Gazlay v. Williams

• Decision Date: 30 July 1906
• Docket Number: 1,578.
• Parties: GAZLAY et al. v. WILLIAMS
• Court: U.S. Court of Appeals — Sixth Circuit

147 F. 678

GAZLAY et al. v. WILLIAMS

No. 1,578.

United States Court of Appeals, Sixth Circuit.

July 30, 1906

Oscar W. Kuhn, for appellants.

Pogue &amp Pogue (Province M. Pogue, of counsel), for appellee.

Before LURTON and SEVERENS, Circuit Judges, and COCHRAN, District judge.

COCHRAN District Judge.

This appeal involves a controversy which arose in the course of the involuntary proceeding in bankruptcy against one Harry D Brown, pending in the lower court. It is a controversy between the appellee, his trustee in said proceeding, and the appellants, who are lessors in a certain lease under which at the time of the institution of said proceeding, said bankrupt held a certain leasehold estate. The lease covered certain premises on the east side of Vine street, between Fifth and Sixth streets, Cincinnati, Ohio, known as the 'Majestic Cafe.' It was executed July 16, 1902, and was for a period of 10 years from July 7, 1902, with the privilege of renewal for an additional 10 years, and was upon an annual rental of $7,000 payable monthly, to secure payment of which a lien was retained in the lease on the leasehold estate thereby granted. The original lessee was one Joseph D. Kueny, and the bankrupt acquired the leasehold estate by purchase at a judicial sale in a suit brought by appellants, lessors in said lease, against said Kueny in the superior court of Cincinnati to enforce said lien. Suit was brought April 9, 1904, and the sale was had and confirmed in June and July, 1905. Pending the suit the premises were in charge of a receiver. The petition in said suit sought a sale of the leasehold estate, 'subject to the terms, covenants, and conditions contained' in said lease; but the order of sale and confirmation contained no such provision. Said Brown, immediately upon his purchase, entered into possession, made extensive improvements on the property, and paid the rent regularly until January 1, 1906. On January 17, 1906, said bankruptcy proceeding was instituted against him, and on same date the appellee, Fletcher R. Williams, was appointed receiver therein. An adjudication was had on February 19, 1906, and on February 27, 1906, appellee was elected trustee. Upon his appointment as receiver, appellee took possession of the premises, and he has been in possession ever since, as receiver, until February 27, 1906, and as trustee since then. On February 1, 1906, appellee, as receiver, paid the rent for the month of January, and on March 6, 1906, as trustee, he paid it for the month of February. Both payments were made to the appellant W. H. Gazlay, who was acting as agent for all the lessors. Said leasehold estate was appraised as part of the assets of said bankrupt at the sum of $10,000. The controversy which arose in said proceeding concerned the leasehold estate in said premises under said lease held by appellee, and in particular the character of his title thereto. The lease contained a provision in these words:

'Provided, however, that if said rent or any part thereof shall remain unpaid for-- days after it shall become due and without demand therefor; or if said lessee shall assign this lease or underlet said leased premises or any part thereof, or if said lessee's interest therein shall be sold under execution or other legal process without the written consent of said lessors, their heirs or assigns, is first had; or if said lessee or assigns shall fail to keep any of the other covenants of the lease by said lessee to be kept, it shall be lawful for said lessors, their heirs or assigns, into said premises to re-enter and the same to have again, repossess and enjoy as in their first and former estate, and thereupon this lease and everything contained on the said lessors' behalf to be done and performed shall cease, determine and be void.'

It was not contended by appellants that said provision affected the passage of the leasehold estate from Kueny, the original lessee, to said Brown by virtue of the proceedings in the superior court of Cincinnati, or its passage from said Brown to appellee upon his appointment as trustee, as of the date of the adjudication. But it was contended by them that a sale by appellee of said leasehold estate for the benefit of the creditors of said Brown would, because of said provision, operate as a forfeiture thereof, and that thereupon they would be entitled to enter and repossess themselves of the premises, and they seem to have notified appellee from the time of his appointment as receiver that they would not consent to such sale. In view of this contention on the part of appellants, the appellee, on March 1, 1906, filed a written application in the lower court in said bankruptcy proceeding to have appellants brought before the court, the character of his title to said leasehold estate determined, and it quieted from the adverse claims of the appellants. Subpoena issued upon the application and was served upon all of the appellants. They appeared and moved the court to dismiss the application for want of jurisdiction in it to so proceed against them and dispose of their claim. This motion and the merits of the controversy were referred to the referee, who upheld the jurisdiction of the court and decided against appellants' claim. The matter was then brought before the lower court by a petition for review, which confirmed the order of the referee and dismissed the petition. This appeal is from that action of the lower court.

No point is made here as to that court not having jurisdiction to so proceed against appellants and dispose of the controversy between them and appellee. It is well settled that it had such jurisdiction. Whitney v. Wenman, 198 U.S. 539, 25 Sup.Ct. 778, 49 L.Ed. 1157. Nor is any point made as to the appellees' right to have the validity of the appellants' claim heard and determined in advance of a sale by him of the leasehold estate. His application to that end was in the nature of a bill to remove a cloud on his title. Blair v. City of Chicago, 201 U.S. 400, 26 Sup.Ct. 427, 50 L.Ed. 801. The arguments here relate solely to the merits of the controversy.

The appellee maintains, on several grounds, that a sale by him of the leasehold estate for the benefit of creditors will not work a forfeiture thereof. He contends that this case comes within the rule laid down in Dumpor's Case, 4 Coke, 119b (1 Smith's Lead.Cases, 15). That rule is that where a lease is upon a proviso that the lessee shall not alien without the special license of the lessors, if the license is once given, the condition is annulled, removed, or destroyed; that is, has spent its force, so that it can have no effect on a subsequent alienation. Here the interest of Kueny, the original lessee, was sold to said Brown by the procurement of appellants. This, it is urged, exhausts the condition and brings the case within the rule stated. On the other hand, it is contended by appellants that their case is prevented from coming within the rule by the fact that in their petition in the state court they sought a sale of the unexpired term of the leasehold estate, 'subject, however, to the terms, covenants, and conditions contained' in the lease. It is to be noted in this connection that the sale that was had was one that was contemplated by the lease, in that a lien was retained therein on the leasehold estate created thereby to secure payment of the rent.

Appellee contends, further, that the acceptance of the rent for January and February from the appellee as receiver and trustee was a waiver of the right to claim a forfeiture in case of a sale by the appellee. In answer to this contention it is urged by the appellants that appellee, as trustee, took title to the leasehold estate, the passage of the title thereto from the bankrupt to him not being affected by the condition in the lease, and therefore he had the right to pay the rent and appellants were bound to accept it. The other ground relied upon by appellee is that a sale by him as trustee for the benefit of creditors is not forbidden by the condition, and will, therefore, not be a...