Stewart v. . Long Island R.R. Co. , 102 N.Y. 601 ( 1886 )

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.]

[EDITORS' NOTE: THIS PAGE CONTAINS HEADNOTES. HEADNOTES ARE NOT AN OFFICIAL PRODUCT OF THE COURT, THEREFORE THEY ARE NOT DISPLAYED.] The only question in this case is whether the defendant, by entering into the contract of May, 1876, with the Flushing, North Shore and Central Railroad Company, came into such a relation with the original lessor of the railroad in question, represented by the plaintiff, as to subject it to liability directly to her for the rent reserved by the original lease of January, 1873, from her devisor, Alexander T. Stewart, to the Central Railroad Company of Long Island. The facts are so fully stated in the opinion of my learned brother, FINCH, J., that it is not necessary to repeat them in detail.

That the contract of A.T. Stewart with the Central Railroad Company of Long Island, dated January, 1873, was a lease of the road for the term of fifty years, cannot, I think, be disputed, and thus far in the discussions in this court it has been conceded. The annual rent reserved was a percentage upon the agreed cost of the road, liable to be augmented by a percentage upon such further expenditures as might be made by the landlord during the term. If this had been all of the contract there would have been no difference of opinion between us; but it contained further provisions which have given rise to the present discussion.

The ordinary covenant to surrender the demised premises on the last day of the term was made subject to the further provisions of the contract, which were that the lessee covenanted at the expiration of the said term of fifty years from January 7, 1873, to pay to the lessor the principal sum by him expended on the road, and that upon such payment, but not before, the payment of rent should thereafter cease, such rent, however, to be paid up to such time, and that upon such payment of such principalsum the lessee, its successors or assigns, should not surrender the said demised premises, but should be vested with the fee-simple of the right of way and all the property appurtenant thereto, owned by the lessor, and that the contract should thereupon, and upon such payment, be deemed a sufficient grant or deed of conveyance, and that the lessor should then execute such further deed as might be necessary, etc.

Until the payment of the principal sum, however, the rent was to continue, and the lease contained the usual provisions for re-entry for non-payment of rent or the breach of the other covenants in the instrument, which were numerous.

In June, 1874, the entire interest of the Central Company, under this lease and contract, became vested in the Flushing, North Shore and Central Railroad Company, to whom the contract was assigned, and in May, 1876, the latter company entered into the agreement with the defendant which is set forth in the opinion of FINCH, J., and the effect of which is now in question. The main feature of that agreement, to which it is necessary for the purposes of this discussion to refer, is that the last-named company leased to the defendant the whole of the property which was demised by Stewart to the Central Railroad Company, and for a term longer than that of the original lease, viz.: for the term of ninety-nine years. It thus transferred to the defendant the entire term during which the Central Railroad Company was to hold the demised premises as lessee of Alexander T. Stewart, and left no particle of that term in the original lessee or in its first assignee, the Flushing, North Shore and Central Railroad Company, and the question now before us is, whether it operated, as between the original lessor, Stewart, or his devisee, and the defendant, as an assignment of that entire term, and thus established a privity of estate between them which rendered the defendant liable to the original lessor, or whether it was, as between those parties, a mere sub-lease under which the defendant was liable only to its immediate lessor.

The rules relating to the effect of an assignment of a lease are so well settled that it is hardly necessary to do more than refer to them. Where a lessee assigns his whole estate, without reserving any reversion therein in himself, a privity of estate is at once created between his assignee and the original lessor, and the latter has a right of action directly against the assignee, on the covenant to pay rent, or any other covenant in the lease which runs with the land; but if the lessee sublets the premises, reserving or retaining any such reversion, however small, the privity of the estate is not established and the original landlord has no right of action against the sub-lessee, there being neither privity of contract nor of estate between them. Where a lessee of land leases the same land to a third party, the question has often arisen whether the second lease is in legal effect an assignment of the original lease, or a mere sub-lease. The question has frequently, and probably most generally, arisen between the lessee and his transferee, and much confusion will be avoided by observing the distinction between those cases, and cases where the question has been between the transferee and the original landlord. In the latter class of cases the rule is well settled that if the lessee parts with his whole term or interest as lessee, or makes a lease for a period exceeding his whole term, it will, as to the landlord, amount to an assignment of the lease, and the essence of the instrument as an assignment, so far as the original lessor is concerned, will not be destroyed by its reserving a new rent to the assignor with a power of re-entering for non-payment, nor by its assuming, by the use of the word demise or otherwise, the character of a sub-lease; and the assignee, so long as he continues to hold the estate, is liable directly to the original lessor on all covenants in the original lease which run with the land, including the covenant to pay rent. (Taylor's Landl. Ten. [7th ed.] 109; Hicks v. Downing, 1 Lord Raym. 99; Palmer v.Edwards, 1 Doug. 187; Smith v. Mapleback, 1 T.R. 441;Porter v. French, 9 Irish Law R. 514; Parmenter v. Weber, 8 Taunt. 593; Doe v. Bateman, 2 Barn. Ald. 168; Wallaston v. Hakewell, 3 Scott N.R. 616; Pluck v. Digges, 5 Bligh [N.S.], 31; Beaumont v. Marquis of Salisbury, 19 Beav. 198;Thorne v. Woolcombe, 3 Barn. Ald. 586.)

But as between the original lessee and his lessee or transferee, even though the original lessee demises his whole term, if the parties intend a lease, the relation of landlord and tenant, as to all but strict reversionary rights, will arise between them.

The effect, therefore, of a demise by a lessee for a period equal to or exceeding his whole term is to divest him of any reversionary right and render his lessee liable, as assignee, to the original lessor, but at the same time the relation of landlord and tenant is created between the parties to the second demise, if they so intended. (Taylor's Landl. Ten. [7th ed.] 109, note s. 16 n. 5; 1 Washb. Real Estate, 515 [4th ed.], n. 6; Adams v. Beach, 1 Phil. 99, 178; Indianapolis, etc., R.R.Co. v. Cleveland, etc., R.R. Co., 45 Ind. 281; Lee v.Payn, 4 Mich. 106; Lloyd v. Cosens, 2 Ashm. 138; Wood's Landl. and Ten. [Banks' ed.], § 347.) These rules are fully recognized in this State. (Prescott v. De Forest, 16 Johns. 159; Bedford v. Terhune, 30 N.Y. 453, 457; Davis v. Morris, 36 id. 569;Woodhull v. Rosenthal, 61 id. 382, 391, 392.)

There can be no doubt that in the present case the original lessee of Stewart parted with its whole term of fifty years and that the defendant acquired it. The Central Railroad Company assigned the entire contract, embracing the term of fifty years as well as the right of purchase of the fee at the end of the fifty years, to the Flushing, North Shore and Central Railroad Company, and I do not understand it to be denied by any one that that company became liable to Stewart directly on the covenants in the lease as assignee of the entire interest of the lessee. But the Flushing, North Shore and Central Railroad Company, by its contract with the defendant, did not assign to the latter the right of purchase at the end of the term of fifty years. It, however, leased the road to the defendant for the term of ninety-nine years, and the defendant covenanted to surrender the demised premises to its immediate lessor at the end of the ninety-nine years. That term, however, being greater than the term of fifty years granted in the original lease, the instrument operated as an assignment of that term, and left no reversion therein in the Flushing, North Shore and Central Railroad Company, consequently during the continuance of the term of fifty years there was a perfect privity of estate between the defendant and the original lessor, and the legal estate in reversion was in the original lessor during the fifty years, and he, or those succeeding to his estate, were both legally and equitably entitled to the rents and had a right of action therefor directly against the defendant by reason of this privity of estate.

It is contended that the Flushing, North Shore and Central Railroad Company, as the assignee of the Central Railroad Company had more than the term of fifty years, granted in the original lease, because it was also assignee of the contract of Stewart by which, in case, at the end of the term, the Central Railroad Company should have performed the covenants in the lease and should then pay to Stewart the principal sum expended by him in the construction of the road, the contract should operate as a conveyance in fee of the demised premises. That under this contract the Flushing, North Shore and Central Railroad Company was the equitable owner of the fee as well as of the term, and was in possession under both titles when it leased to the defendant; that the lease to the defendant being for only ninety-nine years did not transfer its entire interest in the premises, but left in it a reversion at the expiration of that term, at which time the defendant covenanted to surrender to it, and consequently its lease to the defendant was not an assignment but a sub-lease. That argument would be very forcible if the question arose between the defendant and the Flushing, North Shore and Central Railroad Company, and were whether the relation of landlord and tenant subsisted between them. But it has no application to the question upon which this case turns. The equitable estate in reversion claimed to be in the Flushing, North Shore and Central Railroad Company as purchaser, is not a reversion in the term of fifty years. The whole of that term has been transferred to the defendant, not a particle of it is retained by its immediate lessor, and there is absolutely nothing intervening between the estate of the defendant, as assignee of the lessee for the fifty years, and the legal estate in reversion of the original lessor or his devisee; and the right to the rents follows that legal estate in reversion. The owners of the equitable estate claimed, have no right, legal or equitable, to the rents. During the term of fifty years the original lessor or his devisee are entitled to them, and the whole term of fifty years being vested in the defendant it is directly liable to the holder of the legal estate in reversion, there being a privity of estate between them. If a present equitable right to the rents were vested in the same parties in whom the equitable estate in reversion is alleged to be vested, different questions might arise. The fact that the lease to the defendant reserves a different rent from that reserved in the original lease, with a clause for re-entry, cannot affect the question as between the parties to the present controversy, of its operating in law as an assignment of the term.

These points were expressly adjudicated in the cases of Doe v. Bateman (2 Barn. Adol. 168), Wollaston v. Hakewell (3 Scott's N.R. 616). Neither can the covenant to surrender have any bearing. It was a covenant to surrender at the expiration of the ninety-nine years lease, long after the expiration of the fifty years lease. Where in an assignment of a lease or in a demise by the lessee for the same term as that granted by the original lease, there is a covenant to surrender to the assignor, this has in some cases been held to prevent the sub-lease from operating as an assignment; but this has been because the whole instrument, taken together, has been held to reserve to the original lessee some fragment of the original term, though almost inappreciable in point of duration, as in the case of Post v. Kearney (2 N.Y. 394), where the assignee of a lease demised the premises for the residue of his term, reserving the right to a delivery of possession by his assignee to him on the last day of the term, and a right to intermediate possession in case the buildings should be destroyed by fire. These reservations were held sufficient to characterize the demise as a sub-lease and not an assignment. The right to possession on the last day would leave a fragment of that day of the term in the assignor and was sufficient to create a technical reversion and thus prevent a privity of estate between his lessee and the original lessor.

In Collins v. Hasbrouck (56 N.Y. 157), the sub-lease was of part of the demised premises and was for only two years and seven months out of a term of ten years and expired four years before the original lease, but the sub-lessee had the privilege of four years more, provided he gave two months notice. The action was ejectment brought by the original lessor against an assignee of the second lessee, claiming that the original lease had been forfeited by the breach of a covenant, on the part of the lessee, which it contained, that he would not sub-let or re-let the demised premises or any part thereof without written consent, etc., under penalty of forfeiture of the term, and the sub-lease before referred to was claimed to be a breach of that covenant. The judgment below was for the landlord but it was reversed in this court on the ground that the alleged forfeiture had been waived by the landlord. In the opinion, the question is discussed whether the sub-lease amounted to an assignment of the term of the original lease, or a mere sub-letting or re-letting of part of the demised premises. This question, in view of the result reached on the question of waiver, ceased to be controlling, but in discussing it the learned judge delivering the opinion made some remarks touching the effect of reserving a new rent in the sub-lease, and of reserving to the original lessee a right of re-entry for a breach of condition by his lessee, which have given rise to some confusion. The features of the instrument, which are above referred to, would be proper subjects of consideration for the purpose of determining whether the relation of landlord and tenant was created as between the original lessee and his lessee, and bore upon the question then before the court, viz.: Whether the second lease was a sub-letting or re-letting of part of the demised premises, which constituted a breach of the covenant not to sub-let or re-let. But the question of privity of estate between the original lessor and the lessee of his lessee was not in the case. The determination of that question depends upon whether the whole of the term of the original lessee became vested in his lessee, and the circumstances that the second lease reserves a different rent or a right to re-entry for breach of condition are immaterial. (Doe v. Bateman, 2 Barn. Adol. 168; Wollaston v.Hakewell, 3 Scott's N.R. 616; Prescott v. De Forest, 16 Johns. 159; Bacon's Abr., Leases, 1, 3; Palmer v. Edwards, 1 Doug. 187; Smith v. Mapleback, 1 Term R. 441; Smiley v.Van Winkle, 6 Cal. 605; Loyd v. Cozens, 2 Ashm. 138; 2 Preston Con. 124; Taylor's Landl. and Ten. (7th ed.), § 109; 1 Washb. Real Prop. 515, § 6.) The cases which hold that where a lessee sub-leases the demised premises for the whole of his term, but his lessee covenants to surrender to him at the end of the term, the sub-lease does not operate as an assignment, proceed upon the theory that by reason of this covenant to surrender, some fragment of the term remains in the original lessor. In most of the cases, and in the earlier cases in which this doctrine was broached, the language of the covenant was that the sub-lessee would surrender the demised premises on the last day of the term.

In Piggot v. Mason (1 Paige, 412), by the original lease the lessee had thirty days after the expiration of the lease to remove buildings from the demised premises. His assignee subleased for the residue of the term, and his lessee covenanted to surrender possession "on the last day of the term."

In Post v. Kearney (2 N.Y. 394), the covenant of the sub-lessee was that "on the last day of his term he would surrender the possession of the demised premises to his lessor" (p. 395).

Some fragment of that last day was, therefore, reserved to the original lessee, for he was entitled to the surrender during some portion of the last day. This was held sufficient to establish a technical reversion in the original lessee and thus prevent a privity of estate from arising between his lessee and the original landlord. The same theory has been subsequently adopted in cases where the language of the covenant has been that the second lessee would surrender to his lessor at the expiration of the term of the sub-lease, without adverting to any distinction.

In Ganson v. Tifft (71 N.Y. 48, 54), the sub-lease provided that at the expiration of the term, or other sooner determination of the demise, the lessee should surrender the demised premises to the lessor, and the court say: "This constitutes a sub-lease of the premises, and not an assignment of the entire term."

It is obvious that the covenant to surrender cannot, in the present case, have the effect which was given to it in the cases cited, for it was to surrender at the expiration of a term of ninety-nine years, the original lease being for only fifty years, and there is no theory upon which it can be pretended that any vestige of that term or of any reversion therein remains in the lessor of the defendant.

The agreement to transfer the fee to the lessee did not merge the term of fifty years, nor prevent the relation of landlord and tenant subsisting between the original lessee or its transferee of the term, during its continuance. The lessee was to become entitled to the fee only in case it performed the covenants and paid the principal of the cost of the road, and the lease provides in terms that on such payment being made, but notbefore, the rent reserved in the lease shall cease. The payment of this principal sum at the end of the fifty years, as well as of the other sums reserved, was by the very terms of the contract made a condition precedent to the vesting of the fee in the lessee. In this respect the case does not differ in substance from Bostwick v. Frankfield (74 N.Y. 207), where a similar covenant to convey a fee to the lessee was held not to create an equitable estate in fee in the lessee, in which his estate as lessee merged, but that the lease remained in full force, and the relation of landlord and tenant continued, until performance of the contract of purchase, and the landlord was entitled to dispossess the lessee by summary proceedings against him as tenant. In that case it was held that the doctrine which treats an individual, who has contracted for the purchase of land as the owner, could not be applied when the intention of the parties was clearly adverse to such a presumption, and that a provision in the contract that unless carried out at the time named, it should become void, negatived such an intention. Here the provision is that the lessee shall hold as tenant for the term of fifty years, paying rent, and that at the end of the fifty years the lessee shall pay to the lessor the principal sum by him expended upon the road, and that upon such payment "but not before" the rent should cease, such rent, however, to be paid up to such time, andupon such payment of the said principal sum the lessee to be vested with the title; the right to re-enter for non-payment of rent or breach of covenants being fully reserved.

These provisions plainly manifest an intention that no title, except an estate for years, shall vest in the lessee until the end of the term and the payment of the principal and all rent in arrears, and that in the meantime the fee and the reversion shall remain in the lessor. Until the expiration of the term the only estate which vested in the lessee was an estate for years, which was entirely separable from the right to acquire the fee. The lessee could assign the term and retain the contract for the purchase of the fee, and by such an assignment the assignee would be brought into privity with the original landlord who would be entitled to his action directly against the assignee of the term so long as it continued such assignee. It could divest itself of this liability at any time before rent had accrued by assigning over the term, but so long as it continued to hold the term it held as tenant of the original landlord, and was subject to be proceeded against as such. The original lessee, or the lessor of the defendant, as has been shown, retained no portion of the term and consequently no reversion. Whatever equitable rights it may have had were to arise in futuro. An estate to arise in futuro cannot be tacked on to the estate of a lessee who has assigned his whole term, so as to create a reversion in him and establish the relation of landlord and tenant between him and the person to whom he has assigned his term, so far as strictly reversionary rights are concerned, or prevent that relation from existing between such person and the original landlord.

In Prescott v. DeForest (16 Johns. 159), Stewart leased a house to Satterlee for one year from the 1st of May, 1817. Satterlee then leased part of the house to the plaintiff at $1,000 per annum, payable quarterly, for the same term for which he had taken it. On the 1st of February, 1818, Satterlee obtained a new lease of the house from the landlord for one year from the 1st of May, 1818. On the 2d of March, 1818, Stewart distrained the goods of the plaintiff on the premises for rent in arrears and sold them in due form, and the defendant became the purchaser. The right to distrain for rent was incident to and inseparable from the reversion, and it was held that Satterlee had no reversion; that the lease from him to the plaintiff, being for the whole of his own term, must be deemed an assignment and not an under-letting, although it was for only part of the premises, and reserved a new rent, payable to himself; that there was no privity of estate between him and the plaintiff, but privity of contract merely; that although at the time of the distress Satterlee had a second lease from May 1, 1818, to May 1, 1819, that extension of his term did not operate to vest a reversion in him because it was to commence infuturo, and in the meantime the reversion continued in Stewart, the original landlord, who by reason of privity of estate had the right to sue the plaintiff or distrain her goods for the rent due him. On this ground the distress by Satterlee was held void. So in the present case, the title of the defendant's lessor, under the Stewart contract, to the fee of the demised premises was not to commence until the end of the term of fifty years, and the payment of the purchase-money, and whatever equitable rights the defendant's lessor may have had under that contract, it is clear that in the meantime the legal estate in reversion continued in Stewart and his devisee, and the right to the rent followed the reversion. The contract was not a present sale of the fee, under which the equitable title vested in the purchaser and the title to the purchase-money in the vendor, but was for a sale to take place in futuro, that is, at the end of the fifty years. It was expressly stipulated in the Stewart contract that the rent payable to Stewart should cease at the end of the fifty yearsand not before, and that then, on the payment of the stipulated sum, the lessee should become vested with the fee. This was, in substance, a contract that Stewart's lessee should hold as his tenant under the lease until the expiration of the term, and that the other rights secured by the contract should then commence to operate. Whether they will then ripen into a title depends upon whether the lessor of the defendant performs the conditions precedent upon which the vesting of the title is conditioned.

In Langford v. Semmes (3 Kay Johns. 220), a lessee for a term of ninty-nine years, with the option of purchasing the fee-simple in reversion, granted a lease for a term which exceeded the residue of his own term, and it was held that this lease established a privity of estate between the last lessee and the original lessor. The case is not precisely in point, because here there was an unconditional contract to pay the cost of the road at the end of the term, and that on such payment the title should vest, but nevertheless the vesting of the title was conditioned on the lapse of the fifty years and on the payment being made at the end of the term. This contract, however, did not operate to enlarge the term of the original lease, it was separable from the estate for years held by the original lessee, and the transfer of the whole of that term to the defendant, while the legal estate in reversion, together with the legal and equitable right to the rents, were in the plaintiff, established a privity of estate between the defendant and the plaintiff which entitled her to maintain this action directly against the defendant on the covenant to pay rent contained in the original lease from Stewart.

The judgment of the General and Special Terms should be reversed and a new trial ordered, with costs to abide the event.