Case ID: ohio-st_63/html/0383-01.html
Source: Caselaw Access Project
Author: {"author": "Williams, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

Wilder et al. v. McDonald et al.
    
      Assignee for benefit of creditors — Not assignee of assignor’s lease — May adopt or reject the lease — Assignment does not terminate the lease — Rights of lessor as to rents.
    
    1. An assignee for the benefit of creditors, by accepting the trust,does not become the assignee of a lease belonging to his assignor, nor personally liable on the covenants of the lessee. Nor, is he bound to accept the assignment of the lease, if in his opinion it will be unprofitable to the creditors to do so; and, he is entitled to a reasonable time to elect whether to adopt or reject the lease.
    2. The assignment, however, does not terminate the lease, nor discharge the obligations of the lessee. The lessor is entitled to have his claim for rent allowed by the assignee, so that it may participate, in its proper order, in the trust fund; and it is not a valid objection to such allowance or participation, that the rent, or any part of it, is not then due.
    (Decided November 27, 1900.)
    Error to the Circuit Court of Hamilton county.
    On the 16th day of October, 1890, the plaintiffs in error, who were then the owners of a tract of about, six acres of land in Hamilton county, known as Block No. 7, demised the same, by lease duly executed and acknowledged, to William H. Neff, his administrators and assigns, for the term of five years then next ensuing. The lessee agreed to pay an annual rental of nine hundred and thirty dollars for the premises, in ■equal monthly installments of seventy-seven dollars and fifty cents on the fourteenth day of each month ■during the term, commencing with the month following the execution of the lease; and,it was also provided in the lease, that in default in the payment of any installment of the rent for thirty days after its maturity, the lessor might re-enter and terminate the lease. The lessee further covenanted to pay all taxes, charges and assessments that should be levied on the premises during the term. The lease contained a ■clause giving the lessee, his heirs and assigns, an option to purchase the premises, at any time before the expiration of the lease, for the sum of fifteen thousand five hundred dollars; and, on his election to make the purchase, the lessors covenanted to convey by general warranty deed. The lessee took possession, and paid the rent as it accrued until February, 1892, since which time no rent has been paid; nor have the taxes, assessments or charges levied on the premises during the term been paid.
    On the 10th day of May, 1892, Neff, the lessee, made an assignment, in due form of law, of all his property, real and personal, for the benefit of his creditors, to Alexander McDonald, William J. Breed, and William M. Ramsey, each of whom, except McDonald, qualified and entered upon the execution of the trust. Ramsey, however, resigned in the following June, his resignation was accepted, and Robert M. Ramsey was appointed and qualified as his successor in the trust.
    In August, 1896, the lease having then expired without an election to purchase, the lessors brought the action below, against the defendants in error, to charge them individually, as assignees of the lease, with the unpaid rent, and the taxes and assessments laid on the premises during the term of the lease, amounting, in the aggregate, to something over three thousand dollars. The petition alleges that the defendants accepted the assignment of the lease, received all of its benefits and privileges, and owned and enjoyed the same and the leasehold estate during the remainder of the term ensuing after the 10th day of May, 1892.
    These allegations of the petition were denied by answer, and the defendants plead in bar an adjudication of the court of insolvency of Hamilton county, upon an application of the plaintiffs to that court to require the defendants, as assignees of Neff, to pay the taxes and assessments which became a charge on the leased premises during the term, by which adjudication, the plea avers, it was determined that the lease was not accepted by the assignees or trustees of Neff’s estate. The plaintiffs demurred to the plea, on the ground that the parties and subject matter involved in the proceeding in the insolvency court, were different from those in this suit. The demurrer was overruled; and, without further pleadings, the cause was tried to the court, which, at the request of the plaintiffs, made a finding of the facts, wherein, in addition to those already stated, the court found, that the leasehold property in question was vacant land without improvements of any .kind, that neither of the assignees of Neff took possession of it, and that soon after the assignment was made they notified the plaintiffs, in writing, that they did not intend to take possession. The plaintiffs, however, did not re-enter, nor do any act to prevent the assignees from holding, occupying and enjoying the leasehold during the term, of the lease, or any of the privileges it conferred. On these facts the court held that the defendants did not accept the assignment of the lease, nor become liable for the rent reserved, or the taxes, or other charges for which the lessee was bound.
    The final judgment which followed was affirmed by the circuit court.
    i?. T. Crawford, for plaintiffs in error.
    Interest of W. H. Neff in the leasehold premises at the time of executing these documents as lessee under this lease was:
    First: His interest as lessee under the lease proper to occupy and enjoy the premises for the term.
    Second: The privilege or option to purchase the title of lessors in the premises.
    
      Gilbert v. Port, 28 Ohio St., 276.
    He had a clear power and right to convey both these, either to one, or to convey one of them to one party and the other to another. If he conveyed both to one party, and the conveyance in law was not sufficient to convey one, and was sufficient in law to convey the other, the conveyance would be. good as to the interest the document was sufficient to convey, if not good as to the other.
    This document should receive that construction which will preserve the rights of the parties under the contract in either aspect.
    First: Our first proposition is, that the leasehold estate of William H. Neff, lessee, was included in, and did pass, by the deed from him to defendants; that deed conveying all the real estate of the said William H. Neff wherever situated. That a party is in law the owner of real estate if he has the right to acquire title to it, or the real estate of a man includes any real estate he has the right to acquire the title to. Avery, Lessee, v. Dufrees, 9 Ohio, 145; Biggs v. Bickel, 12 Ohio St., 49.
    Second: Our second proposition is, that Neff, the lessee, at the time of executing this document, had two distinct legal rights under the lease, viz.:
    (1) The right to occupy under the lease.
    (2) The option, or right, to purchase.
    (3) That defendants, by notifying plaintiffs soon after these conveyances were made to them, that they had not and did not intend taking possession of the leasehold premises, did thereby impliedly assume and inform plaintiffs thereby, that they were then the owners of the said leasehold estate, and owned all the privileges, and were bound by all the express covenants of the lessee in said lease; that on this assumption of defendants, plaintiffs are entitled to the same judgment against defendants if they were not the owners of the leasehold as if they were; that defendants áre estopped to deny this assumption of theirs of the ownership of the leasehold estate, and that they communicated to plaintiffs, and plaintiffs acted on their assumption so communicated to them by defendants. Beardsley v. Foot, 14 Ohio St., 414.
    All parties assumed, and had the right to assume, that defendants were the owners of the leasehold estate.
    Fifth: On the demurrer to the second defense in the answer, we say:
    (1) The insolvency court of Hamilton county was not a court of competent jurisdiction.
    (2) It was a judgment and finding in an ex parte proceeding, and was within the class of proceedings of the case of Feuchter v. Keyl, 48 Ohio St., 357.
    
      (3) The proceeding was not against defendants; it is said to be one to “require the assignee and trustee of said estate to pay taxes and assessments required to be paid by the lessee under the lease.”
    (4) If that had been an action in a competent court by plaintiffs against defendants in the representative capacity for this claim, and resulted in a judgment for defendants, it would be no bar to an action by plaintiffs in this action against defendants personally. Becker v. Walworth, 45 Ohio St., 169: Conger v. Atwood, 28 Ohio St., 134.
    The fact that assignees, or assignee and trustee, never accepted this lease, is not a common fact to that proceeding and this'action. Hixson v. Ogg, 53 Ohio St., 361.
    Nor are any pleadings or any averments that there were any issues in that proceeding, or that there were any adverse parties to it. Koelsch v. Mixer, 52 Ohio St., 207.
    On the facts we contend: That the leasehold estate of Neff, lessee, in the premises was included in, and did pass by the deed from lessee to defendants.
    As above stated, Neff, the lessee, at the time of making this deed, had a clear right to obtain title in fee to the leasehold premises; and a party is said to have a real estate in any lands he has the right to acquire title to; it is not essential that he have title in him if he has the right to acquire it. Lessee of Avery v. Dufrees, 9 Ohio, 145; Biggs v. Bickel, 12 Ohio St., 49.
    On these authorities the leasehold premises was the real estate of Neff, the grantor, at the time this deed was made, for he had a clear right to acquire the title in fee, and it was a right he could enforce in a competent court.
    
      This general description in a deed was sufficient of “all the real estate of grantor wherever .situated” to and did include this leasehold estate. Allen v. Parrish, 3 Ohio, 107; McChesney v. Wainwright, 5 Ohio, 452; Lessee of Barton v. Morris, 15 Ohio, 408.
    All the legal and equitable title of Neff in the leasehold premises did pass by this deed, even if the title was defective. Paine v. Mason, 7 Ohio St., 198.
    No value was attached to the right to occupy or enjoy the premises, under the lease is clear, when lessee and his assignees declined to occupy when they had the clear right to do so.
    On the facts and issues presented by this record it is not easy to distinguish this case on principle from the case of Woodland Oil Co. v. Crawford, 55 Ohio St., 161.
    Defendants are estopped to deny they were the owners of this leasehold and liable for all the covenants of lessee therein, whether this leasehold was conveyed to them or not. Defendants represented it had been conveyed to them, to plaintiffs, and plaintiffs acted on these representations of defendants. Beardsley v. Foot, 14 Ohio St., 414.
    It was of no consequence to plaintiffs whether defendants had, or had not, taken possession, or intended to take possession, of the leasehold premises; and the notice of defendants had the effect and did induce plaintiffs to do just what defendants intended the notice would induce plaintiffs to do, i. e., waive their right to enter and avoid the lease during its continuance.
    On the authority of the eases of Conger v. Atwood, 28 Ohio St., 134, and Becker v. Walworth, 45 Ohio St., 169, we say that the fact that the assignment from lessee to defendants was one in trust for the benefit of creditors in no way changes the personal liability of defendants here.
    
      Maxioell & Ramsey and Wm. W. Ramsey, for defendants in error.
    The main question is, has an assignee for the benefit of creditors under the Ohio insolvency laws the right to elect whether or not he will accept and be bound by the terms of a lease from the assignor? It is submitted, both on authority and principle, that he clearly has this right. The question has never been determined by this court. The exact question, however, was determined by the superior court of Cincinnati, sitting in general term, in 1888, and has since, that time been considered by the bar of this state as settled law. Cincinnati v. Goodhue, 20 Bull., 370, 10 Dec. (Re.) 345; Copeland v. Stevens, 1 Barn. & Ad., 593.
    The same principle is also applied in the matter of receiverships. It is well settled that a receiver, even although he takes possession of leased property, has a reasonable time to elect whether or not he will accept it. Beach on Receiverships, Sec. 379; also Trust Co. v. Wabash Ry., 150 U. S., 287.
    If the rule were otherwise, in addition to the hardship on the creditors, it would be a great hardship on the assignees, for if they do accept leases, they are personally liable for the rent. If, therefore, plaintiff’s contention is correct, any person accepting an assignment might be financially ruined by such personal liability, by reason of there being leases included in the assignment reserving large rentals, but of no value, and the assets of the estate not being sufficient to pay such rents. Carter v. Hammatt, 12 Barb., 253; Burrill on Assignments, p. 475.
    
      We are unable to find a single authority in this country where'there is a decision to the contrary, and certainly no authority bearing even remotely on this question is cited by plaintiff’s counsel. In the case of Woodland Oil Co. v. Crawford, 55 Ohio St., 161, the assignment was not made for the benefit of creditors, and it was made expressly subject to the terms of the lease.
    It is well settled that a lease may be surrendered by parol. The assignees notified the lessors that they would not accept the lease or take possession, and the filing thereafter of claim for rent with the assignees was equivalent, even if the lease did pass to the assignees, to a surrender and acceptance thereof.
    The question as to whether or not the lease in question was accepted by the assignees is res adjudicata. The answer sets out that the plaintiffs filed a petition in the insolvency court of Hamilton county to require the assignee and trustee to pay the taxes and assessments required to be paid under this lease, and that upon full hearing of the cause the court determined that the lease was never accepted by the assignees or assignee and trustee. The court below overruled the demurrer to this defense, holding that the question had been determined in the insolvency court. Plaintiffs’ counsel now claims that the insolvency court was not one of competent jurisdiction. The demurrer admits the truth of these allegations. The learned counsel does not explain why he filed the. petition in question in the insolvency court, if that court had no jurisdiction. We submit, however, that the court did have jurisdiction.
    Whether or not the assignees accepted the lease was the question in issue in the insolvency court. If they had not accepted it, it was the duty of the assignees to test the claim, and if the court had held that they did accept it, they certainly could not have been heard thereafter to dispute that particular question of fact, although the suit might be against them individually. Corcoran v. Canal Co., 94 U. S., 741.
   Williams, J.

It is a general rule that one who accepts the transfer of a leasehold estate takes it subject to the terms and conditions of the lease, and becomes bound for the performance of all the covenants-of the lessee; and he is therefore liable directly to the lessor for the rent. The question here is, how far, if' at all, that rule is applicable where, as in this case, the lessee holding an unexpired term, makes an assignment, under our statute, of all his property for the benefit of his creditors. It would probably not be controverted that, whatever beneficial interest Neff held by virtue of his lease was a property right which was included in, and passed under, the' general assignment, and which the assignees, if' deemed of sufficient value by them, might have brought to sale. The proceeds of the sale would belong to the trust fund to be administered. In the event of such sale the purchaser would become the assignee of the lease, and bound on the lessee’s covenants. But, if the leasehold estate be of no value, or of less value than the burden it imposes on the lessee, so that its acceptance by the assignee in insolvency instead of being for the benefit of the creditors, would materially jeopardize their claims, is the assignee bound to accept the transfer of the leasehold interest subject to the burdens of the lease, or, is he at liberty, without incurring individual liability, to reject it in the interest of the creditors? That is the practical question in the case. Some English cases. are found which hold that an assignment for the benefit of creditors which includes a term of years, must be given the same effect, with respect to the liability of the assignee, as other assignments of a lease; and, consequently, an assignee in insolvency who accepts the trust has no discretion to reject the term with its burdens; the only way to escape personal liability on the lessees’ covenants being to decline the appointment. The assignments in these cases appear to have been made under the common law, and their effect and mode of administration, in many respects, were essentially different from that of assignments by insolvent debtors under our statute. By the former, the powers and duties of the trustee were defined, and the manner of distribution regulated, by the instrument of assignment, which became an agreement with the creditors who chose to come into the assignment. Those creditors alone became entitled to participate in the fund, and then only in the mode, and to the extent, prescribed in the instrument, which, in its construction and operation was governed by the rules applicable to contracts. An assignment under the statute is something different. The assignee is required to file the instrument of assignment in the proper court of insolvency, and qualify by taking a prescribed oath and giving sufficient bond to insure the faithful execution of his trust. That gives the court jurisdiction over him, and the assigned property, and parties interested. Whatever terms and conditions may be contained in the deed of assignment to the contrary, the statute determines its effect and operation to be for the equal benefit of all the assignor’s creditors in the order provided in the statute, and defines the powers, duties, and course of proceeding, of the assignee, for the accomplishment of a final distribution of the assigned property in accordance with specific requirements of the statute; and, from the beginning to the conclusion of the administration the assignee is under the control, and subject to the orders, of the court. The assignee acquires no personal interest in the property assigned, and is little more than a mere instrumentality, like a ministerial officer, in the hands of the court, for the purpose of effectuating a proper and speedy execution of the trust. So long, therefore, as his proceedings, conform to the commands of the statute and of the court having power to regulate his conduct and settle his accounts, there appears to be no sound principle upon which he could be made personally chargeable with any obligation of his assignor. It would seem to be enough to charge him with such liability Avhen he is guilty of a violation of his duties, and not for their faithful performance,

In his relation to the assignor, the estate assigned, the creditors for whose benefit the assignment is made, and to the court, as well as in the method of procedure for the administration of the trust, his position is much like that of assignees in bankruptcy, with respect to whom it has long been the settled rule, that they were not bound in accepting the trust, to accept a term of years that belonged to the bankrupt, subject to the rent and covenants; and without such acceptance they did not become personally responsible to the lessor. The reason of this rule, as stated by Lord Ellenborough, in Gopeland v. Stephens, 1 Barn. & Ald., 593, is that “the object of the statute and of the.assignment being the payment of the bankrupt’s debts, and the assignees under the commission being trustees for that purpose,.the acceptance of the term, which, instead of furnishing means of such payment, would diminish the fund arising from other sources, cannot be within the .scope of their trust or duty.” This reason applies with equal force in a case of assignment under our statute. And we accordingly find that, in this country, this rule adopted in bankruptcy cases is applied to voluntary assignments of insolvent debtors. In Burrill on Assignments, page 475, that author says: “Where a debtor, being a lessee of premises, makes a general assignment of all his property for the benefit of his creditors, and the assignee simply accepts the assignment, he will not be bound as assignee of the lease for the payment of rent to the landlord of the premises, but if he elects to accept the interest of the assignor and to enter under it, he becomes so bound.” In Trust Co. v. Wabash Ry. Co., 150 U. S., 299, the court say: “The general rule applicable to this class of cases is undisputed, that an assignee or receiver is not bound to adopt the contracts, accept the leases, or otherwise step into the shoes of the assignor, if in his opinion it would be unprofitable or undesirable to do so; and he is entitled to a reasonable time to elect whether to adopt or repudiate such contract.”

In Smith v. Goodman, 149 Ill., 75, that court said: “It might very well be that a term, of years in land might be so burthened with the performance of conditions that it would be wholly valueless for any purpose of the trust. For that reason it has uniformly been held that the assignee may accept the assignment and enter upon the execution of the trust without becoming the assignee of the lease held by the insolvents, unless he elects to do so.” In volume 3, Second Edition of the Am. & Eng. Ency. of Law, pages 125-6, it is laid down as the settled rule, that: “An assignee for the benefit of creditors, who accepts the trust, is not bound to accept a leasehold estate included in the assignment, and, if he does not elect to do so, is not liable as assignee of the lease;” and, he “does not become personally liable for the rent of premises leased to the assignor, by continuing in possession for the-sole purpose of executing his trust, if such continuance was consistent with ordinary prudence.” A number of American cases are there cited which sustain the text; and we find none to the contrary. We-are relieved of any necessity of determining in this, case what possession or acts of the trustee would amount to an acceptance of the lease, for the trial court found, not only that there was no acceptance-by the defendants in error, but that they expressly rejected it, by notice in writing, soon after the assignment was made, and took no possession of the leased premises. We also find it unnecessary to pass upon the plea of res adjudicata.

If the action had been against the assignees of Neff to compel them, in their trust capacity, to allow the plaintiffs’ demand for the rent accruing under the-lease, and for the unpaid taxes and assessments, as a valid claim entitled to participate, in its proper order, in the distribution of the fund arising from the assigned property, the facts of this case, would have required a judgment different from that rendered by the-courts below. For the assignment did not terminate the lease, nor discharge the obligation of the lessee to pay the rents, taxes, and charges according to its covenants. On the contrary, these obligations continued to be a liability of the lessee which might be made the basis of a valid claim by the lessors, as. general creditors, entitling them to share, in the-proper order, in the distribution of the fund that came-to the hands of the assignees in virtue of the assignment. And it could be no valid objection to tbe allowance of such claim, or its participation in the trust fund, that the rent, or any part of it, had not become due at the time of the assignment, or its distribution, unless the lessors had re-entered, or otherwise put an end to the lease. In that respect the claim must stand on the same footing as other unmatured debts of the assignor. Smith v. Goodman, 149 Ill., 75.

The purpose of the action below, however, was to .'hold the persons to whom the assignment was made, individually liable on Neff’s covenants in the lease, •on the ground that, by accepting the assignment for the benefit of his creditors they became assignees of the lease, and so bound for his obligation to pay the rent reserved, taxes, and the other charges. And the lower courts properly held, we think, that the defendants were not so liable.

Judgment affirmed.