Empress Theatre Co. v. Horton

• Decision Date: 15 July 1920
• Docket Number: 5543.
• Parties: EMPRESS THEATRE CO. v. HORTON.
• Court: U.S. Court of Appeals — Eighth Circuit

266 F. 657

EMPRESS THEATRE CO. v. HORTON.

No. 5543.

United States Court of Appeals, Eighth Circuit.

July 15, 1920

Anan Raymond, of Omaha, Neb. (Francis A. Brogan, Alfred G. Ellick and John U. Loomis, all of Omaha, Neb., on the brief), for appellant.

G. L De Lacy, of Omaha, Neb. (J. A. C. Kennedy, Yale C. Holland and Charles F. McLaughlin, all of Omaha, Neb., on the brief) for appellee.

This appeal challenges a decree in equity against a lessor, the respondent below, upon the petition and at the instance of the trustee in bankruptcy of the estate of the lessee, which, in the absence of any mistake or accident, and of any fraud or wrong of the lessor, avoids and perpetually enjoins the performance of the express condition of the lease and the express covenants of the lessee therein, to the effect that in case of the insolvency or bankruptcy of the lessee the lease shall, on the election of the lessor, cease, its term shall end, the lessor may take immediate possession of the leased premises and put out all occupants and possessors thereof, and that no title, right, or interest in the leased premises under the lease shall pass without the consent of the lessor to any trustee in bankruptcy or by judicial process or by operation of law. The premises leased consist of the basement of a theater building in the city of Omaha. The lease was dated April 23, 1914. The Standard Limited, a corporation, was the original lessor, and the Empress Garden, a corporation, was the lessee. The purpose of the Standard Limited, in making the lease was to increase the patronage and business of the theater by securing the operation of a high-class cafe with special amusement features in this basement. To accomplish this object it took $42,000 of the corporate stock of the Empress Garden for this lease to the latter, and loaned it $80,000 to enable it to fit up the basement. This $42,000 of stock was the only consideration the Standard Limited or its successor in interest, the Empress Theatre Company, a corporation and the respondent here, to which it assigned its lessor interest on November 15, 1914, ever received and that stock became worthless through the insolvency and bankruptcy of the Empress Garden in 1915, and the latter corporation never paid any part of the loan to it of the $80,000, so that in fact neither the original lessor nor the respondent ever obtained anything of value from the Empress Garden for the lease.

At a sale by the trustee in bankruptcy of the estate of the Empress Garden of the lessee interest of that bankrupt corporation, one E. G. McGilton, as trustee of some lienholders, bought and secured an assignment of this lessee interest. Thereafter Philip H. Philbin borrowed $10,000 of Dr. J. T. Dwyer, used $9,000 of it to pay McGilton for his assignment of the lessee interest, and that interest was duly assigned to Philbin with the consent of the respondent on January 3, 1917. Philbin assigned this lease as collateral to secure his debt to Dr. Dwyer immediately after he acquired it.

Turning back, now, to the terms of the lease, it was a conditional lease, and it granted only a conditional term. It provided in its second paragraph that 'the party of the second part is to have the use of the said leased premises, rent free, until the expiration of the said term, that is to say, until the 31st day of January, 1928'; but the following conditions and covenants demonstrated the fact that it was only on condition that they were complied with and performed that the lessor was to have a lease of these premises for this long term. Thus the lease provided that the leased premises were to be used for restaurant and amusement purposes and that no part thereof should be used for any other or different purpose without the written consent of the lessor. The twelfth paragraph of the lease reads in this way:

'It is agreed that the covenants and agreements herein contained shall pass to and be binding upon the successors and assigns of the parties hereto: Provided, however, that this lease shall not be assigned, nor shall the said premises or any part thereof be sublet by the party of the second part, without the written consent of the party of the first part. No right, title, or interest upon this lease shall pass to any trustee in bankruptcy, or by judicial process, or by operation of law, without the consent of the party of the first part. The bankruptcy or insolvency of the party of the second part, or other tenant who may go into possession of the premises, with the written consent of the party of the first part, shall at the option of the party of the first part, work an immediate forfeit of the lease, and all interest of the party of the second part therein and thereunder, and the failure of the party of the first part to exercise its option and terminate the said lease on account of such bankruptcy or insolvency, in one case, shall not prevent its exercising its option in any subsequent case of like nature.'

Observe that while the consent of the respondent to the assignment of the lessee's interest to Philip F. Philbin estopped it from electing to terminate the lease on account of the prior insolvency and bankruptcy of the Empress Garden and the claim of its trustee in bankruptcy to sell it, the last clause of this twelfth paragraph expressly reserves to it the right to exercise its option and election on the occurrence of the subsequent insolvency and bankruptcy of the second bankrupt Philbin. The eleventh paragraph of the lease contains these covenants of the lessee:

'The party of the second part agrees that at the expiration of the term of the lease, or at or upon any earlier termination of the same, in case it should be sooner terminated, it will quietly and peaceably yield up to the party of the first part the possession of the leased premises. * * * It is expressly agreed by and between the parties hereto that, if any condition or agreement herein contained on the part or behalf of the party of the second part be not fully complied with and performed, then and in such case the party of the first part may terminate the lease and retake immediate possession of the premises and property, and put out and remove therefrom any and all persons occupying or in possession of the same.'

Philbin acquired the lessee interest in this lease January 3, 1917; he became insolvent early in 1918, and was adjudged a bankrupt on April 23, 1918. W. A. horton, the petitioner herein, was elected and qualified as his trustee in bankruptcy. The possession of the leased premises was delivered over to this trustee by Philbin, and there that possession still remains. Upon learning of the insolvency and bankruptcy of Philbin, the respondent, the Empress Theatre Company, in due time and form notified Philbin, the trustee in bankruptcy, and the bankruptcy court, that on account of the insolvency and bankruptcy of Philbin it elected to terminate the lease, to end its term, to forfeit it, and to take possession of the leased premises pursuant to the provisions of the lease which have been recited. Thereafter the trustee received an offer of $12,000 for his assignment of the lease, if he had the lawful right to sell and assign it. The respondent demanded the possession of the premises, protested against any sale or assignment of any interest in them, or of the lease by the trustee, and notified those who thought of buying that the trustee had no title or interest to sell. Thereupon the trustee filed and presented a petition to the court below sitting in bankruptcy, in which he set forth his claim to sell the leased premises and to apply the proceeds to the payment of the debt of Philbin to Dr. Dwyer, and the remainder to the payment of Philbin's general creditors, and prayed that the court would take jurisdiction of, determine, and adjudge the claims of the trustee and the respondent respectively to rights and interest in the leased premises under the lease, and that it would finally decree that these leased premises are the property of the trustee, that the respondent has no right, title, or interest therein, and that it be perpetually enjoined from seeking possession or use thereof, and from in any way interfering with the use, sale, or disposition thereof by the trustee, or by any one purchasing from him. The respondent set forth in its answer its claims to the possession and use of the property under the condition and covenants in the lease. Testimony was taken, and there was a final hearing of the issue by the referee in bankruptcy, and afterwards on a petition for review by the court below, and an order and decree was finally entered by that court against the respondent for the relief prayed by the trustee. From that decree the Empress Theatre Company has appealed.

Before SANBORN and CARLAND, Circuit Judges, and TRIEBER, District judge.

SANBORN Circuit Judge (after stating the facts as above).

If a lessor, for a gross consideration received by him at the time the lease is made, leases the valuable basement of a city building for a specific use free of subsequent rent for 15 years on the condition that in case of the insolvency or bankruptcy of the lessee, the term of the lease shall, at the election of the lessor, then terminate, the lease shall be forfeited, the lessor may take, and the lessee will deliver back to him, immediate possession of the leased premises, and no right, title, or interest shall pass to the trustee in bankruptcy of the lessor; if the lessee expressly covenants in the lease that, if any condition or agreement in the lease on his part is not fully complied with and performed, the lessor may terminate the lease and retake, and the lessee will deliver to him, immediate possession of the leased premises; if the lessee...