Illinois Sur. Co. v. O'Brien

• Decision Date: 08 June 1915
• Docket Number: 2631.
• Citation: 223 F. 933
• Parties: ILLINOIS SURETY CO. v. O'BRIEN.
• Court: U.S. Court of Appeals — Sixth Circuit

223 F. 933

ILLINOIS SURETY CO. v. O'BRIEN.

No. 2631.

United States Court of Appeals, Sixth Circuit.

June 8, 1915

F. J Wing, of Cleveland, Ohio, for plaintiff in error.

A. A Stearns, of Cleveland, Ohio, for defendant in error.

Before WARRINGTON and DENISON, Circuit Judges, and EVANS, District judge.

DENISON Circuit Judge.

When this case was here before (O'Brien v. Illinois Co., 203 F. 436, 121 C.C.A. 546) we reviewed the judgment which had sustained a demurrer to the petition. It then appeared that O'Brien had leased a certain lot to Nolan for 97 years, commencing in January, 1907; that Nolan as lessee, had agreed to pay a specified rental and to erect at once a described building; that the surety company had guaranteed the performance of Nolan's promise to erect the building; that it had not been erected, and that the agreed rent had not been paid; and that, for nonpayment of the rent, O'Brien had terminated the lease and re-entered. It was decided that O'Brien's damages against the surety company on its bond were to be measured by the value which the building, if erected, would have been to him as security for the performance of Nolan's rental and other covenants in the lease. After the case was remanded, an answer was filed and a trial on the merits had. It appeared that the building would have cost more than $7,000, and that the rents and other payments which had become due from Nolan before forfeiture and re-entry were $5,100, and, accordingly, O'Brien had judgment for $5,000, the full amount of the bond penalty. The surety company brings error, and the record presents four distinct questions.

1. The fact proved to be that O'Brien was not the owner of the fee, but was himself lessee under a 99-year lease which had run 2 years, and that his lease from the fee owner covered a larger lot, from the rear end of which a parcel was cut out by his lease to Nolan. It is said that the measure of damages which we formulated on the first review contemplated its application as between the fee owner and the lessee, and is inappropriate for use between lessee and sublessee. Clearly, this would be true in many cases, and perhaps in the typical case of a short time lease. In such case, the value which the building would add to the interest in the real estate held by the first lessee would be so much more contingent and practically uncertain than in a case where the building became a part of the fee that the difficulty of determining the damage would be much increased. When we come to consider the peculiar facts now involved, the difference between the case as we formerly supposed it to exist and as it does exist is not substantial, and there is no occasion to change the rule. A leasehold interest for 97 years is often sold as readily as the fee; this building could not be expected to endure for more than 97 years; and we think it is clear enough that such a building, both for purposes of rental and for purposes of resale, would add to the value of the estate of a tenant for 97 years practically as much as it would add to the value of the fee; at any rate, the difference is so merely theoretical that we cannot think there was prejudicial error because the court did not observe such distinction as there may be.

2. It is urged that O'Brien was at fault in not endeavoring to rerent the premises, and that damages should be minimized accordingly. The rental was payable quarterly, in advance. Nolan paid each of the four quarterly installments accruing during the year 1907. He paid nothing during 1908, nor for the first quarter of 1909. O'Brien thereupon served notice of forfeiture. The lease provided that a 60-day notice should be given, and that, during the 60 days, Nolan might perform all the conditions in default and thereupon be fully reinstated. During this 60 days, after notice served, the second quarterly installment for 1909, payable in advance, became due. We cannot see that these facts give any room for the application of the rule of duty to minimize damages. It does not appear that Nolan had surrendered or abandoned the premises or forfeited his rights as tenant. His rights could not be cut off until the expiration of 60 days after notice served, and even if it be assumed that O'Brien might have obtained possession earlier, he could not have safely rerented until the close of the 60-day period. Defendant's position, then, amounts to a claim that a landlord is bound to proceed to take possession and rerent with reasonable promptness after the tenant has made default. We think he is under no such obligation, even to the surety for the tenant-- at least, unless the facts indicate that the tenant has abandoned the lease. If there were abandonment, or something equivalent, we would have to consider what, if any, duty to rerent fell upon the landlord; not so, under the facts of this record.

3. Proof was offered and refused to the effect that, at the date of the lease from O'Brien to Nolan, there was outstanding a prior lease from O'Brien--covering the premises, and having still six months to run-- whereby Nolan's building operation would have been embarrassed and Nolan's surety was released. It is not made to appear that either Nolan or the surety company was ignorant of this prior lease or that they did not contract with full reference to it; but, passing this objection, there was no proof offered to show that the prior lessee was in possession, or claimed the right of possession, or did in the slightest degree interfere with anything Nolan desired to do, and it affirmatively appeared that Nolan paid the rent for the entire first year, covering this six months period and never made any objection because of this alleged outstanding lease. Under these circumstances, there is no room to claim that either Nolan or the surety company was prejudiced.

4. It is next and finally urged that the building ordinances of Cleveland, in force at the date of the lease, forbade erection of the structure which the lease contemplated, and hence that neither Nolan nor his surety can be held to respond for its nonerection. The lease contains an express agreement by Nolan that he will 'at all times comply with and fully obey all lawful requirements, rules, laws, and ordinances of all lawfully constituted authorities in erecting said building and in using said premises'; but we do not see that this covenant increased Nolan's existing legal duty. Evidentially, it shows that the subject of ordinances was in the minds of the parties, and so it tends to strengthen the natural presumption that they did not intend by another paragraph of the lease expressly to provide for the erection of a building which the ordinances made unlawful. This other paragraph provided that Nolan should 'erect on said premises a brick building of fireproof construction, not less than two stories in height, having a frontage on Eighth street of not less than 60 feet, and a depth of not less than 50 feet; the front of said building to be of pressed brick, with stone trimmings.' The parcel leased to Nolan had a westerly frontage on Eighth street of 61.16 feet, and a depth, extending easterly, of 50.33 feet on one side and 52.39 feet on the other side. The parcel of which O'Brien was lessee, under the underlying lease, had a frontage of about 57 feet on the north side of Prospect street, and ran back northerly about 207 feet to Alpha court or Alpha alley, and was bounded on the east by the public way, called Oak Place in the O'Brien lease and Eighth street in the Nolan lease. Prospect street is assumed to be the full width, 66 feet or more. It thus appears that the Nolan parcel was practically the rear 60 feet...