Case Name: BURTON R. RICHARDSON et al., Plaintiffs and Respondents, v. LA RANCHERITA OF LA JOLLA, INC., et al., Defendants and Appellants
Court: Court of Appeal of the State of California
Jurisdiction: California
Decision Date: 1979-10-25
Citations: 98 Cal. App. 3d 73
Docket Number: Civ. No. 16809
Parties: BURTON R. RICHARDSON et al., Plaintiffs and Respondents, v. LA RANCHERITA OF LA JOLLA, INC., et al., Defendants and Appellants.
Judges: 
Reporter: California Appellate Reports, Third Series
Volume: 98
Pages: 73–89

Head Matter:
[Civ. No. 16809.
Fourth Dist., Div. One.
Oct. 25, 1979.]
BURTON R. RICHARDSON et al., Plaintiffs and Respondents, v. LA RANCHERITA OF LA JOLLA, INC., et al., Defendants and Appellants.
Counsel
Fred U. Hammett, Jr., for Defendants and Appellants.
Turney & Turney and Margaret V. Turney for Plaintiffs and Respondents.

Opinion:
Opinion
WIENER, J.
Defendants La Rancherita of La Jolla, Inc. (La Rancherita) and Louis Martinez (Martinez) appeal from the judgment awarding damages to plaintiffs based on the tort of intentional interference with a contractual relationship. The factual setting of this case—the commercial dealings between a landlord and tenant—requires the drawing of the line between sophisticated negotiations necessary to strike a better deal and economic constraints on those negotiations imposed by the tort of inducing breach of contract. We affirm the judgment.
Factual and Procedural Background
The facts presented at trial are stated in the manner most favorable to the judgment. The factual issues raised in plaintiffs' motion for partial summary judgment are discussed separately.
In 1971, plaintiff Breg, a California corporation (Breg), negotiated for the purchase of all fixtures, equipment and liquor license of a restaurant in La Jolla. Through Basilio Martinez acting on behalf of the lessor, La Rancherita, the former tenants' interest in the original lease dated April 1, 1954, was assigned to Breg on terms contained in an addendum dated April 6, 1971. Breg lost money every year. In mid-December 1973, with shareholder approval, Breg signed escrow instructions for the sale of the assets of its restaurant to Norman Bomze (Bomze). The contract was contingent upon Breg obtaining the consent of the lessor to the assignment of the lease. The transaction between Breg and Bomze had been carefully structured as a sale of assets for, among other reasons, Breg's shareholders wished to retain the carry-forward tax loss of their subchapter "S" corporation. La Rancherita refused to consent to assignment of a lease to Bomze, relying on the paragraph of the lease which provided: "That the Lessees shall pay the Lessors said rent in the manner hereinbefore specified, and shall not let or underlet the whole or any part of said premises, nor sell or assign this lease, either voluntarily or by operation of law, nor allow said property to be occupied by anyone contrary to the terms hereof, without the written consent of the Lessors."
La Rancherita indicated through counsel and Martinez they were not attempting to "kill the deal," but only wanted to renegotiate the lease on terms which would include increased rent, shared use of an adjoining parking lot, and a cost of living escalation provision. Bomze rejected the proposed terms. Bomze and Breg decided to revise their agreement to by-pass the need for La Rancherita's consent to the assignment. The shareholders of Breg agreed to sell their corporate stock to Bomze; Breg would continue as tenant under the lease and addendum.
La Rancherita, upon being informed of the new agreement, continued its position that its consent was still necessary. In a letter to Breg's lawyer, counsel for La Rancherita stated the sale of stock, after a refusal to consent to a sale of assets, was merely a change of form to circumvent the consent provision of the lease. Counsel for both parties had reviewed and analyzed Ser-Bye Corp. v. C. P. & G. Markets (1947) 78 Cal.App.2d 915 [179 P.2d 342], which involved a similar legal question and had reached different conclusions. The sale of the stock originally set to close on January 31, 1974, was postponed solely as a result of La Rancherita's actions in threatening a forfeiture of the lease. The sale finally closed on March 3, 1974.
The complaint filed by Breg and its shareholders on February 21, 1974, sought declaratory relief to determine whether a transfer of the Breg stock constituted an assignment of Breg's lease, thereby necessitating La Rancherita's consent plus damages for intentional interference with the contract between Breg and Bomze for the sale of stock. Before trial, plaintiffs' motion for partial summary judgment was granted on their first cause of action—the court finding the lessor's consent was not required. After a court trial, damages of $7,233.06 were awarded for the losses plaintiffs sustained during the period from January 31 to March 3, 1974.
The Granting of Plaintiffs' Motion for Partial Summary Judgment Was Proper
Code of Civil Procedure section 437c permits the granting of a partial summary judgment where affidavits, declarations or other admissible evidence and inferences reasonably deducible from such evidence establish no triable issue of material fact on some—but not all—of the issues involved in the action. The rules on granting the motion are well known. (See, e.g., Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842, 851-852 [94 Cal.Rptr. 785, 484 P.2d 953].) "Summary judgment is proper only if the affidavits [declarations] in support of the moving party would be sufficient to sustain a judgment in his favor and his opponent does not by affidavit [declaration] show such facts as may be deemed by the judge hearing the motion sufficient to present a triable issue." (Stationers Corp. v. Dun & Bradstreet, Inc. (1965) 62 Cal.2d 412, 417 [42 Cal.Rptr. 449, 398 P.2d 785].) "The procedure for. .summary judgment provides a method by which, if the pleadings are not defective, the court may determine whether the triable issues apparently raised by them are real or merely the product of adept pleading." (Coyne v. Krempels (1950) 36 Cal.2d 257, 262 [223 P.2d 244].)
In the present case, the declaration of Louis Martinez in opposition to the motion, and Burton R. Richardson, in support of the motion, contribute more fuel than facts to the conflict. Basilio Martinez, who participated in the transaction at its inception, did not file a declaration. Richardson declared in part that: "The lessors are simply using this sale as a lever, a financial blackmail if you will, to vitiate the terms of the lease and to attempt to get more money out of the Corporation." Louis Martinez responded: "Our position that sale of all corporate stock of Breg to strangers after our refusal to consent to an assignment to these same people, is violative of the 'occupancy' clause has been consistent in all of my personal discussions with Mr. Richardson and others and has been stressed by our previous counsel to the plaintiffs."
The strong legal conclusions expressed by the respective parties did not raise triable issues of material fact. The court was presented with a written lease without benefit of extrinsic evidence. Although theoretically many factual issues pertaining to the meaning of the subject lease provision could have been raised, the parties did not do so. No suggestion was made that Breg was the alter ego of any one or more of the principals or for other equitable reasons the corporation should be disregarded. The interpretation of the lease under these circumstances was left to the court as a matter of law.
The lease provision in dispute prohibits occupancy by anyone contrary to its terms without the written consent of the lessor. Other than the issue of consent to the assignment, neither party has argued that occupancy by Breg with new shareholders violated the lease in any other respect. The lease itself did not provide that an individual was responsible for rent or liable for the performance of any other provision. The parties, at the time of their negotiations, were apparently satisfied with a corporation as lessee, making no provision to the contrary. Thus the court was asked to bar the transfer of shares of common stock in a valid corporation, permissible under corporate law, solely because of a lease provision prohibiting assignment of the lease, but containing no restraints on transfer of stock ownership. The court, under these circumstances, declined to do so, recognizing the separateness of the corporate form and properly granted plaintiffs' motion for partial summary judgment. (See Ser-Bye Corp. v. C. P. & G. Markets, supra, 78 Cal.App.2d at pp. 920-921.)
Defendants' Conduct Was Not Justified; It Constituted the Intentional Tort of Inducing Breach of Contract
An action in tort "will lie for the intentional interference by a third person with a contractual relationship either by unlawful means or by means otherwise lawful when there is a lack of sufficient justification." (Herron v. State Farm Mutual Ins. Co. (1961) 56 Cal.2d 202, 205 [14 Cal.Rptr. 294, 363 P.2d 310]; see also Imperial Ice Co. v. Rossier (1941) 18 Cal.2d 33, 35 [112 P.2d 631].) The tort is "a [specie] of the broader tort of interference with prospective economic advantage," involving similarity in elementary makeup and conduct while differing only in the existence of a legally binding contract. (Buckaloo v. Johnson (1975) 14 Cal.3d 815, 823 [122 Cal.Rptr. 745, 537 P.2d 865].) To recover for inducing breach of contract, a plaintiff must establish (1) the existence of a valid contract; (2) the defendant had knowledge of the contract and intended to induce its breach; (3) the contract was in fact breached by the third party; (4) the breach was proximately caused by defendant's unjustified and wrongful conduct; and (5) that the foregoing resulted in damage to plaintiff. (Abrams & Fox, Inc. v. Briney (1974) 39 Cal.App.3d 604,. 607-608 [114 Cal.Rptr. 328]; see also Rest.2d Torts, § 766, 766B.) Justification for the interference is an affirmative defense and not an element of plaintiff's cause of action. (Lowell v. Mother's Cake & Cookie Co. (1978) 79 Cal.App.3d 13, 19 [144 Cal.Rptr. 664]; A. F. Arnold & Co. v. Pacific Professional Ins., Inc. (1972) 27 Cal.App.3d 710, 714-715 [104 Cal.Rptr. 96].)
Defendants' arguments rest on the premise that their actions were justified. They contend their conduct was not done solely to damage plaintiffs (see Bridges v. Cal-Pacific Leasing Co. (1971) 16 Cal.App.3d 118, 132 [93 Cal.Rptr. 796]), for they were motivated by the good faith belief based on their lawyers' advice that their consent to the assignment of the lease was required. Withholding their consent pending negotiations with the prospective tenant to improve their financial interest was thus proper.
The test of whether there is justification for conduct which induces a breach of contract turns on a balancing of the social and private importance of the objective advanced by the interference against the importance of the interest interfered with, considering all the circumstances including the nature of the actor's conduct and the relationship between the parties. (Herron v. State Farm Mutual Ins.. Co., supra, 56 Cal.2d at p. 206; Greenberg v. Hollywood Turf Club (1970) 7 Cal.App.3d 968, 977 [86 Cal.Rptr. 885]; see also Rest.2d Torts, § 767, pp. 26-39.)
In harmony with the general guidelines of the test for justification is the narrow protection afforded to a party where (1) he has a legally protected interest, (2) in good faith threatens to protect it, and (3) the threat is to protect it by appropriate means. (Rest.2d Torts, § 773, pp. 52-53.) Prosser adds: "Where the defendant acts to further his own advantage, other distinctions have been made. If he has a present, existing economic interest to protect, such as the ownership or condition of property, or a prior contract of his own, or a financial interest in the affairs of the person persuaded, he is privileged to prevent performance of the contract of another which threatens it; and for obvious reasons of policy he is likewise privileged to assert an honest claim, or bring or threaten a suit in good faith. [Fns. omitted.]" (Prosser on Torts (4th ed. 1971) § 129, pp. 944-945; see also 45 Am.Jur.2d, Interference, § 23, pp. 298-300.)
The financial interest which defendants sought to protect included their right to continue to receive rent and to demand compliance with the essential terms of their lease. The determinative question thus becomes whether their claim was asserted in good faith. Or, phrased differently in the context of this case, was there any reasonable basis, either factually or legally, for their counsel to believe their distinguishing of the Ser-Bye case had merit.
Ser-Bye Corp. v. C. P. & G. Markets, supra, 78 Cal.App.2d 915, involved a lease provision prohibiting assignment similar to the one in the case before us. In affirming a judgment on the pleadings in an unlawful detainer action in favor of the corporate lessee, the court held the sale of stock of the corporation did not constitute an assignment to void the lease.
The language in paragraph first of the La Rancherita lease consisting of the phrase, "... nor allow said property to be occupied by anyone contrary to the terms hereof,..." does not help defendants' argument. As we have stated previously, the quoted words do not reflect an intent that any change in stock ownership requires the lessor's consent. Rather, the language reasonably interpreted simply provides the premises shall be occupied in accordance with all the terms of the lease.
Defendants have also placed reliance in the criticism of Ser-Bye in 3 Witkin, Summary of California Law (8th ed. 1973) Real Property, section 493, pages 2171-2172, as further support for the reasonableness— good faith—of their legal position. Witkin's comment involves his concern with the apparent inadequate consideration given by the Ser-Bye court of the rule which requires "disregard[ing] the corporate entity when it is used to circumvent an obligation." At no time, either at summary judgment or at trial, did defendants suggest there were any factual questions relating to the alter ego of Breg or that any of Breg's shareholders had guaranteed Breg's rental obligation. There was no testimony by defendants' counsel or their predecessor that they reasonably had expected Basilio Martinez or some other witness to testify on any factual matters which might have touched on defendants' "good faith."
Factual issues including elements which bear on "good faith" were properly before the trial court. (Bridges v. Cal-Pacific Leasing Co., supra, 16 Cal.App.3d at p. 132.) There was ample evidence for the court to find that defendants' concern with the assignment of the lease was only incidental to their predominant motive of terminating the existing lease to obtain a new lease upon more favorable terms to themselves. Defendants made no effort to inquire into the financial condition of the successor stockholders or their intended method of operation. They restricted their negotiations to increasing their financial return and not to preserve their interest as lessor. The record is devoid of any evidence that defendants believed their leasehold interest was threatened by the new owners. The court was justified in finding that "[t]he transaction as ultimately consummated was clearly within the parameters of the Ser-Bye case..."
Something other than sincerity and an honest conviction by a party in his position is required before justification for his conduct on the grounds of "good faith" can be established. There must be an objective basis for the belief which requires more than reliance on counsel. It is the opinion of counsel that must be examined, recognizing that creative and conscientious lawyers should be given every opportunity to challenge outmoded precedent to permit constructive development of the law. (See, e.g., Umansky v. Urquhart (1978) 84 Cal.App.3d 368 [148 Cal.Rptr. 547].) However, to merely equate reliance on an attorney's advice with "good faith" is to shield those parties from liability who seek and obtain counsel. To create such a blanket rule of immunity is unwarranted.
Judgment affirmed.
Cologne, Acting P. J., concurred.
Counsel for defendants did not cast their professional advice in concrete. Martinez quite candidly testified that he understood he was taking a gamble—that everybody had the feeling that the lawsuit could go either way.