interpreting the term "condemnation" found within a lease agreement based on the New York City Administrative CodeSummary of this case from In re Bank of New England Corp.
Argued October 2, 1956
Decided November 15, 1956
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, S. SAMUEL DI FALCO, J.
Williams S. Gaud and John P. Allee for appellant.
Milton M. Bergerman and Joseph Calderon for respondent.
This action was brought to recover damages for an alleged breach of the covenant of quiet enjoyment contained in the lease between the defendant as landlord and the plaintiff as tenant. It is claimed that the landlord breached the covenant by its inducement of and co-operation in the condemnation of the leased premises by the City of New York, resulting in the eviction of the plaintiff at the end of two years of the five-year term of the lease. Trial Term awarded plaintiff damages and the Appellate Division affirmed, two Justices dissenting.
Plaintiff first took possession of the land in question in 1941 from the then owner, Eugene Higgins. In 1947 the premises began to be used as a parking lot, plaintiff subletting the property to one Kane. Higgins died in 1948 and defendant, as testamentary trustee, took title to the property. After the expiration of plaintiff's lease on May 1, 1949, defendant began negotiations for the sale of the property with the City of New York, the Board of Education having notified the Board of Estimate that the property was desired for a public school playground. That communication of the Board of Education was on the Board of Estimate's calendar of December 8, 1949, and the matter was then referred to the City Planning Commission, the director of real estate, and the director of the budget for report. Desultory negotiations then followed with nothing being accomplished. On or about January 22, 1952, the defendant trustee had discussions concerning the status of the property with members of its own organization and its attorneys. At that time it was pointed out in the discussion that it might be a year or two before the city would acquire it, and that, therefore, rather than operate the property at a substantial loss, the defendant, as trustee, was obligated to secure the best price by waiting and, in the meantime, to enter into a lease with the tenant which would pay real estate taxes and insurance. The result was that on March 6, 1952 defendant notified the city that it intended to enter into a lease and inquired as to the city's interest. Negotiations then broke off. Thereafter, on April 29, 1952, plaintiff, with knowledge of the foregoing negotiations, and defendant entered into a lease, which contained, among others, the following two clauses:
"SIXTH: Should the hereby demised premises or any part thereof be condemned for public use, then and in that event, upon the condemnation of the same for such public use, this lease shall at the option of the Landlord become null and void and the term cease with the same force as if the term herein had fully expired on the date when possession shall be required, anything herein contained to the contrary notwithstanding. The Tenant shall not be entitled to any part of the award or to any apportionment thereof."
"TWELFTH: The said Landlord doth covenant that the said Tenant on paying the said rent and performing the covenants aforesaid, shall and may peaceably and quietly have, hold and enjoy the said demised premises for the term aforesaid."
On January 20, 1953, the city contacted the defendant to inquire whether it would be willing to sell the property. This resumption of negotiations was commenced by the city as a result of the pressure brought by various civic groups to acquire the property for playground purposes in conjunction with Public School 75. The defendant, in view of the continuing operating loss, obtained an appraisal of the property, which was $132,000. In February of 1953, the city offered $135,000, which the defendant accepted and on March 16, 1953 defendant sent the city a copy of the proposed contract of sale along with a copy of the outstanding lease to the plaintiff. On March 18th, the city rejected the contract as drawn and returned the copy of the lease, stating that inasmuch as the property was to be used for a playground it must be free and clear of any incumbrances. The city then introduced the defendant, for the first time, to an agreement whereby the city would be given an option to purchase any condemnation award to which the defendant would be entitled upon condemnation. Such procedure is specifically authorized in section B15-30.0 of the Administrative Code of the City of New York, which section appears in title B of chapter 15 of the Administrative Code entitled " Consolidated Condemnation Procedure". The agreement proposed by the city, which was entered into, provided that the city could purchase the assignment of the award for $135,000. On December 17, 1953, the Board of Estimate held a meeting and at that time unanimously resolved to authorize the corporation counsel's office to institute condemnation proceedings and exercised the option to purchase the award in condemnation. The minutes of this meeting of the Board of Estimate clearly disclose that the acquisition of the property was for a "much sorely-needed playground." The condemnation authorized also took in three other damage parcels adjacent to the parking lot, one of which was owned by a party other than the defendant. In April, 1954 title vested and the city applied in the Supreme Court for an order condemning the premises, and on April 30, 1954 an order granting such relief was made and entered in the New York County Clerk's office.
Plaintiff then sued defendant for breach of the covenant of quiet enjoyment contained in the lease alleging: "17. The defendant wrongfully induced the City of New York to acquire the premises by condemnation in violation of the covenant of quiet enjoyment contained in the lease between the plaintiff and the defendant."
In answering defendant's demand for a bill of particulars, the plaintiff stated that: "7. The defendant's acts, which induced the City of New York to acquire the premises by condemnation, were the option to sell to the city for $135,000 any award to which defendant would be entitled on condemnation of the premises and such other of defendant's acts relating to said option, of which the plaintiff has no personal knowledge * * *."
As we view the case, the fundamental issue presented is whether the landlord breached the covenant of quiet enjoyment by co-operating with the city to the extent of granting the city an option, pursuant to section B15-30.0 of the Administrative Code, to purchase for $135,000 its rights in the condemnation award in the event that the city thereafter condemned the property. We think it did not.
A covenant of quiet enjoyment is not breached by the landlord when the tenant is evicted by the sovereign's exercise of its power to take by eminent domain, inasmuch as such a covenant goes only to the lessor's title, and does not warrant against those fundamental liabilities to action on the part of the sovereign power which lie behind all private titles (see Goodyear Shoe Mach. Co. v. Boston Term. Co., 176 Mass. 115, per HOLMES, Ch. J.). The rights of the lessee in the land owned by the lessor are held as the property of all citizens is held, subject to the exercise of the power of eminent domain by the sovereign and the exercise of that power by the sovereign does not constitute a breach of the covenant of quiet enjoyment by the landlord (see Kip v. New York H.R.R. Co., 67 N.Y. 227, 229).
In the present case no one can deny that the tenant was evicted by reason only of the exercise of the sovereign power of eminent domain and not by reason of the option given to the city by the landlord. The grant by the landlord of the option to purchase its rights in the condemnation award, in the event that the city thereafter condemned the property, did not constitute an interference by the landlord with the tenant's possessory rights, did not accomplish an eviction of the tenant and did not lead necessarily or inevitably to an eviction of the tenant by the sovereign. The tenant's possessory rights were not interfered with or destroyed until the land in question was subsequently condemned. Nor did the grant of the option to the city empower or enable the city to evict the tenant. The power of eminent domain possessed by the city, and through which the tenant was evicted, was not in any wise dependent upon the city's obtaining an option from the landlord. It is true that by granting the option the landlord "cooperated" with the city, that is, the landlord assisted the city by placing it in a position to know, in advance, the cost to it of acquiring the landlord's property by eminent domain. However, before holding that that type of co-operation creates an exception, in favor of the tenant, to the rule that an eviction resulting from the exercise of the sovereign power of eminent domain does not render a landlord liable for a breach of the covenant of quiet enjoyment, we would have to find some clear expression of intention to that effect in the lease. This must be, for to hold that the giving of the option to purchase renders the landlord guilty of a breach of the covenant of quiet enjoyment would be to render ineffective the legislative action in enacting section B15-30.0 of the Administrative Code in every case where there is present a leasehold interest. No property owner would be willing to follow such procedure for he would be buying himself a potential lawsuit brought by his leaseholding tenants. A great portion of New York City property is under lease and to put an end to or impair this common practice of the city, which serves the useful function of enabling the city to ascertain, with a reasonable degree of certainty, the amount of money which will have to be expended in order to obtain the parcels of land which it seeks, would be to cause great harm to the city.
We find no such clear expression of intention to that effect in the lease before us.
In paragraph "SIXTH" of the lease the parties expressly agreed that in the event of condemnation the "lease shall at the option of the Landlord become null and void and the term cease with the same force as if the term * * * had fully expired on the date when possession shall be required, anything herein contained to the contrary notwithstanding." The lease itself does not define what is meant by condemnation. Nevertheless, it is basic that, unless a contract provides otherwise, the law in force at the time the agreement is entered into becomes as much a part of the agreement as though it were expressed or referred to therein, for it is presumed that the parties had such law in contemplation when the contract was made and the contract will be construed in the light of such law (see 17 C.J.S., Contracts, § 330). Applying that rule of construction to the facts of this case, if the procedure followed by the defendant in our present case is considered to be condemnation or a mode of condemnation, which the city is authorized to follow by the Administrative Code of the City of New York, then the plaintiff in agreeing to the lease must be presumed to have agreed to lose any leasehold interest which he possessed when the provided-for statutory methods of condemnation were employed. As we stated earlier, the procedure followed by the city and the defendant, i.e., the purchase of the award, is specifically set forth in section B15-30.0 of the Administrative Code, which section appears in title B of chapter 15 of the Administrative Code entitled " Consolidated Condemnation Procedure", and clearly must be considered to be a mode of the procedure of condemnation. Therefore, the city in arranging for the purchase of the award was actually following a mode of condemnation.
The tenant specifically agreed in unambiguous terms that in the event of condemnation the lease should become null and void at the option of the landlord and that he, the tenant, would not be entitled to any part of the condemnation award. Condemnation took place and the lease was terminated. By the present action the tenant seeks to avoid the effect of his agreement that he would not be entitled to any part of the condemnation award. In answer to that attempt, we can only repeat that the tenant's eviction was the result of the sovereign's exercise of its power to take by eminent domain and that a covenant of quiet enjoyment is not breached by the landlord when the tenant is evicted by such exercise. There is no forfeiture by the tenant of any interest save that to which he has agreed and to which he must be held.
For the foregoing reasons, we conclude that the defendant did not breach the covenant of quiet enjoyment and that the complaint should be dismissed.
The judgment of the Appellate Division and that of Trial Term should be reversed and the complaint dismissed, with costs to appellant in all courts.
Plaintiff's judgment for damages is based on a Trial Term finding, affirmed by the Appellate Division, that the appellant breached a covenant of quiet enjoyment contained in a lease by defendant to plaintiff of vacant land in New York City used by plaintiff as a parking lot. The lease by its terms ran for five years from May 1, 1952, but on May 1, 1954 plaintiff was deprived of all rights under the lease when the City of New York acquired the premises in condemnation proceedings. The facts hereinafter set forth in more detail justified the trial court's finding that defendant itself had induced and brought about the condemnation proceeding. It can hardly be doubted that a landlord who leases land for a term of years and then turns around and makes an arrangement such as is hereinafter described and whereby the tenant is ousted, violates both the letter and the spirit of the quiet enjoyment covenant. That covenant in the lease under consideration read as follows: "The said Landlord doth covenant that the said Tenant on paying the said rent and performing the covenants aforesaid, shall and may peaceably and quietly have, hold and enjoy the said demised premises for the term aforesaid."
Plaintiff's occupancy of this land began in 1941. In 1947 he took from the then owner, one Higgins, a two-year lease. Higgins died in 1948 and defendant as a testamentary trustee took title to the premises. During the term of that earlier or 1947 lease New York City officials had shown some interest in the possible purchase of the land for use as a playground appurtenant to an adjoining public school. Defendant trustee, after it took title, had some inconclusive negotiations with the city authorities looking to such a sale but, when these did not come to a head, defendant, as of May 1, 1952, made the lease above referred to with plaintiff who had remained in possession without a lease from 1949 to 1952. In January, 1953, 9 or 10 months after the making of the second lease containing the quiet enjoyment covenant, the city inquired from defendant whether the property was for sale and, when defendant replied that it was, the city in March, 1953 made an offer to purchase it for $135,000, a little more than the amount of an appraisal which had been made for defendant. Defendant indicated agreement, sent to the city a proposed contract of sale at that price, and notified the city that the sale would be subject to plaintiff's lease. The city replied that it could not sign the contract unless and until defendant obtained a release of the rights of this plaintiff as tenant. Defendant did nothing toward getting such a release. Next, the city notified defendant that the city would be agreeable to an arrangement whereby the city would obtain title through condemnation proceedings but would be given, by defendant, an option to purchase for $135,000 an assignment of the award that would be made to defendant in the condemnation proceedings. That arrangement was carried out completely with the result that the city acquired the property for the price of $135,000 as originally agreed upon. But the tenant lost all its rights to occupancy or compensation since his 1952 lease contained a provision that if the leased premises should be taken by condemnation, the lease should terminate as if its term had expired, and that the tenant in that event should not be entitled to any part of the condemnation award.
There is no claim here that the arrangement voluntarily made between defendant and the city was invalid as between those two parties (see Administrative Code of City of New York, § B15-30.0). The theory on which plaintiff has recovered is that regardless of such validity the landlord breached the lease and violated plaintiff's rights by co-operating in and agreeing to an arrangement (which the landlord did not have to make) whereby there was a sale of the property at a previously agreed price with complete destruction of the tenant's rights, even though the arrangement took the form of a condemnation proceeding with a prior agreement that the owner's award should be sold back to the city at a price agreed on in advance. "The main object of a covenant for quiet enjoyment is to protect the lessee from the lawful claims of third persons having a title paramount to the lessor; but such a covenant * * * provides also for the protection of the lessee against the unlawful entry of the lessor himself" ( Mayor of City of New York v. Mabie, 13 N.Y. 151, 156; see 2 McAdam on Landlord and Tenant [5th ed.], pp. 1528, 1570, 1571). The covenant can mean no less than that the landlord will "abstain from interfering with the right" granted by him to the tenant ( Mabie case, supra, p. 157). When the landlord despite the lease and the covenant presumes to exercise dominion over the property by his own re-entry or by granting rights to others inconsistent with the lease, the landlord breaches the covenant. Under defendant's theory, a landlord could make a lease for a long period, include therein a covenant for quiet enjoyment, permit the tenant to enter and establish himself in the property and then turn around and act toward the property as if there were no lease at all. And all this without incurring any obligation to reimburse the tenant for his loss.
The landlord's defense to this suit can be summed up in a sentence from its brief: "No tenant can recover damages from his landlord merely because a municipality condemns the property which is the subject of his lease". But this plaintiff has been awarded damages not because the municipality exercised its power of eminent domain, but because the landlord induced and made possible the bringing of condemnation proceedings by agreeing to what was, in effect, a voluntary sale. The difference is between an involuntary transfer of the property by the landlord and a carefully worked out bilateral agreement which, although in form a taking by condemnation, was in fact a voluntary sale of the property to the city. The taking of this property by the city was not in hostility to defendant's title but was the carrying out of a bargain. The naked fact that title passed pursuant to a condemnation decree does not invalidate the finding made here that it was the landlord's agreement which resulted in the ouster of plaintiff. An illustrative case is Lindwall v. May ( 111 App. Div. 457) where it was held that a tenant could recover damages for a breach of a covenant of quiet enjoyment although the building had actually been torn down by the municipal authorities as unsafe. It was the landlord's neglect that had produced the violation which in turn produced the lawful governmental act of destroying the property which was the subject of the lease. The Appellate Division held in the Lindwall case ( supra) that the destruction of the premises and the consequent eviction would not have occurred had the landlord performed its duty. In the present case the landlord's duty was to protect the rights which it had granted to plaintiff. Instead of doing so it agreed to a method of ousting him. Kip v. New York H.R.R. Co. ( 67 N.Y. 227) is not in point here since it deals with the right to condemn of a tenant who had the power of eminent domain. Goodyear Shoe Mach. Co. v. Boston Term. Co. ( 176 Mass. 115) is likewise without pertinence here, since the landlord in that case merely exercised its own power of condemnation.
If there is any doubt as to the meaning of this lease, that doubt "must be resolved against the landlord and in favor of the tenant" ( 455 Seventh Ave. v. Hussey Realty Corp., 295 N.Y. 166, 172). That settled rule of lease construction should be most strongly applied when the result of a construction in favor of the landlord would be to permit the landlord to forfeit the tenant's valuable remaining term without compensation.
Affirmance of this judgment would not impair or affect the city's practice of arranging in advance an assignment of awards in condemnation proceedings. Affirmance will merely force landlords to perform their covenants.
The measure of damages here applied, that is, the value of the unexpired term less the rent reserved, was correct ( Mack v. Patchin, 42 N.Y. 167).
The judgment should be affirmed, with costs.
DYE, FROESSEL and BURKE, JJ., concur with CONWAY, Ch. J.; FULD, J., concurs in result; DESMOND, J., dissents in an opinion in which VAN VOORHIS, J., concurs.
Judgments reversed, etc.