In re Wil-Low Cafeterias

• Decision Date: 07 March 1938
• Docket Number: No. 215.,215.
• Citation: 95 F.2d 306
• Parties: In re WIL-LOW CAFETERIAS, Inc. 650 MADISON AVENUE CORPORATION v. WIL-LOW CAFETERIAS, Inc., et al.
• Court: U.S. Court of Appeals — Second Circuit

95 F.2d 306 (1938)

In re WIL-LOW CAFETERIAS, Inc.^* 650 MADISON AVENUE CORPORATION v. WIL-LOW CAFETERIAS, Inc., et al.

No. 215.

Circuit Court of Appeals, Second Circuit.

March 7, 1938.

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Mitchell, Taylor, Capron & Marsh, of New York City (Rollin Browne and Henry L. Glenn, both of New York City, of counsel), for appellant.

Chadbourne, Hunt, Jaeckel & Brown and Louis Shapiro, all of New York City (William M. Chadbourne, Louis Shapiro, John Holbrook, and Joseph G. Gubman, all of New York City, of counsel), for debtor-appellee.

Rabenold, Schribner & Miller, of New York City, and Duberstein & Schwartz, of Brooklyn, N. Y. (Samuel Miller, of New York City, and Samuel C. Duberstein, of Brooklyn, N. Y., of counsel), for appellee unsecured creditors' committee.

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

MANTON, Circuit Judge.

The order appealed from denied the appellant's motion, in this debtor's reorganization proceedings under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, for the surrender and possession of premises leased to the debtor under two written leases. Article 14 of each lease provides: "* * * this lease is made upon the express condition, that the lessor shall * * * have the right and option to terminate the term hereunder and to cancel and annul this lease and all rights of the lessee hereunder, if the lessee * * * shall become insolvent, or * * * shall file a petition in bankruptcy under the laws of the United States. * * *"

Article 17 of each lease, as modified by article 25, provides that in the event of the lessee's default in the performance of any condition or covenant, continued for five days, the lessor might serve written notice of its election to terminate the lease upon a date not less than ten days thereafter and, during such ten-day period, the lessee might cure the default in which event the notice should be ineffective. Article 4 provides: "The consent of the lessor in any instance to any variation of the terms of this lease, or the receipt of rent with knowledge of any breach, shall not be deemed to be a waiver as to any breach of any covenant or condition herein contained, nor shall any waiver be claimed as to any provision of this lease unless the same be in writing, signed by the lessor or the lessor's authorized agent."

The petition for reorganization was filed on April 20, 1937, and alleged that the debtor was unable to meet its obligations as they matured. The order approving the petition continued the debtor temporarily in possession and authorized it to perform the existing contracts subject to an express qualification that "this authorization and action thereon" should not be deemed an approval of any lease, "such adoption to be made only by the further order of the Court."

The April rent was paid when the petition was filed, but the debtor was then liable for electric current, steam, and water. May 24, 1937, the debtor paid $2,500 on account of use and occupation, which was less than the amount payable by the debtor as fixed for the May rent. June 2, 1937, appellant mailed notices electing to terminate the leases because of the debtor's insolvency, the filing of a petition under section 77B, and the nonpayment of rent and charges for steam, electricity, and water. The notices stated the effective date as of the eleventh day following the receipt thereof, which was June 3, thus making the date of termination June 14, 1937. On June 12, the debtor sent its check for $4,409.94, which included the balance of the rent for May and June and the electric, steam, and water charges, which payment was accepted by the appellant and made good all arrears in rent and other charges.

August 2, 1937, the present petition was filed for an order to surrender possession of the premises to appellant or to authorize appellant to institute appropriate proceedings in the state court to obtain possession. The motion was denied, the court below holding (1) that the debtor's petition under section 77B was not a petition in bankruptcy; (2) that insolvency meant an inability to pay debts as they matured, a condition which had been admitted to exist in the petition under section 77B; but (3) that relief should be denied because the appellant had waived its right to terminate the leases by accepting the payment of June 12th.

In Re Walker et al., 2 Cir., 93 F.2d 281, 283, we held that the word "insolvency," where used in a lease authorizing re-entry of a lessor in case of the insolvency of the lessee, means a failure to meet the lessee's obligations as they matured, or such insolvency as "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."

When on May 24th the debtor made a partial payment on account of the use and occupation for May, it had not yet determined to adopt the leases. It was forbidden to adopt the leases unless by a court order. At no time after it served its notice to...