Gates Rubber Co. v. Ulman,

214 Cal.App.3d 356 (1989), review denied (1990)

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Nature of the Case

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Facts

Gates (P) lease land from Lesser. The written lease was for a 20-year term, triple net. The lease granted P four successive five-year options and on two occasions the lease was amended to increase the rent to $4,132.50 per month. The lease made no reference to an option agreement for the purchase of the property, but there was a separate written agreement for the option to purchase. Neither the lease nor the option was recorded. The option gave P the right to purchase the property for $721,029 during the sixth year of the lease term and a second option to purchase for $550,687 during the 20th year of the lease term. A short form lease was executed that required Lesser to construct an 80,000-square foot office and warehouse building which was done. P entered into possession on January 1, 1964. On December 27, 1966, Lesser conveyed the property to California Bank which in turn conveyed to Massachusetts Mutual Life in January 1968. In December 1968, it was conveyed to Wester Orbis, owned by Lesser, and then several days later conveyed to Fulton Investment Company but the agreement and recorded grant deed did not contain any reference to the option to purchase. Fulton possessed a copy of the option agreement. There was evidence that Fulton was fully informed of that option. Fulton then conveyed to Ulman for $633,163.25. Ulman (D) was not aware of the option to purchase, and the title report referred to the short form lease and the unrecorded lease but not to the option to purchase. A credit report of P made no mention of the option to purchase. Ulman died on March 2, 1982, and in May of that year, Harry Ulman was appointed special administrator and executor of the estate. P notified Harry on August 29, 1983, of its exercise of the option to purchase and sent a downpayment of $55,068.70. That check was returned uncashed fifteen days later. This dispute erupted. P sued for specific performance of the option agreement. The trial court ruled for D and P appealed; the circumstance was not sufficient to put D on notice of charge him with constructive notice of the unrecorded option.