In re Frazin

• Decision Date: 14 November 1910
• Docket Number: 31.
• Citation: 183 F. 28
• Parties: In re FRAZIN et al.
• Court: U.S. Court of Appeals — Second Circuit

183 F. 28

In re FRAZIN et al.

No. 31.

United States Court of Appeals, Second Circuit.

November 14, 1910

In 1907 the petitioner leased to the bankrupts certain premises in the city of New York, and this lease was in force at the time of the bankruptcy. The lease contained the following provision:

'If at any time during the term hereby demised, proceedings 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, then and in each of said cases it shall and may be lawful for the lessor, at the lessor's election, into and upon the said demised premises or property, or any part thereof in the name of the whole to enter the same and to have, hold, possess and enjoy.'

Receivers in bankruptcy were appointed in February, 1909, and they continued to occupy the leased premises, paying the stipulated rent, until August, 1909, when a trustee was appointed and took possession.

The lessor accepted one month's rent from the trustee, but the trustee did no affirmative act to accept the lease.

The trustee applied to the referee in bankruptcy for an order enjoining the petitioner from setting up any claim of the right to re-enter upon said premises in the event of the sale or assignment of the leasehold interest by the trustee. The referee denied this application of the trustee; but, upon review, the District Court reversed the order of the referee and enjoined the petitioner from re-entering upon said premises by reason of the breach of any covenant or condition in said lease.

The present petition is for the revision of said order of the District Court.

Stroock & Stroock (S. M. Stroock, Charles Levy, and E. F. Spitz, of counsel), for petitioner.

G. B Plante, for respondent.

Before LACOMBE, WARD, and NOYES, Circuit Judges.

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

It is clear that the lessor, by the acceptance of the rent stipulated in the lease, waived the right to re-enter on account of the bankruptcy or the appointment of the receiver or the trustee. The inquiry then is whether there was devolution of the lease by operation of law and whether the lessor waived the right of re-entry by reason of it.

If the title to the leasehold interest devolved upon the trustee immediately upon his appointment, it is manifest that a breach of the condition took place at that time, and the lessor by thereafter accepting rent from the trustee waived the right to re-enter and was properly enjoined.

On the other hand, if the title to the leasehold interest did not pass to the trustee until after some act of acceptance upon his part, then there was no devolution of title prior to the receipt of the rent from the trustee, and, consequently, no waiver and no ground for the injunction. So the real question in the case is this: When does the title to a lease held by a bankrupt vest in the trustee?

In the very recent case of In the Matter of Roth & Appel, 181 F. 670, decided by this court in August, 1910, it was said:

'We think the early law as stated in Ex parte Houghton, supra (1 Low. 554, Fed. Cas. No. 6,725), is the law under the present bankruptcy statute applicable in the case of leases having the usual covenants and conditions. In that case the court said:

''The earlier law of England, which we have adopted in this country, was that the assignees of a bankrupt have a reasonable time to elect whether they will assume a lease which they find in his possession; and, if they do not take it, the bankrupt retains the term on precisely the same footing as before, with the right to occupy, and the obligation to pay rent.''

A further examination of the authorities confirms our opinion that the extract from Ex parte Houghton correctly states existing law.

The early English bankruptcy statute was construed in the leading case of Copeland v. Stevens, 1 B. & Ald. 593, decided in 1818; Lord Ellenborough writing the opinion. The following is the headnote of that case:

'The general assignment of a bankrupt's personal estate under the commission does not vest a term of years in the assignee, unless they do some act to manifest their assent to the assignment as it regards the term, and their acceptance of the estate, rents, etc. And therefore till some act of this sort is done by them, the term still remains in the bankrupt, and he is liable to the payment of rent accruing due subsequent to the bankruptcy.'

The later English statutes provide for the vesting of a bankrupt's property in the trustee and expressly authorize him to disclaim burdensome leases. Under these statutes, it is held that the title to all leases vests in a trustee upon his appointment, and that he is liable upon them unless he disclaim them. But, in view of the changes in the acts, the later decisions can hardly be regarded as materially modifying the law of the earlier English cases or as affecting the American decisions referring to them.

The law as stated in Ex parte Houghton is also in accordance with decisions of the Supreme Court of the United States and other courts under the bankruptcy act of 1867 (Act March 2, 1867, c. 176, 14 Stat. 517).

In Dushane v. Beall, 161 U.S. 513, 515, 16 Sup.Ct. 637, 638, 40 L.Ed. 791, the Supreme Court said:

'It is well settled that assignees in bankruptcy are not bound to accept property which, in their judgment, is of an onerous and unprofitable nature, and would burden instead of benefit the estate, and can elect whether they will accept or not after due consideration and within a reasonable time, while, if their judgment is unwisely exercised, the bankruptcy court is open to compel a different course.'

And in the same case the Supreme Court of Pennsylvania said (149 Pa. 439, 443, 24 A. 284, 285); its decision in this respect being unaffected by the reversal in the Supreme Court of the United States:

'It has always been a principle of the bankrupt law that property which from its nature or condition may be a burden rather than a benefit to the estate does not pass to the assignee without a distinct acceptance by him, and that in the absence of such acceptance it remains in the bankrupt.'

In United States Trust Company v. Wabash Railway, 150 U.S. 289, 14 Sup.Ct. 86, 90, 37 L.Ed. 1085, the Supreme Court also said:

'The general rule applicable to this class of cases is undisputed that an assignee or receiver is not bound to adopt the contracts, accept the leases, or otherwise step into the shoes of his...