Posner v. Air Brakes & Equip. Corp..

• Decision Date: 17 December 1948
• Docket Number: No. 158/703.,158/703.
• Citation: 62 A.2d 711
• Parties: POSNER et al. v. AIR BRAKES & EQUIPMENT CORPORATION et al.
• Court: New Jersey Superior Court

62 A.2d 711

POSNER et al.

v.AIR BRAKES & EQUIPMENT CORPORATION et al.

No. 158/703.

Superior Court of New JerseyChancery Division.

Dec. 17, 1948.

Syllabus by the Court.

1. Where a corporation is the lessee of premises, the sale of its shares of stock to another corporation does not constitute an assignment of the lease nor an underletting of the premises in violation of a covenant prohibiting assignment or underletting.

2. A provision in a lease that the premises are ‘to be used and occupied for the sale, service, distribution and storing of brake and power-brake equipment and materials, and Auto Accessories' is not violated because lessee performs automobile frame extension and alignment work, the provision being descriptive or permissive, but not restrictive.

Action by Samuel Posner and Sara Posner against Air Brakes & Equipment Corporation and System Brake & Equipment Company to cancel and rescind lease and for declaratory judgment setting forth the rights, status and other legal relations of the plaintiffs and first named defendant, and for specific performance in the surrender and delivery to plaintiffs of fixtures and property in the demised premises.

Judgments for defendants.

Max L. Rosenstein, of Newark, for plaintiffs.

Bernard Shanley, III, of Young, Shanley, Foehl & Fisher, all of Newark, for defendants.

FREUND, Judge.

The plaintiffs are the owners of premises commonly known as No. 40 Frelinghuysen Avenue, Newark, N.J., which they leased to defendant, Air Brakes & Equipment Corp., for a term of three years commencing March 1, 1947. The lease provided that the premises were ‘to be used and occupied for the sale, service, distribution and storing of brake and power-brake equipment and materials, and Auto Accessories'; that the Tenant should not assign the agreement, or underlet the premises; and for termination in the event of default.

For a long time prior to the making of the lease, the plaintiff, Samuel Posner, had occupied the premises in the conduct of the business described in the lease. At the time of the execution of the lease, he was a stockholder in the tenant corporation. Thereafter, on or about May 2, 1947, for and in consideration of $31,690. he sold his interest to the remaining stockholders, and he and Sara Posner agreed to an extension of the term of the lease for a further period of two years, upon an increased rental.

Subsequently, the remaining stockholders sold their shares; they are now owned by System Brake & Equipment Company, the other defendant in this cause. The latter corporation is engaged in a business similar to that conducted by Air Brakes & Equipment Corp., and in addition performs frame extension and alignment work, operating two places of business, one at No. 1196 Broad Street, Newark and the other in Jersey City. The two defendant corporations are separate entities, their relationship being parent and wholly-owned subsidiary. The rent is paid to the plaintiffs by the tenant, Air Brakes & Equipment Corp., although some of the persons working at the demised premises are employees of the defendant, System Brake & Equipment Co.

The plaintiffs served notice upon the defendant, Air Brakes & Equipment Corp., terminating the lease on the ground that its provisions had been violated in that said premises were used and occupied for purposes other than those specified in the lease, and, further, that said lease had been assigned, or the premises underlet and occupied by an entity other than the tenant. Defendants denied violation of the lease. Plaintiffs thereupon filed their complaint, seeking (1) cancellation and rescission of the lease, (2) a declaratory judgment setting forth the rights, status and other legal relations of the plaintiffs and defendant, Air Brakes & Equipment Corp., and (3) specific performance by the defendants in the surrender and delivery to the plaintiffs of the fixtures and property in the demised premises.

Two issues are raised: (1) had there been an assignment of the lease or an underletting of the premises, and (2) had the tenant violated any provisions of the lease respecting the use of the demised premises.

It is well-settled that an assignment of a lease is not a violation of a covenant not to underlet, Field et al. v. Mills, Sup.1869, 33 N.J.L. 254, and an underletting is not a violation of a covenant not to assign, Bockover v. Post, Sup.1855, 25 N.J.L. 285. The fact that Air Brakes & Equipment Corp., the tenant in possession and occupancy of the premises, is a subsidiary of, or that its shares of stock are wholly owned by System Brake & Equipment Company, does not under the circumstances of this case constitute an assignment of the lease or an underletting of the premises by the lessee. A very similar set of facts came before Vice-Chancellor Backes in Rivoli Holding Co. v. Ulicny, Ch.1931, 109 N.J.Eq. 54, 156 A. 369. There as here, the landlord had been interested in or conducted the business carried on in the demised premises, and had sold the business to a corporation and leased the premises to it. The stock of the tenant corporation was acquired by another corporation. The landlord claiming a violation of the lease, entered into possession of the premises. In a proceeding brought by the tenant to enjoin the landlord from interfering with its business and to restore possession of the premises to it, the Court said, in finding for the tenant, ‘There was * * * a covenant against assignment of the...