Corporation, Dissolution. Landlord and Tenant, Termination of lease. Arbitrament and Award. Practice, Civil, Arbitration proceedings.
The owner of certain real estate, which was subject to a lease to a Massachusetts corporation, refused to relieve the corporation from further liability as lessee, stating that he "intended at all times" to hold it as lessee. The corporation then sublet the premises as permitted by its lease and thereafter, when there were still unexpired over seven years of the term of the lease, the corporation was dissolved by special act of the Legislature, all its debts having been paid and its only asset being the lease and there being but two nominal and one real stockholder. The owner did not learn of the dissolution until more than three years and nine months thereafter. In the meantime the rent reserved by the lease had been paid promptly each month by the sole stockholder in interest either by indorsement to the owner of a check of the subtenant or by a check bearing the signature of the lessee corporation signed by the sole stockholder in interest as treasurer, and the rent continued to be so paid and received for several months when the owner, learning of the dissolution of the corporation and discovering that a lease of the premises might be made at an advance in rent, contended that upon the expiration of three years from the dissolution of the corporation the lease was terminated and asserted a right to make a new lease independently of the rights of the sole stockholder in interest. There had been no agreement on the part of the lessee to abandon nor on the part of the owner to resume possession of the demised premises, and no surrender of the lease by conduct of the parties. Held, that
(1) The expiration of three years after the dissolution of the lessee corporation in the circumstances did not terminate the lease;
(2) The owner's ignorance of the dissolution for three years and nine months was of no consequence; (3) The stockholders of the lessee corporation as owners in common upon the dissolution succeeded to the title and interest of the corporation subject however to all the obligations imposed on the lessee by the terms of the lease, and could enforce those rights by proceedings in equity, where appropriate relief could be decreed.
The controversy above described was referred to an arbitrator under R. L. c. 194. His report, besides reporting the facts above described, stated that, pending the controversy, the owner had leased the premises to the new tenant at the advanced rent and was receiving the rent subject to an agreement that a division would be made in a certain ratio to be determined by the result of the proceeding; and, subject to confirmation or reversal by the court, he ruled that the lease to the corporation was terminated by the expiration of three years after the corporation's dissolution, that, if that ruling were wrong, the sole stockholder in interest had succeeded to such rights as remained in the lessee and had become the owner of them, and that, except through a receiver of the lessee corporation, the sole stockholder in interest could not enforce his rights under the lease. Upon the filing of the report in the Superior Court, a judge ordered an entry that the "award of the arbitrator" was "accepted," but no order was made confirming either the submission or the award, and the judge reported the case to this court for determination. This court, having decided that the ruling that the lease was terminated was erroneous, held, that the only entry that could be ordered by this court on the record was, judgment for the sole stockholder in interest, the question, whether the matter should be recommitted and the arbitrator instructed to state definitely the amount due to the sole stockholder in interest so that a money judgment may be entered in his favor, not being before this court on the record.
BRALEY, J.
The arbitrator having stated "that his rulings of law shall not be final and that they shall all be subject to review on appeal or other proper proceedings by either party," his rulings are presented by the report of the trial court which, having "accepted" the award, reported the case to this court at the request of the parties. Ellicott v. Coffin, 106 Mass. 365. Carter v. Carter, 109 Mass. 306, 309. Rogers v. Mayer, 151 Mass. 279, 280. R. L. c. 194, § 12; c. 173, § 105, as amended by St. 1910, c. 555, § 5, St. 1917, c. 345 (see now G.L.c. 231, § 111).
The material questions are, "First. Did the expiration of the three year period after the dissolution by statute of the Whitten-Gilmore Company end all the rights of this tenant corporation and those claiming under it to make any claims whatever under the lease itself?" "Second. If not, has Mr. Whitten, representing all the stockholders of the Whitten-Gilmore Company and by the arbitration agreement, holding all the rights a receiver of the Chalmers Motor Company of Massachusetts might have secured for him, succeeded to those rights?" "Third. If he has, may he enforce them in these proceedings?"
The arbitrator under the first question ruled, "that the expiration of the three years after the dissolution of the corporation terminated the lease and that the trustees were therefore free to make a new one with a new tenant and retain the proceeds." We are of opinion that the ruling was wrong. The rent secured by the lease has been punctually paid, after as well as before dissolution, and accepted by the plaintiff who succeeded to the reversion. It is expressly found that before dissolution the lessee, hereafter called the corporation, sought to be relieved from further liability by cancellation of the lease, but the plaintiff declined to cancel, and "intended at all times" to hold the lessee. The plaintiff's ignorance of the dissolution until three years and nine months had elapsed, when it contended that the lease had been abrogated by operation of law and it was entitled to relet the premises, is of no consequence. If the lease had thus been terminated, the subsequent payment and acceptance of rent without knowledge of the dissolution could not deprive the plaintiff of its legal rights. The lessee was a domestic corporation and although dissolved by Spec. St. 1916, c. 112, all debts had been paid and its only asset was the lease in question, the unexpired term of which of over three years was valuable, because the lessee could sublet at a large advance over the rent reserved. The arbitrator having reported that he is "unable to find that the conduct of the parties constituted a surrender of the lease," and "I find no agreement on the part of the tenant to abandon and on the part of the landlord to resume possession of the demised premises," these findings of fact are conclusive.
The plaintiff's principal argument, however, is, that upon dissolution the leasehold estate at once reverted. The arbitrator rested his decision on Hastings Corp. v. Letton, 1 K. B. 378, which is strongly relied on by the plaintiff. It was there held that a lease to a corporation for a term of years terminated if the corporation was dissolved without having assigned the lease, and the reversion accordingly was accelerated and the premises reverted to the lessor. It does not appear that the question of the equitable rights of the stockholders was raised or considered. The question determined was, whether, under the circumstances, the corporation and lessee having ceased to exist, its rights went to the crown or to the lessor. We are unable to assume that the lease in the case at bar contained an implied condition, that it should determine if the corporation did not survive the term. It was said in Folger v. Columbian Ins. Co. 99 Mass. 267, 276, 277, "the dissolution of a corporation cannot deprive its creditors or stockholders of their rights in its property; and if the common law affords them no adequate remedy, they may obtain relief in equity. Bacon v. Robertson, 18 How. 480, 485-487, and cases cited. Lum v. Robertson, 6 Wall. 277." The governing principle is also well stated in Mormon Church v. United States, 136 U.S. 1, 47, "When a business corporation, instituted for the purposes of gain, or private interest, is dissolved, the modern doctrine is, that its property, after payment of its debts, equitably belongs to its stockholders."
If the charter had been repealed, the obligation of the corporation's contracts during its existence would not have been impaired, nor the stockholders estopped from asserting their rights against its property in accordance with the general principles and practice in equity. Thornton v. Marginal Freight Railway, 123 Mass. 32, 34, and cases cited. The result is the same upon dissolution. Allen-Foster-Willett Co. petitioner, 227 Mass. 551, 556. It is settled, that upon dissolution, all debts having been paid and discharged and no receiver having been appointed, the corporation's property of every description then belongs to the different stockholders as tenants or owners in common. It is a trust fund which equity will protect for their benefit. Folger v. Columbian Ins. Co., supra. Thornton v. Marginal Freight Railway, supra. Allen-Foster-Willett Co. petitioner, supra. Bacon v. Robertson, supra. Detroit v. Detroit Citizens Street Railway, 184 U.S. 368, 394. Minneapolis v. Minneapolis Street Railway, 215 U.S. 417, 430. 7 R. C. L. Corporations, § 750, and cases cited in note 14.
The plaintiff cites Boston Tow Boat Co. v. Medford National Bank, 228 Mass. 484. But, that action having been brought more than three years after dissolution of the plaintiff corporation, it was held that, having ceased to exist even for purposes of litigation, no decree could be entered for or against it. It is not an authority supporting the plaintiff's contention that the leasehold estate ceased to exist both at law and in equity.
It follows that by operation of law the stockholders as owners in common have succeeded to the title and interest of the corporation, subject however to all the obligations imposed on the lessee by the terms of the lease, and can enforce those rights by proceedings in equity where appropriate relief can be decreed. The provisions of R. L. c. 109, §§ 53, 54, as codified in St. 1903, c. 437, §§ 52, 53 (see now G.L.c. 155, §§ 51, 52), are not applicable, as more than three years have expired since the date of dissolution. Allen-Foster-Willett Co. petitioner, 227 Mass. 551, 556. See Boston Tow Boat Co. v. Medford National Bank, 228 Mass. 484; S.C. 232 Mass. 38, 40.
The plaintiff not being entitled to prevail, the remaining question is, what measure of relief can be accorded the defendant. The premises under agreement of parties have been sublet, the rent being received and held by the plaintiff under a stipulation in the agreement incorporated in the reference to the arbitrator, which reads as follows: "It is further agreed that if it shall appear that said Whitten in behalf of himself or of the interests he represents (and it is agreed that included among those interests are the estate of . . . Ernest A. Gilmore and the joint interest of said Whitten and said Gilmore as partners or otherwise as their rights may appear) is entitled to hold said premises by virtue of the existing state of things . . . and so is entitled at law or in equity to a just proportion of the difference or increase in rental value . . . the said trustees," meaning the plaintiff, "undertake to pay such difference or increase in said rental value to said Whitten when and as received. If said Whitten is not so entitled the said trustees may retain such increased rental received by them for their own use as such trustees." It is urged that under the immediately preceding stipulation, "The said trustees agree that the rights of said Whitten and of the interests he represents shall be considered and adjudicated for all purposes as of March 4, 1920, with the same force and effect as if he had commenced such proceedings at law or in equity as were open to him on said date and had by appropriate proceedings preserved such rights as he then had, including those which would have been possessed by or preserved by the appointment of a receiver of the Chalmers Motor Company of Massachusetts under and by virtue of St. 1903, c. 437, as amended, and that there shall inure to said Whitten such rights or benefits as such receiver, if he had been successfully applied for and had been appointed, could have obtained by appropriate proceedings including the extension in point of time of the existence of said Chalmers Motor Company of Massachusetts by appropriate order of court," the defendant can be given relief to the same extent as if he had brought a bill in equity.
The submission is in the form prescribed by R. L. c. 194, § 2 (see now G.L.c. 251, § 2), which embraces by § 1 not only controversies which might be the subject of a personal action at law, but of a suit in equity, and, under § 10, when accepted and confirmed by the court, "judgment shall be rendered thereon as upon a like award by referees." The award therefore must be such that a judgment can be rendered upon it which can be enforced by the trial court. Blood v. Robinson, 1 Cush. 389,390. The award has been accepted, but not confirmed, and the only entry which can be made on the record is judgment for the defendant. The question, whether it should be recommitted and the arbitrator instructed to state definitely the amount due the defendant, so that a money judgment can be entered against the plaintiff, is not before us. Giles v. Royal Ins. Co. 179 Mass. 261, 268. Terry v. Brightman, 132 Mass. 318.
So ordered.