Manufacturers Trust Co. v. Permut

Hofstadter, J. The proceedings were instituted under subdivision ;(d) of section 8 of the emergency business statute to recover possession of several floors of the building, No. 29 Broadway, for the landlord’s immediate and personal use. The petition alleges that the landlord has an equity of not less than 25% of the purchase price of the property and is the owner of the whole investment in the business to be carried on in the premises. The nine proceedings were all tried concurrently pursuant to stipulations, and additional testimony was adduced in the proceeding against Pilot Marine Corp. The landlord acquired title to the property as the result of a sale in foreclosure. The landlord, the former mortgagee, was plaintiff in the foreclosure action and the purchaser at the sale. The referee conveyed title to the assignee of the plaintiff’s bid, 29 Broadway, Inc., a corporation formed by the landlord for the sole purpose of executing a bond and mortgage on the property and conveying title to the landlord. Thus, 29 Broadway, Inc., acted merely as a conduit in the transaction. The bid at the foreclosure sale was $1,392,750. 29 Broadway, Inc., executed a bond and mortgage to Penn Mutual Life Insurance Company in the principal sum of $1,200,000, and the landlord holds a $300,000 junior participation in this bond and mortgage. The landlord contends that the-amount found due in the foreclosure judgment, $7,778,185.72, is its investment in the property and, therefore, the purchase price under the statute. The legal rights of the landlord, as a mortgagee, were, however, not those of a fee owner. The landlord acquired the fee by virtue of the referee’s deed, not by virtue of its mortgage. The indebtedness cannot be regarded as the purchase price paid when the landlord became the fee owner. The tenants, in the court below, insisted that the purchase price was the bid at the foreclosure sale, $1,392,750, and successfully objected to the landlord’s effort to establish the value of the property. If the landlord is confined to the amount of the bid, as the purchase price, the landlord still has an equity over the $900,000 senior interest in the mortgage held by the Penn Mutual Life Insurance Company. The -statute requires the landlord seeking possession to have a substantial equity in the property. Whether that equity consists, as here, in a participating interest in a mortgage, or in direct payment, is unimportant so long as it represents an actual investment of the landlord in the property. That is undoubtedly the case here. [757] .If the landlord’s $300,000 participation is subtracted from the $1,200,000 mortgage, then the difference between the $900,000 mortgage held by the Penn Mutual Life Insurance Company and the foreclosure sale bid of $1,392,750, is in excess of the necessary 25%. The fact that 29 Broadway, Inc., was used as a vehicle does not affect the situation. (Goldberg v. Friedman, 187 Misc. 445, motion for leave to appeal denied 270 App. Div. 939.) Pilot Marine Corp. is the tenant of space 1214 sought by the landlord in this proceeding. O. M. Knoof, Inc., was the tenant of space 1811 in the building. In February, 1946, Pilot and Knoof agreed between themselves that Knoof should move to 1214 and Pilot to 1811, each, however, continuing liable on its lease and each paying rent to the landlord under its lease. It may be assumed that the exchange of space was consented to by the landlord. The legal situation with respect to the 1214 space sought by the landlord, then, is that Pilot is the tenant and Knoof the undertenant. As tenant, Pilot is in the same plight as the other tenants whose space the landlord is entitled to take, and its undertenant, Knoof, has no greater rights than Pilot. Knoof, in January, 1947, entered into a lease of 1811 from May 1, 1947, to April 30, 1950. It contends that the following clause in its lease entitles it to remain in possession of 1214 until the landlord is able to give it possession of 1811: “ If the building in which the demised premises are located is not in course of construction, and Landlord is unable to give possession of the demised premises on the date of the commencement of the term hereof by reason of the holding over of any tenant or tenants or for any other reason; or if repairs, improvements or decorations of the demised premises or of the building in which said premises are located, are not completed, no abatement or diminution of the rent to be paid hereunder shall be allowed to Tenant under such circumstances. If permission is given to Tenant to enter into the possession of the demised premises or to occupy premises other than the demised premises prior to the date specified as the commencement of the term of this lease, Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this lease, except as to the covenant to pay rent. In either case rent shall commence on the date specified in this lease.” It is manifest that this clause was intended to apply to a situation in which the landlord itself, for its own purposes, in [758] the particular circumstances expressly denoted, put the tenant in possession of other space as an incident to the lease. Here, Knoof went into possession of 1214 in 1946 by virtue of its agreement with Pilot. This transaction between Knoof and Pilot took place before Knoof’s new lease was made. Even though the landlord consented to the sublease, the consent had no relation whatever to the new lease entered into almost a year later. Knoof’s possession of 1214 stems from its agreement with Pilot. Pilot, not the landlord, put Knoof in possession. The clause relied on by Knoof cannot fairly be stretched and its intendment distorted to cover the situation in which Knoof finds itself not because of what the landlord did but because of what Knoof itself did in making its agreement with Pilot. Accordingly, the landlord is entitled to recover the 1214 space now occupied by Knoof. The final orders should be reversed, with $30 costs as of one appeal, and final orders directed for the landlord, with costs.