Overview
Case summary
The Empire Distilling Company appealed the dismissal of its petition of intervention in a receivership proceeding involving the Distilling & Cattle-Feeding Company. Empire had leased property to P.H. Rice Distilling Company, which was succeeded by Distilling & Cattle-Feeding Company. After receivers were appointed based on alleged insolvency, the court ordered the receiver not to pay rent under the lease. Empire intervened, demanding the receiver assume the 25-year lease and pay accrued and future rent, alleging the company was solvent. The receiver demurred, and the trial court sustained the demurrer and dismissed the petition. The Circuit Court of Appeals affirmed, holding that: (1) the petition was insufficient as it failed to allege all material facts and incorporate subsequent proceedings; (2) a receiver is not automatically liable on lease covenants but only if electing to adopt the lease, and a lessor cannot force adoption; and (3) the petition failed to allege the receiver had funds to pay the claim. The court noted Empire might have a remedy against the purchaser of the assets under the sale decree.
Abstract
A lessor intervened in a receivership proceeding over a lessee company, demanding the receiver assume a long-term lease and pay rent, alleging solvency despite the receivership. The trial court dismissed the petition after sustaining the receiver's demurrer, finding it insufficiently pled and that a receiver cannot be forced to adopt a lease. The appellate court affirmed, noting potential remedies against the asset purchaser but upholding dismissal due to procedural and substantive deficiencies.
Opinion of the court
opinionJENKINS, Circuit Judgejoined by WOODS, SEAMAN
- Petition of intervention must contain all material facts
- Receiver has discretion to adopt or reject leases
- Lessor cannot force receiver to assume lease
- Petition for payment must allege available funds
Jurisdiction
not challenged- Appeal taken from decree dismissing petition of intervention upon demurrer
Procedural posture
- Sufficiency of petition of intervention
- Receiver's liability on lease covenants
- Right to payment of claims from receiver
Legal categories
Case record
Issues & holdings
de novo
Petition failed to allege material facts and incorporate subsequent proceedings
Issue preserved for review
de novo
Receiver has discretion to adopt leases; lessor cannot force adoption
Issue preserved for review
de novo
Petition failed to allege receiver had funds to pay claim
Issue preserved for review
Holdings of the court
Error analysis
- Trial court erred in sustaining demurrer and dismissing petition of intervention — procedural · no error foundnot applicable
Standards of review
- Sufficiency of petition of intervention — de novo Legal sufficiency of pleading reviewed de novo
- Receiver's liability on lease covenants — de novo Legal question of receiver's obligations reviewed de novo
Timeline
Empire Distilling Company leases property to P.H. Rice Distilling Company for 25 years with revaluation every 5 years
Creates the underlying lease agreement at issue
Illinois Attorney General files quo warranto against Distilling & Cattle-Feeding Company to forfeit charter
Challenges corporate existence of lessee
Decree ousting Distilling & Cattle-Feeding Company of corporate rights and privileges
Outcome: Corporate charter forfeited
Affects legal status of lessee
John F. Olmstead and others file bill seeking receiver for Distilling & Cattle-Feeding Company alleging insolvency
Initiates receivership proceedings
Court appoints receivers for Distilling & Cattle-Feeding Company
Outcome: Receivers appointed
Property placed under court control
Chester H. Graves and others file similar bill, consolidated with Olmstead case
Expands receivership proceedings
Court orders receiver not to pay rent under Empire's lease
Outcome: Receiver instructed to abandon lease
Key order challenged by Empire
Empire Distilling Company files petition of intervention demanding receiver assume lease and pay rent
Empire attempts to intervene in receivership
Receiver files general demurrer to petition of intervention
Challenges legal sufficiency of Empire's petition
Decree of sale entered directing receiver to sell properties
Outcome: Sale authorized
Properties to be sold subject to claims
Properties sold to reorganization committee for $9,800,000 with terms for payment of claims
Outcome: Sale completed
Assets transferred subject to court's continuing jurisdiction
Demurrer sustained and petition of intervention dismissed
Outcome: Empire's petition dismissed
Trial court rejects Empire's claims
Circuit Court of Appeals affirms dismissal of petition
Outcome: Affirmed
Appellate court upholds trial court ruling
Facts & evidence
Key facts
6 facts- Empire Distilling Company leased property to P.H. Rice Distilling Company for 25 years with revaluation every 5 years
- Distilling & Cattle-Feeding Company succeeded to the lease and paid rent until April 1, 1895
- Receivers were appointed for Distilling & Cattle-Feeding Company based on alleged insolvency
- Receiver reported lease was unprofitable and court ordered receiver not to pay rent
- Empire filed petition of intervention demanding receiver assume lease and pay rent
- Receiver demurred to petition, demurrer sustained, petition dismissed
Procedural history
11 steps- January 28, 1895: Olmstead bill filed seeking receiver for Distilling & Cattle-Feeding Company
- Same day: Receiver appointed
- February 15, 1895: Graves bill filed, consolidated with Olmstead case
- May 29, 1895: Court ordered receiver not to pay rent under lease
- June 6, 1895: Empire filed petition of intervention
- June 15, 1895: Receiver filed demurrer
- July 5, 1895: Decree of sale entered
- August 14, 1895: Properties sold to reorganization committee
- August 27, 1895: Sale confirmed
- February 26, 1896: Demurrer sustained, petition dismissed
- January 4, 1897: Circuit Court of Appeals decision
Evidence in the record
- Allegations in petition about solvency of Distilling & Cattle-Feeding Company
- Receiver's statements about profitability of lease
- Lease between Empire Distilling Company and P.H. Rice Distilling Company dated August 19, 1887
- Appraisal fixing property value at $80,000 in 1892
- Bills of complaint by Olmstead and Graves
- Receiver's report on leases
- Decree of sale
- Report of sale and confirmation decree
Objects of relevance
Authorities
Cited authorities (4)
Standards & doctrines
- De novo review of pleading sufficiency
- Receiver's liability only upon election to adopt contract
Legal principles applied
- Receiver has reasonable time to investigate before adopting lease
- Lessor cannot force receiver to adopt lease