Ilkhchooyi v. Best

45 Cal. Rptr. 2d 766 (1995)

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Nature of the Case

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Facts

In July 1984, Westar Management, Inc., leased space to the Rosenblatts or a drycleaning establishment. The 10-year lease provided for an assignment or sublease with the consent of the landlord, and contained a profit shifting clause. If the property was sublet for more than the rent due, Westar (D) was to get ½ of that difference. In July 1987, the Rosenblatts sold their business to Ps. The sublease provided it would terminate if the Rosenblatts' interest under the 1984 lease terminated for any reason. In June 1988, the Rosenblatt filed a petition in bankruptcy. P received notice of the bankruptcy but heard nothing from Westar, which continued to accept his rent. On discharge in bankruptcy, Westar offered to negotiate a new lease with P and sent the forms, etc. to P. After P had not responded with the proper documentation, Westar set a deadline to sign, or the offer to lease would be withdrawn. When P questioned differences, he was told to take it or leave it. Westar threatened to evict but assured P it was basically the same lease as the sublease. P signed with a note questioning a good number of issues. Westar did not respond to P's comments but decided to accept the new lease without a wife's signature and signed the document. In May 1990, Ps entered into an agreement to sell the dry-cleaning business to Zobalan for $120,000. They allocated $80,000 to fixtures and equipment and $40,000 to a covenant not to compete. The value of the lease was zero as it was at higher than market rates. P sought Westar's consent to the assignment, and Westar responded with a reiteration of paragraph 14c: 'If in connection with the transaction involving the proposed assignment or sublease, tenant receives rent or other consideration, including without limitation any consideration for tenant's business, business opportunity, good will, a covenant not to compete and/or the like, either initially or over the term of the assignment or sublease, in excess of all sums then payable hereunder, whether as minimum rent, percentage rent, or otherwise, . . . tenant shall pay to Landlord as additional rent hereunder three-quarters (3/4) of the excess of each such payment of rent or other consideration received by tenant promptly after its receipt.' Westar demanded $30,000 for its share of the covenant not to compete before it would consent to assignment of the lease. P deleted the covenant not to compete and reallocated the $40,000 to leasehold improvements. Westar refused to assign the lease. In September, Zobalan attempted to pay the rent and Westar refused to accept it. Zobalan said he would not purchase the business 'until the landlord stops interfering in the operation of the business.' P attorney explained to Westar that P had not assigned the lease and that Zobalan was an employee. The trial court found for P. It declared the lease of July 7, 1989 void and found the parties relationship was governed by the lease of July 13, 1984, and the sublease of July 16, 1987. The trial court also declared the profit-shifting clauses in both leases void as being unconscionable. The court awarded general damages 'as to the entire action' in the amount of $40,000. It awarded punitive damages in the amount of $30,000 'based upon the $ 0,000, which I felt the landlord was trying to wrongfully extract from Ps. D appealed.