Alexander v. Theatre Realty Corp.

• Citation: 70 S.W.2d 380,253 Ky. 674
• Parties: ALEXANDER et al. v. THEATRE REALTY CORPORATION et al.
• Decision Date: 23 March 1934
• Court: Kentucky Court of Appeals

70 S.W.2d 380

253 Ky. 674

ALEXANDER et al. v. THEATRE REALTY CORPORATION et al.

Court of Appeals of Kentucky

March 23, 1934

Rehearing Denied May 4, 1934.

Appeal from Circuit Court, Jefferson County, Chancery Branch, Second Division.

Suit by Kate H. Alexander and others against the Theatre Realty Corporation and others. From an adverse judgment, plaintiffs appeal.

Affirmed.

Crawford Middleton, Milner & Seelbach, of Louisville, for appellants.

Carroll & McElwain and H. H. Nettelroth, all of Louisville, for appellees.

PERRY Justice.

This appeal involves the decision of but one question, which is as stated in the opinion of the learned chancellor, whether or not the appellee Theatre Realty Corporation, the lessee and tenant in a lease for 99 years, has been released from its covenants by an assignment of the leasehold--without the present consent of the landlord--to a person known to be insolvent when the assignment was made. It is admitted that an assignment without the landlord's assent will not release the tenant from his covenants, unless it is expressly authorized by the lease, and the narrow question is whether the provision found in this lease for the exoneration of the tenant by assignment is brought into operation by its assignment to one at the time known to be insolvent and incapable of carrying out its covenants assumed.

With a view to giving a clearer and better understanding of the appellant landlord's contention that such character of assignment was not one made in good faith and does not give effect to nor realize the meaning and intent of the parties as expressed in the several clauses of the lengthy lease contract entered into by them, we deem it will be helpful to here briefly summarize the circumstances and negotiations leading up to its consummation.

The facts as to these matters are uncontroverted and show that about the first of 1928, Dr. Alexander, a wealthy citizen of Woodford county, Ky. anticipating his early receipt of some three-quarters of a million dollars from an expected sale of Chicago property, called upon A. J. Stewart, who was then president of the Fidelity & Columbia Trust Company, to advise with him as to the reinvestment of this fund. He advised him of his having had very satisfactory experience with investments in real estate held under long-term leases and inquired if his company had any real estate in Louisville it could offer him that was held under a long-term lease, or property that he might buy and then lease to some other person under a long-term lease; and, if so, he would be glad to have it submit him an investment of that character.

Mr Wirgman, another officer of the trust company, was called into the conference by Mr. Stewart, to whom Dr. Alexander again submitted his wish and plan for reinvestment of his expected receipt of the Chicago property sale proceeds, after which he was told that they would look into the matter for him and let him know.

A short while after this conference, Mr. Wirgman, knowing that Messrs. Chambers and Jones had bought the old St. Joseph Hospital property, located on Fourth street in Louisville, a good part of which they still held in the name of this trust company, and that such property was, in his judgment, a suitable and desirable one for meeting Dr. Alexander's purposes, took up the matter with its owners of their selling him the property and his leasing it for a long term back to them.

Chambers and Jones were favorably impressed with the suggestion, and negotiations looking to this end were begun by Mr. Wirgman.

After this, several conferences occurred and discussions were had between them, carried on through Mr. Wirgman as agent for vendors, as to what should be the terms of the sale and lease back of the property by Dr. Alexander to vendors.

Finally, on February 17, 1928, after the matter had been thoroughly discussed and differences adjusted, Mr. Wirgman submitted the vendors' offer of sale of this property to Dr. Alexander for a cash price of $792,000, free of all incumbrances, and that, should he accept the offer, "it would be one of the considerations and conditions of the sale that, immediately following the delivery of the deed to you, you as the landlord and we as the tenant would enter into a lease of said property covering a period of ninety-nine (99) years, and providing for an annual money rental of $44,000," payable in monthly installments, and that the lease would further cover (a) payment of taxes by the tenant; (b) deposit of $250,000 of securities by tenant; (c) would allow the use of them for the purpose of erecting a building; (d) would provide for keeping the securities up to $250,000 in value, giving the tenant the income from same; (e) would provide for insurance at the tenant's expense; (f) would further provide "that the original tenant and any subsequent tenant might assign the lease to a corporation or other party that would assume the tenant's obligations in the lease, and that such assignment and assumption would release the tenant so assigning from personal responsibility"; and (g) that the lease would contain all other provisions, terms, and conditions usual and incident to long-term leases.

It appears that the vendors, Messrs. Chambers and Jones, had, during the first stages in these negotiations, suggested putting up but $150,000 as security for the performance of the proposed lease covenants, but that Dr. Alexander had objected to such an amount as too small, insisting that the security given should be as much as $250,000. Chambers and Jones were at first unwilling to pledge so large an amount of securities, but later agreed to, when they realized that as much as $250,000 would anyway be required for the suitable improvement of the property.

Mr. Wirgman's testimony is uncontradicted that in the initial stage of this sale and lease transaction the plan of Messrs. Jones and Chambers was to cause the property they were offering to sell to be conveyed to Dr. Alexander through a corporation which they proposed to then organize and which would lease the property back from him, and that the rent, provided for in the lease, would be secured by its deposit of securities, deemed adequate therefor, as stated. He testified that at such time he did not think that Dr. Alexander even knew of the appellee Theatre Realty Corporation, and that at that time there was no thought of using it in connection with the deal, as title to the property was not then in the Theatre Realty Corporation; that the then purpose of all the parties was that a new corporation would be organized to become the tenant in the long-term lease; that negotiations had gone along relative to the price of the property and the amount of the rent and the amount of securities that was to be put up. Later, he stated, the vendors somewhat changed this plan, out of considerations of economy, by deciding to use the Theatre Realty Corporation, which they had previously organized for holding title to another portion of this property which they had improved and leased to the Loew Theatre Company, and it was agreed that, if for any reason they later desired to divest it of the lease, a new corporation could be organized and the lease assigned it, so as to release the Theatre Realty Corporation from further liability thereunder. Mr. Wirgman further testified that Dr. Alexander never had anything to say about, nor were any representations made him, as to who the tenant in the proposed lease was to be; that such matter was not decided upon until the negotiations for the sale and lease back were practically completed; and that Dr. Alexander's insistence and interest in the proposed lease appeared to center in the amount of security to be provided as a guaranty of the performance of the lease covenants, rather than as to who was to be his tenant.

The vendors' offer for a sale and release of the property finally was submitted to Dr. Alexander through Mr. Wirgman's letter of February 17, 1928, which was accepted by Dr. Alexander. The property was thereupon conveyed him by the Theatre Realty Corporation and a long-term, or 99-year, lease, prepared with great care and particularity, according to the terms of the letter, was executed on March 27, 1928, by Dr. Alexander to the appellee Theatre Realty Corporation, as lessee thereof, providing for a fixed annual rental of $44,000, etc., throughout the lease term.

Thereupon the lessee at once exercised its right, provided for in clause 7 of the lease, to use the sale proceeds of the deposited securities for the erection of buildings upon the leased premises, subject to the trustee's approval, and therewith constructed improvements thereon at a cost somewhat in excess of the $250,000 sale proceeds of the deposited securities.

Clause 9 of the lease provided that, in case the improvements on the leased property should be damaged or destroyed by any casualty not covered by insurance, the tenant would be required to deposit with the trustee additional securities of the market value of the cost of repairing the damage.

By clause 19, the landlord was given the right to terminate the lease for default in the performance of any of its covenants, and it was provided that, should he so terminate it, he should have the right to re-enter and take possession of all the improvements thereon, and that, "as liquidated damages for failure to carry out the terms of this lease, the landlord was thereby entitled to the ownership of all improvements placed upon the leased property."

It appears that this lease was drawn by Mr. Wirgman for the vendors, Jones and Chambers, but that (he testified) none the less, while acting as their agent, he "tried to make the proposition perfectly fair" and the lease a "sound,...