Woodcock v. Pope

Parke, J., delivered the opinion of the Court. The appellees, William P. Pope and Milton L. Pope, and one Arthur H. Parker, were partners under the firm name of Parker & Pope, and conducted a garage, which was known as “The Palace Garage,” upon an improved lot of land in which Arthur H. Parker held an undivided one-half interest and the other undivided one-half interest was owned by the said William P. Pope and Laura E. Pope, his wife, as ten ¹³⁸ ants by the entireties. Another portion of the premises was under lease to a third party who carried on a lunch room called the “Busy Bee Lunch Boom.” The property was subject to an outstanding mortgage lien of nineteen thousand dollars under a mortgage deed executed by the three owners. After an association of more than two years, the partner Arthur H. Parker determined to withdraw, and the three parties entered into an agreement on January 1st, -1924, providing for the disposition of the tangible partnership assets, the dissolution of their relation, the continuation of the business by William P. Pope and Milton L. Pope, two of the former partners, and the winding up of the affairs of the old firm.

By this agreement, Parker sold to his two former partners his undivided one-half interest in all the merchandise, stock, fixtures, and automobiles of the original partners. It was agreed that all moneys due and owing to the old firm before the date of the agreement should be collected by the parties to the agreement, and should be applied so far as was necessary in payment of any indebtedness of the former partnership that was incurred before the same date; and, if such collections be insufficient for that purpose, the deficit should be met by the original partners in accordance with their respective interests in the business before that date, but if, on the contrary, a surplus should result after making payment of such indebtedness, this surplus should be applied in satisfaction of the mortgage indebtedness on the property in which the business had been conducted, and in which Parker held an undivided one-half interest in fee, and William P. Pope and Laura E. Pope, his wife, as tenants by the entireties, the other undivided one-half interest. The stipulations mentioned are placed in the agreement, aftet a lease of the retiring partner’s undivided one-half interest in the premises, in which the garage had been located and where the remaining members of the firm were to continue the business under the terms now to be stated. The lease of Parker’s interest was for a period of five years, beginning on the 1st day of January, 1924; and the rental ¹³⁹ was fixed and its payment and application controlled and stipulated by the following language: “The said parties of the second part” (the appellees) “agree and covenant to deposit on the last day of each month during the term of this lease the sum of three hundred dollars ($300.00) in one of the banks of the City of Salisbury, which said money so deposited by the parties of the second part after deducting such money as shall he paid by the parties hereto for insurance, interest, taxes, and necessary repairs to building shall be applied on the mortgage now standing against the property and owned by the parties hereto.” The further provisions of this lease were a declaration that the demise was subject to the outstanding term of the “Busy Bee Lunch Room” at a monthly rental of sixty-five dollars; a stipulation that the rental from that part of the premises occupied by the lunch room should be collected by the appellees and applied by them in part payment of their monthly rental of three hundred dollars, which last mentioned rental should either be diminished or increased as much as the monthly rental of the lunch room would be less or more than the sum of sixty-five dollars, or be reduced to two hundred and thirty-five dollars a month if the lunch room should be without a tenant.

About six weeks after the execution and delivery of this sealed and acknowledged instrument, Parker and his wife conveyed his undivided one-half reversionary interest in the land to Samuel P. Woodcock, the appellant, by deed bearing date February 28th, but not recorded until the following September 30th. The consideration for the grant was the assumption and covenant by the grantee to pay one-half of the mortgage lien of nineteen thousand dollars outstanding on the property, the receipt of a nominal sum of money and of “other good, valuable and sufficient considerations,” which are not disclosed in the deed. The new firm remained in possession of the entire promises until July 31th, 1925, when the property was surrendered to the appellant as the purchaser under partition proceedings begun by him. On July 22nd, 1926, the appellant, as assignee of the reversion, brought an ¹⁴⁰ action against the former tenants of his undivided one-half interest, alleging a failure on the part of the appellees to deposit the monthly sum of three hundred dollars and to pay the residue, after the deduction for insurance, interest, taxes and necessary repairs, upon the mortgage indebtedness on the property as covenanted by their articles of agreement.

There is no question that the money was not deposited nor disbursed as agreed, but the appellees claimed credit against his damages for certain insurance, interest, taxes, and repairs, which they paid on their own judgment and initiative, and without establishing in any instance that the payment was on account of an obligation incurred or becoming due after the date of the articles of agreement. By reason of these credits going to the jury, the claim of the appellant was materially reduced and he obtained a judgment for the sum of one hundred and five dollars and twenty-three cents. The appellant has appealed, to have reviewed forty-eight exceptions, which all arose on adverse rulings on the evidence, except the forty-eighth, which was to the action of the trial court on the prayers. The propriety of the trial court’s rulings will largely depend upon the construction to be given the agreement of January 1st, 1924, and so it will be first considered.

As none of the conditions arose which would have either lessened or increased the monthly payment of three hundred dollars, the failure of the covenantors to deposit that amount on the last day of every month in which the lease was in effect was a clear breach of the covenant, and defeated the intention of the parties that the money to be so deposited was not to be withdrawn except for the payment by the parties to the agreement of the insurance, interest, taxes,' and necessary repairs to the building, and for the application of the residue to the subsisting mortgage indebtedness on the property. These provisions, which became inoperative because of the refusal of the appellees to deposit, were designed to assure to the contracting parties the setting apart-of the rent for designated purposes, the placing of the rent as it should accrue monthly in a depositary, and the securing its ¹⁴¹ use for only the specified objects hy committing the control of the fund in the depositary to the antecedent agreement and joint action of the three parties, and their privies, to the covenant. If all snch parties were not required to act in the distribution of the fund, there would he no check upon the act of one with respect to what concerned all. The breach of declining to make the stipulated deposit was in a vital matter.

Xor was this breach shown to have been waived; and it appears from the record that, on their own responsibility, and without any previous knowledge and authorization by Arthur II. Parker or the appellant, his assignee, the appellees made the several payments for which they claimed credit in the trial court. The failure of the appellees to make the deposit was a breach of the contract, and entitled the appellant to recover. 3 Williston on Contracts, sec. 1303, p. 2355. . The amount of recovery here is hy way of compensation for the actual loss sustained.

If, therefore, the defendants applied the rent or any portion of it in such a way that ultimately the appellant received the same beneficial result as he would have enjoyed if the rent had been applied as contemplated by the agreement, the damages recoverable nmst bo diminished to that extent, and testimony would he relevant and material if evidential of this fact. Tidewater Oil Co. v. Spoerer, 145 Md. 151, 154, 155 . So, the terms of the agreement must again he resorted to in order to determine what expenses were payable and then which of these was discretionary. 1. The first question is, Were any of the partnership debts of the old firm of Parker & Pope payable out of the rentals to he deposited under the agreement of January 1st, 1924?

The agreement fixed its date, of January 1st, 1924, as the crucial day when the rights and liabilities of the partnership of three were to end, except for the necessary purpose of winding up the old partnership affairs; and the rights and liabilities of the new partnership of two, on the one hand, and of the retiring partner as lessor, on the other, were to begin. So, it is found that the term of the lease is to begin on that day; that the moneys due the old firm, and the debts pay ¹⁴² able by it, and the liability of every one of its three members, as well as their respective interestes in any surplus for division, are all referable to that single date for ascertainment. In other words, the first day of January was the point in time when the old relation was to cease, except for the discharge of its subsisting liabilities and a distribution of its social assets, and the new one under the agreement and lease was to begin. This is very clearly shown by the provisions made for the settlement of all the old partnership obligations out of its intangible partnership assets; and, that failing, by the agreement for the deficit to be assumed and discharged by the three members of the original partnership according to their several interests in the business.

These explicit stipulations for a complete method of satisfying and paying all the debts of the original partnership negative the implication that any of the subsequent rentals of the premises on which the partnership business had been carried on, which were not partnership property but owned in undivided half interests by the appellant and by William P. Pope and his wife, Laura E. Pope, the latter holding as tenants by the entireties with respect to their undivided moiety, could be diverted to the discharge of the debts of the first partnership. Moreover, the rent under the new lease was dedicated from its origin. As soon as a monthly installment became payable by the new firm, it must straightway be deposited in a local bank, and only to be withdrawn for the purpose of meeting new and current obligations of the landlords. Insurance on the property demised, interest on the mortgage indebtedness, taxes, and necessary repairs, and payments, if residue there be, on account of the principal of the mortgage debt, which are the prescribed purposes for which the fund so deposited may be withdrawn and used, are the characteristic obligations of the owner and landlord.

A different view would divert the rentals from the present owner, who is an assignee, to the payment of the debts of his assignor, without anything- in the instrument to warrant such a construction. The answer to the first question must, therefore, be in the negative, and the ¹⁴³ appellants cannot prove in mitigation of the damages the .payment of the debts of the old firm of Parker & Pope. 2. The second question is, Can the payment of debts for insurance on the buildings, and for the making of necessary repairs, and of taxes, and interest on the mortgage lien, which were made or accrued due before the date of the agreement in question be received in evidence as reflecting on the amount of damages sustained. Unless it bo expressly provided otherwise, the covenants and obligations of a lease are generally limited in scope and application to a subject matter which is conterminous with the demise.

The contract of letting creates a new estate, and the rights and obligations arising and assumed relate to the present and future rather than to the past, and hence a prospective and not a retrospective effect is to be given unless the intention of the parties as expressed in, and gathered from, the document itself would otherwise be defeated. It is but reasonable t-o deduce from the language of the lease that the monthly installments of rent were not to be paid out for a past indebtedness, but were to constitute a fund wherewith to maintain the premises in tenantable condition and to safeguard the interests of both the landlord and the tenants during the ensuing term, by taking care of these repairs and the current taxes, interest, and insurance. For these reasons, and others which have already been considered, and there being no expression of intention to the contrary in the agreement, all debts for insurance on the buildings and for the making of necessary repairs, and for taxes and interest that were incurred and fell due before the date of the agreement, cannot be held to have been within the contemplation of the parties. The obligations subsisting at the execution of the agreement on account of insurance and repairs require no further discussion, but those resulting from prior taxes and interest payments have distinguishing attributes which require further consideration.

The original obligation to pay taxes does not proceed from contract, but from an exercise of the sovereign power of the State. The duty of the owner of property to- pay arises from the imposition of the tax; and the lien upon realty of the ¹⁴⁴ tax until paid is incident to 'the ownership! of the land, and follows it no matter how frequent the change of owners. So that, as between vendor