Source: https://caselaw.findlaw.com/us-supreme-court/291/320.html
Timestamp: 2019-04-22 13:02:10+00:00

Document:
MANHATTAN PROPERTIES v. IRVING TRUST CO.
[291 U.S. 320, 321] Messrs. William D. Mitchell and Charles Dickerman Williams, both of New York City, for petitioners.
[291 U.S. 320, 326] Mr. Frederick H. Wood, of New York City, for respondents.
'Sec. 17. A discharge in bankruptcy shall release a bankrupt from all of his provable debts. ...'5 [291 U.S. 320, 331] A majority of the Circuit Court of Appeals felt bound to follow its earlier decision In re Roth & Appel, 181 F. 667, 31 L.R.A.(N.S.) 270, which denied a landlord's right to prove a claim for future rents arising under a similar lease. The view there expressed was that the occupation of the land is the consideration for the rent, and, if the right to occupy terminates, the obligation to pay ceases; and the covenant to pay rent creates no debt until the time stipulated for payment arrives. Since many events may occur which will absolve the tenant from further obligation for rent, the claim is said to be too contingent, both because of the uncertainty at the date of adjudication that the lessor will re-enter, and the doubt as to his suffering loss of rent if he should re-enter.
In the present case, one of the judges of the Court of Appeals held that Maynard v. Elliott, 283 U.S. 273 , 51 S.Ct. 390, has settled the provability of claims contingent in the sense that no sum is presently payable, thus destroying the principal ground of decision in Re Roth & Appel, and that the estimation of the present worth of payments to be made in the future is no obstacle to the proof of a claim based upon an anticipatory breach. Central Trust Co. v. Chicago Auditorium Association, 240 U.S. 581 , 36 S.Ct. 412.
The petitioners say the provability of claims for future rent is a subject on which the lower federal courts have been in disagreement. They argue that a claim for rent is founded upon a lease which is an express contract within the words of section 63a(4), 11 USCA 103(a)(4). They rely upon the purpose of the Bankruptcy Law to bring in all contract creditors and to discharge all debts of the bankrupt, so that he may start afresh unembarrassed by old indebtedness, and point to the hardship to an individual bankrupt of not discharging claims for rent which might well prevent his financial rehabilitation, and the unfairness to the landlord of a corporate bankrupt who, under the decision below, cannot prove upon his lease along with other cred- [291 U.S. 320, 332] itors, but must look solely for redress for loss of future rents to a corporate debtor whom bankruptcy has stripped of all assets.
In England such claims were not provable under the Act of 7 Geo. I, c. 31; Mayor v. Steward, 4 Burr. 2439; and a discharge could not be pleaded in defense of an action for rent accruing subsequent to bankruptcy. Boot v. Wilson, 8 East, 311. The landlord's claim for loss of future rent was made provable by the Act of 32 and 33 Vict., c. 71, 23 (1869), and more explicit provisions to the same effect were embodied in that of 46 and 47 Vict., ch. 52, 37 and 55 (1883).
The act of Congress, approved April 4, 1800,6 permitted proof of a limited class of contingent claims, but did not mention rents. Apparently the latter were not considered provable debts under that statute. Hendricks v. [291 U.S. 320, 333] Judah, 2 Caines (N.Y.) 25, 2 Am.Dec. 213; Lansing v. Prendergast, 9 Johns.( N.Y.) 127.
The Act of August 19, 1841, 5, 5 Stat. 440, 444, expressly allowed proof of contingent claims,7 specifying certain classes and adding a general description of contingent debts, but said nothing about rent. The courts held that the latter was not a provable debt within this section, because neither a present debt nor a contingent claim susceptible of liquidation. Bosler v. Kuhn, 8 Watts & S.(Pa.) 183; Stinements v. Ainslie, 4 Denio (N.Y.) 573; Savory v. Stocking, 4 Cush. (Mass.) 607.
The Act of March 2, 1867, 19, 14 Stat. 517, 525, authorized the proof and liquidation of contingent claims and also proof of a claim for a proportionate part of any rent up to the date of bankruptcy. 8 The courts uniformly [291 U.S. 320, 334] held that claims for future rent or for damages for breach of covenant to pay rent were not provable under the act, though differing as to the reason; some holding them not contingent claims within the statutory definition, and others thinking the express permission of proof for rent past due at the date of bankruptcy impliedly excluded claims for rents thereafter falling due. Ex parte Houghton, Fed. Cas. No. 6,725; Ex parte Lake, Fed. Cas. No. 7,991; In re Croney, Fed. Cas. No. 3,411; In re Commercial Bulletin Co., Fed. Cas. No. 3,060; In re May, Fed. Cas. No. 9, 325; In re Hufnagel, Fed. Cas. No. 6,837; Bailey v. Loeb, Fed. Cas. No. 739.
___ 9 The bill in full appears in the Congressional Record, vol. 14, pp. 43-48.
10 30 Stat. 544, c. 541. [291 U.S. 320, 335] Lowell Bill and the English act then in force. In view of the extended consideration and discussion which preceded the passage of the act, the failure to include a provision for claims for loss of rent or for damages consequent on the abrogation of leases is significant of an intent not to depart from the precedents disallowing them. Schall v. Camors, supra, pages 250, 251 of 251 U.S., 40 S.Ct. 135.
Soon after the passage of the act several federal courts were called upon to decide the question, and they uniformly held such claims were not provable debts under section 63. In re Ells (D.C.) 98 F. 967; In re Mahler ( D.C.) 105 F. 428; Atkins v. Wilcox (C.C.A.) 105 F. 595, 53 L.R.A. 118. Since 1900 the Circuit Courts of Appeals in six circuits, and the District Courts in another, have agreed with these early adjudications. Slocum v. Soliday, (C.C.A. 1) 183 F. 410; McDonnell v. Woods, 298 F. 434 (C.C.A. 1); In re Roth & Appel, supra; In re Mullings Clothing Co. (C.C.A.2) 238 F. 58, L.R.A. 1918A, 539; In re Metropolitan Chain Stores Inc., 66 F.(2d) 482 (C. C.A.2); Trust Co. of Georgia v. Whitehall Holding Co. (C.C.A.5) 53 F.(2d) 635; Orr v. Neilly, 67 F.(2d) 423 (C.C.A.5); Wells v. Twenty-First Street Realty Co., 12 F.(2d) 237 (C.C.A.6); Britton v. Western Iowa Co., 9 F.(2d) 488, 45 A.L.R. 711 (C.C.A.8); Colman Co. v. Withoft, 195 F. 250 (C.C.A.9); Bray v. Cobb (D.C.) 100 F. 270; In re Hook (D.C.) 25 F.(2d) 498. The decisions in the Third Circuit turn upon a special form of lease drawn to take advantage of a local statutory provision, and, while establishing a rule differing from that elsewhere recognized, are not inconsistent with it. See Wilson v. Pennsylvania Trust Co., 114 F. 742; South Side Trust Co. v. Watson, 200 F. 50; In re H. M. Lasker Co., 251 F. 53; Rosenblum v. Uber, 256 F. 584. The Court of Appeals of the Seventh Circuit has not discussed the question at length, but at least one of its decisions supports the view that a claim for loss of future rentals may be proved. In re Chakos, 24 F.(2d) [291 U.S. 320, 336] 482; compare In re Desnoyers Shoe Co., 227 F. 401; In re National Credit Clothing Co., 66 F.(2d) 371.
In accord with the well-nigh unanimous view of the federal courts reiterated for over thirty years are statements of leading textwriters. Collier, Bankruptcy, vol. 2, p. 1422; Remington, Bankruptcy, vol. 2, 789, 793; Loveland, Bankruptcy, vol. 1, 313.
What of the activities of the Congress while this body of decisions interpreting section 63a was growing? From 1898 to 1932 the Bankruptcy Act was amended seven times11 without alteration of the section. This is persuasive that the construction adopted by the courts has been acceptable to the legislative arm of the government. B. & O. Railroad Co. v. Baugh, 149 U.S. 368, 372 , 13 S.Ct. 914.
The petitioners call attention to the last clause of section 74(a), which is one of the sections added to the Act in 1933:12 'A claim for future rent shall constitute a [291 U.S. 320, 337] provable debt and shall be liquidated under section 63b (section 103(b)) of this title.' Sections 73 to 76, inclusive, were enacted to permit extensions and compositions not theretofore possible. They apply only to individuals. It is highly unlikely that, if the quoted sentence had been intended as an amendment of section 63a, it would have been placed in context dealing only with the novel procedure authorized by the new sections. Moreover, the discussion on the floor of the Senate relative to the insertion of the sentence, indicates that it was not intended to alter section 63a as it then stood. 13 The petitioners insist the clause is declaratory of the law, as understood by the Congress; but there is no evidence to support this view, and it is inconsistent with the long- standing contrary judicial construction.
In both cases the lessor has the choice whether he will terminate the lease. Neither the bankrupt nor the trustee has any such option, except as the trustee may be entitled by law to disclaim. And upon the exercise of the option by the landlord, a new contract, distinct from that involved in the original letting, becomes operative. While there is some color for the claim that bankruptcy is an anticipatory breach of the lease contract, entailing a damage claim against the estate, this cannot be true as respects these independent covenants of indemnity. For here, the landlord does not rely upon the destruction of his contract by the bankruptcy; he initiates a new contract of indemnity by the affirmative step of re-entry. And this new contract comes into being not by virtue of the bankruptcy proceeding, but by force of the act of re-entry, which must occur at a date subsequent to the filing of the petition. Obviously this contract of indemnity is not breached by bankruptcy, and cannot be breached until the duty of indemnifying the landlord arises. That obligation cannot be complete until the expiration of the original term. There can be no debt provable in bankruptcy arising out of a contract which becomes effective only at the claimant's option and after the inception of the proceedings, the fulfillment of which is contingent on what may happen from month to month or up to the end of the original term. Compare In re Ells, supra; Slocum v. Soliday, supra; In re Roth & Appel, supra. Such a covenant is not, as petitioners contend, the equivalent of an agreement that bankruptcy shall be a breach of the lease and the consequent damages to the lessor be measured by the difference between the present value of the remainder [291 U.S. 320, 339] of the term and the total rent to fall due in the future. The covenants appearing in the leases in question cannot be made the basis of a proof of debt against the estate.
[ Footnote * ] Rehearing denied 292 U.S. 607 , 54 S.Ct. 771, 78 L.Ed. --.
[ Footnote 1 ] 66 F.(2d) 470.
[ Footnote 2 ] Brown v. Irving Trust Co., 66 F.(2d) 473.
[ Footnote 3 ] U.S.C. title 11, 103(b), 11 USCA 103(b).
[ Footnote 4 ] U.S.C. title 11, 1(11), 11 USCA 1(11).
[ Footnote 5 ] U.S.C. title 11, 35, 11 USCA 35.
[ Footnote 11 ] Acts of February 5, 1903, c. 487, 32 Stat. 797; June 15, 1906, c. 3333, 34 Stat. 267 (11 USCA 104); June 25, 1910, c. 412, 36 Stat. 838; March 2, 1917, c. 153, 39 Stat. 999 (11 USCA 35 and note); January 7, 1922, c. 22, 42 Stat. 354 (11 USCA 35); May 27, 1926, c. 406, 44 Stat. 662; February 11, 1932, c. 38, 47 Stat. 47 (11 USCA 22).
[ Footnote 12 ] Act of March 3, 1933, 47 Stat. 1467 (11 USCA 202(a).
[ Footnote 13 ] Cong. Rec., Senate, Feb. 24, 1933, pp. 5058, 5059; Feb. 27, 1933, p. 5278.

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