Landlord and Tenant, Deposit to secure payment of rent, Ouster, Termination of lease. Bankruptcy.
The lessee under a lease in writing of a building carried on a retail confectionery business upon the premises and conveyed his stock in trade and fixtures to the lessor in mortgage to secure the payment of the rent. The terms of the mortgage were that, upon default, the lessor, after ten days' notice in writing and three weeks' publication, might sell the property mortgaged at public auction, that, until default, the lessee might remain in possession, but that, upon default, the lessor might take immediate possession of the mortgaged property. The lessee sublet portions of the premises. Rent was due under the lease on the first of the month. Before the expiration of the lease, the rent not having been paid on the first day of a certain month, the lessor three days thereafter entered under the mortgage, took possession of the personal property and of the business of the lessee, sold the property at private sale in the regular course of the retail business, collected rent from the lessee's subtenants, and continued thus in possession for over a month, when he gave to the lessee a notice in writing that he had terminated the lease and taken possession of the premises. Held, that the acts of the lessor constituted a complete ouster of the lessee.
By the terms of a lease in writing of a building, the lessee was to pay the rent and an amount "on account of taxes" in advance on the first day of each month, and he deposited with the lessor a sum of money, which was less than the amount of the payment due each month, to secure the monthly payments. Nothing having been paid on the first day of a certain month, the lessor ousted the lessee on the fourth day of the month. The lessee thereupon brought an action of contract against the lessor to recover the amount deposited with him. The lessor contended that the whole of the monthly payment became due on the first of the month, and that consequently he had a right to apply the deposit toward its payment. Held, that the rent could not be apportioned, and, the consideration of a month's rent and a monthly instalment of the taxes being a month's use of the premises, that that consideration failed upon the lessor's interruption of the use; and that therefore there was nothing due to the lessor which would warrant him in refusing to return the deposit.
One who was lessee under separate leases of two different buildings deposited with the lessor a sum of money to secure to him the payment of the rent, and then assigned his lease of one of the buildings to a partnership of which he was a member. Rent was payable under both leases in advance on the first day of each month, and, it not having been paid under either lease on the first day of a certain month, the lessor gave proper notice to the partnership and entered upon the premises then held by them, but ousted the lessee from the other building on the fourth day of the month. On the twelfth day of the month the lessee filed a petition in bankruptcy under the bankruptcy act of 1898, and a trustee subsequently was appointed. Thereafter the partnership paid the rent due under the lease assigned to them, and the trustee in bankruptcy brought an action to recover the amount of the deposit made with the lessor by the lessee. Held, that the trustee in bankruptcy on his appointment became vested with the right, which was the lessee's at the time he filed his petition in bankruptcy, to enforce repayment of the deposit when all instalments of rent whose payment it secured were paid.
BRALEY, J.
The deposit, the right to which is in dispute, cannot be deemed liquidated damages to be exacted as a penalty, for, by the express stipulation of the defendant's agreement, the money constituted a collateral fund to secure the performance of the lessee's covenants and to indemnify the lessor if it suffered damages from their breach. But, before the security could be applied in payment of rent which was due in advance on the first day of each month, the rent must have been in arrears. The rent for the month in which the default is claimed having been neither paid nor tendered within three days after it became due, the defendant, who had a mortgage of the lessee's stock in trade as additional security, took possession of the premises, from which it excluded him, and then proceeded to carry on the business, while selling the mortgaged property at retail. But under the power, even if the conditions of the mortgage as modified by the collateral agreement could be considered to have been broken by a failure to pay either the note at maturity or the monthly rental, the defendant could sell only at public auction. While, for the purposes of foreclosure, the mortgagee could enter to take possession of the mortgaged property, the defendant was not empowered to eject the mortgagor, and then sell at retail. If the interruption had been temporary, it would have operated only to suspend payment of the rent until possession had been restored, but the defendant remained in occupation and collected the rents due from tenants of the lessee. These unauthorized acts constituted a complete ouster. Leadbeater v. Roth, 25 Ill. 587. The rent for the succeeding month remaining unpaid, the defendant gave to the lessee, who meanwhile had gone into bankruptcy, a notice that the lease had been terminated for breach of condition, and, it being conceded that the leasehold estate then ended, the question is, to whom does the money deposited belong?
During the entire period after the entry by the lessor, the lessee had been deprived of any enjoyment of the premises, and this dispossession ordinarily would have barred a recovery if he had been sued for the arrears, as the defendant was not entitled to the increment from the rental while unlawfully retaining the land from the use of which it arose. Skally v. Shute, 132 Mass. 367. But, having been payable in advance, the defendant contends that the covenant was broken before eviction, and hence payment could have been immediately enforced and the security applied. If it be assumed from the recitals in the agreed facts that the lease contained a condition whereby it became voidable if the rent remained unpaid, yet under the grant the estate of the lessee, who had entered into occupancy, vested for the whole term, subject, of course, to be defeated at the election of the lessor upon breach of this condition. Fifty Associates v. Howland, 11 Met. 99, 101. An eviction upon the rent day would have discharged the lessee, as the right to the rent in advance would have perished simultaneously with the termination of the leasehold. Smith v. Shepard, 15 Pick. 147. But, if not paid on that day, the monthly payments of rent could not be apportioned, and the consideration for a month's rent, whenever payable, was intended to be the equivalent of a full month's use of the premises. Earle v. Kingsbury, 3 Cush. 206. Hammond v. Thompson, 168 Mass. 531. The estate having been destroyed by the acts of the defendant shortly after the month began, the right, which would have been the lessor's if it had not interfered, to collect the rental value of the estate as measured by the rent which was reserved in the lease and had not been paid, or to convert the security in payment, was irrevocably lost. Sutton v. Goodman, 194 Mass. 389. Hyman v. Jockey Club Wine Co. 9 Col. App. 299. Wreford v. Kendrick, 107 Mich. 389. Compare Giles v. Comstock, 4 Comst. 270, and Hunter v. Reiley, 14 Vroom, 480.
If the covenant to pay the taxes in equal monthly installments was independent of the covenant to pay rent, yet this covenant also was dependent upon the tenant's being permitted to enjoy the estate, and, he having suffered an unlawful expulsion by the landlord followed by a termination of the lease, there was a complete failure of consideration which relieved him from this liability. Hodgkins v. Price, 137 Mass. 13, 19. Griggs v. Moors, 168 Mass. 354, 361. Smith v. McEnany, 170 Mass. 26, 27.
By the adjustment between the partnership and the defendant, the fund having been released so far as held for the performance of the covenants under their lease, the plaintiff as trustee in bankruptcy of the depositor is entitled to the money. U.S. St. July 1, 1898, c. 541, § 70 a; 30 Sts. at Large, 544.
Judgment affirmed.