## Facts

- Seven food-concession operators, including Keller, leased individual spaces in a market concourse and received rights to use shared dining, kitchen, dishwashing, and garbage facilities.
- The leases required the tenants to operate and maintain the shared facilities at their own expense, to form an association for that purpose, and to accept majority decisions on operation and cost allocation as binding; the tenants were jointly and severally liable for expenses.
- The tenants first operated informally, then incorporated as Gourmet Lane, Inc.; each tenant became a shareholder and director under bylaws providing majority-rule board action when a quorum was present.
- The board adopted a cost-allocation method requiring each tenant to pay a weekly minimum plus a percentage based on taxable sales; the minimum was set at $100 and later reduced to $75.
- Keller participated in management and governance (including serving as treasurer), used the shared facilities, voted for the reduction to $75, and paid under the adopted method for a period.
- Beginning June 1, 1960, Keller stopped paying under the adopted formula while continuing to use the shared facilities; he tendered only amounts computed under a different formula he preferred.

## Issues

1. Whether Keller was contractually bound to pay common-area operating expenses under the majority-adopted minimum-plus-sales allocation plan.
2. Whether Gourmet Lane, Inc. could enforce the tenants’ lease-based payment obligations as an intended third-party beneficiary under California Civil Code § 1559.

## Decision

- The court affirmed the judgment for Gourmet Lane, Inc.
- Keller was bound by the majority-adopted allocation plan based on the leases’ majority-binding terms, the corporation’s majority-rule governance, and Keller’s participation and partial performance under the plan.
- Substantial evidence supported the trial court’s finding that the adopted method was fair and equitable; the appellate court declined to reweigh that evidence.
- Gourmet Lane, Inc. could recover as an intended third-party beneficiary because the leases contemplated an association/entity to operate the shared facilities, and the tenants’ promises to fund those obligations were made for that entity’s benefit.

## Legal Principles

- When parties agree that majority decisions will control operation and cost allocation for shared facilities, a member who participates in the arrangement and accepts its benefits may be held to a reasonable, good-faith, majority-adopted allocation.
- An appellate court will uphold trial-court factual findings on fairness and reasonableness where supported by substantial evidence.
- Under California Civil Code § 1559, a nonparty may enforce a contract made expressly for its benefit when the contracting parties intended to confer enforceable rights on that beneficiary.
- An entity formed to carry out obligations contemplated by related contracts may enforce those obligations as the intended beneficiary, even if it was organized after the underlying agreements and continues an earlier informal association.

## Conclusion

The court held Keller liable for unpaid shared-facility expenses because he agreed to be bound by majority governance and a reasonable cost-allocation plan, and because the managing corporation was the intended beneficiary of the tenants’ lease obligations and could sue to enforce them.


Gourmet Lane, Inc. v. Keller, 222 Cal. App. 2d 701, 35 Cal. Rptr. 398 (Cal. Ct. App. 1963)