SS Kresge Co. v. Sears, 3178.

• Decision Date: 18 December 1936
• Docket Number: No. 3178.,3178.
• Citation: 87 F.2d 135
• Parties: S. S. KRESGE CO. v. SEARS et al.
• Court: U.S. Court of Appeals — First Circuit

87 F.2d 135 (1936)

S. S. KRESGE CO. v. SEARS et al.^*

No. 3178.

Circuit Court of Appeals, First Circuit.

December 18, 1936.

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Hale & Dorr and Joseph N. Welch, all of Boston, Mass. (Richard W. Hale, David Burstein, and Raymond B. Roberts, all of Boston, Mass., on the brief), for appellant.

Robert G. Dodge, of Boston, Mass. (Thomas M. Reynolds and George M. Naylor, Jr., both of Boston, Mass., on the brief), for appellees.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

WILSON, Circuit Judge.

This is an appeal from a decision of the District Court for the District of Massachusetts on a petition for a declaratory judgment under section 400, title 28 U.S.C.A., which provides as follows:

"In cases of actual controversy except with respect to Federal taxes the courts of the United States shall have power upon petition, declaration, complaint, or other appropriate pleadings to declare rights and other legal relations of any interested party petitioning for such declaration, whether or not further relief is or could be prayed, and such declaration shall have the force and effect of a final judgment or decree and be reviewable as such."

The petitioner is a lessee under a lease of valuable real estate on the corner of Tremont and Bromfield streets in Boston, Mass., executed on June 10, 1921, between the appellant and the appellees, and amended by a supplemental indenture on November 4, 1921. The petitioner seeks a declaration in its favor that it is entitled by assigning the lease to relieve itself of all further liability thereunder. The District Court ruled that the petitioner is not so entitled, and a final decree was entered therein declaring "that the petitioner has the right to assign the lease referred to in the petition, but any such assignment will not operate to release the petitioner from its liability upon its covenants in said lease."

The lease is for the term of fifty years from January 1, 1922, with the right on the part of the lessee upon certain conditions to an additional term of forty-nine years.

With respect to an assignment the original lease contains the following provisions:

"The lessee covenants and agrees not to assign this lease without the lessors' written consent until after the completion of the new building or buildings hereinabove provided to be erected by it, nor until the premises, including such new buildings, shall be free and discharged of all liens, claims, and charges incurred in or by or during the construction of said building, but thereafter it may assign without such assent. The lessee may from time to time sub-let the whole or any part of said demised premises.

"All legal and sufficient instruments of assignment and acceptance as intended to be made, and made, shall, at least ten days prior to their execution, be placed in the hands of the lessors for inspection (not hereby intending approval or disapproval), and such instruments after execution and delivery shall be promptly recorded by the lessee in the proper recorder's office."

By the supplemental indenture of November 4, 1921, it was further provided that:

"* * * The lessee covenants that if it elects to pull down and remove the buildings now standing as aforesaid, it will erect either a building or buildings of fireproof and first-class construction provided for in said previous indenture or a building of second-class construction as herein provided. If, however, the lessee erects a building of second-class construction, it shall not be entitled to a renewal of its lease for a further term of forty-nine years as in said previous indenture provided * * *; nor shall the lessee assign its lease without the lessors' written consent until it has erected a building of fireproof and first-class construction in accordance with the terms of said previous indenture."

The lessee erected a fireproof building of first-class construction.

The petitioner evidently has found under present conditions that the lease has become burdensome, and on August 26, 1935, the petitioner's attorney sent the respondents a letter stating that the plaintiff had decided "to exercise its right to assign the lease and thereby be relieved from further liability in respect to it," and inclosed a draft of a proposed assignment to one Louis J. Binda.

The respondents thereupon sent a reply to the petitioner on September 3, 1935, in which they recognized the right of the petitioner to make an assignment, but stated that they should continue to look to the petitioner for the performance of all the covenants of the lease.

By a stipulation entered into between the parties, it was agreed that Binda, the proposed assignee, is without assets, and that the sole purpose of the petitioner in making the assignment is to terminate its liability under the lease.

The rules for the interpretation of written contracts are, of course, not in dispute. The intent of the parties is the guiding star in the interpretation, and all parts of the instrument are to be considered together and each word or phrase, if possible, is to be given its ordinary meaning.

The law is well settled, and it is admitted by counsel for the petitioner, that a lessee is not discharged from liability on his covenants in the lease by an assignment in the absence of express or implied agreement on the part of the lessor to that effect, which is the law in the commonwealth of Massachusetts, Way v. Reed, 6 Allen, 364, 369; Talbot et al. v. Rednalloh Co., 283 Mass. 225, 235, 186 N.E. 273, 276, and governs this case. Amer Realty Co., Inc., v. Eastern Tire & Rubber Co., Inc., 274 Mass. 297, 174 N.E. 486; Buchser v. Buchser, 231 U.S. 157, 161, 34 S.Ct. 46, 58 L.Ed. 166.

In Way v. Reed, supra, the court said:

"Doubtless it is competent for a lessor to enter into such stipulations with an assignee as to accept him as sole tenant, and to absolve the original lessee from his contracts. But an intent to create a new contract and to annul the lease as against the original lessee must be clearly shown; otherwise the rule of law by which the lessee and the assignee will both be held liable to the lessor must prevail."

Again in Talbot et al. v. Rednalloh Co., supra, the court said:

"If the defendant was bound as a lessee to the agreement of October 3, 1922, it was not released from the contractual obligations in its covenants by the assignment to L. P. Hollander Co. Inc. with the consent of the lessors. * * * The lessors' consent to the assignment does not indicate an intent to create a new contract and annul the lease as against the original lessees and does not show a surrender of the lease accepted by the lessors. In the case of an assignment by the lessee the collection of rents from the assignee by the lessors does not relieve the lessee from his covenant to pay rent."

Also see Wall v. Hinds, 4 Gray, 256, 64 Am.Dec. 64; Pfaff v. Golden, 126 Mass. 402; Greenleaf et al. v. Allen, 127 Mass. 248; Johnson et al. v. Stone, 215 Mass. 219, 102 N.E. 366; Hamlen v. Rednalloh Co. (Mass.) 197 N.E. 149, 99 A.L.R. 1230; Halbe v. Adams, 172 App.Div. 186, 158 N.Y.S. 380, 382; Midland Telegraph Co. v. National Telegraph News Co., 236 Ill. 476, 86 N.E. 107; Kanawha-Gauley Coal & Coke Co. v. Sharp, 73 W.Va. 427, 80 S.E. 781, 52 L.R.A.(N.S.) 968, Ann. Cas.1916E, 786; 16 R.C.L. p. 843, § 343; p. 846, § 346.

It appears from the cases cited above that the mere assignment of a lease, even with the consent of the lessor, does not relieve the original lessee from liability under his express covenants. To absolve the original lessee from liability in case of an assignment, it must appear in fact that the lessor has contracted that the lessee shall not be further liable.

Counsel for the appellant, however, thinks he finds within the four corners of this lease an implied release of the lessee in case of an assignment. Such a release, however, should clearly appear from the terms of the lease, especially if an assignment to a straw assignee amounts in fact to a termination of the lease, which in this case has at least thirty-five more years to run.

Counsel for the appellant suggests that color for his contentions is found in the provision of the lease that gave the lessee an unrestricted right to sublease, which he argues is a power to do everything except terminate liability; and because the additional right to assign without consent was also given, it could only mean that the lessee might by assignment rid itself of the property and of liability.

The relations existing between a lessor and lessee and an assignee are quite different in case of an assignment of a lease and a sublease covering the entire building. In the first case the lessee, unless clearly relieved of his obligation, becomes a surety for the performance of the covenants of the lease by the assignee, and even the acceptance of the rent of the assignee by the lessor does not relieve the lessee of this obligation; while in the case of a sublease of the entire premises the lessee remains the tenant to whom the lessor must look for his rental, and the lessee must in the first instance continue to pay the rent and perform the other covenants of the lease.

We think it could not have been in the minds of the parties that the implication contended for should be drawn from the provisions to sublet and to assign. One could not expect a party to lease land for fifty years and construct thereon a building of several stories for chain store purposes at an expense of approximately $800,000 without being assured of the right to sublet parts of the building. This right was essential to the use which the Kresge Company obviously intended to make of the premises.

If any implication arises from the fact that after the erection of the new building the lessee might assign the lease, as in this instance, to an irresponsible party, without the lessors' consent, it is that it was not the intention of the parties to the lease that the lessee...