Ellis v. Rafferty

• Decision Date: 25 September 1912
• Docket Number: 1,615.
• Citation: 199 F. 80
• Parties: ELLIS v. RAFFERTY.
• Court: U.S. Court of Appeals — Third Circuit

199 F. 80

ELLIS v. RAFFERTY.

No. 1,615.

United States Court of Appeals, Third Circuit.

September 25, 1912

Charles H. Sachs, of Pittsburgh, Pa., for appellant.

Joseph Stadtfeld, of Pittsburgh, Pa., for appellee.

Before GRAY, Circuit Judge, and McPHERSON and RELLSTAB, District judges.

RELLSTAB District Judge.

The appellant is the trustee of the estate of the Boyd Clothing &amp Suit Company (corporation), and the appellee is the landlord of the premises which were occupied by the bankrupt. The question raised by the record is whether the appellee is entitled to recover from the estate the sum of $2,646.31, a part of the taxes assessed against said premises for the year 1911, and the sum of $158.32, water rent affecting the same premises.

It is conceded that such claim is presented solely in the interest of Mr. M. L. Roth, the purchaser of the bankrupt's property, who paid such taxes and water rents as a condition to obtaining the lease for the premises. The referee disallowed the claim on the ground that it had been paid by Roth pursuant to the agreement between him and the receiver as part consideration for the sale of the bankrupt's property. The District Court reversed the referee's findings, and allowed the claim on the ground that by the terms of the lease such taxes and water rents became due and owing by the bankrupt, and that the advances made by Roth in procuring the new lease were not as payment of such claim. It is also conceded that except for the transactions involving the sale of the bankrupt's property, and the making of a new lease between the purchaser thereof and the appellee, the latter's claim would have been a charge upon the estate.

At the time the petition in bankruptcy was filed-- May 29, 1911-- the bankrupt was in possession of the premises by virtue of a lease dated August 25, 1910, having an unexpired term of nearly 10 years, but forfeitable at the option of the landlord upon inter alia the filing of such a petition. In addition to the definite yearly rent reserved, payable monthly, this lease required the bankrupt to pay, inter alia the water rent and the city and county taxes assessed against the leased premises, which charges, with others imposed upon the tenant, the lease referred to as 'additional rent.' The city taxes were to be paid on or before March 31st, and the county taxes on or before August 1st, in each year. No specific date was named for the payment of the water rent; the requirement in that behalf, as in regard to gas and electricity, being in the following language:

'This additional rent to be due and payable when from time to time such respective debts, claims and assessments shall become payable.'

At the time of the filing of such petition the bankrupt had not paid the water rent claimed; but whether it was the entire rent for the current year, and when it was payable, does not appear. The taxes, under the city's regulations, were payable in two installments, one in March and the other in September. The bankrupt had paid the March installment, and, if that covered all the taxes payable in March according to the terms of the lease, the bankrupt had not defaulted in the payment of taxes.

The appellant, as receiver of the bankrupt's estate, was in possession of the leased premises and the bankrupt's property contained therein from May 31, 1911, until the 7th day of July following, when he sold the bankrupt's stock, fixtures, and good will to M. L. Roth for $18,500. No bill of sale or other writing evidencing the transfer of title was given by the receiver, the title being transferred by a physical delivery made on the leased premises to which the receiver and purchaser had repaired on July 7, 1911, immediately following the court's confirmation of the receiver's acceptance of a private written bid, of which the following is a copy:

'A. C. Ellis, Esq.,

July 7th, 1911.

'Receiver, 301 Renshaw Bldg., Pittsburgh, Pa.

'Dear Sir: We herewith submit an offer of eighteen thousand five hundred dollars ($18,500) for the entire stock of merchandise, fixtures and good will of the Boyd Clothing and Suit Company, at No. 221 Fifth Avenue, Pittsburgh, Pa., including all goods in storage, conditioned upon the same being accepted on or before July 7, 1911, the estate to be released from the payment of rent on and after the date of the confirmation of the sale to the undersigned.

'Respectfully yours,

Horn Bros.'

The receiver did not know that Roth was to be the purchaser until after his acceptance of Horn Bros.' bid was confirmed. Previous to any negotiations for sale, Roth aided the members of the bankrupt corporation in an endeavor to effect a composition with its creditors. This failing, he and Horn Bros. became prospective purchasers. However, instead of acting independently and competing with each other, they entered into an agreement whereby only Horn Bros. were to bid, and who, in the event of securing an acceptance of their bid, were to turn it over to Roth for the consideration of $1,000. In pursuance of such agreement, the attorney of Horn Bros. began negotiations with the receiver, and submitted several bids in their name. W. R. Boyd, the secretary of the bankrupt, was a party to this arrangement between Roth and Horn Bros. and the subsequent negotiations with the receiver for the purchase of such property. Boyd's identification with, and interest in, such combine, is well shown in the following excerpt from his testimony:

'Q. You were familiar with the purchase of the stock by Mr. Roth? A. I was.

'Q. How did you get your knowledge about it? A. I was there during the negotiations between them.

'Q. Between whom? A. Between Alpern, Horn Bros., Roth, my brother, and myself.

'Q. State what took place? A. Well, we were trying to buy the stock of goods belonging to the Boyd Clothing & Suit Company, and Mr. Roth offered to put up the money to buy it. We employed Alpern as attorney to make the negotiations with Mr. Ellis. We also agreed to pay Horn Bros. a certain fee, provided the sale was made-- (interrupted). (Objected to as incompetent and irrelevant, as having no effect on the landlord's claim.) We made three different bids with Mr. Ellis for the goods, and he finally accepted $18,500, and Mr. Roth gave his check for it.'

Boyd's interest did not end with the sale, but continued until after Roth had obtained a new lease for the premises from the landlord. Horn Bros., it will be noted, made no offer to the receiver for the unexpired term of the lease, and the latter made no attempt to sell it. That such unexpired term was a valuable asset is established by the new lease subsequently entered into between Roth and the landlord, as it provided for a shorter term with increased rent, and that such asset might have inured to the benefit of the estate is properly inferable from the testimony of J. W. Stoner, attorney of the landlord, who, in response to the referee's questioning about the making of a new lease, testified as follows:

'Q. Did Mr. Roth make his application to continue the Boyd lease, or did you head that off, and state you would not do it? A. The application first made by Mr. Roth, together, however, with Boyd, was to continue the old Boyd lease.

'Q. And objection was made to that by you on behalf of Mr. Rafferty? A. Yes; but I may say, if your honor please, that we would have continued under the lease.

'Q. There were lengthy negotiations between Mr. Rafferty and Mr. Roth looking to the continuation of the old lease? A. Yes; between his agents.'

During the negotiations for the sale of the property, the attorney for the bidder told the receiver that a lease had been signed for the premises; and the latter's failure to ascertain from the landlord whether he would forego his right to terminate the lease and permit a sale of the unexpired term...