Ernst v. Conditt, Court of Appeals of TN (1964)
Author: Bram

Parties: PL - Ernst landlords vs. DF Conditt - got the property from the lessee Rodgers, then didn't complete his lease  

Cause of action/remedy sought: The following is an equitable action for specific performance.

Procedural History: Trial court held that DF's interest in the property was an assignment, and awarded PL's $6,904.58.  On appeal, this court reverses with costs.

Facts: 6-18-60 Rodgers leased the land from PL for one year and seven days.

6-23-60 Rodgers takes possession to start a go cart track business

7-60 Rodgers negotiates to sell the business to DF; however, DF will only accept a 2 year lease. This is negotiated with PL.

8-4-60 PL signs an amendment to the lease with Rodgers extending for one year, agreeing to the transfer to DF Rodgers sign a note stating he would be responsible for all debts incurred. DF signs accepting the premises. All three documents refer to DF's interest as a sublease.

8-60 till 11-60 DF runs the go cart track. DF continues to pay monthly rent until 6-61 when the original lease would have expired (unclear if DF continued to operate the business, but he remained in possession).

7-10-62 PL's send DF letter demanding the past due rent, notifying DF of the expiration of the lease and demanding damages if DF does not remove improvements. DF does not reply.

8-1-62 PL's file suit

Issue(s): Under TN property law, did DF's interest in the land constitute a sublease or an assignment?

Holding: No.  This was an assignment and not a sublease, hence DF was liable to PL.   

Court's Rationale/Reasoning:  PL claims this was a sublet, as the use of the words in the amendment to the lease states, and hence Rodgers remains personally liable to the PL for the debt

If the transfer is a sublease, no privity of estate exists, hence DF could not be liable to PL, but if assignment, privity exists between PL and DF and DF would be liable directly and primarily for the amount of the judgment.

2 tests for assignment v. sublease: 1- assignment arises when the lessee transfers his entire interest under the lease. If the lessee transfers anything less, a sublease is created and lessee retained a reversion. 2 - Intention of the parties - the actual words used are persuasive but not conclusive. 

Here, the lessee Rodgers transferred his entire interest to DF and the words sublease must be read in light of the surrounding circumstances. The fact that Rodgers remained liable was not sufficient to establish that he had a reversionary interest in the property. The assignment of the lease means that Rodgers' privity of estate was broken, but his privity of contract remains intact and enforceable.

Conditt was saying he was only a subtenant and so there was no privity of estate between him and the LL and so even if there was a duty of service (to pay rent), he did not owe it to the LL because he was just a subtenant.  Since this is an action at law and not equity, all the requirements for a covenant need to be satisfied.

The court said what interest was transferred is the important thing because the labels are just shorthand terms to indicate whether the entire interest was being transferred or not and here they misused the label.

There are certain limits that are placed on a LL (certain things that a LL cannot do even though he has fee simple).  This can be limited by the exercise of the state's police power.  With fee simple, landowner cannot remove lateral support from adjoining landowners. 

Rule: Leases must clearly and unambiguously have intended a sublease.

Did court avoid issues?: No.

Dicta: No.