Parties To The Lease

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Parties To The Lease

 

Some of the issues regarding the parties to the lease that arise include: the minimum age and competency requirements for natural persons; homestead. Alienation requirements; concurrent ownership (co-tenancy) issues; drafting issues for multiple parties; condominium issues; and foreign corporation issues.

Age and Competency.  All lessors that are natural persons must be over the age of nineteen years and must be competent.  Ala. Code §35-4-1 (1975).

Homestead.  If the leased property is the homestead of the lessors, both spouses must join in the lease and properly acknowledge their signature as required by Section 35-4-29 of the Code of Alabama (1975). Gilley v. Daniel, 378 So.2d 716 (Ala. 1979); Ala. Code §6-10-3 (1975).

 Joint Tenancy With Right of Survivorship.  Whether joint tenants with right of survivorship can lease their interests without the joinder of their other joint tenants depends upon when the joint tenancy with right of survivorship was created.  Joint tenancies with right of survivorship created before July 15, 1965, and after November 9, 1972, are destructible and either tenant may grant and oil, gas, and mineral lease without the joinder of the other joint tenant.  Prior to July 15, 1965, Nunn v. Keith, 268 So.2d 792 (Ala. 1972) controls and the joint tenancy is destructible. Johnson v. Keener, 425 So.2d 1108 (Ala. 1983).  After November 9, 1972, Nunn v. Keith, 268 So.2d 792 (Ala. 1972) controls and the joint tenancy with right of survivorship is destructible.

 The case of Bernhard v. Bernhard, 177 So.2d 565 (Ala. 1965) controls joint tenancies with right of survivorship created between July 15, 1965, and November 9, 1972, and holds that those tenancies are not destructible. Bringhurst v. Hardin, 387 So. 2d 186 (Ala. 1983). Therefore, for joint tenancies with right of survivorship created in the seven year gap between July 15, 1965, and November 9, 1972, both tenants must join in the same oil, gas, and mineral lease.

 A joint tenancy with right of survivorship is not a common law joint tenancy.  Alabama abolished the common law joint tenancy by statute in 1833. Nunn v. Keith, 268 So.2d 792 (Ala. 1972).  The statute abolishing the common law joint tenancy is now codified as Section 35-4-7 of the Code of Alabama (1975).  As discussed in Nunn v. Keith, Alabama grantors may create a survivorship aspect with the proper granting and habendum clause language.

 Co-tenants for Life with Cross Contingent Remainders.  Cotenants for life with cross contingent remainders are indestructible. Durant v. Hamrick, 409 So.2d 731 (Ala. 1982).  Therefore, no cotentant may unilaterally lease his or her interest, and  all cotenants for life with cross contingent remainders must join me in the same oil, gas, and mineral lease.

 Distinguishing Joint Tenancies With Right of Survivorship and Cotenancies for Life.  Cotenancies for life with cross contingent remainders are created with language such as:  “tenants in common and with equal rights and interest for the period or term that the said Grantees shall both survive and unto the survivor of the said Grantees . . .” Durant v. Hamrick, 409 So.2d 731 (Ala. 1982).  The key is the phrase “tenants in common.” Johnson v. Keener, 425 So.2d 1108 (Ala. 1983)

 Joint tenancies with right of survivorship are normally indicated when the phrases “joint lives,” Johnson v. Keener, or “joint tenants, with right of survivorship,” Nunn v. Keith, 268 So.2d 792 (Ala. 1972).  The Alabama Supreme Court classified the following estate as a joint tenancy with right of survivorship even though the habendum clause mentioned “contingent remainders” –  “or and during their joint lives and upon the death of either of them, then the survivor of them in fee simple, together with every contingent remainder and right of reversion . . .”   Johnson v. Keener, 425 So.2d 1108, 1109 (Ala. 1983).

  Naming Multiple Lessors.  If the lease covers the interests of multiple lessors, either name all the lessors in the body of the lease or do not name any of the lessors in the body of the lease.  Since 1876, the Alabama Supreme Court has held that a deed or lease from multiple parties that names some, but not all the signing parties, covers the interests of only the parties named in the body of the deed. Harrison v. Simons, 55 Ala. 510 (1876).   If, however, the body of the lease does not name the lessors, all the signors are considered as the lessors. Sun Oil Co. v. Oswell, 62 So.2d 783 (1953).

 Lessees That Are Foreign Corporations.  Corporate clients that organized outside Alabama merit special scrutiny and pre-cautionary advices.  This is due to Article XII, Section 232 of the Alabama Constitution and Alabama’s door closing statute, Section 10A-2-15.02 of the Code of Alabama (1975).  Article XII, Section 232 provides in part: “No foreign corporation shall do any business in this state without having at least one known place of business and an authorized agent or agents therein, and without filing with the secretary of state a certified copy of its articles of incorporation . . .”  Section 10A-2-15.02, the door closing statute, provides:

(a)        A foreign corporation transacting business in this state without registering as required under Section 10A-1-7.01 or without complying with Chapter 14A of Title 40 may not maintain a proceeding in this state without so registering and complying. All contracts or agreements made or entered into in this state by foreign corporations prior to registering to transact business in this state shall be held void at the action of the foreign corporation or by any person claiming through or under the foreign corporation by virtue of the contract or agreement; but nothing in this section shall abrogate the equitable rule that he or she who seeks equity must do equity.
 
 (b)        The failure of a foreign corporation to register shall not impair the validity of any contract or agreement heretofore or hereafter entered into and consisting of a mortgage upon real property or an interest in real property in this state, and the note secured thereby, where the mortgage is insured by the Federal Housing Administration or guaranteed by the Veterans Administration, if the foreign corporation shall have thereafter registered. In all actions against a foreign corporation or against any person claiming under a foreign corporation by virtue of a void contract, the foreign corporation or person claiming under it shall be estopped from setting up the fact that the contract or agreement was made in violation of the law.

 

Alabama courts and lawyers call Section 10A-2-15.02 a “door closing” statute because it literally closes the doors of Alabama courts to foreign corporations that do intrastate business in Alabama without registering.  The unregistered foreign corporation engaged in intrastate business may be sued, but may not sue and may not counter-claim if it is sued.

The Alabama Supreme Court has not determined whether the purchase of oil and gas leases from Alabama land owners constitutes intrastate business that would trigger the door closing statute.  The Alabama Court of Civil Appeals has determined that the purchase of royalty interests by a Mississippi corporation was interstate business not subject to the door closing statute. Andrews v. Central Petroleum, Inc., 63 So2d 650 (Ala.Civ.App. 2010).   In Andrews, a Mississippi corporation sent solicitation letters to the owners of royalty interests in Monroe County, Alabama.  Central Petroleum had no office or agents in Alabama.  One of the grantors, Andrews, claimed that its royalty deed to Central Petroleum was void due to door closing statute.  Citing the prior case of SGB Construction Services, Inc. v. Ray Sumlin Construction Co., 644 So.2d 892 (Ala. 1994), the Court of Civil Appeals held that the solicitation to purchase royalty deeds and the execution of those deeds by an foreign corporation not qualified to do business in Alabama did not constitute the transaction of intrastate business.  The court further held that the recording of the royalty deed did not trigger the door closing statute by making the transaction an intrastate transaction.

The Alabama Supreme Court has determined that the transportation of a drilling rig from Cass County, Texas to Escambia County, Alabama was intrastate in character and therefore triggered the door closing statute. Sanwa Business Credit Corp. v. G. B. “Boots” Smith, 548 So. 2d 1336 (Ala. 1989). G.B. “Boots” Smith Corporation, a Delaware corporation whose principal place of business was in Mississippi, sued Sanwa, also a Delaware corporation, to collect amounts due it by Sanwa. Smith was in the business of transporting and assembling drilling rigs. Smith was not qualified to do business in Alabama at the times relevant to the decision. Smith argued to the trial court and on appeal that its activities with respect to the drilling rig were interstate in character and therefore fell outside the effect of Alabama’s door closing statute. The Alabama Supreme Court affirmed that the door closing statute did not apply to interstate contracts, but, relying on Computaflor Co. v. N.L.Blaum Construction Co., 265 So.2d 850 (Ala. 1972), the court found that Smith was engaged in an intrastate activity when it transported and erected the rig. Under Computaflor, the court found that Smith’s contract with respect to the rig was actually a construction contract and that the transportation activities were merely an adjunct to the agreement to construct the rig at the site in Escambia County.    The court refused to allow Smith to recover against Sanwa under any theory sounding in contract due to Smith’s failure to qualify to do business in Alabama.

 Sanwa Business Credit Corp. v. G. B. “Boots” Smith, demonstrates the disaster that can result from not qualifying to do business in Alabama.  Why have your client take that risk?  Qualify the foreign corporation before it steps foot into Alabama.

 There is a different rule for foreign limited liability companies.   Section 10A-1-7.21 of the Code of Alabama (1975) lets a foreign limited liability company qualify to do business after the fact:

§ 10A-1-7.21. Transaction of business without registration; generally.
 
 (a)        A foreign entity transacting business in this state may not maintain any action, suit, or proceeding in any court of this state until it has registered in this state.
 
 (b)        Except as otherwise provided as to a specific entity in the chapter governing that form of entity, the failure of a foreign entity to register in this state does not impair the validity of any contract or act of the foreign entity or prevent: The foreign entity from defending any action, suit, or proceeding in any court of this state.
 
 (c)        A foreign entity, by transacting business in this state without registration, shall be deemed to consent to service of process with respect to causes of action arising out of business transacted in this state, or to service of any notice or demand required or permitted by law, by registered mail addressed to the foreign entity at the office required to be maintained in the state or other jurisdiction where it is organized, or, if not so required, at the principal office of the entity, or by serving the entity by any method permitted under Sections 10A-1-5.35 and 10A-1-5.36.
 
 (d)        The liability of an owner or owners of a foreign entity is governed by the laws of the state or other jurisdictions where it is organized, and any limitations on that liability are not waived solely by reason of having transacted business in Alabama without registration.

 

 Lease Of The Common Elements Of A Condominium.   In the case of Lee-Davis v. Dauphin Surf Club Ass'n, Inc., 581 So.2d 1110 (Ala.Civ.App. 1991), the Alabama Court of Civil Appeals held that the Dauphin Surf Club Condominium Association held the right and power to lease the common elements of the Dauphin Surf Club Condominium to Mobile Oil Corporation. Two members of Dauphin Surf Club Association, Inc., Mildred Lee-Davis and Mildred Graham, started the action in the Circuit Court of Mobile County on June 20, 1989. They originally sued the Association and members of its board of directors seeking injunctions regarding fund disbursements and various types of accountings from the Association's board of directors. The defendants counterclaimed, alleging that the plaintiffs had failed to give releases of any interests they might have in the mineral estate in, on, and under the common elements. The releases were important, because in 1989, Mobil Oil Corporation obtained a five year oil and gas lease from the Association covering the common elements of the condominium development. Although Mobil was not a party to case, the Alabama Court of Civil Appeals upheld the procedure for the granting of the lease.

The Association approved the granting of the lease on its common elements at its March, 1989 annual meeting. The proposal regarding the lease provided that the proceeds from the lease were to be used for the common good of the condominium development. The minutes of that meeting reflected that the proposal was discussed and then passed.

Under the condominium declaration for the Association, which was consistent with Sections 35–8–2(2), 35–8–5(4), 35–8–6(c) and 35–8–6(d) of the Code of Alabama (1975), the title to the common areas in issue was in the Association. The court found that “because the Association retains title to the undivided interests in the common elements and limited common elements, then the right to lease the mineral interests in those areas belongs to the Association.”

The declaration and the bylaws of the Association were silent regarding the procedural mechanics for authorizing and directing the execution and delivery of the lease. For instance, neither document specified the percentage approval necessary to authorize the granting of the lease. As a matter of first impression in Alabama, the court ruled that the Association's conduct in granting the lease must not violate a “standard of reasonableness.” The court specifically found that the procedure followed in granting the oil and gas lease did not violate any standard of reasonableness.

Copyright 2011 by Edward G, Hawkins. All rights reserved.