STILLWELL HOTEL CO v. ANDERSON

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District Court of Appeal, Second District, Division 2, California.

STILLWELL HOTEL CO. v. ANDERSON et al.*

Civ. 9456.

Decided: March 18, 1935

J. E. Stillwell, of South Pasadena, and Robert E. Austin and John N. Helmick, both of Los Angeles, for appellant. Le Roy M. Edwards and O. C. Sattinger, both of Los Angeles, for respondent.

This is an appeal from a judgment entered in favor of respondent, William H. Anderson, after order sustaining, without leave to amend, his demurrer on both general and special grounds to a second amended complaint against respondent and Business District Development Company, a corporation (hereinafter referred to as the company), wherein appellant sought to recover damages for eviction. The record fails to show that leave to amend was asked and refused between the dates of order and judgment; hence no error may be claimed in that respect, and appellant, having declined to amend, must stand upon his pleading as against the demurrer on both its general and special grounds. Haddad v. McDowell, 213 Cal. 690, 3 P.(2d) 550.

Confining the statement of facts in the complaint to those pertinent and essential to the questions raised by the demurrer, it appears that the company was owner of certain real property and in 1925 had executed a deed of trust conveying the title thereto as security for an issue of bonds aggregating $600,000, permission to issue and sell said bonds having been granted by the state corporation commissioner. The trust deed provided that upon default in payment of interest or the principal of any bond, and request in writing signed by 25 per cent. of the holders of outstanding bonds, the trustee might declare the principal of all bonds due, and sell the property, issue its deed, and divest the company, its successor and assigns, of title and claim thereto. On January 15, 1926, the company conveyed the property to Citizens' Trust & Savings Bank (hereinafter referred to as the bank) subject to said deed of trust, and the bank made its written agreement declaring that it held the property in trust for the company, and wherein it was provided that the bank was to lease and sublease the same as directed by the company, the lessees to look only to the company as lessor; the company agreeing to perform in every particular any lease so executed. On October 20, 1926, the bank, at request of the company, executed a written lease of portions of said real property to plaintiff for a term of thirty years, wherein it was provided (a) that plaintiff should pay as rent 662/323 of its net earnings from operation of said property and the building thereon as a hotel; (b) that plaintiff lessee absolved the bank, as lessor, from any liability thereunder, and agreed to look to the company only for strict performance thereof; (c) that the company agreed to perform the provisions thereof in the same manner as if it were lessor therein; (d) that said lease was subject to the bond issue and deed of trust securing it, and “that lessor agreed not to permit any default to occur in the mortgage or trust deed securing said bonded indebtedness”; and (e) that the terms, covenants, and conditions of said lease should be binding on the parties, their heirs, successors, assigns, and legal representatives. The company approved said lease in writing, wherein it agreed “to be bound by and carry out and perform and to guarantee the faithful performance of each and all of the terms, covenants and conditions contained in said lease to be kept and performed by the lessor.”

Under this lease plaintiff went into possession, expended $90,000 in furnishing the hotel, and established a successful business therein, with a net average income of $2,000 per month up to December 1, 1932. On January 2, 1931, all the right, title, and interest of the company and of the bank in and to said real property had passed to defendant Anderson. subject to said deed of trust securing the bond issue; and it is then alleged that on that date the bank, in consideration that Anderson would bind himself to keep and perform all the covenants and agreements of said lease, executed its assignment of all its right, title, and interest in and to the lease to Anderson, who executed thereon an acceptance wherein it is provided that he “does hereby accept the assignment of the lease described in the foregoing, and does hereby agree to be bound as lessor by all the obligations thereof”; both the assignment and acceptance being set forth in hæc verba. It is further alleged that such acceptance agreement was executed for the express benefit of plaintiff as lessee, and that thereafter plaintiff performed the covenants and agreements of the lease for the benefit of defendant Anderson, and that the latter claimed all the rights, benefits, and privileges of said lease until he permitted default in the terms of said trust deed and plaintiff was evicted by reason thereof.

On March 1, 1932, certain of the bonds aggregating $20,000 “became due and payable and default was made in the payment thereof,” and on September 1, 1932, “there became due and payable the interest on all of said bonds then outstanding in the sum of $16,250, and default was made in the payment thereof.” On October 10, 1932, the owners of more than 25 per cent. of outstanding bonds requested the trustee in writing to declare the principal of all the bonds due and payable and to proceed to sell said property as provided in said deed of trust. On October 11, 1932, the trustee gave notice in writing to the company and to defendant Anderson declaring the principal of all bonds to be immediately due and payable, and advertised a sale and on November 12, 1932, sold the property to Title Insurance & Trust Company as trustee for Mortgage Guaranty Company, the owner of all outstanding bonds. It is then alleged that said proceedings and sale were “in all respects in full compliance with the terms of the deed of trust and the provisions of law,” and divested defendants of all title and interest in said property and terminated said lease of plaintiff; that on December 3, 1932, said Mortgage Guaranty Company demanded of plaintiff possession of said property and “served written notice and demand on plaintiff as provided by section 1161a of the Code of Civil Procedure to quit possession thereof within three days or it would institute proceedings against plaintiff for possession of said property and for recovery of damages”; that by reason of the termination of said lease plaintiff was compelled to and did quit possession of said premises on December 8, 1932, and as a result was forced to make immediate sale of its furniture and furnishings for $16,000, although they were reasonably worth $50,000, to its damage in the sum of $34,000; that by reason of the termination of said lease it lost the use of said premises for 275 months, to its damage in the sum of $200,000, demand for which sums have been made by plaintiff of defendants and defendants have refused to pay the same or any part thereof; and that there is now due and unpaid the sum of $200,000.

It is obvious from the facts alleged in the complaint, disregarding all conclusions of law therein, that, when respondent became owner of the real property and took the assignment of the interest of the bank as lessor, a privity of estate arose between respondent and appellant under the relationship of landlord and tenant, but that such assignment did not have the effect of creating a privity of contract between them. When the assignment of the lease was made to respondent, he was already the owner of the real property leased, subject to the deed of trust, and such assignment amounted only to a quitclaim of the bank's rights in the lease to respondent; neither the company nor appellant being parties thereto. The assignment was a naked assignment, and imports no agreement to assume any of the obligations of the lease (Beazley v. Embree, 41 Cal. App. 706, 183 P. 298), notwithstanding the allegation that in consideration of such assignment respondent would bind himself to keep and perform all the covenants and agreements of lessor in said lease. Such allegation, being inconsistent with the terms of the written assignment, which is pleaded in hæc verba, must be disregarded. Peak v. Republic Truck Sales Corp., 194 Cal. 782, 790, 230 P. 948.

But it is contended by appellant that, by the language of his written acceptance of such assignment, attached thereto, respondent came into privity of contract with appellant as to all the covenants and agreements of the lease, including the implied covenant of quiet enjoyment. The acceptance contained the provision, “does hereby agree to be bound as lessor by all the obligations thereof.” The assignment was made by the bank. In the lease appellant, as lessee, absolved the bank, as lessor, from any liability under the lease and agreed to look only to the company for strict performance thereof; and the latter in its written approval of the lease agreed to carry out and perform its provisions as if it was lessor, and agreed not to permit any default to occur in the mortgage or trust deed securing the bonded indebtedness to which said lease was subject. The breach of covenant or agreement upon which appellant bases its claim for relief herein consists in the failure to comply with the provision not to permit any default to occur in the trust deed. By the terms of the assignment by the bank and the acceptance thereof by respondent, the latter did not assume the obligations of the lease, which imports a positive or active status as lessor, but agreed to be bound thereby, which imports a negative or passive status. This latter status was entirely consistent with respondent's existing status as owner of the real property on which the lease was founded. It thus appearing from the allegations of the complaint that no agreement was ever made between appellant and respondent respecting performance of the obligations of the lease, no privity of contract arose and existed between them in respect thereto. Bush v. Bastian, 112 Cal. App. 644, 297 P. 976; Farber v. Greenberg, 98 Cal. App. 675, 277 P. 534. Moreover, no consideration is shown by the allegations of the complaint to have moved from either appellant or the company to respondent at the time of such assignment. Respondent was already the owner of the property and entitled to the benefits accruing from the lease by virtue of a previous transfer of the title to him subject to the trust deed. Fahrenbaker v. E. Clemens Horst Co., 209 Cal. 7, 284 P. 905. This status of title rendered the execution of the assignment and its acceptance a mere formality to eliminate the bank from the picture, as its functions and purposes as trustee of the company had terminated with the transfer of title to respondent and did not change or affect the rights and obligations existing at the time between respondent, as owner and landlord, and appellant, as tenant and lessee.

Appellant relies on its allegation that such acceptance agreement was made for the express benefit of appellant. This allegation is a mere conclusion of the pleader and is not consistent with the terms of the instruments pleaded in hæc verba. Under section 1559 of the Civil Code and the established rule, a contract for the benefit of a third person must have been made expressly for such third person; and to sustain an action thereon by such third person there must have been an intent clearly manifested on the part of the contracting parties to make the obligation inure to the benefit of the third party; and, where there is any doubt respecting the matter, it should be resolved against the right of such third party to claim benefit of such contract. Wilson v. Shea, 29 Cal. App. 788, 157 P. 543; Case v. Egan, 57 Cal. App. 453, 207 P. 388.

It being manifest from the allegations of the complaint that the bank was without personal liability under the lease, its naked assignment thereof to respondent could pass no personal liability to him. No privity of contract between appellant and respondent appearing, and no sufficient facts being alleged to show that the acceptance of the assignment was made for the benefit of appellant, it follows that no obligation attached to respondent to see to it that no default should be permitted to occur in the trust deed. That obligation was assumed by the company, and appellant had agreed to look to it only for performance.

Moreover, the eviction claimed herein is founded on termination of the lease by reason of alleged defaults in payment on the bonds and a sale and transfer of title under the trust deed by the trustee. The regularity and validity of the trustee proceedings are vital to plaintiff's case. Yet the trust deed provisions relating to conditions, notice, and manner of sale are not alleged either according to their legal effect or in hæc verba, but the pleader is content with the general allegation that such proceedings and sale were “in all respects in full compliance with the terms of the deed of trust and the provisions of law.” This is a conclusion of law, and must therefore be disregarded. The omission of the facts upon which the validity of the sale rested render the cause of action deficient in an essential element. This defect might have been cured by appropriate allegations in an amended pleading, but no request therefor was made by appellant.

For the reasons above given, the general demurrer was properly sustained, and it becomes unnecessary to consider and pass upon other points raised.

The judgment is affirmed.

WILLIS, Justice pro tem.

We concur: STEPHENS, P. J.; CRAIL, J.