Ottman v. Albert Co.

• Decision Date: 25 June 1937
• Docket Number: 310
• Citation: 327 Pa. 49,192 A. 897
• Parties: Ottman et al., Trustees, v. Albert Company et al., Appellants
• Court: Pennsylvania Supreme Court

192 A. 897

327 Pa. 49

Ottman et al., Trustees, v. Albert Company et al., Appellants

No. 310

Supreme Court of Pennsylvania

June 25, 1937

Argued January 12, 1937

Appeal, No. 310, Jan. T., 1936, from judgment of C.P. No. 1 Phila. Co., Dec. T., 1933, No. 3132, in case of William Ottman et al., substituted trustees for Rosalean B. Pulido Ottman et al. v. Albert Company and Henry Corporation. Judgment affirmed.

Assumpsit. Before LEWIS, J.

The opinion of the Supreme Court states the facts.

Verdict directed for plaintiff and judgment entered thereon. Defendants appealed.

Error assigned, among others, was refusal of judgment n.o.v.

The judgment is affirmed.

Stanley Folz, of Sundheim, Folz & Sundheim, with him Morris Wolf and Allen J. Levin, for appellants.

Robert T. McCracken, with him Ulric J. Mengert, for appellees.

Before KEPHART, C.J., SCHAFFER, MAXEY, DREW, LINN, STERN and BARNES JJ.

OPINION

MR. JUSTICE MAXEY:

This appeal involves the same written instruments and cause of action as were before us in Ottman et al. v. Nixon-Nirdlinger et al., 301 Pa. 234, 151 A. 879. The decision in that case was upon the pleadings, and it was held that plaintiffs' statement of claim made out a prima facie case entitling them to recover. Summary judgment for defendants upon a statutory demurrer was reversed and the case was remanded for trial. Upon the trial it appeared that the estate of Jules E. Mastbaum, deceased, had been improperly joined as a party defendant, instead of the corporation in which he had been active during his lifetime, Mastbaum Brothers and Fleisher. Accordingly judgment was entered for defendants, without prejudice, and plaintiffs instituted the present suit. Meanwhile Mastbaum Brothers and Fleisher changed its name to Henry Corporation, one of defendants, and Albert M. Greenfield & Company, the other defendant, became the Albert Company. The third defendant in the prior suit, Nixon-Nirdlinger, died before the suit was begun and plaintiffs made a cash settlement with his executors, covenanting not to sue.

The facts developed at the trial were substantially as disclosed in plaintiffs' statement of claim in the prior suit. In addition, oral and documentary proof was presented. Plaintiffs are substituted trustees. Their predecessor trustee on November 28, 1921, executed a written lease of certain real estate, located at Girard Avenue and Broad Street, Philadelphia, to a corporation, Realty Associates, Inc., for a term of 99 years. The annual rental was fixed at $30,000 for the first five years, thereafter to be redetermined by an appraisement of the premises. The lease further required that the lessee pay, as additional rent, all taxes and assessments on the property. By express condition the lease was assignable, on the condition that any assignee or sublessee of the lessee should be subject to all the terms of the lease and to a suit for default theron brought by the lessor.

On January 26, 1922, two months after the lease was executed, the lessee conveyed all its right, title and interest in the lease, by an agreement in writing therein designated an assignment, to Samuel Gross, a straw man who in this connection acted for defendants and for Nixon-Nirdlinger as his principals. The consideration stated in the assignment was $157,500, to be paid to the assignor, the lessee, in 21 annual installments of $7,500 each. Gross, the assignee, agreed in addition to perform all the covenants of the original lease in the lessee's stead, and that on default the lessee might cancel the assignment and retake possession of the premises. It was stipulated that, in order to assure compliance with the terms of the assignment, the original lease should remain on deposit with Albert M. Greenfield and Company (now the Albert Company, one of defendants), until the consideration had all been paid to the lessee. Greenfield & Company was to be the sole rental agent and to collect the rents and make distribution thereof to the lessor, lessee and assignee.

Greenfield & Company, the depositary of the lease, went into possession, collected the rents, paid certain taxes and repairs, and made disbursements on account of rent to the lessor and lessee. From the outset, however, the transaction was a losing venture for Gross's principals. Rentals received from subtenants were never sufficient even to make the payments required by the lease and assignment. Appellants and Nixon-Nirdlinger, instead of receiving a distribution of profits, were compelled to make up the deficit. Taxes fell in arrears and the quarterly payments of rental due the lessor ceased to be promptly paid. The annual rent was appreciably increased on a reappraisement of the property in 1926, after the expiration of the first five-year period, as provided in the lease. Finally plaintiffs, after giving notice, evicted defendants on June 28, 1928, in an amicable action of ejectment. Eventually this suit was brought, the default averred being nonpayment of a portion of the quarterly installment due January 1, 1928, the installment due April 1, 1928, and a much larger sum for unpaid taxes due for certain years, which plaintiffs paid on May 17, 1928.

The trial judge directed a verdict for plaintiffs and judgment in the amount of $75,397.76 was entered thereon, composed of the two items, $64,300.01 for taxes and $11,097.75 for rent. The court in banc overruled defendants' motions for judgment n.o.v. and for a new trial, and they have appealed.

Appellants' main contentions are that the agreement, or conveyance of the leasehold estate, dated January 26, 1922, was a sublease, not an assignment, and that this prevents Gross, the straw man, and hence appellants as well, from being liable directly to the lessors for rent; and, furthermore, that appellants, as unnamed principals of the straw man, cannot be held liable for his debt on principles of privity of estate.

These questions were previously decided adversely to appellants when the same lease and assignment were before us in the prior suit: Ottman et al. v. Nixon-Nirdlinger et al., supra. The importance of the issues involved, however, makes appropriate some further consideration of the principles involved. In dealing with the first question stated, whether the lease was assigned or there was a mere sub-letting, Mr. Justice SADLER, with the instrument before him, speaking for this court, said in the case cited, at page 242: "If the transaction had been in the form of a sublease, then the lessor could not maintain its action (Drake v. Lacoe, 157 Pa. 17, ; McClaren v. Citizens' Oil & Gas Co., 14 Pa.Super. 167; James v. Kurtz, 23 Pa.Super. 304), but if it was an assignment, and if the undisclosed transferees as principals received the beneficial enjoyment of the property, as averred, then they are, in terms, responsible. . . . Nor do we see merit in the suggestion that the relation of the parties was altered because the Associates, Inc., provided in its assignment for additional compensation to it, running over 21 years, retaining the power to reenter if default occurred: Lloyd v. Cozens, 2 Ashmead 131. The transaction is still to be treated as an assignment, with the incidents flowing therefrom, though such a reservation appears as shown by the cases cited by appellees: Gillette Bros. v. Aristocrat Restaurant, 239 N.Y. 87; Sexton v. Chicago Storage Co., 129 Ill. 318; Stewart v. Long Island R.R. Co., 102 N.Y. 601."

The issue here is whether by the written agreement dated January 26, 1922, privity of estate was created between plaintiffs' predecessor trustee and the defendants' predecessors. If it was so created, the obligation to pay rent created in the instrument in writing dated November 28, 1921, is the defendants', for a covenant to pay rent runs with the land. If a substitution of tenants took place, through the acts and agreements of lessee and transferee, so that appellants became entitled to the beneficial enjoyment and privileges of the estate created by the original lease to Realty Associates, Inc., and acquired this subject to practically the same set of conditions as were originally annexed to the lease in the lessor's favor, then they must be held liable for nonpayment of rent. Minor modifications of these original conditions, arising from the transfer by the lessee to appellants, which do not substantially diminish the right of beneficial enjoyment granted by the lease, will not affect liability, because they do not preclude privity of estate.

One of the determining factors in a problem like this is whether the transferee's rights in the leasehold estate were acquired by assignment or sublease. If the former, it is said that privity of estate will arise between the lessor and the assignee of the lease, and the assignee may be sued for rent by the lessor; if the latter, there is no privity and the sublessee cannot be held liable to the lessor. A lease is a conveyance conditioned upon the performance by the grantee of certain covenants. As stated by Chief Justice GIBSON, in Offerman v. Starr, 2 Pa. 394, 396 "A grant of the use and possession, in consideration of something to be rendered, is exactly what constitutes a lease of the thing to be possessed." See also Del., L. & W.R.R. Co. v. Sanderson, 109 Pa. 583, 1 A. 394; 35 C.J. 1140; 2 Bouvier's Law Dict. (Rawle's Third Revision) 1887. When the lessee transfers to another his interest in the leasehold estate created by the original lease, such transfer is likewise subject to covenants and conditions, which may be the same as or quite different from those of the original lease. If the party taking such a transfer or conveyance receives substantially the same beneficial interest or right of beneficial enjoyment of the leasehold estate as that held by...