A covenant in a lease to the lessee, “bis heirs and assigns,” for a term of eight years, that if the lessor shall sell or dispose of the demised premises the lessee is to be entitled to the refusal of the same, is a covenant running with the lana. 1 Every covenant in the lease relating to the thing demised, attaches to the land, and runs with it.
The valuable privilege of pre-emption attaches to the entire property, and is therefore assignable.
A and B entered into an agreement in which it was stipulated that A should advance $12,000 for the purpose of putting up a brick house on property of B, held by lease, and B was to convey to A one-half interest in the leased premises; the balance of the costs of the building was to be borne in equal proportion. When completed, B was to rent the same, and pay over to A one-half of the rents. Building was erected at a cost of $48,000—$50,000 paid by A, and $18,000 by B,—B conveyed one-half of premises to A: Held, that A and B were copartners.
And where one of two holders of the leasehold, holding in partnership, purchases the fee in his own name and with his own money, it enures equally to the benefit of the other, to which he becomes entitled on payment of his proportion of the purchase-money.
And as the relation sustained by the tenant purchasing the fee, to his co-tenant or partner, is one of confidence, the proof that the latter had waived his right must be clear, and the burden of proof rests upon the tenant purchasing.
Burnett, J., after stating the facts, delivered the opinion of the Court—Terry, C. J., concurring. The first and most important question arising in this case is, whether, by the legal effect of the assignment, the right to purchase the fee of Smith and wife passed to Laffan and Ííaglee ?
It is insisted by the learned counsel for the defendant that this presltinptive right was a personal privilege, appertaining alone to the first lessees, and not assignable by the terms of the original lease; that it “ was a mere possibility; it was an intangible, uninforcible obligation j it was, for any practical purpose, valueless, and could not have entered into the minds of the parties making the arrangements under the lease.” The substance of the privilege is well stated by the counsel in these words: “ If lessor chooses, at any time hereafter, to sell, and should offer the property for sale, on such terms as she may choose, lessee may have the liberty of buying it, in preference to any one else.”
It is certain that this privilege entered into the minds of the original parties to the lease, and was considered of value by them •, otherwise there could have been no reason for its insertion in the lease. It will be seen that the tenants were authorized to make whatever improvements they pleased, which [676]improvements were to become fixtures when the lessor paid for them. By the legal effect of the lease, Mrs. Hinkley was not bound to take the improvements at their value, but she had the privilege of doing so. If she did not choose to take them, then the tenants had the right to remove them. They were only to become fixtures, provided she paid for them. If she did not choose to take them, then the tenants had only the rights that belonged to them, as if this stipulation was not in the lease. On her part she stipulated to give the tenants the preference of purchase, should she determine to sell during the term.
That this privilege was practically valuable, is apparent from those considerations. The lease was on long time, at a low rent. If rents should go down, this privilege could not prejudice the tenants; but if they remained as they were, or went up, then this pre-emptive right became more valuable. As the lessor was receiving very low rent, paying scarcely any interest upon the value of the property, she would naturally be induced to sell upon very favorable terms, that she might invest the proceeds in more productive property. The tenants had a most complete check upon her asking an exorbitant price for the property. The practical result proved this : as Uaglee purchased the reversion for §17,000, when he had previously given Ward §42,000 for the leasehold interest. She was receiving only $300 per annum rent, while the interest upon the $17,000 at two per cent, per month, (the then current rate,) would have been upwards of four thousand dollars yearly. It was greatly to the interest of the tenants to purchase in the fee, as the lessor might not be willing to take the improvements at their value, and then they could only remove them at the termination of the lease. In every practical view that can be taken of this privilege, it was valuable; and when rents went up as high as they did, it became of great value. For this reason the assignees of the original tenants must have considered it a matter of the greatest importance to them. The privilege of having the refusal of a purchase under circumstances that, in the nature of things, must compel the owner to sell at a very low price, was a most valuable one ;practically, and never could have been disregarded by the purchasers of the leasehold interest. (18 John., 174; 1 Powell on Mortgages; 16 East., 87.
As regards the question whether this covenant in the lease would pass to the assignees of the original tenants, that depends upon the fact whether the covenant ran with the land.
In the opinions of the judges, delivered in the case of Tern on v. Smith, (5 Barn, and Aid., 1,) the doctrine upon this subject is very clearly stated. Mr. Justice Bay ley said: “ The rule is, that if the covenant respect the thing demised, and be co-extensive with the estate of the person to whom it is made, and be [677]made with him and his assignee, it passes to his^assignee.” In that case the covenant was to insure the premises against fire. Mr. Justice BLolyrood adopts the rule laid down by Lord Chief Justice Wilmot, that: “ Covenants in leases, extending to a thing in esse, parcel of the demise, run with the land, and bind the assignee, though he be not named, as to repair, etc. And if they relate to a thing not in esse, but yet the thing to be done is upon the land demised—as, to build a new house or wall—the assignees, if named, are bound by the covenants; but if they in no manner touch or concern the thing demised,—as, to build a house on other land, or to pay a collateral sum to the lessor— the assignee, though not named, is not bound by such covenants.”
Mr. Justice Best, in his opinion, refers to and adopts the opinion of Gawdy, J., in Spencer’s ease, in which it was said, “ that a covenant that the lessor will, at the end of the term, grant another lease, runs with the land. The covenant here mentioned is not beneficial to the estate granted, in the strict sense of the words, because it has no effect until that estate is at an end; but it is beneficial to the owner, as owner, and to no other person. By the terms collateral covenants, which do not pass to the assignee, are meant such as are beneficial to the lessor, without regard to his continuing the owner of the estate. This principle , will reconcile all the cases.” * f
The lease of Mrs. Binkley was to Ward and Smith, their heirs and assigns. Every' covenant in the lease relating to the thing demised, attached to the land, and ran with it. This valuable privilege of pre-emption attached to the entire property, and, therefore, was assignable. It would have been of much less value to Ward and Smith, if they could not have assigned it to those who purchased of them.
There would seem to be no doubt as to the assignable character of this covenant. Woodfall L. and T., 278, 284; 7 Cow., 287; 1 Paige, 455.
The case of Anderson v. Lemon, 4 Sand., 552, and 4 Selden, 237, and the cases cited by the Court, are clearly distinguishable from the circumstances of this case. The case from Sandford differed from the present case in these material circumstances :
1. The main business of the partnership was the manufacture of tobacco, and the lease was a mere incident to the trade. 2. The improvements, at the end of the term, belonged to the landlord. 3. The original term of copartnership had expired, and the copartnership was continued from day to day, at the will of the parties, pending negotiations for a new copartnership upon different terms. 4. There was no pre-emptive privilege in the lessee.
The decision of the Supreme Court was reversed by the Court of Appeals, upon the ground that the acts of the partner pur[678]chasing the fte were fraudulent. The Court of Appeals held that “ a copartner was at liberty to make the purchase stated in that case, under circumstances free from deception and fraud, and consequently to retain it.”
As the covenant in reference to this pre-emptive right of purchase constituted an essential part of the lease itself, and, therefore, ran with the land, the several assignments made by Ward, Smith, and Naglee, were ample to carry to the assignees, respectively, this right. Unless there had been a clear and unmistakable reservation of this privilege in the assignment, it must have passed along with the leasehold interest to the assignee.
The second question arising in this case is, whether the purchase by Naglee of the fee in his own name, and with his own money, enured to the equal benefit of Laffan. This question is naturally divisible into two heads : 1. Were Naglee and Laffan copartners ? 2. If so, did Laffan, under the circumstances of this case, waive his rights ?
We think there can be no doubt as to the question of copartnership. We have substantially decided this point in the late case of Gray v. Eaton and others. In that case, we held that there could be a partnership in the purchase and sale of lands, and we can see no difference in principle between such a part- • nership, and that in the joint purchase, improvement, and leasing \\of property for profit. All the circumstances necessary to constitute a partnership, existed in this case. The copartners contributed equal portions of the cost of the property, and then divided the net profits arising from the rents. The purpose of the arrangement was the profit to be derived from the property when leased to others, and not the enjoyment or use of it by the individual copartners themselves. The property was purchased and improved for the purpose of carrying on the regular joint business of leasing the same for profit. The relation the parties sustained to each other was not that of mere tenants-in-common; it was something more; it was that of partners.
The question as to whether Laffan waived his right to share in the fee, is one of some difficulty. In considering this point, we must keep in view the facts that the parties were copartners; that this pre-emptive right was a part of the partnership property and that Naglee was the sole managing partner. The relation that Naglee sustained to Laffan was one of great confidence, requiring the utmost good faith on the part of Naglee. The proof, therefore, that Laffan waived his right, must be clear.
The plaintiff alleges, in his complaint, that the purchase of the property, through Bolton, was made clandestinely, by Naglee, with intent to defraud his copartner. The deed from Smith and wife to Bolton, was acknowledged and recorded October 15,1851. The deed from Bolton to Naglee, was acknowledged on the eighteenth of December, 1851, and recorded on the nineteenth. [679]The mortgage from Eaglee to Bolton was acknowledged on the fifteenth of October, 1851, and recorded on the nineteenth of December, 1851. It was shown that Laffan left San Francisco for Eew York on the sixteenth of December, 1851, and returned Mov ember 1, 1854. In reference to the two deeds and the mortgage, Mr. Bolton testified that they were to have been executed all on the one day; that he had supposed they were so consummated, but could not then assign a reason why they were not.
These circumstances certainly made out a prima facie case of fraudulent concealment. In his answer, Eaglee alleged that Laffan had notice of his intention to purchase the property, on his own account; that Laffan declined to join in the purchase; and he, accordingly, purchased for himself. To sustain this allegation, and to disprove the alleged fraudulent concealment, Ea-glee produces, in evidence, with the consent of the plaintiff’s counsel, a letter written by Laffan, on board the steamer Tanama, off San Diego, and dated December 17th, 1851. Before leaving, Laffan had appointed Issaae E. Holmes his agent and attorney, and the letter was addressed to him. After stating that, “ leaving in a hurry, he may have omitted many things,” and after referring to some other matters, the letter contains this reference to the purchase of the fee:
“ Eaglee told me Bolton, Barron & Co. bought the ground on which our building and bis, on the corner, stands, for, I think, $17,000, and that my portion would be one-fourth. Considering that I had already paid $12,000 for the lease, I thought the one-fourth more than my proportion; but when I was prepared, I would be willing for two persons to say what it should be. Admitting my account, which must be insisted on, he ought to owe $2,000 for rent account to first of December, if all be collected, besides the current rents.”
In the same letter, he states his “ aim shall be directed to procure, if no more, ten or twelve thousand dollars, in order that you may, by your management, save the brick house for my children. This will be important, and let other matters take their course.”
If we take this language, in connection with the established facts, then the following conclusions seem plainly to flow from it:
1. That Laffan knew that Bolton had purchased the fee of the entire property for $17,000.
2. That the purchase was made for him and Eaglee in their respective proportions.
3. That Eaglee and Laffan did not agree about the proportion of the $17,000 to bo paid by Laffan.
4. That Laffan was to pay his rightful proportion when he was prepared.
[6805]. That Laffan's first object was to save the property for his children.
This letter clearly disproves Laffan’s allegation of fraudulent concealment, while it as clearly disproves Naglee’s allegation that he told Laffan he intended to purchase on his own account, and that Laffan declined to join in the purchase. Both parties seem to have forgotten some of the circumstances. This was not at all surprising, as both parties had passed through a severe financial ordeal, and their complex transactions had taken place some four years before the commencement of the suit.
There was nothing suspicious in the fact that Naglee took the deed from Bolton in his own name. Naglee had about five-sixths interest in the fee, and became solely accountable to Bolton for the loan of the purchase-money. Besides this, it would have required separate deeds from Bolton, and separate mortgages back to him. Laffan being then very much embarrassed in his circumstances, and the purchase being made on credit, it was very natural that Naglee should not be willing to be solely bound for the purchase-mbney, without any security, and it was equally proper that Laffan should have consented to this form of the conveyances.
For the purpose of showing that Laffan had waived his right to participate in the purchase of the fee from Smith and wife, the defendant gave in evidence a copy of a written proposition, dated November 3, 1853, and signed alone by Naglee, wherein he recites that Holmes claimed the interest of Laffan in the leasehold property; that Laffan disputed Holmes’ claim; that the fee of the property was then in Naglee; and then goes on to state that in consideration of one dollar paid by Laffan to him, and divers other good considerations, Naglee agreed to sell one-half the fee of the lot for the sum of ten thousand dollars, one-half payable within nine months, and the other half out of the first rents thereafter accruing to Laffan. Naglee left the writing with Laffan, and kept no copy, but afterwards wrote Laffan for a copy, which was furnished in the handwriting of Laffan, and this copy was given in evidence.
It was also insisted by defendant that Laffan had lost his right by delay.
It was admitted by the parties, on the trial, that Isaac E. Holmes, the attorney in fact of Laffan, had “ so managed the affairs of Laffan as to procure or suffer certain judgments to be rendered against said Laffan, under which the leasehold in the property in controversy was sold, and purchased by Holmes, for his own use; and that, shortly after the departure of Laffan, Holmes claimed the property for himself, until July 31, 1854, when Laffan instituted a suit against said Holmes, in which said Naglee was appointed receiver; and such proceedings were had that, in the fall of 1855, the purchases by Holmes were set aside, [681]as fraudulent and void, and said Laffan restored to his property,” etc. The original complaint, in the case of Laffan v. Holmes, charging fraud against Holmes, was verified by the affidavit of Naglee, who acted as the agent of Laffan, stating, in the affidavit, “ that the facts, matters, and things mentioned and alleged in the complaint, were peculiarly within the knowledge of affiant.”
The copy of the proposition of Naglee was endorsed in his handwriting, as follows: “ A proposition'—H. M. Naglee to E. Laffan, Nov. 3, 1853, for nine months.”
This proposition was made to Laffan in New York, about a year before his return to San Francisco, and while Holmes was in possession of Laffan’s leasehold property and receiving all the rents. The only proof that Laffan ever accepted the proposition, is the fact that he had it in possession, and sent Naglee a copy at his request. There is no proof that he acted upon it in any way. At the time it was made, the circumstances were such that he could not act. Under these circumstances, wo can not infer that the proposition was accepted. It is true that it gave notice, to Laffan, of the fact that the property was then held in the name of Naglee. But he was not in a condition at that time to accept or reject. Nor was Naglee in a condition to comply. This seems evident from a clause in his proposition. He first states that Laffan contemplated proceedings against Holmes, to controvert his claim to the property, and then, in the close of the proposition, states : “But it is expressly understood, that if the legal proceedings aforesaid should be abandoned before the time aforesaid, then this agreement should be void.” From this condition, it seems evident that Naglee, at that time, supposed that he held the legal title for the party entitled to the leasehold interest, and that he wished to .reserve the undivided half in his own name, until it was ascertained whether Holmes or Laffan was the proper party to receive the deed.
As regards the alleged delay, we think there is nothing in the objection, when the circumstances are considered. Laffan left December 16,1851, and his agent, Holmes, very soon so managed matters as to become himself apparent owner of the property ; and it was not until the fall of 1855, that the question with him was set at rest. From that period until the commencement of this suit, (February 5, 1856,) there was not more than a reasonable time for consulting with counsel, and preparing the papers for this suit.
The property in the fee having been originally purchased for the benefit of both parties, in accordance with the terms of the lease, it still retains the character of partnership assets; and the emus of proving that Laffan had waived his right, resting upon the defendant, and his proofs not sustaining his allegations in this [682]respect, the interlocutory decree of the Court below was correct.
It now becomes necessary to notice the exceptions made by defendant to the report of the referee.
The first exception regards the original proportion of the whole purchase-money of $17,000, which Laffan was bound to pay. The referee adopted this mode. He deducted from the cost of the fee of the entire demised premises, the proportionate value of the strip of twenty-eight feet nine inches, dedicated for Merchant street. The whole lot, described in the lease of Mrs. Hinkley, fronted sixty-eight feet nine inches on Montgomery street, running back one hundred and thirty-seven feet six inches. The strip, twenty-eight feet nine inches, by one hundred and thirty-seven feet six inches, was taken from one side of the lot for a street, in November, 1850. Naglee at that time received from various parties altogether the sum of $10,600 for opening Merchant street.
It is insisted by the learned counsel for the plaintiff, that the street was dedicated in 1850, in anticipation of Naglee’s purchasing the fee; and that, when he obtained the fee, “ he yielded the dedication of the street as a thing of course—as a matter- of mere duty and obligation, for which he was prepaid.”
But this ground does not seem to be well taken. It seems clear that Naglee was only paid the value of the interest he then held in the strip, and no more. He paid for the whole leasehold property $42,000, and estimating his leasehold interest in the strip dedicated for the street at its proportionate value, the amount exceeds $17,000, when he only received $10,600. The difference was no doubt made up of his own portion of the contribution. Those who paid him, no doubt knew that Smith and wife must sell, and Naglee must buy, and that when the street was once open, whoever did purchase the fee of the demised premises, would be compelled, by their own interest, to keep open the street, otherwise the rear of the property could not be approached. But there is no evidence to show that Naglee agreed to purchase this strip, or that, in case he did purchase it, he would continue the dedication. There was no obligation imposed upon Naglee to dedicate the fee, and when he did so dedicate it, it was for the common benefit of the property, in proportion to the respective interests of himself and Laffan. If Laffan asks to share the benefit of this dedication, he should bear his proportion of the price. The $17,000 should have been estimated as the cost of the lot, forty by one hundred and thirty-seven feet six inches, and the relative proportion of the purchase-money ascertained upon that basis. It is clear that Laffan had the benefit of the street up to the termination of the lease; and if he asks an interest in the fee, he must bear his share of the cost of that which renders his [683]own portion valuable. We think the referee erred in this respect, and this exception should have been-allowed.
The second exception to the report of the referee is, that Ha-glee was not allowed compound interest. This exception, we think, is not well taken.
The third exception is, that the referee credited the plaintiff with fifty dollars per month ground-rent, from October 15,1851, to April 9, 1855, the time of the expiration of the lease, with the interest upon each month’s rent. It is stated by the learned counsel for defendant, that the referee estimated the amount of this ground-rent which Haglee was compelled to refund, at four thousand two hundred dollars principal, and three thousand seven hundred and eighty dollars interest; making, in all, the total sum of seven thousand nine hundred and eighty dollars. The counsel has not referred us to the page of the record; but if his statement is correct as to the amount, the referee has charged Haglee more than double the proper sum. The rent, at the rate of fifty dollars per month for the time specified, would not quite amount to two thousand one hundred dollars, exclusive of interest. As to the principle requiring the ground-rent to be refunded, we think there was no error in the report of the referee.
The other exceptions to the report, we think not well taken.
For the reasons stated, the judgment must be reversed, and the cause remanded for further proceedings.
AI Brief
AI-generated · verify before citing
Holding. A pre-emptive right to purchase the fee contained in a lease runs with the land and is assignable, and a partner who purchases the fee in his own name holds it as partnership property, subject to the other partner's right to participate.
Issues
Whether a pre-emptive right to purchase the fee in a lease is assignable and runs with the land.
Whether a partner's purchase of the fee in his own name constitutes a breach of partnership duty or creates a constructive trust for the other partner.
Whether the referee erred in calculating the proportionate cost of the fee and the ground-rent credits.
Disposition. reversed
Quotations verified verbatim against the opinion
“The property in the fee having been originally purchased for the benefit of both parties, in accordance with the terms of the lease, it still retains the character of partnership assets”