Standard Fireproof Building Co. v. Carpenter

California Court of Appeal Apr 24, 1947 No. Civ. 15578Published

Before: Drapeau

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Holding. The court held that a trial court cannot authorize the assignment of a lease to a trustee when the trust lacks assets to assume the lease's obligations, as such a transfer would effectively nullify the lease's requirement that assignees assume all contractual obligations and would improperly impair the obligation of a contract.

Issues

Whether a court may authorize the assignment of a lease to a trustee when the trust lacks the assets to fulfill the lease's financial obligations.
Whether the proposed assignment would improperly impair the obligation of a contract.

Disposition. reversed

Quotations verified verbatim against the opinion

“Under the facts of this ease, the judgment of the trial court assumes a power to impair the obligation of a contract, and may not stand.”

“Therefore, the effect of a decree directing the proposed transfer would be to nullify the clause in. the lease requiring assumption of its obligations whenever assignment is made.”

DRAPEAU, J. pro tem.

In 1912, the then owner of valuable business property on West Seventh Street in the city of Los Angeles leased it for the term of 99 years. In this action the present lessee, successor to the original lessee, seeks authorization to assign the lease to a trustee.

To understand the situation, it is necessary to set forth some of the history of the lease. The plaintiff, Standard Fireproof Building Company, a corporation, is the present owner of the

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lessee’s interest. This is a bare legal title, the corporation being required to pay to a charitable trust all of the lessee’s income from the lease, after payment of the reserved rental to the lessors. And this lease is the only property owned by the corporation.

As time has gone on, the net income payable to the trust has been materially diminished because of ever increasing payments by the corporation of franchise, income, and capital stock taxes, and expenses of its operation.

Being a mere conduit for the payment of lessee’s share of the earnings of the leased property, as a practical matter it is highly desirable in the interest of the trust to eliminate the corporation. This the plaintiff proposed to do by conveying the leasehold interest to the trustee. By so doing, moneys devoted to charitable purposes will go to the trust, without diminution. This was unquestionably the thought in the mind of the trial judge in finding and adjudging that the lease be assigned to the trustee.

Appellants point out, however, that the lease requires that every assignee must covenant to assume all of the conditions of the lease. One of these is payment of the rent. It is a possibility that during the term of the lease the lessee may be required to pay the rent even though there are no earnings of the property to be used for that purpose.

The lease contains an express covenant on the part of the lessee to pay rent. In the absence of any provision in the lease to the contrary, the original lessee and each succeeding lessee who assumed its obligations would remain in privity of contract and be liable as sureties in the event the current assignee failed to perform any obligation under the terms of the lease.

(Samuels

Standard Fireproof Building Co. v. Carpenter

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