Opinion
In this unlawful detainer action, defendant lessees appeal from a judgment awarding possession of a gasoline service station, together with back rent and attorney fees, to plaintiff lessor, a petroleum distributor. Code of Civil Procedure section 1174, subdivision (a) (section 1174(a)) provides generally that a petroleum distributor may not recover possession from a gasoline dealer in an unlawful detainer action without establishing good cause under Business and Professions Code section 20999.1 (section 20999.1) for termination or nonrenewal of the gasoline dealer’s franchise.1 The latter section defines “good cause” to include (1) failure to “comply with essential and reasonable requirements of the franchise agreement,” (2) *827failure to “act in good faith in carrying out the terms of the franchise,” or (3) “other legitimate business reasons” (with qualifications).2
The trial court, sitting without a jury, found that plaintiff terminated defendants’ franchise solely because they refused to continue purchasing gasoline at the prices set by plaintiff, thereby violating their written obligation to buy the gasoline at plaintiff’s “applicable Dealer Purchase Price.” The issue on appeal is whether, in light of (1) sections 1174(a) and 20999.1, and (2) the usually summary nature of unlawful detainer actions, it was error for the trial court to refuse to receive and consider certain evidence offered by defendants to show that plaintiff’s prices did not comply with the agreement. We shall conclude that the evidence was admissible, that the error was prejudicial, and that accordingly the judgment must be reversed.
On April 20, 1979, the parties executed a lease and two gasoline purchase agreements by which defendants became the lessees and dealer at plaintiff’s service station in Vista (San Diego County), California, selling gasoline that plaintiff supplied under an “independent” brand (Regal) controlled by plaintiff. (Plaintiff was not the refiner of the gasoline.) The lease was for a primary term of one year with an automatic extension of two more years, subject to termination on thirty days’ notice by either party. No cash rent was required, but defendants undertook to purchase the gasoline from plaintiff at plaintiff’s “applicable Dealer Purchase Price” in effect at the time of sale to defendants’ customers. Those arrangements constituted a “franchise” for purposes of section 20999.1.3
*828Defendants operated the station as a family business from April 20, 1979, the date of the lease, until November 15, 1981, just before the date set by the trial judge for the plaintiff’s retaking possession. In mid-1980 there was a sharp drop in defendants’ gasoline sales and gross profits, and defendants’ counsel wrote to plaintiff complaining of the latter’s “pricing practices.” Defendants’ sales did not improve, and in April 1981 they filed a superior court action against plaintiff and two of its officers, seeking damages for breach of contract, treble damages for violation of the antitrust laws, and a declaration that the plaintiff’s “applicable Dealer Purchase Price” specified in its agreement with defendants meant a wholesale price consistent with prices at which other distributors in the area sold to gasoline dealers.4
On June 8, 1981, defendants’ counsel wrote to plaintiff, protesting that plaintiff was charging defendants more for gasoline than it charged the public at its own stations. The letter asserted that the “applicable Dealer Purchase Price” which defendants had contracted to pay for gasoline was “a reasonable wholesale or distributor price to be set by [plaintiff]” and cited the following provisions of the California Uniform Commercial Code as pertinent to the determination of the price: A price to be fixed by the seller means one fixed in good faith (§ 2305, subd. (2)) and in accordance with *829reasonable commercial standards of fair dealing in the trade (§ 2103, subd. (l)(b)); and in determining the price of goods regularly sold in an established commodity market, price quotations in official or trade journals or in generally circulated newspapers or magazines are admissible in evidence (§ 2724). The letter then stated that as of June 19, 1981, defendants would purchase plaintiff’s gasoline at the “current Arco rack price,” as reported in the Lundberg letter, plus 2 cents per gallon to cover plaintiff’s delivery costs and profit. (A “rack price” generally is understood to mean the price charged by the refiner for delivery in tanker-load lots.)
On June 19, defendants refused to purchase more gasoline from plaintiff except on the terms stated in that letter, and plaintiff refused to sell except at its own dealer purchase prices. On June 23, defendants commenced purchasing gasoline from another supplier, whereupon plaintiff served them with a notice that its gasoline purchase agreement with defendants was immediately terminated, and that the lease would be terminated in 30 days. Defendants continued to operate the station, selling gasoline obtained from the other supplier, until November 15.
On July 29, 1981, plaintiff commenced the present unlawful detainer action, alleging, inter alia, that there were “good cause and legitimate business reasons” to terminate the lease. Defendants denied that allegation and pleaded as an affirmative defense that plaintiff did not have good cause for termination within the meaning of sections 1174 and 20999.1, “as this action was brought in retaliation for Defendants’ exercise of their rights in a separate superior court action.”
At the trial, which was held on November 5 and 9, 1981, the parties submitted a written stipulation establishing the foregoing facts. The principal issue tried, with respect to plaintiff’s right to repossession, was whether defendants had given plaintiff good cause to terminate their franchise by refusing to pay plaintiff’s “applicable Dealer Purchase Price” within the meaning of the contract. Defendants contended that plaintiff had demanded illegally excessive prices in order to drive them out of business and enable plaintiff to operate the station directly. Early in the trial the court announced that on that issue defendants would be allowed to introduce evidence only of (1) dealings between the parties and (2) prices that plaintiff charged other lessee-dealers selling independent-brand gasoline.5 Plaintiff’s vice-president, Robert Bills, testified that there were only four such other dealers, all situated in Long Beach (some 70 miles from where defendants’ station was *830located), and that plaintiff charged defendants less for gasoline than it charged those other dealers, because defendants were “in a little more competitive area than the other stations were.” Defendants were allowed to cross-examine Bills on how plaintiff assessed the “competitive” nature of defendants’ situation and on other factors, such as plaintiff’s costs, taken into account in setting the prices charged defendants.
Objections were sustained, however, to the following other evidence offered by defendants to show that the prices plaintiff charged were excessive: (1) retail gasoline prices at stations operated directly by plaintiff (which defendants claimed were less than the dealer prices plaintiff charged defendants); (2) prices charged a large-volume consumer (also claimed to be lower than prices charged defendants); (3) a published Lundberg report showing refinery prices on June 19, 1981; (4) prices for gasoline furnished to major-branded stations operated by plaintiff or its lessee-dealers (examples of major brands being Shell, Chevron, and Texaco); (5) profits of the lessee who had operated the station just prior to defendants’ lease; (6) one defendant’s opinion of the reasons for the station’s decline in business in 1980; and (7) plaintiff’s awareness of the retail prices charged by defendants’ competitors. The trial court’s position, distilled from numerous statements explaining its rulings, appears to have been that defendant could not assert that plaintiff’s prices were excessive, as a defense in this unlawful detainer action, except by showing either (1) that plaintiff charged defendants more than it charged other dealers similarly situated or (2) that plaintiff set the prices with intent to drive defendants out of business and take over the station. In the absence of such discrimination or predatory intent, in the trial court’s view, illegally excessive prices might well give defendants a cause of action for damages but would not entitle them to retain possession of the station while refusing to purchase their gasoline from plaintiff at plaintiff’s prices.
Underlying the trial court’s position was an understandable concern for the summary nature of unlawful detainer proceedings. Because the purpose of such proceedings is timely restoration of possession, issues extrinsic to the possessory right are generally excluded even though they otherwise arise out of the subject matter of the action. (Green v. Superior Court (1974) 10 Cal.3d 616, 632-634 [111 CaI.Rptr. 704, 517 P.2d 1168].) A defense of retaliatory eviction is permitted “if on balance, the public policies furthered by protecting a tenant from eviction outweigh the state’s interest in ensuring that unlawful detainer proceedings are truly summary.” (Barela v. Superior Court (1981) 30 Cal.3d 244, 250 [178 Cal.Rptr. 618, 636 P.2d 582]; accord, S.P. Growers Assn. v. Rodriguez (1976) 17 Cal.3d 719, 728-729 [131 Cal.Rptr. 761, 552 P.2d 721].) Thus, prior to enactment of section 20999.1 and the pertinent provisions of section 1174(a), it was *831held in Union Oil Co. v. Chandler (1970) 4 Cal.App.3d 716 [84 Cal.Rptr. 756], that a service station operator could not assert as a defense in an unlawful detainer action that the lessor oil company was terminating the lease because of the lessee’s refusal to participate in a price-fixing scheme prohibited by the antitrust laws. The Court of Appeal explained: “When we weigh the complex and protracted nature of antitrust cases in the light of the adequate remedies and damages afforded an aggrieved party in such cases against the interest in preserving the summary nature of an unlawful detainer action, we believe the latter to be of paramount importance.” (Id., at p. 726.)
In the present case, however, the lack of good cause under section 20999.1 to terminate a gasoline dealer’s franchise is not simply a defense to be balanced against the policy of preserving the summary nature of unlawful detainer proceedings. Instead, section 1174(a) now includes the existence of such good cause as a prerequisite to an unlawful detainer judgment for restoration of a defendant gasoline dealer’s premises to a plaintiff petroleum distributor. Thus, the issue now determinative of plaintiff’s right to repossession was joined in the pleadings not by the defendants’ retaliatory eviction defense but by the complaint’s allegation of good cause for termination, and the denial of that allegation in the answer.6
We should endeavor to apply those provisions of section 1174(a) in a way that will best carry out the policies of section 20999.1 that the amendment to section 1174(a) was designed to implement. In enacting section 20999.1, the Legislature expressly declared the public interest in preventing disruption in the marketing of gasoline.7 The amendments to section 1174(a) seem intended to assure the gasoline dealer of a day in court on the merits of the dealer’s and distributor’s respective rights under the franchise before the distributor is allowed to retake possession of the service station. The amend*832ments contain two safeguards for the petroleum distributor: First, the right to a writ of possession against an absent or inaccessible defendant upon the filing of an undertaking (Code Civ. Proc., § 1166a) is expressly preserved. Second, the court may “require the tenant to make rental payments into the court, for the lessor, at the contract rate, pending the resolution of the action” (§ 1174(a)). Apart from those two safeguards, neither of which was invoked here, section 1174(a) directs that in unlawful detainer proceedings by petroleum distributors against gasoline dealers, the ordinarily summary nature of the unlawful detainer proceeding must give way to the policy of assuring that the petroleum distributor indeed had good cause for terminating the franchise.
The trial court concluded that plaintiff had such good cause. The issue here is whether the evidence from which it reached that conclusion was erroneously and prejudicially restricted.
The key findings on plaintiff’s reasons for terminating defendants’ franchise are these: “9. Plaintiff served defendants with the notice of termination because defendants refused to purchase any more gasoline from plaintiff at plaintiff’s Dealer Purchase Price, [f] 10. Plaintiff did not terminate or seek to terminate defendants’ lease or supply agreement for any reason other than defendants’ refusal to continue to purchase gasoline from plaintiff. ...” Those findings provide crucial support for the trial court’s conclusions that plaintiff had good cause for termination in that defendants “failed to comply with essential and reasonable requirements of the franchise agreement” and “failed to act in good faith in carrying out the terms of the franchise” (see § 20999.1, subds. (a), (b)).8
*833The evidence excluded by the trial court was relevant to those findings in that it was probative of whether the prices plaintiff was charging defendants for each grade of gasoline complied with plaintiff’s contractual obligation to charge its “applicable Dealer Purchase Price.” The contract must be interpreted in light of the following provisions of the California Uniform Commercial Code: “A price to be fixed by the seller or by the buyer means a price for him to fix in good faith.” (§ 2305, subd. (2).) “ ‘Good faith’ in the case of a merchant means honesty in fact and the observance of reasonable commercial standards of fair dealing in the trade.” (§2103, subd. (l)(b).) “ ‘Merchant’ means a person who deals in goods of the kind or otherwise by his occupation holds himself out as having knowledge or skill peculiar to the practices or goods involved in the transaction . . . .” (§ 2104, subd. (1).)
Defendants’ theory was that under prevailing marketing conditions, and in light of the statutory standards, plaintiff was required to charge prices that would enable defendants to compete with other stations in the area and earn a reasonable profit. The trial court erroneously excluded evidence offered to support that theory. Thus, defendants were not permitted to show the retail prices charged at the service stations operated directly by plaintiff, or the prices charged by plaintiff to a large-volume consumer, even in the face of defendants’ offers of proof in both instances that the prices in question were less than those that plaintiff was charging defendants. Also excluded was a published Lundberg report of current refiner’s prices (seemingly admissible under Cal. U. Com. Code, § 2724). The court further excluded evidence of wholesale prices charged by the suppliers of major-brand gasoline to other stations owned or operated by plaintiff, of the profitability of defendants’ station under their predecessor, of the reasons for the station’s decline in business, and of plaintiff’s awareness of retail prices charged by defendants’ competitors. All of this excluded evidence seems relevant to whether plaintiff fixed the prices charged defendants in accordance with reasonable commercial standards of fair dealing in the trade.
The trial court recognized the relevance of the excluded evidence to the issue of whether plaintiff’s prices accorded with the contract yet deemed it not relevant to plaintiff’s right to repossession of the service station. That view was incorrect. If plaintiff failed to offer defendants gasoline except at prices in excess of those permitted by the contract, defendants’ refusal to purchase the gasoline at those prices was neither a “fail[ure] to comply with essential and reasonable requirements of the franchise agreement” nor a “fail[ure] to act in good faith in carrying out the terms of the franchise” (§ 20999.1, subds. (a), (b)). In that event, there was no showing of good cause for terminating the franchise, and section 1174(a)’s prerequisites for restoring possession to plaintiff petroleum dealer were not met.
*834Plaintiff contends that defendants are precluded from complaining about plaintiff’s prices at the time of their refusal to purchase because (as found by the trial court) on June 8, 1981, defendants informed plaintiff that as of June 19, they would purchase plaintiff’s gasoline only at 2 cents per gallon over published Arco “rack” prices. According to plaintiff the prices specified by defendants were unreasonably low.9 But the contract gave plaintiff, not defendants, the right and duty of setting the prices to be paid by defendants, so that the question of good cause turns primarily, if not wholly, on the propriety of plaintiff’s prices. If those prices were proper, defendants would be in breach, and there would be good cause to terminate the franchise, regardless of whether defendants counteroffered a lower price or responded with a flat refusal to purchase from plaintiff. On the other hand, if plaintiff’s prices were too high to conform to the contract, a notice by defendants that they would pay only prices that were too low to conform would not necessarily put defendants in breach, at least in the absence of reliance by plaintiff sufficient to excuse plaintiff’s failure to tender proper performance.
The trial court erroneously excluded evidence that was crucial to defendants’ ability to disprove the good cause requisite to a judgment for plaintiff under sections 1174(a) and 20999.1. Accordingly, the judgment is reversed.
Kaus, J., Broussard, J., Grodin, J., and Lucas, J., concurred.