Sylvester Watts Smyth Realty Co. v. American Surety Co.

• Citation: 238 S.W. 494,292 Mo. 423
• Decision Date: 19 December 1921
• Docket Number: No. 22068.,22068.
• Parties: SYLVESTER WATTS SMYTH REALTY CO. v. AMERICAN SURETY CO. OF NEW YORK.
• Court: United States State Supreme Court of Missouri

238 S.W. 494

292 Mo. 423

SYLVESTER WATTS SMYTH REALTY CO. v. AMERICAN SURETY CO. OF NEW YORK.

No. 22068.

Supreme Court of Missouri, Division No. 1.

December 19, 1921.

Motion for Rehearing Overruled March 14, 1922.

Appeal from St. Louis Circuit Court; J. Hugo Grimm, Judge.

Suit by the Sylvester Watts Smyth Realty Company against the American Surety Company of New York and another. Judgment for plaintiff, and the named defendant appeals. Affirmed.

J. D. Johnson, of St. Louis, for appellant.

Henry S. Caulfield, of St. Louis, for respondent.

RAGLAND, C.

This is a suit on a bond given to insure the performance of certain covenants of a lease on the part of the lessee. Plaintiff, the obligee in the bond, was incorporated under the laws of this state April 5, 1905, for the purposes, according to its articles of association, of "purchasing, owning and renting buildings and other property in this state and elsewhere, now owned or acquired by it; and to sell or exchange such property." Defendant Marsix Realty & Construction Company, the principal obligor, was also a Missouri corporation, having received its certificate of incorporation May 3, 1912. It had a capital stock of $3,000, and its charter recites that the purposes for which it was formed were:

"To own, acquire, buy and sell real estate, and any interest of any kind whatsoever therein, and to carry on a general real estate and construction business in connection therewith. To own and hold such real and personal property as shall be necessary and desirable for the success, conduct and operation of such business, and also to do any and all things necessary and incident to carrying out the purposes aforesaid."

On March 6, 1906, the plaintiff acquired the title in fee simple to a lot of ground and the improvements thereon situated at the southeast corner of Seventh and Market streets in the city of St. Louis. On June 15, 1912, it leased this property to the defendant Marsix Realty & Construction Company for a term of 99 years. The lessee agreed to pay quarterly, in advance, during the term, certain specified rentals, and in addition thereto all taxes that should thereafter during the term be assessed against the leased premises. By section 6 of the lease the lessee covenanted and agreed that, on or before May 1, 1916, it would begin to remove the improvements then on the demised premises, and would, on or before 18 months from and after said date, cause to be constructed, built, and completed thereon an entirely new modern building of fireproof steel and reinforced concrete construction, adapted to business, commercial, office, hotel, or theater purposes, at a cost to it of not less than $110,000, and that it would give to the lessor a bond in the sum of $25,000, executed by it and the defendant American Surety Company of New York, as surety, conditioned that it would construct, erect, complete and pay for said building within the time limited, and save the lessor harmless from and against all liens and claims of every kind growing out of such construction.

The lease further provided that upon the failure of the lessee to keep and perform any of its covenants the lease might, at the option of the lessor, be forfeited and determined by notice in writing to that effect. Upon its execution the defendant Marsix Realty & Construction Company, as lessee, went into constructive possession of the demised premises by accepting an assignment of a prior lease to the Pittsburg Plate Glass Company, expiring February 1, 1916.

On April 17, 1918, the lessee had done nothing whatever in the way of performing its agreement under section 3 of the lease; it had defaulted in the payments of rent, taxes, and fire insurance premiums, which it was obligated by the lease to pay; and it was owing plaintiff on account of these several items, with interest thereon, the aggregate sum of $28,127.97. The lease was thereupon terminated by plaintiff in accordance with its provisions.

The bond sued on was executed contemporaneously with the lease in compliance with section 6 thereof, and conformed in all respects to the provisions and requirements of that section. It recites, however, that the obligors are held and bound to the obligee "in the just and full sum of $25,000.00 to the payment whereof, well and truly to be made as liquidated damages and not as a penalty," they bind themselves, etc.

The petition, after alleging the execution of the bond and setting it out according to its legal effect, assigned an a breach thereof the failure of the defendant Marsix Realty & Construction Company to construct on the demised premises an entirely new modern fireproof building in accordance with the provisions of section 6 of the lease. The petition further alleged that the defendant Marsix Realty & Construction Company was indebted to plaintiff for rent, taxes, insurance premiums, and interest in the sum of $28,127.97; that said defendant was insolvent; that the new building provided for under the lease would, if erected, have added to the value of the leased premises $110,000; that such added value was intended to afford, and would have afforded, additional security for the payment of rent as it accrued under the lease and for the performance of the other undertakings thereunder on the part of the lessee; that by the breach of the bond plaintiff had been deprived of the security that would have been afforded by the new building with the consequent loss to it of its entire debt of $28,127.97; and that by the same breach it had suffered further damages in the loss of the value that such building would have added to the demised premises in the sum of $110,000. The prayer was for judgment Air $25,000, the penalty of the bond, and an award of execution for the full sum in satisfaction of the damages alleged to have been sustained.

In its separate answer, the defendant American Surety Company of New York admitted the execution of the bond; it also admitted that its codefendant had wholly failed to erect a new building as specified in section 6 of the lease, but denied the allegations of the petition with respect to the damages plaintiff claims to have sustained on account of such failure. As an affirmative defense it alleged that the lease and the bond were ultra vires of the corporate powers of both plaintiff and the defendant Marsix Realty & Construction Company and were therefore void. This portion of the answer, on plaintiff's motion, was stricken out by the trial court. The defendant Marsix Realty & Construction Company failed to answer.

Plaintiff introduced evidence tending to support, among others, the allegations of its petition with respect to the amount owing it under the lease for rent, taxes, insurance premiums, and interest, and with respect to the value that would have been added to the leased premises by the erection of a new building thereon as provided in the lease.

Defendant American Surety Company of New York introduced in evidence the articles of association of the plaintiff corporation, and also those of its codefendant and rested. It then asked leave to amend its answer to conform to the proof by reinstating its plea of ultra vires. Its request was denied.

The cause was tried to the court without a jury. On the measure of damages the court declared the law to be that—

It "should assess the plaintiff's damages at such sum as it may find from the evidence to be the fair and reasonable difference in value between the leased premises with the improvements as they were on the day that the court may find the forfeiture of the lease became complete and the leased premises as they would then have been if, in lieu of the improvements thereon as they then were, there had been erected thereon after the making of the lease, and on or before November 1, 1917, an entirely new, modern building of fireproof steel and reinforced concrete construction, adapted to business, commercial, office, hotel, or theater purposes, at a cost of not less than $110,000;" the amount of such damages, however, not to exceed the amount of the bond, nor the aggregate amount of the payments due plaintiff under the lease on the day its forfeiture became complete.

The defendant American Surety Company of New York requested two declarations of law, both" of which were refused: (A) that under the pleadings and evidence the verdict and judgment should be in its favor and (3) that in no event could plaintiff recover more than nominal damages.

The finding was for plaintiff, and its damages were assessed at $25,000. From the judgment rendered in accordance therewith the defendant American Surety Company of New York appeals. Such other facts as are necessary to an understanding of the questions involved will be stated in the course of the opinion.

1. Appellant's first and principal contention is that the 99-year lease was ultra vires of the corporate powers of both the plaintiff and the defendant Marsix Realty & Construction Company, and therefore void, and that as a consequence the bond given in aid of the lease and as a part of the same transaction was also void. Both companies were organized under the laws of this state as business corporations. The articles of association of defendant Marsix Realty & Construction Company, hereinafter called the defendant, recite that it was formed "to own, acquire, buy and sell real estate, and any interest of any kind whatsoever therein, and to carry on a general real estate and construction business in connection therewith."' Those of plaintiff declare that the purposes for which it was organized were "the purchasing, owning and renting of buildings and other property in this state and elsewhere, * * * and to sell or exchange such property." From these recitals it is manifest that the transaction involving the lease in question was not merely incidental to the carrying on by the two corporations of some other principal business for which they were respectively...