In re Walker, 82.

• Decision Date: 06 December 1937
• Docket Number: No. 82.,82.
• Citation: 93 F.2d 281
• Parties: In re WALKER et al. In re D. A. SCHULTE, Inc.
• Court: U.S. Court of Appeals — Second Circuit

93 F.2d 281 (1937)

In re WALKER et al. In re D. A. SCHULTE, Inc.

No. 82.

Circuit Court of Appeals, Second Circuit.

December 6, 1937.

Jerome Eisner and Ernst, Gale, Bernays & Falk, all of New York City (Henry I. Fillman, of New York City, of counsel), for appellant.

William A. Kirk, of New York City (William A. Kirk and James A. Gill, both of New York City, of counsel) for appellees.

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

L. HAND, Circuit Judge.

The debtor appeals from an order in a reörganization proceeding under section 77B of the Bankruptcy Act, as amended (11 U.S.C.A. § 207 and note) directing it to surrender a parcel of leased real property in the City of New York, for forfeiture of the term upon which it was held. The facts are as follows. On April 8, 1920 the claimants' testator let the locus in quo to the debtor for a term of years at varying rents, payable monthly in advance: $1,250 from October 1st, 1931 to September 30, 1936, and $1,333.33 from October 1, 1936 forward. The lease contained conditions subsequent upon which the lessor might reënter, as follows: (1) assignment without written consent; (2) devolution of title to the term by operation of law; (3) insolvency of the lessee; (4) proceedings in bankruptcy brought by or against it; (5) a judgment, execution, or attachment; (6) the appointment of a receiver. The debtor sublet a part of the premises at a rent equal to that reserved for the whole parcel, and so was able to occupy the remainder without cost to itself. It defaulted however upon the rent due on June 1, 1936, and on June 3d it filed a petition for reörganization under section 77B, as amended (11 U.S.C.A. § 207 and note), which, although it showed assets in excess of its liabilities, alleged that it was not able to meet its obligations as they matured. The court approved this petition on the same day, and temporarily continued the debtor in possession under subdivision (c) (11) of section 77B, 11 U.S.C.A. § 207 (c) (11). On June 5th notice was served on the present claimants, whom it will be simpler to speak of as lessors, declaring that the debtor had filed the petition, had been put temporarily in possession by the court, that it reserved the disposition of all unexpired leases pending further order, and that its policy would be to keep all sub-rents in a special account, and in cases where it ultimately rejected a lease, to pay to the lessor the reasonable value of use and occupation of the portions occupied by it, and to dispose of the sub-rents as the court might direct. On June 17th it paid $1,250 to the debtor without comment, and the same amount on July 7th, accompanying that payment with a letter advising the lessors that the court had determined to continue it in possession permanently (as the court had in fact done by order entered June 30), and that it enclosed a check for $1,250 "for the month of July," as it had done "for the month of June." On August 10th and on September 3d it again paid $1,250 without further comment. Meanwhile the sub-lessee had been regularly paying its rents, which the debtor deposited in a separate account, but which it did not use for its payments to the lessors.

On October 1st, 1936, the lessors petitioned the court either to lift the injunction against their evicting the debtor, or to direct it to surrender possession of the premises. They alleged that it had forfeited the term because, (1), the reorganization proceeding was one in bankruptcy, (2), because the term had devolved by operation of law upon the debtor in a new capacity; (3), because it had become insolvent; (4), because proceedings in bankruptcy had been instituted against it; and (5), because a receiver had been appointed of its property. On October 7th the debtor paid $1,333.33, again without comment. The lessors' petition was referred to the referee as special master, who reported on November 12th that the lessors had lost any power to forfeit the term which they might have had, by accepting the payments recited above, that being consistent only with the continued existence of the lease. Upon petition to review, the judge reversed the special master, holding that the term had been forfeited, that the payments were not to be considered as rent, and that they did not therefore toll the reëntry. The debtor appealed.

We think that the filing of the petition and the first order continuing the debtor in possession were each a breach of a condition subsequent imposed upon the term, and entitled the lessors to reënter. The insolvency mentioned in the lease cannot have been other than a failure to meet the lessee's obligations as they matured; that is the insolvency which throws the lessor's relations into confusion, delays payment of the rent, impounds his property for an indefinite time, and in general makes it important for him to be free to reënter. We do not forget that we have held that the putative lien of the lessor upon...