Case ID: misc_68/html/0143-01.html
Source: Caselaw Access Project
Author: {"author": "Goff, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Charlotte E. Taylor and Ethel A. M. Taylor, Plaintiffs, v. William B. Dinsmore, Helen G. Huntington and Madeleine I. Dinsmore, Louise & Company and Windsor Trust Company, Defendants.
    (Supreme Court, New York Special Term,
    June, 1910.)
    Equity — Nature and grounds of jurisdiction — Existence of adequate remedy at law.
    Principal and surety — Eights and remedies of surety against creditor — Rescission of principal contract.
    Rescission of contracts — Right to rescind — Who may exercise.
    The right to rescind ’ a lease for the failure of the landlord to perform its covenant to adapt the premises to the tenant’s business must be exercised by the tenant, and it cannot be exercised by the tenant’s sureties; and, in the absence of a rescission by the tenant, the sureties may not recover back bonds deposited to secure performance of the lease by the tenant.
    
      Where the surety of a tenant deposited with a trust company bonds to secure performance by the tenant under ah agreement with the company that the bonds should not be delivered back within a certain period of time, and the lease became null and void by the failure of the landlord to adapt the premises to the tenant’s business, as it agreed to do, and it is doubtful if the plaintiff could maintain a possessory action at law to recover the bonds until the expiration of the period name'd in the agreement under which they were deposited, or that in any action at law it could be adjudged that such agreement had become void, an action in equity is maintainable to cancel the agreement of the surety and direct the return of the bonds.
    Action on a written guaranty for the payment of rent and to compel the return of certain bonds deposited as security therefor.
    Eugene A. Philbin and Lucas C. Kells, for plaintiffs.
    Walter G. Merritt, for William B. Dinsmore, Helen G. Huntington and Madeleine I. Dinsmore.
   Goff, J.

The complaint is in equity, praying for a decree cancelling plaintiffs’ written guaranty for payment of rent and directing a return of certain bonds deposited in escrow to secure the guaranty. It names as parties defendant certain individuals who are owners of the demised premises and obligees in the agreement, Louise & Company, a corporation, which is the lessor and plaintiffs’ principal, and the Windsor Trust Company, a corporation, which is depositary of the bonds. The individual defendants demur on the ground that the complaint does not state facts sufficient to constitute a cause of action. The facts, as may be gathered from the allegations of the complaint and from copies of written instruments which are attached to and form part of it, are as follows: The individual defendants executed to defendant Louise & Company a lease of certain premises in the city of Hew York for the term of twenty-one years from August 1, 1908, being induced to do so by plaintiffs’ guaranty, which covered rent accruing during the first five years of the lease. To better secure performance of their guaranty plaintiffs agreed to deposit certain bonds in escrow to remain with the depositary for five years and thirty days from September 1, 1908, and not to be returned to plaintiffs until the expiration of that period, and not then if within the thirty-day period the parties guaranteed should make demand for any part of them. The bonds were deposited with the trust company in accordance with the terms of the agreement. Simultaneously with the execution of the lease and the guaranty, which bear the same date, there was executed another agreement, in which defendant promised their prospective tenant, Louise & Company, to remodel and renovate the demised premises before August 1, 1908, in accordance with plans and specifications which were annexed, so as to adapt them to the tenant’s business. The owners failed and refused to remodel and renovate, and the complaint alleges that “by reason thereof the lease never went into effect and defendant Louise & Company never went into possession or became tenant thereof, but that said lease became and is null and void, and any and all obligations of said Louise’ & Company thereunder were and are dissolved and terminated.” Plaintiffs’ allegations that the lease never went into effect and that it became null and void may be criticised not only as contradictory, but as conclusions of law which are not admitted by the demurrer and which do not follow from thé facts pleaded, viz., that the landlords have not remodeled or renovated the building and have not taken possession. Seacord v. Pendleton, 55 Hun, 579. The right to rescind for non-performance is in Louise & Company, and not in the sureties. There is no allegation that Louise & Company has made an election to rescind. In the absence of an election it may yet waive full performance on the part of the owners and obtain possession at any time. But counsel for the individual defendants says in his reply brief: “We are certainly entitled to interpret the complaint as it appears, and for the purpose of the demurrer accept the allegation that the lease the performance of which is guaranteed is null and void and never became operative.” As counsel for the defendants thus accepts the allegation as one of fact it may be so construed. The nullification of the original agreement released the sureties and the property pledged by them. Wright Steam Engine Works v. McAdam, 113 App. Div. 872. The objee tion to the complaint is that it is fundamentally defective in failing to disclose grounds for equitable relief. Plaintiffs contend that the objection is not properly presented by demurrer. When the courts of law and equity were distinct a demurrer was an appropriate means of raising such an objection, but it is now possible for the court at Special Term to send the complaint to Trial Term if on its face the plaintiff appears to be entitled to relief at law, and this is the better practice, except in cases like the present, where the relief prayed for is wholly equitable and the complaint is addressed wholly to the equitable side of the court. In such cases the demurrer may be sustained, even though the facts alleged in the complaint disclose a cause of action at law. Black v. Vanderbilt, 70 App. Div. 16; Allerton v. Belden, 49 N. Y. 373, 379; Fitzsimmons v. Drought, 16 App. Div. 454. It is said in Willard’s Equity Jurisprudence (Potter’s ed., p. 304) that relief by way of cancellation and delivery up may be afforded only in one of the following cases: “ 1. When the plaintiff alleges that the instrument which he prays may be surrendered or canceled is void upon grounds of which a court of equity alone may take cognizance; 2. when the instrument is a deed or other document concerning real estate; 3. when the instrument is negotiable in its character as a bill of exchange and the putting of it into circulation would be a fraudulent act; 4. where the plaintiff claims to have a defense valid in law, but which rests upon evidence which he is in danger of losing if the adverse party is suffered to delay in the prosecution of his claims.” This statement- of the law is manifestly taken from the opinion in Field v. Holbrook, 6 Duer, 597. Defendants now contend that the'situation disclosed by the complaint is not one that can be classified as any of the foregoing. They urge in effect that it is not- a cause cognizable solely in equity, and that plaintiffs have an adequate remedy at law by possessory action against the stakeholder. If that proposition be true, the demurrer should be sustained; but is it? If plaintiffs should bring a possessoryaction at law it would be at least doubtful if they could not be met by an answer of the trust company setting up that the bonds in question are held by them in accordance with the terms of a tripartite contract between themselves, the individual defendants and the plaintiffs, that is to say, that the trust company contracted with the landlords and sureties, among other things, that there should be no delivery of the bonds until five years and thirty days should elapse after September 1, 1908, and not then unless within the thirty-day period the individual defendants should make no claim for the bonds. That agreement was as much for the benefit of the trust company as of the landlords. One of its purposes was the assurance of the trust company against claims by the other parties to the agreement, and this was effected by prescribing terms on which there might be a delivery of the bonds to plaintiffs. If the trust company had accepted the securities in escrow without any such stipulation, then on rescission of the lease the law would impose on the depositary the duty to return the bonds, but conventio vincit legem. The trust company is not in default because the contracted period of deposit has not expired. The stakeholder’s agreement with the plaintiffs could not be rescinded by rescission of the contract between the landlords and Louise & Company, to which the stakeholder was not a party and which it did not guarantee. It is doubtful if in any action at law there can be an adjudication that the-stakeholder’s agreement has become void. If plaintiffs sue in replevin they cannot allege in their complaint that they are entitled to'possession at the beginning of the action; they are not so entitled because the stakeholder’s agreement will remain in force until judgment. Without such an allegation the complaint would be demurrable. Wheeler v. Vanderveer, 88 Hun, 233. It is also doubtful if the plaintiffs can maintain a suit in conversion, because the trust company, until an adjudication that its contract is void, may lawfully refuse delivery until the expiration of five years and thirty days from September 1, 1908, and no complaint in conversion can be framed until there has been unlawful refusal to deliver. There being, then, no doubt as to plaintiffs’ right of action at law, and Because the equitable side of the court is the most convenient forum for a complete determinátion of the controversy, the complaint should be retained. Ludlow v. Simond, 2 Caines Cas., Thompson, J., p. 39; Kent, Ch. J., p. 54. The demurrer is overruled, with costs, with leave to answer on payment of costs and within twenty days of service of a copy of the interlocutory judgment to he entered hereon and notice of entry thereof.

Demurrer overruled.