Ottman v. Nixon-Nirdlinger

Whether Gross be considered an assignee or a subtenant, I cannot agree that the court below erred in entering judgment for defendants on the record in this case. In the first place, the statement of claim contains no averment or recital of facts to show that defendants either had the actual use of the property in controversy or were entitled to its beneficial enjoyment. Plaintiffs satisfy themselves with the mere statement of their conclusion that "Gross, in accepting the assignment of the said lease and in executing the said articles of agreement dated January 26, 1922, acted as agent for defendants . . . . . . as undisclosed principals." Jules E. Mastbaum, the decedent of the first three defendants, like the last named defendant, Greenfield Co., was a real estate broker and agent; for all that appears in the present statement of claim, their connection with this property may have been merely as agents of someone else entitled to its beneficial enjoyment. While I find no averment in the statement of claim which indicates what Mastbaum's real relation to this property was, and the averment as to Greenfield Co. would be entirely consistent with the performance of its duties as a real estate agent, yet my chief difficulty with the majority opinion is that, treating, as it does, Gross as a mere straw man, I cannot agree that his undisclosed principals may be held equally liable with him. The transactions here involved are not simple contracts, but writings, properly under seal, creating relationships which have to do with real property, a field in which straw men have long been used for the purpose of avoiding personal responsibility under the strict rules of law relating to ownership of that class of property.

In Coyle v. Dreyfous, 298 Pa. 518, 521, another case where the use of a straw man was involved, plaintiff claimed that Jenkins, the man in question, was the agent of defendant, and the latter claimed "that Jenkins, in place of acting as an agent, for whose deeds he, the defendant, would be personally liable, acted as a title-holding trustee for the very purpose of . . . . . . relieving [defendant] of general personal liability"; and we held this, if established, to be a sufficient defense.

Read in the light of the Coyle Case and bearing in mind the trust relationship occupied by straw men, as there brought out, it seems to me that Hartley v. Phillips, 198 Pa. 9, relied on by appellees and the court below, rather than the earlier case of Morgan v. Yard, 12 W. N.C. 449, cited by appellants, is in line with the present one.

The effort of the law should always be to keep pace with the customs of the people, and this is particularly so in the realm of trade. Of recent years, the attempt has been to make the buying, selling and ownership of real estate as easy and uncomplicated as that of other classes of property; the right use of straw men facilitates this commendable end, and has been sanctioned by us. Owners who create long-term leases, as did the present plaintiffs, can readily protect themselves against the use, by their lessees and the latter's assignees, of irresponsible straw men (though plaintiffs make no averment that Gross is such), in subsequent dealings with the demised property, by stipulating that no assignment or sublease shall be entered into without the written consent of the original lessor, a provision ordinarily found in real estate leases but significantly absent from the present instrument, which simply provides that the lessee may either assign the lease or sublet the premises, continuing personally liable to lessors, and that all subtenants or assignees shall, at the option of the lessors, likewise be liable to them. The general rule is that, where "a lessee takes a lease for an unnamed principal, but in his own name, [the law] will not render the unnamed principal liable for rent": 36 C. J. 370; see also cases from various jurisdictions, supporting this principle, cited in a note to 32 A.L.R. 164. Had the original lease in this case been made to Gross and if it were subsequently proved he was acting for an unnamed principal, the latter would not be liable to make payments under the covenants of the lease. It seems to me the same principle should apply here, if Gross be considered an assignee of the original lessee.

On the record before us, I think the court below properly held that, even if Gross be viewed as a straw man assignee, acting for defendants as undisclosed principals of some sort, there is nothing in the law which fixes these defendants with personal financial responsibility to plaintiffs; therefore I dissent from the contrary opinion expressed by the majority of this court, which in effect will greatly impede, if not abolish, the use, in real estate transactions, of straw men, a most serviceable institution, long recognized in our law.

Mr. Justice KEPHART joins in this dissent.