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In re Speare

decided: May 5, 1966.


Waterman, Moore and Friendly, Circuit Judges.

Author: Friendly

FRIENDLY, Circuit Judge:

In February 1961 Adele and George Speare, as partners, filed a petition in the District Court for the Southern District of New York for an arrangement under Chapter XI of the Bankruptcy Act; they were authorized to act as debtors in possession. The Speares had operated The Agora Prime Rib Restaurant on West 33rd Street, New York City, in premises leased from Consolidated Assets Corporation for a twenty-one year term. The lease, on a printed form, provided in Paragraph Fourth:

"The Tenant shall not sub-let the demised premises nor any portion thereof, nor shall this lease be assigned by the Tenant without the prior written consent of the Landlord endorsed thereon."

A typewritten rider modified this restriction so as to permit the tenant to sublet up to one-third of the premises, provided it continued as occupant and user of the remainder. By a letter separate from the lease Consolidated agreed that the consent referred to in the clause prohibiting assignment "will not be unreasonably withheld." The lease also gave the tenant an option to purchase the premises at any time before January 1, 1964, for $240,000 less certain deductions.

Rent having been in arrears when the Chapter XI petition was filed, Consolidated moved in April 1961 for an order directing the debtors to vacate or permitting it to institute summary proceedings to recover possession in the Municipal Court of New York City; the petition was accompanied by a copy of the lease, not including the supplemental letter which, of course, had no relevancy to the relief sought. In October Referee Joyce ordered the debtors to pay a fixed sum per diem, and the motion was marked off the calendar subject to restoration in the event of non-payment.

In the spring of 1962 the debtors entered into negotiations to sell the restaurant, which by then had closed, and to assign the lease to one Pickard for $20,000, the transaction providing for payment of any arrearages to Consolidated. According to Speare's testimony at the hearing on the instant motion, he had gone to see Ignatius, president of Consolidated, before signing the contract and had requested consent to the assignment, but Ignatius had refused, saying he was going to break the lease because of the filing under Chapter XI; there was discussion of the agreement not unreasonably to withhold consent and of the bankruptcy clause of the lease which Speare insisted did not cover a Chapter XI petition. When Speare told Pickard he might have trouble with the landlord, Pickard expressed confidence he could get consent to the assignment. The contract was signed on March 1, 1962, and the sale approved by Referee Joyce on March 16; on the same day Speare was taken into custody at the United States prison in Danbury, Connecticut. The next Speare heard about the sale was in early April, when his wife visited him and reported that Pickard was having difficulty in getting consent from Ignatius; on her ensuing visit to Danbury, she said the landlord was not giving consent and Pickard was withdrawing. Speare told her to force Ignatius to consent, insisting there was a clause in the lease whereby the landlord could not unreasonably withhold this. She replied that no such clause could be found in the copy of the lease held by Benjamin Finkel, their attorney in the Chapter XI proceeding.*fn1 Speare then suggested that she go to the Hall of Records; he examined a certified copy which she brought back and found the rider permitting partial subletting but nothing with regard to assignment. Finally, Mrs. Speare examined the copy on file with the bankruptcy court, told her husband that this also contained nothing as to the landlord's not unreasonably withholding consent, and suggested that perhaps his recollection was mistaken.

In May, despite Consolidated's refusal to consent to the assignment, the debtors sought to compel Pickard to turn over the purchase price for the restaurant. At the same time, Consolidated moved to restore to the calendar its motion to require the debtors to vacate or for permission to institute summary proceedings in the Municipal Court. On May 17, at a hearing at which Consolidated was represented by Sydney B. Levy, as special counsel, Finkel reported to the Referee the probable failure of the deal with Pickard and his hopes for a settlement, along with consequent unsuccessful negotiations with Consolidated to give up the lease in exchange for relief from arrearages.

This brings us to the critical date, May 28, 1962, when Referee Joyce conducted an adjourned hearing on the debtors' motion to collect the purchase price from Pickard and the landlord's motion for permission to dispossess. The minutes show Finkel, Levy, and an attorney for Pickard in attendance, as well as an attorney for a creditors' committee. Finkel began by proposing that the arrangement with Pickard be called off on condition that a $2,000 deposit be contributed to the debtors' estate. Pickard's attorney seconded the motion; he explained "There is a provision in the lease * * * and I can show you the photostatic copy * * * paragraph 4 of the lease, which specifically states that it cannot be assigned without the consent of the landlord. The landlord has said that he will not consent to assign it to this corporation. So that we have never had an assignment possible here." After some colloquy the Referee noted that Mrs. Speare was shaking her head. What follows is important enough for quotation:

Mrs. Adele Speare: Your Honor, I understood that I did have a good lease, that was valid and that could be transferred.

Now, I have a copy of this lease that Mr. Finkel had given me --

The Referee: Pardon me.

What paragraph is it in?

Mr. Rosen [Pickard's attorney]: ...

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