Medico-Dental Building Company of Los Angeles v. Horton and Converse

Horton and Converse, Defendants, managed a drugstore in a building that Medico-Dental Building Company, Plaintiff, owned. Defendant’s business was reliant on on support by the building’s tenants, such as medical practitioners. The lease between Defendants contained a restrictive covenant that prohibited Plaintiff from leasing any portion of the building to another drug selling entity. The restrictive covenant and Defendants’ responsibility to pay rent were attached in a rider, which was included in the lease. The lease established the terms and conditions and stated that a breach of such conditions may cause termination of the lease. Plaintiff leased part of the building to Dr. Boonshaft. In Dr. Boonshaft’s office, there was a pharmacy that would sell drugs to his patients. When Defendant became aware of the competing pharmacy in the building, Defendant demanded that Plaintiff forbid Dr. Boonshaft’s pharmacy from selling drugs. Thereafter, Plaintiff attempted to negotiate with Dr. Boonshaft, but Plaintiff was unsuccessful. When Plaintiff told Defendant of Dr. Booshaft’s refusal, Defendant rescinded its lease and stopped paying rent. Plaintiff sued Defendant to recover the rent. The trial court found that Defendant’s condition, protecting it from competition, was a material condition of the lease. Further, the trial court held that Plaintiff materially breached the lease when it leased a portion of the building to a tenant that managed a competing pharmacy and did not immediately try to forbid the competing pharmacy’s management. In the appellate court, Plaintiff alleged that Defendant’s obligation to pay rent was independent of Plaintiff’s obligation to comply with the restrictive covenant because the main purpose of Plaintiff’s lease with Dr. Boonshaft was not the management of a pharmacy. Thus, in the event that there was a breach by Plaintiff, it was not substantial.