Federal Deposit Ins. Corp. v. Mars

• Decision Date: 11 April 1991
• Docket Number: No. 89CA0097,89CA0097
• Citation: 821 P.2d 826
• Parties: FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, as the successor to National City Bank of Denver, a national banking association, Plaintiff-Appellee, v. Thomas Z. MARS, Defendant-Appellant. . I
• Court: Colorado Court of Appeals

Page 826

821 P.2d 826

FEDERAL DEPOSIT INSURANCE CORPORATION, in its corporate capacity, as the successor to National City Bank of Denver, a national banking association, Plaintiff-Appellee, v. Thomas Z. MARS, Defendant-Appellant.

No. 89CA0097.

Colorado Court of Appeals Div. I.

April 11, 1991.

Rehearing Denied May 30, 1991.

Certiorari Denied Dec. 23, 1991.

Holt & Associates, P.C., L. Tyrone Holt, Kevin J. O'Toole, for plaintiff-appellee.

Gary S. Cohen, Denver, for defendant-appellant.

Opinion by Judge CRISWELL.

Defendant, Thomas Z. Mars, appeals the decree of the trial court that quieted title in plaintiff, National City Bank (the bank), to several buildings presently located on property owned by defendant. Defendant contends that he owns the disputed buildings and that the court erroneously rejected his slander of title claim premised on the filing by the bank of a lis pendens respecting the property. He also argues that the trial court erred by dismissing his claim for damages for past due lease payments and by striking his demand for a jury trial. Finally, he asserts that the trial court erred by ordering the sale of his property. We affirm the court's judgment quieting title and dismissing defendant's counterclaims, but we reverse its order directing the sale of the property.

Until 1985, defendant was the sole shareholder in Mars Steel Co., a corporation previously established by him. During that period, defendant acquired in his own name certain real property upon which various buildings had been erected. Commencing in 1982, however, defendant treated Mars Steel as the owner of the buildings, while he continued to act as the owner of the underlying land. While defendant asserts that this title severance was for tax purposes only, the trial court found that the severance was complete in 1982 and that Mars Steel became the owner of the buildings at that time. From 1982 until 1985, Mars Steel paid ground rent to defendant for the use of the land, and it took an income tax deduction for depreciation attributable to the buildings.

In 1985, defendant sold all of his stock in Mars Steel to a group of investors (the buyers) to whom the bank made a loan to finance the purchase of the stock. At that time, defendant entered into a ten-year written lease with Mars Steel, which also granted to Mars Steel an option to purchase. Whether this lease covered only the land or both the land and the buildings was disputed in the trial court.

In September 1986, Mars Steel ceased operations and abandoned both the land and the buildings in question. Defendant then re-entered and took possession of the property in accord with provisions of the written lease, but he did not terminate that lease. In order to mitigate his loss, defendant leased all of the property to another party. Three days later, the buyers and the successors in title to Mars Steel quitclaimed to the bank all their right, title, and interest in the property.

The bank then brought this quiet title action to determine its interest in the buildings, and in connection therewith, it filed a lis pendens covering the property. Defendant counterclaimed, asserting that he held title to the buildings. He also claimed that the bank was liable to him for payments due under the written lease with Mars Steel and for damages resulting from the bank's filing of the lis pendens. Pursuant to C.R.C.P. 38(a), defendant demanded a jury trial on his damage claims.

Both parties filed motions for summary judgment, and the bank moved to strike defendant's jury demand. The trial court dismissed defendant's claim for damages for past due payments under the lease and, thereafter, concluded that the remaining issues were equitable in nature. Therefore, it struck defendant's jury demand.

After a bench trial on the bank's quiet title claim and on defendant's counterclaim for damages resulting from the filing of the lis pendens, the court held that the buildings belonged to Mars Steel at the time of defendant's sale of that company's stock and that the later quitclaim deeds served to transfer title thereto to the bank. In view of this ruling, the court dismissed defendant's counterclaim based on the filing of the lis pendens.

In considering further possible judicial relief, the trial court noted that it could order the buildings to be severed from the land and removed. It concluded, however, that this remedy would not be satisfactory because the net worth of the buildings, severed from the land, would be very little. Therefore, the court ordered the parties to attempt to agree upon the value of the buildings, after which defendant would be allowed either to purchase or to lease the buildings.

However, defendant declined either to buy or to lease the buildings. The court thereupon found that "[d]efendant Mars has chosen not to cooperate with [the bank], despite this court's order. The court will not allow waste by directing that the buildings be removed. This would be ludicrous and counter to the benefit of all." Instead, the court directed that both the land and buildings be sold and that, upon sale of all of the property, the bank first would be paid the appraised value of the buildings and, thereafter, all remaining proceeds would be paid to defendant.

I.

Defendant first argues that the trial court erred by granting summary judgment on his claim against the bank for payments which were past due on the lease between defendant and Mars Steel. We disagree.

For contractual obligations between a lessor and lessee to pass to a successor in title of the lessee, there must be either privity of contract or privity of estate between the lessor and that successor in title. Similarly, for the assumption of liability under a lease by a sublessee or assignee to be enforceable by the original lessor, that assumption must be expressed to him, and not merely to the lessee or assignor. Bonfils v. McDonald, 84 Colo. 325, 270 P. 650 (1928).

If there is no independent contractual relationship between an assignee of a lessee and the lessor, liability for breach of the covenants of the original lease is governed by the law of privity of estate, not the law of contracts. Under that law, the assignee is bound to perform the covenants of the lease only so long as he is in possession of the premises. If he surrenders possession, the privity of estate will be destroyed, and there will be no basis for further liability to the lessor. Bonfils, supra; J.E. Martin, Inc. v. Interstate 8th Street, 41 Colo.App. 203, 585 P.2d 299 (1978).

Here, there is no evidence that the bank expressly agreed with defendant that it was assuming the obligation of the lease with Mars Steel. Thus, there was no independent privity of contract between defendant and the bank. And, when the bank received title to the buildings, it did not, by reason of that fact alone, assume any liability under that lease.

Further, when defendant retook possession of the premises, the bank had no title to, nor any interest in, the buildings; it did not receive its title to the buildings until three days after defendant retook possession of the premises. Hence, there was no privity of estate between the bank and defendant at that time.

In summary, then, the bank was not liable for rental payments under the written lease by reason of the law of contracts, because it did not assume the written lease. And, it was not liable for those payments as a result of any privity of estate because it never entered into possession of the buildings. Thus, the trial court properly held that the bank was not liable for the rental payments called for by the written lease.

However, it should be noted that, because the bank refused to assume the obligations under the lease and because the record discloses that there was no other means by which the defendant gave his consent to the continued occupation of his land by the bank's buildings, such continued occupation constituted a continuing trespass. In appropriate proceedings the defendant would be entitled to judicial relief for such trespass. See generally Restatement (Second) of Torts § 160 (1965) (after consent withdrawn, structures must be removed within reasonable time; continued occupation of land by structures is trespass). See also Fulton Investment Co. v. Farmers' Reservoir & Irrigation Co., 76 Colo. 472, 231 P. 61 (1925).

II.

Defendant next argues that the court erred by denying his right to a trial by jury. He does not dispute that the bank's quiet title action is equitable in nature and that there is no right to a jury trial for an action in equity. Rather, he contends that he had a right to a jury trial because the issue presented by the bank's pleadings was whether the buildings were real property or trade fixtures. He argues that, if title to the buildings had been severed, then the buildings automatically became trade fixtures, and thus, being trade fixtures, they are personal property. Accordingly, he asserts that, because the proper action for recovery of personal property is not a quiet title action, but an action in replevin, he is entitled to a jury trial under C.R.C.P. 38(a). Again, we disagree.

In determining whether an action should be tried to a jury, it is the original complaint which fixes the nature of the suit. Miller v. District Court, 154 Colo. 125, 388 P.2d 763 (1964); Miller v. Carnation Co., 33 Colo.App. 62, 516 P.2d 661 (1973). And, the assertion of a counterclaim for legal relief in a predominantly equitable proceeding does not change the nature of the action. In re Marriage of Rosenberg, 690 P.2d 1293 (Colo.App.1984).

Thus, even if the trial court had not dismissed his counterclaim for damages, defendant would still not have been entitled to a jury trial on those claims. It is not the nature of the issues of fact to be tried which determines whether there is a right to a jury, but the character of the action in which they are presented. Maddalone v. C.D.C., Inc., 765...