Gillette Bros. v. Aristocrat Restaurant, Inc.

On February 21, 1918, the Schulte Realty Company leased to Maurice and Charles Gillette as copartners certain premises for the term of ten years. The lease itself states that the copartners are described therein as "the tenant." The lessees entered into several covenants, one against the assignment of the lease or underletting without the landlord's written consent. It was further agreed that "if proceedings in bankruptcy shall be instituted by or against the tenant * * * or if this lease shall by operation of law pass to any person other than the tenant it shall be lawful for the landlord to terminate this lease by a three days notice to that effect mailed to the tenant." In other clauses throughout the lease it is the original lessees who are again spoken of as the "tenant." In the sixth clause, for instance, it is said that "the acceptance of rent by the landlord from any assignee, subtenant, mortgagee or successor in interest of the tenant * * * shall not relieve the tenant herein from his obligation to pay the rent herein reserved."

"Thereafter," it is found "the plaintiff corporation was formed and went into possession of the said premises and paid the rent to the landlord." From the fact of possession and the payment of rent it is to be presumed that the plaintiff was an assignee of the lease and that the proper consent had been given. (Frank v. N.Y., L.E. W.R.R. Co.,122 N.Y. 197; Murray v. Harway, 56 N.Y. 337; DickinsonCompany v. Fitterling, 69 Minn. 162; Bedford v. Terhune,30 N.Y. 453, 459.) But between it and the lessor there was no privity of contract. There was but privity of estate. It was bound by such covenants as ran with the land so long as it remained assignee of the lease and in possession; but it might discharge itself from all further liability by assigning its interest in the premises to a stranger. (Childs v. Clark, 3 Barb. Ch. 52.) The covenant against assignment without the landlord's consent having been once waived is gone. (Murray v.Harway, supra.) The original lessee, however, because of privity of contract remained liable on the covenants although privity of estate was destroyed.

On June 10, 1921, the plaintiff purported to lease the premises for the remainder of the term to the defendant at an increased rental payable to it and upon certain conditions or covenants. While the instrument reserved the right of re-entry for condition broken, between the original lessor and the defendant it was an assignment of the lease. True in form it was a sublease. True it is so termed in a consent given by the Schulte Company to the original lessees — a consent unimportant after the original assignment except with regard to the use to be made of the premises. But the entire term was transferred. The possible right of re-entry for breach of any condition was not the retention of such a reversionary interest as is intended when distinctions are drawn between assignments and subleases. (Stewart v. L.I.R.R.Co., 102 N.Y. 601; Bedford v. Terhune, 30 N.Y. 453; Herzig v. Blumenkrohn, 122 App. Div. 756; Craig v. Summers,47 Minn. 189; Sexton v. Chicago Storage Co., 129 Ill. 318.) Even if the authority of Ganson v. Tifft (71 N.Y. 48) has not been shaken by later decisions, there is here no express covenant that the premises shall be surrendered to the plaintiff at the end of the term. They are to be surrendered; to whom is not stated. This omission is only consistent with the idea that the surrender is to be made to the Schulte Company.

Being an assignment, privity of estate between the plaintiff and the Schulte Company was at an end, and with its termination also ceased all obligations on covenants running with the land. Among others no liability for rent remained.

Later, receivers of the plaintiff were appointed by the United States courts and a petition in involuntary bankruptcy was filed against it. Upon this the Schulte Company served upon the Gillettes and upon the plaintiff and the defendant notice of the termination of the lease. Upon receiving this notice the defendant voluntarily vacated the premises. It had the right so to do if the lease was properly canceled but the burden is on it to show that fact. If it cannot it is still liable to the plaintiff for the rent it agreed to pay. It is to recover such rent that the action is brought, the petition in bankruptcy and the equity suit in which the receivers were appointed having been later dismissed.

Neither the plaintiff nor the defendant acquired by these assignments any greater rights than were possessed by the original lessee. Whatever the provision as to termination in case of bankruptcy may be called both parties took the lease subject to such right. The only question is as to the meaning of that clause. Does it mean bankruptcy of the original tenant, or of his assignee, or of any one of a long line of possible assignees? Or does it mean the bankruptcy of any one of these?

Probably the clause refers to bankruptcy of the original tenant. As has been seen, all through the lease the word "tenant" is used as plainly referring to the Gillettes. Assignees, subtenants or successors in interest are sharply differentiated from the tenant. The continuing liability of the tenant for rent after assignment not only follows as a matter of law because of the covenant in the lease but it is expressed. The clause should be given a reasonable construction. The lessor had some object in making this provision. Obviously it was to secure a responsible tenant. Naturally, therefore, it might provide for the forfeiture of the lease if such tenant became bankrupt. As to the responsibility of the tenant it may be assumed to have had some knowledge. Knowledge as to the responsibility of the tenant's assignee or of the assignee of the assignee is less certain.

Yet at most the provision can be applied only to an assignee actually in possession and liable to the lessor on covenants running with the land or to such assignee and to the original tenant. Working a forfeiture the language is to be strictly construed. Certainly it could never have been intended that an intermediate assignee who has re-assigned and whose liability of every kind towards the lessor had ceased should be described by the word "tenant" and that the bankruptcy of such a third party should result in the forfeiture of the lease. This is all that we are now required to decide.

The judgment of the Appellate Division should be reversed and that of the Trial Term affirmed, with costs in this court and in the Appellate Division.