In re Prudential Lithograph Co., Inc.

• Decision Date: 15 December 1920
• Docket Number: 80.
• Parties: In re PRUDENTIAL LITHOGRAPH CO., Inc.
• Court: U.S. Court of Appeals — Second Circuit

270 F. 469

In re PRUDENTIAL LITHOGRAPH CO., Inc.

No. 80.

United States Court of Appeals, Second Circuit.

December 15, 1920

Frederick Seymour, of New York City, for appellant.

Moses &amp Singer, of New York City (Henry B. Singer, of New York City of counsel), for appellee.

Before WARD, ROGERS, and HOUGH, Circuit Judges.

ROGERS Circuit Judge.

The receiver in bankruptcy was authorized to sell all the assets of the bankrupt's estate, including the right, title, and interest in a certain lease, dated August 27, 1919, for a term of three years commencing May 1, 1920.

The lease in question contained the following clause:

'In all other respects, except as specified below, the agreements, covenants, and conditions stated in the lease dated January 20, 1910, between said lessor and Frederick Huhn shall govern the same as if written herein, and shall apply to the whole of said top or seventh floor.'

And the lease of January 20, 1910, contained the following provision:

'This lease shall not be assigned nor shall the said premises or any part thereof be let or underlet or used or permitted to be used for any purpose other than mentioned without the written consent of said party of the first part indorsed thereon to each and every assignment or underletting or use or permission to use for any other purpose.'

The lease also provided that in case the rent was behind and unpaid or in case of the violation of any of the covenants, conditions, or agreements contained therein on behalf of the party of the second part the lease, at the option of the lessor, should become null and void.

On the same day that the lessor notified the receiver that it terminated the lease it served him with a second notice in which he was informed that the lessor claimed that the lease was not assignable even by operation of law, and directed his attention to the form of the covenant against such assignment. The notice also suggested that the receiver institute some proceeding for the determination of the question thus raised before accepting any bid for the property, or at least that notice be given the bidder of the claim and position of the landlord.

On March 26, 1920, the receiver in bankruptcy was notified that the lessor elected to terminate the lease. The notice stated that: 'The basis of this election is the assignment by operation of law or otherwise, whether it has already resulted or shall hereafter result from the proceedings in bankruptcy against the Prudential Lithograph Company, Incorporated, or by any act of the bankrupt or of the receiver or trustee in said proceedings.'

The receiver, however, notwithstanding such notice, sold the lease on March 29, 1920.

The receiver, having been elected trustee, elected to accept the lease as an asset of the estate in bankruptcy.

The theory of the receiver and the trustee is that the lease passed by operation of law, and not by the act of the bankrupt nor by sale, and that the sale by the trustee of the bankrupt's interest was not a breach of the covenant for re-entry in case of assignment by the lessee.

Thereupon, and on April 1, a few days after the sale had taken place, but before confirmation, the receiver filed a petition in the bankruptcy court in which he called attention to the landlord's claim and alleged that it was necessary that the court should determine the validity of the lessor's claim and remove the cloud on the title caused thereby. He also asked that the sale of the lease should be confirmed, and authority given to execute the assignment.

The landlord put in an answer and demanded that the petition be dismissed, and that the alleged sale be not confirmed. The District Judge thereupon entered an order adjudging that the claim of the landlord was invalid, and that the lease passed by operation of law to the estate in bankruptcy and confirmed the sale. From that order the landlord has appealed.

The first question to be considered is whether the question sought to be raised can be brought into this court by an appeal, or whether it should have been brought here by petition to revise.

The Bankruptcy Act (Comp. St. Secs. 9585-9656) distinguished between an appeal and a petition to revise, and it distinguishes between proceedings in bankruptcy and controversies arising in bankruptcy proceedings. Proceedings in bankruptcy relate to questions arising between the bankrupt and his creditors. Controversies arising in bankruptcy proceedings are distinct and separable issues raised between intervening parties and involving substantial rights.

The question raised in the court below between the landlord and the trustee is a...