Case ID: cal-app-3d_167/html/Supp.1-01.html
Source: Caselaw Access Project
Author: {"author": "BERNSTEIN, Acting P. J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Appellate Department, Superior Court, Los Angeles
    [Civ. A. No. 16272.
    Jan. 24, 1985.]
    NEWCO LEASING, INC., Plaintiff and Respondent, v. DONALD HULL, Defendant and Appellant.
    
      Counsel
    Finkelstein & Tyson, Don B. Finkelstein and John E. Halamka for Defendant and Appellant.
    Lederer & Kotler and Jeffrey Q. Steinman for Plaintiff and Respondent.
   Opinion

BERNSTEIN, Acting P. J.

Defendant appeals a judgment that fails to apply a discount to prospective rent due under a lease. We reverse.

The parties entered a stipulation of facts for the purposes of appeal. The stipulation states that on August 6, 1981, appellant, Donald Hull, entered into two lease agreements with respondent, Newco Leasing, Inc., for the rental of two automobiles. Appellant defaulted by failing to make monthly lease payments and the leases were terminated by respondent on September 1, 1982. Pursuant to the terms of the leases respondent recalled the vehicles.

The leases were for a period of 36 months. An early termination clause provided that additional rental be paid the lessor upon such termination. This additional rental was computed as the difference between the monthly rental payment and the monthly depreciation reserve, multiplied by the number of remaining months in the lease term.

Other components of damages were computed as the depreciated value of the vehicles less their appraised values, and the assessment of administrative costs. Neither of these components are at issue here and are not subject to any discount.

Respondent sued on the leases and obtained a judgment thereon in the principal sum of $8,486.90 plus interest [at 10 percent per annum from the time the leases were terminated] in the sum of $718.48.

The issue on appeal is whether the trial court erred in failing to discount the worth of the unpaid future rents used to calculate the amount of the judgment.

Appellant contends that the judgment, based on future unpaid rents reserved in the lease, should have been discounted back to the date the leases were terminated. We agree.

Civil Code section 3308 allows the lessor, where expressly agreed to in the lease, to terminate upon default by the lessee and recover the “worth at the time of such termination” of the equivalent of rent reserved for the remainder of the lease term less the reasonable rental value of the property for the same period. The plain language of this section is that the valuation is to be made at the time the lease is terminated. Thus, if section 3308 is applicable, the judgment in the present case should be discounted to the date of termination.

Traditionally, where the lessee repudiated a lease, absent an express lease agreement, the lessor could repossess the property, relet it for the lessee’s account, and bring an action at the end of the original term to recover the excess of rent reserved in the lease over the amounts realized by reletting. (Puritan Leasing Co. v. August (1976) 16 Cal.3d 451, 457 [128 Cal.Rptr. 175, 546 P.2d 679].) “The authorities are clearly to the eifect that any action brought prior to the expiration of the term of the original lease is prematurely brought.” (Treff v. Gulko (1932) 214 Cal. 591, 594 [7 P.2d 697].) Civil Code section 3308 was enacted to give statutory authorization to lease provisions allowing the lessor to recover the worth at the time the lease was terminated of the amount of rent and charges equivalent to the rent reserved less the reasonable rental value for the balance of the term. (3 Witkin, Summary of Cal. Law (8th ed. 1973) Real Property, § 517, pp. 2188-2189.)

Respondent contends that damages based on the “additional rentals” called for in the lease are not based on future rentals, rather they are a measure of lost profits. By the terms of the lease this amount is based on future rents due for the remainder of the lease term. Contrary to respondent’s contention, this is the equivalent of rent reserved in the lease.

Respondent sued on these leases prior to the expiration of the lease term. The leases provided that the lessor, upon termination, is entitled to recover from the lessee the equivalent of rents reserved in the leases. Thus, section 3308 is applicable, and the plain language of that section requires the worth to be calculated at the time the leases were terminated.

We are bolstered in our conclusion by noting the Law Revision Commission Report of November 1969, reviewing leases of real property. The report described the remedy available under section 3308 as allowing the lessor to sue immediately for all present and future damages caused by the breach. (9 Cal. Law Revision Com. Rep. (1969) p. 158.) The lessor’s damages should be measured as the loss of his bargain under the lease. (Id., at p. 159.) “Discounting of the value of unpaid future rent is simply a substitute for payment as installments accrue. The rate of discount should therefore permit the lessor to invest the lump sum award at interest rates currently available in the investment market and recover over the period of the former term of the lease an amount equal to the unpaid future rentals less the amount of rentals loss that could be reasonably avoided.” (Id., at p. 160.)

Respondent was awarded interest from the time the lease was terminated until the time of the judgment. Discounting damages back to the time the lease was terminated, when coupled with that award of interest, operates to award respondent the loss of his bargain caused by the breach of the lease. A failure to discount damages back to that time operates to give respondent a windfall.

The judgment is reversed as to this component of damages only and is remanded for judgment in accordance with this opinion. Each party to bear its own costs on appeal.

Cooperman, J., and Shabo, J., concurred. 
      
      Section 3308 provides: “The parties to any lease of real or personal property may agree therein that if such lease shall be terminated by the lessor by reason of any breach thereof by the lessee, the lessor shall thereupon be entitled to recover from the lessee the worth at the time of such termination, of the excess, if any, of the amount of rent and charges equivalent to rent reserved in the lease for the balance of the stated term or any shorter period of time over the then reasonable rental value of the property for the same period.
      “The rights of the lessor under such agreement shall be cumulative to all other rights or remedies now or hereafter given to the lessor by law or by the terms of the lease; provided, however, that the election of the lessor to exercise the remedy hereinabove permitted shall be binding upon him and exclude recourse thereafter to any other remedy for rental or charges equivalent to rental or damages for breach of the covenant to pay such rent or charges accruing subsequent to the time of such termination. The parties to such lease may further agree therein that unless the remedy provided by this section is exercised by the lessor within a specified time the right thereto shall be barred.
      “This section does not apply to a lease of real property unless (a) the lease was executed before July 1, 1971, or (b) the terms of the lease were fixed by a lease, option, or other agreement executed before July 1, 1971.”
     
      
      Section 3308 was amended in 1970 to apply only to personal property. At that time sections 1951 et seq. of the Civil Code were enacted to apply to leases of real property.