Fidelity Bank of Durham v. Bloomfield

Annotate this Case

98 S.E.2d 865 (1957)

246 N.C. 492

The FIDELITY BANK OF DURHAM, Trustee, v. I. F. BLOOMFIELD and Peoples Fruit and Produce Market, Inc.

No. 672.

Supreme Court of North Carolina.

June 28, 1957.

*869 E. C. Brooks, Jr., and E. K. Powe, Durham, for defendant, appellant.

Reade, Fuller, Newson & Graham, Durham, for plaintiff, appellee.

PARKER, Justice.

The defendant Bloomfield assigns as error the failure of the court to allow his motion for judgment of nonsuit made at the close of all the evidence. G.S. § 1-183. Bloomfield's contention is that having transferred the lease of 12 September 1951 to the "Peoples Fruit and Pr. Co." on 1 October 1953, he was from that time relieved from any personal obligation to pay rent.

In Annotation 36 A.L.R. 316, this is written: "It is established by an unbroken line of authority that where a lease containing an express covenant to pay rent has been assigned, the fact that the lessor thereafter accepts rent from the assignee does not release the lessee from his liability for rent during the remainder of the term, the assignment terminating the privity of estate between the lessor and the lessee, but not the privity of contract." Numerous cases are cited in support of the statement from 26 states of this nation and from England.

This Court said in Pate v. Oliver, 104 N.C. 458, 10 S.E. 709, 712: "There can be no question but that a lessee under an express contract cannot discharge himself by his own act. `Hence, as long as the lease continues, and as far as he has assets, an executor is held liable in debt as well as covenant for accruing rent, and an assignment of the term by himself or his decedent affords of itself no immunity.' Schouler, Ex'rs, § 376."

In Alexander v. Harkins, 120 N.C. 452, 27 S.E. 120, 121, the plaintiff contended the whole term of Keller in the lease of a storehouse was purchased, and this made the purchasers tenants of the plaintiff. This Court said: "While it constituted the purchasers tenants with the rights of the original lessees, as to the terms of the lease and estate granted, it did not release the original lessee from the obligation of his contract to pay the rent."

The assignment of a lease does not annul the lessee's obligation on his express covenant to pay rent, even though the lessor has consented to such assignment and collected rent, unless the lessor has made an agreement by which a new tenancy is created and the old ended or unless the lessor has accepted the surrender of the lease or released the lessee on a sufficient consideration. 52 C.J.S. Landlord and Tenant § 528 a (1); 32 Am.Jur., Landlord and Tenant, sec. 358.

In Hamlen v. Rednalloh Co., 291 Mass. 119, 197 N.E. 149, 152, 99 A.L.R. 1230, the Court said: "The mere assignment of a lease with the consent of the lessor who takes a covenant from the assignee to pay rent or thereafter collects rent from the assignee does not relieve the original lessee from his contract to pay rent expressed in the covenants of the lease."

In S. S. Kresge Co. v. Sears, 1 Cir., 87 F.2d 135, 138, 110 A.L.R. 583, certiorari denied 300 U.S. 670, 57 S. Ct. 512, 81 L. Ed. 876, the Court said: "It appears from the cases cited above that the mere assignment *870 of a lease, even with the consent of the lessor, does not relieve the original lessee from liability under his express covenants. To absolve the original lessee from liability in case of an assignment, it must appear in fact that the lessor has contracted that the lessee shall not be further liable."

"The fact that the assignee is also liable for rent, through privity of estate or express agreement to assume the obligations of the lease, will not discharge the lessee. Unless the lessor has accepted the assignee as a substitute in place of the original lessee, the lessor may, at his election, pursue either or both for payment, although he may have but one satisfaction." 52 C.J.S. Landlord and Tenant § 528, p. 330.

Bloomfield signed the Lease Agreement of 12 September 1951, and to his signature added his seal. Above his signature and seal appears these words: "I have read the above conditions and terms of the above lease agreement and hereby agree to same." Included in which terms was a specified rent schedule payable monthly in advance. Bloomfield by express contract under his seal in plain and unambiguous words covenanted to pay the rent specified in the Lease Agreement, and individually paid the rent specified to 1 October 1953 according to his own testimony.

The Lease Agreement in plain language provided that if Bloomfield incorporated his business, the lease could be transferred to the corporation without the lessor's consent. Doubtless it is competent for a lessor to incorporate in a lease agreement a provision that the lessee can transfer the lease, that the assignee will be accepted as sole tenant and the lessee will be absolved from his contract to pay rent, but no such provision appears in the Lease Agreement of 12 September 1951, and such a meaning cannot be read into its clear and plain words. The fact that Bloomfield on or about 1 October 1953 told Mrs. Lloyd that he had transferred the lease to Peoples Fruit and Produce Company, Inc., and that she said it was all right does not even tend to show that Mrs. Lloyd agreed to release Bloomfield from his express covenant contained in his lease of 12 September 1951 to pay rent and to substitute the corporation in his place.

The trial court properly overruled the defendant Bloomfield's motion for judgment of nonsuit.

The defendant assigns as error the submission of Issues 4, 5, 6, 7 and 8 to the jury, and its failure to submit issues tendered by him. Defendant contends that the court by consent having answered the second issue, "Did the defendant I. F. Bloomfield assign and transfer said lease dated September 12, 1951 in accordance with the terms and provisions of said lease," Yes, it was error to submit Issues 4, 5, 6, 7 and 8. There is no merit to that contention for the mere assignment of the lease did not relieve defendant Bloomfield from his express covenant contained in his contract to pay rent.

The issues submitted were sufficient to present to the jury the determinative facts in dispute for decision, and to enable the parties to present every phase of the controversy. When such is the case, this Court has repeatedly held the parties have no ground to complain. Gallimore v. Grubb, 156 N.C. 575, 72 S.E. 628; Cherry v. Andrews, 231 N.C. 261, 56 S.E.2d 703; McGowan v. Beach, 242 N.C. 73, 86 S.E.2d 763.

Conceding that the submission of the fraud issue, Issue 5, was error, because of lack of evidence, such error is not sufficiently prejudicial to justify a new trial.

Upon the facts in the Record the defendant Bloomfield was bound by his express covenant contained in his lease of 12 September 1951 to pay rent, and it was not necessary to submit the 6th Issue to the jury in order to hold him liable on the principle set forth in Terrace, Inc., v. Phoenix Indemnity Co., 243 N.C. 595, 91 S.E.2d 584, of a one-man owned and dominated *871 corporation. However, when the defendant Bloomfield's evidence shows that the only assets put into the corporate defendant were his alone, that the balance sheet statement of the corporate defendant of 1 October 1953 states "Proprietor's Equity, I. F. Bloomfieldcapital $300.00," thus indicating no capital stock was issued, that no stockholders' meetings were held in 1952 and 1954, and that at the stockholders' meeting in 1953 only two directors were elected, that his certified public accountant and witness Bruce Umstead testified "the action involving any transfer of the business from Mr. Bloomfield to the corporation was simply a bookkeeping transaction," we are of opinion there was plenary evidence to support the jury's answer to the 6th Issue. A corporation must have at least three directors to manage its affairs. G.S. § 55-48. The defendant Bloomfield testified the "corporation was more or less inactive." And it is significant when the defendant Bloomfield signed the lease agreement of 14 January 1953 for a term beginning 1 September 1957 and ending 31 August 1962, the lease was to him as an individual, and contained an express covenant for him personally to pay the rent, and this lease had a provision that "it is expressly agreed that in the event Mr. I. F. Bloomfield incorporates his business, which he has been conducting as an individual proprietorship, the lease can be transferred without my consent to said corporation." Defendant Bloomfield incorporated his business on 30 April 1951.

We have examined the assignments of error to the charge, and error sufficiently prejudicial to justify setting aside the verdict and judgment and ordering a new trial is not shown. In parts the charge was more favorable to the defendants than they were entitled to. For instance, the court charged the jury that Mrs. Lloyd, or the bank after it took over her estate, had the legal duty to show that she, or it, had exercised due diligence to rent the property and minimize defendants' loss. The lease having been wrongfully breached by nonpayment of rent the burden was on the defendants who breached the contract to show that in the exercise of good business judgment the lessor could have leased to another and minimized the loss. Monger v. Lutterloh, 195 N.C. 274, 142 S.E. 12; Andrews & Knowles Produce Co. v. Currin, 243 N.C. 131, 90 S.E.2d 228.

It would seem the jury answered the last issue None, because they looked upon Peoples Fruit and Produce Company, Inc., as an alter ego of the defendant Bloomfield, and considered it insolvent.

The verdict and judgment below will not be disturbed.

No error.