Madden v. La Cofske

• Decision Date: 05 September 1934
• Docket Number: No. 7322.,7322.
• Citation: 95 ALR 370,72 F.2d 602
• Parties: MADDEN v. LA COFSKE.
• Court: U.S. Court of Appeals — Ninth Circuit

95 ALR 370, 72 F.2d 602 (1934)

MADDEN v. LA COFSKE.

No. 7322.

Circuit Court of Appeals, Ninth Circuit.

July 10, 1934.

On Motion to Substitute September 5, 1934.

Townsend, Jenckes & Edwards, of Phœnix, Ariz., for appellant.

Warren E. Libby, of Los Angeles, Cal., for appellee.

Before WILBUR, SAWTELLE, and GARRECHT, Circuit Judges.

SAWTELLE, Circuit Judge.

On March 14, 1932, the appellant, upon his appointment by the court below as ancillary receiver of the Piggly-Wiggly Yuma Company, a corporation, took into his possession, as such receiver, the company's grocery business in Yuma, Ariz. The grocery business was carried on in a building leased by the company from the appellee, under two leases expiring on July 1, 1934, and October 6, 1934, at a monthly rental of $350.

The appellant conducted the grocery business until November 16, 1932, when he delivered it to Herman J. Schwartz, for $2,250. The appellant paid the appellee the full amount of the rent stipulated in the two leases during his entire occupancy of the premises.

On November 23, 1932, the appellant, without notice, petitioned the court below for an order authorizing the sale to Schwartz of the fixtures and stock of merchandise of the store, and the assignment to Schwartz of the leasehold interest in the premises for $2,250. On the same day, an order was entered authorizing such sale and assignment, without notice to the appellee, and the sale and assignment were consummated.

On November 30, 1932, the appellant notified the appellee's attorney at Los Angeles, Cal., that the former had sold the Yuma store to Schwartz, to whom all future demands should be made.

On May 2, 1932, the appellee had filed with the appellant a claim against the estate of the corporation, in which the appellee demanded, among other things, rent for the full unexpired term of the leases, based upon the landlord's lien laws of Arizona.

On March 9, 1933, the appellee, through his attorney in fact, filed his petition in the court below, setting forth substantially the foregoing facts. In addition, the appellee averred that Schwartz paid no rent during his possession of the premises, and "that some time after business hours, on the evening of Saturday, the 3d of December, 1932, and during Sunday, the 4th day of December, 1932," and without the consent of the appellee or his daughter, who was his attorney in fact at Yuma, Schwartz "moved out all the merchandise and much of the movable fixtures used in connection with said grocery business, * * * and the whereabouts of said merchandise and fixtures is unknown to your claimant." The court found that the buyer "moved out of said premises, taking everything movable with him; the landlord notifying the receiver promptly of the action of said purchaser."

In his petition, the appellee prayed, among other things, that the receiver, the appellant herein, be required to pay to the appellant $1,575, representing the balance of the rent due for November, 1932, and for the rent for December, 1932, and January, February, and March, 1933. The appellee also prayed that the fund realized by the appellant from the sale "of the stock of merchandise and fixtures in said leased premises" be impressed "with a lien, as and for rent already accrued and to accrue," and "That sufficient of the funds in the hands of the receiver be held as and for rent to accrue on said leased premises," etc.

The appellant stipulated that the facts set forth in the petition were true and correct, and the issues were submitted to the court for determination of the questions of law raised thereby.

Thereafter the court entered judgment, inter alia, that the appellant "affirmed said leases and that he did not relieve himself of the liability provided for in said leases by an assignment"; that the said appellee has been diligent in pressing his claim for rent to said Receiver," and that the appellee had paid rent up to November 16, 1932. The lower court also decreed that the appellant should pay to the appellee the sum of $1,575, being rent to and including March, 1933, and also the sum of $1,400, the rent from April, 1933, to and including July, 1933, the month in which the decree was entered.

The court below also declared the amount of the decree to be "a first lien on the amount realized by the Receiver from the sale of said merchandise and fixtures placed upon and used in said leased premises, and that payment shall be made out of said moneys, and the balance out of any other moneys coming into the hands of said Leo A. Madden, Receiver." The court reserved the question of liability for rent not yet accrued at the time of the decree, for determination "in the light of future conditions."

It is agreed by both parties that the appellant "adopted" or "affirmed" the two leases.

The appellant bases his appeal upon two "assignments of fundamental error," in substance as follows:

(1) The lower court erred in its conclusion of law that the appellant, as receiver, did not relieve himself of the obligation to pay the rent by assigning the leases.

(2) The lower court erred in its conclusion of law that the appellee is entitled to a first lien on the funds realized by the appellant from the sale of the merchandise and fixtures in the leased premises.

To determine the first question presented by the appellant, it is first necessary to ascertain what was the appellant's relation to the lease. Was he, as he contends, "by operation of law an assignee of the term," or was he, as maintained by the appellee, "substituted, in effect, for the original lessee upon his adoption or affirmance of the lease contract"?

In an oft-quoted opinion by Judge Jenkins, in Farmers' Loan & Trust Co. v. Northern Pac. R. Co. (C. C.) 58 F. 257, 261, unequivocal approval is given to the proposition that the liability of a receiver is "the common liability of the assignee of a lease." Judge Jenkins used the following language:

"The general principle by which questions of this character are to be ruled is well stated by Mr. High in his work upon Receivers (section 273):

"`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. 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 the 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 act which would in law be equivalent to such an election. But when a receiver enters upon and occupies premises which had been leased to a corporation over which he is appointed, he thereby becomes liable for the rent due under the lease, the liability in such case being the common liability of the assignee of a lease, and not for the debts due from the corporation; and in such a case, the facts being undisputed, it is proper for the court to direct the receivers to make payment to the lessor without a reference to determine the matter.'

"There appears to be no dispute with reference to that general principle as announced by Mr. High. It is restated by the supreme court in perhaps stronger and more emphatic terms in the case of Oil Co. v. Wilson, 142 U. S. 313-322, 12 S. Ct. 235 35 L. Ed. 1025, in these words:

"`The receiver did not simply, by virtue of his appointment, become liable upon the covenants and agreements of the railway company. 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.'

"In other words, when the court, upon the petition and at the prayer of the complainant, appoints receivers, who are directed to take possession of the leased lines of railway operated in connection with the main line, such receivers take by order of the court, and do not, therefore, by the mere act of such possession, become assignees of the term; they having, so to speak, a breathing space to determine whether or no they will assume the covenants of the lease. * * * But that possession does not ordinarily operate to render the receivers assignees of the term."

A careful reading of Judge Jenkins' language compels the conclusion that, approving as he does the statement of the rule quoted from High's text, the learned jurist regards the receiver's relation to the lease that of an assignee of the term, provided the receiver affirms the lease. But, if the receiver does not affirm the lease, his liability, under the rule laid down in the Wilson Case, also quoted by Judge Jenkins, is simply that of "paying * * * the stipulated rental for it so long as he used it." Certainly there is nothing in the opinion by Judge Jenkins, or in the authorities quoted therein, which would support the doctrine that a receiver becomes liable as a "substituted lessee," as contended by the appellee, even though the receiver does affirm the lease, as in the instant case.

On the question of the receiver's rights and obligations with respect to leases, the decision by Judge Jenkins has been repeatedly cited with approval. Carswell v. Farmers' Loan & Trust Co. (C. C. A. 6) 74 F. 88, 91; Mercantile Trust Co. v. Farmers' Loan & Trust Co. (C. C. A. 8) 81 F. 254, 258, certiorari denied, 168 U. S. 710, 18 S. Ct. 944, 42 L. Ed. 1213; Dayton Hydraulic Co. v. Felsenthall (C. C. A. 6) 116 F. 961, 965; Pennsylvania Steel Co. v. New York City Ry. Co. (C. C. A. 2) 198 F. 721, 729. In the Carswell and Dayton Hydraulic Cases, supra, the opinions were written by Judge Lurton, who later became an associate justice of the Supreme Court.

Another unequivocal statement on the subject is to be found in Westinghouse Electric &...