Fox Chicago Realty Corp. v. Zukor's Dresses, Inc.

California Court of Appeal Feb 25, 1942 No. Civ. No. 13219Published

Before: Moore

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Holding. The court held that a lease provision requiring the lessee to pay the difference between reduced rental rates and the original higher rental rate upon any default constitutes an unenforceable penalty rather than liquidated damages. Because the provision is void as a penalty and the plaintiff failed to plead facts demonstrating that actual damages were impracticable to ascertain, the complaint failed to state a cause of action.

Issues

Whether a lease provision requiring payment of the difference between reduced and original rent upon any default is an enforceable liquidated damages clause or an invalid penalty.
Whether the failure to plead that actual damages were impracticable to ascertain renders a claim for liquidated damages insufficient.
Whether a court may construe a pleading by referring to an exhibit attached to a prior superseded complaint.

Disposition. affirmed

Quotations verified verbatim against the opinion

“It is the general rule that a condition or covenant of a contract is invalid if it provides for payment of a penalty or stipulated damages for the breach thereof.”

“Because the covenant for the payment of the differential was void a valid cause of action cannot be predicated thereon.”

“Any provision by which money or property is to be forfeited without regard to the actual damage suffered calls for a penalty and is therefore void.”

MOORE, P. J. Plaintiff appeals from an unfavorable judgment entered upon an order sustaining a demurrer to the second amended complaint without leave to amend. He also attempted to appeal from the order sustaining the demurrer but, since such an order is not appealable, that part of the appeal is dismissed.

[131]In 1930 plaintiff executed a ten-year lease in favor of defendant upon certain premises at a monthly rental of $4,166. On May 5, 1932, an unconditional agreement was executed reducing the monthly rental to $4,100. We shall hereafter refer to the latter figure as the agreed rental under the lease. Thereafter the lease suffered six written modifications, by each of which the rent was fixed at a less sum than that at first specified. In each of the six writings by which the lease was successively modified the following language was used:

“4. In the event of default in the payment of any installment of rent, or in the performance of any other obligation to be performed by the Lessee under said original lease or any amendment (including this amendment) under said lease, and such default in payment or performance shall continue for a period of ten days after written notice to the Lessee (time being of the essence) . . . then the Lessee shall be obligated to pay, and the Lessor shall be entitled to collect, the entire unpaid portion of $4100.00 for each and every month for which the Lessee shall hereafter pa/y, or has heretofore paid, a lesser amount.”

The last amendment of the lease occurred June 12, 1937, for the period ending June 14, 1942, and provided for a rental of $3,000 per month with an option granted to defendant to surrender the lease upon a four months’ written notice and the payment of an additional $15,000. The lease was terminated pursuant to that provision as of June 14, 1940. The lease provided that the'lessee might install certain fixtures which were to become the property of the lessor upon installation but that the lessee might remove such fixtures so installed provided they be replaced at the lessee’s expense upon ten days’ written notice.

In the original complaint demand was made for $15,000 damages for the removal of certain improvements as being a breach of the lease. In the first amended complaint demand was made for $19,166.66 for such damages. The second amended complaint contained two counts: count 1 for damages, in the amount of $18,000, resulting from the removal of certain portions of the store and from injuries to other portions; count 2, for the same damages demanded in the first count and in addition thereto a demand for the sum of $193,906.41, as rentals claimed to be due under the lease payable in the event of a breach of any of its covenants.

Fox Chicago Realty Corp. v. Zukor's Dresses, Inc.

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