Valley Investments, L.P. v. Bancamerica Commercial Corporation

The plaintiff, Valley, owned a parcel or property in Newport Beach. In 1978, Valley entered into a long term ground lease with a developer. After a series of assignments, the lease ended up in the hands of Balboa. The lease allowed the lessee to assign its interests freely, and to encumber it with a mortgage. Any assignment had to be in writing with notice to the lessor. The assignee was required to expressly accept and assume all terms and covenants of the lease, and any leasehold mortgage was subordinate to the lessor’s rights. In 1986, Balboa borrowed $7 million from BA Mortgage to develop the property, securing the loan with a deed of trust on the ground lease. Balboa defaulted in 1988, and BA Mortgage commenced foreclosure. In 1989, Balboa filed for bankruptcy protection to stop the foreclosure. In order to mitigate the risks of default, Balboa assigned the ground lease to the defendant, BACC. BACC was a wholly owned subsidiary of Bank of America. In April 1989, Balboa and BACC executed an instrument under which BACC both accepted the ground lease assignment, and agreed to fulfill all terms, covenants, and conditions and obligations required, performed and fulfilled by Balboa as lessee under the Ground Lease. Two months later the foreclosure continued, and the ground lease rights were sold at auction. BA Mortgage was the successful bidder, and, it subsequently sold the ground lease to Edgewater. Two years later, Edgewater failed to pay Valley rent, and Valley learned of the 1989 assignment to BACC. Valley sued seeking a declaratory judgment that BACC was liable for rent due for balance of the lease term.