Westinghouse Electric & Mfg. Co. v. Brooklyn Rapid T. Co.
| Decision Date | 20 February 1925 |
| Docket Number | No. 156.,156. |
| Citation | 6 F.2d 547 |
| Parties | WESTINGHOUSE ELECTRIC & MFG. CO. v. BROOKLYN RAPID TRANSIT CO. et al. |
| Court | U.S. Court of Appeals — Second Circuit |
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Wm. N. Dykman, of Brooklyn, N. Y. (Sigourney B. Olney, of Brooklyn, N. Y., of counsel), for City Co.
Carl M. Owen, of New York City (D. A. Marsh, of Brooklyn, N. Y., of counsel), for Garrison, receiver.
Before ROGERS, HOUGH, and MANTON, Circuit Judges.
HOUGH, Circuit Judge (after stating the facts as above).
This appeal suggests points as to which this court has expressed opinion at length and laid down some legal principles. It is now urged that these principles, as applied below, produce what appellant calls a "grossly inequitable result." Some propositions underlying this or any similar matter may be briefly restated. They have been discussed sufficiently in the cases to be cited.
A receiver appointed in a creditors' suit, who finds himself in possession of a leasehold estate, does not by possession become assignee of the term; he may become an assignee voluntarily, or he may so manage or mismanage the business committed to his charge as to be held in invitum to have "adopted the lease." But he always has a time, "reasonable" under the circumstances, wherein to decide whether the interests of his trust will be better served by adopting the lease or by rejecting it, which last act implies a prompt return of the leasehold estate to the lessor. But reasonable time for decision and promptitude in return are both relative terms, relative to existing and always varying circumstances, and in respect of leased transportation systems operating under franchises conferred by the public and serving public necessities, the overwhelmingly important circumstance is that the obligations of the carrier to the public must be fulfilled by the receiver, and the lessor's franchises must be preserved.
During this period of provisional operation, the lease in no way governs the legal relations between receiver and lessor; such relations are ruled by the equities of the situation, and ordinarily these equities will be satisfied by the receiver turning over to the lessor, should the lease be rejected, the net earnings by him acquired during the period of provisional operation. These principles have been elaborated in Penna., etc., Co. v. New York City Ry. Co., 198 F. 725, 117 C. C. A. 503. And see, also (D. C.) 208 F. 182, and 216 F. 471, 132 C. C. A. 518. In the present instance it is not and cannot be asserted that Mr. Garrison's period of investigation and provisional operation (from July 15 to September 30) was unduly prolonged, or that actual surrender on October 18 was not prompt.
Further, it has been pointed out that, if the lease be rejected at the end of the provisional period of operation and assumed reflection, such rejection dates back to the beginning of the receivership. 198 F. 744, 117 C. C. A. 503. This ruling is now called a dictum, and it may be admitted as unnecessary for decision of the matter then in hand; yet it is right, and only states a part of the principles hereinabove outlined. If the receiver is not virtute officii the assignee of the term, if he remains a stranger to the lease until he adopts it, he must, upon definitive action of adoption or rejection, be held to have occupied from the beginning the same position that he ultimately assumes. If he rejects, he must account from the beginning as one who rejects, and if he assumes, he must from the beginning conform to the terms of the contract he has assumed. No receiver can finally say: I will account for net earnings only while I was thinking the matter over, but now that I assume the lease I will hereafter pay rent as agreed. Such a rule of law would be unthinkable, and equity follows the law in such a matter.
It is now argued that the principle just stated has been either overruled or modified by the decision in the same case over the "Second Avenue Lease" (225 F. 734, 141 C. C. A. 6), but for that suggestion we can see no justification. Ward, J., there pointed out that a receiver, Thus this court recognized the obvious truth that a receiver, who is considering whether to assume or reject a lease, would find it difficult to persuade his own court that mere reflection on his part would long justify retention of the leasehold estate. He secures time for reflection, and ties the lessor's hands by paying accruing rental; i. e., living up to the lease, so that he can keep on thinking and experimenting. But (and this is crucial) he does not pay rental as one bound by the lease contract; he pays only to keep the lessor quiet, because the lessor is bound by his own contract.
In the Second Avenue Case the receiver had pursued this process, and found after some time that his rent payments exceeded net earnings for the period covered, whereupon he "asked to have such rent payments treated only as on account" (page 736 141 C. C. A. 8), and this in effect the court refused, holding him to rent payments while he had elected to pay rent and net earnings thereafter. See memo. on petition for rehearing 227 F. 1021, 141 C. C. A. 671, for the plainest statement on this point. Thus the case of the Second Avenue lease is not one changing or retracting any of the principles regulating the relation of receivers of leased transportation...
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In re Central of Georgia Ry. Co., 4829.
...Parker v. Gortatowsky, 129 Ga. 623(4), 59 S.E. 286. 26 Palmer v. Palmer, 2 Cir., 104 F.2d 161(2), 163; Westinghouse Elec. & Mfg. Co. v. Brooklyn R. T. Co., 2 Cir., 6 F.2d 547, 548(6), 549. 27 Reconstruction Finance Corp. v. Pelts, 7 Cir., 123 F.2d 503, 504(3), ...
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