Floro Realty & Inv. Co. v. Steem Electric Corporation
| Decision Date | 24 June 1942 |
| Docket Number | No. 12145.,12145. |
| Parties | FLORO REALTY & INVESTMENT CO. v. STEEM ELECTRIC CORPORATION et al. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Arthur V. Lashly, of St. Louis, Mo. (Robert G. Maysack, of St. Louis, Mo., on the brief), for appellant.
Harry S. Gleick, of St. Louis, Mo. (Gleick & Strauss, of St. Louis, Mo., on the brief), for appellees.
Before SANBORN and WOODROUGH, Circuit Judges, and TRIMBLE, District Judge.
This appeal is from an order of the District Court decreeing the disposition of a deposit made to secure the payment of monthly installments of rental, the corporate lessee having breached the contract of lease by filing a petition for corporate reorganization and by failure to pay rent when due; the lessor, relying upon the terms of the lease contract, having declared the contract of lease cancelled and having sought possession of the property through the bankruptcy court. There is no serious dispute between the parties as to the facts, the controversy being as to the law applicable upon those facts.
On January 17, 1940, the Steem Electric Corporation as lessee entered into a contract of lease with the Hilmer-Dutton Realty Company covering certain premises in the City of St. Louis, Missouri, for a term of five years, at a specified monthly rental, the term to begin on May 1, 1940. Under the terms of the lease the lessee deposited with the lessor the sum of $3,000 to secure the payment of rentals when due. Except for provisions that in case of purchase the deposit was to apply on the purchase price, and was to apply on rentals for a part of the last six months of the rent term, the lease contained no other covenant respecting the disposition of the deposit, and made no mention of the date on which it was to be returned to the lessee in the event it was not applied to the payment of rent. That is to say, there was no covenant that this deposit might be regarded as liquidated damages or might be used in any manner to pay damages. The contract also provided that in the event of insolvency of the lessee or the failure to pay rentals when due the lessor might cancel the lease at its option.
Subsequently, the lessor, Hilmer-Dutton Realty Company, assigned its interest in the lease to the appellant, Floro Realty and Investment Company, a corporation, hereinafter referred to as Floro.
The lessee, Steem Electric Corporation, on August 1, 1940, filed its petition for reorganization, alleging insolvency. Asserting and relying upon its option to cancel, under the terms of the lease, Floro, on November 30, 1940, served a written notice of cancellation, and on January 24, 1941, came into court by formal petition, in which it alleged a breach of the contract of lease on the part of the lessee by filing the petition for reorganization and failure to pay rent, and prayed an order directing the surrender of the leased premises. In neither the notice nor the motion was it indicated that the lessor was taking possession for the benefit of the lessee. On December 2, 1940, the court entered a decree confirming the debtor's plan of reorganization, under the terms of which Steem Electric Corporation, Inc., took over all the assets and property of the debtor, and for all practical purposes became the successor of the debtor, and entered into the possession of the leased premises on January 1, 1941. When the petition for the surrender of the premises was filed by Floro, the debtor and its successor were in arrears in the payment of rentals and were protesting that the court was without jurisdiction to make any order relative to the possession of the premises, because the premises were then in the possession of the debtor corporation's successor, over which the Court had retained no jurisdiction, and contending that Floro should proceed against the successor by plenary action and not summary.
Upon a hearing the motion for delivery of the premises was sustained, and delivery of the premises ordered, upon the ground that the conditions in the contract of lease authorizing cancellation had occurred and the option to cancel had been exercised, this order being entered on February 21, 1941, delivery to be within sixty days. On that same date Floro's motion for the payment of rentals as costs of administration for the use and occupancy of the premises was heard, and the Court entered an order decreeing that the Steem Electric Corporation, Inc., debtor's successor, should pay to Floro as a cost of administration for the use and occupancy of the premises the monthly rentals provided in the lease, from October 1, 1940, until such time as the order of the court was complied with and possession surrendered. Thereafter, debtor and its successor filed a joint motion for the modification of the decree of February 21, 1941, and in that motion prayed that Floro be decreed to return to them the $3,000 deposited as security for payment of rentals under the lease. This motion was overruled by the court on March 3, 1941, on the ground that Floro was entitled to hold the deposit as security for the payment of rentals until the premises were surrendered, and in this order the Court expressly declined to pass on the question of the return of the deposit, the court stating:
Thereupon the debtor and its successor paid the rentals, surrendered possession of the property in compliance with the orders of the court, and, thereafter, on July 7, 1941, filed an amended joint motion for refund of the $3,000 deposit above described.
Floro filed a motion to dismiss the joint and amended joint motions of the debtor and its successor, in which motion it alleged that the debtor and its successor had not at any time had possession of the deposit; that Floro was holding the deposit as an adverse claimant under Section 23 of the Bankruptcy Act, 11 U.S.C.A. § 46; that the court had no jurisdiction to proceed against Floro in the summary action for the return of said deposit; that Floro expressly dissented from and objected to the hearing of the amended motion in the summary proceeding; that under the terms of the lease a forfeiture thereof should not relieve the lessee from the obligation to make the monthly payments of rent reserved in the lease; that the lessee remained liable for rent under the lease despite the termination of the lease by the default of the lessee; that since there was a continuing duty on the lessee to pay the rent reserved for the balance of the term of the lease, the amended joint motion was premature for the reason it could not be determined until the expiration of the five-year term of the lease what credits would be due on the rent account.
On August 19, 1941, after a hearing, the court entered an order sustaining the motion for the return of the deposit upon the ground that Floro had submitted to the court for determination the question of the right to retain the deposit and at the same time have possession of the premises, that Floro elected to take possession and cancel the lease and no future rents could accrue; the deposit was not in the nature of a sum agreed upon as liquidated damages; the motion of debtor and its successor was not premature. Thereupon, the court entered its formal decree ordering the return of the $3,000 deposit by Floro to the debtor and its successor. From this order and decree comes this appeal.
Appellant Floro relies upon three propositions of law to reverse the decision of the court below: that the court had no jurisdiction in a summary action to enter an order or decree directing the return of the deposit; that the joint motion and amended joint motion for the return of the deposit was premature; that since the lease was terminated solely by failure of debtor as lessee to pay rent and the filing of the petition for reorganization under the provisions of the lease lessee was liable for rent for the...
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