Bachner v. Robinson, 33.

• Decision Date: 06 November 1939
• Docket Number: No. 33.,33.
• Citation: 107 F.2d 513
• Parties: BACHNER v. ROBINSON.
• Court: U.S. Court of Appeals — Second Circuit

107 F.2d 513 (1939)

BACHNER v. ROBINSON.

No. 33.

Circuit Court of Appeals, Second Circuit.

November 6, 1939.

Joseph B. Kaufman, of New York City, for appellant.

Lord, Day & Lord, of New York City (Jesse Hoyt, of New York City, of counsel), for appellee.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

SWAN, Circuit Judge.

In April, 1934, the defendant Robinson leased real estate in New York City known as the Majestic Theatre to Fairdeal Enterprises, Inc., for a term of twenty-one years. The lessee was adjudicated bankrupt in June, 1936, and the plaintiff was elected its trustee. Thereafter he commenced the present action to recover the amounts of two payments alleged to be voidable preferences received by the lessor. After trial to the court without a jury, both causes of action asserted in the complaint were dismissed. The trustee in bankruptcy has appealed.

The first cause of action relates to arrears of rent. On April 29, 1936, the lessee entered into a contract to sell and assign its leasehold, together with all personal property contained in the leased building, to Crelian Amusement Corporation or its nominee. The lessee was then in default under its lease in respect to four monthly instalments of rent, aggregating $3,000, and also in respect to past due taxes in the amount of some $5,500 which the lessee had covenanted to pay. These items, as well as some other debts of the lessee, the purchaser agreed to assume as part of the purchase price. As the lease contained a prohibition against assignment without the written consent of the lessor, the contract of purchase was conditioned on the obtaining of such consent. The lessor refused to execute a consent until the arrears of rent should be paid. On May 9, 1936, they were paid by the purchaser's nominee, Straco Amusement Corporation, and her consent to the assignment of the lease to that corporation was then delivered. On this date the lessee was insolvent and we may take it that the lessor knew, or should have known, this fact. She did not, however, have knowledge of the terms of the April 29th agreement prior to the filing of the petition in bankruptcy.

Upon the foregoing facts the district judge ruled that no preference was received. This was plainly right. To constitute a preference the transfer under attack must diminish the bankrupt's estate. Continental & Commercial Trust & Savings Co. v. Chicago Title & Trust Co., 229 U.S. 435, 439, 444, 33 S.Ct. 829, 57 L.Ed. 1268. The payment of arrears of rent in order to obtain the lessor's consent to an assignment of the lease did not diminish the bankrupt's estate; on the contrary, it enabled the bankrupt to increase its estate by disposing of assets which otherwise would not have been saleable. Although the district judge made no specific finding on the point, it is apparent from the terms of the contract of April 29th that the lease had a value considerably in excess of the rent in arrears. Such value could be realized by the lessee only by obtaining the lessor's consent to assignment. Further more, even if the lease had been freely assignable, the unexpired portion of the lease stood as security for the payment of arrears because the lessor could evict the tenant or its assignee, if the arrears remained unpaid. N.Y.Civil Practice Act, § 1410(2). In reality, therefore, the lessor held a position analogous to that of a secured creditor; it is much as though there had been a mortgage on the leasehold which the purchaser insisted should be paid before he would take title. The payment of a secured claim is not a preference. Johnson v. Root Mfg. Co., 241 U.S. 160, 36 S.Ct. 520, 60 L.Ed. 934; Irving Trust Co. v. Bank of America Nat. Ass'n, 2 Cir., 68 F.2d 887, certiorari denied, 292 U.S. 628, 54 S.Ct. 630, 78 L.Ed. 1482. Hence, even if the case be viewed as though the assignee had paid the whole purchase price to the insolvent assignor and the latter had used a part thereof to pay...