Petroleum Collections Inc. v. Swords

Rule of Law:

A landlord's breach of the implied covenant of quiet enjoyment, which substantially interferes with a tenant's beneficial use of the premises, does not relieve the tenant of the obligation to pay rent if the tenant remains in possession. The tenant's obligation to pay rent is only excused upon surrendering the premises, thereby completing a constructive eviction.

Facts:

• On April 17, 1969, Texaco, Inc. leased a service station to Edward Swords for a 10-year term.
• A key feature of the property was a large, illuminated 'Texaco' sign on the roof, visible from the freeway, which the parties understood was essential for attracting customers.
• The sign had been installed by Texaco prior to the lease.
• On May 9, 1969, a county building inspector found the sign was installed without a permit, was improperly fastened, and constituted a fire hazard.
• At the inspector's direction, Texaco had the original sign removed.
• Texaco then provided Swords with an old, dilapidated billboard that was not visible from the freeway, which Swords considered an inadequate replacement.
• Swords demanded a sign similar to the original, and when Texaco failed to provide one, he stopped paying rent.
• Swords and his sublessee remained in possession of the service station for approximately 11 months without paying rent before the lease was mutually cancelled on March 13, 1970.

Procedural Posture:

• Plaintiff, a collection agency acting as assignee for Texaco, sued defendant Edward Swords in trial court to recover $6,043.24 in unpaid rent.
• Following a court trial, the trial judge entered a judgment in favor of the defendant, Swords, finding Texaco's breach excused the rent obligation.
• The plaintiff collection agency appealed the trial court's judgment to the California Court of Appeal.