Majority
p. 462James O. Bennett and another v. Elbridge Vansyckel. (Before Düer, Bosworth and Hoffman, J.J.) May Term, 1855.
Headnote
The good-will of a lease, which means a reasonable expectation of its renewal by the landlord, is an interest of value, which, as such, Courts of Equity have long been accustomed to recognize and protect.Hence, a transfer of the good-will, when embraced in an assignment of the lease for value, is an essential part of the agreement of the parties, and as a valid contract, necessarily implies that no act shall be done by the lessee, to deprive - his assignee of the benefit which the transfer was meant to secure to him.
Hence, if the lessee, after such a transfer, before the expiration of the term covered by the lease, secretly obtains from the landlord a renewal of the lease to himself, he violates, if not the letter, the intent and spirit of his contract.
As the act is a breach of good faith, involving a sacrifice of the interests he was bound to protect, a Court of Equity will not suffer him to hold any advantage so obtained.
In the judgment of a Court of Equity, the lessee holds the new lease so obtained, as a trustee for the person to whom he had agreed it should be given, and to whom, therefore, he is bound upon request to assign it.
He will not be permitted to set up as a defence,to an action against him, to compel-an assignment of the new lease, that the landlord would not have granted it to the person to whom the good-will was transferred. It is settled law, that such a defence is not competent to a trustee.
Judgment at Special Term, decreeing the assignment of a renewed lease to the plaintiffs, affirmed with costs,
Appeal by tbe defendant from a Judgment at Special Term in favor of the plaintiff.
The action was brought to compel the defendant to assign to the plaintiffs, a lease of certain premises in . Broad street, in the city of Hew York, upon the ground that he had taken the lease in his own name, in fraud of their right, and in violations of an agreement by which he had transferred to them for value, the good-will of a subsisting lease.
The answer denied nearly all the material allegations in the complaint, and set up as a defence, that the controversy between the parties relative to the new lease, had been settled by an arbitration.
The cause was tried before Duee, J., in June, 1853.
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Upon the trial, the plaintiffs produced and read in evidence, an indenture dated March 29th, 1850, by which the defendant granted and demised to Bennett, Hall & Co., for the term of three years from the 1st of May following, and subject to certain reservations, the store Nos. 110 and 112 Broad street, and it was proved that at this time, the defendant held the same under a lease to himself, from P. Groelet, for the same term.
It was also proved that when the instrument to Bennett, Hall & Co., was executed, Bennett objected to it, as not containing a clause transferring the good-will of the lease at the expiration of the term, and that to remove the objection the defendant signed and delivered to him a letter, addressed to the landlord, Groelet, of which the following is a copy:
“New Yoek, March 29th, 1854.
“Mb. Peteb Goelet,
“ Dear Sir : — Be it known to you that I have this day rented to Messrs. Bennett, Hall & Co., the store I rented from you, situated comer Water and Broad streets, for the full term of my lease, subject and reserving to myself certain parts thereof, and giving to them all the advantage of being your tenants, as regards future renting, etc.
(Signed.) “ Elbridge Yansyckel.”
Witness, )
Gteo. Earnham. j
Many witnesses were examined by both parties, on the questions of fact controverted by the pleadings, but as the finding of these facts by the Judge was sustained by the court at General Term, it is deemed needless to state the testimony.
According to the provisions of the Code, Duer, J., rendered and filed the following decision and judgment:
I consider the following facts to be admitted by the pleadings:
1st. That the defendant, in the month of March, 1850, held a lease from Peter Goelet of Nos. 110 and 112 Broad street, from 1st May, 1850, to 1st May, 1853, of which premises said Goelet was owner.
2d. That the defendant executed to the firm of Bennett, Hall
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& Co., composed of Israel Hall, James 0. Bennett, and David S. Bennett, tlie lease and memorandum thereto appended, copies of which are annexed to the complaint, and marked Schedules A and B. That Schedule B was executed and delivered simultaneously with the execution and delivery of Schedule A.
3d. That Bennett, Hall <& Co. were produce and commission merchants, and said premises were a desirable stand for their business.
4th. That on or about the first of February, 1853, the plaintiffs were about to apply to Peter Goelet for a further lease, and that plaintiffs were desirous of obtaining a further lease from Goelet, or directly from the defendant, and that they demanded a transfer to be made by the defendant to them of the further lease he had procured from Goelet.
5th. That the defendant obtained from Peter Goelet to him a lease of the same premises from 1st May, 1853, to 1st May, 1855.
In addition to the facts so admitted, I find the following, upon the evidence:
1st. That at the time of the execution of the lease from defendant to Bennett, Hall & Co., he agreed that they should have the good-will of the lease from Goelet to Yansyckel, as to future renting, and that they and their- assigns should not be interfered with by Yansyckel in their endeavors to get it.
2d. That on the 1st May, 1850, Bennett, Hall & Co. entered into possession of said premises under the lease to them; that on the 1st June, 1850, said Hall and David S. Bennett retired from the firm, and the plaintiffs, under the firm of Bennett & Brokaw, succeeded them in the same business, and about that time the firm of Bennett, Hall & Co. transferred to the plaintiffs said lease and the good-will thereof, and all the rights given by Yansyckel, and that Yansyckel had notice thereof.
3d. That since June, 1850, the plaintiffs have occupied said premises under said lease and agreement.
4th. That Peter Goelet is an extensive owner of real estate in the city of Hew York; that he owns a large number of buildings in the neighborhood of said premises, which, together therewith, he has for many years demised for business purposes; that said Goelet has a general custom to renew leases to existing tenants,
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and that his custom has been to grant further leases to the tenants in occupation of his property and to renew in their favor.
That the usual and customary time for receiving of applications for reletting and for the granting of further leases by said Groelet, is on the 1st day of February next, before the expiration of the existing term.
5th. That on or before the 1st day of February, 1852, and about fifteen months before the expiration of the term, the defendant procured said further lease from Peter Groelet to him of the same premises for two years from the 1st of May, 1853, as alleged in the 7th clause of the complaint.
That the defendant did not inform Groelet of the existing agreement between him and Bennett, Hall & Co.
That Groelet agreed to give the further lease under the erroneous impression that the original lease was about to expire.
That the defendant gave no information to Bennett, Hall & Co., or the plaintiffs, of his being about to -procure a further lease from Groelet, and did not correct Gtoelet as-to his error in supposing the first lease was about to expire, and the plaintiffs had no knowledge of its existence till about the 1st of February, 1853.
6th. That this renewal of the lease was obtained by the defendant with a sole view to his own benefit, and with the design of concealing from the plaintiffs the fact that he had so obtained it.
7th. That the agreement of the parties that they would be mutually bound by the answers that should be given by Mr. Groelet to the questions that Messrs. Davenport & Herrick were directed to put to him was wholly defeated by the peremptory refusal of Groelet to listen to the explanation which Herrick intended to make, and that the fact that the agreement was at an end was communicated to the plaintiffs by Herrick, with the acquiescence of Davenport, before the commencement of this suit.
8th. That the day before the commencement of this suit, the defendant attempted to surrender the future lease to said Goelet, and had refused to give the plaintiffs any benefit of, or under, said further lease.
9th. That the plaintiffs are reputed to be highly responsible and respectable persons, and in good and established credit.
Upon the facts thus admitted and found, I am very clearly of
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opinion, that the plaintiffs axe entitled to the benefits of the renewal of the lease, which the defendant obtained. The transfer of the good-will of the original lease was an essential part of the agreement of the parties. It was founded on a valuable consideration, and relates to an interest which, although, in reality, no more than a reasonable expectation, courts of equity have long been accustomed to recognize and protect. It was a valid contract, necessarily implying that no act should be done by the defendant to deprive the plaintiffs of the advantages it was designed to secure to them. It was, therefore, a contract which a court of equity is bound to enforce, in the only manner, in which, in consequence of the wrongful acts of the defendant, it is now capable of being executed.
The conduct of the defendant in obtaining secretly a renewal of the lease was a plain violation, if not of the letter, of the intent and spirit of his agreement.
It was a breach of good faith, and of the trust and confidence which the plaintiffs reposed in him, and was therefore, according to the established doctrine of equity, a fraud, the fruits of which he cannot be permitted to retain.
The principle applicable to the whole class of cases to which the present belongs, is very distinctly stated by Mr. Justice Story. It is, that when confidence is reposed, and one party has it in his power, in a secret manner, for his own advantage, to sacrifice the interests which he is bound to protect, he will not be permitted to hold any advantage so obtained. (1 Story: Equity Jur., § 323.)
Erom a principle so unquestionable in its morality and manifestly wise in its policy, I should be most reluctant to depart, and it seems to me, that the rule which it establishes applies to the case before me with a force which, as a Judge, I am not allowed to resist. The confidence of the plaintiffs was reposed in the defendant ; they had a right to believe, and did believe that, without their knowledge and .consent, he would not endeavor to obtain for himself the new lease, which he had agreed should be given to them; this agreement he broke; the confidence resulting from it he violated; availing himself of his situation as the immediate tenant of G-oelet, he secretly gained for himself the advantage which he was bound, if possible, to secure to them, and -
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by thus acting, he deserted and sacrificed the interests he was bound to protect.
The law of equity, which I am compelled to administer, commands me to say that the advantage thus gained, he cannot be permitted to hold.
It is, however, alleged on behalf of the defendant, that his conduct involved no sacrifice of the interests of the plaintiffs, sinee.it is certain that, under no circumstances, would the lease, which he obtained, have been granted to -them. The argument is, that it was the fixed determination of Goelet not to accept the plaintiffs as his tenants, and that the knowledge of this fact released the defendant from his agreement, and deprived the plaintiffs of all reasonable grounds of complaint, since they are no more injured by the new lease having been granted to him than they would have been, had it been granted to a stranger, as would have happened had he refused to accept it. Considered as a defence, the argument will not bear examination. It is neither set up in the answer, nor sustained by the evidence, nor, had the facts upon which it rests been proved, is it, in my judgment, maintainable in law. Certainly the answer of the defendant contains no averment that he accepted the new lease, with the knowledge, or from the conviction, that under no circumstances would such a lease have been granted to the plaintiffs; nor from what occurred in.the interview between him and Goelet, was he at all justified inr drawing this conclusion; all that he said to Goelet was that the persons below, meaning the plaintiffs, wanted the lease; and the brief reply of Goelet was, that he would not give it to them, and the only reasonable inference from this language was exactly that which Goelet himself has stated, namely, that he preferred to retain the defendant as his tenant, and desired no change.' Indeed,. I regret, but am compelled to say, that the conduct of the defendant in its entire course was directly opposed to that, which in justice to the plaintiffs, and from the honest desire to carry into effect his agreement with them, he was bound to follow. He did not tell Goelet that his lease had then more than a year to run, and it was unnecessary at that time to treat of its renewal; he did not tell him that he had no right to accept the lease that was offered, having agreed with the plaintiffs that it should be given to them, and so far. from requesting Goelet to comply with this
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agreement, lie left him to believe that, as the immediate tenant, he was still entitled to the preference which Groelet, as landlord, was accustomed to grant. He did not inquire into the grounds of Goelet’s dissatisfaction with the plaintiffs, and above all, by not communicating to them the fact that this dissatisfaction existed, he deprived them of the opportunity of ascertaining and removing its cause. After he had obtained the lease the same secrecy was stiff observed. He stiff withheld from the plaintiffs all knowledge of the facts they were interested to know, and he, in good faith, was bound to communicate.
These circumstances have forced my mind to the conclusion that it was his deliberate intention to deprive the plaintiffs, for his own advantage, of the benefit for which they had stipulated, and, in my opinion, it does not lie in his mouth to say that the plaintiffs have sustained no prejudice from the fraud, which he meant to practice, and, in effect, requires this court to sanction.
By his secret acceptance of the lease he prevented the plaintiffs from applying for a renewal at the time, and in the manner which, in his agreement transferring to them the privilege of such renewal, were certainly implied. By an act inconsistent with his agreement, he has prevented it from being carried into effect, according to its terms; but he has not prevented a Court of Equity from carrying it into effect according to its substance and meaning. The substance of his agreement was that the new' lease to be obtained from Goelet should belong, not to himself, but to the plaintiffs, and he cannot therefore justly complain, if to them it shall be assigned.
Could I hold that it is competent to the defendant to set up the defence that has been relied on, I should still be unable to say that the truth of the allegation upon which the defence is rested, is established by the proofs. It is far from being proved to my satisfaction, that had the defendant not interfered, Goelet would not have consented to receive the plaintiffs as his tenants. It is impossible for me to say that, had the defendant acted openly and fairly, so as to have afforded, in due season, an opportunity to the plaintiffs of making suitable explanations to Goelet, that the resentment which he had conceived, and the prejudices which he entertained against them, might not have been wholly removed. Btis resentment, it is apparent, grew from very slight causes, and
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Ms prejudices, it is not denied, -were unreasonable. Mr. Groelet, as is stated by tbe witnesses, is doubtless a man of a strong and determined will/ but I doubt not, and tbe testimony tbat be bas given bas impressed me witb tbe conviction, tbat be is also a man having a strong sense of truth and justice, and, therefore, by no means inaccessible to reason, nor unwilling to repair a wrong into wbicb be may have been unconsciously betrayed.
But were tbe facts of tMs case exactly such as they were represented to be by tbe counsel for tbe defendant; bad it been proved to my entire satisfaction tbat tbe resolution of Groelet not to accept tbe plaintiffs as Ms tenants was fixed and unalterable, and tbat tMs was known to tbe defendant, and this knowledge tbe motive of bis conduct, it would still be my duty to bold tbat, without tbe knowledge and consent of tbe plaintiffs, be could not take a new lease in bis own name, unless be meant to bold it for their benefit, and to assign it to them, when required. His agreement created a relation between Mmself and tbe plaintiffs, from tbe duties and tbe consequences of wbicb their actual consent could alone release him.
In delivering tbe judgment of tbe House of Lords, in Fitzgib-Ion v. Scanlan, Lord Eldon said: “Where a trustee bolds a lease for tbe benefit of a cestui gue trust, and makes use of tbe influence wbicb bis situation enables him to exercise to get a new lease, courts of equity have said tbat be should bold it for tbe benefit of tbe cestui gue trust, and to such a length bas tbe doctrine been carried, tbat when a trustee procured a new lease, where it was perfectly clear tbat tbe lessor would never have renewed for tbe benefit of tbe cestui gue trust, tbe rule was still adhered to tbat tbe trustee must bold it for tbe benefit of tbe cestui gue trust, (1 Dow, P. R. 261;) vide also ex parte Phelps, 9 Mod. 259; Griffin v. Griffin, Scboales and Lefroy, 852; Winslow v. Tighe, 2 Ball & Beatty, 195; Bang v. Chichester, Ambler, 755; Tanner v. Flwothy, 4 Beavan, 467; McAlister v. Walsh, Eq. R. 250. Tbe cases to wbicb Lord Eldon alludes, abundantly prove tbat tbe settled doctrine is exactly tbat wMcb be bas stated, and even show tbat it bas been followed, when tbe cestui gue trust was an infant or a lunatic, and, therefore, incapable of binding Mmself by tbe covenants of a lease. It bas, however, been insisted tbat this doctrine, admitting it to be well established, bas no applica
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tion to the present case, since here no such relation as that of trustee and cestui que trust subsisted between the parties. I think otherwise. I think that a trust necessarily flowed from the nature of their agreement. The relation was created by that agreement, and was essential to its faithful performance. The plaintiffs were under-tenants, not assignees of the original lease. The defendant retained the possession of the original lease; and in respect to the good-will, the privilege of renewal, which, as an incident, was attached to the lease, he held its possession, not for himself, but for the sole benefit of the plaintiffs. In respect to the good-will, he was, in the full sense of the term, their trustee, nor could he strip himself, without their assent, of the relation and .its duties. It is true, he was not bound to take a new lease in his own name, for their benefit, but, without their consent, it was only for their benefit that he could take it at all. Otherwise the trust created by his agreement, of necessity, fastened upon it. In my judgment, the doctrine of equity, that a trustee obtaining a lease in his own name, must hold it for the benefit of his cestui que trust applies to the case with a stringent, a controlling force. There is no ground for the objection, that by compelling the defendant to assign the lease in question to the plaintiffs, the rights of Goelet, as landlord, will be violated. The transfer will not dissolve the relation between Goelet and the defendant which the lease has created. The defendant will still be immediately and primarily liable for the payment of rent. It appears from the testimony of Goelet himself, that he has never sought or wished to impose any restraint upon his tenants in the choice of assignees or under-tenants, ^hd accordingly, no such restriction is found in the lease which the .defendant now holds.
I am not to be understood as saying, that had the lease contained such a restriction, the usual covenant not to assign or un-derlet without the consent of the landlord, the plaintiffs might not still have' been entitled to relief. Upon this supposition, how.ever, Goelet-.would probably have been a necessary party to the •suit; but,.as;the.case stands, he is amere stranger, whose rights or ¡interests are not at all involved, and cannot be affected. In con-(élusion, I cannot doubt that I am now bound to decide the case exactly as it must have been decided, had the suit been brought immediately .after .the new lease was obtained. The right in
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equity of the plaintiffs to a transfer of the lease, attached upon its execution and delivery, and nothing has since occurred to impair the equitable title which they then acquired. I cannot lay any weight upon the assertion that the defendant was willing to surrender the lease to the landlord, and thereby put the plaintiffs in the same situation, as if it had never, been granted; the lease was their property, and, without their consent, he could not surrender it, and his attempt to do so, by its clandestine return to Goelet, I can only regard as an effort, by no means praiseworthy, to defeat the remedy to which he feared the plaintiffs were entitled. If the fact is relevant at all, it is only so as strengthening the case of the plaintiffs.
The plaintiffs must have judgment, with costs, according to the prayer of their complaint.
They must, however, execute and tender to the defendant, within thirty days, a sufficient bond of indemnity against any breach of the covenants in the lease, with one or more sureties, to be approved of by one of the Judges of this court.
W. W. Mies, for the defendant,
now moved for a reversal of the judgment, and a new trial.
U. G. De Forest, for the plaintiffs, contra.
By the Coubt.
This is an appeal from a judgment entered at Special Term, adjudging that a certain lease executed by Robert Goelet, to the defendant, was held by him for the sole use and benefit of the plaintiffs, and became, and was their property, interest and estate, directing an assignment of such lease to the plaintiffs, and some other consequential directions.
The facts are stated in the finding of the Judge at Special Term, and need not be repeated.
We t.hfhlr the testimony admissible which tends to prove, that the parties intended to have in their agreement, as to the sublease, a provision similar to that' which is contained in the letter addressed by the defendant to Goelet. The testimony proves that fact.
This paper may then be considered as much a part of the contract between the parties, as if it had been inserted in the lease itself.
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It amounts to this and no more, that the advantage and possible benefit -which the defendant possessed from being the tenant of Goelet, in relation to a renewal or extension of the lease from him, should be enjoyed by the plaintiffs. It imposed, then, the duty upon the defendant of not defeating or impeding the realization of that advantage. His taking the renewed lease himself, and before the expiration of the old lease, presumptively shows, that he has done this.
' The case of Phiffe v. Wardle, 5 Paige, 268, and the cases there cited, establish that a tenant’s prospect of a renewal in chantable leases, is a vendible interest, which a Court of Equity will recognize. In all the cases, the party who took the renewal to himself was previously in the situation of a trustee; and in one of the cases cited, it was in evidence that the lessor would not have granted a renewal to the cestui que trust, who was an infant, and could nqt enter into covenants.
The defendant, by his contract, placed himself in a similar situation as a trustee. In cases of that nature, the court acts upon a general principle without regard to the circumstances of a case, whether raising a suspicion of unfair dealing, ox of apparent honesty ; such is the view presented by Lord Eldon in Fitzgibbon v. Scanlan, 1 Dav., 201, cited by the Judge below.
It is on this abstract ground that we decide the present case. There, is much in the case to show that the defendant was not guilty of intentional bad faith in taking the renewed lease. There is reason to suppose that Goelet would not have accepted the plaintiffs as tenants even if requested by the defendant, and Goe-let applied to him to take the new lease. He also agreed to transfer it if Goelet would say that he would at any time have accepted the plaintiffs.
We should be disposed to free the defendant from costs, if it was in our power. But the Code -leaves no discretion on that point. Judgment affirmed, with costs.