American Brake Shoe & Foundry Co. v. New York Rys. Co.
| Decision Date | 16 January 1922 |
| Parties | AMERICAN BRAKE SHOE & FOUNDRY CO. v. NEW YORK RYS. CO. |
| Court | U.S. District Court — Southern District of New York |
Winthrop & Stimson, of New York City (Allen T. Klots, of New York City, of counsel), for receiver.
Watson Harrington & Sheppard, of New York City (Archibald R. Watson John H. Harrington, and Ralph O. Willguss, all of New York City, of counsel), for Frank A. Munsey Co.
So far as concerns the construction of the leases, the case, though in equity, should be determined by local law. In Orr v Doubleday, Page & Co., 223 N.Y. 334, 119 N.E. 552, 1 A.L.R. 338, the Court of Appeals adopted a principle not in accord with some authorities; but Judge Collin's opinion is convincing, and announced a doctrine which, it seems to me, is sound both as matter of law and wise from a business standpoint and is applicable to this case.
In the case at bar, there was a present demise, the legal consequences of which are not affected by the executory covenants as to furnishing heat, electric current, etc. These, in certain circumstances, the receiver might refuse to carry out, and yet the lessee would be entitled to the possession of the premises. There may well be, as suggested on the argument, a difference in the position of a receiver as lessee and as landlord.
The theory of an equity receivership, such as this, is that the court is preserving the property. Hence, if rent cannot be paid by the receiver, or, in the light of financial conditions, has become burdensome, and it appears that loss may or will ensue, the lease may be disaffirmed. So, too, if the receiver, as landlord, will cause loss to the estate by carrying out the affirmative covenants of the lease, it would ordinarily be the duty of the court to instruct him to disaffirm.
But a court of equity should not instruct a receiver to disaffirm a lease as landlord merely because the corporation lessor made what, at this moment, might be a bad bargain, although a good enough bargain originally. It is the duty of the receiver to make every proper effort to increase the assets of an estate but not at the expense of fundamental principles of fair dealing. When a lessee under a lease takes possession, the lease presupposes continuance, even in the face of a receivership of the landlord, so long as the landlord's receivership estate is not burdened or put to loss, and by 'burdened' is not meant that the lease could...
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...See, e.g., Code cases cited in text supra; P. Murphy, Creditors Rights in Bankruptcy at § 9.03, where American Brake Shoe & Foundry Co. v. New York Railways, 278 F. 842 (S.D.N.Y.1922), an earlier case espousing the burdensomeness test, is described as doubtful authority in light of the subs......
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