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Sears, Roebuck & Co. v. Kelsey Holding Co.

Decided: April 22, 1954.


Eastwood, Jayne and Clapp. The opinion of the court was delivered by Jayne, J.A.D.


The principles of equity lead the way to a just decision of this case. An epitome of the facts which we believe the trial judge was justified in adopting will be adequately informational.

Evidenced by written instruments dated July 5, 1945 and April 24, 1947, the United States Realty & Investment Company leased to the plaintiff for a term of 25 years commencing January 1, 1947 the three-story building designated as

No. 271-85 Hobart Street in the City of Perth Amboy. In July 1947 the defendant Kelsey Holding Co. acquired the property together with an assignment of the lease and the plaintiff thereupon attorned. That relationship has since continued.

Certain terms of the lease have cogent pertinency:

"Tenant further agrees to pay as additional rental hereunder all real estate taxes levied and assessed against the demised premises * * * and all insurance premiums paid by Landlord in connection with the insuring of the demised premises * * *.

Insurance provided for herein shall include standard fire insurance policies and also include 'Additional Hazards Supplemental Contract (Extended Coverage Endorsement)' * * * and all policies shall at all times be in an amount sufficient to cover the full reproductive value of all the improvements on the demised premises. All policies shall indicate the respective interests of mortgagees, Landlord and Tenant, and the originals thereof shall be lodged with the mortgagees and certificates thereof with the Landlord.

If the demised premises or any building or improvement now or hereafter erected thereon, shall during the first twenty years of the term hereof be destroyed or damaged in whole or in part, by fire or other cause, the same shall be promptly repaired, rebuilt and replaced by the Landlord, using insofar as the policies thereon apply, the proceeds collected for (from) them. Such rebuilding shall be as nearly as possible of the character of the building or improvement existing immediately prior to such occurrence, and the Landlord shall in no event be called upon to repair, replace or rebuild any of the said buildings or improvements, or to pay any of the cost or expense thereof beyond or in excess of the proceeds of the insurance policies. There shall be no abatement of rent during the period of reconstruction and rebuilding * * * this lease shall not terminate or be affected in any manner by reason of damage to or total or substantial destruction of the buildings now or hereafter erected upon the demised premises, or by reason of the untenantability of the demised premises or any part thereof."

On May 19, 1950 the memorable explosion occurred at the piers of the Pennsylvania Railroad Company in South Amboy. Perth Amboy was within the area of devastation. The premises occupied by the plaintiff were damaged. The windows and doors were blown out by the blast, and the ceilings and partitions were ravaged. Emergency action

such as the boarding of the windows and doors of the building was immediately undertaken by the plaintiff.

Observable by a reading of the quoted terms of the lease are the contemplated obligation of the landlord to insure the demised premises against damage or destruction by fire or other cause at the expense of the tenant and the express intention that the policies of insurance so procured shall be drawn to protect the respective interests in the premises of the mortgagees, landlord, and tenant.

It became known, after the occurrence of the disaster, that the applicable insurance coverage underwritten by the Scottish Union and National Insurance Company did not, by inadvertence or some other unelucidated reason, embrace as it should have done the interest of the tenant in the premises. The tenant, however, paid the premiums.

A further perusal of the quoted terms of the lease reveals that in the event the building situate on the demised property should during the first 20 years of the tenancy be injured in whole or in part by fire or other cause, the damage shall be promptly repaired by the landlord at a cost, if necessary, equivalent to but not exceeding the proceeds derived from the insurance. The importance and cogency of the landlord's obligation promptly to repair or reconstruct the building becomes exceedingly manifest when placed in parallel with the provision of the lease declaring that during the period of the reconstruction of the damaged building there shall be no suspension, ...

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