Model Dairy Co. v. Foltis-Fischer

• Citation: 67 F.2d 704
• Decision Date: 04 December 1933
• Docket Number: No. 49.,49.
• Parties: MODEL DAIRY CO., Inc., v. FOLTIS-FISCHER, Inc. GRACEL REALTIES, Inc., v. IRVING TRUST CO.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

67 F.2d 704 (1933)

MODEL DAIRY CO., Inc., v. FOLTIS-FISCHER, Inc.

GRACEL REALTIES, Inc., v. IRVING TRUST CO.

No. 49.

Circuit Court of Appeals, Second Circuit.

November 13, 1933.

Rehearing Denied December 4, 1933.

Arnold Lichtig and Herbert A. Mossler, both of New York City, for appellant.

McDermott & Turner, of New York City (W. Irving Taylor and Charles J. McDermott, both of New York City, of counsel), for appellee.

Coudert Bros., of New York City (Thomas K. Finletter and Milton I. Newman, both of New York City, of counsel), for Reorganization Committee.

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

L. HAND, Circuit Judge.

A simple creditor of the defendant, Foltis-Fischer Incorporated, filed a bill in equity, alleging its immediate inability to pay its debts, the likelihood that its assets would be wasted by a scramble of its creditors, and the necessity that the court should sequester them for the protection of all; it asked for the appointment of a receiver, who should take them over, and, if necessary, distribute them. The defendant consented, and the Irving Trust Company was made receiver and went into possession; among the assets was a term for years of property, used by the defendant as a restaurant. The defendant held this as assignee of the term from the Foltis Corporation, which had leased it from another company. The lessor's reversion came by mesne conveyances to the Gracel Realties, Inc., the appellant. The receiver got from the court an order, giving it a period of six months from June 14, 1932, to disaffirm the lease, which was later extended to January 31, 1933. At the end of six months the grantee of the reversion gave notice that the receivership was a breach of a condition in the lease and ended the term; it asked to evict the receiver. The judge decided in the receiver's favor, on the ground that the grantee, the appellant, had "waived" the breach. The important clause in the lease was as follows: "If the tenant shall be adjudicated insolvent or bankrupt, or shall take the benefit of any insolvency act, or shall have a receiver or trustee appointed of its property, or if this lease or the estate of the tenant hereunder be transferred or passed to or devolve upon any other persons, firms or corporations, except in the manner herein provided," the lessor may re-enter upon fifteen days' notice, unless the breach is meanwhile mended. The lessee made a deposit of $6,250 as guarantee of performance, which the lessor did not turn over to the grantee when it conveyed the reversion.

Several questions arise. First, the receiver urges that its tenure, being merely custodial, was not within the condition reserved. Second, that in any case, the condition covered only breaches by the lessee, the Foltis Corporation, so that a receivership of the assignee of the term, the defendant, was not within the lease. Third, that the conduct of the grantee of the reversion during the period given the receiver to disaffirm, was a "waiver" of its right of re-entry; or, if not, that its delay of six months barred the remedy. Last, that in any case the original deposit must be restored as a condition of reentry, there being no breach of any other covenant in the lease for which it could stand as security. We are informed in the briefs that since the decision the receiver under a "plan of reorganization" has assigned the term to another company, and a committee of creditors intervenes on the appeal to sustain the title.

It is true that courts do not look upon such conditions with a friendly eye, classing them as forfeitures. West v. Guaranty Trust Co., 162 App. Div. 301, 311, 147 N. Y. S. 421; Niles Land Co. v. Chemung Iron Co., 234 F. 294, 298 (C. C. A. 8); In re Prudential Lithograph Co., 270 F. 469, 472 (C. C. A. 2); The Elevator Case (C. C.) 17 F. 200, 202. Nevertheless they are valid, and we must give effect to the fair meaning of the language used. There can be no doubt that the word, "receiver," in the clause just quoted includes a receiver appointed in such a suit as that before us, though he does not take title. No receivers do, except when some statute so provides. Here the very contrast between receivers and trustees shows that the passage of title could not have been essential. Again, we cannot confine the word to receivers in bankruptcy, though its immediate juxtaposition lends some color to the argument; such a limitation would break the word from its general context. A more plausible argument is that the clause as a whole concerns only insolvency which an "equity receivership" does not require. It is true that such bills carefully avoid the allegation of insolvency, and indeed usually say that the defendant is solvent, though the truth is generally, if not always, the opposite. We should be unwilling to stand on so narrow ground, especially when the clause includes assignments for creditors, which presuppose insolvency as little as "equity receiverships," and no more often accompany it in fact. The plight of a lessor whose lessee consents to such a bill is quite as bad as though he were alleged to be insolvent; the court impounds his property in invitum, and there is as much reason for his wishing to be free of the suit in one case as in the other. The receiver, though not truly a tenant, is in possession and prevents him from disposing of the premises as he would. Unless the lease contains a condition against passage of title, he must suffer the term to be sold to one whom he may not desire. Gazlay v. Williams, 210 U. S. 41, 28 S. Ct. 687, 52 L. Ed. 950, 14 L. R. A. (N. S.) 1199. It is quite true that in the lease at bar any devolution of title is also a condition; but the condition against a receivership is apparently in amplification of the general purpose, and we ought not to limit its scope to a special class of devolution.

The second point is answered by the form of the lessee's assignment of the term, a tripartite agreement to which the lessor was a party, and in which the assignee agreed to be bound by all conditions in the lease, the lessor's consent to the assignment being conditional upon that undertaking. Any intimations in Gillette Bros. v. Aristocrat Restaurant, 239 N. Y. 87, 145 N. E. 748, that such a condition refers to the lessee alone, are therefore not applicable. The important question, and, as we have said, that on which the judge based his decision, is as to "waiver." That unhappy word has done much to confuse the law, in this, as in other fields. In this situation it may mean either that the right of reentry is impliedly limited to a prompt exercise; or that it has been abandoned; or that the lessor's conduct has caused the lessee to rely upon it to his detriment. The last generally goes as an "estoppel." The books at times do speak of delay as though it alone were enough to end the remedy, but never, so far as we can find, except when discussing the lessee's action in reliance upon it. Catlin v. Wright, 13 Neb. 558, 14 N. W. 530, is perhaps the nearest to a holding; but even there the decision appears to have gone rather on the tenant's continued feeding of the cattle after the original breach had passed. In Kelly v. Varnes, 52 App. Div. 100, 64 N. Y. S. 1040, the tenant, though in default for rent, had held over and bound himself for a second year; that was certainly a change of position. The discussion usually covers the gross situation somewhat loosely, and delay is of course a relevant factor in the picture as a whole. But on principle we cannot see why anything short of...