IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 12-20367

EXCEL WILLOWBROOK, L.L.C.; SOUTHSIDE/3500, LTD.; ORTB WAYSIDE,

LTD.; MR/VM PARTNERS, LTD.; FL WESTHEIMER WILCHREST, LTD.;

LSDSS REALTY GROUP, L.L.C.; EXCEL LITTLE YORK, LTD.; 3300 SAGE,

LTD., 

 Plaintiffs - Appellees

v.

JP MORGAN CHASE BANK, NATIONAL ASSOCIATION., 

 Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for

Washington Mutual Bank, 

 Intervenor - Appellant

Appeal from the United States District Court

for the Southern District of Texas

Consolidated with No. 12-20375

MR/VM PARTNERS, LTD., 

 Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A., 

United States Court of Appeals

Fifth Circuit

F I L E D

January 10, 2014

Lyle W. Cayce

Clerk

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No. 12-20367

 Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for

Washington Mutual Bank, 

 Intervenor - Appellant

Appeal from the United States District Court

for the Southern District of Texas

Consolidated with No. 12-20376

SOUTHSIDE/3500, LTD., 

 Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A., 

 Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for

Washington Mutual Bank, 

 Intervenor - Appellant

Appeal from the United States District Court

for the Southern District of Texas

Consolidated with No. 12-20377

ORTB WAYSIDE, LTD., 

2

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No. 12-20367

 Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A., 

 Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for

Washington Mutual Bank, 

 Intervenor - Appellant

Appeal from the United States District Court

for the Southern District of Texas

Consolidated with No. 12-20378

EXCEL LITTLE YORK, LTD., 

 Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A., 

 Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for

Washington Mutual Bank, 

 Intervenor - Appellant

Appeal from the United States District Court

for the Southern District of Texas

3

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No. 12-20367

Consolidated with No. 12-20381

3300 SAGE, LTD., 

 Plaintiff - Appellee

v.

JPMORGAN CHASE BANK, N.A., 

 Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for

Washington Mutual Bank, 

 Intervenor - Appellant

Appeal from the United States District Court

for the Southern District of Texas

Consolidated with No. 12-20382

FL WESTHEIMER WILCHREST, LTD.; LSDSS REALTY GROUP, L.L.C., 

 Plaintiffs - Appellees

v.

JPMORGAN CHASE BANK, N.A., 

 Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for

Washington Mutual Bank, 

 Intervenor - Appellant

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No. 12-20367

Appeal from the United States District Court

for the Southern District of Texas

Consolidated with No. 12-10784

WEICHSEL FARM LIMITED PARTNERSHIP, 

 Plaintiff - Appellee

v.

JP MORGAN CHASE BANK, N.A.,Successor-in-Interest to Washington Mutual

Bank, 

 Defendant - Appellant

FEDERAL DEPOSIT INSURANCE CORPORATION, as Receiver for

Washington Mutual Bank, 

 Intervenor - Appellant

Appeal from the United States District Court

for the Northern District of Texas

Before HIGGINBOTHAM, CLEMENT, and PRADO, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Washington Mutual Bank failed in 2008. Acting as receiver, the FDIC

conveyed substantially all of WaMu’s assets and liabilities to JPMorgan Chase,

including certain long-term real-estate leases. At issue in this case is whether

the owners of the leased tracts can enforce the leases against Chase by virtue of

the FDIC’s conveyance. The district court awarded summary judgment to the

landlords. We affirm.

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I. 

The facts of this case are straightforward and undisputed. In early 2008,

Washington Mutual Bank (“WaMu”) entered into lease agreements (“the

Leases”) with several landlords (“the Landlords”) for certain undeveloped tracts

of land, which WaMu planned to use for future branch offices. However, WaMu

failed on September 25, 2008, before it could complete any banking facilities on

the tracts. Pursuant to its authority under the Financial Institutions Reform,

Recovery, and Enforcement Act of 1989 (“FIRREA”), the FDIC stepped into

WaMu’s shoes and assumed all of its assets and liabilities, including the Leases. 

The FDIC then solicited bids from private financial institutions for the purchase

and assumption of those assets and liabilities, ultimately accepting a $1.8 billion

bid by JP Morgan Chase Bank, N.A. (“Chase”). 

After accepting Chase’s bid, the FDIC and Chase executed the Purchase

and Assumption Agreement(the “P&A Agreement” or “Agreement”). As relevant

here, the Agreement split WaMu’s real-estate assets into “Bank Premises” and

“Other Real Estate,” giving Chase a 90-day option to either accept or reject

assets that qualified as Bank Premises but assigning all Other Real Estate to

Chase outright. The Agreement defined Bank Premises to include all banking

facilities that WaMu owned or leased and actually occupied as of September 25,

2008, the date on which WaMu closed its doors.1 The Agreement defined Other

Real Estate to include “all interests in real estate” that did not qualify as

Banking Premises, including all “leasehold rights.”2It is undisputed that WaMu

1 The Agreement defined Bank Premises as “the banking houses, drive-in banking

facilities, and teller facilities (staffed or automated) together with appurtenant parking,

storage and service facilities and structures connecting remote facilities to banking houses,

and land on which the foregoing are located, that are owned or leased by [WaMu] and that are

occupied by [WaMu] as of Bank Closing.” 

2 The Agreement defined Other Real Estate as “all interests in real estate (other than

Bank Premises and Fixtures), including but not limited to mineral rights, leasehold rights,

condominium and cooperative interests, air rights and development rights that are owned by

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had not yet completed or occupied banking facilities on any of the tracts subject

to the Leases as of September 25, 2008. Hence, under the plain language of the

Agreement, the Leases qualified as Other Real Estate assigned outright to

Chase. Notably, Chase not only accepted the Leases but “expressly assume[d]”

and “agree[d] to pay, perform and discharge” all of WaMu’s liabilities —

liabilities that included WaMu’s obligations under the Leases.

Even though the Agreement thus appeared to give Chase no option to

reject the Leases or WaMu’s obligations thereunder, the FDIC has maintained

at all times that “both the FDIC and Chase . . . understood that all of the Leases

are Bank Premises leases and that Chase therefore had a 90-day option to accept

assignment of each Lease.” Consistent with this “understanding,” Chase

rejected the Leases within 90 days. The FDIC accepted Chase’s purported

exercise of its option and therefore continued to retain the Leases in its capacity

as WaMu’s receiver. Thereafter, the FDIC determined that compliance with the

Leases would be burdensome to the WaMu receivership and, pursuant to its

statutory authority under FIRREA, elected to repudiate the Leases.

TheLandlords brought eight separate cases against Chase, alleging breach

of the Leases. Seven of the cases were either filed in or removed to the Southern

District of Texas, where they were eventually consolidated. The eighth case was

filed in the Northern District of Texas. The FDIC intervened on behalf of Chase

in all eight cases and moved for summary judgment. It contended that the

Landlords lacked “standing” to interpret or enforce the P&A Agreement, as they

were neither parties nor intended beneficiaries to the Agreement. Hence, the

FDIC reasoned, they lacked a legal basis to assert the Leases against Chase. 

The Landlords cross-moved for summary judgment, rejoining that they

were quintessential creditor beneficiaries to the P&A Agreement and thus had

[WaMu].” 

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a contractual right to enforce Chase’s promise to assume WaMu’s obligations

under the Leases. In the alternative, the Landlords urged that the P&A

Agreement unambiguously assigned the Leases to Chase, that the Agreement

thus brought Chase into “privity of estate” with the Landlords, and that under

elementary principles of Texas landlord-tenant law, the Landlords therefore had

a right to hold Chase liable for breach of the Leases even if the Landlords lacked

contractual authority to enforce the P&A Agreement. 

The district courts granted partial summary judgment to the Landlords

in all eight cases, reserving only the question of damages. The parties then

stipulated to damages, and the district courts entered finaljudgments. Although

the Southern District agreed with the FDIC that the Landlords were not thirdparty beneficiaries to the P&A Agreement, both district courts concluded that

the Agreement unambiguously assigned the Leases to Chase without giving

Chase any option to repudiate, thereby bringing Chase into privity of estate with

the Landlords and giving the Landlords a right to hold Chase liable for breach

of the Leases. The FDIC appeals on behalf of Chase in its capacity as

intervenor. All eight cases are consolidated on appeal. 

II.

The threshold issue on appeal is whether the Landlords qualify as

intended beneficiaries to the P&A Agreement, in which case they have a

contractual right to enforce Chase’s promise to assume WaMu’s obligations

under the Leases. As the FDIC observes, the Eleventh Circuit and the Ninth

Circuit have both recently addressed this question, declining to afford similarly

situated landlords third-party beneficiary status under the same P&A

Agreement at issue in this case.

3 Our sister circuits reasoned that there is a

3 See Interface Kanner, LLC v. JPMorgan Chase Bank, 704 F.3d 927 (11th Cir. 2013);

GECCMC v. JPMorgan Chase Bank, 671 F.3d 1027 (9th Cir. 2012).

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presumption against third-party beneficiary status under government contracts

— a presumption that, while it does not require the party seeking enforcement

to be “specifically or individually identified in the contract” to be overcome, does

require proof that it “fall[s] within a class clearly intended to benefit” from the

assignment.4 As the FDIC’s assignment to Chase included a no-beneficiaries

clause, the courts reasoned, the landlords could not possibly overcome this

presumption.5 We are not so sure. 

The interpretation and effect of the P&A Agreement is governed by the

federal common law of contracts,6 which draws on the “the core principles of the

common law of contracts that are in force in most states.”7 One of those

principles is that a promisor who agrees to satisfy an obligation that the

promisee owes to a third party thereby confers enforcement rights to the third

party, who qualifies as a creditor beneficiary to the contract.8In the landlord4 GECCMC, 671 F.3d at 1033; Interface Kanner, 704 F.3d at 933.

5 GECCMC, 671 F.3d at 1034; Interface Kanner, 704 F.3d at 933.

6

It is well-established that government contracts are governed by federal common law.

E.g., Clem Perrin Marine Towing, Inc. v. Panama Canal Co., 730 F.2d 186, 189 (5th Cir. 1984).

In any event, the P&A Agreement contains a choice-of-law provision selecting federal law. We

give effect to choice-of-law provisions unless a party can show that the clause is “unreasonable

under the circumstances.” Ginter ex. rel. Ballard v. Bletcher, Prendergast & Laporte, 536 F.2d

439, 449 (5th Cir. 2008).

7 Smith v. United States, 328 F.3d 760, 767 (5th Cir. 2003) (quoting United States v.

Nat’l Steel Corp., 75 F.3d 1146, 1150 (7th Cir.1996)).

8 See, e.g., Restatement (First) of Contracts § 136 (1932) (“[A] promise to discharge the

promisee’s duty creates a duty of the promisor to the creditor beneficiary to perform the

promise.”); id. § 133(1)(b) (“[A] person is . . . a creditor beneficiary if . . . performance of the

promise will satisfy an actual or supposed or asserted duty of the promisee to the

beneficiary.”). Similarly, under the Restatement (Second) of Contracts “a beneficiary of a

promise is an intended beneficiary if recognition of a right to performance in the beneficiary

is appropriate to effectuate the intention of the parties and . . .the performance of the promise

will satisfy an obligation of the promisee to pay money to the beneficiary[.]” Restatement

(Second) of Contracts § 302(1)(a); see also id. at § 302 cmt. b (“The type of beneficiary covered

by Subsection (1)(a) is often referred to as a ‘creditor beneficiary.’ In such cases the promisee

is surety for the promisor, the promise is an asset of the promisee, and a direct action by

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tenant context, it is thus well established that a landlord is a creditor beneficiary

to an assignment of a lease by the original tenant to a subsequent tenant — at

least if the subsequent tenant expressly agrees to perform the original tenant’s

obligations under the lease.9 Here, Chase not only accepted the FDIC’s

assignment of WaMu’s interest in the Leases but “expressly assume[d]” and

“agree[d] to pay, perform, and discharge” all of WaMu’s liabilities — liabilities

that include WaMu’s obligations under the Leases. Hence, the Landlords appear

to be quintessential creditor beneficiaries to the P&A Agreement.

True, the P&A Agreement contains a clause disclaiming any intention to

create third-party beneficiaries. However, as the Landlords observe, the nobeneficiaries clause is qualified by the modifying phrase “except as otherwise

specifically provided in this Agreement.” And under settled rules of contract

construction, Chase’s unqualified promise to “expressly assume[] . . . and agree[]

to pay, perform, and discharge” all of WaMu’s obligations, under the Leases and

otherwise, is arguably tantamount to “specifically” designating the Landlords as

creditor beneficiaries. Though Chase and the FDIC now urge that they always

understood the Agreement to give Chase an option to reject the Leases, they

beneficiary against promisor is normally appropriate to carry out the intention of promisor and

promisee, even though no intention is manifested to give the beneficiary the benefit of the

promised performance.”).

9 See, e.g., 49 Am. Jur. 2d Landlord and Tenant § 962 (2013) (“An express agreement

by the assignee of a lease with the assignor to assume the obligations of the lease is

enforceable by the landlord as a third-party beneficiary, regardless of whether the landlord

is a party to the assumption agreement. . . . However, clearly, not every reference to or

mention of the covenants of a lease in an agreement between the lessor and an assignee

amounts to an assumption of the covenants by the assignee.”); Restatement (Second) of

Property, Land. & Ten. § 16.1, rptr. n. 4 (1977) (“The transferee of an interest in the leased

property, by virtue of the assignment, incurs liability on the burdens of the lease only to the

extent such liability is based on privity of estate. . . . If, however, the transferee promises to

perform the contractual obligations of the lease, his liability on the promises of the lease is

then predicated on a privity of contract in addition to its basis in privity of estate.”); 2-17

Powell on Real Property § 17.04 (same); Schoshinski, American Law of Landlord and Tenant

§ 8.12 (1980) (same).

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have made no effort to reform the Agreement to reflect their late-arriving and

atextual “understanding.”10

The Ninth Circuit expressed concern that granting the landlords thirdparty beneficiary status to enforce the P&A Agreement would “open[] the door

to suits from any number of third parties who might claim a benefit from the

Agreement’s terms.”11 But this fear is exaggerated. The FDIC made an

affirmative decision to assign the Leases to Chase. Chase not only accepted the

assignment but expressly covenanted to “pay, perform, and discharge” all of

WaMu’s liabilities — including WaMu’s obligations under the Leases. Had the

FDIC not assigned the Leases to Chase, or assigned its interest in the Leases

without having Chase expressly assumeWaMu’s liabilities, the Landlords would

not qualify as creditor beneficiaries.12In our view, affording the Landlords

enforcement rights on the narrow facts of this case would not open the

floodgates, as the class of persons entitled to third-party beneficiary status

would remain exceedingly narrow and subject to the FDIC’s control.

Were we writing on a blank slate, we would conclude that the Landlords

are creditor beneficiaries to the P&A Agreement and therefore have a

contractual right to enforce Chase’s promise to assume the Leases. However, we

cannot ignore that two of our sister circuits have reached a contrary conclusion

on virtually identical facts. In the interest of maintaining uniformity in the

10 See Restatement (First) of Contracts § 136 (1932) (“Though the right of the creditor

beneficiary arises immediately on the formation of the contract, his right, unlike that of a

donee beneficiary, is not immediately indefeasible. . . . [U]ntil the creditor brings suit, or

otherwise materially changes his position in reliance on the promise, he may lose his right or

have it qualified by a new agreement between the promisor and the promisee.”); see also

Restatement (Second) of Contracts § 311 cmt. f (“in the absence of such an agreement [between

promisor and promisee not to vary a duty to a beneficiary without his consent] the parties

retain control over the contractual relation they created”).

11 GECCMC, 671 F.3d at 1035.

12 See supra note 9 and accompanying text.

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construction and enforcement of federal contracts — an area where uniformity

is critical — we reluctantly hold that on the narrow facts of this case, the

Landlords do not qualify as third-party beneficiaries. 

III.

The next question is whether the district courts erred in concluding that

the Landlords have a right to enforce the Leases against Chase by virtue of their

“privity of estate” with Chase. The Landlords contend that the P&A Agreement

accomplished a complete, present conveyance of the Leases that, under

longstanding principles of real-property law, creates privity of estate with Chase

and gives the Landlords the legal right to enforce the Leases against Chase —

even in the absence of contractual privity. The FDIC rejoins that the Landlords’

power to assert the Leases against Chase, if any, must derive from a contractual

right to enforce the P&A Agreement, and that privity of estate does not furnish

an independent, non-contractual, state-law basis for holding Chase liable. 

Because the Landlords are neither parties nor third-party beneficiaries to the

Agreement, the FDIC reasons, they lack “standing” to interpret the P&A

Agreement and conclude that it accomplishes a complete assignment. The

FDIC’s circular reasoning ignores eight centuries of legal history. 

To be sure, in medieval England, a landlord had no right to enforce the

covenants in a lease against an assignee of the original tenant: courts reasoned

that while the original tenant remained contractually liable for his obligations

under the lease (e.g., rent), there was no enforceable contract running between

the landlord and the assignee.13 However, as noted in the original Restatement

of Property, “the inconveniences resulting from such a rule [were] manifest,”

preventing both the landlord and the ultimate tenant from relying on covenants

13 See 2-17 Powell on Real Property § 17.04[2][b] (2013).

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in the original lease.14 Hence, English courts developed the concept of “real

covenants,”15a concept that has carried over into American law and the laws of

Texas. Real covenants are covenants that “run with the land” and can be

enforced by the landlord against an assignee tenant by virtue of their “privity of

estate” — notwithstanding the absence of contractual privity.

16 However, the

content of the conveyance by the original tenant to the subsequent tenant

remains critical, as the subsequent tenant only comes into “privity of estate”

with the landlord if the landlord can prove that the original tenant assigned

away his entire interest in the lease (as opposed to a lesser-included portion, i.e.,

a “sublease”).17 The FDIC’s position, under which the landlord lacks “standing”

to prove the content and effect of the conveyance between the tenants because

he is not a party to the conveyance, would defeat the concept of real covenants,

returning our law to that of twelfth-century England. 

14 Restatement (First) of Property, Part III, Introductory Note (1944).

15

2-17 Powell on Real Property § 17.04[3] (2013).

16

Id.; see also, e.g., Friedman on Leases § 7:5.1[C][1][a] (5th ed. 2008) (“By receiving the

assignment . . . the assignee acquires an interest in the premises that brings him into privity

of estate with the owner and makes him liable to the owner for the payment of rent and on

those covenants that run with the land.”); Twelve Oaks Tower I, Ltd. v. Premier Allergy, Inc.,

938 S.W.2d 102, 114 (Tex. App. —Houston [14th Dist.] 1996, no writ) (“Liability to the original

lessor for the payment of rent or the performance of other lease covenants may arise from

either privity of contract or privity of estate. . . . The assignee becomes the tenant in place of

the original lessee and is in privity of estate with the lessor. Accordingly, an assignee is liable

for the rent and for the performance of the covenants that run with the land.”); Fabrique, Inc.

v. Corman, 796 S.W.2d 790, 793 (Tex. App.—San Antonio 1990, no writ) (same); Moore v.

Kirgan, 250 S.W.2d 759, 764 (Tex. Civ. App.—El Paso 1952, no writ) (same); Cauble v. Hansen,

224 S.W. 922, 923 (Tex. Civ. App.—El Paso 1920, no writ) (same).

17

2-17 Powell on Real Property § 17.04[2][a], [b] (2013); see also, e.g., Twelve Oaks, 938

S.W.2d at 113 (“When a lessee departs with his entire interest in all or part of the property

in question, without retaining any reversionary interest, an assignment is created. On the

other hand, if the lessee retains any reversionary interest, no matter how small it may be, a

sublease is created.”); Moore, 250 S.W.2d at 764 (same); Davis v. Vidal, 151 S.W. 290, 293

(Tex. 1912) (same).

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Accepting that the Landlords have “standing” to prove the content of the

P&A Agreement, the next question is whether the Agreement, properly

construed, is a complete “assignment” sufficient to create privity of estate under

Texas law. The answer to this question is clearly yes. It is undisputed that the

Agreement assigned all of WaMu’s “Other Real Estate” to Chase outright, and

that the FDIC did not retain any interest in such real estate. It is also

undisputed that the Leases unambiguously fall within the definition of Other

Real Estate set forth in the Agreement. While the FDIC claims that it and

Chase intended for the Leases to qualify as “Bank Premises,” and that Chase

therefore had an option to reject them, it offers this Court no reason to depart

from the parol evidence rule, which rests on recognition that the best evidence

of the parties’ intent at the time of execution is the language of the contract

itself. Whether the parol evidence rule applies is a question of federal common

law, which is informed “by the core principles of the common law of contracts

that are in force in most states.”18 Accordingly, we see no reason to depart from

the general principle of the common law of contracts that a non-party in privity

to an agreement may assert the parol evidence rule.19 Because the plain

language of the Agreement indicates that the FDIC assigned away its entire

18 Smith, 328 F.3d at 767.

19 See, 11 Williston on Contracts § 33:11 (4th ed. 2013) (“[I]t is generally agreed that the

parol evidence rule will apply when the third party attempts to assert rights or claims based

on the instrument.”); Arthur Corbin, The Parol Evidence Rule, 53 Yale L.J. 603, 661-62 (1944)

(“The question has been raised whether ‘the parol evidence rule' is applicable in favor of or

against a third party who has not been a party to the written integration. The answer is

definitely in the affirmative if the rule is correctly stated and understood.”).

Not surprisingly, Texas law parallels this majority rule. See Zapata Cnty. Appraisal

Dist. v. Coastal Oil & Gas Corp., 90 S.W.3d 847, 852 (Tex. App.—San Antonio 2002, no pet.)

(“The parol evidence rule . . . extends only to parties to the written instrument, those in privity

with such a party or one who claims a right or benefit under the contract; the rule is

inapplicable to situations where one ofthe litigants is a stranger to the agreement.” (emphasis

added) (internal quotation marks omitted) (citations omitted)). Because Texas law parallels

the federal common law, we believe whatever error the district court made in applying Texas

law is harmless.

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interest in the Leases and that Chase had no option to reject them, the

Landlords have established privity of estate with Chase.20

Admittedly, some non-Texas cases suggest that privity of estate cannot

come into existence unless the assignee tenant actually takes possession of the

underlying property, and that privity terminates as soon as the assignee tenant

gives up possession.21 Here, it is not clear from the record whether Chase ever

took possession of the leased properties.22 However, aside from the fact that the

FDIC (or rather, Chase) has forfeited any argument about possession by failing

to raise it below or in its briefs on appeal, the better view is that “[t]he

acceptance of a bona fide assignment creates a privity of estate between the

lessor and the assignee, and it is not material that the acceptance be followed by

the assignee entering into possession of the premises.”23 And while privity of

20 To be more precise, the Landlords have established “vertical privity,” i.e., privity

between WaMu/FDIC (the assignor tenant) and Chase (the assignee tenant). Traditionally,

courts also required “horizontal privity” in order enforce real covenants against a successor

in interest. Horizontal privity refers to the relationship between the original covenanting

parties (here, the Landlords and WaMu), and requires the covenant to be created in

conjunction with a conveyance of an estate in land (e.g., a leasehold). Horizontal privity

clearly exists in this case, as the covenants that the Landlords seek to enforce are included in

the original leases between the Landlords and WaMu. Horizontal privity only becomes a

problem when the original covenanting parties reach their agreement independent of any land

conveyance (e.g., two neighbors covenant to drain their respective tracts to avoid creating

nesting areas for mosquitos). Although Texas appears to retain the horizontal privity

requirement, see Clear Lake Apts, Inc. v. Clear Lake Utilities Co., 537 S.W.2d 48, 51 (Tex. Civ.

App.—Houston [14th Dist.] 1976, writ granted), commentators agree that it should be

abolished, and modern courts rarely mention it. 2-17 Powell on Real Property § 17.04[3][c][iii]

(2013).

21 See, e.g., Gateway I Group, Inc. v. Park Ave. Physicians, PC, 62 A.D.3d 141, 148 (N.Y.

Ct. App. 2009); FDIC v. Mars, 821 P.2d 826, 829 (Colo. Ct. App. 1991).

22 The FDIC’s brief suggests that possession initially remained with the FDIC, and that

after the FDIC repudiated the leases, possession returned to the Landlords.

23

49 Am. Jur. 2d Landlord and Tenant § 968 (collecting cases); see also, e.g., Friedman

on Leases § 7:5.1[C][1][a] (5th ed. 2008) (“Acceptance of the assignment creates the privity of

estate and its consequent liability. . . . It is not necessary for the assignee to take possession.

It is sufficient that he have the right to possession . . . . An assignee may relieve himself of this

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estate terminates upon expiration of the lease term or reassignment by the

assignee tenant to another,24the Leases in this case do not expire for many years

and there is no evidence that Chase has assigned them to any third parties. 

However, the Landlords are not necessarily entitled to enforce all of the

terms of the Leases against Chase merely because they have established privity

of estate; rather, such privity only gives them the right to enforce “covenants

that run with the land,” i.e., “real covenants.”25 A covenant “runs with the land”

if it “touches and concerns” the land.26 While the scope of the “touches and

concerns” test has always been somewhat elusive, courts generally agree that

the appropriate inquiry is whether the covenant is of a type personal to the

original parties to the lease (e.g., the original tenant is a skilled carpenter who

promises to build a custom shed), or of a type that tenants and landlords would

typically expect to apply to all successors in interest (e.g., rent).27 Here, the

liability at any time by in turn assigning to another . . . . But an actual assignment is

apparently necessary, rather than abandonment alone.”); Restatement (Second) of Property,

Land. & Ten. § 16.1, rtpr. n. 6 (1977) (same); Williams v. Safe Deposit & Trust Co., 175 A. 331,

333 (Md. 1934) (“Neither does the liability of the assignee on the covenant depend, according

to the weight of authority, upon his actual entry or taking possession. It is sufficient if the

right of possession exist.”).

24

2-17 Powell on Real Property § 17.04[2][b] (2013).

25

Id. at § 17.04[3]; Restatement (Second) of Property, Land. & Ten. § 16.1 (1977); see

also, e.g., Twelve Oaks, 938 S.W.2d at 114.

26

2-12 Powell on Real Property § 17.04[3] (2013); Restatement (Second) of Property,

Land. & Ten. § 16.1 (1977); see also, e.g., Baywood Estates Property Owners Ass’n, Inc. v.

Caolo, 392 S.W.3d 776, 782 (Tex. App.—Tyler 2012, no pet.). While Texas cases have held that

the party to be burdened must also have actual or constructive notice of the covenant for it to

“run with the land,” see Baywood Estates, 392 S.W.3d at 782, these cases confuse real

covenants with equitable servitudes. Real covenants require privity of estate and run with the

land regardless of notice. 2-12 Powell on Real Property § 60.04[4] (2013). Equitable servitudes

run against a successor in interest even where there is no privity of estate, if the successor has

actual or constructive notice. Id. In essence, then, “the privity requirement for real covenants

is replaced by the notice requirement for equitable restrictions.” Id.

27

2-12 Powell on Real Property § 17.04[3] (2013) (“[T]he basic idea [is] that lease

covenants will not run to successors of the tenant unless the contracting parties intend them

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landlords seek to recover damages arising only out of Chase’s breach of the

covenants to pay rent and taxes, both of which are standard in commercial leases

and therefore, “run with the land.”28 Moreover, the district courts have entered

judgments based on the parties’ stipulations of facts, in which the parties agreed

as to the proper measure of damages arising out of the breach of the leases. 

Accordingly, we affirm the judgments of the district courts.

We are well aware of the Eleventh Circuit’s recent decision in Interface

Kanner, LLC v. JPMorgan Chase Bank,

29 which held that a landlord lacked

“standing” to assert a privity-of-estate-based theory of lease liability on facts

virtually identical to this case.30 But our interest in uniformity, though

powerful, does not require us to adopt legal conclusions we believe to be in error. 

The Kanner court devoted the vast majority of its opinion to explaining why the

landlord was not an intended beneficiary to the P&A Agreement and thus lacked

“standing” to interpret or enforce it.31 While not fully persuaded, we can abide

by this conclusion, the critical point for present purposes is that the Kanner

to. . . . [M]odern cases seek to determine whether the original parties intended the covenant

to be personal to the promisor and promisee, or whether the covenant was instead intended

to regulate the relations of any parties who might be acting as landlord and tenant of the

affected premises. Except when the covenant is found to have a personal character, both

benefit and burden will run to the successors of the original landlord and tenant.”).

28 See, e.g., 2-17 Powell on Real Property § 17.04[3][b] (2013) (“Courts have held that the

burden of covenants runs to assignees of the tenant where the covenants address the payment

of rent [and] the payment of assessments or taxes.”); Restatement (Second) of Property, Land.

& Ten. § 16.1, rptr. n. 3 (1977) (“Promises in a lease involving the promise to pay money are

also subject to meeting the ‘touch and concern’ requirement as applied by the courts. . . .

Liability of a transferee on a promise to pay rent and taxes is well settled. . . . In the area of

promises to pay for insurance, what little authority exists as to a “bare” promise to insure

holds that such a promise is personal and does not run with the land.”).

29

704 F.3d 927 (11th Cir. 2013).

30 See id. at 933.

31 See id. at 931–33.

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court also concluded, in a two-sentence paragraph at the end of its opinion, that

the landlord could not enforce his lease against Chase by virtue of his privity of

estate with Chase.32 The court reasoned that the landlord’s privity-based theory

of liability “is dependent on [the landlord’s] ability to enforce its interpretation

of the P&A Agreement, which, as discussed above, [the landlord] lacks standing

to do.”33 This tautology traces the FDIC’s reasoning here and fails to

accommodate the concept of privity of estate and real covenants. English courts

developed privity of estate to allow a landlord to enforce real covenants against

an assignee tenant even in the absence of contractual privity. And a landlord

always needs to prove the content of the conveyance between the original tenant

and the subsequent tenant in order to establish privity of estate with the latter,

as privity comes into existence only where the original tenant assigns away her

entire interest in the lease. If we were to hold that a landlord lacks “standing,”

ab initio, to prove the content and effect of an assignment between tenants, we

would make enforcement of real covenants impracticable.

In our view, the Kanner decision was — like the Ninth Circuit’s decision

in GECCMC — driven by a fear that holding Chase to the terms of leases it

assumed under the P&A Agreement would somehow interfere with the FDIC’s

ability to administer failed banks.34 With all respect, we do not share this

concern. We do not doubt that the FDIC requires sweeping authority to manage

a failed bank’s affairs — authority that includes the power to repudiate leases

if the FDIC determines that they would be burdensome and that repudiation

32 See id. at 933.

33

Id.

34 See GECCMC, 671 F.3d at 1035–36; cf. Interface Kanner, 704 F.3d at 933.

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would promote the orderly administration of the conservatorship.35 Here,

however, the FDIC chose not to exercise that authority, instead assigning the

Leases outright to Chase in the P&A Agreement. And, as aforementioned,

Chase not only agreed to the assignment, but expressly assumed all of WaMu’s

liabilities. The FDIC can avoid its present plight in future cases by drafting

contractual provisions for the right it seeks to claim.36

IV.

We AFFIRM the judgments of the district courts. 

35 See 12 U.S.C. § 1821(e)(1). When the FDIC repudiates a lease, FIRREA limits the

landlord’s damages to unpaid rent that accrues before repudiation. See id. § 1821(e)(4)(B).

36 Notably, the FDIC acknowledged in a prior case before this Court that it has since

revised its P&A Agreements to clarify that an acquiring bank’s option to reject real estate

leases extends to all leases. See Rec. Doc. No. 29 at 5–6 (reproducing colloquy between Hon.

Edith Jones and counsel for the FDIC at oral argument).

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EDITH BROWN CLEMENT, Circuit Judge, concurring in the judgment.

This result has more to do with the arguments that the FDIC did not raise

than the innate correctness of the Landlords’ position. 

The FDIC argues that the Landlords lack standing because they cannot,

as a non-third-party beneficiary to the contract, show that the properties were

transferred to Chase. The Landlords have no such issue. To demonstrate

standing, the Landlords need to show (1) “an injury in fact—an invasion of a

legally protected interest which is (a) concrete and particularized, and (b) actual

or imminent, not conjectural or hypothetical,” (2) “a causal connection between

the injury and the conduct complained of,” and (3) that it is “likely, as opposed

to merely speculative, that the injury will be redressed by a favorable decision.” 

Lujan v. Defenders of Wildlife, 504 U.S. 555, 560-61 (1992) (internal citations

and quotation marks omitted). The Landlords make that showing. They claim

to have (1) suffered an injury (loss of rents), that was (2) causally connected to

Chase’s conduct (not paying rents that were due), and (3) could be redressed by

an award of unpaid rents. Moreover, the Landlords’ interest in rent payments

from assignees is legally protected by Texas law. See, e.g., Amco Trust, Inc. v.

Naylor, 317 S.W.2d 47, 50 (Tex. 1958) (“Liability to the original lessor for the

payment of rent . . . may arise from . . . privity of estate. . . . One

who . . . acquires the entire leasehold estate becomes the tenant in place of the

lessee and is in privity of estate with the lessor. An assignee is accordingly liable

for the rent reserved in the lease.”) 

The FDIC’s counterargument that non-third-party beneficiaries cannot

interpret and enforce a contract against the understanding of the contracting

parties improperly tries to stretch a question of contract law into a dubious

principle of constitutional law. Non-third-party beneficiaries to contracts

usually cannot show that they have suffered an injury to a legally protected

interest because contractlaw does not recognize and compensate non-third-party

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beneficiaries for the injuries that they often suffer when a contracting party fails

to comply with a contract. But when jurisdiction is otherwise proper, there is no

inherent bar prohibiting a stranger to a contract from asking the court to

interpret a contract that has bearing on its case.1 Texas law vests the Landlords

with the legitimate protected interest needed to assert their claim for unpaid

rent in federal court. This is enough to create standing.

Rather than having an inherent standing problem, the Landlords should

have difficulty demonstrating that the Purchase and Assumption Agreement

actually transferred the leases outright to Chase. The Landlords’ position is

almost certainly inconsistent with the actual intent of the contracting parties;

they provide no persuasive reason why Chase would want its option to refuse

certain properties to extend only to constructed and operating bank branches,

and not also to properties for future bank premises. The vacant lots are of little

value to Chase if not used as bank premises. And the parties’ course of

performance—which “is often the strongest evidence” of a contract’s

meaning2—also supports that conclusion. From the beginning, both parties’

behavior has reflected a belief that the contract grants Chase the option to

refuse the leases, regardless of whether a branch had yet been constructed. 

Accordingly, though the district courts had the power to consider the cases,

Chase should have been able to prevent the Landlords from proving that the

leases were transferred. Given the record evidence substantiating the

1 See, e.g., J.R. Fulton v. L&N Consultants, Inc., 715 F.2d 1413, 1418-21 (10th Cir.

1982); United States v. Ivey, 414 F.2d 199, 203 (5th Cir. 1969); Clark v. United States, 341 F.2d

691, 693-95 (9th Cir. 1965); Great Am. Ins. Co., N.Y. v. Gulf Marine Drilling No. 1, 302 F.2d

332, 334-35 (5th Cir. 1962); Pugh v. Comm’r, 49 F.2d 76, 79 (5th Cir. 1931); cf. Lemke v. Sears,

Roebuck & Co., 853 F.2d 253, 254-55 & n.4 (4th Cir. 1988) (remanding case for reconsideration

of a non-party’s claims that they were released from liability by a prior contract even though

the court “strongly question[ed] whether the language of the . . . release evidenced a clear

intent to benefit” the non-party).

2 Restatement (Second) of Contracts § 202 cmt. g (1981).

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contracting parties’ intent, the FDIC and Chase likely had colorable arguments

(and supporting evidence) regarding the proper interpretation of the Purchase

and Assumption Agreement. Even if they thought that those arguments were

hopeless given the plain text of the contract, Chase and the FDIC could have

pursued a contract reformation, see, e.g., Restatement(Second) of Contracts § 155

(1981), or simply amended the Purchase and Assumption Agreement. 

All of those strategies would have been preferable to attacking courts’

ability to hear cases brought by landlords against assignees—a question on

which the FDIC is on the wrong side of (1) hundreds of years of legal history, (2)

previous legal positions adopted by the federal government when it itself is a

landlord, see, e.g., Alaska Statebank, 111 IBLA 300, 308-09 (IBLA 1989), and (3)

circuit precedent rejecting attempts by contracting parties to have contracts

interpreted “according to the[ir] wishes . . . rather than [the meaning]

attributable to it by law” when the parties neither claim mistake nor omission

in drafting the contract, nor seek reformation. Great Am. Ins. Co., 302 F.2d at

334-35. The FDIC would have been better served by arguing that this contract

did not transfer these leases. 

But Chase should not expect to win on arguments that it does not pursue. 

The district courts—based upon the arguments raised and the evidence before

them—properly entered judgments for the Landlords. The plain text of the

contract indicates the leases at issue were transferred outright and the covenant

to pay rent runs with the land. On appeal, the only real error that the FDIC

successfully highlights is the district courts’ choice to apply Texas law to

interpret the Purchase and Assumption Agreement. Though Texas state law

provides the Landlords’ cause of action, federal common law should have been

used to interpretthePurchase and Assumption Agreement.3 However, the FDIC

3

[F]ederal common law governs the construction of government contracts in the usual

case,” Clem Perrin Marine Towing, Inc. v. Pan. Canal Co., 730 F.2d 186, 189 (5th Cir. 1984),

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does not point out any consequence from the district courts’ error, and concedes

that “the outcome is likely the same” under either body of law. In light of the

FDIC’s concessions and the plain text of the Purchase and Assumption

Agreement, it appears that any error was harmless, and that the district courts’

judgments should be affirmed.

and even if this is not “the usual case,” as Clause 13.4 of the Agreement specifies that it should

be interpreted according to federal law (or Washington law if there is an “absence of

controlling federal law”), Texas choice-of-law principles would still require the application of

federal common law (or Washington law). See, e.g., Smith v. EMC Corp., 393 F.3d 590, 597

(5th Cir. 2004).

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