Bre DDR BR Whittwood Ca LLC v. Farmers & Merchants Bank of Long Beach
222 Cal. Rptr. 3d 435
Cal. Ct. App. 5th2017Background
- Tenant (Breckenridge Group) entered a 15-year restaurant lease; landlord later became BRE DDR BR Whittwood CA LLC.
- Tenant granted a construction deed of trust to Farmers & Merchants Bank securing a loan; deed referenced a recorded memorandum of lease and assigned lessee's lease rights to the bank.
- Tenant defaulted; Farmers & Merchants foreclosed, purchased the leasehold at trustee's sale, and conveyed it to related LLCs (Whittier Carino's, then Whittier JC); Farmers & Merchants’ managing member controlled Whittier.
- Landlord claimed transfers lacked required consent and sought to hold Farmers & Merchants liable for lease obligations for full term; Farmers & Merchants contended it never expressly assumed the lease and thus owed rent only while in possession.
- Trial court granted summary adjudication for landlord, finding foreclosure documents referencing the lease and the lease’s mortgage provisions created an obligation; judgment awarded damages. Farmers & Merchants appealed.
Issues
| Issue | Plaintiff's Argument (Landlord) | Defendant's Argument (Farmers & Merchants) | Held |
|---|---|---|---|
| Whether foreclosure and related instruments that reference the lease constitute an express assumption of the lease obligations | Foreclosure documents identified the lease and the lease contemplates mortgagee succession; therefore the bank assumed obligations for full term | No express written assumption signed by the assignee exists; references to the lease are insufficient—only possession-based liability applies | References to the lease in deed of trust/foreclosure do not constitute express assumption; no privity of contract found |
| Whether assignee who takes by foreclosure is bound beyond possession absent an express assumption | The lease's mortgage clause states a leasehold mortgagee succeeding to tenant will assume obligations, binding successor | The clause cannot bind a non‑party assignee without the assignee’s express agreement | The lease mortgage clause does not create an express contractual assumption by a non‑signatory assignee |
| Effect of surrender/abandonment on rent liability for an assignee who never expressly assumed the lease | Landlord contends assignee remains liable for full term due to assumption | Defendant asserts rent liability ends when possession ends because no express assumption was made | Where no express assumption exists, assignee is liable only while in possession; surrender terminates privity of estate |
| Whether tenant estoppel or other post‑foreclosure documents created assumption | Landlord points to estoppel certificate and payments as evidence of ongoing obligation | Farmers & Merchants notes it did not sign the estoppel and no fresh contract was formed; payments while in possession do not equal assumption | No fresh contractual assumption shown; estoppel by non‑signatory or payments do not create privity of contract |
Key Cases Cited
- Vallely Investments v. BancAmerica Commercial Corp., 88 Cal.App.4th 816 (Cal. Ct. App.) (distinguishes privity of estate vs privity of contract for lease obligations)
- Enterprise Leasing Corp. v. Shugart Corp., 231 Cal.App.3d 737 (Cal. Ct. App.) (assignee must expressly assume lease obligations to be bound beyond possession)
- Kelly v. Tri-Cities Broadcasting, Inc., 147 Cal.App.3d 666 (Cal. Ct. App.) (possession-based obligations end with abandonment; express assumption requires specific statement)
- Bank of America Nat. Trust & Sav. Ass'n v. Moore, 18 Cal.App.2d 522 (Cal. Ct. App.) (written assignment language expressly accepting lease obligations creates privity of contract)
- Treff v. Gulko, 214 Cal. 591 (Cal. 1932) (assignee not bound where no signed acceptance or written assumption exists)