Court Opinion

ID: 9637159
Source: CourtListenerOpinion
Date Created: 2023-08-22 14:59:11.895214+00
Date Added: 2024-06-11T18:09:53.983765
License: Public Domain

*922FRANK, Circuit Judge
(dissenting as to the decision on the respondent’s appeal).
Partly because of a devotion to Coke’s antiquarian delight in feudal precedents, perhaps obsolescent even in his day,1 it had been held, as my colleagues say, before the 1934 amendment to the Bankruptcy Act, that a landlord could be allowed nothing in his lessee’s bankruptcy proceedings ■for damages resulting from an anticipatory breach of a lease occasioned by the bankruptcy. Such a ruling was often hard on the landlord. But it was also hard on the discharged bankrupt for, if he later acquired assets, they were likely to be subjected to the undischarged claim of the landlord.2 The 1934 amendment aimed to avoid these hardships.
But I cannot agree with my colleagues that Congress, in that amendment — designed to un-feudalize the law of leases and to do some justice to landlords without injqring the other creditors of lessees— was activated by any Henry Georgian animosity to owners of land. It is difficult .for me to believe that Congress has become so collectivist-minded, so opposed to the common characteristics, of our profit system, that it intended that a landlord should not (to quote my colleagues) “obtain an advantage merely because he has been shrewd or economically powerful enough to have obtained a substantial deposit as security” and that landlords should not “receive different treatment * * * depending upon the existence and size of the securities in their possession.” Perhaps it is desirable that by legislation such a levelling should be brought about, that by statute landlords should thus be deprived .of the benefits of good bargains they have made. But that is not a problem for the courts; if it were, we might consider that, generally, owners of land in our day do not benefit from any “unearned increment” but suffer from an “unearned decrement.”3
I see no reason to think that Congress intended that a landlord who, bargaining with a tenant of whose'financial stability he is doubtful, and to whom he would not otherwise lease his property, demands and receives security, is, with respect to that security, to be treated differently from other secured creditors. An ordinary secured creditor, under § 57, sub. h, 11 U.S.C.A. § 93, sub. h, can retain his security only to the point where it makes him whole; he is allowed to share in the estate only so far as he is unsecured; the value of the security, is deducted from his total claim, and, if there is a deficiency, he is, to that extent, an unsecured creditor and permitted to participate. That is to say, a secured creditor, as such, has no provable claim; he may share in the estate only so far as he is an unsecured creditor; as such, he is treated like every other unsecured creditor.
Nothing in the wording or legislative history of the 1934 amendment to § 63, sub. a, shows' any purpose to modify § 57, sub. h, any plan to accord a peculiar status to a secured landlord. There is not a syllable ón the subject of security in the amendment, nothing to suggest that Congress had that subject in mind. Under § 57, sub. h, if a landlord is wholly secured, he, like any other secured creditor, has no provable claim. He has one only if he is partially unsecured; With respect to his unsecured • balance, he is, I think, in precisely the same position as a landlord without any security. The one-year-rent maximum, I think, applies to his unsecured balance just as it does to the claim of a wholly unsecured •landlord. Why the fixing of such a maximum should be regarded as amending § 57, sub. h I cannot understand.
I fail to see how our decisions in Hippodrome Bldg. Co. v. Irving Trust Co., 2 Cir., 91 F.2d 753, certiorari denied 302 U.S. 748, 58 S.Ct. 265, 82 L.Ed. 578, and In re Schulte Retail Stores Corp., 105 F.2d 986, supply us with any pertinent analogies. In *923those cases we held that where a guarantor or surety of the lease of a bankrupt lessee is itself in process of reorganization under § 77B, the landlord’s claim must be limited in the same way as if the claim were against the estate of the bankrupt estate of the lessee.4
Because I think that, for the reasons above noted, my colleagues have reached an erroneous conclusion, I shall not discuss the problem suggested in note 3 of the majority opinion. Nor shall I discuss in detail the question whether, in the light of the Court’s reasoning in Kuehner v. Irving Trust Co., 299 U.S. 445, 57 S.Ct. 298, 81 L.Ed. 340, concerning the constitutionality of the 3-year provision in § 77B(b) (l0), the one-year provision is constitutional; I merely note that such a severe limitation— and one in which Congress, while saying that, in corporate reorganizations in bankruptcy, a maximum of three years’ rent is reasonable, fixed this very substantially smaller maximum with no explanation of a rational basis for the distinction — brings this provision of the statute close to the edge of invalidity and that, therefore, it should not be interpreted to create such further hardships as may bring it still closer.5 The decision here is the more serious because of our previous decision that the 1934 amendment is retroactive.6 It will be peculiarly harsh in its application to leases made before 1934 where, although the security is less than the actual damages, the security exceeds in value the amount of the next year’s rent, for under the decision here the trustee in bankruptcy will be entitled to recover that excess.

 See Holdsworth, History of English Law, Vol. 5, 468, 474, 479, 489-491; cf. Vol. II (3d Ed. 1923) 574, 575, 588, 589; United States v. Forness, 2 Cir., 125 F.2d 928, 938, 939.

 Moreover, attention had been called •to the fact that this ruling, coupled with th'e doctrine of Northern Pac. R. Co. v. Boyd, 228 U.S. 482, 33 S.Ct. 554, 57 L. Ed. 931, might frustrate the hopes of debtors seeking by reorganization in bankruptcy to avoid their obligations under leases. See 42 Yale L.J. 1003. The amendment in 1934 of § 77B probably was inspired in part by a desire to relieve reoi'ganizers of the nightmare of the Boyd case.

 See Abrams, Revolution in Land (1939).

 I have found no cases in which, since the 1934 amendment, a suit was brought against the solvent surety or guarantor of a lease of a bankrupt tenant. The position of the landlord in such a case would perhaps be analogous to his position in cases like that at bar with reference to the security.

 United States v. Delaware & Hudson Co., 213 U.S. 366, 407, 408, 29 S.Ct. 527, 53 L.Ed. 836; United States v. Standard Brewery, 251 U.S. 210, 220, 40 S.Ct. 139, 64 S.Ct. 229; State of Texas v. Eastern Texas R. Co., 258 U.S. 204, 217, 42 S.Ct. 281, 66 L.Ed. 566; Bratton v. Chandler, 260 U.S. 110, 114, 43 S.Ct. 43, 67 L.Ed. 157; United States v. Jin Fuey Moy, 241. U.S. 394, 401, 402, 36 S.Ct. 658, 60 L.Ed. 1061; Blodgett v. Holden, 275 U.S. 142, 148, 48 S.Ct. 105, 75 L.Ed. 206; Harriman v. Interstate Commerce Comm., 211 U.S. 407, 422, 29 S.Ct. 115, 53 L.Ed. 253; Knights Templars’ & Masons’ Life Indemnity Co. v. Jarman, 187 U.S. 197, 205, 23 S.Ct. 108, 47 L.Ed. 139; Panama R. Co. v. Johnson, 264 U.S. 375, 390, 44 S.Ct. 391, 68 L.Ed. 748; Baender v. Barnett, 255 U.S. 224, 226, 41 S.Ct. 271, 65 L.Ed. 597; Lucas v. Alexander, 279 U.S. 573, 577, 49 S.Ct. 426, 73 L.Ed. 851, 61 A.L.R. 906; Reinecke v. Northern Trust Co., 278 U.S. 339, 348, 349, 49 S.Ct. 123, 73 L.Ed. 410, 66 A.L.R. 397.

 In re Winn Shoe Co., 2 Cir., 87 F.2d 713.