Summary
In Thayer v Leggett (229 N.Y. 152), the Court of Appeals held that when the interests of tenants in common are created by a common instrument, such as that at bar, a cotenant may not secretly negotiate a renewal of the lease for his or her benefit alone.
Summary of this case from Rosenthal v. MahlerOpinion
Argued April 29, 1920
Decided June 1, 1920
John T. Norton for appellants. Isaiah Fellows for respondent.
"Those who are in possession of lands under a lease have an interest therein beyond the subsisting term, usually called the tenant's right of renewal. Between the landlord and tenant this interest cannot strictly be denominated a right or estate, but is merely a hope or expectation, there being in the absence of contract, no way, legal or equitable, of compelling a renewal. But, as between third persons, the law recognizes this interest as a valuable property right, and the renewal as a reasonable expectancy of the tenants in possession." ( Robinson v. Jewett, 116 N.Y. 40, 51.) It follows that he who holds a lease in trust for another may not deprive the latter of this interest by taking a renewal or a new lease in his own name ( Keech v. Sandford, Select Cas. in Ch. 61); nor may an executor or administrator holding the lease as a part of the estate of a deceased ( Matter of Morgan, 18 Ch. Div. 93); nor may a guardian as against his ward ( Milner v. Harewood, 18 Ves. 274). A like rule is applied in many situations where because of his position or because of the trust and confidence reposed in him one owes a duty to another. In such cases equity exacts fair dealing and a scrupulous regard for honesty. An officer or director of a corporation in possession of a lease may not secretly for his own benefit take a renewal of it or a new lease to himself ( Robinson v. Jewett, supra); nor may a partner as against his firm ( Mitchell v. Reed, 61 N.Y. 123) ; nor an agent as against his principal ( Davis v. Hamlin, 108 Ill. 39). By taking a new lease a tenant for life may not deprive the remainderman of his interest. ( Holridge v. Gillespie, 2 Johns. Ch. 29, 33; Tanner v. Elworthy, 4 Beav. 487.) The mortgagor may not so affect the rights of the mortgagee nor the mortgagee those of the mortgagor. ( Hughes v. Howard, 25 Bevan, 575; Gibbes v. Jenkins, 3 Sandf. Ch. 130; Slee v. Manhattan Co., 1 Paige, 48, 80.) A leasehold may not so be freed of a charge upon it nor may one of joint lessors so dispose of the rights of his joint tenants. ( Burrell v. Bull, 3 Sandf. Ch. 15, 30.) In short, as has been said, no one who is in possession of a lease or a particular interest in a lease which is affected with any sort of equity for third persons can renew the same for his own use only, but such renewal must be considered a graft upon the old stock. ( Mitchell v. Reed, 61 N.Y. 123, 131.)
As between the tenants in common of a lease, at least where they hold their estate through descent or under a will or where their interest is created by the same instrument, every principle requires the application of the rule. "All the restraints imposed upon cotenants in regard to their dealing between one another in reference to the common property, are founded mainly, if not exclusively, upon the theory that, so far as the common subject of ownership is concerned, they are each bound to defend the interest of the other; or if not to defend, at least not to make any direct or indirect assault upon such interest. The case of tenants in common coming into joint possession of real estate as co-heirs or co-devisees, has always been spoken of as creating special obligations between the joint owners; in fact, as forbidding either to do any act which could be unlawful or improper, if done by a trustee charged with the care and preservation of a trust estate. * * * The renewal of a lease in favor of any of the lessees is governed by the rules established by law in reference to the acquisition of an outstanding title by a cotenant. The new or renewed lease is held by the lessee in whose name it is taken, in trust for his co-lessees under the old lease, in proportion to their respective interests. The parties in possession under a lease are jointly entitled to participate in the benefits of a renewal." (Freeman on Cotenancy, sections 151, 157.)
This language is supported by authorities in this state which hold that one cotenant may not secretly purchase an outstanding title or claim to the exclusion of the others ( Knolls v. Barnhart, 71 N.Y. 474); nor may one cotenant instigate a foreclosure so as to obtain the property for himself. He "is bound to do nothing with a view to prejudice the interests of the" others. ( Carpenter v. Carpenter, 131 N.Y. 101.) There are instances where the rule has been applied to co-lessees. ( Palmer v. Young, 1 Vern. 276; Hackett v. Patterson, 40 N YS.R. 813.)
Wherever this obligation exists it is enforced for the benefit of the person injured. It is his equitable rights which are to be protected. The ward, the corporation, the partner, the tenant in common may ask relief. Not so he who has merely acquired title to the lease from them in the absence of some contract to that effect. Whatever rights the injured parties had or still have they retain.
Between the assignor and the assignee of a lease no relation of trust and confidence arises. They deal at arms length. The assignor may bind himself by some agreement or some special equity may exist between them. ( Bennett v. Van Syckel, 4 Duer, 162.) Otherwise there is no reason why the assignor may not acquire a renewal for himself. ( Burgett v. Williford, 56 Ark. 187.) Nor is it material whether this renewal was obtained before or after the assignment.
As a landlord is under no obligation to renew so a stranger is under no obligation to respect the hopes and expectations of the tenant. On him rests no trust or duty. He may if he can obtain a lease to himself and no legal or equitable obligation results, and an undertenant is a stranger within this rule. He has no interest in or lien upon or possession under the original lease. ( Maunsell v. O'Brien, 1 Jones [Exch.], 184, cited with approval in Mitchell v. Reed, 61 N.Y. 123, 141.)
It is to be noticed that the elements of actual fraud — of the betrayal by secret action of confidence reposed, or assumed to be reposed, grows in importance as the relation between the parties falls from an express to an implied or a quasi trust, and on to those cases where good faith alone is involved.
With these principles in mind the solution of the questions which arise in the case before us is not difficult. Under the will of their father and grandfather, John Leggett, Joseph A. Leggett, Adella Bissell and Hazel Thayer became tenants in common of a lease from year to year of certain premises in the city of Cohoes, upon which has been erected by their predecessors a building used for manufacturing purposes. Their term would expire on April 30, 1916. The premises were actually occupied by the defendant corporation, John Leggett Son, of which Joseph A. Leggett was the president and a director, as an undertenant. In February, 1914, he began an action to partition their right, title and interest under this lease. In June, 1915, an interlocutory judgment of sale was obtained in the action. In August, acting on the direction of the Leggett company, Joseph A. Leggett obtained from the owners of the property a five-year lease to it, running from August 1st, 1915. The trial court does not find that for this purpose he made any fraudulent statements upon which the lessor relied but does find that his position as one of the cotenants aided him in reaching the result he sought. He acted secretly, however, and without the knowledge of one of his cotenants. In September the partition sale took place and the plaintiff became the purchaser and there was conveyed to him all the right, title and interest of which John Leggett died seized in the lease and in the building upon the land.
Under these circumstances it has been held that the act of Joseph A. Leggett was wrongful; that the lease acquired by the Leggett corporation inured to the benefit of the cotenants, and that having purchased all their right, title and interest the lease so obtained belongs to the plaintiff. No such conclusion can result from these facts. A number of difficulties stand in the way.
We express no opinion as to the rights of any of the parties to the building upon the premises. That question is immaterial. Here is involved only the title to or rights under the five-year lease. If that lease had been actually obtained by the tenants in common before the sale of the original lease to the plaintiff it would not have passed to him by virtue of that sale. What he obtained is described in the deed to him. No equitable rights to the renewal in him were created by the transfer. How then does he acquire any title thereto, even if it inured to their benefit?
Assuming that the renewed lease was obtained secretly for his own benefit by Joseph A. Leggett, in fraud of the rights of his cotenants; assuming that they would have been entitled to relief had they demanded it in a court of equity, they have made no such demand. It may be they are content. Two of them participated in the transaction. The third was a stockholder in the Leggett corporation. But content or not, if the rights of any one were violated, it was his rights. If any one may ask redress, it is he who may ask it. The plaintiff, a stranger, may not make the demand for him. No cause of action has been assigned to the plaintiff. He, at least, has not been injured.
The new lease was made to the Leggett corporation, a subtenant. It is found to have been made for the personal benefit of Joseph A. Leggett. In view of the uncontradicted evidence this can only mean for his benefit in the sense that every stockholder is indirectly benefited by the prosperity of the corporation in which he is interested. As we have seen, a subtenant may obtain a new lease from the owner as against his lessor. No relation of trust and confidence exists between them. To obtain such a lease it may act through an agent. In the absence of bad faith or fraud it is immaterial that it chose as its agent for such purpose one of the cotenants. Such a cotenant might be disqualified from secretly obtaining such a lease for his own benefit. But the secrecy of the act was not inequitable where the beneficiary was a stranger. The latter might act in secret. So might its agent. The bare finding that his position aided Joseph A. Leggett to obtain the new lease is wholly inadequate to show that the action of the Leggett corporation was fraudulent.
The judgments of the Appellate Division and the Trial Term should be reversed, and a new trial ordered, with costs to abide the event.
HISCOCK, Ch. J., COLLIN, HOGAN, POUND, McLAUGHLIN and ELKUS, JJ., concur.
Judgments reversed, etc.