Gardner v. Gleason

JOHNSON, Circuit Judge. This is an appeal from a decree of the District Court of Massachusetts vacating an order of the referee and determining the rent to be paid to the owners of a building on Washington street, in the city of Boston, during its occupation by a common law assignee and receivers in bankruptcy. The assignee occupied from April 18, 1916, to May 3, 1916,_ and-the receivers from the latter date to July 31, 1916; so that the occupancy by both was for 3% months. The premises were leased in December, 1905, for a term of 10 years from January 1, 1907, to the George F. Quigley Company, a corporation of which Andrew Crawford was the treasurer, and this company had occupied the premises until 1909, when the bankrupt, the Crawford-Plummer Company, a corporation, of which the same Andrew Crawford was treasurer, took over its business and the possession of the premises, and paid rent to the owners in accordance with the terms of the lease. The record does not disclose any assignment of the lease to the bankrupt, nor any subletting to the bankrupt, nor any surrender of the lease and a verbal letting by the owners to the bankrupt, but does disclose that the bankrupt was in possession of the premises from some time in 1909 to April 18, 1916, and paid rent to the owners in accordance with the terms of the lease. It appears from the summary of testimony before the referee that one of the representatives of the owners wrote to one of the receivers two days after their appointment, stating in substance that he had been informed that he and another had been appointed receivers of the Crawford-Plummer Company, and also: “We would like to know wliat your plans are in regard to occupying the property.” To this the receivers replied that they expected to continue the business of the Crawford-Plummer Company in the Boston store, but did not know how long it would be advisable to continue the business as receivers, and that, if an arrangement could be made for new leases of the property, allowing them a reasonable time to vacate, it might be arranged to their advantage and that of the landlord. At this time it was evident that the receivers thought that the Crawford-Plummer Company were lessees of the property, because they state that, if they vacate the property, it would be— “upon some arrangement disposing of the remaining portion of the term of the Crawford-Plummer Company’s lease, and any proposition looking toward the suivender of possession of the Boston store and the purchase of the unex [757] pired portion of the Crawford-Plummer Company lease would be carefully investigated by us, and, if it seems to tbe advantage of the estate, we will at once seek the permission of the court to take advantage of the offer.” On May 16, 1916, Mr. Albert A. Gleason, with a Mr. Reid, both representing the owners of the premises, called upon one of the receivers to inquire their intentions in regard to remaining in occupancy of the premises and the rental to be paid, and, finding that they intended to remain for the present, Mr. Gleason told him the rental was $20,000 a year and taxes and repairs; that the taxes for 1915 were about $6,390 and said: “If you remain in the premises we shall expect you to pay the same rental that the tenant paid.” To which the receiver replied: “That he thought it was customary in such cases for the receivers to pay the same rental as had been paid by the tenant.” Mr. Gleason afterwards called upon the other receiver and gave him the same information in regard to the rental that had been paid by the bankrupt, and told him: "That he thought that the fair value of the premises would be at the same rate that the tenant had paid.” Neither of the receivers was informed, however, in regard to the relationship of Crawford with the Quigley Company or the CrawfordPlummer Company. Although there was other correspondence between the representatives of the owners and the receivers, no agreement was made in regard to rental; but the receivers paid them $3,000 on account of the rent, stating that the balance would be left for future adjustment. The rental reserved in the lease was $20,000 per annum and all water rates and taxes which might be assessed upon the premises during the term and the cost of necessary repairs. The taxes for the year 1915 were $6,393, water rates during the occupancy by the assignee and receivers $30, and repairs $27. The learned referee found that the reasonable rental value of the premises during the occupancy of the assignee and receivers was greater for a term of years than that reserved in the lease, but that for a temporary occupancy their rent might he as low as $100 per week. This finding, however, in regard to the value of the rental for temporary occupancy, was based upon the testimony of a real estate agent who had charge of the property, and who, after consultation with the owners, made an arrangement with the purchaser at auction of the balance of the goods which the receivers had been unable to sell, by which the purchaser might remain upon the premises, for the purpose of getting rid of the goods which he had bought, for a rental of $100 per week, which the agent said was the “usual price under such circumstances.” The agent, at the request of one of the guarantors on the lease, placed “To Let” signs upon the store before the occupancy by the assignee, and testified that he had received no satisfactory proposition to lease the premises down to the date of sale, and he testified: [758] “I understood, of course, that while the ‘To Let’ sign was in the window,, the occupants were merely tenants at sufferance, and that they were to remain-only unless or until the owners got a satisfactory offer to rent the premises by lease.” There was no evidence that any such agreement had been made by the owners and the receivers, and the referee’s finding, that it was understood that the receivers were to vacate the premises whenever a. satisfactory offer to rent or lease was received by the petitioners, is-only his conclusion from the above testimony. The referee has found that the assignee and receivers carried on t-he business in the store, and that it was of advantage to the bankrupt estate that the business be continued in the store which the bankrupt had occupied. He certified, that, under all the circumstances, $1,500. a month, including water and repairs, seemed to him equitable and just rental for the premises, and that rent for 3%'months at this rate would amount to $5,110, and, deducting the amount already paid by the receivers on account, he-found the balance to be $2,100, and ordered that sum to be paid. [1, 2] Both the receivers and the owners of the premises petitioned the court to review this order of the referee, and it then became the duty of the referee, under General Order in Bankruptcy No. 17 (89' Fed. viii, 32 C. C. A. -xix), to— “forthwith certify to the judge the question presented, a summary of the evidence relating thereto and the finding ánd order of the referee thereon.” 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?” And with this question he certified, as provided by the above general-order, a summary of the evidence taken before him relating to the question which was presented. The receivers, in their petition for review, assigned as the only reason for review that the order of the referee “was and is erroneous, in that said amount allowed is excessive.” There was, therefore, only one question presented to the learned-' judge of the District Court, and that related solely to the amount which should be allowed the owners as rent during the occupancy of the premises by the assignee and receivers. No other question is raised by the assignment of errors on this appeal. While it is true that the trustee has assigned as error “that the court erred in treating the case substantially as if it were one in which the bankrupt had held directly under the petitioners’ lease,” upon reference to the opinion of the court, however, it appears that he stated that “for the purposes of the present question, I think the case substantially the same as if the bankrupt had held directly under the lease”; the question being only the determination of the amount of rent which should be allowed. It does not appear from the certificate of the referee, or from the testimony which was filed with the court, or from the record of the case submitted to us on appeal, that the right of the owners to receive whatever rent should be allowed by the court was questioned. In the argument of the case before us, however, the trustee under [759] took to question this right, and claimed that, as there was an outstanding léase running from the owners of the property to the George F, Quigley Company, the Crawford-Plummer Company was a subtenant at will of the George F. Quigley Company, and that until the expiration of the lease, or until some default creating a right to re-enter and take possession of the premises by the owners, the latter had no claim for rent, except against the Quigley Company. We do not regard this question as now open to the trustee, but that the sole question before us is what sum should be allowed. The learned District Judge found the yearly rent to be $26,420, which evidently included $20,000 cash rental, taxes $6,393, and repairs $27. He thought that the referee had overemphasized the element of uncertainty in the tenancy of the assignee and receivers, as no pressure to vacate was ever put upon them by the owners or by the lessee, and that reasonable compensation should be naid for use and occupancy of the premises; that the rent reserved in the lease to the bankrupt was •a fair measure of what the use and occupancy was fairly worth; that in the absence of an express agreement for a lower rental there is a presumption in favor of that sum; and that it will ordinarily be allowed, unless unusual circumstances appear making it plainly unreasonable. He also found there were no such circumstances in this case and that the ordinary practice ought to have been followed, and that the fact that the rent was large in comparison with the business carried on was a matter with which the owners were not concerned, and which ought not to diminish their rights, and ordered that the sum of $4,485.65 be paid to the petitioners. This sum was arrived at by adding to the cash rental of $20,000, paid under the lease, taxes for the year 1915, $6,393, and repairs amounting to $27, making the total yearly rental $26,420, or $2,201.66 per month, and the rental for 3% months, the period of the occupancy by the assignee and receivers, $7,485.65, from which $3,000 p^id by the receivers was deducted. [3] We do not think the rental reserved in the lease, nor the rent which had been previously paid by the bankrupt as a tenant at will, are conclusive in determining what rental shbuld be allowed the owners during the occupancy of their premises, for the preservation of the estate of the bankrupt; but evidence of the rent which had been previously paid, either under the lease or a verbal letting, may be of great assistance in determining what fairly and equitably ought to be allowed by the court to the owner as just compensation for such occupation. It was held in Fleming v. Noble, 250 Fed. 733, 163 C. C. A. 65, that where the rental reserved in the lease is a fair rental value of the premises occupied by the receiver, that should be awarded to the owner of the premises for the forced occupation of his premises, in the absence of any evidence of any agreement that a lower rental was agreed upon. [4] The referee has found that occupancy by the assignee was of benefit to the estate, as the business of the bankrupt was maintained as a going business, and rent for such occupancy should be allowed as one of the expenses in preserving the estate. Randolph v. Scruggs, [760] 190 U. S. 533, 538, 23 Sup. Ct. 710, 47 L. Ed. 1165; Remington on Bankruptcy, vol. 1, p. 986. [5] We do not think there was an error in the failure of the court below to treat as immaterial the amount of business done. If the premises occupied were too large for the business which was transacted, this was a matter to be determined by the receivers; and if they chose to occupy the whole of the premises without making any arrangement in regard to a lower rent, we do not think the rent should be made dependent upon their success, and see no reason why, if the sales were small, the landlord should not, on this account, be entitled to a fair rental for his premises. In Kneeland v. American Loan & Trust Co., 136 U. S. 89, 103, 10 Sup. Ct. 950, 955 (34 L. Ed. 379), the court said that the receiver was liable for payment of a reasonable rental during his occupancy: “A rental not based on the use aetuallly made by the receiver, but on the ordinary value of such property. * * * Such value is not to be determined by the amount of actual use, but by what, in the first instance and before the-use had been had, would be adjudged a reasonable rental value.” [6] It would be most inequitable to interpret the agreement, made in the interest of the bankrupt estate to assist the receivers in obtaining as large a price as possible for the balance of the goods, as an admission that it was a fair rental value' of the premises, while the assignee and receivers were conducting the business of the bankrupt. The fact that the receivers had already paid $3,000 on account of rent and wished to leave the balance for future adjustment conclusively proves that in their opinion the rent which it was agreed should be paid by the purchaser of a small remnant of the goods was not a fair measure of the reasonable rental during their occupancy. Although a “To Let” was placed upon the property some time in the early summer, the receivers were allowed to remain in possession of the premises as long as they desired, and interference with their possession would have been enjoined unless, upon application by the owners to the bankruptcy court, it shpuld have ordered the receivers to vacate the premises. Under the order of the court they carried on the business in which the bankrupt had been engaged. They knew the rental which had been paid by the bankrupt, and that the owners expected them to pay the same rental during their occupancy, and did not surrender any part of the premises, nor make any arrangement to pay a lower rental. We think that, where the rental which had been previously paid by the bankrupt, either under the terms of the lease or under a tenancy at will, is the fair rental value of the premises, the court, under all equitable considerations, ought to award this rental to the owner of the premises which are occupied for the preservation of a bankrupt estate, in the absence of any agreement for a lower rental or circumstances of an unusual nature that would render it inequitable, and we do not think there are such circumstances in this case. The order and decree of the District Court is affirmed, with costs to the appellees.