Court Opinion

ID: 3512281
Source: CourtListenerOpinion
Date Created: 2016-07-05 22:23:06.043196+00
Date Added: 2024-06-11T13:59:11.757714
License: Public Domain

A hundred-year lease for a term from April 1, 1917, to the 31st day of March 2017 was entered into between F.I. Whitney and wife as lessors and Ira E. Meagher as lessee. On June 23, 1917, the lease was assigned to Marquette Holding Company by Meagher and wife. On December 19, 1924, the lease was assigned to Robert S. Leighton, defendant herein, by the Marquette Holding Company. On December 16, 1936, the lease was assigned by Leighton and his wife to Marquette Holding Company. The lease provided:
"The lessee further agrees that he will as additional rent, pay * * * all taxes and assessments * * * which have been heretofore levied, * * * or which shall during said term be levied, assessed or otherwise imposed upon said demised premises * * *. The lessee agrees that he will pay such taxes * * * before any fine, penalty, interest or costs under the laws from time to time in force may be added thereto for the non-payment thereof." (Italics supplied.)
Plaintiffs, the sole heirs of Whitney, the lessor, bring this action to recover from defendant the taxes levied on the leased property in 1936 and payable in 1937; also for taxes levied and payable in subsequent years. Defendant did not pay the taxes levied in 1936 and payable in 1937. In the original opinion and the opinion filed upon reargument, it is held that defendant is liable to the lessor for *Page 18 
the taxes levied in 1936 and payable in 1937, but not for the taxes levied and payable in the subsequent years. In my opinion, defendant is not liable for such taxes.
After the assignment of the lease by the Marquette Holding Company to defendant, defendant was in privity of estate with the lessor. There was no contract relationship. The obligations which defendant owed to plaintiffs were only such as grew out of the privity of estate. In McLaughlin v. Minnesota L.  T. Co. 192 Minn. 203, 207, 255 N.W. 839, 841, where this proposition was discussed, this court said:
"The liability of a lessee's assignee, in the absence of circumstances obligating him contractually to the lessor, is based solely upon privity of estate, which comes into being as to him when, having title to the leasehold, he enters upon the demised premises. Thereby is created that successive relationship to the same property and its title which is known as privity of estate, upon which the law bases the resulting liability of both parties. Trask v. Graham, 47 Minn. 571, 573,50 N.W. 917. In the instant case the testator, Short, was absolute assignee of the lease. Defendant took from him all the title he had and so can be no otherwise than an absolute assignee itself."
In the instant case, there is an absence of circumstances obligating defendant contractually to the lessor. Thus, his obligation to the lessor is only such as would grow out of privity of estate. In the McLaughlin case, the court continued (192 Minn. 211, 255 N.W. 842):
"* * * The legal operation is simple. The holder of it divests himself of the title, the thing to which the obligation is fastened, and so rids himself of the whole burden."
See, also, O'Neil v. A. F. Oys  Sons, Inc. 216 Minn. 391,13 N.W.2d 8.
In Cohen v. Todd, 130 Minn. 227, 228, 153 N.W. 531, L.R.A. 1915E, 846, an action to recover from the assignee of a lease rent *Page 19 
which accrued after he had made a reassignment and delivered possession to a second assignee, the court said:
"* * * The action cannot be maintained. The assignment to defendant was a naked assignment. Neither by the terms of the assignment, nor in any other manner, did defendant assume any contract obligation to pay rent. As long as he held the property under his assignment the law required him to pay rent according to the terms of the lease. But when he again assigned the term and delivered up possession to a second assignee, his liability for rent thereafter to accrue ceased. This has been the rule of the common law consistently followed for more than 200 years. [Cases cited.] The rule is founded on sound reason. The assignee having assumed no contract obligation cannot be sued on contract. His liability during the time he holds under the lease is founded on privity of estate. After he has surrendered the premises either to the lessor or to another assignee there is no longer privity of estate. There is then no principle of law or equity upon which to predicate liability for rent to accrue, and liability no longer exists. This is but an application of the general principle that an assignee of a lease is liable on covenants running with the land, but, being liable solely in privity of estate, he is liable only forobligations maturing or breaches occurring while he holds theestate as assignee, and not for those which occurred before hebecame assignee or after he ceased to be such. Trask v. Graham,47 Minn. 571, 50 N.W. 917." (Italics supplied.)
In 32 Am. Jur., Landlord and Tenant, § 370, it is stated:
"An assignee, apart from an express agreement to assume and perform, or to take subject to the lessee's covenants, is in privity of estate with the lessor, and is liable to him personally for the breach of the lessee's covenants which are annexed to and run with the leasehold, and which are brokenwhile he holds the leasehold estate, * * *." (Italics supplied.)
In Id. § 373, it is stated: *Page 20 
"* * * although the burden of a covenant or agreement runs with the leasehold until the breach, it then ceases to run, because it is thereby turned into a cause of action."
Here, lessee agreed to pay as additional rent all taxes to be levied or assessed against the demised premises during the term of the lease, and agreed that he would pay them before any fine, penalty, interest, or costs might be added thereto for nonpayment thereof. Defendant, an assignee, reassigned the lease on December 16, 1936. The taxes for 1936 became a lien on the premises on May 1, 1936. M.S.A. 272.31; Merle-Smith v. Minnesota Iron Co. 195 Minn. 313, 262 N.W. 865; Merrimac Min. Co. v. Gross, 216 Minn. 244, 12 N.W.2d 506. The taxes which became a lien on the premises on May 1, 1936, could not be paid until January 1, 1937, and no penalty for nonpayment would attach until June 1, 1937. Although these taxes could not be paid until January 1, 1937, and although no penalty could attach until June 1, 1937, the majority holds in its opinion that this defendant, who assigned the lease on December 16, 1936, was obligated to lessor to pay these taxes. Under the lease, there was no breach of the covenant to pay taxes until the penalty attached. If lessor had, say on December 17, 1936, the day after the assignment was made, brought suit against defendant to recover the taxes which became a lien on the property on May 1, 1936, he would of course have been met with the defense that the action was premature. It would have been a complete defense. If he had brought such action at any time prior to June 1, 1937, he would have been blocked by the same defense. The obligation to pay these taxes did not mature while defendant was in privity of estate with lessor. He would be liable only for such "obligations maturing or breaches occurring while he" held "the estate as assignee, and not for those which occurred before he became assignee or after he ceased to be such," as stated in the Cohen case, 130 Minn. 228,153 N.W. 531, L.R.A. 1915E, 846, from which we have quotedsupra. He is not liable for obligations maturing or breaches occurring after he ceased to be assignee. Here, the obligation to pay taxes did not mature until after the assignment had been made, and no breach *Page 21 
could occur until June 1, 1937. Trask v. Graham, 47 Minn. 571,50 N.W. 917, is in point. In that case, plaintiff and defendant, as lessees, agreed to pay rent in quarterly installments and to pay all real estate taxes levied on the leased premises during the term of the lease beginning with the taxes for 1885. The lease was dated May 5, 1885, and ran for a term of five years from July 1, 1885. On February 2, 1889, defendant Graham sold his interest in the leased premises to one Whitmore, who represented plaintiff. Plaintiff, it was admitted, was in the position of assignee and succeeded to the sole possession of the premises under the lease as of the date of the transfer. The rent for the current quarter became due April 1 next after the date of the assignment, and the taxes for the year 1888 became payable on the first Monday in January 1889, but not delinquent until June 1, but became and were a separate and fixed liability of both lessees then in possession as to each other. The plaintiff subsequently paid the rent for the whole quarter and also the taxes for 1889, and by the action sought to recover from the defendant Graham the amount of one-half the taxes for 1888 so paid by him, and also one-half the rent that had accrued between January 1 and February 2, the date of the transfer to him, though not due until April 1 following. The court said (47 Minn. 572,50 N.W. 918):
"As respects the relations of the assignee of a lease, the rule is: 'When a covenant relates to or is to operate upon a thing in being, parcel of the demise, the thing to be done by force of the covenant is, as it were, annexed to the thing demised, and goes with the land, binding the assignee to the performance, though not named; and the assignee, by accepting possession of the land, subjects himself to all the covenants that run with the land." [Cases cited.] The foundation of this liability of the assignee is the privity of estate that exists between him and the lessor. The covenant to pay the rent and taxes runs with the land, and the plaintiff, Trask, under the assignment, assumed the liability for the rent and taxesthat accrued and became due during his possession as assignee. [Cases cited.] The assignee, being liable solely in privity of estate, is liable *Page 22 
only for obligations maturing or breaches occurring while he holds the estate as assignee, and not for those which occurred before he became assignee or after he ceased to be such. Patten v. Deshon, 1 Gray, 325.
"It follows from the application of these principles to this case that the assignee, Trask, was himself liable for the rent for the whole quarter within which he became assignee, the rent not having yet accrued, and which he must be held to have assumed. And the quarter's rent in such cases is not to be apportioned. Graves v. Porter, 11 Barb. 592 [594, 595]. We are unable to see why the same rule does not apply as to the taxes. The covenant to pay was general, and would be satisfied if paid within the year, and so as to save the lessor harmless. The lessees would not be in default, at least till the taxes became delinquent, which would not be till June 1st. There had been no breach of the covenant to pay the taxes, and the assignee took the leasehold estate cum onere as to them also. The plaintiff, as assignee, was liable directly to the lessor upon the covenant to pay the taxes. There had been no previous breach of the covenant, and the plaintiff, as assignee, took the place of the lessee in respect to liability upon covenants not yet matured. Mason v. Smith, 131 Mass. 510." (Italics supplied.)
In S. T. McKnight Co. v. Central Hanover B.  T. Co. (8 Cir.) (1941) 120 F.2d 310, 320, 321, the court stated:
"We affirm the decision of the trial court that Collins was the lessee of the McKnight lease and that Andrus became the assignee thereof. As such assignee he was bound to the lessor by privity of estate only and obligated to perform the covenants of the lease only while he was in possession of the leased premises. Cohen v. Todd, 130 Minn. 227, 153 N.W. 531, L.R.A. 1915E, 846; Trask v. Graham, 47 Minn. 571,50 N.W. 917. In 1921 he assigned the lease to his trustees and they likewise became obligated to perform the covenants only while they were in possession.
* * * * *
"* * * The lease provided: 'The Lessee, in lieu of additional rents, will pay all taxes and assessments of every kind and nature, *Page 23 
which shall by whatever authority or for whatever purpose, during said term, be levied, assessed, imposed or extended, upon or against said premises or any part thereof, or upon or against any building, structure, or improvement now or hereafter on said premises, beginning with the taxes and assessments for the year 1909, including all annual installments of special assessments for local improvements on said premises, which shall, upon the customary installment plan or otherwise, become due and payable during said term on or after the first Monday of January, 1910; and will pay such taxes and assessments in every instance at least thirty (30) days before any fine, penalty, interest or cost might be added thereto for nonpayment thereof.'
"The only Minnesota decision called to our attention on the question presented is Craig v. Summers, 47 Minn. 189,49 N.W. 742, 743, 15 L.R.A. 236. In that case the court considered a lease which provided that 'the lessees were to pay all taxes, levies or assessments on the premises during the continuance of the lease', and the court said: 'We think a fair interpretation of the language would make Summers [the lessee] liable for the taxes and assessments which were levied, and became a fixed liability against the land during the continuance of the original lease.' "
The original opinion of the majority cites Craig v. Summers,47 Minn. 189, 49 N.W. 742, 15 L.R.A. 236, as controlling. That was an action to recover rent and taxes by virtue of a certain lease. The lessees had covenanted to pay (47 Minn. 189,49 N.W. 743) "all rates, taxes, levies, or assessments on said premises during the continuance of the lease." The term of the lease ended January 1, 1890. Defendant, an assignee of the lease, occupied the premises until the expiration of the lease and paid rent to the expiration thereof. He continued to occupy the premises until April 30, 1890, under an express parol agreement to pay rent at the same rate as called for in the lease. All the covenants remained operative until April 30, 1890. As to taxes, the court said (47 Minn. 191, 193,49 N.W. 743, 744): *Page 24 
"* * * We think a fair interpretation of the language would make Summers liable for the taxes and assessments which were levied, and became a fixed liability against the land, during the continuance of the original lease, and these taxes were such. * * * Summers, therefore, appears to have incurred this liability by virtue of the terms of his original lease, * * *.
* * * * *
"Our conclusion is that, by the rules of law applicable to the case, the defendant is liable to the plaintiffs for the taxes for the year 1889, they being in privity of estate with him."
Thus, when the lease terminated in the Craig case, and for some time prior thereto, the defendant was in privity of estate with the lessor's grantees. Under the terms of the Craig lease, the lessees covenanted to pay "all * * * taxes, levies, * * * on said premises during the continuance of the lease." At the time the lease terminated, there were taxes levied on the property. The defendant was in privity of estate at that time. If these were not paid, there was a breach of covenant. As defendant was in privity of estate with lessors at that time, it was his breach of covenant, and he would be liable for the payment of these taxes. As assignee and lessee at the time the lease terminated, defendant was at the end of the line. He was then the tenant of the lessor. He had not and could not pass on the obligation. As between lessor and lessee, the taxes which had been levied became due and payable while defendant was in privity of estate with the owner of the lease. The promises matured when Summers was in possession. That is not the situation in the instant case. The taxes which had been levied were not due and payable while defendant here was in privity of estate with the lessor, but became due and payable under the covenants of the lease after defendant had assigned. In my opinion, Craig v. Summers was decided correctly on the facts there presented, in that it held liable the person in privity of estate at the time the obligation became due and payable.
In Merle-Smith v. Minnesota Iron Co. 195 Minn. 313,262 N.W. 865, the lease terminated on August 14, 1933. The lien for taxes *Page 25 
attached on May 1, 1933, payable in 1934. Lessee covenanted to pay all taxes assessed during the term of the lease. When the lease terminated, the taxes, of course, under the lease became due and payable, and the one in privity of estate at that time was held liable. In the instant case, the court is holding a party liable who was not in privity of estate when the obligation became due and payable.
For the reasons above set forth, I respectfully dissent.