Case Name: Sarah Kanter, Respondent, v. New Amsterdam Casualty Company, Appellant
Court: New York Supreme Court, Appellate Division
Jurisdiction: New York
Decision Date: 1921-04-01
Citations: 195 A.D. 756
Docket Number: 
Parties: Sarah Kanter, Respondent, v. New Amsterdam Casualty Company, Appellant.
Judges: 
Reporter: Appellate Division Reports
Volume: 195
Pages: 756–772

Head Matter:
Sarah Kanter, Respondent, v. New Amsterdam Casualty Company, Appellant.
First Department,
April 1, 1921.
Landlord and tenant — covenant to make alterations — action on bond to secure performance of covenant — defendant estopped from claiming that plaintiff, original lessee, not entitled to recover as if owner — measure of damages is cost of alterations — recovery not limited to amount deposited as general security.
In an action on a bond given by the defendant to pay a specified amount, on the non-performance of a covenant in a lease binding the tenant to make alterations, it appeared that the plaintiff, who was the original lessee with a long term lease, leased the premises to the defendant’s principal for a long term; that the tenant never entered into possession or paid the rent or made the alterations and was duly dispossessed within a short time after the time for delivery of possession, and that after the expiration of the period in the lease for the completion of the alterations this action was commenced.
Held, that the defendant was estopped from claiming that the plaintiff’s title or right to the use and enjoyment of the premises in question, she being herself a lessee, was not for such a period as would entitle her to recover as if she were the owner;
That no objection having been made that the plaintiff’s reversionary interest was not for such a period as to entitle her to recover as if the owner, the true measure of damages as against the tenant would have been the cost of the alterations, and that a recovery against the surety to the amount of the bond, which was less than the cost of alterations, was proper.
The amount of damages that the plaintiff may recover for a violation of the covenant to make alterations to secure the performance of which the bond in suit was given, is not limited to the amount of a deposit made by the tenant under a later clause in the lease which was to be considered as damages for the violation of covenants generally.
Merrell and Page, JJ., dissent, with opinion.
Appeal by the defendant, New Amsterdam Casualty Company, from a judgment of the Supreme Court in favor of the plaintiff, entered in the office of the clerk of the county of New York on the 28th day of April, 1920, on the decision of the court rendered after a trial at the New York Trial Term, a trial by jury having been waived.
Frederick Mellor, for the appellant.
William Kaufman of counsel [Salomon & Plumer, attorneys], for the respondent.

Opinion:
Laughlin, J.:
It is true, as stated in the opinion of Mr. Justice Merrell, that the interest of the plaintiff in the premises- was not specifically shown on the trial. It appears, however, that on the 7th day of November, 1917, she executed a lease of the premises in writing to The 115th Street Garage Company, Inc., for the term of twenty-one years commencing on the 1st day of January, 1918, at the annual rental of $4,200 payable in equal monthly installments, and that the lease was given on the express condition that the tenant at its own expense should forthwith proceed to make the necessary alterations to change the stable then on the premises into a garage and would complete the same on or before the 1st of June, 1918. It further appears that the lease provided that simultaneously with the execution and delivery thereof the tenant should cause to be executed and delivered to the plaintiff the bond of the defendant containing certain provisions identified by reference to another instrument, and that the bond on which the action is predicated was procured to be executed by the defendant and delivered to the plaintiff pursuant to and in conformity with the obligations of The 115th Street Garage Company, Inc., under the lease. Plaintiff alleged that she held a lease of the premises dated September 9, 1916, and that at all times mentioned in the complaint she was and still is the lessee thereof. These allegations were put in issue by the answer and no proof thereof was given other than such inference as might be warranted from the fact that she made the lease of the premises for twenty-one years. The court found at the request of the defendant that the plaintiff was the lessee of the premises and also found that she was lessee " under a long term lease." No point with respect to plaintiff's title or interest was made on the trial. It appears to have been assumed by the defendant in making the bond that the plaintiff was the owner for it is so recited in the bond. It is now claimed by the appellant that the plaintiff was not the owner but it does not claim that her reversion did not give her the right to the use of the premises for such a period as would authorize a recovery under the rule applicable to an owner. In appellant's first point plaintiff is regarded as the owner and it is argued that her only right as such was to have the alterations made lawfully, if made at all, but that she exacted no obligation of the tenant to make them. It also claims that the lease made by the plaintiff was canceled by the dispossess proceedings and by ' the resumption of possession by her in her own right and not as agent of the tenant and that, therefore, she must be deemed to have accepted surrender of the premises and that thereby the defendant's principals were discharged. It is further argued that she was not entitled to possession with the building altered as contemplated until the expiration of the term of twenty-one years and that the damages recoverable by her were limited to the $350 deposited by the tenant as security for the performance of the conditions of the lease. I am of opinion, therefore, that the defendant should now be deemed estopped -from questioning plaintiff's title or right to the use or enjoyment of the premises for such a period as would entitle her to recover as if she were the owner. The contention that the damages are limited to the $350 deposited by the tenant is not tenable. The lease executed by the plaintiff to The 115th Street Garage Company, Inc., contains twenty-six paragraphs embodying covenants and agreements on the part of the tenant in addition to the provisions for altering the building and it is provided in paragraph 2 which contains those provisions that the lease is given upon the express condition that the tenant shall make the alterations as therein provided. The provisions with respect to the deposit of $350 by the tenant are contained hi paragraph 20 and it is therein recited that $350 has been deposited by the tenant with the landlord " as security for the faithful performance of all the terms, covenants and conditions in the said lease contained," and it is provided that if the tenant surrenders the premises or is dispossessed or defaults or violates any of the terms, covenants or conditions contained in the lease, the amount so deposited shall belong to the landlord as liquidated and stipulated damages and it is provided that the parties have so stipulated for the reason that they cannot ascertain the exact amount of damages which the landlord would sustain in the event of any breach or violation of the. lease and that the amount so deposited shall be returned to the tenant with interest at three per cent per annum after the expiration of the lease. If it had been intended that the amount so deposited should be deemed the liquidated damages for the failure of the tenant to make the alterations it is not probable that paragraph 3 of the lease would have required the giving of a bond to be executed by the defendant in the precise terms of the bond on which the action is brought for that would be wholly inconsistent with the theory that the deposit would constitute liquidated damages for the failure of the tenant to "make the alterations.
The plaintiff having exacted as a condition of making the lease that the alterations be commenced forthwith and completed before June 1, 1918, and the lease having been for twenty-one years, it cannot be presumed that the alterations were exacted with a view only to enhancing the plaintiff's reversionary interest at the expiration of the lease, for if that were her primary purpose it would be reasonable to expect that she would have required the making of the alterations toward the close of the term. It must be assumed, therefore, that the primary purpose of this requirement was security for the performance by the lessee of its obligations under the lease, and to protect the plaintiff in case she should exercise her right of re-entry in the event of a breach by the tenant warranting it. (O'Brien v. Illinois Surety Co., 203 Fed. Rep. 436; sub nom. Illinois Surety Co. v. O'Brien, 223 id. 933; Rock v. Monarch Building Co., 7 Ohio St. 244; 100 N. E. Rep. 887.) It appears that, subject to the approval of the local authorities referred to in the bond, it was well understood what alterations were to be made, for the tenant in contemplation of the making of the lease on the 17th of October, 1917, entered into an agreement with the Thomas Mulligan Construction Company, Inc., for making them and also filed plans and specifications therefor. The plaintiff showed that the reasonable cost of making the alterations would have been $14,435. During the giving of this testimony, no point was made that the agreement with respect to the alteration was indefinite, or that the plans and specifications therefor had not been agreed upon between the plaintiff and the tenant at or before the making of the lease, or that the said local authorities would not approve said plans and specifications, or that they included any changes or alterations not required under the agreement between the landlord and the tenant, or that plaintiff was not the owner, or that her rever sionary interest was not for such a period as to warrant a recovery on the same basis as if she were the owner. If the objections had presented the last ground stated it might have been overcome by other evidence showing the plaintiff's title and interest and that they were such as to entitle her to recover the amount she has recovered. (See Illinois Surety Co. v. O'Brien, 223 Fed. Rep. 933.) The only objection made to this evidence was that the cost of making the alterations was incompetent, irrelevant and immaterial and not the proper measure of damages for the reason that plaintiff's only right was to accept the surrender or to relet the premises for the account of the tenant and, therefore, those are the only objections presented for review with respect to this item of evidence, which, if in accord with the proper rule of damages, authorized a recovery to the extent of the defendant's obligation under the bond, and that is the amount for which plaintiff has recovered. I am unable to agree either with the view that the plaintiff is not entitled to recover to the extent of the penalty of the bond or that she has failed to show any recoverable damages. The precise terms of the bond were agreed upon by the reference in the lease to a form of bond containing them, and the agreement of the defendant was not to pay the damages to the extent of the penalty of the bond, but to pay a specific amount in the event that the tenant failed to make the alterations as agreed. There is, I think, room for argument that the damages for a breach were stipulated to be the amount specified in the bond. The plaintiff, however, did not rest on this theory, but, as already stated, proved what it would have cost to make the alterations and the objection to that evidence was that it was not the proper measure of damages because she had either to accept the surrender or to relet for the account of t.he tenant. If the tenant had remained in possession under the lease in force when the action was brought, it could not be said that the plaintiff would be entitled to possession before the expiration of the term, and, therefore, she would have been limited to recovering damages represented by the loss of the alterations as security and for damages to the reversion. (Illinois Surety Co. v. O'Brien, supra; Wentworth v. Manhattan Market Co., 218 Mass. 61.) Here, however, it appears that the time for delivery of possession was changed from January 1 to February 1, 1918, and that the tenant failed to enter into possession and to pay the rent and was duly dispossessed therefor pursuant to the provisions of the lease after March first, and that after the expiration of the period specified in the lease for the completion of the building, this action was brought. Therefore, the rights of the tenant had terminated and the landlord had come into the reversion prior to the commencement of the action. If the tenant had performed the agreement, for the performance of which the bond was given, the landlord would then have come into the possession of the altered building, but of that right she was deprived by the breach of the agreement on the part of the tenant. In such circumstances, no objection having been made that the plaintiff's reversionary interest was not for such a period as to entitle her to recover as if the owner, I am of opinion that the true measure of damages as against the tenant would have been the cost of making alterations. That is the rule with respect to covenants to keep premises in repair when the question arises after the landlord has regained possession of the reversion (Appleton v. Marx, 191 N. Y. 81) and is, in effect, the rule where a grantor takes back a purchase-money mortgage containing provisions for a building loan to be made by him to the grantee for the erection of buildings on the premises which the grantee commences but fails to complete, provided the grantor waives the loss of rental in the interim; but if he wishes to recover that also, it seems the rule to be followed, which would embrace all his damages, is the difference between the value of the premises and their value if the buildings had been completed. (Kidd v. McCormick, 83 N. Y. 391, and decisions therein cited.) In Kidd v. McCormick (supra) the court held that the case under review was analogous to a covenant to keep or put premises in repair; and in.the later case of Appleton v. Marx (supra) it was pointedly held that the measure of damages applicable to such covenants after the landlord has come into the reversion is the cost of making the repairs. The damages, of course, accrued when the breach took place and it is not material whether the landlord or any one else thereafter made the alterations or used the premises without so doing. (Appleton v. Marx, supra; Kidd v. McCormick, supra, 397.)
I am of opinion, therefore, that the recovery was right and should be sustained and that the judgment should be affirmed, with costs.
Clarke, P. J., and Smith, J., concur; Page and Merrell, JJ., dissent.