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BLOOR v. CHASE MANHATTAN MORTG. & REALTY TRUST

January 17, 1979

James BLOOR, As Reorganization Trustee of Invesco Holding Corporation, Plaintiff,
v.
CHASE MANHATTAN MORTGAGE AND REALTY TRUST, Stevens & Edwards, Inc., W. G. Management Co., Rubin Garfinkel and Albert Wohl, Defendants



The opinion of the court was delivered by: KNAPP

This is an action by James Bloor, Trustee in Bankruptcy of Invesco Holding Corporation, brought for breach of a lease agreement against defendant Chase Manhattan Mortgage and Realty Trust ("Chase REIT"). Defendant Chase REIT has moved for summary judgment. As set forth in the complaint, the pertinent facts are:

On November 1, 1974, plaintiff was appointed Trustee of Invesco Holding Corporation in proceedings for reorganization of certain corporations under Chapter X of the Bankruptcy Act. At that time, he took title in fee simple from the 315 West Fifty Seventh Street Corporation of certain real property located at 315 West 57th Street and 330 West 58th Street, New York, N. Y. (the "premises"). Since 1961, the premises had been subject to a ground lease between 315 West Fifty Seventh Street Corporation as landlord, and Hyman and Irving Shapiro, as tenants (hereinafter referred to in the singular as "tenant"). In 1971 the Shapiros mortgaged their interest under the ground lease to Chase REIT.

 Plaintiff upon his appointment as trustee, became the successor to the landlord's interest under the ground lease. The ground lease, as amended in 1975, provided for the payment by the tenant to the landlord as "rent" and "additional rent" all real estate taxes, water and sewage charges, interest and principal payments on a certain first mortgage to the New York City Employees Retirement System, a monthly deposit of $ 17,000 to a certain escrow fund to be held by the landlord, and a net rental of $ 200,000 per year.

 The lease also contained a provision (in Article EIGHTEENTH) that upon its termination by default or summary proceedings, the tenant should continue to be liable to the landlord for rent and additional rent as it came due (less any net rent collected by the landlord for use of the premises), and gave the landlord at any time after default the option of serving a notice on the tenant requiring him to pay "liquidated damages" measured by the total rent and additional rent then remaining due, less the fair rental value of the premises for the remaining term of the lease.

 In April of 1976, following the Shapiros' failure to meet their obligations under the ground lease, Chase REIT began making payments due the landlord. On July 15, 1976 Chase REIT accepted from the Shapiros an assignment of their interest as tenant under the ground lease; it did not, however, contract to assume the tenant's obligations.

 On October 29, 1976, Chase REIT assigned all of its interest in the premises to Stevens & Edwards, Inc. and ceased making rental payments. Prior to such assignment, Chase REIT had neglected to make water and tax payments totalling approximately $ 127,489. *fn1"

 On November 15, 1976, the ground lease being in default, the trustee gave written notice to Stevens & Edwards and to Chase REIT that it was electing to terminate the ground lease as of November 26, 1976.

 On January 10, 1977 the trustee commenced a summary proceeding against Stevens & Edwards in the Civil Court of the City of New York. In its petition the trustee alleged, as its first cause of action, that Stevens & Edwards was improperly holding over after the expiration of the ground lease on November 26, 1976, and as a second cause of action, that Stevens & Edwards was in default in the payment of rent.

 On February 11, 1977 a stipulation was entered into in open court terminating the summary proceeding. The stipulation provided that a judgment giving possession of the premises to the trustee would be entered pursuant to the holdover cause of action, but that the claim for nonpayment of rent would be withdrawn. The parties also agreed that in the event that Stevens & Edwards made the appropriate payments under the lease within sixty days, the trustee would reinstate it as tenant.

 On April 29, 1977, pursuant to a warrant issued in the summary proceeding, possession of the premises was delivered to the trustee. On August 10, 1977 the trustee served on Chase REIT notice of election to claim liquidated damages under Article EIGHTEENTH.

 The trustee seeks to collect from Chase REIT all rent and additional rent unpaid under the lease. Because Chase REIT never contracted to assume any of the tenant's liabilities, there is no privity of contract between it and the trustee. Therefore, the trustee can prevail only to the extent it can establish liability under the doctrine of privity of estate. See Tate v. McCormick (Gen.Term 2d Dept.1880) 23 Hun. 218; Mann v. Munch Brewery (1919) 225 N.Y. 189, 121 N.E. 746.

 There is no doubt as to Chase REIT's liability accruing prior to October 29, 1976, when Chase REIT assigned to Stevens & Edwards its interest under the lease. The critical questions pertain to obligations accruing during the period between that day and April 29, 1977 while Stevens & Edwards was purportedly in possession of the premises, and subsequent thereto, when the trustee had concededly accepted possession of the premises from the marshal in the dispossess proceedings.

 It is the trustee's position: first, that the assignment to Stevens & Edwards was a sham as Chase REIT was in fact in possession at all times until April 29, 1977 when the marshal delivered the premises, and second, that on November 15, 1976 when the trustee served its notice to terminate, Chase REIT, as tenant actually in possession, became liable under Article EIGHTEENTH for all rent and additional rent until the end of the term, such liability to be measured until August 10, 1977 (when the trustee exercised its Article EIGHTEENTH option for liquidated damages) by the total amount of rent and additional rents as they accrued less any monies the trustee may have received by leasing the premises, and thereafter by the liquidated damage formula.

 Chase REIT, on the other hand, claims that it terminated its privity of estate by the October 29th assignment to Stevens & Edwards and thereby relieved itself of all subsequent liability to the trustee; and that, in any event, it cannot be held liable for any payments falling due ...


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