219 Ark. 59, 239 S.W.2d 760
Jaber obtained a five-year lease on a business building in Fort Smith in 1945, running from March 1, 1946, to March 1, 1951, with monthly rent set at $200 and a provision terminating the lease upon destruction by fire.1 He operated a rug shop there until 1949, at which point he auctioned off his merchandise and transferred the lease to Norber & Son through a document titled “Contract and Assignment.”2
This document recited the original lease and stated that Jaber transferred and assigned it to Norber & Son for the remainder of the term.3 In exchange, Norber & Son paid $700 in cash and gave five promissory notes of $700 each payable at four-month intervals.4 They also agreed to pay the $200 monthly rent directly to the owner, while Jaber retained the right to repossess the premises upon default.5 No clause addressed what would happen if the building burned.6
Miller subsequently acquired the lease from Norber & Son.7 When Miller could not meet the payments on the remaining notes, he and Jaber restructured the debt into fourteen notes of $175 each payable monthly, which replaced the unpaid original notes.8 The building was destroyed by fire on December 3, 1949.9
Miller filed suit to cancel these fourteen notes on the ground that they constituted rent that ended with the fire. Jaber took the position that the notes were payments for the assignment of the lease rather than rent. After reviewing the evidence, the chancellor determined that the notes were rental payments and ordered them canceled. Jaber then appealed the decision to the Supreme Court of Arkansas.10
Whether the instrument transferring the lease from Jaber to Norber & Son constitutes an assignment or a sublease?11
In Arkansas the intention of the parties governs whether an instrument is an assignment or a sublease rather than the common law distinction based solely on whether the entire remaining term is transferred.12
Yes. The document is titled Contract and Assignment and recites that Jaber hereby transfers and assigns the lease for the remainder of the term in consideration of the sale and assignment.13 Norber & Son paid cash and executed promissory notes as payment for the lease itself and agreed to pay the owner the stipulated rental while Jaber retained a right of reentry upon default.14 These specific facts demonstrate that the parties intended an outright transfer of the leasehold estate rather than the creation of a new tenancy between Jaber and Norber & Son.15
The common law rule that looks only to the duration of the transferred term is rejected. It produces unjust results unrelated to the parties' actual intent.16 It rests on feudal concepts of tenure that have no place in modern lease transactions.17 The instrument contains no provision for fire destruction. Yet the absence of such a clause does not convert an assignment into a sublease when all other language and consideration point to an assignment.18
The instrument constitutes an assignment.19
Whether the intention of the parties governs the distinction between an assignment and a sublease?20
The intention of the parties is the controlling test for distinguishing an assignment from a sublease; the feudal common law test that turns exclusively on whether the entire term is transferred is overruled as arbitrary and unjust.21
Yes. The court examined the title of the instrument, the language of transfer and assignment, the form of consideration consisting of cash and promissory notes rather than periodic rent, and the absence of any new tenancy relationship.22 These facts establish that Jaber and Norber & Son intended an assignment.23 The prior Arkansas decision in Pennsylvania Min. Co. v. Bailey is overruled to the extent it applied the traditional common law distinction.24
The intention of the parties governs the distinction between an assignment and a sublease.25
Whether the fourteen promissory notes represent rent obligations that terminated when the building was destroyed by fire?26
Because the notes were given as deferred payments for the assignment of the lease rather than as rent the obligation to pay the notes survives the destruction of the building by fire.27
No. The notes replaced the original notes that Norber & Son had given as consideration for the assignment of the lease.28 Miller restructured the remaining debt into fourteen monthly notes of $175 each which Jaber accepted in substitution for the unpaid balance.29 Since the underlying transaction was an assignment the notes do not constitute rent and therefore do not terminate under the fire clause contained in the original lease between the owner and Jaber.30
The fourteen promissory notes do not represent rent obligations that terminated when the building was destroyed by fire.31