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it in case of a transfer by operation of law or otherwise, as he could not avail himself of the right accorded him by the lease to retake possession while the premises were in the possession of the receiver. In Bankruptcy. In the matter of Georgalas Bros., a partnership, bankrupt. On petition for review of an order of the referee. Reversed, with instructions.

McKain & Ohl, of Youngstown, Ohio, for trustee.
Wilson & Wilson, of Youngstown, Ohio, for petitioner.

WESTENHAVER, District Judge. The controversy here relates to a lease which the trustee claims the right to sell, and which the lessor, the H. L. McElroy Company, claims is void, and the premises covered thereby should be surrendered to it. The lease is dated April 28, 1915, and is for a term of 10 years, commencing May 15, 1915, and the lessor, the H. L. McElroy Company, thereby leases to one Gust Georgalas certain premises, which were afterwards used by the bankrupt partnership in which to conduct a restaurant business. This lease contains the following provision:

“It is mutually covenanted and agreed by and between the parties hereto that if the rent at any time shall be in arrears and unpaid for the space of thirty (30) days, or if there shall be any breach of any of the covenants and agreements herein contained on the part of the lessee, or if the lessee shall be adjudged bankrupt; or shall make an assignment for the benefit of his creditors, or if this lease shall pass by transfer, operation of law, or otherwise from said lessee to any other party without the written consent of the lessor, or if said premises or any part thereof shall be underlet contrary to the terms hereof, the lessor may, without notice to the lessee or other occupant of the premises, and without demand for rent due, avoid this lease and enter into possession of the premises and remove all persons and property therefrom and bring its action for the recovery of rent due at the rate aforesaid up to the time of such entry, or it may bring such action without avoiding this lease, at its election, and no waiver by the lessor of its rights to avoid this lease by reason of any breach of any covenant upon the part of the lessee shall constitute a waiver of its right to avoid the lease on account of any other or further breaches of any such covenants or agreements. Every demand for rent, made after it falls due, shall have the same effect in law as if made at the time it falls due, any law of the land or rule in equity to the contrary notwithstanding.'

Gust Georgalas, the lessee, assigned this lease April 20, 1917, to Georgalas Bros., a partnership consisting of Gust, Theodore, and James Georgalas. The lessor did not consent in writing to this assignment, but undoubtedly accepted the assignees as tenants, and waived a breach of the covenants above quoted.

Later, May 26, 1917, Georgalas Bros., by Gust Georgalas, assigned this lease to Theodore Georgalas. The lessor consented to this transfer in writing the same date, indorsed on the lease. Some question is made as to whether this assignment is sufficient, on the facts disclosed in the record, to transfer title from the partnership to the individual partner, thereby making the unexpired term of the lease an asset of the individual partner, rather than of the partnership. I shall assume that the transfer is valid.

At the time of this transfer the lessor took a chattel mortgage on the personal property of the partnership to secure 12 promissory notes, each for $333.33, payable monthly thereafter. These notes and the chattel mortgage securing the same were for the rent thereafter to become due. On June 1, 1917, the partnership, by Theodore Georgalas, filed a voluntary petition in bankruptcy. On the same date an order was made appointing a receiver, who took possession of all the property of the partnership, including the personal property covered by the chattel mortgage and the leased premises.

Owing to a delay in giving notice to the partners, who did not join in the petition in bankruptcy, an adjudication in bankruptcy was delayed; but on July 2, 1917, the partnership, consisting of Gust, James, and Theodore Georgalas, was duly adjudged bankrupt as a partnership. The individual members of the partnership were not expressly adjudged to be bankrupts.

Later, on July 27, 1917, the trustee in bankruptcy filed a petition to sell the unexpired term of the lease. The lessor appeared, and claims that the lease is forfeited by virtue of the provisions of the lease above quoted, and asks that the trustee be ordered to surrender the same to it. An order was made by the referee, denying the lessor the relief asked, and directing the trustee to sell the unexpired term. It is to this order that the lessor has filed the petition for a review.

The referee, in his opinion, holds that the covenant against assigning or subletting is not broken, because the lessor has both waived and consented thereto, and that the partnership only was adjudged a bankrupt, that Theodore Georgalas, as an individual, was not adjudged a bankrupt, and therefore the covenant against bankruptcy is not broken.

[1] If it be true that the partnership had assigned or transferred the lease to Theodore Georgalas without breaking any covenant, or giving the lessor any right to avoid the lease, nevertheless Theodore took the lease subject to these covenants. The question, then, is whether the lease has passed by operation of law or otherwise from said lessee to any other person without the written consent of the lessor."

[2] It is not asserted that the lessor had consented, in writing or otherwise, to the transfer of this lease by operation of law to the trustee. The only right of the trustee to sell the lease is by virtue of the transfer thereof by operation of law to him. It is inconsistent to assert title in the trustee by operation of law, and yet to say that the title still remains in Theodore, and that the covenant is not broken. An adjudication in bankruptcy against a partnership, it is settled law in this circuit, operates to transfer by law to the trustee all the property and assets of the individual members of the partnership. Ft. Pitt Coal & Coke Co. v. Diser, 239 Fed. 443, 152 C. C. A. 321, 38 Amer. Bankr. R. 566. It is by virtue of this legal effect of an adjudication of the partnership to be bankrupt that the trustee acquires a right or title to this lease. It is equally effective to operate as a transfer by operation of law of the lease, so as to bring about a violation of this covenant.

[3] It is also settled law that a lease may be so framed that a transfer by operation of law will avoid the same at the option of the lessor. Gazlay v. Williams, 210 U. S. 41, 28 Sup. Ct. 687, 52 L. Ed. 950; In Te Frazin, 183 Fed. 28, 105 C. C. A. 320, 33 L. R. A. (N. S.) 745 (2 C. C. A.). The covenants above quoted, when properly interpreted and understood, bring the facts within its terms, and the lessor's right to avoid the same is well established, and is sustained by the authorities above cited.

[4] In oral argument, counsel for the trustee relied on the position that the lessor had not done that which was necessary to avoid this lease according to the covenants above quoted. The lessor notified the partnership and the individual members thereof of his election to avoid the lease. It appeared and filed an answer, claiming that the lease had been forfeited, and asked for an order surrendering the premises. A receiver was in charge of these premises from June 1, 1917, until possession was taken by the trustee. There is no evidence to show that the lessor, after the appointment of the receiver, assumed any position inconsistent with its present claim of its right to avoid this lease, or that it did any act which could be construed as waiving its right so to do. Manifestly, with a receiver in possession, the lessor could not avail itself of the right accorded by the provisions above quoted to enter into possession of the premises and remove all persons and property therefrom. It could do no more than bring its rights in due time to the notice of the bankruptcy court. This it has done. In re Frazin, 183 Fed. 28, 105 C. C. A. 320, 33 L. R. A. (N. S.) 745 (2 C. C. A.) is sufficient authority for the proposition that no waiver arises on these facts against the lessor.

The judgment and order of the referee will be reversed, with instructions to proceed further in conformity to the conclusions herein set forth. An exception may be noted to this ruling.


(District Court, E. D. New York. August 23, 1917.) 1. JUDGMENT O 563(2)—RES JUDICATA-QUASHING WRIT.

Judgment quashing a writ of certiorari to review an order as supported only by allegations constituting conclusions, instead of by the necessary allegations of fact, is not res judicata in suit for relief against the



Public Service Commission Law New York (Consol. Laws, C. 48) is not unconstitutional because not expressly providing for appeal from orders of the commission, the method of review by certiorari under Code Civ. Proc. N. Y., § 2120 et seq., being applicable, and any abuse of discretion in refusing the writ being subject of appeal, and a suit to set aside an order

being available. 3. CARRIERS 2-PENALTIES.

Public Service Commission Law New York, $ 56, providing a penalty of $5,000 a day for violation of an order of the commission, does not make the statute unconstitutional on the theory that such an amount may compel obedience even to a confiscatory order; section 24 providing for remission of the penalty during pendency of a suit in good faith to set aside an order.

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes


The subject of penalties in Public Service Commission Law New York, being a separable feature, if unconstitutional, would not make the whole


Public Service Commission Law New York, $ 56, making guilty of a misdemeanor an officer or agent of a company who procures, aids, or abets it in its failure to obey an order of the commission, contemplates a personal and individual act, and not a mere failure of the company, un

less shown to be due to his neglect or fault. 6. CONSTITUTIONAL LAW E318-DUE PROCESS OF LAW.

An order of the Public Service Commission that street car service must be increased, after hearing on proofs, with opportunity to street car company to appear, is not a taking of property without due process of law.

In Equity. Four suits, one by the Brooklyn Heights Railroad Company, one by the Brooklyn, Queens County & Suburban Railroad Company, one by the Coney Island & Brooklyn Railroad Company, and the other by the Nassau Electric Railroad Company, all against Oscar S. Straus and others, the Public Service Commission of the State of New York for the First District, and others. Injunction pendente lite denied.

George D. Yeomans, of Brooklyn, N. Y. (I. R. Oeland and Charles A. Collin, both of New York City, and D. A. Marsh, of Brooklyn, N. Y., of counsel), for complainants.

William L. Ransom, of New York City (William L. Ransom, Godfrey Goldmark, Jacob H. Goetz, and H. M. Chamberlain, all of New York City, of counsel), for Public Service Commission and in person.

Merton E. Lewis, Atty. Gen., by M. S. Schector, Deputy Atty. Gen., for Attorney General of State of New York and for Governor.

Before WARD, Circuit Judge, and VEEDER and AUGUSTUS N. HAND, District Judges.

PER CURIAM. These four cases, being alike, will be disposed of in one opinion. The bills filed ask that an order of the Public Service Commission of the state of New York requiring the complainants, street railroad corporations, to operate additional cars in the city of New York within certain dates, be adjudged to be illegal and void; that the Public Service Commission Law itself be adjudged to be unconstitutional, and that the commissioners, defendants, be enjoined pendente lite from enforcing the order by actions for collection of penalties or by criminal proceedings against the companies' officers. The motion for the preliminary injunction is the subject now to be disposed of as required by section 266 of the Judicial Code (Act March 3, 1911, c. 231, 36 Stat. 1162 [Comp. St. 1916, § 1243]).

(1, 2) Before bill filed Judge Ordway in the state court quashed writs of certiorari which had been granted ex parte to review the order in question, and the companies took no appeal from that judgment. The defendants contend that it constitutes res adjudicata in these causes. But the judgment was not upon the merits. The duty

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

lay upon the companies to allege upon oath facts sufficient to satisfy the court, at least prima facie, that the order complained of was illegal, instead of doing which the judge found that they confined themselves to allegations which were mere conclusions. Such a judgment, although acquiesced in by the companies, no more binds them upon the merits than does the dismissal of an action at law for want of sufficient proof to go to the jury or an order granting or denying a preliminary injunction in a suit in equity. The companies could still apply for another writ upon a fuller statement of sufficient facts upon oath or they could go into the state courts or come into this court for relief if they could prove that the order violated the Constitution of the United States. Louisville & Nashville Railroad Co. v. Garrett, 231 U. S. 298, 310, 34 Sup. Ct. 48, 58 L. Ed. 229.

The Public Service Law itself is said to be unconstitutional on two grounds:

First. Because it does not expressly provide for an appeal from the orders of the commission. But the state of New York has provided a method of review which does apply to these orders by certiorari (Code of Civil Procedure, $ 2120 et seq.). It is true that the granting of the writ is discretionary but the discretion must not be abused and is the subject of appeal. People v. Peck, 73 App. Div. 89, 76 N. Y. Supp. 328; People ex rel. Joline v. Willcox, 129 App. Div. 267, 113 N. Y. Supp. 861. Besides this, the companies had the same right to file a bill in the state courts like the bill filed in this court, to set aside the order as unconstitutional. Wadley Southern Railway Co. v. Georgia, 235 U. S. 651, 660, 35 Sup. Ct. 214, 59 L. Ed. 405. For these reasons we think the companies had quite sufficient means of judicial review.

[3, 4] Second. Because section 56 of the law provides for a penalty of not more than $5,000 a day for every day a violation of the order continues. It is said that this might run up to such an enormous sum as to compel obedience even to a confiscatory order. Section 24, however, corrects this apprehended mischief by providing that, if the defendant in an action to collect such penalties prove that it was "actually and in good faith prosecuting a suit, action or proceeding in the courts to set aside such order, the court shall remit the penalties or forfeitures incurred during the pendency of such suit, action or proceeding." Furthermore the companies would not be held subject to penalties until after the order complained of had been held to be valid. Of course, they would be required to proceed seasonably to test its validity, and if they delayed to do so in bad faith they would be subject to penalties. Wadley Southern Railway Co. v. Georgia, 235 U. S. 666 et seq. 35 Sup. Ct. 214, 59 L. Ed. 405. Finally, the subject of penalties, being a separable feature, would not make the whole act unconstitutional if itself unconstitutional. Louisville & Nashville Railroad Co. v. Garrett, 231 U. S. 311, 34 Sup. Ct. 48, 58 L. Ed. 229.

[5] Section 56 makes any officer or agent of the company who procures, aids or abets it in its failure to obey guilty of a misdemeanor. This provision plainly contemplates a personal and individual act of the officer or agent, and not the mere failure of the company itself, as

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