holding that future rent is not attachable under statute providing that a debt is not attachable unless it is certain to become dueSummary of this case from In re Securities Group 1980
Argued September 26, 1968
Decided December 12, 1968
Appeal from the Appellate Division of the Supreme Court in the First Judicial Department, WILLIAM S. SHEA, J.
Benedict Ginsberg for appellant. Arnold S. Schickler for respondents.
Involved on this appeal is the vacatur of an attachment of future rents to become due on New Mexico property. Plaintiff appeals from the vacatur and the consequent dismissal of his complaint for lack of jurisdiction.
Plaintiff Glassman, a New York resident, sued for real estate brokerage commissions. Defendants are the New Mexico owners of a building in that State. The tenant is an out-of-State corporation doing business in this State. In order to obtain quasi in rem jurisdiction over the nonresident defendants (N.Y. City Civil Court Act [CCA], § 405, subd. [c], counterpart to CPLR 314, subd. 3) plaintiff obtained a warrant of attachment and caused a levy to be made on the tenant in New York. Plaintiff also claims personal jurisdiction over defendants on the ground that the nonresident defendants transacted business in the State out of which the cause of action arose (CCA, § 404, subd. [a], par. 1, counterpart to CPLR 302, subd. [a], par. 1).
The Civil Court held that there was no jurisdiction ( 51 Misc.2d 535) ; the Appellate Term reinstated the attachment and the complaint ( 52 Misc.2d 618); and the Appellate Division, agreeing with the Civil Court, vacated the attachment and dismissed the complaint ( 28 A.D.2d 974).
Because it is concluded that there was no jurisdiction over the defendants on either basis, the vacatur and dismissal should be affirmed.
Plaintiff, a licensed real estate broker, allegedly, through a series of telephone calls, letters, and a telegram, entered into a brokerage agreement with defendant owners, who were at no time physically present in New York, for the procurement of a buyer for the New Mexico property. A suitable buyer, he alleges, was found. The owners agreed to accept the buyer's offer, but subsequently refused to sign a written contract, and failed to pay the broker the agreed commissions.
I. Quasi in rem jurisdiction
The owners had in 1962 leased the land and building, the subject of the alleged brokerage agreement, to Fireman's Fund Insurance Company, under a 20-year net lease expiring in 1983. Only the destruction or condemnation of the premises, or a breach of the covenant of quiet enjoyment, could materially affect the duty of the lessee to pay rent. The rent was reserved on a monthly basis, to be paid on the first day of each calendar month, commencing on the first day of the term. On December 20, 1965, broker obtained (pursuant to CCA, §§ 209, 801) an order of attachment, which was levied upon the tenant, Fireman's Fund, on December 21, 1965. Personal service on the defendants in New Mexico (pursuant to CCA, § 405) was made the first week in January and plaintiff was given additional time to file proof of service. At the time of the levy, the rent due December 1 had already been paid on December 3. No further rent was due until January 1. On January 3, tenant paid the rent then due, $1,398.10, to the Sheriff. The property was sold to another purchaser in January and no subsequent rent has been paid to the Sheriff.
CPLR 6202 provides that any debt or property against which a money judgment may be enforced under CPLR 5201 is attachable. There are three kinds of things subject to execution, and the same was to some extent true under the Civil Practice Act.
The first is a debt past due, or yet to become due, certainly, or upon demand, which is always an intangible (CPLR 5201, subd. [a]). The second is property, real or personal, tangible or intangible, which includes vested or unvested interests (CPLR 5201, subd. [b]). The third is income of various kinds, but subject to preconditions before it is available to levy by execution, and most often limited to garnishing of 10% (CPLR 5231, but compare 5226).
On any ordinary analysis, particularly any economic analysis, future rents might be treated either as a debt or as a form of income.
A debt to be attachable must be "past due or * * * yet to become due, certainly or upon demand of the judgment debtor" (CPLR 5201, subd. [a]). Where a duty to pay is conditioned on the creditor's future performance, or upon contractual contingencies, there is no debt certain to become due (see Sheehy v. Madison Sq. Garden Corp., 266 N.Y. 44, 47; Herrmann Grace v. City of New York, 130 App. Div. 531, 535, affd. 199 N.Y. 600). An obligation to pay rent, it has been held, is not a debt and is not certain to become due (see Matter of Ryan, 294 N.Y. 85, 95). Thus, in the Ryan case, it was said, "The `covenant to pay rent creates no debt until the time stipulated for the payment arrives * * * It is not a case of debitum in praesenti solvendum in futuro. On the contrary, the obligation upon the rent covenant is altogether contingent.' In some contingencies the stipulated rent payable in the future by a lessee for the right to occupy leased premises might never become due." ( Matter of Ryan, supra, p. 95.)
Seider v. Roth ( 17 N.Y.2d 111) and Simpson v. Loehmann ( 21 N.Y.2d 305), relied on by plaintiff, are hardly applicable. Those cases depend upon the construction that an indemnitor's duty to defend is a present duty and, therefore, a current asset. Notably, in those cases, there was no special effort made by the majority to classify contractual duties as between debt and property, although, to be sure, it was said in the Seider case that "as soon as the accident occurred there was imposed * * * a contractual obligation which should be considered a `debt' within the meaning of CPLR 5201 and 6202." ( 17 N.Y.2d, p. 113.) As to future rents, there is no present duty.
Although New York has never specifically held that future rents cannot be attached or garnished, most other jurisdictions have held that future rents are so speculative as not to qualify as debts certain to be due, or even as debts at all, and hence are not garnishable (see United States Fid. Guar. Co. v. Wrenn, 89 F.2d 838; Calechman v. Great Atlantic Pacific Tea Co., 120 Conn. 265, and cases cited in Ann. — Garnishment of Tenant, 100 A.L.R. 307).
But, as noted, the New York rule in the general area fits the prevailing view, and such legislative history dealing with CPLR 6202 and 5201 (subd. [a]) as is available suggests that there was no intention to modify the generally accepted criteria for what is a debt certain. This is not surprising. Where the real property is located in the same State as the forum, the levying creditor has no problem. He levies against the real property in this State simply by filing a notice of levy in the appropriate county clerk's office (CPLR 6216; 7A Weinstein-Korn-Miller, N Y Civ. Prac., par. 6216.01 et seq.). It then becomes a lien against the real property and the owner is effectively restrained from disposing of the property without first discharging the lien. If it is necessary to reach the accruing rents, a simple form of receivership is available after judgment (CPLR 5228, subd. [a]; 6 Weinstein-Korn-Miller, op. cit., par. 5228.01 et seq.). Consequently, there has been little or no practical necessity for a direct levy on future rents under the attachment and execution statutes. The exceptional situation which has arisen here is that, first, defendants are nondomiciliaries, second, the real property is outside the State, and, third, the rent-paying tenant is subject to jurisdiction.
The exceptional situation raises another conceptual question. Under traditional, even ancient law, rents were not personal obligations but rights and duties (however treated) associated with or "emanating from" the land (see Bouvier's Law Dictionary [Rawle's 3d rev.], "Rent"). On this view, the rents would be attachable only in the jurisdiction in which the land lay. It is hardly necessary to reach this issue in this case, if one accepts the view that the legislation on attachment and execution never purported to reach future rents, except as income, subject perhaps only to execution (compare CPLR 6202 with CPLR 5201 and 5231).
The broker indeed argues that the limiting language of CPLR 5201 must be read in connection with CPLR 5231, providing for execution against 10% of recurring income (3rd Preliminary Report of Advisory Committee on Practice Procedure [N.Y. Legis. Doc., 1959, No. 17], p. 101). It need not be decided whether the income execution provision is available as a basis for attachment, or whether future rents are covered by that provision. Income executions under CPLR 5231 (subds. [b], [c]) must first be served upon the judgment debtor, who must be given an initial opportunity to make the required payments of 10% of the income against which the judgment is enforced. Only if he defaults may a third party, the source of the income, be served. The protection thus afforded the judgment debtor should not be abandoned if the income execution provision were to be deemed applicable to attachment. Attachment, therefore, even if otherwise authorized, was not properly levied in this case. The order of attachment was issued December 20, 1965, and the levy was attempted December 21, 1965. No attempt was made to notify the owners of the attachment or give them opportunity to avoid the levy on the lessee until after it had already been made.
Consequently, the levy was ineffective and quasi in rem jurisdiction was not obtained.
II. In personam jurisdiction
The broker also contends that, even if the attachment is invalid, in personam jurisdiction over the owners has been obtained (under CCA, § 404, subd. [a]) in that the owners transacted business within the City of New York (cf. CPLR 302, subd. [a], par. 1).
If conflicting allegations are resolved in plaintiff broker's favor, the record reveals the following facts:
The defendants, Donald, Richard, and Josephine Hyder, residents of Albuquerque, New Mexico, owned a parcel of land and office building in Albuquerque, which they rented under a 20-year net lease to the Fireman's Fund Insurance Company, a corporation doing business and maintaining an office in New York City.
On October 22, 1965 plaintiff Glassman, from New York, telephoned Donald Hyder in New Mexico and ascertained the property's ownership and Hyder's power to act for his brother and mother, the other co-owners, in hiring a broker and negotiating a sale. Plaintiff Glassman indicated to Hyder that he had a purchaser at $240,000, all cash, free and clear. This was rejected, Hyder saying that the owners wanted $250,000. Hyder also said the sellers would pay only a 5% commission, and that half of that would have to be paid to Hyder's own real estate brokerage business. Glassman said that if these were the only terms by which a deal was possible, he would accept. During that telephone conversation, Hyder offered Glassman a brokerage contract, and Glassman accepted.
On October 25, Glassman again telephoned Hyder and informed him that a prospective purchaser was willing to pay $250,000. A copy of the existing lease with Fireman's Fund was also mailed to broker on October 25. Pursuant to Hyder's request, the offer to purchase was confirmed by the broker's telegram the same day. Hyder replied by letter, enclosing a proposed contract and fixing a commission of 5%, half of which was to go to Donald Hyder, also a broker, as his share of the brokerage fee.
Glassman spoke to Hyder by telephone on October 26. At this time Hyder agreed to accept the offer of Glassman's client. Glassman indicated that a formal contract of sale would be signed as soon as a copy of the existing lease was received. On October 27, a letter from Hyder and a copy of the lease was received by Glassman.
The formal contract of sale was never signed by all the parties, and negotiations continued until early December. On November 15, purchaser's attorney mailed Hyder a contract signed by the purchaser and a check for $10,000. These were returned by Hyder under date of November 23, along with a new proposed contract containing minor changes. The purchaser's attorney sent Hyder, on December 6, copies of the proposed contract revised and signed by the purchaser, and a $10,000 check in partial payment. By a telegram of December 8, Hyder said he was unable to accept purchaser's "offer" before December 10 due to an unexpired option held by another party. On December 10, Hyder returned to purchaser's attorney the agreements and the $10,000 check. By letter dated December 13, Hyder informed Glassman that a local buyer had submitted a higher offer and that it had been accepted. The summons in this action was served on Hyder on January 3, 1966.
In determining whether the owners' activities constitute the transaction of business in New York, the court should weigh not only the owners' correspondence with the broker, but must also consider the owners' negotiations with the prospective purchaser. The two sets of negotiations are so closely related as to justify viewing them as a single entity. The acts of the independent broker within New York should not, however, be attributed to the owners so as to become acts of the owners in New York (see Millner Co. v. Noudar, Lda., 24 A.D.2d 326).
Upon viewing the owners' activities in relation to New York in their entirety, it is concluded that there was no transaction of business in New York. The brokerage contract was brought about through the initiative of the broker, who telephoned New Mexico and proffered his services. While the owners corresponded with both the broker and the prospective buyer, this correspondence failed to elaborate or even reduce to writing the oral brokerage commitment sued upon.
This court has previously held that there is no transaction of business in New York where an offer placed outside the State by telephone is received and accepted in New York ( Katz Son Billiard Prods. v. Correale Sons, 26 A.D.2d 52, 53, affd. 20 N.Y.2d 903), or where a contract is negotiated in New York by defendant's independent contractor, sent to Great Britain, there signed by defendant, and then returned to New York for the final signature of the plaintiff ( Standard Wine Liq. Co. v. Bombay Spirits Co., 20 N.Y.2d 13, 16-17, affg. 25 A.D.2d 236, 237). Moreover, even where questions regarding the nature of an oral contract are resolved by mail between New York and another State, and employees of the out-of-State defendant manufacturer briefly visit New York in connection with sales to third parties under the distributor's contract, no transaction of business in New York is found ( McKee Elec. Co. v. Rauland-Borg Corp., 20 N.Y.2d 377, 380, 382).
Since there is neither quasi in rem nor in personam jurisdiction the complaint was properly dismissed.
Because of the conclusions reached, it is not necessary to consider the further questions whether the New Mexico real estate brokerage law, requiring a written memorandum of hire, and restricting actions for commissions to New Mexico brokers, applies to the instant brokerage agreement (cf. Anderson v. A/S Berge Sigval Bergesen, 22 N.Y.2d 944, affg. 29 A.D.2d 756), or whether proof of New Mexico service was untimely filed in New York, as contended by defendants.
Accordingly, the order of the Appellate Division vacating the attachment and dismissing the complaint should be affirmed, without costs.
We agree with the conclusion that in personam jurisdiction was not achieved in this case. We differ, however, with the majority's interpretation of CPLR 5201 by which they conclude that rent payments due under a 20-year business lease are too contingent to meet the requirements of "certainty" expressed in the provision and, therefore, find future rents not attachable.
CPLR 6202 subjects to attachment any debt against which a money judgment may be enforced as provided in CPLR 5201. CPLR 5201 (subd. [a]) provides that "any debt, which is past due or which is yet to become due, certainly or upon demand" can be the subject of execution. This business lease exhibits that certainty of existence required by the statute for a debt to be attachable. When the conditions in the lease are analyzed, it is apparent that the contingencies involved are insufficient predicates from which to conclude that future rent payments will not certainly come due.
The lease contains only three provisions which could possibly affect the duty of the lessee to make payments: destruction of the property, condemnation of the premises, or a breach of the covenant of quiet enjoyment.
The possibility of destruction of the premises is so remote as not to be a fair basis upon which to conclude that rent payments are contingent. Though we would not distinguish this case from another solely on the type of business conducted or the premises occupied, it would be fair to note that mercantile establishments, such as the lessee in this case, pay the lowest insurance premiums for fire damage because of the infrequency of its occurrence in these establishments as compared with manufacturing concerns.
Though condemnation of the property is always possible, it is as unlikely as destruction by fire. Even in the case of condemnation, however, the lease in question does not permit the lessee to vacate, but only requires a modification in the rent payments when less than 9,500 square feet of the surrounding property is taken. The lease does permit the lessee to vacate if any part of the building is condemned. The record discloses that the city did in fact condemn part of the surrounding property for the purpose of widening a street. Accordingly, the rent payments were reduced by $1.39 per month to account for the condemnation of approximately 114 square feet of frontage.
The only way in which the covenant of quiet enjoyment could have been breached would be the presence of someone asserting paramount title. The lease under examination required the lessee, who was the sole tenant of the premises, to maintain the property, pay all fire and landlord liability insurance, pay all utilities and take care of refuse collection. The lessor did not need any of the rental payments to defray the costs of operating and maintaining the property. Thus, the attachment would not bring about a diminution of income to the lessor which would cause him to be unable to maintain the building, thereby failing to perform a duty imposed by the lessee which would in turn permit the lessee to vacate or withhold rent. Therefore, the only breach which would arise from the covenant would be an eviction due to someone's asserting paramount title.
All the possible contingencies in this lease were not only exceedingly remote eventualities, but were equally outside the control of either the lessor or lessee. It is apparent from a reading of the provision that it is not every debt in which money is to become due which falls outside its purview and this should especially be the case where neither the creditor nor debtor has any control of remote contingencies.
As Judge CARDOZO noted many years ago: "The situs of intangibles is in truth a legal fiction, but there are times when justice or convenience requires that a legal situs be ascribed to them. The locality selected is for some purposes, the domicile of the creditor; for others, the domicile or place of business of the debtor, the place, that is to say, where the obligation was created or was meant to be discharged; for others, any place where the debtor can be found. * * * At the root of the selection is generally a common sense appraisal of the requirements of justice and convenience in particular conditions". ( Severnoe Securities Corp. v. London Lancashire Ins. Co., 255 N.Y. 120, 123-124; emphasis added.)
The majority admit that "On any ordinary analysis * * * future rents might be treated as a debt or as a form of income", (p. 358) and additionally note that no New York case has ever held that future rents were not leviable. The question is, therefore, open. The cases we are referred to, in support of the proposition that future rent is not attachable, are from other jurisdictions which were decided in a far different judicial climate from that existing today with reference to questions of jurisdiction. The logic of these opinions is not so persuasive that we should disregard the change in legislative and judicial attitude in the last 25 years. Though admittedly our own case law is not clear on this point, nonetheless it does point to a resolution of the problem.
Matter of Ryan ( 294 N.Y. 85) quoted by the majority is not in point since, as the court noted, "In the case we are now deciding, the obligation to pay rent is, indeed, made contingent by the express provisions of the lease; for the lease as modified provided that if the trustees should sell the property before the expiration of the lease they might at their option cancel the lease, and if the trustees as `landlord' availed themselves of that option, no further payments would become due under the lease" ( id., p. 95). The court in addition noted (p. 96): "We may point out here that the surviving trustees and the remainderman of the trust have not contended that the contractual obligation of the beneficiary to pay rent in the future is not contingent". Thus the issue with which we are confronted was not before the court in Ryan.
When it is understood that an attachment in New York will not interfere with the transferability of the fee or prejudice the lessee in any respect we see no injustice in finding future rents subject to attachment in New York. Our assertion of jurisdiction will in no way usurp the prerogatives of a sister State's court by affecting the title to property in New Mexico. The New York attachment does not become a lien on this foreign realty. The grantee's right to rent if the property is sold will not be affected by the New York attachment. The transfer of the fee will simply put an end to the attachment. (Cf. Matter of Intermediate Credit Corp. v. Overseas Nat. Airways, 41 Misc.2d 522.) Thus the alienability of the foreign property is not affected.
The lessee will not be endangered by being required to make rent payments in New York under the attachment. The lessee is protected from either double payment of rent or eviction in New Mexico because, in any action commenced by the lessor, the tenant can defend the action by raising the New York attachment as a bar. The corollary of the Supreme Court's view of the jurisdictional point in Harris v. Balk ( 198 U.S. 215) is the requirement that other States accord full faith and credit to any judgment under which the garnishee is required to pay the garnishor. (See Huron Corp. v. Lincoln Co., 312 U.S. 183.) The New Mexico attachment statute specifically provides that "It shall be sufficient answer to any claim of the defendant against the garnishee founded on any indebtedness of such garnishee * * * for the garnishee to show that * * * under the judgment of the court in accordance with the provisions of this article" the debt was paid into court. (N.M. Stat. Ann., § 26-2-32.)
Of course, New York cannot bootstrap itself into acquiring proper jurisdiction by the simple expedient of asserting that the debt is subject to attachment. However, it is generally recognized that "The situs of intangibles is in truth a legal fiction" and that, therefore, only a proper juridical situs has to be determined. Though a covenant to pay rent runs with the land and, therefore, rent accruing under a lease is normally considered an incident of the leasehold, this fact alone should not be determinative of the legal situs of future rents. Notwithstanding the fact that future rents are an incident of the right of the lessee to possession of the leasehold this right may be severed from the property by an assignment. Thus the individual who has the right to receive rent may not be a resident of the locality where the property is situated. Since the right to receive rent does not always run with the land we see no reason to determine the situs of the debt by some outmoded notion, which heaps an additional legal fiction into a cauldron already boiling over with refinements.
We believe an important consideration to be that New Mexico would also find this property subject to attachment and, therefore, would have no grounds for consternation because of our action. The New Mexico statute permits an attachment of demands not yet due in like manner as demands already due. (N.M. Stat. Ann., § 36-7-1; garnishment may be had in any case in which an attachment would be proper. N.M. Stat. Ann., § 26-2-1.) The New Mexico garnishment provision was expanded in 1939 to permit attachment "against the lands, tenements, goods, moneys, effects, credits and any right, title [,] lien or interest whether legal or equitable upon, in or to real or personal, tangible or intangible property * * * which could be reached upon execution or upon equitable proceedings in aid of execution, of the debtor in whosesoever hands they may be except such property as is now, or may hereafter be, specifically exempted from attachment or execution by law" (N.M. Stat. Ann., § 26-1-4). The Dean of the New Mexico School of Law has stated that "The purpose [of this provision] obviously is to authorize attachment of all non-exempt property interests capable of conversion into money, but no question as to the precise reach of the writ has come before our Supreme Court [of New Mexico]". (Vern Countryman, Attachment in New Mexico, Part I, Natural Resources Journal 303 ; Part II, Natural Resources Journal 75, 76 .)
Since we are in no way trammeling the New Mexican court's right to affect the title to real property located there, affecting its transferability, or prejudicing the rights of the garnishee, we see no reason not to hold this debt subject to attachment in New York.
Chief Judge FULD and Judges BURKE, SCILEPPI and JASEN concur with Judge BREITEL; Judge KEATING dissents and votes to reverse in a separate opinion in which Judge BERGAN concurs.