In re Barnett

• Decision Date: 08 March 1926
• Docket Number: No. 14.,14.
• Parties: In re BARNETT. Appeal of UNITED CIGAR STORES CO. OF AMERICA.
• Court: U.S. Court of Appeals — Second Circuit

12 F.2d 73 (1926)

In re BARNETT Appeal of UNITED CIGAR STORES CO. OF AMERICA.

No. 14.

Circuit Court of Appeals, Second Circuit.

March 8, 1926.

Stroock & Stroock, of New York City (Charles Levy and I. B. Levine, both of New York City, of counsel), for appellant.

Kremer & Leavitt, of New York City (Samuel Leavitt, of New York City, of counsel), for respondent.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

ROGERS, Circuit Judge.

The United Cigar Company of America, a corporation organized under the laws of the state of New Jersey, entered as lessor into two leases. The premises involved in each were situated in the city of Pittsburgh in the state of Pennsylvania. The leases were signed and delivered in the city of New York, where the lessor maintained an office, and where the rentals were to be paid as they became due.

The first lease was for a term commencing on September 1, 1921, and ending on August 31, 1926, at 8 a. m., at the annual rent of $7,500. And the second lease was for a term commencing on June 1, 1922, and ending on August 31, 1926, at 8 a. m., at the annual rent of $900. The lessee covenanted in each lease to pay the rent in equal monthly payments, punctually in advance on the 1st day of each and every month.

The first lease was made to Harry W. Culver and Patrick H. Ryan, doing business under the firm name of Culver & Co., in the city of New York. This lease was assigned on June 23, 1922, to Bertrand Barnett, who was engaged in business in New York and Philadelphia, and who is the bankrupt herein, having been adjudged a bankrupt in the Southern District of New York on October 9, 1922. At the time of the assignment of this lease to Barnett he assumed all the terms and provisions therein and agreed to perform the same. The second lease was made directly to Bertrand Barnett, trading under the firm name of Culver & Co.

At the time the first lease was entered into the lessee, as security for the faithful performance of the covenants of the lease, deposited with the lessor $1,200 in Liberty bonds. At the time these bonds were so deposited, the lessee signed a writing in which the conditions under which the deposit was made were stated. The essential portions of the statement may be found in the margin.¹ This deposit of bonds was for the performance by the lessee of his covenants contained in the first lease, and is without application to the second lease afterwards executed. The agreement under which the bonds were deposited contains no reference to the second lease, and that lease contains no allusion to it. The first lease itself contained a provision relating to the bonds. After stating that they were to be held by the lessor for the punctual payment of the rent and the performance of each covenant contained in the lease, it provided as is set forth in the margin.²

An involuntary petition in bankruptcy was filed against Barnett on October 4, 1922, and a receiver in bankruptcy was appointed. Thereafter, and on October 16, 1922, the lessor sent to the bankrupt, and to the receiver of the bankrupt, a notice that the two leases, hereinbefore set forth, were canceled and terminated, and would expire under and pursuant to the notice on October 20, 1922, and that "on or before which date you will be required to vacate and surrender possession of the premises to the undersigned."

The notice was given under and pursuant to the rights afforded to the lessor under and by the terms of the leases and more particularly to the provision thereof reading as follows: "If at any time, proceeding in bankruptcy shall be instituted by or against the lessee * * * or if a receiver or trustee shall be appointed of the lessee's property or if this lease shall by operation of law, devolve upon or pass to any person or persons other than the said lessee personally, then and in each of said cases this lease shall cease and come to an end three days after notice shall be sent by mail by the lessor to the lessee addressed to the premises. Upon such termination all future installments of rent unpaid, and all other sums due and payable or to become due and payable by the lessee shall at once become due and payable."

Pursuant to the above notice the landlord took possession of the demised premises on October 20, 1922. This possession he took not for the purpose of reletting the premises for the benefit of the tenant thereby diminishing by the amount received by the reletting the amount due from the tenant for the remainder of the term, but possession was resumed for his own benefit as the leases were "canceled and terminated."

The receiver in bankruptcy having realized from the sale of the fixtures $625, the lessor moved before the referee for an order requiring the trustee to pay to it that amount. The trustee did not dispute the landlord's right to the amount realized from the sale of the fixtures, but claimed that this sum should be taken out of the Liberty bonds which the landlord held as security under the lease, and that the balance of such bonds should then be turned over to him. The referee sustained this claim of the trustee, and by an order dated November 7, 1924, he directed the United Cigar Stores Company of America to apply so much of the Liberty bonds which it held on deposit under the lease for the satisfaction of its claim for the $625 as a priority claim under the Pennsylvania law for accrued rent, and further directed that the balance of the bonds, together with such accumulations of interest as it had received on the said bonds, be paid over to the trustee. The order stated the par value of the bonds as $1,250, and the accumulations thereof as being $125.38. The aggregate amount of the bonds and interest, therefore, was fixed at $1,375.38, and, after deducting the amount of $625 realized from the sale of the fixtures, left the sum of $750.38 in the hands of the United Cigar Stores Company, which was to be paid over by it. It resulted from this that the balance of the rent due at the time the petition in bankruptcy was filed, and which amounted to $1,400, after deducting the $625, left the sum due for the unpaid rent, $775, as a general claim against the assets of the bankrupt.

The United Cigar Stores Company, feeling itself aggrieved by this order, sought to have it revised and reversed by the District Judge. But after a hearing of all parties an order was entered in the District Court dated January 24, 1925, which in all respects approved and affirmed the order of the referee. From this order, thus approved and confirmed, the case was brought to this court on appeal and petition to revise.

This court has many times said that the two remedies are not cumulative, and are mutually exclusive. We disapprove the practice of bringing a case into this court by both remedies. No one probably would think of bringing a case here by writ of error and also by an appeal, and excuse the course pursued by setting up ignorance of the proper procedure. It is perfectly plain that the questions involved herein arise in a "proceeding in bankruptcy," and not in a "controversy" arising in bankruptcy proceedings. The court is therefore entitled to revise on matter of law the proceedings in the District Court by virtue of section 24b (Comp. St. § 9608). This is not an attempt to review a judgment allowing or rejecting a debt or claim of $500 or over, and therefore cannot be brought here by way of appeal under section 25a (3), being Comp. St. § 9609. The appeal is dismissed, and the case will be disposed of on the petition to revise.

The questions to be considered grew out of leases made and delivered in New York state, where the rentals also were to be paid, and the premises demised were situated in the state of Pennsylvania; and if a conflict of law exists as to the rights of the parties under the leases, by the law of which state are the rights to be determined?

It is an unquestionable principle of general law that the law of the state in which land is situated controls its alienation, transfer, and descent. In United States v. Crosby, 7 Cranch, 115, 3 L. Ed. 287, Mr. Justice Story, writing for the court in 1812, declared that the court "are clearly of opinion that the title to land can be acquired and lost only in the manner prescribed by the law of the place where such land is situate." Clark v. Graham, 6 Wheat. 577, 5 L. Ed. 334; Kerr v. Moon, 9 Wheat. 565, 570, 6 L. Ed. 161; McCormick v. Sullivant, 10 Wheat. 192, 202, 6 L. Ed. 300; Taylor v. Benham, 5 How. 233, 273, 12 L. Ed. 130; McGoon v. Scales, 9 Wall. 23, 19 L. Ed. 545; Burbank v. Conrad, 96 U. S. 291, 298, 24 L. Ed. 731; Brine v. Insurance Co., 96 U. S. 627, 639, 24 L. Ed. 858; Schley v. Pullman Car Co., 7 S. Ct. 730, 120 U. S. 575, 580, 30 L. Ed. 789; Langdon v. Sherwood, 8 S. Ct. 429, 124 U. S. 74, 81, 31 L. Ed. 344; DeVaughn v. Hutchinson, 17 S. Ct. 461, 165 U. S. 566, 570, 41 L. Ed. 827; Clarke v. Clarke, 20 S. Ct. 873, 178 U. S. 186, 191, 44 L. Ed. 1028; Olmsted v. Olmsted, 30 S. Ct. 292, 216 U. S. 386, 393, 54 L. Ed. 530, 25 L. R. A. (N. S.) 1292; Munday v. Wisconsin Trust Co., 40 S. Ct. 365, 252 U. S. 499, 503, 64 L. Ed. 684. This is not only the law of the federal courts, but of the state courts as well, and it is our understanding that it is the law of all countries. This court had occasion to apply the rule in Hotel Woodward v. Ford, 258 F. 322, 169 C. C. A. 338.

In Wharton on Conflict of Laws (3d Ed.) vol. 2, c. 7, the writer states that, under the Roman law, the English common law, and that of the United States, real estate in all jurisdictions and by an uninterrupted current of authority is held subject to the lex rei sitæ.

A "lease," strictly speaking, as Blackstone defined it, "is a conveyance of any lands or tenements (usually in consideration of rent or other annual recompense) made for life, for years, or at will, but always for a less time than the lessor hath in the premises." 2 Blackstone's Com. 317. A lease creates an estate...