Irving Trust Co. v. Densmore, 7034.

• Decision Date: 19 June 1933
• Docket Number: No. 7034.,7034.
• Citation: 66 F.2d 21
• Parties: IRVING TRUST CO. et al. v. DENSMORE et al.
• Court: U.S. Court of Appeals — Ninth Circuit

66 F.2d 21 (1933)

IRVING TRUST CO. et al. v. DENSMORE et al.

No. 7034.

Circuit Court of Appeals, Ninth Circuit.

June 19, 1933.

Gold, Quittner & Kearsley, of Los Angeles, Cal. (A. S. Gold, Charles H. Veale, Francis F. Quittner, and George Manns, all of Los Angeles, Cal., of counsel), for appellants.

Harry L. Cohn, Jonah Jones, Jr., and John Amsbary, all of Long Beach, Cal., for appellees.

Before WILBUR, SAWTELLE, and MACK, Circuit Judges.

SAWTELLE, Circuit Judge.

The interveners and appellees, who were lessors of certain real property in Long Beach, Cal., brought suit by petitioning for an order to require the receiver of their lessee, which is one of the appellants herein, to pay the rentals stipulated in the lease, from the date on which the receiver came into constructive possession of the property, March 21, 1932, to the date when the receiver gave notice to the lessors that he disaffirmed the lease contract, May 28, 1932.

An order was issued by the court below requiring the receiver, who is another of the appellants herein, to show cause why he should not be directed to pay the sum of $6,190.56, with interest, to the appellees. The said sum represented two months' rental, at $1,800 per month, plus $2,590.56 as the second half of the taxes for 1931 — 1932.

It was stipulated between the receiver, on the one hand, and the appellees, on the other, that the order to show cause would be submitted to the court below on an agreed statement of facts. From that agreed statement of facts and from the agreed statement of the case, we glean the following summary of the facts:

The lease provided that, in addition to the rents reserved therein, the lessees should pay all taxes.

On March 21, 1932, the ancillary receiver, to whom we are referring herein simply as the "receiver," was appointed and "took over the constructive possession" of the leased premises.

On March 22, 1932, an additional ancillary receiver was appointed.

On April 2, 1932, receiver notified the appellees that he had been granted by the court below thirty days in which to affirm or disaffirm the lease. "No other or different notice was served upon the" appellees. The agreed statement of the case shows that the order granting the receiver thirty days' time was made on March 21, 1932.

On April 13, 1932, upon the petition of the receiver, an order was made by the court below "extending the time within which the ancillary receiver was to affirm or disaffirm" the leases, to and including May 21, 1932.

On May 19, 1932, an order was made by the District Court, on petition of the receiver, authorizing the receiver to disaffirm the lease in question.

On June 9, 1932, the receiver delivered to the appellees his check for $700, representing rents collected from subtenants on the leased property during the period between March 21, 1932, and May 21, 1932. The appellees kept the check.

On July 6, 1932, the appellees filed their petition in intervention, for an order requiring the receiver to pay them the rent and the taxes, as set forth above.

On July 27, 1932, the court below handed down an opinion, sustaining the claims of the appellees. At the conclusion of that opinion appeared the following order: "On the facts of the matter as they have been stipulated, I am of the opinion that the order petitioned for should be allowed. It is so ordered."

This is the only text of the court's order that is contained in the record. The citation on appeal by the court below to the appellees herein, however, recites that there was an "order of the court commanding and directing the payment of $5490.56" to the appellees, and the agreed statement of the case refers to "the decree rendered * * * in this cause" on July 27, 1932. It is clear that the court below deducted the $700 paid by the receiver to the appellees from the total amount claimed by the appellees.

From the above order the present appeal was taken.

On August 7, 1932, the F. & W. Grand Corporation was adjudged a bankrupt in the District Court of the United States for the Southern District of New York, where the primary receivership proceedings had been instituted on March 19, 1932.

On September 29, 1932, the court below made an order "instituting ancillary bankruptcy proceedings" in connection with the F. & W. Grand Corporation.

It will be noted from the foregoing statement of facts that the only reference to the receiver's connection with the premises covered by the lease are the statements that he "took over the constructive possession," and that he collected rents from subtenants of the Grand Corporation, which rents he turned over to the lessors. As we shall presently see, these two simple facts do not establish such possession on the part of the receiver as to render him liable for rent during the interregnum when he was making up his mind whether or not to affirm the lease of his cestui que trust.

It is well established that receivers are not liable on the contracts of their cestuis que trustent by operation of law, but can be rendered liable only by reason of some affirmative acts of their own.

In High on Receivers (3d Ed.) § 273, page 238, we find the doctrine thus stated: "As a rule, receivers are not liable upon the covenants of the persons over whose effects they are appointed, but become liable solely by reason of their own acts. And receivers who have been appointed over a corporation, and who have accepted the trust and taken possession of the assets, do not thereby become liable for rent of the premises held by the company under a lease; nor can they be held liable until they elect to take possession of the premises, or until the doing of some affirmative act which would in law be equivalent to such an election. Nor does the receiver, merely by virtue of taking possession of leased property, forming part of the assets or estate of the receivership, become an assignee of the term or liable for the rent in accordance with the covenants of the lease. He is entitled to a reasonable time after taking possession to determine whether he will elect to affirm the lease and retain the premises."

Of course, if the receiver uses the property while he is making up his mind, he is liable for a reasonable rental value of the premises. Clark on Receivers (2d Ed.) Volume 1, § 442, pages 600, 601, thus enunciates the rule:

"If the receiver holds on to the property he must pay for it so long as he uses it, but until such election, or the doing of some act which would in fact be equivalent to an election, receivers are not liable on existing leases. If receivers hold on to the property for a reasonable time before they make an election, they become liable for use and occupation by reason of occupying the premises, in other words, by their own acts. * * *

"The question frequently comes up when a receiver refuses to be bound by the obligations of an executory lease, but nevertheless holds on to the property until he elects, — what is the measure of the obligation he does assume for use and occupation. Does the receiver become liable for use and occupation on the basis of the rental reserved in the lease or some other basis? Strictly speaking, he cannot be liable for the rental reserved in the lease because he is not a party to the lease, neither is he a successor, strictly speaking, of the lessee. * * * Such value, we think, would be the reasonable rental value of the premises occupied by the receiver during his occupancy." (Italics our own.)

This emphasis upon the use of the property by the receiver has been repeatedly laid by the Supreme Court of the United States. In Sunflower Oil Co. v. Wilson, 142 U. S. 313, 322, 12 S. Ct. 235, 237, 35 L. Ed. 1025, quoted by the appellees themselves, the court said: "The receiver did not, simply by virtue of his appointment, become liable upon the covenants and agreements of the railway company. Authorities cited. Upon taking possession of the property, he was entitled to a reasonable time to elect whether he would adopt this contract and make it his own, or whether he would insist upon the inability of the company to pay, and return the property in good order and condition; paying, of course, the stipulated rental for it so long as he used it."

Again, in Quincy, etc., Railroad Co. v. Humphreys, 145 U. S. 82, 98, 99, 100, 101, 12 S. Ct. 787, 792, 36 L. Ed. 632, the measure of a chancery receiver's liability on a lease of the corporation was fully discussed. In the course of that discussion Mr. Chief Justice Fuller said:

"But appellants insist that, without regard to privity of estate or privity of contract, receivers in chancery are liable, not for a reasonable rental value during the occupancy of leased property committed to their charge by order of court, but for rental according to the covenants of the leases whenever there are unequivocal acts of use and control of such property; and that they thus adopt the leases and become bound by their terms so long as such use and control continue. It is said that this is settled doctrine, and that whether receivers take as statutory or common law or quasi or equitable assignees; whether the title is in them, or the estate, or the whole estate, has vested in them, or whether they hold as mere custodians for the court, — is immaterial; that they are put to an election to assume or to reject the...