Summary
holding no fiduciary relationship exists between sublessor and sublessee
Summary of this case from Gonzalez v. University System of New HampshireOpinion
Decided December 6, 1938.
An instrument may constitute an assignment of the lessee's interest so far as the lessee has rights against the landlord and also constitute a sub-lease as between the lessee and his assignee. In the latter case the obligation of the assignee to the original lessee (his assignor) cannot be avoided by any agreement or stipulation between the original lessor and the assignee purporting to cancel or annul the original lease. By accepting a transfer of the rights of a lessee the transferee agrees to its terms and impliedly promises to perform the duties thereby imposed, and a promise to pay royalties contained in such assignment runs with the land and each subsequent assignee of the lease, including the purchaser from a receiver, assumes that obligation. The right of two lessees to an extension of a lease is the right of two tenants in common and if they both assign the lease their assignee is not obliged to exercise the right of extension unless such obligation is imposed by the terms of the transfer. A promise to pay royalties contained in a lease or in an assignment thereof runs with the land and binds any subsequent lessee or assignee of the term. A receiver has only the title of the corporation whose affairs he administers.
PETITION, for a declaratory judgment (Laws 1929, c. 86), in which the petitioner, Charles B. Martin, seeks a decree determining the rights of all parties arising under a certain lease and various transfers of interests therein. This lease was given by Joseph Yuhas to the petitioner and W. B. Ewing on September 22, 1927, and granted to the lessees, on a royalty basis, "the exclusive right to quarry, blast, dig, mine and remove" all feldspar, mica and quartz located on certain lands owned by Yuhas in Acworth. The lease was to run for three months subject to the right of extension and renewal by the lessees for two ten-year periods.
On December 15, 1927, the lessees exercised their right of extension for the first period, and on February 14, 1929, transferred their interests in the lease to the American Mineral Products Company, a New Hampshire corporation, of which Ewing was president. It was stipulated in the transfer that the Products company, its successors or assigns, should pay to Yuhas "any and all royalties due to be paid" to him by Martin and Ewing, and "in addition to this consideration" that "the said American Mineral Products Company, Inc., its successors or assigns" should pay to Martin an overriding royalty of twenty-five cents a ton on all feldspar shipped or removed from the mines.
On February 27, 1930, the American Mineral Products Company conveyed all its mining rights and interests in the Yuhas premises to a corporation of the same name organized under the laws of Delaware, with Ewing as its president. This latter corporation operated the mines until February 4, 1931, when it suspended work because of financial reverses. In the meantime Yuhas had taken steps to declare the lease void because of the failure of the lessees to comply with the provisions of the lease relating to the payment of royalties, and had notified the lessees that he intended "to retake possession of the property" on May 2, 1931, and that operations must cease on May 1, 1931.
On February 10, 1932, temporary receivers of the American Mineral Products Company of Delaware were appointed by the Superior Court on petition of the Bellows Falls Trust Company as mortgagee. A permanent receiver was appointed on May 9, 1932.
At the February term, 1932, of the Superior Court Yuhas filed a petition asking leave to intervene as lessor and creditor and praying that his lease to Martin and Ewing be decreed null and void. On August 14, 1933, Yuhas executed a new lease to the Seaboard Minerals Corporation, and on September 7, 1933, that corporation purchased from the receiver at auction the interest of the American Mineral Products Company of Delaware in the original lease. Shortly thereafter Yuhas and the Seaboard company filed a stipulation and agreement to the effect that the original lease should be decreed invalid.
At the February term, 1935, the petition of Yuhas to intervene was dismissed, a hearing having been held on February 15, 1933. The Presiding Justice found as a fact that the minimum royalty was paid for the year 1931, and that the receiver tendered to Yuhas the minimum royalty for 1932 and 1933, that the proceedings instituted by Yuhas to annul the lease "were never brought to a head, no possession was ever taken by the said Yuhas, and the difficulties between lessor and lessees were adjusted." The court therefore ruled "that the said lease is in effect binding, valid and in full force." No exception was taken to his ruling or to the findings on which it was based.
Charles B. Martin filed the present petition on December 8, 1934, alleging that the Seaboard Minerals Corporation had been operating the Yuhas mine ever since the receiver's sale on September 7, 1933, and although it had mined, sold and removed feldspar from the mines, it had refused to pay to Martin the royalty to which he was entitled. There was a hearing on this petition and at the September term, 1935, the court (Young, J.,) found and ruled "That the Seaboard Minerals Corporation is chargeable with and liable to the said Martin for the royalty of twenty-five cents (25c.) a ton on all feldspar shipped and removed from the so-called Yuhas mine since Sept. 7, 1933, and will be liable for said royalty on all feldspar that may hereafter be shipped and removed from said mine while the lease assigned to the said Seaboard Minerals Corporation on said September 7th is in force."
The Seaboard Minerals Corporation excepted to this finding and ruling, and requested that further findings of fact be made. There was a further hearing in compliance with this request, and the Presiding Justice, having found that the additional evidence introduced at this hearing did not change the former findings and rulings, ruled that the exceptions of the Seaboard Minerals Corporation which he construed as a motion to set aside the findings of Young, J., be denied. To these findings and rulings the Seaboard corporation excepted.
At the request of the Seaboard Minerals Corporation the Presiding Justice, subject to the petitioner's exception, ruled that the lease of September 22, 1927, expired in December, 1937, and that the Seaboard corporation was not obliged to renew the lease for another ten-year period. On September 9, 1937, Martin notified Yuhas that he was himself exercising the option to renew. Further facts are stated in the opinion. Transferred by Burque, J.
Howard B. Lane (by brief and orally), for Charles B. Martin.
Lawrence F. Sherman (of New York) and Orville E. Cain (Mr. Sherman orally), for the Seaboard Minerals Corporation.
The Seaboard Minerals Corporation contends that Yuhas acted within his legal rights in canceling his lease and that this cancellation was not rendered nugatory by his subsequent conduct. It further contends that the provision for an overriding royalty in the conveyance to the American Mineral Products Company of New Hampshire was an independent agreement between Martin and that company and did not bind the company's successors or assigns.
It is suggested that since the notices of cancellation were in proper form and given after default, the lease had become legally canceled and could not later be reinstated or revived. This argument disregards the specific finding that the proceedings to annul the lease were never brought to a head.
The treasurer of the American Mineral Products Company of Delaware testified, without objection, that Yuhas stated to him that he had withdrawn the notices, that he was sorry he had ever started any such proceeding, that it was all a mistake, and that the matter was entirely closed. Martin testified that he had a talk with Yuhas before the mine was shut down in February, 1931, and that Yuhas then told him that he had received his money and was no longer interested in canceling the lease but wanted the mine to be worked. He further testified that he did not notify the Delaware company that Yuhas "was not going to insist on his earlier notices" because the treasurer of that company had already informed him that Yuhas "had withdrawn his complaint." This evidence fully justified the court's conclusion that the lease remained in full force. 2 Tiffany, L. T., pp. 1386, 1387; Norris v. Morrill, 40 N.H. 395, 403; Kilgore v. Association, 78 N.H. 498, 501, 502.
The Seaboard corporation's second contention can be sustained only if the conveyance to the American Mineral Products Company of New Hampshire is an assignment for all purposes of the case. If it is to be so treated, then the Seaboard corporation is under no liability to Martin, since there would be neither privity of contract nor privity of estate between them. There are situations, however, where an instrument may constitute an assignment so far as the rights of the original landlord are concerned and a sublease as between the lessee and his transferee. Such would seem to be the situation here.
". . . the rule is well settled that if the lessee parts with his whole term or interest as lessee, . . . it will, as to the landlord, amount to an assignment of the lease, and the essence of the instrument as an assignment, so far as the original lessor is concerned, will not be destroyed by its reserving a new rent to the assignor with a power of re-entering for non-payment, . . . and the assignee, so long as he continues to hold the estate, is liable directly to the original lessor on all covenants in the original lease which run with the land, including the covenant to pay rent . . . .
"But as between the original lessee and his lessee or transferee, even though the original lessee demises his whole term, if the parties intend a lease, the relation of landlord and tenant, as to all but strict reversionary rights, will arise between them.
"The effect, therefore, of a demise by a lessee for a period equal to or exceeding his whole term is to divest him of any reversionary right and render his lessee liable, as assignee, to the original lessor, but at the same time the relation of landlord and tenant is created between the parties to the second demise, if they so intended." Stewart v. Railroad, 102 N.Y. 601, 608. To the same effect, see Orr v. Neilly, 67 Fed. (2d) 423, 424, and authorities cited; Saling v. Flesch, 85 Mont. 106, 111, and cases cited; Annotation, 82 A.L.R. 1273, 1274, 1275.
The language of the opinion in Machinist v. Koorkanian, 82 N.H. 249, 252, is not to be interpreted as establishing a stricter rule than that outlined above. Indeed, one of the reasons given for holding the transfer to be an assignment in that case is that the lessee "made no attempt to reserve a rent to himself" or "to create in any way a relation of landlord and tenant" between himself and his transferees.
By the stipulation for an overriding royalty Martin retained in his own favor an "economic interest" in the feldspar "in place, identical with that of a lessor." Palmer v. Bender, 287 U.S. 551, 558. This he had a legal right to do. He and Ewing were tenants in common, each having a separate estate. P. L., c. 213, s. 17. The instrument which they executed did not constitute a joint assignment or demise but comprised a separate transfer by each "of his undivided share, and a confirmation thereof by the other." 1 Tiffany, L. T., p. 405. See Mussey v. Holt, 24 N.H. 248, 254. Ewing did not participate in the royalty presumably because he was actively interested in the American Mineral Products Company of New Hampshire. As to his rights under the Yuhas lease, the transfer of February 14, 1929, operated as an assignment.
The fact, however, that this instrument provides for the payment to Martin of an overriding royalty, expressly stated to be binding upon the successors and assigns of the New Hampshire corporation, definitely indicates an intention to create, as between Martin and the New Hampshire company, the relation of landlord and tenant. See Homestake c. Co. v. Schoregge, 81 Mont. 604, 615; Sunburst c. Co. v. Callender, 84 Mont. 178, 190. It follows that Martin's rights against that company and succeeding assignees are the same as though he were not himself holding under a lease. 1 Tiffany, L. T., p. 1002.
By accepting the transfer of February 14, 1929, the transferee agreed to its terms and impliedly promised to perform the duties thereby imposed. Machinist v. Koorkanian, 82 N.H. 249, 251, and cases cited. The promise to pay royalties ran with the land (Annotation, 79 A.L.R. 496, 499, 500), and each assignee, when it accepted the benefit of its assignment assumed this obligation. The Seaboard Minerals Corporation acquired no greater right than its vendor possessed, and the receiver had only the title of the corporation whose affairs he was administering. Goudie v. Company, 81 N.H. 88, 94.
The liability of the Seaboard corporation to Martin depends, therefore, upon privity of estate, and since that liability continued while the corporation remained in possession under the assignment (Trustees of Dartmouth College v. Clough, 8 N.H. 22, 29), the obligation to pay the overriding royalty could not be avoided by any agreement or stipulation between Yuhas and the corporation purporting to cancel or annul the original lease.
As bearing on the practical construction placed by the parties on the instrument in question it should be noted that Ewing was president of each of the three corporations which acquired rights under that document, that the Delaware and Seaboard companies had the same treasurer, that the Delaware corporation rendered monthly statements to both Yuhas and Martin showing the royalty due to each, and that after the Delaware company had ceased operations, Ewing, in a letter to the treasurer, suggested the making of "a new lease with Joe Yuhas direct" in order to "eliminate Martin entirely."
The Presiding Justice correctly ruled that the Seaboard Minerals Corporation was not obliged to renew the original lease for another ten-year period. The only interest Martin had in this right of renewal was that of a tenant in common. This interest he transferred to the American Mineral Products Company of New Hampshire without restriction. Since the original lessees were not obliged to renew the lease, neither the Products company nor any subsequent assignee was required to renew it unless such an obligation was imposed by the terms of the transfer. Goocey v. Hopkins, 206 Ky. 176, 178. Unlike the assignment in Probst v. Hughes, 143 Okla. 11, the transfer of February 14, 1929, contains no provision that the royalty reservation shall apply to any renewal or modification of the lease which the assignee, its successors or assigns, may secure.
Ordinarily no fiduciary relation exists between sub-lessee and sub-lessor (Flat-Marks c. Corporation v. Stores, 74 Fed. (2d) 210, 211, and cases cited), and there are here no special circumstances giving rise to such a relation between the contending parties.
It follows that the Seaboard Minerals Corporation is not required to pay to Martin a royalty on the feldspar mined after December 27, 1937, the date on which the original lease expired.
Exceptions overruled.
BRANCH, J., was absent: the others concurred.