Vallely Investments, L.P. v. BancAmerica Commercial Corp.

In 1978, Vallely investments, L.P. (plaintiff) leased land to a developer under a long-term ground lease. After several assignments, Balboa Landing, L.P. became the lessee. In 1986, Vallely and Balboa amended and restated the lease to run through 2051. The lease allowed assignment if the assignee assumed all Balboa’s obligations, with notice to Vallely, and allowed Balboa to encumber the lease with a mortgage interest subordinate to Vallely’s ownership interest. Balboa borrowed $7 million to develop the property from BA Mortgage secured by a mortgage on the leasehold. Balboa stopped making payments in 1988, and the bank began foreclosure proceedings. Balboa filed for bankruptcy and assigned the lease to BankAmerica Commercial Corp. (BACC) (defendant), a Bank of America subsidiary, to maintain and manage the property pending foreclosure. Titled “Assignment of Leasehold Interests,” the assignment specified that BACC accepted all the terms, covenants, conditions, and obligations of the ground lease. The parties did not notify Vallely. Meanwhile, BA Mortgage acquired the leasehold through foreclosure and managed the property until the leasehold sold to Edgewater Place, Inc. About two years later, Edgewater failed to pay rent, and Vallely sued to collect. Vallely discovered the assignment to BACC and asked for summary judgment declaring BACC fully liable for the rent. Vallely argued that, as assignee, BACC expressly assumed the rent obligation, which survived foreclosure. The trial court entered judgment for BACC, and Vallely appealed.