Conditioner Leasing Corp. v. Sternmor Realty Corp.

Majority

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Conditioner Leasing Corp., Respondent, v. Sternmor Realty Corp., Appellant, et al., Defendants.

Argued January 3, 1966;

decided January 13, 1966.

Joseph Greenberg, Murray L. Gilman and Isidore A. Seltzer for appellant.

I. A purchaser of real estate in the absence of

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specific agreement to the contrary does not become obligated to pay his grantor’s debts. (Langel v. Betz, 250 N. Y. 159 ; Title Guar. & Trust Co. v. 457 Schenectady Ave., 260 N. Y. 119 ; General Meter Serv. Corp. v. Manufacturers Trust Co., 182 Misc. 184 , 267 App. Div. 992 .) II. Mere prevention by appellant of respondent’s removal of its units is not to be treated as the equivalent of an assumption by operation of law. (Frank v. New York, L. E. & W. R. R. Co., 122 N. Y. 197 ; Tel-Hotel Corp. v. Lexnott Corp., 205 Misc. 576 ; Matter of Kaufman, 272 App. Div. 578 .) III. Respondent’s lease having been subordinated to the rights of the first mortgagee, appellant had no right and could not permit plaintiff to remove its units, absent the unequivocal consent of said mortgagee. Such consent was never obtained. (McCloskey v. Henderson, 231 N. Y. 130 ; Chasnov v. Marlane Holding Co., 137 Misc. 332 .) IV. If appellant’s refusal to permit respondent to remove its units can be held to constitute an assumption of the lease, as decided by the majority opinion of the Appellate Division, it is nevertheless settled law that appellant would only be liable for breaches which occurred after its alleged assumption and not for breaches which had occurred prior thereto. (Townsend v. Scholey, 42 N. Y. 18 ; Mann v. Munch Brewery, 225 N. Y. 189 ; Trustees of Columbia Univ. v. Rathbone, 172 App. Div. 902 , 227 N. Y. 560 .) V. The lease sued upon was merely a bailment. Respondent’s claim against appellant, if sustainable in any event, would be either in conversion or replevin and not for the past due accelerated rent. (Chamberlain v. Pratt, 33 N. Y. 46 ; Hood Farm v. Roberts, 254 App. Div. 383 ; Goulet v. Asseler, 22 N. Y. 224 ; Prince v. Conner, 69 N. Y. 608 .) VI. The provision in the lease for acceleration of the rent, upon default in payment of rent or other performance of any other covenant on the part of the lessee, is an unenforcible penalty. The lease must be interpreted as of its date and not as of its breach. (Seidlitz v. Auerbach, 230 N. Y. 167 ; Lenco v. Hirschfeld, 247 N. Y. 44 .) VII. The lease sued upon was terminated by plaintiff’s unilateral election. Hence, it could not be revived and assumed by appellant by operation of law in any case. (Helgar Corp. v. Warner’s Features, 222 N. Y. 449 ; Howes v. Peckham Rd. Corp., 14 A D 2d 940 .)

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Burton M. Fine, Robert L. Tofel and Meyer Maltz for respondent.

I. Appellant had notice and knowledge of the lease at the time it purchased the premises in which the air conditioners were installed and thereafter continued to use them for its own benefit. Its conduct constitutes an assumption of the obligations of that lease. (Frank v. New York, L. E. & W. R. R. Co., 122 N. Y. 197 ; Daliendo v. Minardi, 195 Misc. 657 ; Tel-Hotel Corp. v. Lexnott Corp., 205 Misc. 576 ; Gillette Bros. v. Aristocrat Rest., 239 N. Y. 87 ; Mann v. Munch Brewery, 225 N. Y. 189 ; General Meter Serv. Corp. v. Manufacturers Trust Co., 182 Misc. 184 , 267 App. Div. 992 ; Neponsit Prop. Owners’ Assn. v. Emigrant Ind. Sav. Bank, 278 N. Y. 248 ; Nicholson v. 300 Broadway Realty Corp., 7 N Y 2d 240 ; Frankel v. Tremont Norman Motors Corp., 21 Misc 2d 20 , 10 A D 2d 680 , 8 N Y 2d 901 .) II. By using the units and availing itself of the benefits of the lease, appellant has assumed the obligations thereunder. (Matter of Kaufman, 272 App. Div. 578 .) III. The second mortgagee having consented to removal and the first mortgagee having had no objection to removal, if replaced, there was no impediment to removal of the units. (McCloskey v. Henderson, 231 N. Y. 130 ; Chasnov v. Marlane Holding Co., 137 Misc. 332 .) IV. The acceleration clause contained in the lease is valid and binding. (Matter of Judy Bond, Inc. [Kriendler], 36 Misc 2d 943 ; Seidletz v. Auerbach, 230 N. Y. 167 ; Belnord Realty Co. v. Levison, 204 App. Div. 415 .) V. The lease was not terminated. (Muzak Corp. v. Hotel Taft Corp., 1 N Y 2d 42 ; Cammack v. Slattery & Bro., 241 N. Y. 39 ; Helgar Corp. v. Warner’s Features, 222 N. Y. 449 ; Howes v. Peckham Rd. Corp., 14 A D 2d 940 .)

Regardless of whether appellant be deemed to have assumed the lessee’s obligations under this lease of air-conditioning equipment, the cases hold that having taken possession of the leased property under the circumstances disclosed by the record, appellant became at least an assignee, and, therefore, liable for payment of the accelerated balance of rent without assumption of the lease (Gillette Bros. v. Aristocrat Rest., 239 N. Y. 87 ; Frank v. New York, L. E. & W. R. R. Co., 122 N. Y. 197 ; Mann v. Munch Brewery, 225 N. Y. 189 ; General Meter Serv. Corp. v. Manufacturers Trust Co., 182 Misc. 184 ,

Dissent

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affd. 267 App. Div. 992 ; Tel-Hotel Corp. v. Lexnott Corp., 205 Misc. 576 ). In this instance, to the knowledge of appellant at the time when it acquired this apartment house and took possession of the air-conditioning equipment leased from respondent, the rental for the balance of the term of the lease had already become due and payable. Consequently, by insisting upon retention of possession of this leased equipment, appellant became in law an assignee of the lease and thereby bound to payment of the rent accrued for the balance of the term. There was no illegality in the acceleration clause whereby the rent for the balance of the term became due prior to appellant’s entry into possession (Belnord Realty Co. v. Levison, 204 App. Div. 415 ).

The order appealed from should be affirmed, with costs.

The decision of the majority seems to me to reach an inequitable result. It is not mandated by the prior decisions of this court.

Under the terms of a contract to lease 125 air-conditioning units at a stipulated monthly rental for a period of five years, appellant’s predecessor in interest agreed to an acceleration clause making the entire term balance due and payable upon any monthly default after notice and demand. Default occurred for June and July, 1964, and the then outstanding balance of $29,397.42 was declared due and payable. Thereafter, on July 15, 1964, the appellant purchased the premises in which the air-conditioning units were located without assuming the leasing agreement in question. Upon plaintiff’s demand that appellant pay the balance due, appellant refused and suggested that the units be removed.

■Shortly thereafter, however, the Brooklyn Savings Bank which held the first mortgage on the property got wind of the transaction and served a notice on appellant that it would treat their removal as a default under- the terms of the mortgage to which the lease was subordinated. Thereupon, appellant, caught in this bind, denied plaintiff access to the premises to remove the equipment. On these facts, the majority would give the plaintiff summary judgment for the full accelerated balance due under the lease.

It is nowhere suggested that defendant either explicitly or merely by purchase of the real estate assumed the obligations of his grantor under the lease of personalty. (Langel v. Betz,

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250 N. Y. 159 .) Defendant’s liability, if at all, is based upon its refusal to relinquish possession of the air-conditioning units and upon its own continuing use of them. (Gillette Bros. v. Aristocrat Rest., 239 N. Y. 87 ; Frank v. New York, L. E. & W. R. R. Co., 122 N. Y. 197 , 215; Title Guar. & Trust Co. v. 457 Schenectady Ave., 260 N. Y. 119 ; Tel-Hotel Corp. v. Lexnott Corp., 205 Misc. 576 , 583.)

The rule was succinctly stated in Frank (supra, p. 219): “ Where a person other than the lessee is shown to be in possession of leasehold premises, the law presumes that the lease has been assigned to him * * * It does not, however, presume that the assignee entered into any express covenant to pay rent, so as to make himself liable through privity of contract, or otherwise than through privity of estate.

Furthermore, the appellant might dispose of the premises prior to the expiration of the lease. In this event, the cases cited make it clear that appellant, if sued for use and occupancy, “might discharge itself from all further liability by assigning its interest in the premises to a stranger ” (Gillette Bros. v. Aristocrat Rest., supra, p. 90 ), the reason being that as liability depends upon possession and use, when such possession and use is gone the sole basis upon which such a defendant can be held is thereby obviated.

Of course, in the absence of novation or other affirmative agreement, the liability of the original lessee, appellant’s grantor, continues undisturbed. The inequity of thus imposing contractual liability upon one not a party to the contract thereby 'becomes apparent — especially when the defendant is held liable for the breach of a contract, which occurred prior to its purchase of the premises, which had already ripened into liability, and which it could do nothing to prevent.

When similar circumstances occurred in Title Guar. & Trust Co. v. 457 Schenectady Ave. ( 260 N. Y. 119 , supra) and General Meter Serv. Corp. v. Manufacturers Trust Co. ( 182 Misc. 184 [per Froessel, J.], affd. 267 App. Div. 992 ), the rule applied relieved the assignee of obligations arising prior to the taking of possession and already due, and imposed liability only insofar as the assignee in fact availed itself of the benefits of the contract. Undoubtedly, appellant would be liable for use and occupancy or for conversion, arising out of refusing plaintiff’s

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demand for the equipment upon default. The important difference is that in conversion plaintiff would recover the present value (said to be about $17,000) and the appellant would then own the equipment, whereas, by the majority decision he must pay over $29,397.42 and then surrender the equipment at the termination of the lease on August 31, 1968. Plaintiff should be relegated for relief over and above the value of the leased equipment to appellant’s grantor who contracted to pay the plaintiff.

The order of the Appellate Division should, therefore, be reversed and plaintiff’s motion for summary judgment should be denied.

Chief Judge Desmond and Judges Fuld, Burke, Scileppi and Bergan concur with Judge Van Vooehis; Judge Keating dissents in a separate opinion.

Order affirmed.

Cases cited

Langel v. Betz 250 N. Y. 159 N.Y. 1928-12-31 p. 2, p. 5
Title Guarantee & Trust Co. v. 457 Schenectady Avenue, Inc. 260 N. Y. 119 N.Y. 1932-11-22 p. 2, p. 5
General Meter Service Corp. v. Manufacturers Trust Co. 182 Misc. 184 N.Y. Sup. Ct. 1943-04-10 at 267 p. 2, p. 3, p. 5
Frank v. New York, Lake Erie & Western Railroad 122 N. Y. 197 N.Y. 1890-10-07 at 215 p. 2, p. 3, p. 5
Tel-Hotel Corp. v. Lexnott Corp. 205 Misc. 576 N.Y. Sup. Ct. 1953-06-16 at 583 p. 2, p. 3, p. 4, p. 5
McCloskey v. Henderson 231 N. Y. 130 N.Y. 1921-04-26 p. 2, p. 3
Chasnov v. Marlane Holding Co. 137 Misc. 332 N.Y. Mun. Ct. 1930-06-23 p. 2, p. 3
Townsend v. Scholey 42 N. Y. 18 N.Y. 1870-03-17 p. 2
Mann v. Brewery 225 N. Y. 189 N.Y. 1919-01-07 p. 2, p. 3
Monterey Plank Road Co. v. Chamberlain 33 N. Y. 46 N.Y. p. 2
Prince v. Conner 69 N. Y. 608 N.Y. 1877-03-27 p. 2
Seidlitz v. Auerbach 230 N. Y. 167 N.Y. 1920-12-31 p. 2, p. 3
Lenco, Inc. v. Hirschfeld 247 N. Y. 44 N.Y. 1928-01-10 p. 2
Helgar Corp. v. Warner's Features, Inc. 222 N. Y. 449 N.Y. 1918-02-12 p. 2, p. 3
Howes v. Peckham Road Corp. 14 A D 2d 940 N.Y. App. Div. 1961-11-16 p. 2, p. 3
Daliendo v. Minardi 195 Misc. 657 N.Y. Sup. Ct. 1949-06-17 p. 3
Gillette Bros. v. Aristocrat Restaurant, Inc. 239 N. Y. 87 N.Y. 1924-11-25 p. 3, p. 5
Neponsit Property Owners' Ass'n v. Emigrant Industrial Savings Bank 278 N. Y. 248 N.Y. 1938-05-24 p. 3
Nicholson v. 300 Broadway Realty Corp. 7 N Y 2d 240 N.Y. 1959-12-30 p. 3
Frankel v. Tremont Norman Motors Corp. 21 Misc 2d 20 N.Y. Sup. Ct. 1959-12-07 p. 3
Frankel v. Tremont Norman Motors Corp. 8 N Y 2d 901 N.Y. 1960-06-09 p. 3
In re the Arbitration between Judy Bond, Inc. & Kreindler 36 Misc 2d 943 N.Y. Sup. Ct. 1962-10-01 p. 3
Muzak Corp. v. Hotel Taft Corp. 1 N Y 2d 42 N.Y. 1956-03-22 p. 3
Cammack v. J. B. Slattery & Bro. 241 N. Y. 39 N.Y. 1925-07-15 p. 3