Oscar Heineman Corporation v. Nat Levy & Co.

• Decision Date: 06 April 1925
• Docket Number: No. 283.,283.
• Citation: 6 F.2d 970
• Parties: OSCAR HEINEMAN CORPORATION v. NAT LEVY & CO., Inc.
• Court: U.S. Court of Appeals — Second Circuit

6 F.2d 970 (1925)

OSCAR HEINEMAN CORPORATION v. NAT LEVY & CO., Inc.

No. 283.

Circuit Court of Appeals, Second Circuit.

April 6, 1925.

Sperry & Yankauer, of New York City (Walter D. Yankauer, of New York City, of counsel), for appellant.

Schechter & Lotsch, of New York City (David W. Kahn, of New York City, of counsel), for appellees.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

ROGERS, Circuit Judge.

This case relates to the liability of equity receivers to pay for the use and occupation of premises. It appears that on May 14, 1924, the complainant began an action against the defendant, in which action Franck C. Fisher and Nat Walkof were appointed receivers of the property of the defendant. The receivers immediately took possession of the premises occupied by the defendant, and continued in possession of such premises for a period of 41½ days. The premises were held under a lease executed by the Liberty Place Holding Corporation to the defendant, and in which the defendant agreed to pay rent in the sum of $13,000 per annum.

The receivers not having paid any rent for the use of the premises during the time of their occupation, the Liberty Place Holding Corporation, as lessor, made demand upon the receivers in the sum of $1,535.08, claiming that the sum demanded was the fair and reasonable value for the use and occupation of the premises. The receivers having refused to make payment, the Liberty Place Holding Corporation, as lessor, came into court and asked for an order directing the receivers to pay the amount of $1,535.08 as above demanded.

The receivers at no time adopted the lease. They only occupied the premises for a sufficient length of time to enable them to sell the defendant's assets. The landlord at no time took any steps to re-enter the premises, either before or after the appointment of the receivers, nor was any agreement at any time made between the landlord and the receivers respecting their occupation.

The motion having been duly heard, the court entered an order on October 17, 1924, in which the motion was in all respects denied. In denying the motion the District Judge filed the following opinion:

"While the opinion of Judge Learned Hand, in Manhattan Piggly-Wiggly Corp. (D. C.) 296 F. 944, is contrary to the apparent dictum in Re Sherwoods, 210 F. 756, 127 C. C. A. 304, Ann. Cas. 1916A, 940, as well as to what has been regarded as the general practice in this court, I find no authoritative decision against the result he reached, and it seems hard to answer theoretically. The question is whether the uniform practice has not created an arrangement implied in fact from the retention of possession by a receiver of leased premises, irrespective of whether the landlord has taken action or not; in other words, whether such retention does not indicate an agreement to pay for occupation. I will follow Manhattan Piggly-Wiggly Corp. (D. C.) 296 F. 944, without further examination of authorities, particularly those relating to assignees by the state courts, in order that the case may be reviewed as quickly as possible."

An examination of the case of In re Manhattan Piggly-Wiggly Corporation, supra, shows that the question there decided related to the payment of rent. In that case Judge Learned Hand (then a District Judge) said:

"The receiver was appointed and took possession of the assets on November 18, 1922, among which was a lease executed between the bankrupt and petitioner. The rent was payable monthly in advance, and the lease contained the usual condition of re-entry for breach of the covenant to pay rent. The bankrupt did not pay the rent falling due on November 1st, but the lessor took no steps to re-enter, either before or after the entry of the receiver, nor did he make an agreement with the latter respecting his occupation. Eventually he demanded the rent as for use and occupation, which the receiver refused as to the November rent, on the theory that, as the lessor had not demanded possession of him, he had always held in the lessee's right. Upon failure of the lessee to pay, the lessor had the right to dispossess him for breach of condition. Until he did, the lessee might enjoy possession, and the risk of loss of the rent lay with the landlord, who had nothing but the lessee's promise."

The opinion in that case, from which the above extract is taken, was a short one, and contains no reference to a single decided case. It is also to be observed that the case was one in bankruptcy. The rights and liabilities of receivers are not necessarily the same in all cases. We may, however, remark that the decision in Re Manhattan Piggly-Wiggly Corporation is contrary to what was said by this court in Re Sherwoods, Inc., 210 F. 754, 757, 127 C. C. A. 304, 307 (Ann. Cas. 1916A, 940), where this court said:

"It is well settled that, upon the bankruptcy of the tenant, provided this does not by the express terms of the lease terminate the tenancy, the leasehold interest passes to the trustee in bankruptcy, if he elects to accept it. He has a reasonable time within which the lease may be accepted. If in the meanwhile he occupies the premises, he is liable for merely the reasonable rent while so occupying, and not for the rent stipulated in the lease itself. Nevertheless the rent so stipulated should be accepted as the reasonable worth of the use and occupation, in the absence of clear showing of unreasonableness. Remington on Bankruptcy, § 2135, note 57, p. 549."

In this connection it may be said that in a District Court in North Carolina (Bray v. Cobb, 100 F. 270) and in a District Court in Kentucky (In re Jefferson, 93 F. 948) it has been held that an adjudication in bankruptcy terminates all contractual relations of a bankrupt, and puts an end to all personal obligations to the landlord growing out of the lease. Clark on the Law of Receivers, vol. 1, § 373, referring to the decisions of these two District Courts in North Carolina and Kentucky, and apparently approving our decision in the Sherwoods Case, says:

"However, the United States Circuit Court of Appeals for the Second Circuit and other courts have held that bankruptcy does not sever such relation, and the tenant remains liable, and that the obligation to pay rent is not discharged as to the future, unless the trustee elects to retain the lease as an asset. This latter view seems in accord with the English law."

The rule as stated by us in the Sherwoods Case is the rule laid down in Remington on Bankruptcy (3d Ed.) vol. 6, § 2659, and in Collier on Bankruptcy (13th Ed.) vol. 2, p. 1427. No decision in the bankruptcy courts has come to our notice which asserts the doctrine laid down in Re Manhattan Piggly-Wiggly, supra. But we are not dealing in the case now before the court with a receiver in bankruptcy.

A chancery receiver gets no title, but only a right to the possession of the property as the officer of the court. The title continues in those in whom it was vested when the appointment was made. The receiver takes charge of the property for the court, and while he is in charge the property is in custodia legis, and his duty is to administer it subject to the court's direction. His possession is in reality the possession of the court. He is appointed in the interests of justice and for the benefit of all the parties in interest. As it has been frequently said, he is put into possession of the property because it is thought more for the interests of justice that the property should be in his possession than that it should be in the possession of one of the parties to the dispute. In such cases a receiver is "the right arm of the court," and after his appointment the party, from whose possession the property has been taken, has no authority thereafter to subject it to any legal liability. His appointment is for the benefit of all parties interested, and he holds for the benefit of those ultimately entitled. As he is a bare custodian, and does not represent the party having the legal title, he is not bound by the covenants, executory contracts, and leases of such party.

Since the appointment of a chancery receiver does not invest him with the title to the property, he is not, like an assignee of a term, subject to legal liability for rent by the mere fact of his appointment. But the courts have recognized the principle that, while the mere appointment of the receiver does not render him an assignee of the term, they have considered that he stands in the same position as an assignee with respect to his right to adopt the lease and become liable on its covenants, and that he may retain possession of the premises for a reasonable time to enable him to determine whether he will adopt the lease; so that, by the mere act of taking possession of leased property, he does not necessarily become bound by the covenants of the lease. See American Brake Shoe & Foundry Co. v. New York Railways Co. (C. C. A.) 282 F. 523, 528. But, if not liable on the lease, is he not chargeable for use and occupation?

In an Irish case, Balfe v. Blake, 1 Ir. Ch. 365, which involved the duty of a receiver to make certain payments to the landlord, the Lord Chancellor said: "This court is bound to act with honesty both to landlord and tenant, and, being placed in the position of tenant, to do as a just and honest tenant would do." It certainly is the duty of courts to maintain a high standard of honesty at all times and under all circumstances. And in an especial manner is it true when it takes the property of A. and puts it into the possession of its own custodian to administer. In such a case, if the court permits its representative to enter and occupy leased premises for a considerable period, whether he adopts the lease or finally concludes to repudiate it, common honesty requires that payment shall be made, if not under the terms of the lease, then for the reasonable value of the premises during the period of his use and occupancy. And this we...