In re United Cigar Stores Co.

• Citation: 69 F.2d 513
• Decision Date: 05 March 1934
• Docket Number: No. 248.,248.
• Parties: In re UNITED CIGAR STORES CO. OF AMERICA. REISENWEBERS, Inc., v. IRVING TRUST CO.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

69 F.2d 513 (1934)

In re UNITED CIGAR STORES CO. OF AMERICA REISENWEBERS, Inc., v. IRVING TRUST CO.

No. 248.

Circuit Court of Appeals, Second Circuit.

March 5, 1934.

Zalkin & Cohen, of New York City (Israel Akselrod, of New York City, of counsel), for petitioner-appellant.

Cravath, de Gersdorff, Swaine & Wood, of New York City (William D. Whitney and

R. L. Gilpatric, both of New York City, of counsel), for respondent-appellee.

Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge (after stating the facts as above).

The principal question arising on this appeal relates to the extent of the rental obligation incurred by a trustee in bankruptcy, who, while determining whether to adopt or reject a lease of premises theretofore made to the bankrupt, has occupied only a part of the demised premises. Upon the present record, we think the trustee is liable only for use and occupation of the portion physically occupied.

The Irving Trust Company, as trustee in bankruptcy of United Cigar Stores Company, occupied the corner of certain premises demised by Reisenwebers, Inc., to the bankrupt, and conducted thereon the former business of the bankrupt. It also furnished heat and elevator service for the remaining portion, made some current repairs therein, and attempted to collect rents from subtenants who had taken leases thereof from the bankrupt. It is contended by Reisenwebers, Inc., that the trustee is not only liable to pay the reasonable rental value of that part of the premises which it physically occupied, but also the reasonable value of the entire premises leased.

Neither chancery receivers nor trustees in bankruptcy are automatically vested with the title to leaseholds belonging to an insolvent. They take title to a lease only in case they conclude that acceptance is advantageous to the estate and elect to adopt the lease within a reasonable time. If they do so elect, the title relates back to the date of the filing of the bill or petition. So far as they go into occupation of leased premises without adopting the lease, the landlord has a right to compensation for use and occupation out of funds in their hands. It is an equitable right based upon the reasonable value of the use and occupation. Oscar Heineman Corp. v. Nat Levy & Co. (C. C. A.) 6 F.(2d) 970, 43 A. L. R. 727; In re Sherwoods, Inc. (C. C. A.) 210 F. 754, Ann. Cas. 1916A, 940; In re Frazin (C. C. A.) 183 F. 28, 31, 33 L. R. A. (N. S.) 745.

No one disputes that the trustee is liable to pay for occupying the cigar store between August 29, 1932, and November 29, 1932, when it vacated it. But the appellant insists that it is also liable to pay for the reasonable value of the remainder of the leasehold upon the theory that it was in constructive possession. In making this contention, it particularly relies on the decision of the Circuit Court of Appeals of the Sixth Circuit in Dayton Hydraulic Co. v. Felsenthall, 116 F. 961. There a chancery receiver never physically occupied or used certain leasehold property of an insolvent. He at first asked the lessor for time to look into the matter and determine whether to adopt the lease or not. Thereafter, when a demand for payment of rent or a surrender of the property was made by the latter, the receiver offered a surrender only on condition that all claims for rent be released. Finally, after six years, the lessor field a petition praying that the receiver be ordered to pay the rent, which was answered by a denial of liability and without any offer to surrender control of the premises. In these circumstances, the court held that the unoccupied leasehold property, which was a mill and had been retained by the receiver in order to avoid competition with other mills that he was operating, was to be regarded as in his constructive possession, because he had appropriated it for the benefit of the other properties in his charge. The receiver was accordingly adjudged liable for rent accruing up to the time when the premises were surrendered to the landlord. He was found to have used the property for the benefit of the business of the insolvent and therefore to be liable under the rule laid down by Lindley, L. J., in the decision of In re Oak Pits Colliery Co., 21 Ch. Div. 322.

In the present case the facts are quite different from those in Dayton Hydraulic Co. v. Felsenthall (C. C. A.) 116 F. 961. While occupancy of the cigar store was for the purpose of conducting the business, maintenance of heat and elevator service and temporary repairs were almost entirely in order to preserve the status quo until the trustee could determine whether to adopt the lease or not. They were for the benefit of whatever party (whether the trustee or the bankrupt) might ultimately be entitled to the leasehold, and were for the benefit of the landlord as well in order that, when the premises finally reverted to it, they might be in proper rentable condition.

In Meehan v. King, 54 F.(2d) 761, the Circuit Court of Appeals of the First Circuit, and in Irving Trust Co. v. Densmore, 66 F.(2d) 21, the Circuit Court of Appeals of the Ninth Circuit, held that the mere collection of rents by a receiver in bankruptcy or equity from subtenants of the insolvent did not amount to constructive possession of the demised premises by the receiver and involved no obligation on his part to pay the landlord for use and occupation. The notice that the trustee gave to all landlords on October 6, 1932, setting forth that it was liable for use and occupation of the cigar store but desired to agree with the landlord upon the...