Feinsot v. Burstein

Clarke, J.:

The action was to recover a deposit of $2,000 made by the plaintiffs upon a lease, less the amount due when they were dispossessed. The lease was for a tenement house on Orchard street for a term of four years commencing on February 1,1911, at a yearly rental of $12,000, payable in monthly installments of $1,000 each, to be paid $500 on the fifth and $500 on the tenth of each month in advance. The lease provided that ‘ ‘ in case any rent shall be due and unpaid, or if default shall be made in any of the covenants herein contained, then it shall be lawful for the party of the first part to re-enter the said premises, or in her option, to commence summary proceedings, to recover possession * * * and in the event of such re-entry, or the commencement of such summary proceedings, this lease shall be at an end.”

The parties of the second part covenanted to make all inside and outside repairs and to keep the same in good condition except the outside structural repairs as brick walls and sidewalks, and in the event of their failure to make said repairs the landlord had the right to make the same and to add the costs thereof to the monthly rent due for the month subsequent to said repairs. They covenanted to comply with all orders of the fire underwriters and to comply with the orders and requirements of the tenement house and other bureaus of the city government". The lease provided as follows: “ The said parties of the second part have deposited with the party of the first part, the sum of Two thousand ($2,000.00) Dollars * * * as security for the faithful performance of all the covenants and conditions of this lease, on the part of the parties of the second part, and in case of any breach thereof by said parties of the second part, the said amount of money shall be held and retained by the said party of the first part as liquidated damages for said breach.

“ And the parties further agree that in the event that the said parties of the second part shall be dispossessed, on summary proceedings brought to recover possession of said premises and to remove them therefrom, that the said party of the first part shall, nevertheless, have the right to retain the said sum of Two thousand ($2,000.00) Dollars, as liquidated damages, and not as a penalty.” The lease further provided for the payment by the party of the first part of interest at the rate of three per cent on said $2,000 to be deducted annually from the rent to be paid; “ the said party of the first part, upon the termination of this lease, at the end of the term aforesaid, shall return the said deposit of Two thousand ($2,000.00) Dollars to the parties of the second part, heirs or assigns.”

The plaintiffs went into and remained in possession for a year. On the 13th of February, 1912, summary dispossess proceedings were instituted against them solely for the nonpayment of $325, part of the rent for the month of February, and they were removed. Plaintiffs brought this action to recover the amount of the deposit and it was tried before the court and a jury. The defendant raised the issue that the plaintiffs had broken their covenant to make repairs, that when possession was retaken the premises were badly out of repair, and that he had spent $1,600 for repairs. The plaintiffs controverted this, testifying that the premises were in much better condition when they left than when they took possession, and submitted bills showing they had expended $1,200 in repairs. The jury resolved this question of fact in favor of the plaintiffs, and returned a verdict for them for $1,781.37, which was the amount of the deposit, $2,000, less the rent due, $325, and interest on the balance of $1,675, viz., $109.37. Thereafter the trial court dismissed the complaint. The Appellate Term unanimously reversed the judgment and reinstated the verdict. (82 Misc. Rep. 429.)

By the verdict of the jury the breach of the covenant to repair is out of the case. There remains, therefore, only the breach of the covenant to pay rent. That is $325, a portion due for one month.

Upon this breach are the plaintiffs to be held to have forfeited the amount of their deposit ? An examination of the lease discloses that the tenants obligated themselves to but one general covenant, to wit, the payment of the rent reserved. It is true they were obliged to make all inside and outside repairs; to comply with all orders of the board of fire underwriters; all city ordinances and requirements affecting the property, to pay excess Croton watér charges and to pay plate glass insurance. But the possible damages flowing from the breach of any of these requirements were not only easily ascertainable but the lease lays down an exclusive method of ascertainment. It specifically provides that the damages after ascertainment shall be added to the rent of the ensuing month and become payable by the- tenants as increased rent.

The verdict establishes no breach except to pay rent.

In Chaude v. Shepard (122 N. Y. 397) the court said: “It may be observed that the primary purpose of the deposit was security for the performance by the plaintiff of his covenants in that instrument. Those covenants were to pay the rent and the charges assessed for Croton water, and to make repairs during the term. The only default at the time of his removal, by means of the summary proceedings taken by the defendant, was in the non-payment of one month’s rent. * * * The damages resulting from the termination of the tenancy by reason of the plaintiff’s failure to perform the covenants, were neither indefinite nor uncertain in character. His relation of tenant could be terminated before the end of the term only by the act or consent of the defendant; and when he accomplished it and took possession of the premises, the damages with which the plaintiff was chargeable were those only, which resulted from breach of the covenants prior to entry of the defendant, upon the termination by the latter of such tenancy. * * * In view of the intention of the parties as derived from the entire provision in respect to this deposit, there was nothing within their contemplation in its purpose, in the event of the premature termination of their relation given by the lease, other than such damages as should result from the default of the plaintiff. * * * And as the only default of the plaintiff was in the non-payment of one month’s rent, he was entitled to recover the excess over that of the amount so deposited. ”

In Caesar v. Rubinson (71 App. Div. 180) the lease provided for a deposit of $1,000 “ as security for the faithful performance of this agreement on their part, and in case of any breach thereof by said tenants said amount shall be paid and retained by said landlords as liquidated damages for such breach, but in case the actual damages suffered by said landlords through such breach shall be greater than said sum of one thousand ($1,000) dollars, then said sum shall be applied on account of such damage and said tenants be still liable for the balance thereof.” This court, although divided, held, in a forcible opinion by Mr. Justice Hatch, that the provision was for liquidated damages and the landlord was entitled to retain the deposit. But in 174 New York, 492, the Court of Appeals unanimously reversed, saying: “The circumstance that the deposit is described in the lease as liquidated damages for a breach of the agreement is not at all conclusive. * * * Whether it is that or a penalty depends upon the nature of the transaction and the intention of the parties. ->:■ ->:■ * A provision in a contract such as that now under consideration will be treated as liquidated damages only in those cases where from the nature of the transaction the actual damages consequent upon a breach of the contract are incapable of accurate measurement, or where the sum specified in the instrument is not out of all proportion to any damages which could possibly arise from a breach. * * * The only breach of the lease which the defendants assert as a ground for retaining the deposit is the omission of the tenants to pay the forty-five dollars of the monthly rent. * * * There is no inherent difficulty in measuring the legal damages which the landlord sustained in a case where the tenant omits to pay the rent, and is for that reason dispossessed. The rule of damages in such cases is quite well settled. It is not claimed in this case that the landlord sustained any other damages beyond the loss of the rent, and that was allowed at the trial and deducted from the deposit. In the absence of anything in the record to the contrary, the presumption is that the landlord resumed the possession of the demised premises or relet them for the same or for a larger rental, and if so, it is difficult to see why he should be entitled to have the leased premises and the deposit at the same time. He was not bound to take possession, but could have exhausted the deposit by applying it upon the arrears of rent from time to time as it fell due. * * This is, therefore, a case where the damages sustained by reason of the breach of the lease in the failure to pay the stipulated rent could have been easily ascertained, and when ascertained, it is out of all proportion to the deposit retained under the claim that it was liquidated damages. * * * The entry of the landlord under the warrant issued upon the judgment in the proceedings to dispossess the tenants for failure to pay the forty-five dollars cancelled the lease and annulled the relation of landlord and tenant. When the landlord elected to assert that right he waived all claim to the deposit, except so far as it was necessary to apply it in payment of rent then due or accrued.”

Feyer v. Reiss (154 App. Div. 272) is distinguishable in these important particulars. First. The lease in that case was clear and definite as to the character of the deposit. “ It being expressly understood and agreed that if the lessees surrender the said premises or are dispossessed therefrom prior to the expiration of this lease in 1914, then and in that event the said eight hundred ($800) dollars, together with any subsequent installments which shall be paid by the lessees as hereinbefore provided, shall belong to the lessor as liquidated and stipulated damages, and the parties hereto agree to stipulate such deposit as liquidated damages because they cannot ascertain the exact amount of damage which the lessor would sustain in the event of any breach or violation hereunder.” Secondly. The jury rendered a verdict against the plaintiff, thus resolving the facts adversely to the tenants, and the judgment of dismissal was upon that verdict and not against it as in the case at bar; and, thirdly, the court there found no excessive disproportion between the deposit and the possible damages.

It seems to me that in the case at bar the authorities and the verdict of the jury settle the controversy in favor of the respondent. To use the language of the Court of Appeals in the Caesar Case (supra): “ I am unable to distinguish, this case in principle from those in which this court has passed upon provisions of a similar character in leases or agreements between landlord and tenant (Chaude v. Shepard, supra; Scott v. Montells, 109 N. Y. 1.) In these cases it was held that the deposit was intended as security for the performance of the covenants of the lease and not as liquidated damages.”

The determination of the Appellate Term should be affirmed, with costs to the respondent.

McLaughlin and Laughlin, JJ., concurred; Ingraham, P.. J., and Scott, J., dissented.