Daily Development for Wednesday, February 21, 2007
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
dirt@umkc.edu

LANDLORD/TENANT; ESTOPPEL; GOVERNMENT LANDLORDS: Estoppel or other equitable doctrines will not be applied to create or modify rights involving government entities as landlords.

Odessa Texas Sheriff’s Posse, Inc. v. Ector County, Texas, 2006 Westlaw 3030541 (10/26/06) (opinion not yet approved for publication) (appeal filed), discussed under the heading: Landlord/Tenant; Assignments."

LANDLORD/TENANT; ASSIGNMENTS; IMPLIED ASSIGNMENTS: If an unincorporated tenant incorporates, and later is dissolved, any lease rights it has remain with the inactive and powerless corporate entity, and consequently the tenant has no lease, even though it continues to function as lessee for over 30 years thereafter.

Odessa Texas Sheriff’s Posse, Inc. v. Ector County, Texas, 2006 Westlaw 3030541 (10/26/06) (opinion not yet approved for publication) (appeal filed)

In 1954, a unincorporated organization known as the Ector County Sheriff’s Posse, a riding club, leased seventy nine acres of land from Ector County for 99 years for a total lease of $10. The club took possession and commenced building improvements.

The Ector County Posse was incorporated in 1959, but in 1963 the Secretary of State dissolved the corporation for failure to pay taxes. In 1986, the Ector County Posse again incorporated itself, and in 2003 changed its name to the Odessa County Posse.

For over 50 years, club members used the property and improved the grounds. By 2005, the value of the improvements on the grounds was estimated at over $300,000.

In 1999, Ector County determined that it needed the land for an airport extension and demanded that the club leave the property. The club did so, but demanded that it be compensated in inverse condemnation for loss of the valuable lease and improvements. A trial court granted summary judgment to the County, apparently on the ground that the Club lacked standing, and this appeal followed.

The court first upheld the trial court’s ruling that the entity now known as Ector County Posse was not the originally incorporated Ector County Posse, as the original Posse had forfeited its right to do business when its franchise was revoked in 1963. Nevertheless, the Posse argued that it had standing because, in its own right, it had a property interest under one of four notions: (1) that a lease existed with the County based upon the conduct of the parties; (2) that the present Posse was a successor in interest to the original Posse in the lease; (3) that there was an express or implied assignment of the lease to the present Posse, or (4) that the County was estopped to deny the Posse’s lease rights.

The appeals court serially gunned down each of these claims and upheld the trial court.

The club’s first argument was that a lease ought to be viewed as existing because of the conduct of the parties. The club occupied the property and its activities and its improvements were accepted by the County and indeed were beneficial to the County. The court construed this argument to be tantamount to "lease by estoppel." Although, it indicated, a court might conclude that a lease existed between private parties on the basis of such an argument, it concluded that equitable estoppel ought not to interfere with a public agency’s use of its property for governmental purposes. Governmental agencies "cannot be divested of their rights in real property by estoppel, laches, adverse possession, dereliction, or the acts or conduct of their officers or agents." A prior case had permitted a tenant to reform a lease executed by a public agency on the grounds that the public agency had originally intended a broader property description. Although this appeared to apply equitable doctrines

to correct the legal rights set forth in the agency’s lease, the appeals court here distinguished that case by observing that under the instant facts the court was not construing the County’s original actions, but determining whether subsequent actions, long after the original lease, compromised the County’s land rights. It also commented that the original case involved public land held in a proprietary, rather than a governmental, capacity. That was not the case here, the court stated, but did not indicate why this was true as of the time the alleged lease had arisen.

The club next argued that it was the lawful successor to the original Ector Count Sheriff’s Posse. Here, the trial court relied heavily upon findings of fact made by the trial court, even though it acknowledged that typically the law does not permit trial courts to find facts on a summary judgment motion. The trial court first found that there was nothing that Ector County had ever done that recognized the present club as a successor to the original lessee. The court went by this one very quickly, as it does seem contrary to the record, but it accepted the trial court’s conclusions without further comment because, it claimed, appellants had not directly challenged it.

The court stated that, although the new club, when it incorporated in 1986, believed and intended that they were taking over the functions, assets and liabilities of the original 1959 corporation, and although County employees had in fact acknowledged this, the mere intent to take over the role of the old entity established nothing, and the County could not be estopped by the statements or actions of its employees. As the two corporations were in fact distinct entities, the court commented, some further evidence of succession was necessary.

As to the notion that there was an oral assignment of the lease. The court commented that this was not possible. When the original corporation was dissolved, it had no right to "reincorporate" itself at some later time, unlike what would be the case modernly. Thus the legal title to its assets remained with the corporation, while "the beneficial title vested in the shareholders." But this legal ownership was ineffective, as the corporation lacked any power to conduct business. The court also alludes to a Statute of Frauds argument concerning the oral assignment, but says nothing more about this issue.

The final argument, based upon estoppel, was similarly dismissed out of hand. As indicated, the court concluded that equitable estoppel cannot lie against the County. And, it stated, that even if it was wrong on this point, there were no affirmative statements made by County officials upon which the club members could rely that would give rise to an estoppel by reliance.

Comment 1: To the editor’s mind, blessedly free of any knowledge of the niceties of corporate dissolution law, this appears to be one royal Texas screwing.

The original lease was with an unincorporated entity, represented by individuals carrying out certain activities. As the lease was for 99 years, clearly those individuals were not going to be the ones expected to continue the activities - so the County conferred the lease rights on a group that was continuously remaking its membership, formed around a series of activities involving horsemanship. It appears, even from the court’s self serving summary of the facts, that these activities were in fact carried on continuously with the County’s knowledge and without the County’s objection for over 50 years. We don’t have to talk about estoppel here. All we have to say is that both sides to the arrangement in fact recognized the unincorporated association that continued to act after the 1959 dissolution as the true lessee, and that this lessee later incorporated and became the instant plaintiff.

There is lease law to support this conclusion. In a number of cases, some of them discussed on DIRT in the past, corporate entities occupied space leased by other corporate entities involving the same principles, and the court concluded that the occupying entity was in fact a effective assignee of the lessee. No writing was required.

Comment 2: The critical notion here is the statement that there was nothing that Ector County had ever done that recognized the new corporation as the successor to the old. The court, of course, accepts this finding of fact because, it claims, it was never challenged on appeal, even though the court’s own statement of the club’s arguments appear to reveal that the opposite is true.

In any event, is this even the right question? Shouldn’t the question be whether the group of individuals that carried on the riding club activities after the 1959 dissolution, before being reincorporated, were effectively the continuation of the group that originally obtained the lease? The original tenant was not a corporation. It strikes the editor as bizarre that the tenant’s rights completely dissolved when it lost the corporate status that it later undertook, even when there was no change in function.

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