Lindeke v. Associates Realty Co.

146 F. 630, 77 C.C.A. 56, 1906 U.S. App. LEXIS 4132

• Court: Court of Appeals for the Eighth Circuit
• Decided: July 30, 1906
• Docket: No. 2,419
• Status: Published

Opinion

PHILIPS, District Judge,

after stating the facts as above, delivered the opinion of the Court. There are a large number of assignments oi error — 21 specifications — but as is not infrequently the case, only a few questions are involved determinative of the controversy. A dozen and one are to findings of fact by the' trial court, and the other 8 present the reverse side, that the court erred in not finding the issues for the appellants.

The essential question for decision is whether or not the right to declare a forfeiture of said lease and leasehold estate, with the consequent right of re-entry by the lessor, arose by reason of the failure of the lessees to erect and complete the new building on the leased ground within the five years as prescribed by the demise. The contention of appellants is that the forfeiture clauses of the lease have exclusive reference to the matter of the failure to pay the reserved rentals as they became due, to pay the taxes, assessments, and the like. The contention of appellee is that the right of forfeiture extends as well to the failure by the lessees to erect the new building within the prescribed period of five years. In a contract like this, of many specifications and covenants, in ascertaining the application of the forfeiture provisions it is a sensible thing to do to place ourselves as near as may be in the attitude and relation of the parties respecting the subject-matter of the contract at the time of its execution, and then taking the' instrument by its four corners, read it, and so construe it as to harmonize and give effect to all its material parts, so as to give it a reasonable and praticable application.

As appears from the record, the property in question is located near thé center of the mercantile district of Minneapolis, a city of rapid development, and steady growth. The buildings on the leased premises were old, worn, and illy constructed, not in rapport with surrounding business houses, nor were they adequate by comparison to the accommodation of a growing mercantile establishment. It was, therefore, apparently to be desired and expected by the lessees that a more attractive and commodious building should supplant the old one in view of their long tenure, with the option to buy at the end of the five years or to continue the term for successive periods. The lot itself was estimated to he of the value of $100,000, and at the time was subject to a mortgage of $50,000. It was, therefore, of importance to the lessor to have the new building contemplated constructed, as it would not only enhance the security for the rental money and the other acts to be performed by the lessees, but would greatly augment the value of the; property in case of the purchase by either under the option. In view of this situation, let us examine the covenants and forfeiture provisions. The opening consideration of the contract is the payment of the rentals and taxes as well as the performance of the covenants and agreements to be paid and performed by the lessees. It was expressly covenanted and agreed that the lessees within five years from the 1st day of April, 1900, would erect and complete upon said premises a substantial business building to cover the entire property leased, five stories in height, attractive in appearance, etc., and that as soon as the new building should be completed they would insure it in a sum not less than $12,500 for the better security of the lessor. It was further agreed, as one of the conditions upon which the lease was made, that if the lessees should make default for-the space of 60 days in the payment of any of the rents, taxes, or assessments, “or in the performance of any of the covenants or agreements on the part of the said parties of the second part to be performed,” the lessor, after giving the specified notice to quit, could end the lease. This is followed by the covenant that upon the termination of the lease, “whether by lapse of time, or'under any of the conditions or provisions contained herein,” the lessees would peaceably surrender the premises. From all of which it appears that the respective covenants alike pertained to the acts, the things to be done by the covenantors — to the obligation to build as well as pay rentals, taxes, etc. The mere separation of the provisions into distinct paragraphs was merely the mode adopted by the draughtsman for convenience or method of construction. So while the argument of the learned counsel for appellants is ingenious in the attempt to limit the forfeiture clauses to the paragraph respecting the failure to pay rentals, taxes, etc., it is more specious than reasonable.

It hardly admits of controversy that immediately, coupled with the covenant and agreement to pay rentals, taxes, etc., is the covenant or agreement to build, and that failure to perform both or either is expressly made the basis of the declaration and enforcement of the forfeiture, This uniting of the right of forfeiture is exemplified in the succeeding covenant that “upon the termination of this lease, ;whether by lapse of time, or under any of the conditions or provisions contained herein” the lessees would peaceably surrender the possession, etc. And should the lessees pay the rentals, assessments, taxes, insurance, and charges and perform the covenants and agreements provided for in the lease, they should hold and enjoy the premises. So it is made clear that the right of the lessees to hold and enjoy was made to depend not alone upon the payment of the rents, taxes, insurance, etc., but as well upon their performance of the other covenants and agreements, which indisputably would- cover the building clause. And it is significant in this connection that in the closing paragraph of the lease it is declared that time is of the essence of this contract. There is nothing strained or unreasonable in .this view of the contract. It necessarily devolved upon the lessees to remove the old structure to make place for the new, to get out the plans and specifications therefor, and during the change to submit to the interruption of business consequent thereon. The usual bond given by lessees for the construction of new buildings within the prescribed time was not. exacted in this case. In lieu thereof it was deemed a sufficient guaranty to the lessor and incentive to the lessees that the building would be constructed as agreed upon, that the forfeiture provision hung suspended over the heads of the lessees.

Some stress in argument is laid upon the phrase found in the provision respecting the letting of the lessees of the contract for the erection of the new building, which requires “that said building shall be so erected and completed within a reasonable time therein specified.” By giving to this the insulated office of an independent stipulation, read in connection with the plans and specifications to be submitted to and approved by the lessor, counsel for appellants builds the hypothesis that is was not in the contemplation of the parties that a forfeiture might be predicated of the building covenant. The argument is that the lessees had the full five years in which to begin the work of building; that as the plans and specifications had to be prepared and submitted to the lessor, subject to its approval, which might detain at will and finally reject them, necessitating the getting up'and submitting new. ones — a process that might go on during the entire five years of the term — and hence the provision was inserted that after concurrence in the plans and specifications, a reasonable time should be allowed the lessees for completing the building, which might extend beyond the five years’ period. There are several satisfactory answers to this contention. The language “said building shall be so erected and completed within a reasonable time therein specified,” has exclusive reference to the prescription as to the contract the lessees were to enter into with their contractor for the work. To prevent dallying and unnecessary delay as between the lessees and the contractor it was provided that the erection and completion should be within a reasonable time, having regard to the delays and interruptions ordinarily incident to the execution of such contracts. In no degree, however, did it contradict or mitigate the primary covenant and agreement between the lessor and the lessees that the building was to be completed within the five years. In respect of the suggested possible delay the lessor might occasion by the detention and final rejection of any plans and specifications submitted to it, it is sufficient to say (1) that the business desire of the lessor to have a new building upon the lots would presumptively make it to its interest to avoid any captious delay or objection; and (2) if it should act arbitrarily in the matter, the law would afford ample protection to the lessees in preventing a forfeiture declared by the derelict lessor.

In further support of the contention that the forfeiture clause was not intended to attach to the covenant to build, reference is made to that provision of the lease which gives the lessor, in lieu of the right to declare a forfeiture, a specific lien for rents, taxes, etc., paid by the lessor. The argument being, if we comprehend it, that this provision indicates that the paramount thought in the mind of the lessor was to secure the payment of the rents, taxes, etc., and, therefore, tire provision for the summary remedy by declaration of forfeiture and re-entry should be limited to that object. Sttch alternative provision is usual in contracts of lease, giving the lessor the right of election, to refy upon the lien and continue the lease if he deem it more advantageous than to put an end to the tenancy. How from such alternative provision a reasonable inference can be drawn that it does not consist with the right of forfeiture for default in keeping any other important covenant in the lease is not manifest. As already attempted to be shown, by an analysis of the various paragraphs of the contract, construed in the light of the attendant circumstances, the obtaining of the rentals and the construction of the new building were the paramount objects of the scheme, and are in such co-relation as to clearly indicate that the forfeiture clause applies indifferently to the allied covenants. Unless the expression in the contract fairly excludes this intendment it should prevail. Recognizing the embarrassment of the fact that the forfeiture clause follows the failure to make “payment of any of said rents, taxes, or assessments, or in the performance of any of the covenants or agreements on the part of the said (lessees) to be performed,” resort is had by appellants’ counsel to the rule of ejusdem generis, that the later general phrase should be limited to the like matters of rent, taxes, and assessments particularized as the antecedent. This rule has no controlling force in construing a contract where it is plain that a larger object was in fact in the minds of the parties to which the more general phrase can distinctly apply. Given v. Hilton, 95 U. S. 591-598, 24 L. Ed. 458, where it is said that “this rule of construction rests on a mere presumption; easily rebutted by anything that shows the larger subject was in fact in view.” Sutherland on Statutory Construction, § 279, says:

“Tlte sense in which general words, or any words, are intended to be used furnishes the rule of interpretation, and this is to be collected from the context ; and a narrower or more extended meaning will be given, according as the intention is thus indicated. To deny any word or phrase its known or natural meaning in any instance the court ought to be quite sure that they are following the legislative intention. Hence, though a general term follows specific words, it will not be restricted by them when the object of the act and the intention is that the general word shall be understood in its ordinary sense.”

No one particular class or thing is enumerated in the lease contract upon which the rule of ejusdem generis invoked can rest. The reference in the forfeiture clause is to things enumerated — the payment of rent, taxes, assessments, etc., and other covenants and agreements in the lease, among which is the covenant to build.

Reduced to its ultimate effect, the contention of appellants would allow the tenants to break every covenant in this lease except the mere obligation to pa)*- rents, etc. They could commit waste, to the great injury of the premises; suffer the sidewalks, alleys and passageways to gét so out of repair as to make the place inaccessible or uninhabitable; they could violate the party-wall contract, and fail to erect any new building; yet, so long as they complied with the single covenant in paying rents, taxes, etc., they could escape the entire forfeiture clause, notwithstanding the failure to perform the other covenants to be performed is expressly declared to be a ground of forfeiture. This is so obviously opposed to the whole scheme of the lease and the efficient means for enforcing observance of the material covenants as not to appeal to our approval.

Contention is made that the acceptance of the rent after the 1st day of July for the quarter ending October 1, 1905, constituted a waiver of- the right to declare a forfeiture for the breach of the building covenant.- The five years within which the lessees were to erect and complete the new building expired April 1, 1905; on Aubust 1, 1905, notice to quit and surrender was given. Under the requirements of the four months’ notice, the right to re-enter accrued December 1, 1905. No rent was paid beyond October 1, 1905. We understand the rule of law to be that a waiver in such instance applies where the rent has accrued and been accepted after the right of re-entry has attached on account of forfeiture; and not where it is paid and accepted as due for a period prior thereto. Big Six Development Company v. Mitchell (C. C. A.) 138 Fed. 279, 1 L. R. A. (N. S.) 332; Douglas v. Herms, 53 Minn. 204, 54 N. W. 1112; Gluck v. Elkan, 36 Minn, 80, 30 N. W. 446; Norris v. Morrill, 43 N. H. 213; Campbell v. McElevey, 2 Disney, 574; Jackson v. Allen, 3 Cow. (N. Y.) 220, 230; Blecker v. Smith, 13 Wend. (N. Y.) 531; Hunter v. Osterhoudt, 11 Barb. (N. Y.) 33; Price v. Norwood, 4 Hurlstone & Norman, 511.

Objection is made to the service of the notice to quit. Service was made August 1, 1905, upon the corporation, Evans, Johnson, Sloane Company, by delivering to and leaving a copy with Rudolph Altshul, he being the treasurer of the corporation. In Kansas City Railroad Company v. Daughtiy, 138 U. S. 305, 11 Sup. Ct. 308, 34 L. Ed. 963, the coúrt said: “At common law, service was made on such head officer of a corporation as secured knowledge of the process to the corporation.” 2 Taylor on Landlord & Tenant, § 481, says: “Notice to quit. When a corporation is tenant, the notice must be addressed to the corporate name, and served upon one of its officers.” Under the general laws of Minnesota service of summons upon a corporation defendant in the district court in a civil action is by delivering a copy thereof to the president or other head of the corporation— secretary, cashier, treasurer, a director, or managing agent. Section 5199, Gen. St. Minn. 1894. As the lessees named in the lease contract wc±e individuals it accounts for the absence of the usual prescription where the lessee is a corporation as to how the notice to quit should be served. The service of notice in this case we think was good under the local statute of the state, and was good at common law, made upon so important an officer as the treasurer as a means of conveying notice to the corporation. The service being good at the time when made upon the corporation, the subsequent adjudication of bankruptcy and the selection of trustees did not abrogate the service already made upon the corporation or necessitate reservice on the trustees in bankruptcy. In this respect the trustees succeeded only to the rights and stead of the bankrupt, and took the estate cum onere. Under such circumstances, the trustees stand simply in the shoes of the bankrupt at the time they succeeded to the estate. See York Manufacturing Company v. Cassell et al., 201 U. S. 344, 26 Sup. Ct. 481, 50 L. Ed. 782; Thompson v. Fairbanks, 196 U. S. 516, 25 Sup. Ct. 306, 49 L. Ed. 577; Yeatman v. Savings Institution, 95 U. S. 764, 24 L. Ed. 589; Hewit v. Berlin Machine Works, 194 U. S. 296, 24 Sup. Ct. 690, 48 L. Ed. 986.

The final contention, of appellants’ counsel is that the courts are adverse to forfeitures and that they are the abhorrence of courts of equity. Equity, however, still more abhors a failure of justice, as nature does a vacuum. In Brewster v. Lanyon Zinc Company (C. C. A.) 140 Fed. 801, 819, the conditions under which a court of equity will assist in the enforcement of a forfeiture under lease contracts, are extensively discussed by Judge Van Devanter. His conclusion is aptly expressed in the following paragraph:

“The better view is that the rule is not absolute or inflexible, any more than is every forfeiture harsh and oppressive; that its influence and operation do not extend beyond the reasons which underlie it; and that in cases, otherwise properly cognizable in equity, there is no insuperable objection to the enforcement of a forfeiture when that is more consonant with the principles of right, justice, and morality than to withhold equitable relief. As said by Story, Eq. Jur. par. 439: “The beautiful, character and pervading excellence, if oné may so say, of equity jurisprudence, is that it varies its adjustments and proportions so as to meet the very form and pressure of each particular case in all its complex habitudes.’ ”

What would be the attitude of the lessor in this case if the court cannot declare a forfeiture and restore the possession of the premises to it so long as the trustees in bankruptcy may continue to pay the rentals and observe the other requirements of the lease, short of the erection of the new building? A suit for specific performance would hardly lie against the trustees in bankruptcy to erect the new building on the premises. Where would they get the funds applicable to- such purpose? If they have other assets than the leasehold interest, the court of bankruptcy could not take that fund which it holds for the benefit of all the creditors of the estate and invest it in a permanent building improvement to run with the lease. Neither would the court of bankruptcy hold up the closure of the administration of the estate through a long period of time for the construction of such improvement as the lease contemplates, and await the result of the income therefrom for distribution among the creditors. The bankrupt law does not contemplate such proceeding. The only remedy, therefore, according to appellants’ suggestion, would be an action for damages on the broken covenant to build. The fact of the adjudication’ of the corporation as a bankrupt shows it is insolvent. Its entire property, including the leasehold interest, has passed to the trustees in bankruptcy for administration among the creditors. ■ Is the lessor to have its claim liquidated and then allowed against this estate, and then participate in a dividend that might not amount to 10 cents on the dollar of its claim? There is no provision of the lease contract which contemplates that such a judgment allowance would be a continuing lien upon the leasehold estate. Under the bankrupt law the leasehold interest would be sold, and the proceeds distributed pro rata among all the general creditors of the estate. If the lessor should present its claim for liquidation and allowance against the estate, the judgment therein would cover the entire present and prospective loss consequent upon the breach of the building covenant, as it is an indivisible unit. The purchaser of the leasehold interest under the sale by the trustees in bankruptcy would not be liable for any antecedent breach of the covenant to build; and if the claim for damages therefor were liquidated and allowed in the bankruptcy proceeding, in any view the purchaser would take the propert}"- unburdened of the building-covenant. If the claim were not so liquidated, -under appellants’ theory, even if the lessor should recognize the new tenant, there would be no default on his part as to the building covenant until after the expiration of another five years, and the only remedy of the lessor would be an action for specific performance against, or damages for the breach committed by, the purchasing tenant. It would be difficult to conceive of a situation that appeals more strongly to the equity jurisdiction of the court for protection and relief. The remedy adopted by the lessor in this suit was proper, and the remedy afforded by the decree of the District Court was just.

The findings and decree of the District Court are, therefore, affirmed.