Facts

On May 12, 1893, Atlantic Mills leased premises in Providence, Rhode Island, to Riverside Worsted Mills for a term ending September 1, 1955, with covenants to pay rent and certain charges, but no restrictions on assignment or provisions requiring assignees to assume obligations for the entire term.

The lease was assigned multiple times: in 1899 to American Woolen Company (New Jersey), in 1916 to defendant American Woolen Company (Massachusetts), in 1931 to defendant's subsidiary National Providence Worsted Mills, back to defendant in 1934, to defendant's subsidiary Textile Realty Company in June 1939, and finally to Reo Realty Company on November 21, 1939. None of these assignments included an express agreement by the assignee to assume rent obligations for the unexpired term. Defendant admitted it was effectively the lessee until the assignment to Reo but denied retaining any interest or control thereafter.

Plaintiff, who succeeded to the lessor's rights on December 4, 1936, brought an action in assumpsit on April 14, 1941, against defendant to recover $2,935.83 in unpaid rent and taxes for September 1940 to March 1941, claiming defendant remained liable as an assignee despite the final assignment. A superior court justice, sitting without a jury, rendered a decision for defendant. Plaintiff excepted to this decision and certain evidentiary rulings, bringing the case on appeal.

Analysis

Issue #1

Issue

Is the assignee of a lease liable for rent for the entire unexpired term, even without an express agreement to assume such obligations and after assigning the lease to another party?

Legal Rule

In the absence of an express assumption of obligations by the assignee, liability to the lessor rests in privity of estate, which terminates upon a new assignment of the lease, unless the assignment is colorable or fraudulent.

Rule Analysis

The court examined plaintiff's contention that an assignee is liable for the entire term without express assumption, noting this view contradicts the majority rule in England and the United States, which limits liability to the period of privity of estate.

It rejected the minority Texas rule, which imposes liability by implication, finding it unsound and contrary to principles of justice, as it forces contractual privity without agreement. The court emphasized that lessors can protect themselves by including assignment restrictions in the lease and concluded the majority rule is sounder, leaving assumption to contract between assignor and assignee.

Conclusion

No, an assignee is not liable for the entire unexpired term without express assumption, and liability terminates upon a valid new assignment.

Issue #2

Issue

Did defendant indirectly assume the obligation to pay rent for the entire unexpired term through its course of dealing with plaintiff's predecessor?

Legal Rule

An indirect assumption may be inferred from conduct and dealings if evidence shows intent to create or recognize a contractual obligation to assume lease covenants beyond privity of estate.

Rule Analysis

The court reviewed four incidents cited by plaintiff: agreements in 1905 regarding a railroad siding, a 1915 agreement on gates and fences, defendant's 1925 investigation and payment of increased rent, and rent payments from 1931 to 1934 while the lease was held by its subsidiary.

For each, it found the language and actions addressed specific practical matters like boundaries and expenses, not an intent to assume full lease obligations. The evidence supported alternative inferences, and the trial justice's findings against assumption were not clearly wrong.

Conclusion

No, defendant did not indirectly assume the rent obligations through its course of dealing.

Issue #3

Issue

Was the assignment from Textile Realty Company to Reo Realty Company colorable, thus not terminating defendant's liability?

Legal Rule

An assignment is colorable and does not terminate liability if it leaves the assignor in actual possession or receipt of benefits, despite proper form; however, it is valid if made in good faith, even to a financially irresponsible assignee or for nominal consideration, absent fraud or collusion.

Rule Analysis

The court considered evidence of the 1939 transaction where defendant's subsidiary assigned the lease and sold related land to Reo Realty, controlled by Aaron J. Oster, for $630.30.

It found the deal was at arm's length, with Reo entering exclusive possession and no evidence of defendant retaining control or benefits. The low price and Reo's status did not render it colorable absent collusion, and the trial justice's finding of good faith was supported.

Conclusion

No, the assignment was not colorable and terminated defendant's liability.