APPEAL from a judgment of the Superior Court of Los Angeles County. Susan Bryant-Deason, Judge. (Los Angeles County Super. Ct. No. BC437727)
The opinion of the court was delivered by: Armstrong, J.
CERTIFIED FOR PUBLICATION
Reversed and remanded with instructions.
Defendants East Olympic, L.P., a California limited partnership ("East Olympic"), and its general partner, Jack Wilder, appeal the judgment quieting title to an easement on certain commercial real property in favor of plaintiffs Hamilton Court, LLC ("Hamilton Court") and 3650 Olympic, L.P. ("3650 Olympic"). Defendants contend that the trial court erred in applying the doctrine of merger of title to the facts of this case. We agree, and so reverse the judgment.
FACTUAL AND PROCEDURAL BACKGROUD
Prior to 1983, East Olympic owned an entire city block on East Olympic Boulevard in Los Angeles. The block, consisting of multiple subdivided lots, contained several buildings and parking lots; one of the buildings, referred to at trial as the "Three Story Building," sat on two of these lots, straddling a lot line.
In January 1983, East Olympic sold the majority of the city block, including the Three Story Building, to Angelus Building Partnership; the parties refer to this as the "Angelus Property." East Olympic retained the southwest portion of the block, on which stood a one-story building, a two-story building, and an adjacent yard and shed. The parties refer to this as the "Wilder Property."
The division of the city block into two separately owned properties presented a predicament. The Three Story Building belonging to Angelus Building Partnership, and the yard and shed belonging to East Olympic, occupied portions of Lots 35 and 36. The owners intended to each own fee title in a portion of Lots 35 and 36, but a legal lot split was never completed to effectuate this intent. As a consequence, the East Olympic yard and shed encroached on the Angelus Property's Lot 35, while the Three Story Building encroached on the Wilder Property's Lot 36. In order to address this situation, in 1994, East Olympic and Angelus Building Partnership entered into an Easement Agreement in "lieu of entering into lot splits with respect to Lot 35 and Lot 36 at this time, . . . to provide for mutual easements with respect to such encroachments . . . ." The area of Lots 35 and 36 where East Olympic's yard and shed encroached on the Angelus Property was termed the "East Olympic Easement." The portion of the two lots where the Angelus Property's Three Story Building encroached on the Wilder Property was described as the "AGPV Easement."
The Easement Agreement provides, with respect to the land within the boundaries of the East Olympic Easement, that East Olympic has the exclusive use of the easement area and may use the easement area for any lawful purpose; that East Olympic has the exclusive right to "alter, improve, develop, demolish and construct improvements" on the easement area;" that East Olympic is responsible for paying all taxes on the easement area; that East Olympic has the right to obtain fee title to the easement area at any time "without any additional consideration, as provided for under the  Purchase Agreement;" and that Angelus must pay half of the cost of converting the easement to fee title. The Easement Agreement contains similar provisions regarding the AGPV Easement.
On March 29, 2005, the Angelus Property was conveyed by grant deed to plaintiffs Hamilton Court and 3650 Olympic as tenants in common.
At that time, East Olympic was in escrow to sell the Wilder Property with seller financing. That sale, vesting title to the Wilder Property in Hamilton Court and Venice National Group, LLC ("Venice National") as tenants in common, was consummated on May 16, 2005, for a purchase price of $3.8 million, consisting of $800,000 in cash and a $3 million, non-recourse promissory note (the "Note") payable to East Olympic. The purchasers executed a first deed of trust (the "Deed of Trust") in favor of East Olympic, which created a security interest in the Wilder Property and the East Olympic Easement. Just prior to the close of escrow, at the purchasers' request, East Olympic approved adding language to the Note and Deed of Trust permitting Venice National to transfer its interest in the property to 3650 Olympic "if such transfer is made subject to the Trustor's promissory note and this Deed of Trust and does not affect the priority of this Deed of Trust in any manner whatsoever." This proviso appears in both the Note and the Deed of Trust.
Venice National quitclaimed its interest in the Wilder Property to 3650 Olympic in July 2005. Upon that transfer, Hamilton Court and 3650 Olympic, as tenants in common, held record title to both the Angelus Property and the Wilder Property.
In late 2008, plaintiffs ceased making payments as they became due under the Note. East Olympic foreclosed under the Deed of Trust, and reacquired the Wilder Property at a foreclosure sale in June 2009.
By this lawsuit, plaintiffs seek to establish that East Olympic did not reacquire the East Olympic Easement at the foreclosure sale. That is to say, they sued for quiet title, contending that, pursuant to the doctrine of merger, the East Olympic Easement was extinguished in July 2005 when the record title to the Angelus ...