Kendall v. Ernest Pestana_Inc Case Brief

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					Kendall v. Ernest Pestana, Inc. 709 P.2d 837 (1985)



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Perlitch leased a hangar at the San Jose Airport. Perlitch assigned his interest to Pestana. Pestana subleased the hangar to Bixler for 25 years (Bixler was to pay Pestana) for his airplane repair business. After 11 years, Bixler sold his business to Kendall. As part of the purchase agreement, Bixler was to assign the sublease to Kendall. However, Pestana balked. o According to the original agreement, the written consent of the lessor (Pestana) was required for Bixler to assign the property to Kendall. o Kendall was in better financial shape than Bixler. Pestana demanded increased rent as a condition of consent. Kendall refused and sued for injunctive relief. He argued that Pestana's refusal was unreasonable and amounted to an unlawful restraint on the freedom of alienation. o Alienation is the right to sell your property interest without constraint. The Trial Court found for Pestana for failure to state a cause of action, Kendall appealed. The California Supreme Court reversed and remanded for trial. o The California Supreme Court recognized that the lease had a clause requiring consent. They also recognized that a majority of jurisdictions would find the clause bindings. o However, they changed the common law and found that for reasons of Property law and Contract law, the clause was void if Pestana acted unreasonably.  In Property law, the Restatement of Property 15.2(2) says that "A restraint on alienation without the consent of the landlord of a tenants interest in leased property is valid, but the landlord's consent to an alienation by the tenant cannot be withheld unreasonably."  In Contract law, "where a contract confers on one party a discretionary power affecting the

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rights of the other, a duty is imposed to exercise that discretion in good faith and in accordance with fair dealing." o Pestana unsuccessfully made four arguments that had been used to deny consent:  The lessor made a personal choice of lessee. They should not be forced to accept a new tenant.  The lessee could have bargained for a more liberal sublease policy, but chose not to do so.  The issue had already been decided in numerous courts and should not be changed, since many lessors relied on the original rule.  If the value of a property increases, the lessor has a right to raise rents to compensate. o The California Supreme Court found that whether Pestana was acting reasonably was a question for a jury to decide.  Denying consent solely on the basis of personal taste is not commercially reasonable.  Denying consent because you want to squeeze a higher rent out of the new tenant is not commercially reasonable. The ruling in this case was eventually codified into Statutory law by the California legislature.

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