Thrall v. Omaha Hotel Co.

Gantt, J.

It appears by the record, that the defendant hotel company is the owner of the legal title to lots one and two, in block one hundred and thirty-eight, together with the buildings and improvements thereon, situated in the city of Omaha; that on the 16th day of September, 1873, the plaintiff entered into a leasehold contract with said company, for a term of five years from the first day of October, 1873, for so much of the building on the said lots which is known and designated as the “ Grand Central Hotel ” for hotel use, and agreed to pay for the same a yearly rental of four thousand dollars, payable in monthly installments of $333.33^. On the 7th day of December, 1874, the plaintiff purchased from R. Iiilliker and others a judgment which, at March term, 1873, of the district court of Douglas county, they recovered against the defendant company for the suni of $2,935.13 damages, and $52.33 costs, and caused an execution to be issued thereon and a levy to be made on the above property. On the 5th day of January, 1875, another *299 execution was issued, commanding the sheriff' to sell the property so levied on as aforesaid. On this execution the plaintiff undertook to apply his rents, and did so to the amount of one thousand dollars; and the execution having expired, it was returned by the sheriff.

The plaintiff alleges in his petition, that the defendant company is largely in debt, and utterly insolvent; and that it refuses to credit the amount of the judgment incumbrance so purchased by him, or to permit him to set-off the said judgment against the rents as they accrued from month to month; and that the said defendant company is about to institute proceedings, by action of forcible detainer or otherwise, to regain the possession of the said hotel premises. He asks that the amount of said incumbrance may be set-off against the rents accrued and to accrue under the lease, and that the defendant company be enjoined from disturbing him in his possession of the premises under the said lease.

Now, the fact is undisputed, that long subsequent to the time the plaintiff entered into possession of the premises under the lease to him by the hotel company, he purchased the incumbrance on the property. The levy made on the property by virtue of the execution issued upon the judgment incumbrance, passed the property in the custody of the law; for, under the laws of our state, lands are made chattels for the payment of debts, and may be seized by execution for that purpose. The plaintiff afterwards caused another execution to be issued, commanding the sheriff to sell the property so levied as aforesaid, and, hence, only one step further was necessary to be taken to divest the title of his landlord to the property, namely, to effect a sale on this execution. All these steps were taken by the plaintiff long subsequent to the time the relation of landlord and tenant existed between him and the defendant company. It may be questionable whether a tenant can in such manner divest the title *300 of his landlord to the leased premises; but this is not a necessary inquiry at the present time, as the case presents a very different question for the consideration of the court. The plaintiff did not sell the property under his execution, but undertook by his own action to appropriate the rents in payment of the incumbrance; and the defendant company having refused its assent to this procedure, he brought this action, and asks the court to decree the incumbrance, so purchased by him as aforesaid, to be set-off against the rents accrued and to accrue, until the same is fully paid. The court below allowed the set-off for- the amount actually paid by plaintiff for the incumbrance. He now complains, that the court erred in not decreeing the set-off for the whole amount of the incumbrance as shown by the record.

It is said, that “ there is a tenure between lessor and lessee for years, to which fealty is incident by theory of law, as well as of privity of estate between them.” Lit., 132. 1 Wash. Real Est., 413. The parties must act in good faith towards each other; and therefore, we think the policy of the law will not permit a tenant to avail himself of the advantages, given to him by his possession, to purchase incumbrances upon the premises for the purpose of speculation; and then by the aid of the court, if necessary, to secure the whole amount of such incumbrance to be set-off against the rents without regard to the actual amount paid for the same. It seems to us that such conduct would be a breach of good faith, and the law would not permit it. Certainly, the fealty incident to the leasehold tenure, as well as the privity between the parties, will not allow such advantage to be taken by the tenant in possession.

But, if while in possession under the lease, the tenant shall purchase an incumbrance on the leased premises, the presumption is, that he did it, for the only purpose permitted by law, that is, to protect his possession; and *301 in such case, where the tenancy is for years, the landlord must account to him for what he has paid for the incumbrance, not exceeding what was justly due thereon with interest. We think this case clearly comes within the principle enunciated in the case of Mattis v. Robinson, 1 Neb.; 1.

The grounds upon which the set-off is urged, is the insolvency of the defendant company. We think the proofs in the case clearly establish its insolvency. And the doctrine seems to be well settled, that the insolvency of the party against whom the set-off is claimed, is a sufficient ground for a court of chancery to allow a set-off in cases not provided for by statute, and even in cases where the demands on both sides are not liquidated.

In Lindsey v. Jackson, 2 Paige, 582 , it is said that, “where there are mutual demands between the parties which cannot be set-off under the statute, but which a court of equity may compensate or apply in satisfaction of each other without interfering with the equitable rights of any person, the fact that one of the parties is insolvent has frequently been held sufficient grounds for the exercise of the equitable jurisdiction of chancery.” 1 P. Wm., 325. Pond v. Smith, 4 Conn., 302 .

In conclusion, we are of opinion, that the plaintiff is entitled to have the amount actually paid by him for the incumbrance set-off against the rents coming to the defendant company, and that the defendant company be enjoined from disturbing him in the possession of the premises under the lease; and the findings and decree shall be in accordance with this opinion.

Decree accordingly.