Case ID: ad_127/html/0563-01.html
Source: Caselaw Access Project
Author: {"author": "Houghton, J.: Scott, J. (dissenting):", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Edward F. Murphy, as Sole Surviving Executor, etc., of Hugh Smith, Deceased, Appellant, v. Louis Ottmann, as Executor, etc., of William Ottmann, Deceased, Respondent.
    First Department,
    July 8, 1908.
    Guaranty—landlord and tenant ■—liability of surety of lessee on assignment of lease.
    Tlie surety of a lessee who covenants to pay the rent to the lessors on the lessee’s default is not liable for the default of a corporation to which the lessee assigned the lease before it went into effect without any reservation as to himself or the lessors who recognized the corporation as the tenant under the lease.
    This is true although the surety covenanted that he was bound to the assigns of the lessors and the lease provided that the lessee might assign to a corporation, if, in fact, the surety guaranteed only against the default of the original'lessee. Scott and Clarke, JJ„ dissented, with opinion.
    Appeal by the plaintiff, Edward F. Murphy, as sole surviving executor, etc., from a judgment of the Supreme Court in favor of the defendant, entered in the office of the clerk of the county of Hew York on the 11th day of February, 1908, upon the report of a referee dismissing the complaint upon the merits.
    
      Lucius H. Beers, for the appellant.
    
      Charles E. Rushmore, for the respondent.
   Houghton, J.:

-On the 6th day of June, 1895, the plaintiff and coexecutors leased to one David S. Hammond the premises known as the Murray Hill Hotel in the city of Hew York for the period of ten years beginning the 1st day of July, 1896, at a stipulated rental, payable monthly, in addition to the payment of taxes and water rents. The lease contained a provision that Hammond should not sublet thé premises for any purpose other than the ordinary hotel business, and that he should not. assign the lease “except to such person or persons as may become partners or associates in business with /him in the management or profits of said hotel, or to a corporation consisting mainly of himself and his associates in business.”

In consideration of such letting, defendant’s'testator, William Ottmann., by an instrument in writing contained in the same cover with the executed lease, covenanted and agreed with the plaintiffs, “ their successors and assigns that if default shall at any time be made by the said David S. Jlammond on the payment of the rent (including taxes), or the ■ performance of any of the covenants within contained on his part to be paid and performed, that I will well and truly pay the rent- and taxes or any arrears thereof and any and all other sums of money required to be paid by the said David S. Hammond under the terms of the within lease ” on a diminishing scale which limited his liability as surety to the sum of $100,000 during the last five years of the term.

Ottmann died in September, 1895, and in June, 1896, before the lease went into effect, Hammond assigned it and all his rights -under it, without reservation, to the' Murray Hill Hotel Corporation, organized for the- purpose of carrying on the hotel, and consisting mainly of Hammond and his associates in business..

The corporation entered into possession of the premises, and the lessors accepted rent from it and looked to it for payment of the rent, ánd recognized it as the tenant in possession.

During the last five years of the term the corporation was in default in a sum greater than $100,000 of the stipulated rent, and this action is brought to recover'that amount from the defendant because of the guaranty signed by his testator. The issues were referred to a referee to hear and determine and resulted in a judgment dismissing the complaint upon the merits, from which the plaintiff appeals.

We are pf the opinion that the absolute assignment of the lease by Hammond before it went into effect, without any .reservation as to him or to the lessors, and the recognition of the hotel company as the tenant in possession under the lease, discharged the surety of ■ Hammond from liability. It is true the lease provided that' Hammond might assign it to the kind of corporation to which the assignment vras made, but that was.an agreement between the lessors and the lessee. The surety was careful in the paper which he signed to guarantee only against the default of Hammond himself. Throughout the agreement of guaranty Hammond alone is mentioned. If the lessors should convey the property and transfer the lease, the surety stipulated that he would be bound to théir “ assigns,” but he makes no such stipulation as to the assignee of Hammond. The surety graduated his liability and made it less as the term of the lease progressed: While this shows intent on the part of the surety to remain liable until the end of the term, it throws no light on his intention to become liable for the default of an assignee.

In bur opinion, in view of the express language of the contract of guaranty to become and remain liable for the default of. Hammond alone, the provision in the lease permitting its assignment cannot be read into the guaranty. To do this and thus interpret the contract of guaranty as applying to- an assignee of the lease would do violence to the plain terms of the agreement which. defendant’s testator entered into.

While there are some expressions in the opinion in Morgan v. Smith (70 N. Y. 537) to the effect that a surety is presumed to know the terms of the lease and that a provision for its assignment may, under some circumstances, be read into a contract of guaranty and thus make the surety liable for the default of- the assignee, the precise holding of that case is far from being an authority compelling ' that to be done and continuing the liability of a surety after assignment is made. The so-called assignment in that case was construed to be a mere permission to underlet with a proviso that in no case should the lessee be discharged or the relation of landlord and tenant affected. This limited holding of the case is especially -pointed but in Spies v. National City Bank (174 N. Y. 222, 228), and in the opinion of Mr. Justice Ingraham in the same case in 68 Appellate Division, 70, 74.

There are other grounds urged by the respondent to sustain the judgment, but it is unnecessary to discuss them in view of our conclusion that the one adverted to is sufficient.

The judgment should be affirmed, with costs.

Ingraham and McLaughlin, JJ., concurred; Clarks and Scott, JJ., dissented.

Scott, J. (dissenting):

I dissent. There is no doubt that if there had been no provision in the lease permitting it, the assignment of the lease by Hammond, and the acceptance by the lessors of the assignee as tenant, would have operated to release the surety for Hammond. . That, however, is not the case presented by the proofs. The lease and the contract of suretyship were coincident in time, and the latter was expressly conditioned upon, and made in consideration of the execution of the lease. To ascertain the respective rights and obligations of the landlord and the surety, the lease and the contract of suretyship must be read together. It is true that the surety’s agreement was that Hammond would perform the covenants of the lease, and if it stood alone it could not be extended to cover a default by an assignee of the lease. The latter paper, however, contains a condition that Hammond may not assign the lease “ except to stich person or persons as may become partners or associates in business with him in the management or profits of said hotel, or to a corporation consisting mainly of.himself and his associates in business.” This was equivalent to an agreement on the p'art of the landlord as well as of the surety, that Hammond might assign the lease to “a corporation consisting mainly of himself and his associates in business,” and the proof shows, as the. referee has found, that the Murray Hill Hotel Company was such a corporation. The assignment being, therefore,'within the terms and contemplation of the contract of' suretyship did not operate to discharge the surety. ' (Morgan v. Smith, 70 N. Y. 537.)

Mor do I consider that the agreement of Juno 19, 1902, can be construed as an abrogation of the lease and the making of a new agreement in place thereof. . Its every line and word indicates that the parties to it had no such intention. At the very most it' amounted only to an agreement by the landlord to forbear the payment of rent until September 1, 1902, while not releasing the tenant from any of the obligations of the lease, including the ultimate payment of the rent which might accrue during the period of forbearance. Mor do I consider that the correspondence which passed between the parties subsequent to. October 1,1902, constituted such a presentation and rejection of a claim as set the short Statute of Limitations running. But if it should be held that the contract of June 19, 1902, amounted to an agreement by the landlord not to enforce the payment of any rent until September 1, 1902, and that the subsequent correspondence constituted a sufficient presentation and rejection of a claim for the amount of rent then unpaid,' still the surety was not wholly discharged thereby. Each installment of rent reserved by the lease was a separate and independent demand, and an extension of the time of payment of one or more installments, or the starting of the short Statute of Limitations as to one or more installments, would not impair the obligation of the surety as to these installments which fell due subsequently. (Ducker v. Rapp, 67 N. Y. 464; Coe v. Cassidy, 72 id. 133.) I find nothing in the case, therefore, which under the most favorable construction of the evidence operated to release the surety or his estate from an obligation to make good the unpaid rent which accrued subsequent to September 1, 1902, and to that extent at least the plaintiff should have recovered judgment. I am, therefore, for reversal and a new trial.

Clarke, J., concurred.

• Judgment affirmed, with costs.