Complainants, B. Walter Ernst and wife, Emily Ernst, leased a certain tract of land in Davidson County, Tennessee, to Frank D. Rogers on June 18, 1960, for a term of one year and seven days, commencing on June 23, 1960. Rogers went into possession of the property and constructed an asphalt race track and enclosed the premises with a fence. He also constructed other improvements thereon such as floodlights for use in the operation of a Go-Cart track.
We quote those paragraphs of the lease pertinent to the question for consideration in this controversy:
'5. Lessee shall have no right to assign or sublet the leased premises without prior written approval of Lessors. In the event of any assignment or sublease, Lessee is still liable to perform the covenants of this lease, including the covenant to pay rent, and nothing herein shall be construed as releasing Lessee from his liabilities and obligations hereunder.
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9. Lessee agrees that upon termination of this contract, or any extensions or renewals thereof, that all improvements above the ground will be moved at Lessee's expense and the property cleared. This shall not be construed as removing or digging up any surface paving; but if any pits or holes are dug, they shall be leveled at Lessors' request.'
Rogers operated the business for a short time. In July, 1960, he entered into negotiations with the defendant, A. K. Conditt, for the sale of the business to him. During these negotiations, the question of the term of the lease arose. Defendant desired a two-year lease of the property. He and Rogers went to the home of complainants and negotiated an extension of the term of the lease which resulted in the following amendment to the lease, and the sublease or assignment of the lease as amended to Conditt by Rogers:
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5. Lessor hereby consents to the subletting of the premises to A. K. Conditt, but upon the express condition and understanding that the original Lessee, Frank K. Rogers, will remain personally liable for the faithful performance of all the terms and conditions of the original lease and of this amendment to the original lease.
Conditt operated the Go-Cart track from August until November, 1960. He paid the rent for the months of August, September and October, 1960, directly to complainants. In December, 1960, complainants contacted defendant with reference to the November rent and at that time defendant stated he had been advised he was not liable to them for rent. However, defendant paid the basic monthly rental of $350.00 to complainants in June, 1961. This was the final payment received by complainants during the term of the lease as amended. The record is not clear whether defendant continued to operate the business after the last payment of rent or abandoned it. Defendant, however, remained in possession of the property until the expiration of the leasehold.
On August 1, 1962, complainants filed their bill in this cause seeking a recovery of $2,404.58 which they alleged was the balance due on the basic rent of $350.00 per month for the first year of the lease and the sum of $4,200.00, the basic rent for the second year, and the further sum necessary for the removal of the improvements constructed on the property.
The theory of the bill is that the agreement between Rogers, the original lessee, and the defendant, Conditt, is an assignment of the lease; and, therefore, defendant is directly and primarily liable to complainants.
The defendant by his answer insists the agreement between Rogers and himself is a sublease and therefore Rogers is directly and primarily liable to complainants.
A decree was entered sustaining the bill and entering judgment for complainants in the sum of $6,904.58 against defendant.
The general rule as to the distinction between an assignment of a lease and a sublease is an assignment conveys the whole term, leaving no interest nor reversionary interest in the grantor or assignor. Whereas, a sublease may be generally defined as a transaction whereby a tenant grants an interest in the leased premises less than his own, or reserves to himself a reversionary interest in the term.
The common law distinction between an assignment of a lease and a sublease is succinctly stated in the case of Jaber v. Miller, 219 Ark. 59, 239 S.W.2d 760:
'If the instrument purports to transfer the lessee's estate for the entire remainder of his term it is an assignment, regardless of its form or of the parties' intention. Conversely, if the instrument purports to transfer the lessee's estate for less than the entire term--even for a day less--it is a sublease, regardless of its form or of the parties' intention.'
The modern rule which has been adopted in this State for construing written instruments is stated in the case of City of Nashville v. Lawrence, 153 Tenn. 606, 284 S.W. 882:
'The cardinal rule to be followed in this state, in construing deeds and other written instruments, is to ascertain the intention of the parties.'
In Williams v. Williams, 84 Tenn. 164, 171, it was said:
'We have most wisely abandoned technical rules in the construction of conveyances in this State, and look to the intention of the instrument alone for our guide, that intention to be arrived at from the language of the instrument read in the light of the surrounding circumstances.'
In the case of Commerce Street Company v. Goodyear Tire & Rubber Company, 31 Tenn.App. 314, 215 S.W.2d 4, this Court said:
'It is the duty of the court in the construction of contracts to ascertain the intention of the contracting parties, understand what they meant by the contract, and give effect to such understanding and meaning. All other rules of construction are only aids or helps in establishing the intention of the parties and their mutual understanding of the meaning of their contract.
'The motives which induced the contract have a definite bearing upon the intention of the parties. The object and purpose to be effected furnish valuable aids in ascertaining such intention. McNairy v. Thompson, 33 Tenn. 141, 142; Nashville & N. W. R. Co. v. Jones, 42 Tenn. 574; Taylor v. Neglett, 51 Tenn. 491; Mills v. Faris, 59 Tenn. 451; Nunnelly v. Warner Iron Co., 94 Tenn. 282, 29 S.W. 124; Perkins Oil Co. v. Eberhart, 107 Tenn. 409, 64 S.W. 760.
'Prior negotiations may be considered to determine the real understanding of the parties concerning the meaning of the terms and provisions of the contract. Dawkins v. Koch, 12 Tenn.App. 220.'
Our Supreme Court in the case of Fidelity-Phenix Fire Insurance Company of New York v. Jackson, 181 Tenn. 453, 181 S.W.2d 625, approved the following rule for the construction of contracts:
'The Court, placing itself in the position of the contracting parties, considers all the facts and circumstances so as to ascertain what the parties intended, the primary purpose being to ascertain just what was within the contemplation of the parties.'
In Southern R. Company v. Bacon, 128 Tenn. 169, 159 S.W. 602, it is said:
'Contracts must be construed with reference to the situation and surroundings of the parties, the nature of the business in which they are engaged and to which the contract relates, and also with reference to the subject-matter.'
It is our opinion under either the common law or modern rule of construction the agreement between Rogers and defendant is an assignment of the lease.
The fact that Rogers expressly agreed to remain liable to complainants for the performance of the lease did not create a reversion nor a right to re-enter in Rogers either express or implied. The obligations and liabilities of a lessee to a lessor, under the express covenants of a lease, are not in anywise affected by an assignment or a subletting to a third party, in the absence of an express or implied agreement or some action on his part which amounts to a waiver or estops him from insisting upon compliance with the covenants. This is true even though the assignment or sublease is made with the consent of the lessor. By an assignment of a lease the privity of estate between the lessor and lessee is terminated, but the privity of contract between them still remains and is unaffected. Neither the privity of estate or contract between the lessor and lessee are affected by a sublease. 32 Am.Jur., Landlord and Tenant, Sections 356, 413, pages 310, 339.
Thus, the express agreement of Rogers to remain personally liable for the performance of the covenants of the lease created no greater obligation on his part or interest in the leasehold, other than as set forth in the original lease.
The argument that since the agreement between Rogers and defendant contains the words, 'sublet' and 'subletting' is conclusive the instrument is to be construed as a sublease is, we think, unsound.
'A consent to sublet has been held to include the consent to assign or mortgage the lease; and a consent to assign has been held to authorize a subletting.' 51 C.J.S. Landlord and Tenant § 36, page 552.
Prior to the consummation of the sale of the Go-Cart business to defendant, he insisted upon the execution of the amendment to the lease extending the term of the original lease. For value received and on the promise of the defendant to perform all of the conditions of the lease as amended, Rogers parted with his entire interest in the property. Defendant went into possession of the property and paid the rent to complainants. He remained in possession of the property for the entire term. By virtue of the sale of the business, defendant became the owner of the improvements with the right to their removal at the expiration of the lease.
Rogers reserved no part or interest in the lease; nor did he reserve a right of re-entry in event of a breach of any of the conditions or covenants of the lease on the part of defendant.
It is our opinion the defendant, under the terms of the agreement with Rogers, had a right to the possession of the property for the entire term of the lease as amended, including the right to remove the improvements after the expiration of the lease. Rogers merely agreed to become personally liable for the rent and the expense of the removal of the improvements upon the default of defendant. He neither expressly, nor by implication, reserved the right to re-enter for a condition broken by defendant.
Thus, we are of the opinion the use of the words, 'sublet' and 'subletting' is not conclusive of the construction to be placed on the instrument in this case; it plainly appearing from the context of the instrument and the facts and circumstances surrounding the execution of it the parties thereto intended an assignment rather than a sublease.
It results the assignments are overruled and the decree of the Chancellor is affirmed with costs.