Court Opinion

ID: 8812889
Source: CourtListenerOpinion
Date Created: 2022-11-26 15:08:14.57024+00
Date Added: 2024-06-11T17:04:21.460412
License: Public Domain

ANDERSON, Circuit Judge
(dissenting). From both the opinion and the conclusion of the majority I am compelled to dissent. The result reached amounts to turning over the sum of $4,485.65, which, in my view, belongs to the general creditors of the bankrupt, to or for the benefit of Crawford, the bankrupt’s treasurer, and Shea, the other guarantor of the lease.
The facts really controlling in the case seem to me to be disregarded in the opinion of the majority.
The owners of this building, trustees under wills, made a 10-year' lease, ending December 31, 1916, to the George F. Quigley Company, of which Andrew Crawford was treasurer. Crawford and one Shea, both, so far as this record indicates, financially responsible, guaranteed performance by the lessee of all its covenants in the lease. The lessors were further secured by a $10,000 surety company bond. The original lessee went out of business in 1909. The Crawford-Plummer Com-X>any, now the bankrupt, succeeded to the business, and Crawford became its treasurer. The new company occupied the premises, and Crawford, aiqpareiifly as treasurer of the new company, continued to pay the rent. As long as the landlords received their rent promptly and were not asked to release any of their rights under their old,, well-secured lease, they were naturally content. As trustees under wills they were in duty bound to maintain all the legal rights of their estates. In their petition they have not alleged, nor is it now contended by them in argument, that the bankrupt was ever their tenant. The petition shows, as does the evidence, and as the District Court found, that the bankrupt occupied the premises as a tenant at will of the George F. Otuglcy Company. The petitioners stand, and properly, upon their rights, under the lease to the Quigley Company. There is nothing in the record warranting the inference that these owners have not long ago collected the full amount of the rent due under this lease. It was their duty to collect it.
It follows that whatever is received out of the bankrupt estate goes, not to benefit the owners, these petitioners, but to exonerate Crawford and Shea from liability otherwise accruing under their guarantee. They are the real parties in interest. The bankruptcy of the tenant at will of the lessee had, and could have, no effect whatever on the lessors’ rights under their lease. There never was any privity between the owners and the bankrupt, or between the owners and the receivers.
When the Crawford-Plummer Company failed in April, 1916, the receivers at first assumed, not unnaturally, that the bankrupt was the lessee, and that consequently it was their duty within a reasonable time to elect whether to accept or renounce the lease. Bell v. American Protective League, 163 Mass. 558, 40 N. E. 857, 28 L. R. A. 452, 47 Am. St. Rep. 481; Railroad Co. v. Humphreys, 145 U. S. 82, 12 Sup. Ct. 787, 36 L. Ed. 632; In re Sherwoods, 210 Fed. 754, 757, 127 C. C. A. 304; Fleming v. Noble, 250 Fed. 733, 163 C. C. A. 65. Before they ascertained the real facts, $3,000 had been paid by the receivers to the petitioners. But all the negotiations between the receivers and the owners, as well as this x>ayment, were grounded on a misapprehension of the legally significant facts. I am compelled to regard these negotia*762tions, treated by the majority as of great, perhaps controlling, importance, as having nothing whatever to do with the real case.
As there was no leasehold which the receivers could accept or renounce, no question arises as to whether, pending decision, the rent reserved in the lease, or only a reasonable rent, should be allowed. Bell v. Am. Prof. League, supra; Fleming v. Noble, 250 Fed. 733, 735, 163 C. C. A. 65. The receivers had nothing to accept or to renounce. They were probably, as the referee and the District Court found, tenants at sufferance of the George F. Quigley Company. As there was no privity between the petitioners and the receivers, the petition should in my view on that ground alone be dismissed, even if from the bankruptcy estate further payments ought to be made for the use and occupation of the premises.
But the majority opinion holds that this issue is not open, that the point of no privity was raised too late by the receivers, and that the only question certified by the referee was “what should be allowed for the rent of the premises occupied by the assignee and receivers from April 18, 1916, to and including August 1, 1916.” .
As a matter of merely technical construction, to determine “what should be allowed” leaves it open to determine whether anything should be allowed. But even if there were, as I think there are not, technical difficulties in dealing with this case on its real merits, this court ought not, in my view, to give its approval to an obvious misapplication of a substantial part of this bankruptcy estate.
As already indicated, the petition of the owners was demurrable. The proceedings before the referee and before the District Court were, in effect, a mistrial. Undoubtedly counsel for the receivers was late in grasping the real situation and discovering that there was no warrant for making any payment to these petitioners. But the petitioners certainly have not been harmed by this belated ascertainment of the real facts'. It is far from clear that they did not cause, or at any rate contribute to, the error and confusion. However that may be, the error below is now clearly apparent on the record. The issue is before this court. The responsibility must be taken by this court. The petitioners had, and have, no standing to claim anything from this bankruptcy estate.
But if we assume that by amendment the Quigley Company could' be substituted for the petitioners, and that the question is broadly open as to what may justly and legally be allowed any party entitled thereto for the use of these premises, I think the result is the same; nothing is justly or legally due. $3,000 has already been paid for this occupancy of 15 weeks — $200 a week. The amount of the business done was about $40,000. To charge upon a bankruptcy estate a rent of about $7,500 for the sale of $40,000 of goods is obviously maladministration for which some one must be responsible. “Res ipsa loquitur.” While the receivers were rather lax and careless, I do not think they can, on this record, be held responsible for such a waste of assets.
The referee found, and his finding is sustained by the District Court, ■ that— ■
*763“The rental value of the premises used only for temporary occupancy was perhaps as low as $100 a week. The receivers were tenants at sufferance, and it was understood that they were to vacate the premises whenever a satisfactory offer to rent by lease was received by the petitioners. * * * There was no agreement between the assignee and the owners, or between the receivers and the owners, or between the trustees and the owners, with reference to the amount of rent to he paid.”
As the receivers did not undertake to agree for the payment of any such disproportionate rent, it is unnecessary to consider whether any such agreement, if made, could have, without the approval of the court, legally bound their estate.
Reasonable compensation for such temporary use and occupancy obviously depends upon the benefit to the occupant, or upon the sacrifice of the owners, or upon the combination or balancing of both factors. 1 think it clear that $100 a week fairly measured the sacrifice of the owners, including under that name the Quigley Company and Crawford and Shea, the guarantors of the lease; for it was as much as they could have gotten from any other occupant. I do not regard Redmond’s announcement, who apparently acted for all parties in interest, that the purchaser might remain in possession after August 1 at a rental of $100 a week, as anything other than a business proceeding on the part of the persons who had these premises in the market to let. It was not a piece of philanthropy. It was an ordinary, businesslike attempt to get what they could out of the premises under very disadvantageous circumstances. It fairly tests the value of temporary use of the premises to would-be lessors, at that time and under the existing conditions. In all probability the premises would have been vacant until the end of the term on December 31, 1916, except for the occupancy of the receiver, and of the purchaser of the goods.
If, then, failing occupancy by these receivers, the premises would not have produced more than $100 a week — or even the $200 a week already paid to the owners, then the question of any further compensation for use and occupancy must be determined, at least in large part, by considering the value of the premises to the occupants. Such value obviously cannot be determined without paying some regard to the amount of business done upon the premises. It was, therefore, I think error for the court below to treat the amount of business done upon the premises as immaterial. As already indicated, premises used for the sale of $40,000 of goods cannot be of more than $3,000 benefit to a bankruptcy estate. The estate made no profit from the use of these premises to which the petitioners are justly entitled.
Otherwise stated, the owners of these premises were fairly entitled to receive from the bankruptcy estate, either what they could have gotten from some other occupant, or else the value of the premises to the bankrupt estate. They were entitled to nothing more. The fact that under a long lease with a going business the premises would have produced a rent largely in excess of the value for temporary occupancy is, while entitled to consideration, a fact of little — almost no — weight in the determination of the present problem.
Nor is there anything either in the decision or in the opinion in *764Kneeland v. American Loan & Trust Co., 136 U. S. 89, 10 Sup. Ct. 950, 34 L. Ed. 379, inconsistent with the view I now urge. That case arose out of foreclosure of a railroad mortgage and involved conflicting liens upon realty and personalty. The language quoted by the majority has absolutely no application to such a situation as is presented in this case.
Of course, rent reserved in a lease is evidence of a fair rental; sometimes and under some circumstances, almost conclusive of what is a fair rental; at other times, and under such circumstances as obtain in this case, of almost no weight.
There is another point on which I have the misfortune to differ from my Brethren. They refer to this occupation as a “forced occupation” —as though the Bankruptcy Court had power, and had used that power, to compel the owners or other persons legally entitled to the •possession of the ’estate to turn it over for the use of the court’s receivers. As I have already indicated, I think the facts in this case show clearly that the actual occupancy was with the assent of the parties legally entitled to possession and with an understanding that the receivers would move whenever a new tenant could be found.
But I am unwilling, even by implication, to assent to the doctrine that a court of equity or bankruptcy has power to requisition either real' or personal property of third persons for use in liquidating bankruptcy assets. An equity court has no power of eminent domain, or anything analogous thereto. Of course private property may be appropriated to public use, reasonable compensation being paid therefor. The use of premises as a place of sale of bankruptcy assets is not a public use. No one would seriously contend that, however advantageous in the administration of bankruptcy Assets, the court could compel one of our great department stores to give up a desirable part thereof for the sale of such assets. The fact that such assets, when seized by the court’s receivers, are frequently located on premises in which the bankrupt has no continuing legal right, does not alter the nature of the problem. The owner of such premises has the same legal right to repossess himself of his property as has the owner of a-department store to withhold the use of his premises. I can find no case decided by the Supreme Court of the United States, or by any other court of last resort, in which any such power has been sustained.
When, there is a, leasehold estate, it may or may not be the duty of the court’s receiver to adopt it as an asset. Reasonable time for making such decision is a necessity of the situation. Pending such decision, if the receiver actually occupies, reasonable rent, or the rent reserved, must be paid. Bell v. American Protective League, 163 Mass. 558, 40 N. E. 857, 28 L. R. A. 452, 47 Am. St. Rep. 481; Fleming v. Noble, supra, and cases cited. If the lease is accepted, full rent is paid out of the estate. If the lease is renounced, tire rights of the landlord against the original lessees are, as to subsequently accruing rent, unaffected. In re Sherwoods, 210 Fed. 755, 127 C. C. A. 304; In re Roth & Appel, 181 Fed. 667, 104 C. C. A. 649, 31 L. R. A. (N. S.) 270.
This is an entirely different proposition from that which underlies the intimated power of a court of equity to hold premises as against *765the legal rights of the owners, because they are convenient or advantageous in the liquidation of bankruptcy assets. No well-considered authority sustains any such revolutionary proposition. 3 Remington, Baukr. § 984, where two District Court opinions are cited in support:
In In re Chambers, Calder & Co., 98 Fed. 865, Judge Brown enjoined the landlord from bringing ejectment proceedings against the court’s receiver, who had taken possession of a stock of goods on leased premises. This decision rests on the well-recognized doctrine that the enforcement of the landlord’s alleged legal rights must be primarily sought in the court that had taken possession of the leased premises. Judge Brown says (page 866):
“A court of qinty, while giving the fullest recognition to a legal right, may so regulate the time and manner of its enforcement as not to cause unnecessary loss to-others.”
This doctrine, even if somewhat broadly stated, falls very far short of asserting a power of eminent domain in a bankruptcy court.
The other case which, is commonly cited as an authority for this extraordinary proposition is In re Schwartzman, 167 Fed. 399, a decision of the District Court in South Carolina. But an examination of this case shows that it does not warrant the interpretation apparently put upon it in 3 Remington, Bankruptcy, 984.
The real decision in the Schwartzman Case was that the bankrupt was legally entitled to hold the premises until September, 1909, and that consequently the landlord should be enjoined from enforcing his erroneously claimed right of possession as of January 1, 1909. The decision was perfectly sound. It need hardly be remarked that any obiter dicta therein inconsistent with the decision as a whole, and with the current of authority elsewhere, are of no controlling weight.
Clearly Congress has never undertaken to vest in the federal courts having equity or bankruptcy jurisdiction power to seize and hold, as against the legal right of third persons, property convenient for the administration of bankruptcy or equity assets. No court, whose decisions are a binding or well-recognized authority, has asserted any such far-reaching doctrine. I do not think this court should even by implication commit itself to what I am compelled to regard as an unwarranted usurpation of power. This is a situation in which the axiom “equity follows the law” should be given full operation.