BJM Realty Corporation v. Ruggieri

• Decision Date: 11 December 1963
• Docket Number: Docket 28428.,No. 163,163
• Parties: B. J. M. REALTY CORPORATION, Petitioner-Appellant, v. Joseph F. RUGGIERI, Trustee, Dilbert's Quality Supermarkets, Inc., Debtor, Appellees.
• Court: U.S. Court of Appeals — Second Circuit

326 F.2d 281 (1963)

B. J. M. REALTY CORPORATION, Petitioner-Appellant, v. Joseph F. RUGGIERI, Trustee, Dilbert's Quality Supermarkets, Inc., Debtor, Appellees.

No. 163, Docket 28428.

United States Court of Appeals Second Circuit.

Submitted November 8, 1963.

Decided December 11, 1963.

On Rehearing January 14, 1964.

Benjamin Masor, New York City, for petitioner-appellant.

Daniel A. Shirk and Joseph Jaspan, Brooklyn, for appellees.

Before WATERMAN, MOORE and SMITH, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge.

This is an appeal from an order of the District Court for the Eastern District of New York entered by Judge Matthew T. Abruzzo, denying the appellant-landlord's petition to require the debtor and its trustee in a Chapter X reorganization proceeding to vacate the leased premises. The District Court denied the motion on the ground that the landlord, by accepting certain payments from the debtor, had waived his right under the lease to terminate the tenancy. We hold the finding of waiver clearly erroneous on the evidence before the court and reverse and remand for a full hearing on the landlord's petition.

The premises were leased to the debtor on May 5, 1954 for fifteen years at a monthly rental of 1¼% of the lessee's gross income up to $2 million and 1½% of any income in excess of that amount. A minimum monthly rental of $1250 was guaranteed, payable in advance on the first of each month. Paragraph 17 of the lease provided that: "If the tenant shall file a petition in bankruptcy, * * or take advantage of any insolvency act, the Landlord may, if the Landlord so elects, at any time thereafter, terminate this lease and the term hereof, on giving to the Tenant five days' notice in writing of the Landlord's intention so to do. * * *" On November 21, 1962 the tenant-debtor filed a petition under Chapter XI (later converted to Chapter X) of the Bankruptcy Act. The landlord apparently visited the debtor in December of 1962 or early in January of 1963 and orally asked that the premises be vacated. On January 11, 1963 the debtor gave some confirmation of these visits by writing the landlord, asking for patience and promising to reorganize the lease. On January 25, 1963 the landlord served written notice of his intention to exercise the forfeiture provision in the lease, asking the debtor to be out by January 31, 1963. On February 4, 1963 the landlord moved for a court order requiring the debtor to vacate the premises, but for procedural reasons the motion was marked off the calendar without prejudice. On April 11, 1963 this petition was filed.

The District Court denied the motion on the sole ground that the landlord had waived his right to terminate the lease by accepting certain checks from the debtor. All the checks were stamped "debtor in possession"; all bore the notation that they were for a particular month's rent; and all were for the same amount — $1250. Check #1, dated November 29, 1962, had "For November Rent" typed on it; check #2, also dated November 29, had "For December Rent"; check #3, dated January 3, 1963, bore the words "Jan Rent"; check #4, dated January 29, 1963, read "Feb Rent"; and check #5, dated February 27, 1963, read "Mar Rent."

As a general rule, courts do not look kindly on lease forfeiture for filing a bankruptcy petition, but such forfeitures are nonetheless valid and enforceable. Finn v. Meigham, 325 U.S. 300, 301, 65 S.Ct. 1147, 89 L.Ed. 1624 (1945); Model Dairy Co. v. Foltis-Fischer, Inc., 67 F.2d 704, 706 (2 Cir. 1933). However, the forfeiture provision may be waived by the landlord, after he has learned of the lessee's breach, by conduct evidencing an intent to treat the lease as continuing rather than as terminated. See In re Wil-Low Cafeterias, 95 F.2d 306, 115 A.L.R. 1184 (2 Cir. 1938), cert. denied Wil-Low Cafeterias v. 650 Madison Avenue Corp., 304 U.S. 567, 58 S.Ct. 950, 82 L.Ed. 1533 (1938). One of the circumstances most frequently used to infer an election to waive the benefits of a forfeiture clause is the acceptance of rent accruing after the lessee's breach. See Model Dairy Co. v. Foltis-Fischer, Inc., supra; Geraghty v. Kiamie Fifth Avenue Corp., 210 F.2d 95 (2 Cir. 1954); In re Wise Shoe Co., 26 F.Supp. 762 (S.D.N.Y.1938).

Yet payments made to the landlord by a debtor in possession cannot be rent before the court has given its permission to affirm the lease, In re Walker, 93 F.2d 281, 283 (2 Cir. 1937), and nothing in the record indicates that this lease has been affirmed with permission of the court. In order to prevail, the trustee must prove that the landlord accepted "as rent" the payments made to him by the debtor after the landlord had learned that the forfeiture provision of the lease had been breached. Ibid. We hold that the trustee has fallen far short of carrying that evidentiary burden.

An intention to waive the forfeiture clause cannot be gleaned from acceptance of the fourth and fifth checks, for they were accepted, pursuant to a stipulation with the debtor's attorneys, as payments for "use and occupation charges * * * without prejudice to the pending proceeding." The first and second checks, dated November 29, 1962, were received prior to the first actual notice that the landlord had of the filing of the bankruptcy petition; this notice came from the letter of the Creditor's Committee, dated December 3, 1962. An intention to waive the forfeiture clause may not be inferred from the payment of rent that had accrued before the filing...