Bachenheimer v. Palm Springs Management Corp.

Plaintiff instituted this action to rescind certain agreements executed between herself and the defendants which are hereinafter described and to recover all monies paid by her thereunder. Her complaint sought relief upon three grounds: (1) that the execution of the agreements in question was procured by the fraud of the defendants; (2) that the agreements constitute “securities” within the meaning of the Corporate Securities Act and hence are void because the sale and issuance thereof was not authorized by a permit of the Commissioner of Corporations, and (3) that they are violative of the provisions of the Business and Professions Code regulating the sale and leasing of subdivided lands. The trial court’s findings were adverse to the plaintiff upon all issues. Plaintiff however makes no attempt to challenge the sufficiency of the evidence to sustain the finding against her upon the issue of fraud and hence no consideration thereof is required.

At all the times herein mentioned the respondent corporation has been the owner of a parcel of real property situate in the city of Palm Springs approximately 270 feet square. Prior to the time when the agreements hereinafter mentioned were executed the property was unimproved. However, the corporation had theretofore filed with the Building Department of the city of Palm Springs a plot plan of this property which was designated thereon as “Bonaire Village.” On this plot plan there are delineated separate rectangles, consecutively numbered, which in the agreements hereinafter mentioned are referred to as “building units,” a parking area, walks and a swimming pool. What purports to be a photographic copy of this plot plan appears upon the reverse side of the lease agreements hereinafter mentioned." While no notation appears thereon as to the scale of the drawing, the exterior dimensions of the property are noted thereon, and, applying the scale to be derived therefrom, each of the “building units” appears to be of the dimensions of 30' x 20' The filing of this plot plan with the Building Department was preliminary to the execution of the plan of the respondent corporation to divide and improve the property in the manner therein designated, and to construct upon

Tn July, 1948, appellant and respondent corporation executed two agreements, identical in terms except for the description of the “building unit” covered thereby, entitled “Lease Agreement” wherein the respondent corporation is designated as “Lessor” and appellantus designated as “Lessee, ’ ’ the terms of which may be summarized as follows:

“Lessor leases and lets to Lessee for the term of ninety-nine (99) years from this date (July 9 and 14, 1948, respectively) building unit marked No. 10 (25) as shown on the plot plan appearing on the reverse side of this Lease, which plot plan is known as 1 Bonaire Village’ on file with the Building Department of the City of Palm Springs, Riverside County, State of California, located on that parcel of real estate more particularly described as follows:” after which is set forth a description of the entire parcel of real property to which reference has previously been made and to which we will hereinafter refer by the designation given it by respondents, namely “Bonaire Village.” Lessee agrees to pay Lessor the sum of $7,500 as follows: $500 in cash, $1,000 upon demand within 30 days and the balance in monthly payments of $80, including interest at 6 per cent per annum, beginning September 1, 1948. Lessor may cancel the lease “upon the failure of Lessee to meet his obligations imposed hereunder” and in the event thereof all monies theretofore paid by the lessee shall be retained by lessor “and shall constitute rental for the use and occupancy of the leased premises up to that time, and lessor shall have the right to re-enter and take possession of said leased prem ises.” Lessor shall within a period of 30 days begin to construct and thereafter diligently prosecute to completion “the construction of a building with the elevations, floor plan, dimensions and general specifications set out on the reverse side hereof, and will begin and diligently prosecute to completion the work necessary to landscape the entire block shown therein by planting shrubbery and lawns and by installing walks, driveways and a swimming pool. ’ ’ Turning to the reverse side of the agreement we find a perspective drawing of the building to be constructed by lessor together with floor plan thereof shelving a building having the exterior dimensions of 28' x 18', which is to be of “frame and stucco construction, concrete slab floor, and Tropicool roof-, to meet all requirements of City and State building codes.”

“10. That the building to be constructed for the lessee by lessor herein shall be considered the personal property of the lessee herein upon the payment in full of the amount of money as indicated on line 2, paragraph 2 herein ($7,-500.00), and a bill of sale to said personal property shall be given to said lessee by the said lessor without lien or encumbrance.”

“11. That when lessee has paid the amount of money set out on line 2, Paragraph 2 herein as payment in full, lessor will within sixty (60) days thereafter cause this lease to be acknowledged in order that it may be recorded in the records of Riverside County, State of California, by the lessee herein.” (Emphasis throughout is our own.)

At or about the same time as the execution of the lease agreements the parties entered into a “Property Management Agreement” whereby the respondent corporation agreed to care for, manage and operate the “building units,” the

We have set forth the terms of the lease agreements in some detail because the provisions thereof are necessary to proper understanding of the questions presented upon the appeal.

We direct our attention first to the question as to whether the lease agreements in question fall within the purview of the statute regulating the sale and leasing of subdivided lands, for in our view it is decisive of the controversy. The particular provisions of the Business and Professions Code with which we are concerned are sections 11000 and 11010 which, insofar as material here, read as follows:

“11000. 'Subdivided lands’ and ‘subdivisions’ refer to improved or unimproved land or lands divided or proposed to be divided for the purpose of sale or lease, whether immediate or future, into five or more lots or parcels. ...”

“11010. Notice of intention to sell subdivided lands. (When and by whom notice to be given.) Prior to the time when subdivided lands are to be offered for sale or lease, the owner, his agent or sub divider shall notify the commissioner in writing of his intention to sell such offering.

“(Contents.) The notice of intention shall contain the following information:

(a) The name and address of the owner.

(b) The name and address of the subdivider.

(c) The legal description and area of lands.

(d) A true statement of the condition of the title to the land, particularly including all encumbrances thereon.

(e) A true statement of the terms and conditions on which it is intended to dispose of the land, together with copies of any contracts intended to be used.

(f) A true statement of the provisions, if any, that have been made for public utilities in the proposed subdivision, including water, electricity, gas and telephone facilities.

(g) Such other information as the owner, his agent, or sub-divider, may desire to present.”

Failure to comply with the provisions of the last quoted section is denounced as a public offense punishable by imprisonment in the county jail for a term of not to exceed two years or by a fine of not to exceed $2,000 (Bus. & Prof. Code, § 11020). It may be noted in passing that the foregoing are a codification of substantially similar provisions of an earlier statute, the constitutionality of which was upheld in In re Sidebotham, 12 Cal.2d 434 [ 85 P.2d 453 , 122 A.L.R. 496 ].

Admittedly respondent corporation did not comply with the provisions of section 11010, and hence if the lease agreements executed by it with appellant are comprehended by the provisions of section 11000, they are illegal and void. We entertain no doubt that Bonaire Village constitutes “subdivided lands” within the meaning of the statute quoted above, for a mere reference to the plot plan filed by the respondent corporation with the Building Department of the city of Palm Springs discloses a tract of land which is divided into more than five parcels, namely 38 separate areas, to which access is afforded by means of designated walks and driveways. The fact that these are designated in the agreements in question as “building units” and not as “lots” is of no significance. As used in the statute the word “lot” applies to any portion, piece, or division of land and is not limited to parcels of land laid out into blocks and lots regularly numbered and platted. (See Westbrook v. Rhodes, 92 Okla. 149 [ 218 P. 873 , 875]; Cowell v. Clark., 37 Cal.App.2d 255 , 258 [ 99 P.2d 594 ]; People v. Gallinger 37 Cal.App.2d 261 , 262 [ 99 P.2d 597 ].) While the separate areas or parcels delineated upon the plot plan are not designated thereon as “lots” the entire parcel is referred to in the lease agreement as “the block,” and the “units” into which it is divided unquestionably constitute “parcels” within the meaning of that term as used in the statute. Moreover, it is too clear to admit of argument that, as disclosed by the agreements executed between the parties, the respondent corporation dealt with each “unit” as a separate parcel, and the testimony of Mr. Clarke, president of the respondent corporation, is to the effect that from the inception of the project the corporation intended to deal in a similar manner with more than one-half of the 38 “units.”

Respondents, however, contend that the statute is not

“The general rule is that the lease of an entire building co nomine is a lease of the land on which the building stands, at least as far as needed for its support, and adjacent land belonging to the lessor which is used with the building as necessary to its proper occupation for the purpose for which it was intended. . . . Where the lease is of the ‘premises’ with no qualifying words, it is generally held that ‘premises’ means land and buildings thereon.” (51 C.J.S. 944.)

The statements in the foregoing text will be found abundantly supported by the authorities. (Buckhorn Plaster Co. v. Consolidated Plaster Co., 47 Colo. 516 [ 108 P. 27 , 33]; Crabtree v. Miller, 194 Mass. 123 [ 80 N.E. 225 , 226]; Szulerecki v. Oppenheimer, 283 Ill. 525 [ 119 N.E. 643 , 645]; Brager v. Bigham, 127 Md. 148 [ 96 A. 277 , 279]; Hooper v. Farnsworth, 128 Mass. 487 , 488; Bacon v. Bowdoin, 22 Pick. (Mass.) 401 , 406; Sherman v. Williams, 113 Mass. 481 , 484 [ 18 Am.Rep. 522 ]; Lanpher v. Glenn, 37 Minn. 4 [ 33 N.W. 10 ,11]; Wheeler v. McIntyre, 55 Mont. 295 [ 175 P. 892 , 894]; Nashville, Etc. Ry. Co. v. Heikens, 112 Tenn. 378 [ 79 S.W. 1038 , 1040, 65 L.R.A. 298 ]; Gainer v. Griffith, 76 W.Va. 426 [ 85 S.E. 713 , 714]; Bussman v. Ganster, 72 Pa. 285 .)

In Bacon v. Bowdoin, supra, the court at page 405 says: “It is objected, that the land was not demised, but the buildings only, and that the plaintiff has only an easement in the land. . . . But by the demise of the building, the land on which it stood clearly passed as incident to the demise. The exclusive possession of the land was necessary to the enjoyment of the demise.”

And the rule above stated is the same whether the building demised be in existence at the time of the lease or is to be constructed in the future. In Bussman v. Ganster,

And at page 289 the court says: “That the agreement in question was a lease of the land as well as of the building thereon, we think is very manifest.”

We need not, however, rest our determination upon the foregoing alone, for a reading of the lease agreement renders inadmissible the contention of respondents that it constitutes nothing more than a lease of a house. Indeed, in the true sense of the word, it is not a lease of a house at all. As is said in Pringle v. Canfield, 19 S.D. 506 [ 104 N.W. 223 ]: “ (W)here title to specific personal property is to pass to the person taking possession thereof upon the completion of stipulated payments, together with interest and attorney’s fees for collecting the amount in ease of default, the term ‘lease’ is a misnomer, and the transaction a conditional sale, in exact accordance with the intention of the parties. Authorities are abundant in support of the suggestion that a transaction, by whatever name, is a conditional sale whenever payment is a prerequisite to the passing of title, and contracts framed to partake more of the qualities of a lease than the one before us have been so construed. ...” (See, also, Lundy Furn. Co. v. White, 128 Cal. 170 , 172 [ 60 P. 759 , 79 Am.St.Rep. 41 ].)

The agreements here have a dual character: (1) a contract whereby lessor agrees to construct and sell to lessee a bungalow and which lessee agrees to purchase for the specified price payable at the times and in the manner therein set forth, with title to remain in the lessor until the full purchase price of $7,500 is paid—a conditional sales contract, and (2) the grant by lessor to lessee of the right to occupy the

Indeed, although perhaps unwittingly, counsel for respondents concede this to be true for in their brief they say: “Those obligations (maintenance costs and taxes) assumed by the

To admit, as they do, that by the agreements under consideration appellant was granted and acquired, the “right to keep it (the bungalow) on the land” for a period of 99 years is necessarily to concede that the agreement constitutes a lease of the land upon which it is erected, for a lease is nothing other than an instrument by which one is granted, upon stated terms and conditions, the right to occupy a parcel of land to the exclusion of the grantor. (Morris v. Iden, 23 Cal.App. 388 , 393 [ 138 P. 120 ]; Williams v. Miller, 68 Cal. 290 , 293 [ 9 P. 166 ]; Tiedeman, Real Property, § 538; Howard v. Manning, 79 Okla. 165 [ 192 P. 358 , 360, 12 A.L.R. 819 , 821].)

While in the foregoing discussion we have undertaken to point out that lessee’s obligation to pay a proportionate part of the maintenance cost of and taxes upon the entire tract of land of which the “leased premises” are a part, answers to the description of rent, it may be noted that reservation of rent is not an essential requirement of a lease. (Barnett v. Lincoln, 162 Wash. 613 [ 299 P. 392 , 394]; Willcox v. Bostick, 57 S.C. 151 [ 35 S.E. 496 , 497].)

Moreover, as is made evident by a cursory reading of the agreements, the word “building” is used therein in contradistinction to the term “leased premises.” The property demised (“leased premises”) is a “building unit” designated by number and reference to the copy of the plot plan appearing upon the reverse side of the agreements whereon it is delineated as a specific parcel of real property. Although not expressly so stated in the agreements, it is implicit therein that the “building” is to be constructed upon the particular parcel thus designated as constituting the “leased premises.” The “building” becomes the sole property of the “lessee” upon payment of the .purchase price thereof but the “leased

We confess our inability to perceive the relevancy of the discussion in respondents’ brief whereby they seemingly labor the point that leases are chattels real—personalty and not realty. (Civ. Code, § 765.) No one, of course, would undertake to dispute this elementary proposition but, while leaseholds are thus classified, they are nonetheless estates in real property. (Civ. Code, § 761; Callahan v. Martin, 3 Cal.2d 110 , 118 [ 43 P.2d 788 , 101 A.L.R. 871 ]; People v. Gallinger, supra; 37 Cal.App.2d 261 , 262.) A 99-year lease no less than one for a term of one year is personalty—a chattel real, but each is a “lease of land.” Inasmuch as the statute under

We have no doubt that the draftsman of the lease agreement, for reasons not too difficult to discern, strove valiantly to bring forth a document which, in legal effect, would operate as an agreement for the erection and sale of a bungalow with the right in the purchaser (for a consideration independent of the price to be paid for the building) to maintain the same upon a designated parcel of real property for 99 years, and yet would not, in contemplation of law, constitute a lease of the land upon which it was to stand for this prolonged period. His efforts, however, proved unavailing for inevitably the result of his labors was precisely that which he so studiously sought to avoid. Looking through form to substance, we experience no difficulty in ascertaining its true character, namely, that which in fact was intended and understood by both parties—a lease of real property for a term of 99 years.

Respondents having failed to comply with the provisions of the statute referred to, all of the agreements (five in number) are illegal and void, and appellant is entitled to recover the monies paid by her under all of such illegal and void agreements. (Murphy v. San Gabriel Mfg. Co., 99 Cal.App.2d 365 , 368 [ 222 P.2d 85 ].) This makes unnecessary the consideration of appellant’s further contention that the agreements constitute securities within the meaning of the Corporate Securities Act.

The judgment is reversed and the cause remanded with directions to the court below to ascertain the amount of monies paid by appellant to respondents under all five of the aforesaid agreements in issue, and thereupon to render judgment in favor of appellant for such amount, with interest thereon from May 25, 1949.

White, P. J., and Doran, J., concurred..

A petition for a rehearing was denied March 31, 1953.