Opinion
No. 6,727.
Submitted November 13, 1930.
Decided November 26, 1930. Rehearing denied December 22, 1930.
Landlord and Tenant — Action for Rent — Leases — Assignment — Subleases — Novation — Evidence — Insufficiency — Constructive Eviction — What Does not Constitute — Violation of National Prohibition Act by Sublessee — Padlocking of Premises — Duty of Lessee and Assignee of Lease — Liability for Rent — New Trial — Insufficient Ground. Contracts — Novation — Intent of Parties — Presumption. 1. In determining whether or not a novation was brought about by the substitution of a new debtor in place of the old one, the intent to release the original debtor is of vital importance; there must have been a clear and definite intention on the part of all concerned in that behalf, since novation is never to be presumed. Same — Novation and Assignment Distinguished. 2. In novation the obligation between the original parties to the contract is completely extinguished and a new obligation between the transferee and obligor is created and substituted for the previous one; while in case of assignment of the contract, the obligation of the original debtor continues to rest upon him and he may be compelled to respond to the obligee in the event of the default of the assignee. Landlord and Tenant — Action for Rent — Leases — Assignment — Subleasing by Assignee — What Insufficient to Show Novation. 3. In an action for rent, held, under the above rules, that where plaintiffs leased business property to one who covenanted to pay rent for the full term of six and a half years and thereafter assigned the lease to another, he in turn subleasing to a third, all with the consent of the lessors, the contention of defendant (original lessee) that a novation resulted from his assignment of the lease with the consent of lessors, their acceptance of the rent from the assignee and their recognition of the latter's right to sublease, may not be upheld, nothing appearing from the acts of plaintiffs enumerated inconsistent with their intention to continue to look to defendant for the rent in case of default of his assignee. Same — Liability for Rent — Upon What Based. 4. Liability for rent is based either upon privity of contract or privity of estate; where there is an express promise to pay contained in the lease, the lessee is held in privity of contract; in the absence of such express promise, the liability arises out of an implied obligation whereby the lessee is held in privity of estate. Same — Assignment of Lease — Lessee and Assignee Liable for Rent. 5. Where a lessee of real property assigns his lease, the landlord may, at his election, sue either the lessee or the assignee, or both, for rent due. Same — Eviction as Defense to Action for Rent — What Constitutes Eviction. 6. Eviction of a tenant by his landlord — i.e., any wrongful act or omission of the landlord which results in a substantial interference with the tenant's possession or enjoyment of the premises — is a complete defense to an action for rent. Same — Abatement of Leased Premises Under Federal Prohibition Act — Duty of Lessee and Assignee of Lease to Prevent Use of Premises for Sale of Liquor — Abatement of Premises — Failure of Lessor to Furnish Bond to Prevent Padlocking not Constructive Eviction. 7. The lessee of business property assigned the lease and the assignee subleased to another. For violation of the National Prohibition Act by the employees of the latter, the premises were ordered padlocked. In an action by the owners against the lessee and assignee to recover rents due after the padlocking, defendants pleaded constructive eviction by reason of the omission of plaintiff to furnish a bond which, under the judgment of the federal court, if furnished, would have permitted the use of the premises, and that therefore they were absolved from any obligation to pay rent. Neither the lessors nor the defendants were aware of the fact that the above Act was being violated on the premises. Held, that defendants having failed to use effectual measures to prevent the unlawful use of the premises, the wrong resulting from the padlocking was theirs, and that the failure of plaintiffs to post the bond did not constitute eviction, nothing appearing in the lease requiring them to do so. New Trial — When Denial of Motion not Error. 8. Where the facts relating to an abatement proceeding under the federal Prohibition Act were all before the trial court in an action for rent falling due after the padlocking of the premises, the fact that a stipulation permitting amendment of the answer so as to include the entire judgment-roll in such proceeding was not filed, and the court, therefore, did not consider it, was immaterial, and denial of a motion for new trial on that ground was not error.
Appeal from District Court, Yellowstone County; Robert C. Stong, Judge.
Messrs. Wood Cooke, for Appellants, submitted a brief; Mr. Sterling M. Wood argued the cause orally.
Messrs. Derry Bowen, for Respondents, submitted a brief; Mr. Guy C. Derry argued the cause orally.
The leased premises have been and remain padlocked solely because of respondents' neglect. Respondents, as the defendants in the abatement action, owed the positive duty to appear in the abatement action, after they were served with process, and to interpose the defense that they and their tenants were not at fault. They owed this duty to appellants herein, their tenants, under the covenants of their lease for quiet enjoyment of the demised premises. Had they appeared and defended in that equitable action, the court therein would not have punished them, for such is not the purpose of the Prohibition Act. ( United States v. McCrory, 26 F.2d 189; United States v. Kelly, 24 F.2d 133; Murphy v. United States, 272 U.S. 630, 71 L.Ed. 446, 47 Sup. Ct. Rep. 218.)
The neglect of the respondents alone directly brought about the closing and padlocking of the demised premises here involved. Had they appeared and asserted their innocence of wrongdoing, the court, in the equitable abatement action, naturally would have gone no further than to abate the nuisance, leaving the premises open to be used for legitimate purposes. They were guilty of further neglect in failing to put up a bond under the abatement decree.
Appellants have been evicted and are not liable for rent. They could hardly be expected to pay that rent when they were wholly deprived of the use of the premises by the failure of the respondents herein to discharge their duty to them as tenants. (See 1 Taylor on Landlord Tenant, p. 377; 36 C.J., secs. 982, 988; Osmers v. Furey, 32 Mont. 581, 81 P. 345; Blaustein v. Pincus, 47 Mont. 202, Ann. Cas. 1915C, 405, 131 P. 1064.) That the neglect of the respondents in the premises referred to above constitutes an eviction is clear under the authorities supra and infra. (See Barry v. Holmesley, 24 Ariz. 375, 210 P. 318; Booth v. Thomas, 42 Times Law Rep. 114; Smith v. Warren, H.T. 41 Eliz. Roll. 417, 78 Eng. Reprint, 924; Stevenson v. Powell, 9 Jac. B.R. Rot. 164, 80 Eng. Reprint, 871; Spencer v. Marriott, 2 D. R. 665, 107 Eng. Reprint, 170; Scott v. Hartley, 7 L.T. (Eng.) 82; Kelley v. Rogers, (1892) 1 Q.B. (Eng.) 910; Dennett v. Atherton, (1872) L.R. 7 Q.B. (Eng.) 316; Hancock v. Caffyn, (1832) 8 Bing. 358, 131 Eng. Reprint, 432; Hamilton v. Wright's Admr., 28 Mo. 199; Eagle's Hall Assn. v. Bertin, (1922) 15 Sask. L.R. 171, 65 D.L.R. 232; York v. Steward, 21 Mont. 515, 43 L.R.A. 125, 55 P. 29.)
The law is well established that to constitute an eviction, the acts complained of must have been committed either by the landlord or by someone acting under his directions. The appellants admit in the agreed statement of facts that the defendants Harper, Shaw and Neighbor in the abatement proceedings were the employees of Will Scott, the sublessee, and that they were the ones who sold the liquor which resulted in the abatement of the premises. Thus, the only issue which is to be decided is whether or not the wrongful act, resulting in the abatement of the premises, constituted an eviction, where it was committed not by the landlord or by anyone acting under his direction, but by a sublessee of the tenant. A landlord does not insure his lessee against the consequences of the wrongful acts of the latter. As stated in the case of Schilling v. Holmes, 23 Cal. 227: "His [tenant's] liability to pay rent is not discharged by an eviction unless under a title superior to the landlord's, or by some agency of the landlord." (See, also, Ann. Cas. 1915C, 396; 15 Ann. Cas. 1103; Blaustein v. Pincus, 47 Mont. 202, Ann. Cas. 1915C, 405, 131 P. 1064; Hallet v. Sigerson, 93 Misc. Rep. 99, 156 N.Y. Supp. 490; Kesselman v. Cohen, (N.J.) 135 A. 348; Jacobs v. Mingle, 278 Pa. St. 250, 122 A. 285; First Trust Sav. Bank v. Raklios, 247 Ill. App. 183; Goelet v. National Surety Co., 249 N.Y. 287, 164 N.E. 101.)
The defendant, Max Fregger, was the original lessee of the plaintiffs. He assigned his lease to the other defendant, The Theater Operating Company. The assignment of the lease did not relieve him from paying the rent under the terms of the lease and contract, as appears from the transcript he personally bound himself to pay $250 per month for the full term of the lease. The fact that the assignment was approved by the plaintiffs does not alter the situation as they do not agree to absolve Fregger from liability, but merely agree to the use of the premises by the other defendants. (36 C.J. 371; Edwards v. Spalding, 20 Mont. 54, 49 P. 443; McKee's Cash Store v. Otero, 19 Ariz. 418, 171 P. 910; Samuels v. Ottinger, 169 Cal. 209, Ann. Cas. 1916E, 830, 146 P. 638; Eddie v. Gage Mfg. Co., 33 Cal. 338, 164 P. 1133; Winter v. Knapp, 90 Cal.App. 75, 265 P. 527.)
The plaintiffs brought action to recover the sum of $500 as rent due on certain premises in Billings, operated as the "Exchange Cigar Store." The defendants, Max Fregger and The Theater Operating Company, defended jointly on the ground that they had been evicted from the premises, and Fregger set up the further defense that he had been released from the obligation to pay rent.
The cause was submitted to the court upon the admissions in the pleadings and an agreed statement as to the remaining facts. The court rendered judgment in favor of the plaintiffs and against both defendants, and thereafter denied motion for a new trial. The defendants have appealed from the judgment.
The facts are as follows: Plaintiffs leased the premises to Fregger in 1925, for a term of six and one-half years, at a monthly rental of $250, payable in advance. Fregger occupied the premises and paid the rent until July, 1926, when, with the consent of plaintiffs, he assigned his lease to The Theater Operating Company. The company conducted business on the premises and paid the rent until May, 1928, when, again with the consent of plaintiffs, it subleased to one Will Scott, but continued to pay the rent to plaintiffs.
In 1929 three employees of the subtenant, Scott, were convicted of violating the "Prohibition Act" on the premises, and thereafter the federal government commenced abatement proceedings, making the offending employees and these plaintiffs defendants. Although these plaintiffs were duly served with process, no appearance was entered and the proceedings resulted in a default judgment and decree of abatement, with injunction against the use or occupation of the premises for the period of one year, but it was therein provided that the premises might be reopened for "legitimate business other than a soft drink parlor or pool hall, if the defendants shall pay the costs," and give bond in the sum of $1,000, conditioned for the observance of the provisions of the decree and injunction. The bond was not furnished and the premises were "padlocked" by the United States marshal. Defendants are in possession of the keys to the premises, but not to the padlocks. Neither plaintiffs nor defendants in this action had pre-knowledge of the acts resulting in the abatement proceedings.
1. It is contended on behalf of defendant Fregger that his [1-3] assignment of the lease, with the consent of the lessors, their acceptance of the rent from the assignee and recognition of the latter's right to sublease the premises, constituted novation and discharged Fregger's obligation.
"Novation is the substitution of a new obligation for an existing one." (Sec. 7460, Rev. Codes 1921.) One of the "modes of novation" is "by the substitution of a new debtor in the place of the old one, with the intent to release the latter" (sec. 7461, Id.), and, in determining whether or not novation is made by such substitution "the intent to release the original debtor is of vital importance." ( McAllister v. McDonald, 40 Mont. 375, 106 P. 882.)
The distinction between novation and assignment is clear; in novation the obligation between the original parties to the contract is completely extinguished and a new obligation between the transferee and obligor is created and substituted for the previous one; while, after assignment, the obligation of the original debtor may continue to rest upon him, and he may be compelled to respond in the event of the default of the assignee. (46 C.J. 576; 5 C.J. 977.)
"In order to effect a novation there must be a clear and definite intention on the part of all concerned that such is the purpose of the agreement, for it is a well-settled principle that novation is never to be presumed * * *; the point in every case, then, is, did the parties intend by their arrangement to extinguish the old debt or obligation and rely entirely on the new, or did they intend to keep the old alive and merely accept the new as further security, and this question of intention must be decided from all of the circumstances. The existence of such an intention may, of course, be found although there is nothing positive in the agreement." (20 R.C.L. 366; see, also, McAllister v. McDonald, above.)
Here we have merely an assignment and there is nothing in the subsequent acts of the lessors in accepting rent from the assignee and thereafter permitting it to sublease the premises, — it still being looked to for the rent — inconsistent with the intention on the part of the lessors to continue to look to Fregger for the rent in the event of the default of his assignee.
Liability for rent is based either upon privity of contract or [4] privity of estate; where there is an express promise to pay contained in the lease, the lessee is held in privity of contract; while in the absence of such express promise, the liability arises out of an implied obligation whereby the lessee is held in privity of estate. Therefore, in the absence of an express promise to pay rent, if the lessee parts with his estate, with the consent of the lessor, the privity of estate is destroyed and the lessee is no longer obligated to pay rent, as there is nothing on which to base the implied obligation; but where there is an express promise to pay, the lessee, after assignment of his lease, remains liable because the privity of contract is unaffected by the termination of the privity of estate. ( Cauble v. Hanson, (Tex.Civ.App.) 224 S.W. 922; McKee's Cash Store v. Otero, 19 Ariz. 418, 171 P. 910; Samuels v. Ottinger, 169 Cal. 209, Ann. Cas. 1916E, 830, 146 P. 638; Edwards v. Spaulding, 20 Mont. 54, 49 P. 443; 36 C.J. 371; 16 R.C.L. 845, 846.)
Here, defendant Fregger expressly covenanted to pay rent for the full term of the lease and he was properly made a party defendant.
"The fact that the assignee is also liable for rent, through [5] privity of estate, or express agreement to assume the obligations of the lease, will not discharge the lessee. The lessor may, at his election, pursue either or both for payment, although he can have but one satisfaction." (36 C.J. 372.)
2. It is earnestly contended that the judgment herein is [6, 7] contrary to law and is not supported by the facts as agreed upon by the parties; that under the facts disclosed there was constructive eviction of the defendants from the premises, absolving them from further obligation to pay rent.
Eviction of a tenant by his landlord is a complete defense to an action for rent ( Osmers v. Furey, 32 Mont. 581, 81 P. 345), and, while eviction was originally a dispossession of the tenant by some act of his landlord, or by failure of the latter's title, it has now come to include any wrongful act or omission of the landlord which results in a substantial interference with the tenant's possession or enjoyment of the premises. (1 Taylor on Landlord Tenant, 9th ed., 377; 36 C.J. 256; Blaustein v. Pincus, 47 Mont. 202, Ann. Cas. 1915C, 405, 131 P. 1064.)
Defendants first contend that they were dispossessed by reason of plaintiffs' omission to defend in the abatement proceeding. There is some merit in this contention. That proceeding was instituted under the authority of section 22 of the Act of Congress of October 28, 1919 (Title 27, U.S.C.A., sec. 34), which declares that, in such action, on finding that the material allegations of the petition are true, "the court shall order that no liquor shall be * * * sold * * * on the premises * * * and upon judgment of the court ordering such nuisance to be abated, the court may order that `the premises' shall not be occupied for one year thereafter." "The imperative words go only to the immediate stopping of what is clearly a nuisance. The permissive words allow a closing for a year," etc. ( Murphy v. United States, 272 U.S. 630, 71 L.Ed. 446, 47 Sup. Ct. Rep. 218.) The proceeding is in the nature of a civil action to prevent a continuance of the commission of unlawful acts on the premises, and does not involve the element of punishment. ( United States v. Stevens, 103 Conn. 7, 130 A. 249; State v. Froelich, 316 Ill. 77, 146 N.E. 733.)
Following the line of reasoning in the foregoing cases, it has been held by federal district courts that section 22 above, construed with reference to other sections of the Act, does not justify the padlocking of premises of an innocent owner because of the unlawful acts of his tenant, unless such owner, after notice that the premises constitute a nuisance, fails, by repossession or other effective means, to abate the nuisance. ( United States v. Schwartz, 1 F.2d 718; United States v. McCrory, 26 F.2d 189; United States v. Kelly, 24 F.2d 133.) However, other courts of concurrent jurisdiction have held to the contrary ( United States v. Boynton, 297 Fed. 261; Grossman v. United States, 280 Fed. 683), and the supreme court of the United States has, impliedly at least, approved the declaration in the Boynton Case ( Murphy v. United States, above), and we cannot, therefore, speculate as to what would have been the effect of the defense of innocence in the instant case. Further, the above contention is based upon the premise that these defendants were in nowise responsible for the acts of the subtenant, which is contrary to the rule laid down in the adjudicated cases.
According full faith and credit to the abatement decree and the order padlocking the premises for one year, the moving cause thereof was the violation of the law on the premises by the employees of the sublessee, for whose acts the lessor was in nowise responsible.
As between the lessor and the sublessee there existed neither privity of contract nor privity of estate ( Kimbriel v. Montgomery, 28 Okla. 743, 115 P. 1013; 13 R.C.L. 879), and, by the assignee's action in subleasing the premises, the lessee was not relieved from responsibility created by express covenants in the lease. ( Agen v. Nelson, 51 Wn. 431, 98 P. 1115.)
In First Trust Savings Bank v. Raklios, 247 Ill. App. 183, it appears that the defendant held certain premises under lease containing a prohibition against using the building for unlawful purposes; he sublet to one Blom as a radio salesroom, but the latter, without the knowledge of the lessee, erected a still in the rear room. Under a search-warrant, federal officers took possession of the premises. Defendant appealed from a judgment for rent rendered against him. The court declared: "The chief question is whether the possession of the premises by officers of the federal government * * * the result of the violation of the law * * * can be successfully set up and maintained by the defendant as a defense to a suit upon the lease for rent; in other words, to put the case bluntly, may the defendant profit by, what seems to be, his own wrong?" Answering this question in the negative, it was held that defendant was answerable for the illegal acts of his subtenant, although he did not know of the illicit operation; the court, quoting from Miller v. Prescott, 163 Mass. 12, 47 Am. St. Rep. 434, 39 N.E. 409, said: "`It may not be reasonable to hold * * * the lessee liable for an unlawful use of the property by trespassers, but he may well be held to "suffer" unlawful use of the property if he does not take effectual measures to prevent such use by those who occupy by his authority,' and in Lubliner v. Gaston, 243 Ill. App. 627, * * * this court said: `It is the law that if the terms of a lease between plaintiff and defendant are violated by the defendant's subtenants, the defendant is responsible therefor, whether or not he knew of such violation.' ( Wheeler v. Earle, 59 Mass. (5 Cush.) 31, 51 Am. Dec. 41.) In the latter case the court said: `By creating subtenants, the original lessee puts them in possession of the premises, and being thus under him, their acts, if in violation of the condition of the lease, will cause a forfeiture. ( Burke v. Bryant, 283 Pa. St. 114, 128 A. 821.)'"
Under these authorities, the wrong resulting in the "padlocking" of the premises is that of these defendants, and they are not permitted to take advantage of their own wrong.
It is true that the plaintiffs might have saved the defendants from loss by posting the required bond, but there is nothing in the lease requiring them to go to this additional expense, nor to expose themselves to the additional risk of loss by reason of future acts of the defendants or those they might have placed in possession of the premises, and their failure to post the bond did not constitute constructive eviction.
3. As ground for a new trial, counsel for defendants filed an [8] affidavit showing that, by stipulation, the answer was amended to include the entire judgment-roll in the abatement proceeding, but that through some inadvertence the stipulation was not filed and the judgment-roll was not, therefore, considered by the trial court. From what has been heretofore said it is apparent that the judgment-roll mentioned was immaterial; the facts concerning the abatement proceeding were before the court, and no error was committed in denying the motion for a new trial. The judgment is affirmed.
MR. CHIEF JUSTICE CALLAWAY and ASSOCIATE JUSTICES GALEN, FORD and ANGSTMAN concur.