ALI-ABA Course of Study Modern Real Estate Transactions July 25 ...

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2236 (b) Non-assignment Clause Prohibiting Transfers “By Operation of Law.” Courts are split as to whether the unauthorized merger of a Tenant violates a non-assignment clause prohibiting transfers “by operation of law.” (i) (ii) Merger is a Violation. It would seem to follow from the reasoning in Dodier, supra, that, if a lease explicitly forbids assignment by operation of law, the Tenant’s unauthorized merger should constitute a breach, and some courts have so held. See 1 MILTON R. FRIEDMAN, FRIEDMAN ON LEASES § 7.303e2 (4th ed. 1997 & Supp. 2002); Citizens Bank & Trust Co. v. Barlow Corp., 295 Md. 472, 456 A.2d 1283 (1983) (holding that a lease containing a prohibition of assignments “by operation of law” was violated by tenant’s merger) 4 ; Pacific First Bank v. New Morgan Park Corp., 122 Or. App. 401, 857 P.2d 895 (1993) (holding that Tenant’s unauthorized merger was a violation of the nonassignment clause in the lease prohibiting transfers “by operation of law”) 5 ; see also Parks v. CAI Wireless Sys., Inc., 85 F. Supp. 549 (D. Md. 2000). Merger Not Necessarily a Violation. Other courts have held that an unauthorized merger of a Tenant did not violate a non-assignment provision prohibiting assignments “by operation of law.” See Standard Operations, Inc. v. Montague, 758 S.W.2d 442 (Mo. 1988) 6 ; see also TXO Prod. Co. v. Mark, 999 S.W.2d 137 (Tex. Ct. App. 1999). 4 The Barlow court reasoned that "assignment by operation of law" clauses are considered by most to be "of the strict type." If the Tenant wanted a more liberal clause, it should have bargained for it. The court stated that carving merger out of the "operation of law" language would raise doubts as to whether the language had any meaning at all. 5 Pacific First Bank was affirmed by the Oregon Supreme Court in Pacific First Bank v. New Morgan Park Corp., 319 Or. 342, 876 P.2d 761 (1994), on the grounds that the lease was explicit in prohibiting any “transfer” of the Tenant’s interest without the Landlord’s consent. “Transfer” was interpreted as including “all forms of passing of rights and obligations.” Id. at 248, 876 P.2d at 764-65. 6 The Montague Court discussed its earlier decision in Dodier and correctly differentiated the lease provisions in the two cases (the Dodier clause only prohibited voluntary assignments, whereas the Montague clause attempted to prohibit both voluntary and involuntary assignments). See Standard Operations, Inc. v. Montague, 758 S.W.2d 442, 433 (Mo. 1988). However, the Court held that this distinction would not merit a finding that the non-assignment provision forbade the merger, noting that forfeitures are viewed with disfavor and that instruments should QBMKE\5419766.5 10
2237 iv. Dissolution. (a) Not Considered Breach of Non-assignment Clause. Most cases considering whether dissolution of a corporation violates a non-assignment clause deal with bare non-assignment clauses. The courts in these cases have followed a Dodier-type of reasoning, construing the antiassignment language narrowly, in favor of the Tenant. These courts often cite state laws that allow a dissolved corporation to reinstate itself within a certain number of years and to retain assets for purposes of "winding up" its affairs. The test for these courts then becomes whether the lease was abandoned or treated as a valuable asset of the corporation that the liquidating trustees retain for the benefit of the shareholders. If the former is true, the lease remains a primary obligation of the corporation, and, therefore, no assignment is made. If the latter is true, the lease passes to the shareholders, who succeed to the rights and obligations of the corporation in the leasehold estate. See Haddad v. Francis, 40 Conn. Supp. 567, 537 A.2d 174 (1986), aff’d 13 Conn. App. 324, 536 A.2d 597 (1988); Middendorf v. Fuqua Indus., Inc., 623 F.2d 13, 17 (6th Cir. 1980); Rauch v. Circle Theatre Co., 176 Ind. App. 130, 374 N.E.2d 546 (1978); Hampton v. Hampton Beach Improvement Co., 107 N.H. 89, 218 A.2d 442 (1966); Shakey’s Inc. v. Caple, 855 F. Supp. 1035 (E.D. Ark. 1994); Kelly v. Alstores, 130 N.J. 313, 613 A.2d 1163 (1992); 21 Merchants Row Corp. v. Merchants Row, Inc., 412 Mass. 204, 587 N.E.2d 788 (1992); Ernst Home Ctr., Inc. v. Sato, 910 P.2d 486 (Wash. Ct. App. 1996); Lamont’s Apparel, Inc. v. Si-Lloyd Assocs., 157 Ore. App. 342, 967 P.2d 905 (1998); Carma Developers, Inc. v. Marathon Dev. California, Inc., 2 Cal. 4th 342, 826 P.2d 710, 6 Cal. Rptr. 2d 467 (1992); Trinity Prof’l Plaza Assocs. v. Metrocrest Hosp. Auth., 987 S.W.2d 621 (Tex. Ct. App. 1999); Julian v. Christopher, 320 Md. 1, 575 A.2d 735 (1990); see also Airport Plaza, Inc. v. Blanchard, 188 Cal. App. 3d 1594, 234 Cal. Rptr. 198 (1987). be construed to "avoid the divestment or impairment of valuable rights unless the language is compelling." Id. at 444. The Court reasoned that the "by operation of law" language in the lease was intended to forbid only involuntary assignments, whereas the merger in Montague was both voluntary and inappropriately described as an assignment. According to the Montague Court, a Tenant who fears merger may obtain the desired protection by insisting on express "anti-merger language." Id. at 444. QBMKE\5419766.5 11
Page 1 and 2: 2225 ALI-ABA Course of Study Modern
Page 3 and 4: 2227 ASSIGNMENT AND SUBLETTING John
Page 5 and 6: 2229 Woolworth Co., 844 F.2d 369 (6
Page 7 and 8: 2231 Assignment, 21 HASTINGS L.J. 5
Page 9 and 10: 2233 i. Creditworthiness. ii. iii.
Page 11: 2235 7.303cl (4th ed. 1997 & Supp.
Page 15 and 16: 2239 LLCs and LLPs in the Case Law:
Page 17 and 18: 2241 B. Liabilities of Parties on A
Page 19 and 20: 2243 (1968 & Supp. 2002). Conflicti
Page 21 and 22: 2245 C. Concurrent Liability. 1. As
Page 23 and 24: 2247 VI. ADDITIONAL CONSIDERATIONS
Page 25 and 26: 2249 D. Consent of Lessor. E. Notic

ALI-ABA Course of Study Modern Real Estate Transactions July 25 ...

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