EMERY v. HILL

A transfer of all its property and business by a partnership to a corporation formed by the former members of the partnership and others, and the occupation by the corporation, under such transfer, of real estate leased to the partnership, constitute a breach of the lessee's agreement not to assign the lease or any interest therein. In such a case, a written notice to the lessor, signed by the corporation, stating that the partnership elects, in accordance with the terms of the lease, to extend it for another term, does not make the corporation's subsequent occupation legal. A lessor who receives from a stranger in possession the amount of rent due, but receipts for the same to the lessee, does not thereby make the former his tenant.

Per Curiam.[fn*] [fn*] See foot-note on page 80.

In the defendants' lease to James R. Hill Co., it was stipulated that the lessees should "not lease or underlet said premises or any portion thereof, or assign this lease or any interest therein, without the written consent of the lessors." This is a valid stipulation, inserted for the benefit of the lessors. The lessees' ability and willingness to pay the rent promptly, and their careful use of the premises, including the reasonable preservation of the building from reckless or careless injury and from destruction from fire, furnish some of the apparent reasons for this provision in the contract. Roe v. Sales, 1 M. S. 297. While the lessors were willing to make Hill Co. their tenants, they were not willing to allow Hill Co. to substitute others as their tenants by an assignment of the lease, made without their approval.

The practical dissolution of the partnership, the substitution of the corporation in its place, and the occupancy of the leased premises by the corporation as the successor of the partnership, amounted to an assignment of the lease. The form of the assignment is unimportant. Boston, Concord Montreal Railroad v. Railroads, 65 N.H. 393, 451-457. If, instead of adopting a corporate form of doing business, they had admitted new members into the firm and transferred to the new partnership their interest in the lease, the transaction would have been an assignment of "the lease" or an "interest therein." Varley v. Coppard, L. R. 7 C. P. 505. The retention by the plaintiffs of a nominal interest in the firm would not enable them to violate the contract with impunity, or to deprive the defendants of their right to enforce it. "A lessee of one hundred acres, on condition that he shall not assign, can no more convey one acre without breaking the condition than he can ninety-nine or one hundred acres. His grant of ninety-nine and ninety-nine one hundredths acres is no more breach than his grant of one hundredth of an acre." Boston, Concord Montreal Railroad v. Railroads, supra, 452. If the plaintiffs could assign a hundredth part of their interest as lessees, they could assign ninety-nine one hundredths of it. It is one of those cases in which no line can be drawn between a great and a small violation of the contract. If the case of Roosevelt v. Hopkins, 33 N.Y. 81, holds that, although it is stipulated in the lease that the lessees shall not sublet or assign the premises, they may assign anything less than the whole premises, it is not in accord with the settled law of this state.

The formation of the corporation by the members of the old firm and others who were allowed to become stockholders, presents additional objections to those already mentioned in the case of the admission of new members to the firm. If the assignment of the lease to the corporation was valid, the lessors' rights in respect to payment of, and security for, the rent might be materially impaired. The personal liability of the plaintiffs as partners for the rent, and their liability as stockholders of a corporation under Gen. Laws, c. 149, would not be the same. That difference is often one of the reasons for forming corporations instead of unincorporated partnerships. So far as it is favorable to the stockholders, so far it is unfavorable to the corporate creditors. As new stockholders may acquire control of the corporation, and as the original incorporators may cease to have an interest in the corporate affairs, it is plain that the personal integrity and carefulness which the lessors sought to secure by the provision in the lease against the lessees' assignment of it, would also cease, and the recklessness of others might be substituted; and the lessors would be deprived of the security against careless injury to the property for which they stipulated, if it is held that the corporation's possession of the defendants' real estate is rightful. The change from a partnership to a corporation was a substantial change, and not a mere matter of form.

Whether this result amounts to a forfeiture of the lease, so that an occupancy by the original members of the dissolved firm would be wrongful, need not be considered. If the legal right of the firm to the possession of the premises was not terminated by its voluntary dissolution and its unlawful assignment of the lease to the corporation, the term of six years for which the lease was given has expired and there has been no valid renewal of it. The attempt to extend the lease for an additional term of six years was ineffectual so far as the corporation is concerned. It was provided in the lease that the lessees might extend it for a further period of six years by notifying the lessors in writing of their election so to do three months before the expiration of the original lease. Whether the paper given to the defendants on September 5, 1890, was a notice given by anybody is an interesting question. It states that "James R. Hill Co. the lessees . . . hereby give notice that they elect to have the said lease extended," and is signed "The James R. Hill Harness Co. Geo. H. Emery, Pres." If this was a notice by the partnership, it did not make the possession of the corporation legal; if it was a notice by the corporation, it could have no effect, for legal notice could only be given by the partnership; and if it was a notice by neither, the same result follows. The corporation's wrongful possession could only be made legal by legal methods; and the service of this paper upon the defendants was not a legal method of extending the corporation's illegal possession for a series of years. Nor was the service of the notice of December 15 sufficient, because the time had then expired within which the partnership could elect to have an extension of the lease.

It is claimed, that the defendants have so recognized the corporation as its tenant under the lease, that they have waived their right to a notice of extension from the partnership. If the receipt of rent from the corporation by the defendants, recognizing them as tenants, would be a waiver, there has been no such recognition. After the formation of the corporation, the rent was paid by checks signed by the corporation; but the defendants took special care not to recognize the corporation as their tenant, and plainly repudiated the relation of landlord and tenant as to the corporation, by giving receipts for the rent to the unincorporated partnership. There was no waiver, and the lease has not been extended.

Case discharged.

ALLEN and CHASE, JJ., did not sit: the others concurred.