## Facts

- Rancho Cucamonga Business Park Equities I (Equities I), with James E. Barton as its general partner, developed and owned a commercial building and borrowed about \$7.6 million from Coast Federal Savings (Coast).
- The loan was secured by a recorded deed of trust that restricted Equities I from entering into leases of the mortgaged property without Coast’s prior written consent as to the lease terms and tenant acceptability.
- Equities I (as landlord) later entered into a written office lease with Barton Development Company (Barton Development) (as tenant). Barton signed on behalf of Equities I, and Barton Development executed through an officer; Barton was Barton Development’s president.
- The lease included combined subordination, nondisturbance, and attornment language. Among other things, it required the tenant, after a foreclosure sale or similar transfer, to attorn to and recognize the purchaser (or transferee) as the landlord, provided the purchaser “acquires and accepts the Premises subject to this Lease.”
- The lease also stated that, on written request of the landlord or the holder of a first deed of trust, the tenant would subordinate its lease rights to the lien of the first deed of trust and related advances.
- Equities I later defaulted on Coast’s loan. Coast foreclosed on the deed of trust, acquired the property at foreclosure, and then sold the property to John J. Miscione.
- Miscione claimed successor-landlord status and sued Barton Development for breach of the lease and fraud; he also sought to hold Barton individually liable under an alter-ego theory.
- Barton Development and Barton moved for summary judgment, arguing that because Coast’s deed of trust was senior to the lease, the foreclosure extinguished the lease as a matter of law and eliminated any post-foreclosure obligations.
- Miscione opposed summary judgment, contending that the lease’s attornment and related SNDA provisions, along with the surrounding circumstances, supported enforcement of the tenant’s obligations to the successor owner despite the foreclosure.
- The trial court granted summary judgment for defendants, and Miscione appealed.

## Issues

1. Does foreclosure of a senior deed of trust automatically extinguish a later lease and bar a successor owner from enforcing tenant obligations, where the lease includes attornment and related SNDA provisions?
2. Did the lease language create a triable issue as to whether Barton Development agreed to recognize and be bound to a foreclosure purchaser or successor as landlord, if the purchaser took the property “subject to” the lease?
3. Was summary judgment improper because interpretation of the SNDA/attornment provisions and related factual questions could not be resolved as a matter of law on the record presented?

## Decision

- The Court of Appeal reversed the summary judgment and remanded for further proceedings.
- The court accepted the general rule that foreclosure of a senior deed of trust terminates junior interests, including later-created leases, but held that this default rule did not dispose of the case on summary judgment given the lease’s SNDA/attornment language.
- The attornment provision—requiring the tenant to recognize the purchaser or transferee as landlord if that party acquired and accepted the premises “subject to” the lease—supported a reasonable interpretation that the tenant could remain contractually bound after foreclosure.
- Whether the contractual condition was satisfied (including whether the purchaser in the foreclosure chain took the property “subject to” the lease) and whether the parties’ conduct and surrounding facts supported enforcement were matters that could not be finally determined in defendants’ favor on summary judgment.
- Because defendants’ showing relied primarily on the broad extinguishment proposition and did not eliminate material disputes tied to the lease language and factual context, summary judgment was not warranted.

## Legal Principles

- Foreclosure of a senior deed of trust generally terminates interests junior to the deed of trust, including later-created leases.
- Parties may, by contract, allocate post-foreclosure rights and obligations through subordination, nondisturbance, and attornment terms; the effect depends on the lease language and any conditions stated.
- An attornment clause can function as a tenant’s agreement to recognize a foreclosure purchaser (and successors) as landlord, which may support enforcement of lease duties after foreclosure when the clause’s conditions are met.
- Contract interpretation seeks to effect the parties’ mutual intent based on the writing and, where appropriate, admissible context bearing on the meaning and application of the terms.
- Summary judgment is improper when the moving party does not conclusively negate a viable contractual theory or when interpretation and application of contractual conditions present material fact disputes.

## Conclusion

The Court of Appeal held that although a foreclosure typically wipes out a junior lease, the lease’s SNDA/attornment provisions could support a continuing, enforceable tenant obligation to a successor owner if the foreclosure purchaser (or successor in interest) acquired and accepted the property subject to the lease; because that contractual question and related facts were disputed, defendants were not entitled to summary judgment, and the judgment was reversed and the matter remanded.


Miscione v. Barton Development Company, 52 Cal. App. 4th 1320, 61 Cal.Rptr.2d 280 (1997)