Conford, Freund and Kilkenny. The opinion of the court was delivered by Freund, J.A.D.
Plaintiff, the purchaser of a leasehold interest in a 55-apartment building in Passaic, commenced this suit against the tenants of one of the apartments for damages for the nonpayment of rent allegedly due and owing under the terms of a five-year written lease. Defendants asserted the defense of payment, claiming that the entire rent for the term of the lease had been paid in advance to the former lessor, plaintiff's vendor, and that plaintiff purchased subject to all of defendants' rights as lessees. No basic facts being in issue, the Law Division granted defendants' motion for summary judgment on the ground that plaintiff was chargeable with notice of defendants' rights in and to the apartment, as created between defendants and plaintiff's assignor. Plaintiff files the instant appeal from that determination.
The apartment building in question was formerly owned by The Martinique, a New Jersey corporation. On August 5, 1957 the corporation entered into a five-year lease with defendants for a 1 1/2 room apartment. The gross rental, including security deposit, was $8,450, the rent payable at the rate of $130 per month. Defendants immediately delivered to the landlord a check in the amount of $130, and on August 15, 1957, apparently in accordance with an oral arrangement, the entire rental balance was paid in advance by defendants in the form of a check for $8,320.
On or about October 22, 1957, at the lessor's suggestion, defendants agreed to exchange their apartment for a larger one in the same building. Since the rent on the larger apartment was $150 a month, it was agreed that defendants would make up the difference in annual installments of $240, besides providing additional security of $100. Accordingly, a new lease was executed; its terms ignore the prior advance payment and simply provide that rent will be paid to the landlord over a five-year term, commencing December 1, 1957 and terminating October 31, 1962, in the gross sum of $9,000, payable "in equal monthly installments of
$150 in advance on the first day of each and every calendar month during said term." Both the additional security deposit of $100 and the sum of $240, covering the additional rental for the calendar year beginning December 1, 1957, were paid by check to the landlord. A letter dated October 23, 1957 was received by defendants from the lessor's agent, acknowledging the rent prepayment and the $240 annual payment arrangement. Defendants took possession of their new apartment in November 1957.
Subsequently, on December 16, 1957, The Martinique sold and conveyed title to the premises to Cambrian Estates, Inc., a New York corporation, taking back, at the same time, a long-term lease covering the apartment building. On April 29, 1958 the leasehold interest of The Martinique was sold to the present plaintiff, a separate and distinct corporation. At the time of purchase, plaintiff caused an uneventful search to be made at the office of the Passaic County Clerk. (The Hulls did not record their lease until July 16, 1958.) It apparently relied upon its vendor's silence and its reading of paragraph 45(a) of the Martinique-Cambrian leaseback agreement of December 16, 1957, providing that "the lessee shall not without the prior written consent of the Lessor with respect to any lease now in existence or any renewal or extension thereof of any space demised to any tenant, accept prepayment of rent in excess of one month prior to its due date."
In May of 1958 plaintiff mailed rent statements to all of its tenants. Defendants, having learned for the first time that ownership of the leasehold had changed hands, refused to tender any rent by reason of their prepayment.
Plaintiff's contention on this appeal is two-fold. It argues, first, that as the transferee of the leasehold interest, it was entitled to the benefit of all of the covenants between its predecessor and the Hulls. Secondly, it urges that it had a right to rely upon the terms of defendants' lease as written, and that the prepayment of rent is therefore no bar as such prepayment was inconsistent with the terms of the
lease; further, that it had no notice, at the time of purchase, of defendants' advance payments, and that it was not, under the principle of Feld v. Kantrowitz , 98 N.J. Eq. 167 (Ch. 1925), affirmed 99 N.J. Eq. 847 (E. & A. 1926), and 99 N.J. Eq. 706 (Ch. 1926), required to make inquiry of each tenant as to the latter's interest in the property outside of the written lease. Defendants respond by questioning the applicability of the Feld case, arguing that plaintiff was under a duty to make inquiry respecting the rights of lessees under their tenancies and that failure to make such inquiry charges plaintiff with notice of such rights. They further contend that the payment of rent by a tenant to his landlord in advance of the time stipulated in the lease for its payment is a discharge pro tanto from the claim of the lessor, and therefore a valid defense against the assignee of the lessor's interest.
Plaintiff is confronted at the outset by the specific statutory provision that the rights of a lessee of real estate for a term of years vis-a-vis his lessor survive the passing of the lessor's interest to another by assignment or otherwise. R.S. 46:8-3; 51 C.J.S. Landlord and Tenant § 44(2), p. 567. This is but an illustration of the general rule that the assignee of a contract right takes subject to all defenses valid against his assignor. N.J.S. 2 A:25-1. While it may be contended that the applicability of these sections is limited by the penalties inherent in our recording act, R.S. 46:22-1 et seq. , embracing leases for a term exceeding two years, N.J.S.A. 46:16-1(a), the statute requires, however, that the prevailing purchaser be bona fide in nature.
An essential characteristic of the bona fide purchaser is his lack of notice of the interest of the unrecorded or late-recorded party. It is long settled that the purchaser of a lessor's interest in property has a duty to make inquiry as to the extent of the rights of any person in open, notorious and exclusive possession of the premises; if this duty is not discharged, then notice is ...