Cunningham v. Stockon , 81 Kan. 780 ( 1910 )

'The opinion of the court was delivered by

Johnston, C. J.:

Stockon undertook to erect and ■furnish a theater which would seat 750 persons, and •Cunningham agreed to rent the building for five years from completion at a monthly rental of $350, and evidently, as an assurance that he would keep the covenants of the lease, he agreed to, and did, pay Stockon $4200, which it was stipulated should be applied on the rent of the fifth year of the term. The $4200 was paid before the erection of the building was commenced, and, of course, many months before the possession of it could be given to Cunningham. After obtaining possession and operating the theater for some time Cunningham defaulted in the payment of rent, and because of the nonpayment of rent, and for no other reason, the appellants took possession of the building, as well as some of Cunningham’s property which was in it. According to the averments of the answer appellants took possession of the theater July 1, 1907. At that time Cunningham was in arrears for five months’ rent, which amounted to $1750. It is admitted that $4200 was advanced by Cunningham when the lease was executed, and, deducting the amount due for rent from the deposit, there remains $2450, and when to this is added $200, the value of appellee’s property which it is admitted that appellants appropriated to their own use, we have the amount of the judgment awarded by the trial court. Appellants contend that the $4200 was advanced by the tenant in part performance of an entire contract, and as the landlord was ready and willing to perform his part the tenant, who was in default, could not recover back what he had advanced. It is insisted that a lease should be measured by the rules applicable to a contract for the sale of land, under which it is held that money advanced in part performance of the contract can not be recovered back by a defaulting vendee. The relations of vendor and vendee in the transfer of land differ substantially from those existing between landlord and tenant, and the equitable considerations which arise between the two sets of parties are not the same. In volume 2 of the third edition of McAdam on Landlord and Tenant, at page 964, it is said:

“If a vendee pays money on a contract of purchase, he can not if in default recover it back. But in the case of a deposit of money by a tenant the courts hold that he may, though in default, recover the deposit back if he satisfies the damages up to the time of dispossession. This may seem anomalous, but it is because the equitable principle of avoiding forfeiture has been applied to the one case, but not to the other.”

Courts generally hold that such deposits should be treated as penalties, and they have been so held even in cases where -there was a provision in the lease itself that the deposit might be forfeited as liquidated damages. In Carson v. Arvantes, 50 Pac. (Colo.) 1080, the “plaintiffs leased from’ defendants a building at an advanced rental of $250 per month, giving a mortgage on lands worth $7200 to secure the punctual performance of their agreement. Subsequently the mortgage was released, and the lessees deposited with the lessors $250, with the provision that in the event of nonpayment of rent the deposit should be forfeited,” and it was held that the deposit should be treated as security only and not as liquidated damages. There the subtenant failed to pay the rent when due and subsequently surrendered possession to the landlord. The court, after showing that the abandonment and surrender of the possession terminated the lease, said:

“Under this rule the landlord, of course, has his election between one of two remedies: He may leave the premises vacant, sue for the rent for the balance of the term, and enforce any security which the lessee gave to insure performance. If he chooses, he may likewise terminate the contract, and enter a claim for rent up to the date of the abandonment and the acceptance of possession. He is not at liberty to take possession, of the premises, and at the same time insist that the contract is in force, and recover rent for the balance of the term.” (10 Colo. App. 382, 387.)

The lease did not contain an express statement that the money advanced should constitute a deposit to insure performance by appellee, but the advancement of so large an amount, the payment of the same before the construction of the building was begun and about six months before possession could be obtained and the provision that the amount advanced should be applied on the rental for the last year of the term clearly indicate that it was a deposit to insure performance by appellee. Now the lease did not provide that a failure to pay rent when due should forfeit the cash deposit nor that it should be forfeited for any reason. Under the statute, if a tenant neglects to pay rent for a certain period the landlord may terminate the lease by giving a certain number of days’ notice in writing, unless the rent is paid before the term expires. (Gen. Stat. 1901, § 3851.) Cunningham being in default as to rent, appellants had the right to terminate the lease, but there is nothing in the agreement or the statute which would warrant us in treating the $4200 deposit as liquidated damages or justify the forfeiture of the same for nonpayment of rent. According to the theory of appellants the default of a tenant in the payment of rent for a week, or even a day, would warrant them in taking possession of the property and appropriating to themselves the $4200 of indemnity which the tenant advanced. It would seem that if the parties had intended that such a deposit should be forfeited because the tenant was in arrears for rent it would have been stipulated in the lease. There is no contract or statutory provision, nor any equitable consideration, which would justify the forfeiture of so large an amount for such a default. It is argued that the deposit was only a payment of the last year’s rent and a part performance of the contract, but it can not be so treated, as the appellants, by dispossessing the appellee and terminating the lease before the fifth year arrived, have made it impossible to apply it on that year. When appellants took possession of the building and appropriated appellee’s property in it to their own use they effectually terminated the lease and ended the obligation of appellee under it for the remainder of the term. It, of course, did not release appellee from any obligation for rent, waste or other loss which had accrued when the lease was terminated, but all claims which had then matured were allowed by the court and deducted from the amount of the deposit. When appellee became in arrears for rent appellants had the option to continue the relation and deduct so much of the deposit from month to month as would satisfy the maturing rent, or to end all leasehold rights, as they did do, by a reentry of the premises. Or if appellants could have obtained possession from appellee through surrender or abandonment, and had relet the premises as the agent of appellee, they perhaps might have held him for the deficiency in the rent and applied the deposit to that purpose. Here, however, they exercised the option to terminate the lease and all obligations of the appellee thereafter under it. In speaking of the right to retain such a deposit where a landlord had terminated a lease by a reentry the New York court of appeals said:

“When he accomplished it and took possession of the premises the damages with which the plaintiff was chargeable were those only which resulted from breach of the covenants prior to entry of the defendant, upon the termination by the latter of such tenancy, as there could, in the nature of the case, be no breach of them committed by the plaintiff after the effectual termination of such relation and reentry by the defendant.” (Chaude v. Shepard, 122 N. Y. 397, 401.)

In volume 1 of Underhill on Landlord and Tenant, at page 583, in speaking of a deposit out of proportion to the amount of rent due and where the tenant is dispossessed for neglect to pay rent, it is said:

“The presumption in such cases is that the lessor resumed the possession of the premises and has relet them, and if he has done this it is difficult to see any fairness in the proposition that he can receive the rent after his lessee has vacated the premises and at the same time retain a large sum of money as damages, which sum may be three or four times the actual damages. At the most the deposit will be regarded as security only, and if the lessor elects not to accept a surrender he may exhaust the deposit by applying it to arrears of rent as it falls due. This, however, is the most favorable construction that the court will put upon the matter, and on the other hand, if the lessor assumes possession and the loss of rent is readily ascertainable, and particularly if the loss be small, will treat the deposit as a penalty only and will consider that the lessor has waived any claim he might have to it, either as liquidated damages or as security for the rent, by his action in reentering upon the premises.”

In Caesar v. Rubinson, 174 N. Y. 492, a lease provided for an advance payment to secure performance of its conditions by the tenant, and also that the deposit might be retained by the landlord as liquidated damages in case there was a breach of the lease, and it was held that the fact that the deposit was designated as liquidated damages did not warrant the retention of the sum for the failure of the tenant to pay $45 of rent. It was also decided that, $1000 having been deposited by defendant to secure the performance of a lease, and the landlord having asserted his right to reenter for failure of the tenant to pay a monthly rent of $45, the landlord thereby waived the claim to the deposit except so far as it was necessary to apply it in payment of rent then due or accrued. (See, also, Scott v. Montells, 109 N. Y. 1; Michaels v. Fishel, 169 N. Y. 381; Sutton v. Goodman, 194 Mass. 389, Hecklau v. Hauser, 71 N. J. L. 478; Carson v. Arvantes, 27 Colo. 77; 2 McAdam, Land. & Ten., 3d ed., p. 963.)

There is no occasion to consider here the effect of a covenant in a lease requiring a ténant to make good á deficiency arising upon a reentry and reletting of the premises because of the default of the tenant, as the lease in question contained no such provision. Besides,; there is no claim that appellants took possession as agent of appellee or that the reletting was upon his account.

Upon the admitted facts the case was well decided by the trial court, and its judgment is affirmed.