension of the lease and agreed to modify the rent provisions to lower the base rent and retain percentage rent.

Shortly thereafter, Jonker decided to vacate the Lemon Grove premises and build a new restaurant in the shopping center he had purchased. His stated reasons for doing so were that the Lemon Grove space was too small to efficiently operate the pizza delivery portion of the business, resulting in violations of county health regulations, and low employee moral. Approximately 33 months remained on the lease term when Jonker vacated the Lemon Grove premises in 2000. Jonker continued to pay Lemon Grove the base monthly rent for the remainder of the lease term but refused to pay any of the percentage profits as rent.

The parties agreed to an assignment of the lease. The assignees chosen by the parties were not successful and discontinued business shortly after opening. None of the assignees generated sufficient sales to pay percentage rent during any month of occupancy.

Lemon Grove filed a complaint for damages for breach of commercial lease. Jonker cross-complained for breach of contract and intentional interference with prospective economic advantage. After a two-day court trial, the court entered judgment for Lemon Grove and awarded it damages in the total amount of $197,074 and attorney fees in the amount of $61,321.75. The court calculated damages by multiplying the 33 months remaining on the lease by the average amount of percentage rent paid during Toppers' last 12 months of operation.

On appeal, Jonker asserts the trial court erred in finding he was liable for percentage rent during the remaining term of the lease on the ground that the terms of the lease did not require him to continue operating a pizza delivery business on the premises. Jonker also challenges the court's calculation of damages.

DISCUSSION

Standard of Review

The parties agree that interpretation of the lease terms and Lemon Grove's entitlement to percentage rent under the lease present questions of law for our independent review. (Del Taco, Inc. v. University Real Estate Partnership V (2003) 111 Cal.App.4th 16, 22.)

Damages

Jonker admits to having breached the lease. The parties' briefs focus on whether certain express covenants in the lease require Jonker to pay percentage rent in addition to base rent as damages. Their arguments concern the following provisions:

Paragraphs 5 and 6 of the lease require Jonker to pay a minimum monthly rent and, in addition, a percentage rent based on 6 percent of gross sales.

Paragraph 10 is a so-called "sole purpose" clause. It states: "10.1. Tenant shall use the Premises for the purpose of operating the business described in Paragraph 7 of Exhibit 'B' attached hereto, and for no other use without Landlord's consent." Exhibit B states the premises can be used "only for the purpose of operating a first class Italian restaurant featuring pizza and other Italian related food items."

Paragraph 10.4 of the lease contains covenants of continuous operation and best efforts. It states in part: "During all usual business hours, and on all such days as comparable businesses of like nature in the area are open for business, Tenant shall continuously occupy and use the entire Premises for the purposes specified herein. . . . In general, Tenant shall employ its best judgment[,] efforts, and abilities to operate the business conducted by it on the Premises in a manner calculated to produce the maximum profitable and practical volume of sales and transactions obtainable . . . ."

Paragraph 6.3 defines "Gross Sales" as "the gross selling price of all merchandise or services sold, leased, licensed, or delivered in or from the Premises by Tenant . . . whether for cash or on credit (whether collected or not), including the gross amount received by reason of orders taken on the Premises although filled elsewhere and whether made by store personnel or vending machines."

Jonker argues the lease contains no provision precluding him from discontinuing the pizza delivery operation at any time. He contends, therefore, that Lemon Grove is not entitled to damages based on the percentage rent generated by the pizza delivery component of the business. Lemon Grove argues the above covenants, when construed together, required Jonker to continue a phase of the business that had proved profitable.

Lemon Grove has the better argument. A covenant of continued operation will be implied into a commercial lease containing percentage rent provisions in order for the lessor to receive that for which he bargained. (College Block v. Atlantic Richfield Co. (1988) 206 Cal.App.3d 1376, 1380.)

It is unnecessary to discuss the merits of the parties' arguments further because they are misdirected. The answer to the question does not lie in determining the scope of Jonker's duties under the lease. That issue is moot because he has admitted he breached the lease.

The only question left to be determined is the measure of damages. Civil Code section 3300 provides the answer: "For the breach of an obligation arising from contract, the measure of damages . . . is the amount which will compensate the party aggrieved for all the detriment proximately caused thereby, or which, in the ordinary course of things, would be likely to result therefrom."

Civil Code section 3300 focuses on the amount of profit the nonbreaching party would have received if the contract had not been breached. (See, e.g., Erlich v. Menezes (1999) 21 Cal.4th 543, 550 [As a general rule, the measure of damages for breach of an obligation arising from a contract is the amount necessary to compensate the party aggrieved for all the detriment proximately caused by the breach or which, in the ordinary course of things, would be likely to result from the breach]; see also Applied Equipment Corp. v. Litton Saudi Arabia Ltd. (1994) 7 Cal.4th 503, 515 ["'[I]n the law of contracts the theory is that the party injured by breach should receive as nearly as possible the equivalent of the benefits of performance'"]; and see Lippman v. Sears, Roebuck & Co. (1955) 44 Cal.2d 136, 146 [For breach of a covenant to remain in business, the measure of damages ordinarily is the amount that the lessor would have received from his share of the proceeds of the business had the lessee operated it in its usual and customary manner]; accord, College Block v. Atlantic Richfield Co., supra, 206 Cal.App.3d. at pp. 1379-1383.)

The trial court measured damages using the gross profits generated by the restaurant during its last 12 months of operation. Jonker argues this is unfair. We disagree. The record contains no evidence that the restaurant would not have maintained its current level of profitability if it had continued business in its usual and customary manner at the Lemon Grove location. Moreover, the amount required to compensate for breach of contract is to be determined by the trier of fact; and where there is substantial evidence to support the award, the appellate court cannot substitute its judgment for that of the trier of fact. (Vineland Homes, Inc. v. Barish (1956) 138 Cal.App.2d 747, 760-761.)

The judgment is affirmed. Costs are awarded to respondent.

NOT TO BE PUBLISHED.

PERREN, J.

We concur:

GILBERT, .P.J.

YEGAN, J.

Frederick H. Bysshe, Judge

Superior Court County of Ventura

______________________________

Lowthorp, Richards, McMillan, Miller, Conway & Templeman, Patrick T. Loughman, Dean W. Hazard; Lascher & Lascher, Wendy Cole Lascher for Defendant and Appellant.

Norman, Dowler, Sawyer, Israel, Walker & Barton, LLP, Richard M. Norman, Matthew P. Guasco for Plaintiff and Respondent.

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