Lewis v. Paul Brown Realty & Inv. Co.

• Decision Date: 11 February 1946
• Docket Number: 39553
• Parties: Charles R. Lewis, Appellant, v. Paul Brown Realty & Investment Company, a Corporation
• Court: Missouri Supreme Court

193 S.W.2d 13

354 Mo. 1025

Charles R. Lewis, Appellant, v. Paul Brown Realty & Investment Company, a Corporation

No. 39553

Supreme Court of Missouri

February 11, 1946

Rehearing Denied March 11, 1946.

Appeal from Circuit Court of City of St. Louis; Hon. F. E Williams, Judge.

Affirmed.

Oliver T. Remmers and Herbert F. Hahn for appellant.

(1) A lien clause in a lease is the same as a chattel mortgage. Matz v. Miami Club Restaurant, 127 S.W.2d 738. (2) Duty devolves upon creditor to record lease. State Bank of St. Louis v. Bartle, 114 Mo. 276; People's Bank of Ava v. Baker, 193 S.W. 632; Southern Trust Co. v. Vaughn, 277 F. 145; Sullivan v. State, 59 Ark. 47; 1 Brandt on Suretyship (3 Ed.), sec. 505; L.A. Becker Co. v. Gill, 206 F. 36. (3) It is the duty of every holder of security to preserve it for the benefit of one secondarily liable and failing the surety will be discharged. Natl. Exchange Bank v. Kilpatric, 204 Mo. 119, approved 317 Mo. l.c. 165; Troll v. Dougherty & Bush Real Estate Co., 186 Mo.App. l.c. 203, 171 S.W 665; Kansas City, etc., v. Southern Surety, 219 S.W. 727; Peyton v. Ethridge, 262 S.W. 69, 216 Mo.App. l.c. 268; Taylor v. Jeter, 23 Mo. 244; 16 Restatement of Law, sec. 132, pp. 358, 360; Burr v. Boyer, 2 Neb. 265; Hendryx v. Evans, 94 N.W. 853. (4) Plaintiff was subrogated to all lien rights defendant had in lease. McKenzie v. Missouri Stables, 225 Mo.App. 64, 34 S.W.2d 136; Netherton v. Farmers Exchange Bank of Gallatin, 228 Mo.App. 296, 63 S.W.2d 156; Loewenstein v. Queen Ins. Co., 227 Mo. 100, 129 S.W. 72.

Forest P. Tralles, Fred J. Hoffmeister and C. Kenneth Thies for respondent.

(1) A debtor's bankruptcy will not discharge a surety from his continuing liability and obligation to the creditor. Wolcott Mfg. Co. v. Cady & Olmstead Jewelry Co., 72 S.W.2d 845; 4 Williston on Contracts, sec. 1215, p. 3499. (2) The surety is estopped to complain when he sought and accepted the benefits of extensions, having rejected the right and opportunity to compel the debtor to pay the creditor upon the first notice of default. Rhodus v. Geatley, 147 S.W.2d 631; 19 Am. Jur., sec. 64; 50 Am. Jur., sec. 72; 50 C.J., sec. 250 (b), p. 152, p. 68, sec. 121; McMillan v. Parkell, 64 Mo. 286; First Natl. Bank v. Wells, 98 Mo.App. 573; Powers v. Woolfolk, 132 Mo.App. 354; Ruskamp v. Fletchling, 101 S.W.2d 524; Barrett v. Davis, 16 S.W. 377; Martin v. Whites, 106 S.W. 608; Bruegge v. Bedard, 89 Mo.App. 543; Rockville Natl. Bank v. Holt, 20 A. 669; Klise Lumber Co. v. Enkema, 181 N.W. 201; Chicago Great Western R. v. Kemper, 256 Mo. 279; Stearns on the Law of Suretyship, p. 174; Kotite v. Guaranty & Surety Co., 191 Ill.App. 555; State ex rel. Dunklin County v. Blakemore, 275 Mo. 695, 205 S.W. 626; 6 Williston on Contracts, sec. 1865, p. 5240; Sprigg v. Bank of Mount Pleasant, 35 U.S. 257. (3) There was no duty on the defendant to record the lease. 21 R.C.L. 993, sec. 42; English v. Seibert, 49 Mo.App. 563; Saussenthaler v. Federal Union Surety Co., 93 S.W. 286; 50 C.J. 175, sec. 283; Warder v. Johnson, 90 S.W. 392.

Dalton, C. Bradley and Van Osdol, CC., concur.

OPINION

DALTON

Action for damages for negligent failure to record a lease. Plaintiff, a surety, claims to have lost the right of subrogation to defendant's rights and to have been damaged thereby. The parties waived a jury and submitted the cause to the court upon an agreed statement of facts and evidence. The court found the issues for defendant and entered judgment. Plaintiff has appealed.

The defendant leased certain described premises to the Smith Candy Company "for the term of five years and two months, beginning on the first day of November 1935, and ending on the 31st day of December 1940, for a total minimum or guaranteed rental of Forty-Nine Thousand Six Hundred Dollars ($ 49,600.00), payable in equal monthly installments of $ 800.00," and the lessee further agreed to pay for water and electricity used on the premises. The lease provided that "all the property and furniture of said lessee situate upon said premises during said lease, shall be and is hereby bound for the rent herein reserved and for the fulfillment of all the covenants of this lease, and a lien is hereby created thereon in favor of said lessor for such rents and fulfillment of said covenants." In case of default, the lease provided that "the lessor may declare this lease terminated . . . and the lessor may hold the demised premises freed from any further liability on the part of the lessor hereunder, or the lessor may enter the leased premises as aforesaid and, as the agent of the lessee, relet the same for the balance of the term of this lease and may receive the rent therefor, applying the same, first, to the payment of the expense of such re-entering and re-letting, and then to the payment of rent due and to become due by these presents, the lessee agreeing hereby to pay and deficiency."

Contemporaneous with the execution of the said lease and in consideration of the execution thereof by defendant, plaintiff entered into an escrow agreement with defendant and deposited with an escrow agent securities to the value of $ 4800. The escrow agreement, in part, provided: "The lease above referred to, for which such security is deposited, expires December 31, 1940, and during the entire term thereof such security shall remain on deposit for the benefit of lessor to protect lessor against any defaults by lessee in the payment of rent or in the performance of other covenants by lessee to be performed." The agreement further provided for the delivery of said $ 4800 to defendant in payment of "defaulted rent or to the correction of lessee's other breach or breaches of covenant," but, if not so required, that "upon the expiration of said lease, with all the covenants fully performed by lessee," defendant should "certify to the full performance by lessee of all the covenants of said lease, and the cash or securities so deposited" should be returned by the escrow agent to plaintiff.

On August 9, 1938, the lease was recorded by defendant at plaintiff's request. Prior to that date plaintiff did not know that the lease was not recorded. From time to time, beginning on May 31, 1938, the plaintiff was notified by defendant of the lessee's defaults in the payment of rents and charges under the lease and plaintiff sought and received extensions of time for the payment of such delinquent rents and charges. On March 1, 1939 there was due defendant under the lease the sum of $ 5520.11, "all of which had accrued and become due after June 1, 1938." The defaults continued and, on March 24, 1939, defendant requested and received of the escrow agent the sum of $ 4800 deposited by plaintiff under the escrow agreement. At that time all agreements for extensions of time had expired.

When the lease was executed and the Smith Candy Company commenced business, it owed no debts to merchandise creditors, but on August 1, 1938 (shortly before the lease was recorded), it owed defendant $ 3761.36 delinquent rent and, further, owed general creditors approximately $ 10,000.00.

On April 3rd, 1939, after plaintiff's $ 4800.00 had been applied on the lessee's rent account, $ 1696.79 was still due defendant. On April 5, 1939, defendant advised the lessee that, unless the defaults were made good within ten days, it would "proceed to declare said lease terminated" and we infer from statements in other exhibits that the lease was in fact so terminated. On April 22, 1939, the lessee filed a voluntary petition in bankruptcy and was adjudged a bankrupt. Thereafter, defendant filed a claim in the bankruptcy court for "unpaid rent and electricity of $ 1894.57" and sought a lien on the lessee's property and furniture under the terms of its lease. The bankruptcy court denied the lien, but the claim was allowed as the claim of a general creditor. Plaintiff, thereafter, filed a reclamation petition based on plaintiff's guaranty contract and the alleged right of subrogation to the rights of defendant under its lease. The petition was denied, but plaintiff collected $ 363.78 on his "general claim of $ 4800."

On June 13, 1939, the trustee of the Smith Candy Company, Inc., a bankrupt, sold the furniture and fixtures of the Smith Candy Company for $ 3250.00, however, the value on that date would have been in excess of $ 6000.00 "on a going-concern valuation."

As stated, the cause was submitted to the court on an agreed statement of facts and evidence, including some 19 exhibits. No declarations of law were requested or given. The trial court did not indicate the theory upon which it acted in finding for defendant. The stipulation of the parties did not undertake to determine the ultimate facts, but rather submitted the cause upon admitted evidentiary facts with the ultimate facts for the determination of the court. Under the Civil Code, Laws of Missouri, 1943, p. 387, sec. 114(d), we "review the case upon both the law and the evidence as in suits of an equitable nature."

Appellant (plaintiff) contends that the finding and judgment of the court was for the wrong party and contrary to the facts set out in the agreed statement of facts. Appellant insists (1) that the provision of the lease reserving a lien upon the lessee's property and furniture for unpaid rent and for the fulfillment of all covenants of the lease was in legal effect a chattel mortgage (Matz v. Miami Club Restaurant (Mo. App.), 127 S.W.2d 738); (2) that "it was defendant's duty to record the lease with the chattel mortgage clause to preserve the security for one secondarily liable"; (3) that "plaintiff was subrogated to all lien rights defendant had in (the) lease"; and (4) that defendant having failed to record the lease and preserve the security (lien on property and...