Source: https://supreme.justia.com/cases/federal/us/291/320/
Timestamp: 2019-04-18 14:23:30+00:00

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Justia › US Law › US Case Law › US Supreme Court › Volume 291 › Manhattan Properties, Inc. v. Irving Trust Co.
Manhattan Properties, Inc. v. Irving Trust Co.
1. The claim of a landlord for future rents based on a covenant to pay rent in a lease terminated by reentry on the bankruptcy of the tenant is not a provable debt under § 63(a) of the Bankruptcy Act. P. 291 U. S. 332.
So held in view of the great weight of judicial authority construing that section and similar provisions of earlier Acts, and in view of the legislative history of the subject.
2. The fact that a provision of a statute which has received a settled construction from federal courts has remained unaltered notwithstanding that Congress has repeatedly amended the statute in other respects is persuasive that the construction accords with the legislative intention. P. 291 U. S. 336.
3. Sections 73-76, added to the Bankruptcy Act by the Act of March 3, 1933, were enacted to permit extensions and compositions not theretofore possible, for individuals only, and the clause of § 74(a) providing that "[a] claim for future rent shall constitute a provable debt and shall be liquidated under § 63(b) of this Act," is to be related to this novel procedure, and not taken as an amendment of § 63(a) or as declaratory of its meaning. P. 291 U. S. 336.
landlord upon the bankruptcy of the tenant, and which can come into operation only after the bankruptcy, and only if the landlord sees fit to reenter on that ground, is not a basis for a debt provable in the bankruptcy proceedings. P. 291 U. S. 338.
5. Such a covenant is not the equivalent of an agreement that bankruptcy shall be a breach of the lease and that the consequent damages to the lessor shall be measured by the difference between the present value of the remainder of the term and the total rent to fall due in the future. P. 291 U. S. 338.
66 F.2d 470, 473, affirmed.
Review by certiorari, 290 U.S. 619, of orders sustaining the rejection of claims for loss of future rents, in two bankruptcy cases.
These cases present the question whether a landlord may prove in bankruptcy for loss of rents payable in the future where the claim is founded upon the bankrupt's covenant to pay rent and, in the alternative, upon his breach of a covenant that, in event of bankruptcy, the landlord may reenter, and, if he does, the tenant will indemnify him against loss of rents for the remainder of the term.
In No. 505, it appears that Oliver A. Olson Co., Inc., was the lessee of premises for a term of nine years and eight months beginning February 1, 1928, and expiring October 1, 1937. Defaults in payment of rent due February and March, 1932, were followed by an involuntary proceeding in which the company was, on March 18, 1932, adjudicated a bankrupt. The total rent reserved for the portion of the term subsequent to bankruptcy was $58,000, and, as the claimant asserted, the present rental value of the leased premises for the remainder of the term was $33,000. The lessor filed its claim, one item being damages for loss of future rentals, which it asked to have liquidated at $25,000, the difference between the rent reserved and the present rental value.
amount of rent which shall be collected and received from the demised premises for such month during the residue of the term herein provided for after the taking possession by the Landlord; the overplus, if any, at the expiration of the full term herein provided for shall be paid to the Tenant unless the Landlord, within a period of six months from the termination of this lease as provided herein, shall, by a notice in writing, release the Tenant from any and all liability created by this provision of the lease, which it is agreed the Landlord shall at the Landlord's option, have the right to do, in which event it is agreed that the Landlord and the Tenant shall have no further rights and liabilities hereunder."
". . . and upon entry as aforesaid, this lease shall determine, and the Lessee covenants that in case of such termination, it will indemnify the Lessor against all loss of rent which the Lessor may incur by reason of such termination during the residue of the term above specified."
"Sec. 63. Debts which may be proved. (a) Debts of the bankrupt may be proved and allowed against his estate which are (1) a fixed liability, as evidenced by a judgment or an instrument in writing, absolutely owing at the time of the filing of the petition against him, whether then payable or not, with any interest thereon which would have been recoverable at that date or with a rebate of interest upon such as were not then payable and did not bear interest; . . .(4) founded upon an open account, or upon a contract express or implied. . . ."
"(b) Unliquidated claims against the bankrupt may, pursuant to application to the court, be liquidated in such manner as it shall direct, and may thereafter be proved and allowed against the estate. [Footnote 3]"
"Section 1(11) 'Debt' shall include any debt, demand, or claim provable in bankruptcy. [Footnote 4]"
"Sec. 17. A discharge in bankruptcy shall release a bankrupt from all of his provable debts. . . . [Footnote 5] "
A majority of the Circuit Court of Appeals felt bound to follow its earlier decision in In re Roth & Appel, 181 F. 667, 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 reenter and the doubt as to his suffering loss of rent if he should reenter.
In the present case, one of the judges of the Court of Appeals held that Maynard v. Elliott, 283 U. S. 273, has settled the provability of claims contingent in the sense that no sum is presently payable, thus destroying the principal ground of decision in 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 Assn., 240 U. S. 581.
but must look solely for redress for loss of future rents to a corporate debtor whom bankruptcy has stripped of all assets.
The respondent asserts a substantial difference between rent and other kinds of indebtedness, and presents equitable considerations thought to weigh in its favor, but especially stresses the legislative history of the bankruptcy laws passed by Congress, and insists that the preponderant construction of them by the courts excludes claims for future rents from the class of provable debts.
The issue is not one of power, for plainly Congress may permit such claims or exclude them. The sole inquiry is the intent of the act. The construction for which the petitioners contend is, as a matter of logic, an admissible one. But that construction is contrary to the great weight of authority as to the effect of similar provisions in earlier Acts, and § 63 of the present Act.
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, [Footnote 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.
Judah, 2 Caines 25; Lansing v. Prendergast, 9 Johns. 127.
The Act of August 19, 1841, § 5, 5 Stat. 440, 444, expressly allowed proof of contingent claims, [Footnote 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. 183; Stinements v. Ainslie, 4 Denio 573; Savory v. Stocking, 4 Cush. 607.
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.
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, pp. 251 U. S. 250-251.
482; compare In re Desnoyers Shoe Co., 227 F. 401; In re National Credit Clothing Co., 66 F.2d 371.
This Court has never had occasion to pass upon the precise point. It has not, however, expressed disapproval of the rulings of the great majority of the lower federal courts, and has cited many of their decisions with apparent approbation. See Central Trust Co. v. Chicago Auditorium Assn., 240 U. S. 581, 240 U. S. 589-590; Wm. Filene's Sons Co. v. Weed, 245 U. S. 597; Gardiner v. Butler & Co., 245 U. S. 603, 245 U. S. 605; Maynard v. Elliott, 283 U. S. 273, 283 U. S. 278.
In accord with the well nigh unanimous view of the federal courts reiterated for over thirty years are statements of leading text writers. 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 § 63(a) was growing? From 1898 to 1932, the Bankruptcy Act was amended seven times [Footnote 11] 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. Baltimore & O. R. Co. v. Baugh, 149 U. S. 368, 149 U. S. 372.
In this situation, "only compelling language in the statute itself would warrant the rejection of a construction so long and so generally accepted." Maynard v. Elliott, supra, 283 U. S. 277. If the rule is to be changed, Congress should so declare.
provable debt, and shall be liquidated under § 63(b) of this Act." 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 § 63(a), 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 § 63(a) as it then stood. [Footnote 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 longstanding contrary judicial construction.
It remains to consider the effect of the indemnity covenants in the leases. These do not provide for liquidation of damages (compare Wm. Filene's Sons Co. v. Weed, supra), nor indeed for any right to damages for breach of the covenant to pay rent.
In No. 505, the agreement is, in the event of reentry and reletting by the landlord, to pay each month the deficit accruing from the difference between the amount to be paid as rent under the lease and the amount received by the landlord from the premises throughout the residue of the original term, and, further, that the overplus, if any, at the expiration of the term shall be paid to the tenant unless the landlord, within six months from reentry, release the tenant from all liability under the covenant, which the landlord is authorized to do, thus terminating all rights and liabilities under the agreement of lease.
the lessee covenants that, in such case, "it will indemnify the Lessor against all loss of rent which the Lessor may incur by reason of such termination, during the residue of the term. . . ."
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.
* Together with No. 506, Brown et al. v. Irving Trust Co., Trustee in Bankruptcy, certiorari to the Circuit Court of Appeals for the Second Circuit.
Brown v. Irving Trust Co., 66 F.2d 473.
U.S.C. Title 11, § 103(b).
U.S.C. Title 11, § 1(11).
U.S.C. Title 11, § 35.
". . . The obligee of any bottomry or respondentia bond, and the assured in any policy of insurance, shall be admitted to claim, and after the contingency or loss, to prove the debt thereon in like manner as if the same had happened before issuing the commission, and the bankrupt shall be discharged from such securities as if such money had been due and payable before the time of his or her becoming bankrupt. . . ."
". . . All creditors whose debts are not due and payable until a future day, all annuitants, holders of bottomry and respondentia bonds, holders of policies of insurances, sureties, endorsers, bail, or other persons having uncertain or contingent demands against such bankrupt shall be permitted to come in and prove such debts or claims under this act, and shall have a right, when their debts and claims become absolute, to have the same allowed them, and such annuitants and holders of debts payable in future may have the present value thereof ascertained under the direction of such court and allowed them accordingly as debts in praesenti. . . ."
". . . In all cases of contingent debts and contingent liabilities contracted by the bankrupt, and not herein otherwise provided for, the creditor may make claim therefor, and have his claim allowed, with the right to share in the dividends, if the contingency shall happen before the order for the final dividend, or he may at any time apply to the court to have the present value of the debt or liability ascertained and liquidated, which shall then be done in such manner as the court shall order, and he shall be allowed to prove for the amount so ascertained."
"Where the bankrupt is liable to pay rent or other debt falling due at fixed and stated periods, the creditor may prove for a proportionate part thereof up to the time of the bankruptcy, as if the same grew due from day to day, and not at such fixed and stated periods."
The bill in full appears in the Congressional Record, vol. 14, pp. 43-48.
Acts of February 5, 1903, c. 487, 32 Stat. 797; June 15, 1906, c. 3333, 34 Stat. 267; June 25, 1910, c. 412, 36 Stat. 838; March 2, 1917, c. 153, 39 Stat. 999; January 7, 1922, c. 22, 42 Stat. 354 (11 U.S.C.A § 35); May 27, 1926, c. 406, 44 Stat. 662; February 11, 1932, c. 38, 47 Stat. 47.
Act of March 3, 1933, 47 Stat. 1467.
Cong.Rec. Senate, Feb. 24, 1933, pp. 5058, 5059; Feb. 27, 1933, p. 5278.

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