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A corporate merger is when two corporations combine to become a single firm. There are several types of mergers, including those where both corporations still exist after the merger. One type is a Triangular Merger. In this, the acquired corporation continues in existence as a wholly-owned subsidiary of the acquirer without transferring any assets. In a triangular merger there usually are two agreements which typically might be called “Agreement of Merger” and “Agreement of Reorganization”, respectively. The Agreement of Merger is the statutory agreement drafted, executed and filed with the Secretary of State pursuant to California Corporations Code.

A corporation is considered a separate legal entity apart from its owners. The transfer of corporate stock is not deemed a transfer of the real property of a legal entity because the separate legal entity still owns the property. However, a traditional merger—one in which two or more corporations merge, one survives and the others disappear—results in the transfer of the assets of each disappearing corporation to the surviving corporation. In a recent decision, parties did not want a transfer of real estate because of contractual relations that made a transfer of the property costly

(and it would trigger a property tax reassessment). They used a reverse merger so that there was no transfer of real estate. The court said that was ok… it was not intended to cheat shareholders or creditors, so the court would respect the transaction.

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A license in real estate is permission to use real estate based on express or implied permission of the real property owner. It may be written or oral, or implied. Generally, it can be revoked at any time and does not give the licensee an interest in the property. It is personal to the one given the right, and cannot be transferred or inherited. However, such a license may become irrevocable – and equivalent to an easement – in a few circumstances. One is when the parties’ agreement appears to be irrevocable for the term of the agreement. Another is when the grantor is stopped from denying it (“estoppel”) because the grantee has so changed his position that to revoke it would be unjust. In a recent decision from Southern California, the plaintiff, holder of a written agreement authorizing parking, who changed his position in reliance, was disappointed because the subsequent owner of the property did not have notice of the parking license. Without notice, the new owner was not bound.

Sacramento-irrevocable-license-real-estate-attorneyIn Gamerberg v. 3000 E. 11th Street LLC, in 1950 an owner agreed to provide eight parking spaces to a neighbor who needed them to build a warehouse (here’s the location, not much parking available!). The notarized “parking affidavit” was filed with the LA Dept of Building, which then issued a building permit for the warehouse. There was no evidence that the spaces were identified on the ground nor used by the warehouse owner. A subsequent owner of the property gave the parking spaces to his tenants. The warehouse owner complained, and the lawsuit ensued.

The court first reviewed the law of licenses. It noted that when a landowner allows someone else to use her land, the owner is granting a license. A license may be created by express permission or by acquiescence (that is, by ‘tacitly permit[ing] another to repeatedly do acts upon the land’ ‘with full knowledge of the facts’ and without objecting). A license is a personal right and confers no interest in land: “[I]t merely makes lawful an act that otherwise would constitute a trespass. The grantor generally can revoke a license at any time without excuse or without consideration to the licensee. “[a]n otherwise revocable license becomes irrevocable when the licensee, acting in reasonable reliance either on the licensor’s representations or on the terms of the license, makes substantial expenditures of money or labor in the execution of the license, and the license will continue ‘for so long a time as the nature of it calls for.” The license, similar in its essentials of an easement, is declared to be irrevocable to prevent the licensor from perpetrating a fraud upon the licensee.

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When a landowner grants someone permission to use her land, the owner is granting a license. A license may be created by express permission or by acquiescence. The owner generally retains the right to revoke that license at any time. The landowner may nevertheless be estopped from revoking that license—and the license will accordingly become an irrevocable license for “so long a time as the nature of it calls for”—if the person using the land has “expended money or its equivalent in labor” improving the land in the execution of the license. Critically, however, the expenditure of money or labor can make a license irrevocable only if that expenditure is “ ‘substantial,’ ” “considerable” or “great.”

Sacramento-license-permission-to-use-property-attorneyIn Lilli Shoen v Juliet Zacharias, two neighbors live at the base of a hill, their backyards running up the steep hillside. Part way up there was a flat spot on either side of the property line. The defendant Zacarias thought the flat spot was entirely on her property, and made some improvements:

(1) brought in contractors to grade the patch to make it flatter,

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An easement in California is a right to use someone’s property which right is something less than a full right of ownership. The right of use is restricted to that in the original grant of easement, though parties often consult Sacramento real estate attorneys regarding what that right really is. In the case of a grant of a “general” easement the courts may look to the parties’ original intent, plus the historic use of the easement. However, in a recent decision, the plaintiff discovered that the easement he had granted was not general; instead, the language was clear enough to interpret, and in addition the court recognized that it could allow for the normal future development of the property.

Sacramento-easement-lawyerIn James Zissler v. Patrick Saville, a property owner in Montecito granted an easement to a neighbor for access to the rear of neighbor’s property. The grantor claims that he intended the easement be used sparingly and infrequently, and not for construction access. He also intended that no “‘heavy vehicles’ ” would be allowed on the easement. By “heavy,” he meant “‘anything much bigger than a pickup truck.’ ” It was only used for the gardener’s access to maintain the property. Both parties sold their lots, and the plaintiff bought from the grantor. The defendant paid $4.7 million, and intended to develop the property, which required paving the easement and construction access. Plaintiff filed this action claiming that defendant had a General Easement, and as such its use was limited by the intent of the parties and its actual historic use.

LANGUAGE OF EASEMENT

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Co owners of real property in California are entitled to bring an action for partition of the property, in which the property is either divided between the owners or sold and the proceeds split. The split goes by percentage of ownership interest – two equal coowners get 50% each. However, they are each entitled to an accounting for charges and credits upon their respective interests. Such items as improvements or payment of taxes are included in the calculation. In a decision out of the Third District Court of Appeal, the court clarified that an owner may be credited for what their predecessor in interest had done. Thus, when the father who was a co-owner who made improvements and then conveyed his interest to his daughter, she got credit for his improvements. However, she entered the property as a tenant, and the lease was not terminated when she became an owner. The improvements she made herself were governed by her lease, and she did not get credit in the partition.

Sacramento-partition-attorneyIn Wallace v. Daley the Third District Court of Appeal faced a partition of property in Arbuckle. The plaintiff started as a tenant; her father was a co-owner with the defendant. The property included an almond orchard, house, and outbuildings. When the plaintiff moved in the house was infested with rats; the septic tank overflowed, and sewage flowed over the ground; the back porch of the house had rotted to the ground from termite damage the roof of the bunkhouse had caved in, the barn was “totally useless.”

When his daughter moved in, she and her father laid a new foundation and built a new bathroom. A septic tank was added, the electrical wiring was renovated, and the burned-out barn and the bunkhouse were removed. The barn was replaced with a concrete and metal building, the chimney and well were repaired and the roof of the house was replaced. During plaintiff’s tenancy, a horse barn and corrals were built and the tank house was renovated.

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A common belief is that to claim adverse possession of real property, all one has to do is pay five years of overdue property tax, and take possession of the property. Parties trying to establish adverse possession in California must prove several elements: (1) Possession must be by actual occupation under such circumstances as to constitute reasonable notice to the owner. (2) It must be hostile to the owner’s title. (3) The holder must claim the property as his own under either color of title or claim of right. (4) Possession must be continuous and uninterrupted for five years. (5) The holder must pay all the taxes levied and assessed upon the property during the period. This last element is seldom the focus of court decisions, but in a recent decision the claimant was disappointed to learn that a change in the law requires timely payment of assessed property taxes.

Sacramento-attorney-adverse-possessionIn McLear-Gary v. Emrys Scott, McLear-Gary claimed an easement along a logging skid trail. Emrys Scott replaced an old wooden gate with a metal gate across the easement route and kept the gate locked, blocking McLear-Gary from accessing the easement.

The trial court found that McLear-Gary had established an “exclusively pedestrian” prescriptive and implied easement over the properties belonging to the defendants, the court concluded this easement was extinguished by adverse possession when Emrys Scott, acting for the benefit of the common interests of his cotenants, locked and maintained the locked gate (not always hostile notice of adverse possession!) across the easement route and otherwise met the requirements for the affirmative defense.

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In larger commercial real estate leases, the tenant occasionally needs a loan to build the premises or finance major transactions. The tenant does not own the real property, but has the lease, which is both an interest in real property and a contract. This results in two sets of rights and obligations – those from the interest in the property (“privity of estate”), and those provided in the lease (“privity of contract”). If the tenant allows another party to take possession of the premises, that party has privity of estate with the landlord, but is not responsible for the obligations of the lease. This is why the lessor requires, in the lease, that any assignment be approved and the new tenant sign an acceptance of the assignment and the obligations of the lease contract. The Lessor will also require that any lender secured by the lease agrees to assume all the obligations of the Lease if it forecloses.

But what happens when the leasehold lender forecloses, but nobody makes sure that the Lender actually assumed all the lease obligations? That was the issue in a recent decision when the lender foreclosed on a lease in a shopping center

Sacramento-privity-of-estate-attorneyIn BRE DDR BR Whittwood Ca LLC v. Farmers & Merchants Bank of Long Beach, a shopping center tenant needed a loan to finance construction. The lease allowed the Tenant to encumber its leasehold interest through a mortgage, but presumed that a mortgage lender who succeeded to Tenant’s interest assumed Tenant’s obligations. The lease stated:

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Piercing the corporate veil, (the alter ego doctrine) is a procedure which creditors use when their judgment is against a corporation or LLC which is owned by, or controlled by, a sole shareholder. Usually, the corporation has no assets to collect from, and the goal of the creditor is to go after the shareholder’s personal assets, claiming that the corporation is a sham. In effect, the corporation is the shareholder’s alter ego and the shareholder should not hide behind the corporation. Reverse veil piercing is a newer concept in which a creditor with a judgment against an individual goes after the assets of the corporation which the debtor controls. Sacramento business attorneys seldom see this scenario, as the point of forming an entity (corporation or LLC) is to avoid personal liability in the first place. But in a recent decision, a wealthy developer did some extensive estate planning, probably to shield his assets, and suffered a judgment for personal liability. The court found that reverse piercing could apply.

Sacramento-reverse-veil-piercing-attorneyIn Curci Investments, LLC. v. James P. Baldwin, Baldwin is a wealthy Orange County real estate developer. Baldwin borrowed over $5 million dollars and did not pay it back. After borrowing the money he created eight family trusts for his grandchildren. He formed JPBI LLC, which loaned over $42 million to some partnerships composed of the family trusts. Of course, these loans were not paid back.

Since he didn’t pay the original loan, Curci obtained a judgment against Baldwin personally for $7.2 million. Curci then sought, through reverse veil piercing, to add JBPI LLC to the judgment. This appeal resulted.

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I had previously discussed the case of OC Interiors, where the court determined that a void judgment in the chain of title to real property nullifies all subsequent transfers, including a transfer to a bona fide purchaser. That is a frightening prospect for buyers, and a reason to take a close look at the preliminary title report, and consult a real estate attorney if they are not comfortable with what they find. A default judgment may, in some cases, easily be found to be void. In a more recent decision, some other defendants tried to avoid this result by arguing that the void default judgment had the effect of granting quiet title relief, and thus the subsequent transaction was valid. They were disappointed to find otherwise – the action to cancel and instrument did not have the same impact as an action to quiet title.

Sacramento-real-estate-instrument-cancellation-attorneyIn Deutsche Bank National Trust Company v. Alan Pyle et al. Saluto owned property in Rancho Mirage and obtained a loan. She defaulted and began a firestorm of recording documents to screw up the chain of title to presumably prevent foreclosure and eviction. The long list of recorded documents is set out at the end of this post. (I wonder if she paid someone to muddy things up like this- I have done a quiet title in a similar situation, and the hired perpetrator faced Federal criminal charges). A trustee’s sale was held. Saluto then filed an action against the lender to cancel the trustee’s deed and deed of trust and obtained a default judgment. Eventually, the lender got the judgment set aside, the court finding that she had falsified the proofs of service, and that the judgment was void.

The issues on appeal for the court were: (1) whether defendants were entitled to bona fide purchaser or encumbrancer status, and (2) the impact of the void default judgment in the chain of title.

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A court may create an “equitable easement”, on equitable grounds, even though the user is not entitled to an easement on one of the more traditional grounds. The judge balances the rights of the various parties to achieve an equitable solution. Generally, the courts apply a three-part test to determine if such an easement should be legally granted. In most cases there is an existing use, and either one landowner sues to stop the use (they see it as a trespass), or the user sues to legally establish the easement. However, in a recent decision out of Ventura County, the court granted an equitable easement where there had been no preexisting use.

Sacramento-equitable-easement-attorneyIn Hinrichs v. Melton, Hinrichs inherited two adjoining parcels. He used to live in a house on the southern lot, but had lived in Alaska for the past 20 years. He conveyed the southern property to Asquith, which left the northern parcel landlocked – it had no legal access from anywhere. The trial court granted the plaintiff an easement by necessity over the Asquinth parcel, up to the Melton property. Beginning at the Melton property, the court granted an equitable easement under the doctrine of balancing the hardships.

The Equitable Easement

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