Opinion
06-24-1926
CITY OF NEWARK v. COOK et al.
McCarter & English, of Newark (A. F. Egner, of Newark), for Cook and others. Cecil H. MacMahon, of Newark, for Charles A. McEuen. Stein, Stein & Hannoch, Merritt Lane, and Spaulding Frazer, all of Newark, for Surety Realty Co. Lindabury, Depue & Faulks, of Newark (J. W. Bishop, Jr., and B. S. Horner, both of Newark), for Liggett & Co. Bilder & Bilder, of Newark (Samuel Kaufman, of Newark), for McDonald & Co. Max Schwartz, of Belleville, for John Harrington and Radio Shop.
(Syllabus by the Court.)
Irregularity in the proceedings upon which a tax title is based cannot be attacked collaterally at law or in equity. The remedy is by certiorari.
The refusal of the Supreme Court to review a tax title by certiorari because of laches, or that the right to the writ is barred by statute, is not a ground for equitable interference.
A stenographer's transcript of the proceedings of a trial is not evidence of the purported facts appearing therein.
Lands taken by condemnation terminates a lease and the relation of landlord and tenant under section 31 of the Landlord and Tenant Act (3 Comp. St. 1910, p. 3078), but the termination does not deprive the tenant from recovering the value of his lease out of the award.
A tenant is permitted to participate in the distribution of an award in condemnation to the extent of the difference between the fair market value of his lease and the rent reserved.
A tenant's loss of business, profits, good will, fixtures, cost, and removal and the like are not elements of damage awardable in condemnation proceedings for public highways, and, cannot be allowed out of the sum awarded to the owner of the land.
(Additional Syllabus by Editorial Staff.)
Condemnation proceeding by the City of Newark against Hugh F. Cook and others, in which numerous claims were made on a fund paid by the city into court. Right to participation in fund adjudicated.
McCarter & English, of Newark (A. F. Egner, of Newark), for Cook and others.
Cecil H. MacMahon, of Newark, for Charles A. McEuen.
Stein, Stein & Hannoch, Merritt Lane, and Spaulding Frazer, all of Newark, for Surety Realty Co.
Lindabury, Depue & Faulks, of Newark (J. W. Bishop, Jr., and B. S. Horner, both of Newark), for Liggett & Co.
Bilder & Bilder, of Newark (Samuel Kaufman, of Newark), for McDonald & Co.
Max Schwartz, of Belleville, for John Harrington and Radio Shop.
BACKES, V. C. For the purpose of widening Washington street, the city of Newark condemned the two four-story stores at the northwest corner of Market and Washington streets, Newark, and paid the award into court, $479,550. Both buildings were taken and razed, although only half the land was taken, that which lies southeasterly of a line extending from the northerly corner of the lot on Washington street to the westerly corner on Market street. Cook et al. are the owners in fee of a two-thirds undivided interest, and the holders of a tax title (called that for convenience) for the term of 200 years, expiring in August, A. D. 2057, of the remaining one-third, the fee of which is in Charles A. McEuen. There are numerous claims upon the fund by a tenant and subtenants, and by McEuen, who takes the position that the tax title is invalid for irregularities in the proceedings on which it is based, and for fraud in its procurement, and that the court in these proceedings may hold it to be of no effect.
The title in 1850 was in one Leavitt, who conveyed an undivided two-thirds interest to Charles H. Sherman and a one-third to McEuen and his brothers and sister, by separate deeds, February 13, 1850. McEuen succeeded to his brothers' and sister's interest by inheritance. Title to the Sherman two-thirds interest passed to William H. Sherman, and by mesne conveyances to Nehemiah Perry, and from Perry to Martin Burne in 1866. About the same time Burne acquired the tax title. Burne remained in possession until his death in 1912, and Cook et al. hold by devise from him. On August 24, 1857, the property was sold by the city of Newark for an unpaid sewer assessment to John R. Weeks, for 200 years. He assigned to Perry and Perry to Burne. At the time of the assessment and sale, the fee was in Abraham H. Sherman (who was also in possession) and the McEuen children, then infants. The assessment map dosignated Abraham H. Sherman as the owner of the lot; the McEuens were not parties to the proceedings. The deed to the McEuens did not come to their knowledge until 1869, and in 1870 they brought an action in the Supreme Court against Burne to recover possession of their interest, and judgment was rendered against them. The phonographer's" transcript of his notes of the trial at the September term, 1870, of the Essex circuit is in evidence, without objection, and from it it appears that Abraham H. Sherman, the cotenant of the McEuens, furnished Weeks, the purchaser of the tax title, with the purchase price the day after the sale, and that Weeks, at the instance of Sherman, assigned the certificate of sale to Perry in 1861, who assigned it to Burne in 1866. Justice Depue, presiding, held the certificate of sale to be in due form, and that the proceedings upon which it was founded could not be attacked collaterally, but only on review by certiorari, as provided by the then recent act of 1869 (P. L. 1869, p. 1238), now section 15 of the Sale of Lands Act (C. S. p. 4679); that the question of fraud, because Sherman procured the tax sale to Weeks instead of paying the assessment, or of a resulting trust because the purchase price was paid by Weeks, the cotenant, was cognizable only in equity, and left to the jury the single question whether the money was furnished by Sherman to Weeks to procure the certificate of sale or paid to him to satisfy and extinguish the tax title, and, if the latter, they must find for the plaintiff; and the jury found that it was not so paid. Nothing further was done until just before the award in these proceedings (1925) when McEuen applied to the Chief Justice for a writ of certiorari, and, being refused, applied to the Supreme Court, and, upon denial on the ground of laches (In re McEuen [N. J. Sup.] 132 A. 331), appealed to the Court of Appeals, where it is now pending.
If by the tax sale McEuon's property was taken without due process of law—i. e., without notice—and consequently in violation of his constitutional right to be heard, as he claims, his remedy is by certiorari. This objection to the tax sale would have been available in ejectment before the act of 1869, which made it reviewable by certiorari only. Baxter v. Jersey City, 36 N. J. Law, 188. The act did not, as suggested, deprive him of his remedy by ejectment; it simply regulated the legal steps to the remedy. Bozarth v. Egg Harbor City, 85 N. J. Law, 412, 89 A. 920. If McEuen is entitled to relief in these proceedings it cannot be granted until the certificate of sale is invalidated by certiorari. Until then it must be taken at its face value. The act applies as well to this court as to the courts of law. Jurisdiction to set it aside is exclusively in the Supreme Court Nugent v. Hayes, 94 N. J. Eq. 305, 120 A. 38; Sutton v. Maurice River Township, 93 N. J. Eq. 484, 118 A. 627. McEuen's right to a review by certiorari, for invasion of his constitutional rights, was coextensive with his right of action in ejectment, limited by statute to 20 years. C. S. p. 3169. It was not abridged by later legislation reducing the time to 3 years and now to 18 months. Comp. St. Supp. 1924, p. 254; Groel v. Newark, 78 N. J. Law, 142, 73 A. 522. The refusal of the SupremeCourt to grant the writ on the ground of laches is not, as counsel states in his brief, "an invitation" to equity to intervene, and it does not argue that this court has complete jurisdiction to hear the controversy, because in this particular case the law has proved "deficient." The law is simply unwilling. Equity baa jurisdiction in cases where the law cannot, not where it can but will not, grant relief.
McEuen is in no better position on the purely equitable grounds of fraud of his cotenant in procuring the tax title to another, or of resulting trust because the purchase by his cotenant inured to his benefit. Weller v. Rolason, 17 N. J. Eq. 13. The only evidence offered to sustain the charge of fraud or the claim of a resulting trust is the transcript of the testimony taken at the trial of the ejectment suit, and McEuen's offer to testify to what occurred; that is, to repeat what appears by the transcript to have taken place, and the check of Sherman to Weeks to August 26, 1857, for $178, the amount of the assessment. It was there proved that Sherman supplied Weeks with the purchase money for the sale certificate. Though the transcript was admitted in evidence without objection, it is without legal effect. It has no place in our law of evidence as an official document and is without probative value. Its recital of legal testimony in that suit is but hearsay testimony here. And, even if the transcript were treated as verity, as establishing the fraud or resulting trust, the charge could not be entertained. McEuen's claim to relief, in this respect, rests upon a latent equity, enforceable, if timely pursued, but not if it appeared that Burne was a purchaser for value without notice. Bridgewater v. Ocean City Ass'n, 85 N. J. Eq. 379, 96 A. 905, affirmed 88 N. J. Eq. 351, 102 A. 1052. It is too late to press it now. He slept on his rights too long before asserting the fraud or the equity against Burne or those who succeeded to the title, after he was fully apprised of his legal and equitable rights by Justice Depue 56 years ago. The proofs in the case are buried. The witnesses have all passed on; all but McEuen. Their tongues are stilled, and his voice is too feeble to be heard.
McEuen is the owner of the reversion and the right to repossession 131 years hence. Its present value has been calculated at $46.85, and that sum, subject to correction, is awarded to him.
Cook et al. advance the proposition that the tenants are not entitled to compensation because of the provisions of section 31 of the Landlord and Tenant Act (C. S. p. 3078):
"That whenever any building or buildings erected on leased premises shall be injured by fire without the fault of the lessee, the landlord shall repair the same as speedily as possible, or in default thereof, the rent shall cease until such time as such building or buildings shall be put in complete repair; and in case of the total destruction of such building or buildings by fire or otherwise, the rent shall be paid up to the time of such destruction, and then, and from thenceforth, the lease shall cease and come to an end; provided always, that this section shall not extend to or apply to cases where the parties have otherwise stipulated in their agreement of lease."
By this enactment the harsh common-law rule, that the tenant continued bound by his lease though deprived of its benefits, was abrogated, and a more equitable one substituted, that, in the event of the destruction of the building by fire, or by any other means as effectual, whereby the tenant lost the enjoyment, the term should come to an end, and both landlord and tenant be relieved of their obligation, one to the other (Carley v. Liberty Hat Mfg. Co., 81 N. J. Law, 502, 79 A. 447, 33 L. R. A. [N. S.] 545), and having regard for the mischief aimed at and giving to "otherwise" the liberal construction to which it is entitled in this remedial legislation, it cannot be seriously questioned that destruction by condemnation is included within the spirit and letter of the statute, and terminates the relation of landlord and tenant. That is, however, as far as it goes, and it does not concern us in these proceedings. The act operates inter sese, and does not disturb the rights of tenants to recover compensation from others for the loss of their estates taken from them by condemnation. If the city had taken them by unlawful methods, the tenants would have had a direct cause of action against it, and, having taken them by lawful means and shifted the obligation to the award paid into court, and though the issue now relates to the portions due the tenants, the recovery, in effect, will be from the city of Newark. The award was for the value of the property as a whole; what is left after satisfying the outstanding terms represents the value of the fee.
The buildings were under lease to the Surety Realty Company for 20 years, expiring April 1, 1930. They were sublet in parcels; Liggett & Co., druggists, had the corner store and basement; McDonald & Co., shoes, the store and basement adjoining on Market street, and the second floor of both buildings; John Harrington, billiard parlor, the third and fourth floors of both buildings; Ace Radio Shop, two stores on Washington street (one known as the restaurant); and the roof was rented for advertising signs.
The lease held by the surety company was made by Martin Burne to Sebastian A. Kresge for the term of 20 years from April 1, 1910, at a yearly rental of $18,000 for the first 10 years and $19,000 for the remaining 10, the tenant to make repairs, pay water rates and any increase in insurance rates caused by tenant's improvements. The actualyearly yield from the sublessees for several years prior and up to October 1, 1925, was:
| Louis K. Liggett | $15,000 00 | Leased to April 30, 1930 |
| R. E. McDonald, Ine | 19,000 00 | Leased to April 30, 1930 |
| Radio shop | 2,100 00 | Leased to Sept. 15, 1926 |
| Billiard . parlor third floor | 1,500 00 | Monthly tenancy |
| Billiard parlor, fourth Boor | 1,100 00 | Monthly tenancy |
| Root | 1,200 00 | Monthly tenancy |
| Restaurant | 900 00 | Monthly tenancy |
| Total rental income | $40,800 00 |
| Disbursements. | ||
| Rent to Burne estate | $19,000 00 | |
| Average carrying charges based upon charges for four years next preceding 1926 | 2,063 82 | |
| Total carrying charges | 21,063 82 | |
| Net profit per year | $19,736 18 |
The correctness of these figures of Income, and that they represent the fair annual market value, is not disputed, nor is there any protest by the owners against measuring the value of the leaseholds based upon them; but, large as they are, they deserve to be increased in respect of the third and fourth floors and the restaurant store, which were under monthly tenancies, and which, it appears, could have been let upon better terms on lease for the balance of the term had it not been for the impending condemnation proceedings. It is well recognized that assurance of a long term commands a better price. It is the testimony that the third and fourth floors have a rental value, on long-term leases, of from $2,800 to $5,500 per year, and that the tenant Harrington had offered $5,000, but was refused. Making due allowance for the partisanship in expert testimony, the things reserved in the offer, and for the difference between expectation and realization, the amount is fixed at $4,000, and for the same reason the restaurant, which was rated at from $3,750 to $5,250, is fixed at $4,000. The surety company has a reversionary right to the Radio Shop (10x18) on Washington street. The rent ($2,100) for this tiny place was all the traffic would stand. The owners' single objection is that, as against annual rentals, there should be charged approximately $3,000, because in the income tax for some years an item of $2,080 was listed for salary to Mr. Kamm, the president of the company, and another for $960 for improvements. The company belongs to Mr. Kamm, and he is entitled to all its income, and whether he takes it by way of salary or income is immaterial, and as to the improvement there is no likelihood of a recurrence.
The total annual net profits, and which are found to represent the annual value of the lease, amount to $24,236.18. The market value of the lease for the unexpired term, calculated according to the rule laid down in Holcombe v. Trenton White City Co., 80 N. J. Eq. 122, 82 A. 618, affirmed 82 N. J. Eq. 364, 91 A. 1069, following West Jersey Railroad Co. v. Thomas, 23 N. J. Eq. 431, that "the true method of calculating the value of an unexpired lease is not by ascertaining the yearly rental value, and then multiplying the figures by the number of years the lease has to run, but by calculating its value by the annuity tables; that is, by multiplying the annual value by the value of $1 per year for the number of years in the unexpired term," and, at the present value of $1 for 4 1/2 years at 6 per cent., viz. $3.84, equals the sum due and allowed to the Surety Realty Company, subject to correction, $93,065.93. Upon first blush this seems disproportionate to the amount of the award, and it is suggested by the owner that a more equitable solution would be to pay the tenant the interest on the award, as it accrues, during the 4 1/2 years of its term, and the tenant seems not to look upon it with disfavor if the owner will add to that sum the value of the half of the lot remaining which, it was testified, is $265,000, and which, it is asserted, was recently sold for $300,000, but the owner fails to justify his proposed course upon principles or authority. Though the allowance seems high, the rental value was no doubt an important factor in the award and is reflected in the enormous sum awarded. The interest on the award plus the interest on the amount of the value of the remaining land exceeds the net rental value of the property by a substantial sum.
As to the claim of Liggett & Co., McDonald & Co. and the Radio Shop, it would appear that they are paying peak prices. There is testimony that leases of other stores could be had, and of the prices asked, all of which were higher than the rentals these tenants were paying, but there are such marked differences in the structures, locations, and circumstances generally from the demised premises that comparative figuration is of little or no value to the court and of doubtful aid to the experts in forming their opinions. Their opinions were chiefly based on the "asking" price, none on the "bidding" price; none on vacant stores or those about to be vacated, but on places with a going business, some involving bonuses for their surrender, some not for the stores only, but for the business as well. The leased premises are in the business zone of the "Four Corners," two blocks away from the center, desirable, and in ready demand, no doubt, at prevailing rates, and perhaps at a premium in some instances because of the limited supply, but it is questionable whether any of the leases could be sold for more than the rent reserved. The trade would not warrantit, nor hardly the rent the tenants were paying. Liggett & Co., with their almost perfect business organization and heavy capital investment, were able to make an annual profit of only $5,000, and McDonald & Co. had a deficiency in the last two years, which perhaps may be accounted for, as they tried to, by sacrificial sales of stock in contemplation of closing out, and "milking" by their Boston supply house. The good will of a stand often plays an important part in rental value, but it cannot be said for either concern that theirs made any contribution in this respect. Liggett & Co. and McDonald's expert, Mr. Maier, gave as his opinion that the rental of Liggett's store was $26,400 per annum, $800 per front foot, with an additional' 50 per cent. for corner influence, and that McDonald's was $38,956.73, or more than double the rent reserved, and offered plausible explanations and reasons, but it is difficult to share in his confidence and to accept his judgment, and it is thought that the more conservative and dependable figures of Mr. Berry, called by the surety company, and Mr. Houston, called by the owners, more nearly approximate the true value. They estimate the fair rental value of the Liggett store at $15,400, or $700 a front foot, and the McDonald store and upper floor, by Berry at $19,300, or $500 per front foot, and by Houston at $17,000; the latter is apparently of the opinion that the McDonald rent was excessive. The slight excess of $400 in one case and $300 in the other in rental values over the rent reserved does not warrant an allowance because it would be consumed in broker's commissions in the event of a sale.
Liggett & Co. argue, in support of Mr. Maier's opinion of the rental value of their lease, that the Washington street side of their store was a continuous show window 74 feet in length; that the opinions of real estate agents were that Washington street frontage was worth $300 per foot, adding an additional 50 per cent. for the 15 feet nearest Market street, and that this, multiplied by the number of feet, street length, made the total $24,500. This is ingenious but not sustainable. The testimony is that the $300 per foot is for store front, not show window front.
The Liggett and McDonald leases were made in 1923, and the concensus of opinion is that there was no marked change in rental values between that time and the condemnation and that there was no likelihood of one until the terms expired in 1930. It has not been proved that the fair market value of the leases is more" than the rent reserved, and consequently no allowance can be made to the lessees on this score.
The remaining question is, Are the tenants entitled to compensation for the loss of their business, profits, good will, fixtures, and cost of removal? The right to compen sation for lands taken for public highways is purely statutory. Before the Constitution of 1844, compensation was not required, and by that instrument it is provided that "land may be taken for public highways, as heretofore, until the Legislature shall direct compensation to be made." (Article 1, § 16.) The compensation is such only as is fixed by statute, whether it be adequate or inadequate, just or unjust. Simmons v. Passaic, 42 N. J. Law, 619; Hudson Land Improvement Co. v. Seymour, 35 N. J. Law, 47. The condemnation was had pursuant to article 20, § 23, of the act concerning municipalities (C. S. C. S. p. 2201; P. L. 1924, p. 501, amended by P. L. 1925, p. 233) which provides for "an award for said lands and real estate or right or interest therein to be taken, to the owner or owners thereof." Loss of business, profits, good will, fixtures, and cost of removal and the like suffered by the tenants obviously are not lands or real estate, or rights or interest therein in the legal sense and not within the criterion fixed by the statute. In Board of Chosen Freeholders of Hudson. County v. Emmerich, 57 N. J. Eq. 535, 42 A. 107, Vice Chancellor Emery had before him the very question, which arose under a statute (P. L. 1888, p. 397), in effect, indistinguishable from the one under consideration, in which he, in disposing of a claim for injury to a tenant's business, held:
"As to the first ground, the general rule, as settled by the best authorities, is that injury to a business carried on upon the premises, either by the landlord or tenant, is not a proper element of damage. Lew. Em. Dom. 487, and eases cited. And, while no reported eases in our own courts have been referred to, this rule, as I understand, has always been applied in this state. Whatever may be the rule in other condemnations, the damages to be given on the condemnation for public roads are, under our Constitution, such as are fixed by the Legislature. Const. art. 1, § 16; Crane v. Elizabeth, 36 N. J. Eq. 339 (Errors and Appeals, 1882). In this case the award is by the act clearly limited to the value of the land and damages to the remaining land of the owner after considering the benefits (P. L. of 1888 p. 400, § 6), and the damages are limited to the damages done to the fee simple, where a single assessment is made for all the owners and persons interested in any lot. This statute, as it seems to me, clearly excludes any allowance for injury to the business carried on, on the premises taken, and cannot by construction be extended to such damages."
See, also, Phila. & C. Ferry Co. v. Inter-City L. R. R. Co., 76 N. J. Law, 50, 68 A. 1093.
That is the law. It works hardships. The remedy lies with the Legislature; the courts cannot relieve. The rule, in principle, applies to all particulars of damage set up by the tenants, including their claim for the value of the use of their fixtures during the remainder of their term, which was especiallyemphasized in the briefs, and their prayer to participate in the award, in which it must be presumed their losses did not figure, will be denied.