This is an action for declaratory and other relief with respect to the rights and obligations of the parties under a master lease of the Orpheum Building and a purchase money note and deed of trust on the leasehold estate.
Plaintiff O'Donnell, as trustee of certain trusts, is the holder of the note and beneficiary of the trust deed. Weintraub was the trustor of the trust deed and the lessee under the master
In November 1954, a master lease was entered into for the Orpheum Building in Los Angeles, between Phil Goldstone as lessor and Standard Enterprises, Inc., as lessee, under a 50-year lease designated herein as "master lease." Paragraph 15(2) of the master lease provides that the lessee may assign, if not in default, on certain conditions, including the following: "That the assignee shall in writing assume and agree to keep, observe and perform all of the agreements, conditions, covenants and terms of this lease on the part of the Lessee to be kept, observed and performed. In such event and upon the asking and delivering to Lessor of said assumption by the assignee, the Lessee hereunder shall be released of further obligations pursuant to this lease."
In December 1961, Weintraub purchased the lessee's interest under the master lease and personally assumed the obligation of the lease. The validity of that transfer is not in question.
Weintraub paid only part of the purchase price in cash; for the balance he executed a purchase money promissory note, in the amount of $225,000, payable at the rate of $1,000 per month, secured by a deed of trust, in which he was the trustor, on the security of his lessee's interest in the leasehold created by the master lease. Both the note and the trust deed provide that there is no personal liability on the part of the maker and that the holder will look only to the security of the property. The trust deed provides in part: "... that Trustor will not surrender, cancel, alter or modify or consent to any surrender, cancellation, alteration or modification of his interest or rights in and to said leasehold estate pursuant to the provisions of said lease or otherwise unless prior thereto Beneficiary shall have expressly consented in writing to such surrender, cancellation, alteration or modification." There are also the words "... and that upon any assignment or transfer of the lease the assignee and transferee shall be subject to the agreements and obligations of the Trustor under this deed of trust."
On or about July 6, 1964, O'Donnell purchased the Weintraub note and the beneficial interest of the trust deed and notified Weintraub in writing.
On October 6, 1964, Orpheum Realty, Inc., a California corporation, filed its articles of incorporation and on October 31, 1964, Weintraub sold the Orpheum lease to the new corporation, subject to the 1961 deed of trust, for $75,000, evidenced by a purchase money promissory note. Orpheum gave Weintraub a second trust deed and Weintraub executed a document assigning the lease to Orpheum, and Orpheum executed a document in which it purported to assume liability.
Out of the 100 shares of stock in Orpheum issued in October 1964, 75 shares went to Banner Films, Inc., a Nevada corporation, of which Weintraub owns 80 percent of the stock, and the remaining 25 shares went to Ben Hecht, an associate of Weintraub whose company managed the Orpheum Building first for Weintraub and later for Orpheum. The officers and directors of Orpheum are (1) Ben Hecht; (2) Robert Crane, an employee of Hecht, who handled the management of the Orpheum Building before and after the assignment; and (3) Abe Koss, accountant for the Hecht Company, who supervised the accounting for the Orpheum Building both before and after the assignment. The Hecht Company performed the same functions in regard to the Orpheum leasehold both before and after the assignment. The Hecht Company managed 35 or 40 buildings in Los Angeles.
Orpheum had an initial capital of $10,000 and Orpheum had a cash deficit from the first month of operations. The deficits were made up by contributions from Ben Hecht and from Banner Films, in the same ratio as the respective stock interests of Banner and Hecht in Orpheum Realty, Inc. The lease is the only physical asset that Orpheum Realty, Inc. owns.
Benjamin Goodman was one of the attorneys for Weintraub and was also one of the attorneys for Orpheum.
It is alleged in the pleadings, and shown by the exhibits, that neither O'Donnell nor the lessor consented to the assignment to Orpheum and both O'Donnell and Goldstone (by her attorney) protested in letters. However, both O'Donnell and Goldstone cashed all the checks sent by Orpheum.
O'Donnell sued in declaratory relief claiming the assignment from Weintraub to Orpheum was a sham. The lessor Goldstone cross-complained for declaratory relief claiming the assignment to be invalid under the terms of the lease. The trial court, sitting without a jury, entered judgment in favor
The issues on appeal are whether the trial court erred in not deciding whether Orpheum Realty, Inc., is the alter ego of Weintraub, and whether the purported transfer to Orpheum Realty, Inc., absolved Weintraub of his duties under the lease and under the note and trust deed.
It appears that, on the basis of examining the two relevant written instruments set out in part above, the positions of the appellants, O'Donnell and Goldstone, are different.
We examine, first, the case as between Goldstone and Weintraub.
However, while the lessee was free to assign without the consent of the lessor, we cannot agree that he was free to assign to a mere dummy and, thus, escape personal liability
In fact, the case at bench is even stronger than Shea, since in that case the assignment did not relieve the assignor of liability under the covenants of the lease. But the Supreme Court held, even under those facts, that the purported assignment to an alter ego corporation should be disregarded.
It follows that the effect of the assignment by Weintraub to Orpheum turns on whether or not the purported assignee was a mere dummy or an actual separate entity — in other words, on whether or not Orpheum was the "alter ego" of Weintraub. The record before us contains evidence which, at least, raised that issue. Although Weintraub was not the sole stockholder of Orpheum, he not only owned the great majority of its stock but the other stock was held by persons who appear to be his agents or employees.
Instead of making such a finding, the trial court made a finding that the issue was not relevant unless and until there was an actual default under the master lease. In this the court was in error. The action is not one for damages but for declaratory relief.
However, even if Orpheum is found to be the mere alter ego of Weintraub, that will not mean that there has been a breach of the master lease. As we have pointed out, the lease does not prohibit the lessee from making an assignment of his interests. The only effect of an alter ego finding would be to prevent the operation of the provision which provides for a release of the lessee from liability. Alter ego or not, we can see no invalidity in the assignment as such and no breach arising therefrom.
We turn, now, to examine the case as between O'Donnell and Weintraub.
It is true that, in one sense, an assignment "modifies" the assignor's rights in and to the leasehold estate, since he is no longer the tenant in possession nor the sole obligor.
Restatement of the Law, 1932, Contracts, section 149, page 179, defines an assignment of a right as "a manifestation to another person by the owner of the right indicating his intention to transfer, without further action or manifestation of intention, the right to such other person or to a third person."
However, we do not think that the quoted clause was intended to, or does, apply to an assignment of the master lease. For one thing, as noted above, the trust deed, after setting forth the provision relied on by O'Donnell, proceeds to provide for the liabilities of an "assignee" — a provision inconsistent with reading the trust deed as prohibiting assignments. In addition, the whole tenor of the clause involved is to the effect that Weintraub will do nothing to diminish or destroy the leasehold estate, whoever the lessee in possession might be; the reference to "his" interests or rights should be read as though it had said "the lessee's" interests or rights.
It follows that O'Donnell is as much entitled as Goldstone to a determination of the "alter ego" issue and to a declaration of Weintraub's duties and obligations as affected by that determination.
The judgment is reversed.
Files, P.J., and Jefferson, J., concurred.
A petition for rehearing was denied on April 16, 1968 and the opinion was modified to read as printed above. Respondents' petition for a hearing by the Supreme Court was denied May 15, 1968.