American Houses v. Schneider

• Decision Date: 08 April 1954
• Docket Number: No. 11147.,11147.
• Citation: 211 F.2d 881
• Parties: AMERICAN HOUSES, Inc. v. SCHNEIDER et al.
• Court: U.S. Court of Appeals — Third Circuit

211 F.2d 881 (1954)

AMERICAN HOUSES, Inc. v. SCHNEIDER et al.

No. 11147.

United States Court of Appeals Third Circuit.

Argued December 10, 1953.

Decided April 8, 1954.

Earl G. Harrison, Philadelphia, Pa. (William S. Hudders, Allentown, Pa., Edward W. Mullinix, Philadelphia, Pa., Schnader, Harrison, Segal & Lewis, Philadelphia, Pa., Butz, Hudders, Tallman & Rupp, Allentown, Pa., on the brief), for appellants.

Harold E. Kohn, Philadelphia, Pa. (Richardson Dilworth, William T. Coleman, Jr., Dilworth, Paxson, Kalish & Green, Philadelphia, Pa., Paul, Weiss, Rifkind, Wharton & Garrison, New York City, on the brief), for appellee.

Before KALODNER, STALEY and HASTIE, Circuit Judges.

HASTIE, Circuit Judge.

The plaintiff in this case, American Houses, Inc., is a tenant in possession of a Pennsylvania industrial plant under a lease assigned to it by the United States, the original lessee. The plaintiff has invoked the equity jurisdiction of a federal district court to restrain the defendant owner and lessor, who has served it with a notice to quit, from taking any further steps to disturb its possession. The court granted the requested relief and the lessor has appealed.

The United States rented the premises from the defendants in 1943 for development and use as a war plant. In 1946 the government subleased the property to the plaintiff, and in 1950 for value assigned the entire leasehold to the plaintiff, with notice thereof to the defendant. As part of a total consideration of $125,000 the United States accepted the assignee's note for $100,000 payable in five years, and the assignment provided that this deferred payment be "secured by Assignee's Mortgage on the interest of Assignee in the Lease * * *."

By its terms the lease was to expire "one year after the termination of the present national emergency". The instrument also gave the lessee the option of successive five year renewals to aggregate not more than fifty years. In this connection it was also provided that "notice of * * * lessee's desire to exercise this option shall be given the lessor * * * in writing at least thirty days prior to the expiration of the * * * term."

On April 10, 1953, the lessor sent the lessee a notice to quit asserting that the primary term of the lease would expire at the end of that month. On April 16, the lessee replied denying that the term was about to end, but in any event giving notice that it wished to renew for five years. One disputed matter in the controversy thus precipitated is the time of "the termination of the present national emergency" upon which the expiration of the primary term depends. There is also the question whether the circumstances are such that equity should intervene to relieve the tenant of the agreed thirty days notice of its intention to renew.

Approaching these questions we must first decide what law is applicable to their solution. The plaintiff's pleadings and proof were such as to bring this case within federal diversity jurisdiction. But beyond that, this is a dispute about the construction of a lease executed by the United States in exercise of war powers, and the equitable enforcement of rights derived from that instrument. Therefore, we apply the specific holding of this court that "* * the decisions of the Supreme Court in Clearfield Trust Co. v. United States, 318 U.S. 363, 366-367, 63 S.Ct. 573, 87 L.Ed. 838, and United States v. Allegheny County, 322 U.S. 174, 182-183, 64 S.Ct. 908, 88 L.Ed. 1209, require the conclusion that the federal law governs the rights of the parties under a lease executed by the United States." Girard Trust Co. v. United States, 3 Cir., 1945, 149 F.2d 872, 874; cf. United States v. Le Roy Dyal Co., 3 Cir., 1950, 186 F.2d 460. For comprehensive discussion of the jurisdictional problem, see Note, 59 Harv.L.Rev. 966; Note, 53 Col.L.Rev. 991. It is true that the United States was a party in the Girard Trust case. In the present case the United States, as authorized by federal statutes, has assigned its lease to plaintiffs, retaining a security interest in the assigned term until the consideration shall be fully paid. We think this assignment should not and does not change the law applicable to the construction of the basic lease or the judicial technique by which it is determined whether equity shall give effect to an attempted renewal challenged as falling short of literal compliance with the terms of the lease. This conclusion is the clearer here because this adjudication as to the survival of the leasehold necessarily determines whether the government's security interest in the lease shall survive. Cf. United States v. County of Allegheny, 1944, 322 U.S. 174, 183, 187, 64 S.Ct. 908, 88 L.Ed. 1209, distinguishing City of New Brunswick v. United States, 1928, 276 U.S. 547, 556, 48 S.Ct. 371, 72 L.Ed. 693. Matters thus related to an undertaking of the United States and its persisting rights in that connection are to be adjudicated according to the federal courts' understanding of legal and equitable principles and redressed in a way which the federal courts find appropriate and within their competence. A federal court proceeds to such adjudication without obligation of deference to the landlord and tenant law of any state or to any limitations which a state may impose on its courts in affording a remedy when similar matters regulated by state law are litigated in local courts. Accordingly, we examine the merits of this case guided by state rules and precedents only in so far as in professional judgment we may be persuaded that they are sound.

Where a lease gives the lessee a privilege of renewal which may be exercised by notice to the lessor at or before a specified time it may happen that the notice is tardy and the lessor refuses to honor it. Rather frequently a lessee in this position will ask a court of equity to relieve him of the strict letter of his bargain, arguing on the one hand that the failure to receive notice on or before the due date did not cause the landlord to change his position, and on the other that loss of the contemplated renewal would work a great and irreparable hardship upon the lessee. It is rather generally considered within the province of equity to consider such claims, and in real hardship cases to allow a renewal despite slight, relatively inconsequential and excusable tardiness. Galvin v. Simons, 1942, 128 Conn. 616, 25 A.2d 64; Marjer v. Layfmen, 1947, 140 N.J.Eq. 68, 53 A.2d 187; Dugan v. Haige, Fla.1951, 54 So.2d 201; cf. White v. Long, 1927, 289 Pa. 525, 137 A. 673. We believe this is sound and salutary equity doctrine and practice. It merits acceptance and application by the courts of the United States in cases arising under leases which are primarily of federal concern. Therefore, in this case we examine the equities to see whether we agree with the district court that it is fair to direct that the tenant be accorded the benefit of a renewal of its lease without strict compliance with the agreed condition as to notice.

The first relevant consideration is that the delay in giving notice resulted...