United Insurance Co. of America v. Lutz
227 Ariz. 411
Ariz. Ct. App.2011Background
- WKL, LLC, owned by Eric and Amy Lutz, entered a real estate deal and leased office space from Gateway under the Gateway Lease.
- The Lutzes signed an Unconditional Guaranty to pay WKL's obligations under the Gateway Lease if WKL defaulted.
- WKL later purchased the building from Gateway and then conveyed it to United under the Resale Agreement and related documents.
- United sued WKL for breach of lease and the Lutzes for breach of the Unconditional Guaranty four years later.
- The superior court held that merger extinguished the Gateway Lease upon WKL’s title transfer and thus the Guaranty did not cover a subsequent lease; United appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether merger of estates extinguished the Gateway Lease upon WKL's acquisition of the building. | United argues merger did not occur; evidence shows intent to continue the Gateway Lease. | Lutzes contend modern merger doctrine extinguished the lease by operation of law. | Merger may be precluded by contrary intent; remand to resolve intent evidence. |
| Whether the Unconditional Guaranty extends to any subsequent lease after transfer. | Guaranty may continue if merger did not extinguish the lease and no new lease was created. | If the Gateway Lease merged, Guaranty would not apply to a new lease. | Material fact question remains about intent to preclude merger and applicability of the Guaranty. |
| Whether the trial court erred in striking evidence of the parties' intent regarding merger. | Intent evidence was relevant to whether merger occurred. | The evidence was irrelevant to the legal question under summary judgment. | Court erred in striking evidence; intent is relevant to merger. |
| Whether the Second Lease Amendment created a new lease rather than a continuation of the Gateway Lease. | Amendment evidences continued operation of the Gateway Lease post-transfer. | Second Lease Amendment does not sufficiently show a new lease for Guaranty purposes. | Not decided on the merits; remand for events surrounding the amendment and intent. |
Key Cases Cited
- Mid Kansas Fed. Sav. & Loan Ass'n of Wichita v. Dynamic Dev. Corp., 167 Ariz. 122 (Ariz. 1991) (merger doctrine limited by contrary intent or equity)
- Byrd v. Peterson, 66 Ariz. 253 (Ariz. 1947) (old rule of merger by operation of law (inflexible))
- Westcor Co. Ltd. P'ship v. Pickering, 164 Ariz. 521 (App. 1990) (guaranty does not automatically apply to a new lease)
- Adams v. Bear, 87 Ariz. 288 (Ariz. 1960) (pleading admissions may not contradict evidence)
- Mohave Elec. Coop. v. Byers, 189 Ariz. 292 (App. 1997) (appellate review of evidentiary rulings in summary judgment)