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

Horton and Converse (Horton) (defendant) operated a drugstore in a building owned by the Medico-Dental Building Company (Medico) (plaintiff). Horton’s business was dependent on patronage by the building’s tenants, who included medical practitioners. The lease between Horton and Medico included a restrictive covenant that prevented Medico from leasing any portion of the building to another entity that sold drugs. The restrictive covenant and Horton’s obligation to pay rent were included in a rider attached to the lease. The lease stated that the lease terms were conditions and that breach of the conditions could result in termination of the lease. Medico leased a portion of the building to Dr. Boonshaft, whose office included a pharmacy that sold drugs to patients. Upon learning of the competing pharmacy, Horton demanded that Medico halt Boonshaft’s pharmacy practice. Medico unsuccessfully attempted to negotiate with Boonshaft, and it later informed Horton of the failure. Horton rescinded its lease and stopped paying rent. Medico sued Horton for the rent. The trial court found that Horton’s protection from competition was a material condition of the lease. The court also found that Medico had materially breached the lease by leasing to a tenant that operated a competing pharmacy, not acting immediately to halt the competing pharmacy’s operations, and advising Horton that no arrangements could be made with Boonshaft. On appeal, Medico claimed that Horton’s obligation to pay rent was independent of Medico’s obligation to comply with the restrictive covenant, the purpose of the lease with Boonshaft was not to operate a pharmacy, Medico had not acquiesced to Boonshaft’s pharmacy, and any breach of the lease with Horton was insubstantial.