## Facts

- In April 1952, Abbott (landlord) leased commercial premises to Robert E. Thompson.
- The lease contemplated that the tenant would operate both (1) an automobile “U-Drive” rental business and (2) an automobile leasing business.
- The lease required arbitration of any controversy arising out of the lease.
- Thompson later caused two corporations to be formed: Bob’s U-Drive, Inc. and Continental Leasing Company (Continental).
- Thompson served as president and manager of both corporations and owned 50% of the stock of each.
- Although the corporations were separate entities, they operated out of the same office on the leased premises, and their operations were not strictly segregated in practice.
- In August 1954, Thompson executed a written assignment of his lease interest to Bob’s U-Drive.
- No written assignment was made to Continental, but Continental continued to conduct the automobile leasing business from the premises as before; both corporations occupied and used the space as tenants.
- A dispute later arose concerning amounts due under the lease, including rent.
- Abbott initiated proceedings in circuit court under Oregon’s arbitration statutes to compel arbitration against both Bob’s U-Drive and Continental.
- Bob’s U-Drive conceded it was bound by the arbitration clause, but Continental sought dismissal on the ground that it was not an assignee and had not agreed to arbitrate.
- The circuit court ordered Continental to arbitrate. Arbitrators awarded Abbott $2,938.88, and judgment was entered against both defendants jointly and severally.
- Continental appealed from the judgment based on the arbitration award.

## Issues

1. Whether Continental Leasing Company, despite the absence of a written assignment of the lease to it, could be treated as an implied assignee (or equivalent occupant in privity of estate) and therefore be bound by the lease covenant requiring arbitration of disputes.
2. Whether the circuit court properly compelled Continental to arbitrate and properly entered judgment on the resulting arbitration award against Continental.

## Decision

- The Oregon Supreme Court affirmed the judgment entered on the arbitration award.
- The court held that Continental’s status as an occupant and user of the leasehold for one of the businesses contemplated by the lease supported treating it as an implied assignee of the leasehold interest.
- Because an assignee (including an implied assignee in privity of estate) takes the leasehold estate with its running covenants, Continental was bound by the lease provision requiring arbitration of controversies arising out of the lease.
- As Continental was properly required to arbitrate under the lease, the award of $2,938.88 and the joint-and-several judgment entered on that award were valid as to Continental.

## Legal Principles

- A leasehold interest may be transferred not only by an express written assignment but also by conduct showing that a party has taken over the tenant’s position through possession and use of the premises under the lease.
- When an occupant takes the benefits of the leasehold estate and stands in privity of estate with the landlord, the occupant may be treated as an implied assignee and is subject to lease covenants that run with the leasehold.
- A covenant in a lease requiring arbitration of disputes arising out of the lease may bind an assignee of the leasehold estate, including an implied assignee, as part of the obligations tied to the leasehold interest.
- The existence of separate corporate forms does not prevent a court from determining, based on the realities of occupancy and use, that a particular corporation has assumed the tenant’s position in the premises and is bound by running covenants in the lease.
- Once a party is properly found bound to arbitrate under a lease, a court may compel arbitration under the applicable arbitration statutes and enter judgment on the award.

## Conclusion

Continental used the premises as a tenant for the very business contemplated by the lease and functioned as a co-occupant alongside Bob’s U-Drive, even though no written assignment named it. The Oregon Supreme Court therefore treated Continental as an implied assignee in privity of estate, held it bound by the lease’s arbitration clause, and affirmed the judgment entered on the arbitration award against both corporate defendants.


Abbott v. Bob's U-Drive, 352 P.2d 598 (1960)