Opinion
No. 28169
Decided December 31, 1940.
Appeal — Law and fact — Twenty-day limitation — Aggrieved party may waive pending motion for new trial — Lanlord and tenant — Lessee, with privilege of purchase, sublet for greater term, with purchase privilege — Purchase privileges not exercised but extensions granted — Lessee given right to assign interest to lessors' nominee — Lessee executed warranty deed to nominee, protecting sublesses — Sublessor's purchase agreement an independent covenant — Sublessee not released by breach by sublessor — Sublessee's rights protected and sublease validated by extensions and nominee's covenants — Sublessee not evicted and quiet-enjoyment covenant not breached — Sublease not cancelled for breach of purchase covenant — Rent payable to nominee and not sublessor after interest transferred.
1. An aggrieved party in a chancery suit may within twenty days after final judgment waive a pending motion for a new trial and perfect an appeal to the Court of Appeals on questions of law and fact.
2. F, a corporation, held certain premises under a head lease expiring September 10, 1938, and containing a clause which gave the lessee the right to purchase the premises on or before that date. On January 8, 1929, the head lease then being in force, F sublet a portion of the premises to L, a corporation, for a period of twenty years. In this sublease were a covenant for quiet enjoyment and a provision that F would exercise the privilege of purchase within the time stipulated or on F's failure to do so, L could exercise it. F having failed to perform its agreement to exercise the privilege and L not having done so, the head lease was extended on September 7, 1938, for a period of three years at a reduced rental with like privilege of purchase to F, the lessee therein. On October 5, 1938, such extension was supplemented by another writing by the terms of which L, as F's sublessee, was assured possession and quiet enjoyment of premises demised to it by the sublease and, in case F should transfer its extended head lease to a nominee, such nominee should be caused to carry out all obligations to such sublessee under its sublease. During the three-year period created by the extension and supplemental extension of the head lease R was named as nominee and the interests of the lessee under the head lease were conveyed by F to R by warranty deed which contained a covenant that R by accepting the deed was bound to carry out the provisions of the sublease to L and to grant L, as sublessee, quiet and peaceable possession. L did not pay the monthly installment of rental due September 1, 1938, or any installment thereafter accruing but continued in possession of the premises. L, during the extended term of three years, brought an action to avoid the sublease, enjoin F from collecting further rental thereunder and obtain a declaration of rights in such premises. F cross-petitioned against L for accrued rental. Held:
(a) The sublessor's covenant to purchase before the expiration of the time specified was an independent covenant and its breach did not release the sublessee from the performance of its covenants.
(b) By the terms of the extension and supplemental extension of the head lease and the covenants of the nominee, to whom the head lease was transferred, the rights of the sublessee were fully protected, and the contract of sublease made valid.
(c) There was no eviction of the sublessee actual or constructive and consequently no breach of sublessor's covenant for quiet enjoyment.
(d) The sublessee is not entitled to a cancellation of the sublease on the ground the covenant to purchase has been broken.
(e) The transfer of the interest, which the sublessor held by reason of the extension of the head lease, terminated the right of the sublessor to installments of rent accruing after the transfer; thereafter right to accrued rents was in the nominee to whom the interest of the sublessor was transferred.
CERTIFIED by the Court of Appeals of Hamilton county.
On September 15, 1938, The Liberal Savings Loan Company, hereinafter called Liberal, began an action in the Court of Common Pleas of Hamilton county, Ohio, against The Frankel Realty Company, hereinafter called Frankel, the heirs of Christian Boss, hereinafter called the Boss heirs, who owned the fee, and The Fifth-Third Union Trust Company, surviving trustee under the will of Christian Boss, deceased, defendants, seeking a declaration of its rights under a sublease executed by Frankel to Liberal, a cancellation of the sublease and an injunction restraining Frankel from collecting further rents.
Frankel filed an amended answer and cross-petition praying for a judgment against Liberal for past due installments of rent and interest. On April 11, 1940, August A. Rendigs, Jr., nominee of the Boss heirs, filed an answer and cross-petition in the Court of Appeals praying for judgment against Liberal for rents accruing on and after October 1, 1939.
The controlling facts which are undisputed are as follows:
Christian Boss died testate on September 19, 1908, devising certain of his property in trust for a period of twenty years. On September 3, 1927, The Fifth-Third Union Trust Company (one of the defendants herein), as the surviving trustee under decedent's will, entered into a written contract of lease demising to Frankel a portion of the devised premises known as 24-26 East Sixth street, Cincinnati, Ohio.
The term of this lease was for eleven years and one month with the privilege of purchasing the demised premises for $600,000 of which amount Frankel paid on the purchase price at the time the lease was entered into the sum of $75,000 and paid a like amount on September 9, 1928, leaving a balance of $450,000. This lease is called the head lease.
Thereafter Frankel changed the building from a warehouse to an office building and expended approximately $190,000 on improvements.
On January 8, 1929, Frankel sublet the first floor and basement to Liberal for a period of twenty years, beginning January 1, 1929, at a monthly rental of $1750 for the first ten years and $2000 for the remainder of the term payable in advance on the first day of each month. This sublease contained the following provision: "Lessor covenants that it will exercise its privilege of purchasing the fee of the property hereby leased on or before September 10, 1938, and that if lessor fails to exercise said privilege, lessee may exercise the same which right is hereby granted, in the event of such failure." The sublease also contained a covenant for quiet enjoyment.
On January 11, 1929, the testamentary trust created by Christian Boss having expired under the terms of the last will and testament, The Fifth-Third Union Trust Company conveyed the property to the Boss heirs, subject to the head lease to Frankel.
Frankel did not exercise its right to purchase the property on or before the stipulated date (September 10, 1938), and neither did Liberal do so although it had knowledge that Frankel did not choose or intend to exercise its privilege.
On September 7, 1938 (three days before the expiration of the head lease), Frankel entered into a written agreement with the Boss heirs by the terms of which the head lease from The Fifth-Third Union Trust Company, as trustee, was extended for a period of three years. This extension agreement provided for a reduced rental of $1500 per month for the extended term and included the privilege of purchase for $450,000.
On October 5, 1938, a supplemental extension of lease was entered into by which the extended term of three years, the rental and privilege of purchase were not affected. It contains the following provisions:
"2. Lessee shall have the right, provided not less than sixty (60) days' notice of its option to exercise such right is given in writing to the lessors, on the 10th day of September, 1939, or on the 10th day of September, 1940, to execute and deliver to a nominee of the lessors, a conveyance or assignment of all of its right, title and interest under said head lease as herein extended and shall thereafter be relieved from all personal liability for the payment of the rental reserved herein; provided all obligations for the payment of taxes, assessments, maintenance, insurance, repairs and all other obligations of said lease have been fully complied with. Lessors agree to name such nominee promptly on demand of lessee.
"3. Lessee agrees that during the term of this extension, it will not enter into any modification, change or alteration of any subleases covering any portion of said premises so as to in any way modify, change or alter the obligations under any such sublease beyond the term for which lessee is bound under the terms of this extension. Further, that said lessee will not enter into any sublease for any portion of the premises covered by the head lease for any term extending beyond September 10, 1943, nor at a rental less than the fair current value of equivalent space.
"4. Lessee agrees that should the head lease as herein extended not be assigned to a nominee of lessors prior to such date, and no further extension has been agreed upon between lessors and lessee, and the privilege of purchase contained in said head lease as extended has not been exercised, it will on September 8, 1941, assign, transfer and convey on demand of the lessors, its right, title and interest under said head lease as herein extended to the nominee of lessors.
"5. Lessors agree that should the leasehold created under the head lease as herein extended be conveyed to their nominee as provided under paragraphs 2 or 4 herein, lessors will further extend such head lease for such term of years as may be necessary to insure to the tenants or sublessees now in possession of any portion of the premises described in the head lease under subleases from the lessee herein as lessor, the possession and quiet enjoyment to which they may be entitled by virtue of any such sublease now in effect, and lessors will cause such nominee to assume and agree to carry out all obligations of the lessee herein as lessor under any such sublease in effect at the date of this extension agreement, or which may be subsequently entered into by the lessee herein in accordance with the provisions of paragraph 3 herein."
The Boss heirs made Rendigs their nominee and Frankel, on September 9, 1939, executed and delivered to Rendigs as such nominee a warranty deed conveying its interest in the head lease. This deed which was accepted by Rendigs contained the following phraseology: "The grantee herein, August A. Rendigs, Jr., by accepting this deed does assume and agree to fully carry out and perform all the terms, conditions and obligations:
"(1) Of the lease creating the leasehold estate herein conveyed;
"(2) Of the agreement of extension and supplemental agreement of extension referred to above;
"(3) Of grantor to tenants in possession;
"(4) Of The Frankel Realty Company, as lessor in each of the following leases:
"(a) The Liberal Savings Loan Company, * * * and to grant all of said lessees quiet and peaceable possession of such portions of the premises described in each of said leases for the balance of the terms of said respective leases; and the grantee herein further agrees to save harmless the said The Frankel Realty Company from all loss, damage and expense in any manner arising or growing out of his failure to carry out and perform the terms, conditions and obligations of each of said respective leases, and of the conditions and obligations herein assumed."
While this warranty includes a number of other subleases besides the one to Liberal such other ones are not involved in this case and all references to a sublease herein are to the sublease of Liberal.
Liberal did not pay the installment of rent due September 1, 1938, or any installment accruing thereafter, but has remained in possession of the premises.
On the trial in the Court of Common Pleas it was held that by the failure of Frankel to exercise its privilege of purchase on or before September 10, 1938, both the head lease and the sublease had been terminated and that Liberal "is a trespasser upon the property in question, or, at best, is a tenant by sufferance, liable for the period of its occupancy since September 10, 1938, for the reasonable rental value of the premises."
The trial court denied the relief to Frankel on the cross-petition, dismissed it and entered a declaratory judgment in favor of Liberal in accordance with such findings.
Separate motions for new trial were filed by Frankel and the Boss heirs within three days after entry of final judgment. Seventeen days after the entry of final judgment, Frankel filed notice of appeal to the Court of Appeals on questions of law and fact and a day later filed an appeal bond. On January 2, 1940, Liberal filed a motion in the Court of Appeals to dismiss the appeal on the ground that it was premature. At that time the trial court had not passed on the motion for new trial.
The Court of Appeals overruled the motion to dismiss the appeal, and on trial rendered judgment in favor of Liberal substantially in form and in substance as that entered in the Court of Common Pleas.
In the journal entry the court stated its conclusions of fact and conclusions of law separately. The findings of fact are in accord with the undisputed evidence as heretofore set forth. In addition the appellate court certified the case to this court as in conflict with the decision in First National Bank v. Kittoe Boiler Tank Co., 62 Ohio App. 411, 24 N.E.2d 458, on the question of procedure.
Mr. William R. Collins and Mr. David F. Naylor, for appellee, The Liberal Savings Loan Company.
Mr. Gilbert Bettman and Mr. Fred Weiland, for appellant.
Mr. August A. Rendigs, Jr., and Mr. Herbert E. Ritchie, Jr., for appellees, August A. Rendigs, Jr., and others.
The first question is whether the Court of Appeals erred in overruling the motion to dismiss the appeal.
Section 12223-7, General Code, contains the following: "The period of time after the entry of the order, judgment, decree, or other matter for review within which the appeal shall be perfected, unless otherwise provided by law, is as follows:
"1. In appeals to the Supreme Court, to Courts of Appeals, or from Municipal Courts and from Probate Courts to Courts of Common Pleas, within twenty (20) days.
"Provided, that, when a motion for a new trial is duly filed by either party within three days after the verdict or decision then the time of perfecting the appeal shall not begin to run until the entry of the order overruling or sustaining the motion for new trial. * * *"
Without determining whether a party may perfect his appeal within twenty days after the overruling of the motion for a new trial in a chancery case if he elects to wait (see ante, 479), this court holds that an aggrieved party may file an appeal on questions of law and fact within twenty days after the journal entry of the final judgment is filed in the trial court notwithstanding the fact that a motion for new trial is still pending and undisposed of. Under such circumstances the party appealing on questions of law and fact waives his motion for a new trial for the purpose of the appeal. The Court of Appeals did not err in overruling the motion to dismiss the appeal.
The second question is: What are the rights of the parties under the sublease from Frankel to Liberal?
The head lease to Frankel gave it as lessee the right to purchase the premises on or before the date of the expiration of the term on September 10, 1938. At that time the sublease from Frankel to Liberal which expired December 31, 1948, had slightly over ten years to run. There was a covenant in the sublease that Frankel would exercise its privilege and purchase the fee on or before September 10, 1938, and a provision that the sublessee might exercise the privilege if the sublessor failed to do so. Frankel did not purchase the premises as stipulated in the covenant but instead (Liberal not having exercised the privilege either) by agreement obtained before the expiration of the head lease an extension of the term for three years. During the extended term Frankel transferred its interest to the nominee, Rendigs, by warranty deed. There were covenants in the supplemental agreement and in the deed by which the owners of the fee (the Boss heirs) and Rendigs bound themselves to protect Liberal in the possession and quiet enjoyment of the premises demised to it under the terms of the sublease.
It is a general rule that a lease will operate to pass an after-acquired title. The basis of the doctrine is estoppel and the rule operates both ways. The lessor is estopped by the demise of the leasehold interest with covenant for quiet enjoyment, express or implied. Poultney v. Emerson, 117 Md. 655, 84 A. 53; 24 Ohio Jurisprudence, 853, Section 128. The lessee is estopped (at least in those instances in which he has had peaceful and quiet enjoyment of the demised premises from the beginning of the term) for the reason that, being in undisturbed possession, he is not permitted to deny his lessor's title. 1 Washburn on Real Property (6 Ed.), 362, Section 623. See, also, 35 Corpus Juris, 1227, Section 566 (subject Subtenants). When Frankel, during the original term of the head lease secured an extension for the three-year period ending September 10, 1941, Liberal's right and interests upon the sublease were affected accordingly. Consequently Liberal has a present estate for years under the sublease, unless Frankel's breach of the covenant to purchase by failing to exercise the privilege, as agreed upon, worked a change in the rights and obligations of sublessor and sublessee.
Liberal maintains that Frankel's failure to exercise its right to purchase terminated the sublease and released Liberal from the payment of rent in the amount stipulated in the sublease.
Was the covenant to purchase an independent covenant? It was immaterial to Liberal who the owner of the fee might be as long as the covenant for quiet enjoyment was not broken. The absence of a stipulation that the contract between sublessor and sublessee would be at an end on sublessor's breach of the covenant to purchase shows an intention to make that covenant independent. Since the dependency of covenants is a matter of the intention of the contracting parties the omission of the correlative stipulation is of controlling significance.
What we have here, then, is the breach of an independent covenant — a breach "not of such a material and substantial nature as to excuse the party suing from proceeding with the contract." Barry v. Frankini, 287 Mass. 196, 199, 191 N.E. 651, 93 A. L. R., 1240, 1242. In that case much was said that is apposite here. In fact what constitutes a turning point in the case at bar is put thus at page 201: "Covenants in leases, however, for reasons which need not be elaborated here, are generally independent, in the absence of clear indications to the contrary, and the lessee is relieved from performance of his covenants only by actual or constructive eviction."
Liberal, however, insists that the course pursued by Frankel amounted to an eviction. Actual eviction involves expulsion or exclusion from the demised premises; constructive eviction, surrender of possession by the tenant on justifiable grounds. The distinction between the two kinds of eviction is accurately and fully explained in 2 Tiffany Landlord and Tenant, 1263, Section 185 ( d) from which we quote: "In order that there be an eviction by the landlord, in the legal sense, it is necessary that the tenant no longer retain possession of the premises. In case of an actual dispossession of the tenant, an 'actual eviction,' no question can arise in this regard, but when there is merely an interference with his possession and enjoyment, it is necessary that the tenant relinquish possession of the premises in order that there be a 'constructive eviction,' the theory being that the acts of interference by the landlord compel the tenant to leave, and that he is thus in effect dispossessed, though not forcibly deprived of possession. As has been remarked, 'the proposition that there can be retention of demised premises and an eviction are logically and legally contradictory.' " So long as the tenant remains in possession he cannot successfully maintain that he has been constructively evicted.
Liberal has never been evicted, actually or constructively. It is still in undisturbed possession. Even so, the covenant of purchase because independent could not as heretofore indicated be the basis of a constructive eviction. What is more there has never been a time when Liberal, observing and performing its covenants, could have been lawfully evicted, and that time will not come during the life of the lease if the provisions and covenants of the supplemental extension agreement, the warrantry deed and the sublease are adhered to and carried out. The Boss heirs, Frankel and Rendigs, the nominee, have entered into contractual obligations which assure to Liberal possessession and quiet enjoyment of the premises for the full term of twenty years. Liberal was and is fully protected as to its contract of sublease by three steps that were taken, namely, (1) the valid extension of the head lease for three years, (2) the execution of a supplemental agreement of extension by the terms of which the owner of the property, the Boss heirs, agreed further to protect (among others) the sublessee, Liberal, in the possession and quiet enjoyment of the premises demised to it, and (3) Rendigs' acceptance of the warranty deed, in which he assumed and agreed to carry out the sublease to Liberal and covenanted to grant the latter quiet and peaceable possession thereunder.
Liberal's rights under the sublease would have been protected, it is true, if Frankel had performed its agreement to purchase the fee but Liberal can not complain since it received protection in another all-sufficient way.
What Liberal seeks is a cancellation of the lease in equity while still in possession without having paid the rent. At the same time Liberal complains that Frankel, though receiving a reduction in the rental, has not offered a reduction to Liberal. The factor impelling Liberal's desire to have the rent reduced was a decrease of rental generally in the immediate neighborhood amounting to approximately 50 per cent. Nevertheless equity does not relieve a party from a contract because it is burdensome or make a new contract for the parties. Failure to reduce the rent is not an element that can be considered in the instant case.
The courts below held that after breach Liberal was a trespasser or at best a tenant at sufferance liable for the reasonable rental value for the period of its occupancy subsequent to September 10, 1938. If it is assumed arguendo that the sublease expired at that date by reason of the breach, the holding that Liberal could be liable only for the payment of reasonable rent during that period is not sound for the simple reason that in case of holding over upon termination of a lease the landlord may regard the occupant as a tenant and collect the rent stipulated in the lease under which the tenant holds over. On the theory that the sublease terminated at the end of the original term granted by the head lease Liberal would be liable for the rents stipulated in the sublease as long as it continued to hold possession of the premises. Since Frankel and then Rendigs, the nominee, owned the immedidate reversion under the sublease during the period of the holding over, each in turn would have a right to treat Liberal as a tenant at the same rental under the holding over principle. However, since we hold the view that the covenant to purchase the premises was not a dependent covenant, that failure to purchase was not ground for constructive eviction and that the leasehold did not end with the expiration of the original term under the head lease, the holding-over principle does not apply.
In the light of what has been stated the rights and obligations of Liberal, as sublessee, stand out clearly. In return for possession and quiet enjoyment the sublessee is obligated to yield the stipulated rental as it falls due. To whom must payment be made?
The right to rent follows a transfer of the reversion unless of course there is a reservation of rent. Smith v. Harrison, 42 Ohio St. 180, 185; 36 Corpus Juris, 364, Section 1206, and cases cited. Moreover, under the modern rule attornment by the lessee is not essential to the validity of such transfer. See 16 Ruling Case Law, 922, Section 429. Of course Frankel is entitled to rentals that accrued while it retained its interest as lessee under the head lease. When Rendigs, the nominee, acquired from Frankel all of its right, Rendigs became entitled to the rent accruing after the transfer and the obligations of Liberal under its sublease including its obligation imposed by the covenant to pay rent were unaffected. The contract of sublease remains of full force in word and covenant.
It does not follow that the sublessee has no right of action by reason of breach of the covenant to purchase. Action lies at law to recover therefor; but in the instant case no actual damages have been suffered by the sublessee.
Liberal relies on the case of New York Life Ins. Co. v. Simplex Products Corp., 135 Ohio St. 501, 21 N.E.2d 585. In that case the facts as shown in the syllabus and in the opinion were that two separate mortgages incumbered different portions of premises covered by one lease with rental payable to the lessor-mortgagor. The mortgages were foreclosed in the same action and each mortgagee purchased the portion of the premises covered by its mortgage. The tenant continued payment of the stipulated rent in monthly installments and the rental so paid was apportioned between the mortgagees according to an assigned agreement the owner had made with the mortgagees. The factual situation is so different in that case that it has no application to the case at bar.
On the undisputed facts this court enters final judgment dismissing the petition and awarding to Frankel and to August A. Rendigs, Jr., recovery for accrued rental as hereinbefore indicated.
Judgment reversed and final judgment entered.
WEYGANDT, C.J., ZIMMERMAN, TURNER, MATTHIAS and HART, JJ., concur.