Case ID: f_101/html/0706-01.html
Source: Caselaw Access Project
Author: {"author": "BROWN, District Judge.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In re ARNSTEIN et al.
    (District Court, S. D. New York.
    October 6, 1899.)
    1. Bankruptcy — Provable Claims — Rent.
    Where a tenant of realty, under a lease for a term of years, becomes 'bankrupt, the landlord is entitled to prove a claim against bis estate only for rent due at the time of the filing of the petition in bankruptcy, not for rent which would have accrued during the remainder of the term'. Such unacerued rent is not a fixed liability absolutely owing at the time of the bankruptcy, but only an unmatured obligation to pay in the future a consideration for the future enjoyment and occupancy of the premises.
    2. Same — Unliquidated Claim for Doss of Rent.
    Where a tenant, under a lease forbidding assignment without the landlord’s consent, made a general assignment for the benefit of his creditors, and afterwards became bankrupt, and the landlord assumed control of the property, and leased it to the trastee in 'bankruptcy, receiving compensation out of the estate for the time it was occupied by the latter, and then resumed possession, and moved for the liquidation of his claim against the bankrupt for damages for breach of the contract of lease, in order that it might be thereafter proved against the estate, held, that such claim was not provable in bankruptcy, and the motion should be denied.
    3. Same — Cost op Restoring Alterations.
    A lease of realty provided that the tenant might make alterations in the premises, he agreeing to restore the property, at the expiration of the lease, to its former condition. Before the end of the term the tenant became bankrupt, and the landlord resumed possession of the premises, and leased them to the trustee in bankruptcy, afterwards seeking to prove, a claim against the estate in bankruptcy for the estimated cost of restoring the property. Reld, that (he claim was not provable, as the clause in the lease contemplated the expiration of the lease by its own terms, not by re-entry by the landlord.
    In Bankruptcy. On review of decision of referee in bankruptcy.
    The report of the referee was as follows;
    The proofs of claims objected to are for tmaccrned rent under leases having yet by tlieir terms several years to run, and the estimated cost of changing certain alterations made by the tenants, to restore the premises to the condition they were in at the time of the leases, the leases having provided that the tenants might make said alterations, they agreeing at the expiration of the lease to restore the premises to their former condition. The claimants filed also petitions asking to have their claims liquidated in such maimer as the court might direct, under subdivision b, Si 33, Bankr. Act. Section (S3 of the bankruptcy- act provides as to what are provable claims substantially as follows: (a) Debts of the bankrupt, which are (1) a fixed liability, as evidenced by a judgment or instrument in writing, absolutely owing at the time of the filing of the petition, whether then payable or not; * * * (4) founded upon an open account, or upon a contract, express or implied, (b) Unliquidated claims against the bankrupt may be liquidated in such manner as the court shall direct, and may thereafter be proved and allowed against the estate. Classes of three claims are above provided for: (1) Debts which are a fixed liability, and evidenced by instrument in writing-, absolutely owing, but not necessarily then payable: (2) debts founded on contract, express or implied; (3) unliquidated claims after they are liquidated.
    Section 1 of the bankruptcy- act, defining- the meaning of the words used, provides that “debt” shall include any debt, demand, or claim provable in bankruptcy. This definition does not assist much in determining what are debts, within the above provision. The question presented on this hearing is as to whether the above claimants have any debt or claim provable in bankruptcy-, under Hie above provisions of the act.
    A contract of lease is peculiar in its nature, and differs in many respects from other contracts. Bent, as such, is an incident to, and grows out of, the use and occupancy, and is the consideration therefor, tlnaccmed rent cannot he said, therefore, to be a fixed liability then absolutely owing, payable in the future, or, indeed, a “debt” of any kind, as that word seems to be used in the act. It is only an miniatured obligation to pay in the future a consideration for future enjoyment and occupancy. This cannot be said to bo, properly speaking, a present debt, demand, or claim at all, as these words are apparently used in the foregoing provisions, due regard being had to the context, and cannot come within either the clause as to fixed liability then owing or a debt founded on contract. The authorities, both under the earlier act in 1841, the last act, and the present one, seem unanimous to this effect. Ex parte Houghton, 1 Low. 554, Fed. Cas. No. 6,725; In re Breck, 12 N. B. R. 215, Fed. Cas. No. 1,822; Bailey v. Loeb, 11 N. B. R. 271, Fed. Cas. No. 739; In re May, 9 N. B. R. 419, Fed. Cas. No. 9,325. The above are under the late act. In re Jefferson, 1 Nat. Bankr. N. 288, 93 Fed. 948, is under the present act. Bosler v. Kuhn, 8 Watts & S. 183, is under the act of 1841. It is equally clear, I think, that the claim for the estimated cost of restoring the premises does not come under either of said clauses.'
    It is urged, however, that the claimants have a claim for unliquidated damages, and they have filed an application under subdivision “b” that the same he liquidated in order that it may he proved. The bankrupts in this case, prior to .the proceedings in- bankruptcy, became insolvent, and made an assignment for the benefit of creditors of all their property, including presumably _ the lease in question, and delivered possession to the assignee. By the provisions of the lease, an assignment was expressly x>rohibited, qxcept with the consent of the landlord. The bankrupts, therefore, violated the lease, and have practically put it out of their power to comply with its terms. On the_ breach of the whole of a continuing contract, whereby the contract is repudiated or disavowed and abandoned, the other contracting party is entitled to treat it as at an end and destroyed by such act, and seek his remedy in an action for damages for the loss of the contract. Amos v. Oakley, 131 Mass. 413; Marybury v. Land Co., 10 C. C. A. 393, 62 Fed. 335, 351; Sedg. Meas. Dam. § 90; Tod v. Land Co. (C. C.) 57 Fed. 47, 63.
    It is urged that the claimants are entitled, on the above principle, to consider the contract and lease disavowed and destroyed, and assert a claim for damages for the value of their contracts; that such a claim is unliquidated, but, when liquidated can bq proven as a claim against the estate. It seems manifest that such a claim is capable in law of being liquidated, and the measure of damages would be the difference between the fair rental value of the premises and the amounts reserved and provided for in the lease.
    One, at least, of the claimants has alleged, in his proof filed against the trustee asking for the payment of rent during the time the premises were occupied by the trustee, that the rent reserved was the fair value for the use and occupancy of the premises. On this statement there would seem to he no claim for damages, as the landlord has possession of the premises, although X>robably the question as to the amount of the' damages is not properly involved in this hearing. Whether a claim of the nature above suggested is provable in bankruptcy was discussed, but not necessarily decided, in Ex parte Houghton, 1 Low. 554, Fed. Cas. No. 6,725, — a case under the old act. In -Re Jefferson, above mentioned, a case under the new act, the learned .justice evidently considered that such a claim could not he proven, hut his opinion on that point is unfortunately very meager. In the case of People v. St. Nicholas Bank, 151 N. Y. 592, 45 N. E. 1129, "it was held a claim of similar nature was provable against the receiver of a defunct corporation. See page 598, 151 N. Y., and page 1130, 45 N. E. It is true there had been there a subsequent reletting at a lower rent, and the claim was for the deficiency on an actual reletting, while here it would be for the difference between the rent reserved and the fair value of the premises; hut this is not a difference in principle, but only goes to the method of ascertaining the damages. In re Hevenor, 144 N. Y. 271, 39 N. E. 393, involved the question as to provable claims under an assignment for the benefit o'f creditors, and it was held that the claim in that ease was not provable; but there the claim was not for damages for the loss of contract, but under a provision in the lease allowing the landlord to relet as agent for the tenant, who agreed to pay the difference as it should accrue. In such case it was held 'there was no present debt, hut only an obligation to mature in the future, not within the terms of the assignment. There the claim was based on the contract and covenant to pay the deficiency thereafter occurring, if any, and not a present claim for damages for loss of the contract. The distinction is, in substance, pointed out'in the St. Nicholas Bank Case, 151 N. Y. 596-598, 45 N. E. 1129.
    In many of the decisions under the old act (see cases ante) it is stated that the bankruptcy itself abrogated the lease. The old act, however, differed on this point from the present one in a very important particular, in that it contained a specific clause in regard to claims for rent, omitted from the present act,.providing that the rent up to the adjudication, whether due or not, might be proved, and nothing more (see section 19); thus specifically forbidding any further claim by reason of the lease. Congress undoubtedly had the power to provide thát-bankruptcy should dissolve a contract of lease, and it apparently, by the above provision of the old act, intended to do so after giving the landlord the right to prove the amount accrued, up to the time of the adjudication, which lie could not otherwise have had. That clause was omitted from the present act. I do not think, therefore, the decisions tinder the old act have much bearing on the present question.
    Whatever, however, may be the 1rne rule as to claims of the nature above alluded to, I think it unnecessary to decide in this case, as the landlords have re-entered and resumed possession of the property. It appears by the proofs of claims filed herein against the Trustee and allowed that the landlords assumed control of the prpperty, and made substantially a new lease to the trustee, under which the landlords claim, and have been paid rent as part of the, expenses of administering the estate.
    The claim of Emily Smith and Frederick Henry Smith against the trustee states that the possession of ilie trustee was had under an agreement made by him with the landlords; that, during the time of his continuing in possession of the said premises, he should pay as rent therefor a per diem at the rate mentioned in the said lease; and that, by reason of the premises, there is justly due and owing from the said trustee, etc. The proof of claim further states substantially that on ihe 21st day of April, 1899, the said trustee surrendered possession of the premises to the said landlords. The claim of Ann Keilly stales that the said trustee rented from the said landlords the iiremises in question from January 1, 1S99. to April 18, 1899, at so much per diem, that being tlie proportionate daily rental of the premises paid by said bankrupts prior to January 1, 1899, which sum is the reasonable value of the use and occupation of the said building and premises. The landlords virtually assumed, as owners, control of their property, and are now in possession of the same. Such acts constituted an entry which terminated the tenant’s term, and it is well settled that, where a landlord re-enters for forfeiture of the lease, he elects .,o treat the tenant as a trespasser, and cannot sue for rent afterwards accruing- or for breach of covenant subsequently to be performed. By such entry ihe landlord put an end, by operation of the law, to the tenant’s term and all claims for the future. Ex parte Houghton, 1 Low. 554, Fed. Cas. No. 6,725.
    It is urged on behalf ol' the claimants that it was The duty of the landlords to lease the premises, and secure thereby as much rent as possible in mitigation of damages, under the well-known rule that a person must do what he can to keep down damages. But in this ease the landlord made no pretenso of acting-on behalf of the tenant to mitigate damages. He made the new contract in his own name with the trustee, and, having entered and exercised his right as owner, he cannot now claim that ids entry was to prevent waste or mitigate damages. Ex parte Houghton, 1 Low. 554, Fed. Cas. No. 6,725. Ho Plight have rented for more, and would have had the benefit; by entry he assumed the risk.
    A landlord reletting promises to another is presumptively deemed, unless rebutted, to have accepted surrender. Underhill v. Collins, 132 N. Y. 269, 30 N. E. 576. In People v. St. Nicholas Bank, 151 N. Y. 590, 45 N. E. 1129, the landlord relet under a provision in the lease giving- him the right so to do. He did not enter as of his previous estate. If the reletting here was not to enforce forfeiture, but save damages for tenant’s benefit, the landlord should have acted avowedly at the time in that capacity. Underhill v. Collins, 132 N. Y. 269, 30 N. E. 576.
    This disposes of all claim, including that for restoration of alterations. The lease allowed the alterations to be made, and provided only that on the expiration of the lease the premises should be restored. 1 think this, under the ciases,, meant expiration by ihe lease, not entry by landlord. There was no obligation to restore until the termination of the lease, and there was therefore no breach and no cause of action. This case differs widely from the case of Ex parte Houghton, 1. Low. 554, Fed. Cas. No. 6,725, where the damages claimed were, for originally making the alterations, and there was a breach and consequent cause of action at the commencement of the lease, and prior to the re-entry, while here the making of the changes was legal. The claim, if any, is for failure to restore, and this was not to be done until the expiration of the term-fixed by the lease. I think, therefore, that the claimants have no claim, provable in bankruptcy, in any aspect of the case, and that the proofs of claim as filed should be disallowed, and the application to liquidate should be denied.
    “IT. K. Pendleton, Referee.”
    Blumensteil & Hirsch, for trustee.
    H. R. Pool, for claimants Emily Smith et al.
    Mitchel Levy, for claimant Ann Reilly.
   BROWN, District Judge.

The ruling of the referee, excluding the , claims of Emily Smith and Aim Reilly except for rent accrued up to the time of the filing of the petition, is hereby affirmed.