Opinion
For Opinion on Hearing, see 35 Cal.Rptr. 241, 386 P.2d 817.
Charles F. Wong, San Francisco, for plaintiffs Wong, etc.
Theodore M. Monell, San Francisco, for defendants DiGrazia, etc.
SHOEMAKER, Justice.
Plaintiffs brought this action to rescind a written lease and recover a deposit paid under the lease. Defendants counterclaimed and cross-complained for damages for breach of the lease. After a trial without jury, judgment was entered that plaintiffs recover nothing on their complaint. Defendants were awarded damages on their cross-complaint in the amount of $9,500.14 (against which was credited the amount of $7,875, the same being the deposit on the lease, leaving an amount owed of $1,625.14), together with counsel fees in the sum of $1,250. From this judgment, both plaintiffs and defendants appeal.
The facts are undisputed. On July 11, 1958, plaintiffs and defendants entered into a written contract wherein defendants agreed to lease to plaintiffs for a period of 10 years 'A building to be constructed' on certain real property located at Kearny and Chestnut Streets in San Francisco. Pursuant to paragraph Twenty-Seventh of the lease, defendants were obligated to construct this building in accordance with certain plans and specifications appended to the lease. Although these plans covered only the basic 'shell of the building' exclusive of toilet facilities, lighting, and other improvements, the lease specifically provided that any 'additional construction' not covered by the plans was to be paid for and provided by plaintiffs. Construction was to 'commence forthwith upon approval of completed plans and specifications' (inclusive of those improvements to be provided by plaintiffs), and was to 'continue expeditiously until said building is completed, subject to material and/or labor shortages, strikes, lockouts, governmental actions and all causes beyond the control of Lessor.' The building was to be completed within 90 days of issuance of the building permit 'subject to the contingencies above mentioned.' The term of the lease was to commence upon the filing of the notice of completion of the building. Upon the execution of the lease, plaintiffs paid a deposit of $7,875. Following the execution of the lease, plaintiffs met with the contractor who was to construct the building and had him draw plans and specifications of the lighting and other improvements which they planned to install. During the course of their negotiations with the contractor, plaintiffs were apprised that the installation of a sprinkler system costing approximately $9,500 was required by the San Francisco Building Code, and was a prerequisite to the issuance of any building permit. Upon learning of this requirement, plaintiffs insisted that it was the obligation of defendants to install the sprinkler system. Defendants, on the other hand, contended that they had contracted to construct only the portion of the building covered by the plans and specifications appended to the lease. Since those plans did not encompass the installation of a sprinkler system, defendants insisted that any such improvement was to be installed at the expense of plaintiffs. By December 1, 1958, all attempts to settle the dispute had proved unsuccessful. Plaintiffs, by a letter of that date, informed defendants that they considered defendants' failure to proceed with construction of the building and installation of the sprinkler system to be a breach of the lease. The trial court found to the contrary and entered the judgment heretofore mentioned.
Plaintiffs contend that they ought to have been awarded rescission and restitution; and defendants contend that the damages awarded them were inadequate. A discussion of the parties' contentions becomes unnecessary in view of the fact that the lease of July 11, 1958, is clearly in violation of the rule against perpetuities. Our authority for this statement is found in Haggerty v. City of Oakland (1958) 161 Cal.App.2d 407, 326 P.2d 957, 66 A.L.R.2d 718, wherein, under a similar situation, it was held that a ten-year lease to commence upon completion of a contemplated building was void under the rule against perpetuities, since there was a possibility that the building might not be completed within the 21-year period allowed under Civil Code, section 715.2.
Civil Code, section 715.2, provides that 'No interest in real or personal property shall be good unless it must vest, if at all, not later than 21 years after some lief in being at the creation of the interest and any period of gestation involved in the situation to which the limitation applies. * * * It is intended by the enactment of this section to make effective in this State the American common-law rule against perpetuities.'
We are satisfied that the reasoning of the Haggerty case is equally applicable to the lease in the present case. Here, the commencement of the term of the lease is expressly made dependent upon the filing of notice of completion of the building to be constructed. Although the lease does require that construction of the building be completed within 92 days of issuance of the building permit, this 90-day period is subject to 'material and/or labor shortages, strikes, lockouts, governmental actions and all causes beyond the control of Lessor.' Furthermore, the lease provides that construction shall not commence until approval (presumably by both parties) of the 'completed plans and specifications.' That such approval constituted a highly uncertain event is apparent in the instant case, for the evidence reveals that such approval never occurred. Since plaintiff-lessees were unwilling to undertake installation of the sprinkler system, the parties at no time agreed upon plans and specifications which fulfilled the requirements of the building code. Under such circumstances, no permit could be obtained, and the 90-day construction period could never even commence to run. In any event, even if the parties had agreed upon the final plans and had obtained a building permit, it is apparent that material shortages, governmental actions, and other events enumerated in the lease, could still have resulted in other unexpected delays in construction. It was the possibility of precisely such delays which the court in the Haggerty case held violative of the rule against perpetuities. The invalidity of the subject lease was not raised by either party, here or in the trial court; however, we must consider it, for where a contract is in violation of the code, it matters not whether the evidence of such illegality comes from one side or the other, or appears from the whole case before the court. (Industrial Indem. Co. v. Golden State Co. (1953) 117 Cal.App.2d 519, 527, 256 P.2d 677; Stockton Morris, etc. Co. v. Calif., etc., Corp. (1952) 112 Cal.App.2d 684, 690, 247 P.2d 90.)
The facts bespeak that neither party was aware of the fatal defect in the lease contract. Upon the execution of the lease, plaintiffs deposited $7,875. Defendants, according to the findings of the trial court, expended the sum of $9,500.14, in reliance upon the contract ($4,900.14 as a real estate broker's commission, $2,500 in engineering expenses, and an additional $2,100 in loss of rental as a result of demolishing the existing building on the site.) Nevertheless, the applicable rule in such a case is that the parties will be left where they are when they come to the court for relief. (Brooks v. Brooks (1944) 63 Cal.App.2d 671, 676, 147 P.2d 417; Precision Fabricators, Inc. v. Levant (1960) 182 Cal.App.2d 637, 644, 6 Cal.Rptr. 395.) 'A contract made contrary to public policy or against the express mandate of a statute may not serve as the foundation of any action, either in law or in equity * * *. These principles are not applied to secure justice between the parties, but from regard for a higher interest--that of the public, whose welfare demands that certain transactions be discouraged.' (Tiedje v. Aluminum Taper Milling Co. (1956) 46 Cal.2d 450, 453, 454, 296 P.2d 554, 556.)
That portion of the judgment awarding defendants attorney's fees and damages is reversed; and the remainder of the judgment, that plaintiffs take nothing by their complaint, is affirmed.
KAUFMAN, P.J., and AGEE, J., concur.