266 F. 657 | 8th Cir. | 1920
(after stating the facts as above).
A court of equity may enjoin libe performance of and set aside contracts, conditions, and covenants obtained by the fraud, deceit, or wrong of the respondent, but neither the Empress Theatre Company nor its predecessor in interest was guilty of fraud, wrong, or deceit. It may sometimes avoid conditions and covenants for mistake or accident, but there was neither in this case. The condition and covenants of the lease were natural, reasonable, and just. It clearly shows that when it was made the lessor and the lessee contemplated the possible, perhaps the probable, insolvency and bankruptcy of the lessee and of some of its successors in interest during the long 15 years then to come, discussed, carefully considered, and finally contracted and wrote into their lease their agreement what the effect of such insolvency and bankruptcy should be, to wit, the end of the term of the lease, its forfeiture, and the return to the lessor of the leased premises at its election. The basement leased was a valuable property. The purpose the lessor had in making the lease, to secure the operation in this basement of a high-class café with special amusement features, made the solvency of the lessee and hence its continuous operation of the ,cafc essential to the accomplishment of this purpose. Its insolvency or bankruptcy, placing the basement in the hands of a trustee for a long time during bankruptcy proceedings, and then sending it to an unknown purchaser, would undoubtedly to a large extent defeat the object of the lessor in making tiie lease, produce the vacancy or inadequate operation of the proposed café, and result in immeasurable damage to the leased premises and to the value of their use. It was to prevent this contemplated possibility that these parties wrote into their lease the condition and covenant that in case of the insolvency or bankruptcy of the lessee, at the election of the lessor, the term of the lease should end and the leased premises should be returned to the lessor free from the lease.
Nor was this an unconscionable or inequitable agreement. The lessor received and the lessee gave for this lease $42,000 of the corporate stock of the latter. The lessee received and the lessor gave the use of the basement for the term of 15 years on condition that the lessee or its successor in interest, approved by the lessor, remained solvent for 15 years, but that it should be terminable at the option of the lessor at any time within the 15 years when the lessee became insolvent or bankrupt. When the lease was made, the effect of the condition and covenants which the parties undoubtedly then contemplated was that, in case the lessee became insolvent or bankrupt, its $42,000 of stock which the lessor received would be worthless, and it would actually receive nothing for the lessee’s use of the premises, the lessee’s operation of the café would be so financially disastrous that it would, at its insolvency, have exhausted the lessee’s means and rendered it incapable of operating or using the premises as a café, and the lessor would have the right then to end the term of the lease and take back the leased premises. And such was the actual
Nor was there anything in the condition and covenants of this lease evil in itself, or prohibited by law, or contrary to the public policy of state or nation.. The condition and covenants were not novel, but common provisions in leases. Conditions and covenants in leases of the same character have been repeatedly considered, and generally, nay almost universally, sustained and enforced, both by courts of equity and courts.of law. Kann v. King, 204 U. S. 43, 54, 63, 27 Sup. Ct. 213, 51 L. Ed. 360; In re Georgalas Bros. (D. C.) 245 Fed. 129, 131, 132; Galbraith v. Wood, 124 Minn. 210, 212, 213, 215, 216, 144 N. W. 945, 50 L. R. A. (N. S.) 1034, Ann. Cas. 1915B, 609; In re Frazin, 183 Fed. 28, 29, 105 C. C. A. 320, 321, 33 L. R. A. (N. S.) 745; Lindeke v. Associates Realty Co., 146 Fed. 630, 632, 636, 639, 641, 77 C. C. A. 56, 58, 61, 64, 66; Brewster v. Lanyon Zinc Co., 140 Fed. 801, 813, 815, 816, 817, 818, 72 C. C. A. 213, 225, 227, 228, 229, 230; Towle v. Pullen, 238 Fed. 107, 110, 112, 151 C. C. A. 183, 186, 188; Liggett Co. v. Wilson, 224 Mass. 456, 113 N. E. 184, L. R. A. 1917A, 205; White v. Huber Drug Co., 190 Mich. 212, 157 N. W. 60, 61, 63; Hepp Co. v. Deahl, 53 Colo. 274, 125 Pac. 491; Negaunee Iron Co. v. Iron Cliffs Co., 134 Mich. 264, 96 N. W. 468, 472; Klein v. Insurance Co., 104 U. S. 88, 92, 26 L. Ed. 662; Westbrook v. Schmaus, 51 Kan. 558, 559, 560, 33 Pac. 306.
In Kann v. King, 204 U. S. 43, 57, 27 Sup. Ct. 213, 51 L. Ed. 360, the lessee in a lease, whereby she was bound to pay the taxes every year, and the right of the lessee to terminate the lease and re-enter for breach of any of the conditions thereof was stipulated therein, brought a suit in equity against the lessor to enjoin the latter from maintaining landlord and tenant proceedings to recover possession of the premises, based upon the lessor’s right of re-entry which had arisen from the failure of the lessee to pay the taxes. The Supreme Court first held that there was “no foundation for the contention that it was within the ordinary power of a court of equity to relieve from the forfeiture,” then proceeded “to consider whether the case as made by the-record is brought within the general authority of a court of equity to relieve in cases of fraud, accident or mistake”- (204 U. S. 57, 27 Sup. Ct. 217, 51 L. Ed. 360), found no proof of accident or mistake, or of fraud or wrongdoing on the part of the lessor, re
The Circuit Court of Appeals of the Second Circuit in In re Frazin, 183 Fed. 28, 29, 32, 105 C. C. A. 320, 33 R. R. A. (N. S.) 745, had a case in which a paragraph of the lease before it was identical in effect and nearly so in words with the provisions of the lease in hand regarding the rights of the lessor in case of bankruptcy of the lessee and the appointment of a receiver or a trustee in bankruptcy. There, as here, the trustee in bankruptcy of the estate of the lessee applied to the District Court in the bankruptcy case for and obtained an order which prohibited the lessor from re-entering the leased premises by reason of the breach of the condition .and covenants of the lease on this subject. The lessor filed a petition in the Circuit Court of Appeals to revise this order. That court heard and considered the question on its merits and reversed the order of the District Court, with costs. To the same effect was the decision of the District Court as to the rights of the lessor under a like condition and covenant with reference to the effect of the bankruptcy of the lessee in In re Georgalas Bros. (D. C.) 245 Fed. 129, 131, 132.
In Galbraith v. Wood, 124 Minn. 212, 213, 215, 216, 144 N. W. 945, 50 L. R. A. (N. S.) 1034, Ann. Cas. 1915B, 609, the parties made a lease of a hotel for a term of 15 years; that lease provided that, if the lessee should be declared bankrupt or insolvent, the lessors might declare the term ended, re-enter the premises, take and hold them. When the lease was made the lessee paid to the lessor $20,000 on account of the rent for the third, fourth, and fifth years of the 15-year term. About 5 months after the making of the lease, the lessee was adjudged bankrupt, and the plaintiff was appointed his trustee in bankruptcy. On the same day the lessors gave notice to the lessee and trustee that they declared the lease ended, because the lessee was adjudged a bankrupt, and demanded possession of the premises. The trustee surrendered them, and sued the lessors for the $20,000 that the lessee had paid to them on the rent for the third, fourth, and fifth years of the term. The Supreme Court of Minnesota held that under the terms of the lease the lessors had the right to declare its term ended (124 Minn. 212, 215, 216, 144 N. W. 945, 50 L. R. A. [N. S.] 1034, Ann. Cas. 1915B, 609) and to re-enter and take possession of the premises, and that the trustee could not recover the $20 000
In Brewster v. Lanyon Zinc Co., 140 Fed. 801, 813, 815, 816, 817, 818, 72 C. C. A. 213, Judge Van Devauter (now Mr. Justice Van Devanter of the Supreme Court) delivered the opinion of this court upon the turning points in the case in hand. In that case the lessor In an oil and gas lease brought a bill in equity against the lessee for a decree that the term of the lease was ended, that he was entitled to the immediate possession of the leased premises, that the lease was thenceforth void, and that it and its record be annulled, because the lessee had failed to perform its implied covenants in the lease to continue, after the first 5 years of the term thereof, with reasonable diligence, the work of exploration, development, and production, and
Under the terms of the lease it was indispensable to the validity of the assignment of the lease to Philbin that the lessor give its written consent thereto. Induced by this condition of the lease, and the lessee’s covenants to surrender the lease and premises on his insolvency or bankruptcy, the lessor so consented. If there was such equity in the trustee’s case here that the condition and covenants should be avoided, then the court ought certainly to avoid the lessor’s consent to the assignment of the lease to Philbin and to put the parties as nearly as possible in their original positions,' and in that case the trustee would have no more interest in the lease and the premises than if the covenants and the conditions were enforced. The fact is, however, that the contract was fair and just. Philbin and the respondent knew the condition and the covenants in the lease. He bought the chance of the use of the leased premises, rent free, for the 8 years, on the condition that he should not have that use after his insolvency or bankruptcy, if either occurred during the IS years. The respondent consented to the assignment of the lease to Philbin in reliance upon the chance that he would soon become insolvent and bankrupt, and that then it could take back the premises. It is no ground for relief from a fair contract that a contemplated future contingency became an actuality somewhat earlier or later than the parties to the agreement as to the effect of its occurrence expected when they made it, and thus rendered the contract more or less beneficial than they respectively anticipated that it would be. at that time. Marble Co. v. Ripley, 77 U. S. (10 Wall.) 339, 355, 356, 357, 19 L. Ed. 955; Texas Co. v. Central Fuel Oil Co., 194 Fed. 1, 21, 114 C. C. A. 21, 41. So it is that, if anything harsh or unconscionable crept into the situation of these parties, it did not inhere in the (ease, or in its condition or its covenants, nor was it caused by any act or omission of the respondent. It was the early advent of the insolvency
Counsel for the trustee contend that the decree below should be sustained, in view of the opinion and decision of the District Court in In re Larkey, 214 Fed. 867. There was in that case a condition in the lease similar to that in the lease here under consideration. An involuntary .petition in bankruptcy was filed against the lessee and the District Court appointed a receiver thereunder. The leased premises were and continued -to be in the possession of third parties under a sublease from the lessee that had been made with the consent of the lessor. The lessor filed a petition in the bankruptcy proceeding for the recovery of the premises on account of the breach of the condition and covenants of the lease, and there was a hearing thereon; but before the court filed its opinion an adjustment had been made between the lessee and his creditors, and there never was any adjudication in bankruptcy. The court held, first, that there had been no breach of the condition; and, second, that if there had been, nevertheless, in view of the facts which have been stated, and especially of the fact that the sublessees, whom the lessor had approved and who offered ample security for the payment of the rent, were in possession of the premises, the equity of the lessor’s claim was not such as to successfully invoke the action^ of a court of equity. In view of the authorities that have been cited, the facts of this Darkey Case differ too radically from those of the case at bar to make it indicative of the conclusion which ought to be reached in this case. Many other decisions,' opinions, and statements in textbooks have been cited and discussed by counsel for the trustee. They have not escaped our careful perusal and consideration. None of them, however, has been found which sustains such a decree as that in hand upon a similar state of facts, and they and the exhaustive arguments of counsel have failed to persuade that there is any equity in the claim, petition, or proof of the trustee in this case. The record presents full, clear, and strict proof of the right of the respondent, as a matter of law, to the termination of the term of the lease and the lease itself, and to the return of the leased premises to it upon the service of its notice of election to enforce that right, and in such a case equity ought to and it does follow the law and enforce the right. The decree and orders below must therefore be reversed.
Eet the order and decree of the court below, and the order of the referee referred to therein, be reversed, and let this case be remanded to the court below, with instructions to take further proceedings in accordance with the views expressed herein.