Court Opinion

ID: 9591825
Source: CourtListenerOpinion
Date Created: 2023-08-22 00:08:00.086925+00
Date Added: 2024-06-11T18:01:12.552402
License: Public Domain

MR. JUSTICE ANGSTMAN:
(dissenting).
To reach a proper conclusion in this case all of section 6 of the agreement between plaintiffs and defendant must be considered. It provides:
“6. That the lessee will not assign this lease, or any interest hereunder, and will not permit any assignment hereof by operation of law, and will not sublet the said premises or any part thereof, and will not permit the use of said premises by any other parties than the lessee and the agents and servants of the lessee, without, in each and every case, the written consent of the lessors first had and obtained.
“The sale and transfer by the present stockholders of fifty per cent (50%) or more of the stock issued by the corporation shall be considered an assignment of this lease and in violation of the restrictions of this paragraph.”
It is true as stated in the foregoing opinions that this type of agreement will be strictly construed. That however does not *437mean such an agreement will be ignored, treated as invalid or otherwise rendered unenforceable, nor prevent us from giving effect to the obvious intention of the parties. Such restrictive covenants are recognized as valid by our statute. R.C.M. 1947, section 93-9703.
The covenant contained in paragraph 6 of the contract of lease was designed to prevent a change in the controlling personnel of the firm constituting the lessee without the lessors’ consent. In other words, plaintiffs, the lessors, were satisfied with the corporation as lessee so long as the three stockholders, Wolcott, his wife and Strickland, controlled the corporation, but under a fair interpretation of the agreement if a controlling interest in the corporation were to be assigned to a third person, plaintiffs must first be consulted and their consent obtained or there would be a termination of the lease.
A covenant against an assignment of a lease has been held to be breached when a partnership lessee organized a corporation and transferred the lease to it. Lewis on Law of Leases of Real Property, 2nd Ed., page 266; Emery v. Hill, 67 N.H. 330, 39 A. 266.
Likewise there is a violation of the covenant against assignment when the lease is to a corporation and by it assigned to a new corporation organized by the principal stockholders of the old corporation, even though the new corporation carries on the same business and under the same name as the old corporation. White v. Huber Drug Co., 190 Mich. 212, 157 N.W. 60, and see Plotkin v. Milwaukee Metal Working Co., 255 Wis. 456, 39 N.W. (2d) 439, 12 A.L.R. (2d) 174.
In H. P. Hood & Sons v. Perry, 248 Mass. 350, 142 N.E. 794, it was held that the transfer by a lessee corporation of all its assets and business to another corporation of the same name but organized under a different state constituted an assignment of the lease even though there was no substantial change in the management of the business.
It should be noted too that in the last cited cases there was no express covenant against assignment by operation of law or *438against the transfer of a majority of the' issued stock as in this case. I think it might well be urged that the covenant against assignment contained in the first part of section 6 was violated in this case. The opinion prepared by Chief Justice Adair in effect so holds when, in reliance on the rule quoted from 3 Thompson on Real Property, section 1431, page 665, it holds that the transfer of the 25 shares to the Shoenterprise Corporation was an involuntary transfer. The point overlooked by the opinion of Chief Justice Adair is that here there is a covenant against a transfer by operation of law expressly written into the lease agreement.
However, it is not necessary to consider whether the first part of section 6 of the lease was violated because it is clear to me that the covenant against transfer of 50% or more of the stock issued by the corporation was clearly violated. The purpose of this covenant was to prevent a change in the controlling interest in the corporation without the consent of the lessors. It could have no other purpose. The only reasonable conclusion to be drawn from the lease agreement is that plaintiffs were satisfied with the corporation as their lessee so long as the present stockholders (those holding the stock at the time of the agreement) held the controlling interest in the corporation. That is the only significance to be attached to the words “present stockholders” as used in the lease agreement. I think also that the clause “50% or more of the stock issued bj the corporation” as used in the agreement means 50% of the stock issued at the time of the sale or transfer of the stock. The surrender by L. S. Wolcott of his shares of stock to the corporation effected their cancellation. They no longer represented shares issued by the corporation, when the sale and transfer of the remaining shares took place.
I see no applicability here of the rule that when the lessor consents to an assignment there is no need to procure the consent to subsequent assignments. Here the consent to the surrender by the Wolcotts of their stock to the corporation, excepting one share, was not a consent to an assignment of the lease. *439That was simply a consent to the surrender of the stock back to the corporation and thus reducing the issued stock of the corporation. There was no assignment of the lease and there was no change in the personnel of the stockholders of the corporation excepting that Mrs. Wolcott no longer held any stock. The controlling interest still remained in Wolcott and Strickland. I think there was a breach of paragraph 6 of the agreement and this even though the present stockholders may be desirable and worthy successors to the original stockholders. White v. Huber Drug Co., supra.
It should be noted that the lessee corporation is what may be called a family corporation. As to corporations generally it is questionable whether an agreement restricting the right of stockholders to transfer their shares of stock would be valid. See, generally, 13 Am. Jur., Corporations, section 333, page 410. Here the restriction against transfer of the stock was imposed by the stockholders upon themselves. Both Wolcott and Strickland signed the lease. The one signed as president of the corporation and the other as secretary. Frances Wolcott, the other stockholder, held but one share of stock and she was the wife of L. S. Wolcott.
I think the judgment should be reversed.