Davidson v. Minn. Loan & Trust Co., 23708.

• Decision Date: 21 March 1924
• Docket Number: No. 23708.,23708.
• Court: Minnesota Supreme Court
• Parties: DAVIDSON v. MINNESOTA LOAN & TRUST CO.

158 Minn. 411

197 N.W. 833

DAVIDSON

v.MINNESOTA LOAN & TRUST CO.

No. 23708.

Supreme Court of Minnesota.

March 21, 1924.

Appeal from District Court, Ramsey County; John B. Sanborn, Judge.

Action by Watson P. Davidson against the Minnesota Loan & Trust Company. From an order denying new trial, defendant appeals. Affirmed.

Syllabus by the Court

A lease is both an executory contract and a present conveyance, and creates a privity of contract and a privity of estate.

An assignment of a lease transfers the privity of estate but not the privity of contract.

A sublease for the whole term is in law an assignment as between the original lessor and the sublessee, but may be given effect as a contract as between the sublessor and sublessee.

If a sublease retains any part of the term, however small, in the sublessor, it does not operate as an assignment but only as a sublease.

The sublease here involved was for the full term.

Even if a sublease leaves no reversion in the sublessor, if it contains covenants of advantage to him and gives him the right to re-enter for breach thereof, he may enforce this right on failure to perform such covenants.

The rights given to a tenant by the last proviso of chapter 428, Laws of 1917 (Gen. St. Supp. 1917, § 6807), are not involved herein. Chas. J. Tryon and James M. Martin, both of Minneapolis, for appellant.

Lightner & Young, of St. Paul, for respondent.

TAYLOR, C.

On November 25, 1911, the owners of a tract of land in the business part of the city of St. Paul leased it to plaintiff--

‘from the first day of December, A. D. nineteen eleven (1911), for and during the full term of one hundred (100) years next ensuing, that is to say, until the thirtieth day of November two thousand and eleven (2011).’

The lease provided for an annual rental of $5,100 during the first 10 years, payable in 12 monthly installments of $425 each on the first business day of each and every calendar month in advance; for an annual rental of $5,400 during the second 10 years payable in monthly installments of $450 each; and for an annual rental of $5,700 during the remainder of the term, ‘that is the next eighty (80) years, from December 1, A. D. 1931, to and including November 30, A. D. 2011,’ payable in monthly installments of $475 each in the manner thereinbefore set forth. The lease also contained numerous other provisions including a provision for re-entry in case the lessee should fail to pay the rent as stipulated or to perform any of the covenants to be performed by him. At the same time and as a part of the same transaction the owners gave plaintiff an option to purchase the property at any time before the 1st day of December, 1921, on the terms therein stated.

On January 13, 1916, plaintiff leased the property to Perry K. Gilfillan--

‘from the first day of January, A. D. 1916, until the thirtieth day of November, A. D. 2011, yielding and paying for the same each and every year during said term the sum of ten thousand ($10,000) dollars lawful money of the United States of America, in twelve (12) monthly installments of eight hundred thirty-three and 33/100 ($833.33) dollars each, on the first business day of each and every calendar month in advance, that is to say, on the first day of January, A. D. 1916, and thereafter on the first business day of each and every calendar month throughout said term.’

Gilfillan covenanted to pay the stipulated rent each month; to pay all taxes and assessments before any penalty attached for nonpayment, and in each case to furnish plaintiff with proper proof of such payment; to surrender possession of the premises to plaintiff ‘on the last day of said term or other sooner determination’ thereof; to observe and obey all laws and all city ordinances and regulations relating to the use or occupation of the premises, or the construction or maintenance of buildings thereon; to give plaintiff a bond before beginning the construction of buildings or the making of improvements to secure the payment and discharge of all claims which might become liens on the property; to keep all buildings insured with a provision in the policy that the proceeds thereof should be used in rebuilding or repairing the buildings destroyed or damaged by fire; and to keep the buildings in repair and replace any destroyed. The lease also contained a provision that the waiver by plaintiff of a breach of any covenant or condition should not operate as a waiver of any subsequent breach thereof; also a provision that all payments to be made under the lease should be made at such place in the city of St. Paul as plaintiff should from time to time designate by writing delivered to the lessee or his assigns; and also a provision for re-entry in case the lessee should fail to pay the rent as stipulated or to perform any of the covenants or conditions to be performed by him. Except as indicated by the provisions above mentioned, the provisions in this lease are identical in form with those in the lease from the owners to plaintiff; but this lease makes no reference whatever to that lease, nor to the fact that plaintiff held the property under a lease. So far as this instrument discloses, plaintiff appears to have been dealing with the property as owner; but in fact the parties had the oridinal lease before them while preparing this.

Gilfillan assigned one-half of his interest under his lease to William J. Hoy, and he and Hoy proceeded to erect a business building on the property. To procure funds for constructing the building they issued bonds in the sum of $50,000, in January, 1917, and secured the payment of them by executing to defendant a trust deed of the building--

‘together with the leasehold interest in said real estate under that certain ground lease made by Watson P. Davidson * * * party of the first part, and Perry K. Gilfillan * * * party of the second part, dated January 13, 1916, * * * with all the rights and privileges under and by virtue of said ground lease and subject to all the terms and conditions thereof, together with all the buildings and improvements hereafter to be erected thereupon, and the rents and income due or to become due from any thereof.’

Plaintiff has paid to the owners the rents stipulated for in the original lease as they became due and has performed all the terms and conditions of that lease. Gilfillan paid to plaintiff the rents stipulated for in the sublease as they became due until May, 1920, when he became financially embarrassed. In August, 1920, defendant began an action to foreclose its trust deed upon the leasehold held by Gilfillan, and was appointed receiver, and took possession of the property, and has retained possession ever since. At the foreclosure sale defendant bid in the property as trustee for the bondholders. The time for redemption expired in May, 1922, and defendant has succeeded to all the interest in the property acquired by Gilfillan under his sublease.

After taking passession as receiver, defendant asserted that the sublease operated as an assignment to Gilfillan of the original lease, that the covenant to pay rent to plaintiff was merely the personal obligation of Gilfillan, and that defendant as receiver was only liable for the rentals reserved to the owners in the original lease. However, on plaintiff's threat to terminate the sublease unless the rents stipulated for therein were paid, defendant paid them under protest until the time to redeem from the foreclosure sale expired in May, 1922. Thereafter defendant, claiming that plaintiff had parted with all his interest in the property, refused to make further payments to him, but offered to pay to the owners the rents reserved in the original lease. But the owners received their rents regularly from plaintiff and never accepted any from defendant. Plaintiff served notice to terminate the sublease for default in its conditions, demanded possession of the property, and thereafter brought this action. The trial court found that plaintiff was entitled to judgment for the rents in arrear, and for possession of the property unless such rents were paid within 30 days after the entry of judgment. Defendant appealed from an order denying a new trial.

Defendant contends that the sublease was for the full term then held by plaintiff; that, being for the full term it was not a sublease, but operated as an assignment of the original lease, leaving no interest in the property in plaintiff; that Gilfillan, as assignee of the original lease, and defendant, as his successor in interest, became the tenant of the owners, but not of plaintiff, and is entitled to hold the property by complying with the terms of the original lease without complying with those of the sublease; and that the failure to perform the conditions of the sublease gives plaintiff no right to reclaim the property, although it may give him a cause of action against Gilfillan personally for breach of contract.

With the theory of feudal tenures as a basis, the common law developed an elaborate, complicated, and highly technical system of rules regulating and governing the creation and transfer of estates and interests in real property, and fixing and defining the rights and obligations springing from the grant or transfer of such estates or interests. These rules still determine, to a large extent, the rights and obligations arising from the relation of landlord and tenant; and the courts, feeling constrained to apply them except as changed by statute, sometimes find difficulty in giving to present day contracts the effect which the parties intended their contracts to have.

A lease is both an executory contract and a present conveyance, and creates a privity of contract and a privity of estate between the lessor and the lessee. The authorities hold that where the lessee relets for his whole term, the instrument, whatever its form, operates as an assignment of the original lease to the extent, at least, of transferring the...