Court Opinion

ID: 6861418
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:49:04.130669+00
Date Added: 2024-06-11T16:05:15.082399
License: Public Domain

MANTON, Circuit Judge
(dissenting).
November 9, 1929, appellant, as lessor, and the bankrupt, as lessee, entered into an agreement to lease certain premises in Los Angeles, Cal., for twenty-five years from August 1,1932, or from the date of the completion of a new building, which the appellant agreed to construct for the use of the bankrupt. The rent was on a rising scale to be paid in monthly installments. Before the term of the lease commenced and before the building was constructed, in March, 1932, receivers in equity were appointed for the bankrupt with ancillary receivers in California, and, on May 21, 1932, prior to the commencement of the term of the lease and the construction of the building, the ancillary receivers in California disaffirmed the lease, advising the appellant accordingly. This was a breach before the term commenced and before there was any privity of estate between the appellant and the bankrupt. Bankruptcy followed July 14, 1932. The reasonable rental value of the property with the proposed building thereon was fixed at $102,500, whereas the rent reserved in the lease for the entire term was $215,000. The appellant made claim for the difference, $112,500. This appeal is from an order disallowing the claim.
In Central Trust Co. v. Chicago Auditorium Ass’n, 240 U. S. 581, 36 S. Ct. 412, 415, 60 L. Ed. 811, L. R. A. 1917B, 580, the court held that bankruptcy may constitute an anticipatory breach of an executory agreement, and the court made reference to In re Roth & Appel, 181 F. 667, 669, 31 L. R. A. (N. S.) 270 (C. C. A. 2), indicating that claims for future rents after a breach caused by bankruptcy, would not be allowed against the bankrupt estate. This has long been considered an exception based upon Lord Coke’s dictum as to the “diversity between duties which touch the realty, and the mere personalty.” In the Chicago Auditorium Ass’n Case, supra, the court announced that “Proceedings, whether voluntary or involuntary, resulting in an adjudication of bankruptcy, are the equivalent of an anticipatory breach of an executory agreement.” In Re Roth & Appel, supra, a, petition in bankruptcy was filed prior to the time the term commenced, though adjudication was subsequent thereto. A claim by the lessor for the future rents was held not provable in bank*657ruptcy. The reason given therefor was that "rent is a sum stipulated to be paid for the use and enjoyment of land. The occupation of the land is the consideration for the rent. If the right to occupy terminate, the obligation to pay ceases. Consequently, a covenant to pay rent creates no debt until the time stipulated for the payment arrives. The lessee may be evicted by title paramount or by acts of the lessor. The destruction or disrepair of the premises may, according to certain statutory provisions, justify the lessee in abandoning them. The lessee may quit the premises with the lessor’s consent. The lessee may assign his term with the approval of the lessor, so as to relieve himself from further obligation upon the lease. In all these cases the lessee is discharged from his covenant to pay rent. The time for payment never arrives. The rent never becomes due.”
At that time, this court was of the opinion that section 63a(l) of the Bankruptcy Act, 11 USCA § 103(a)(1), must be read with section 63a(4), 11 USCA § 103(a)(4), so that, even though a claim was founded on a contract, it could not be proved if it were not a “fixed liability * * * absolutely owing at the time of the filing of the petition.” But this was overruled in Maynard v. Elliott, 283 U. S. 273, 51 S. Ct. 390, 75 L. Ed. 1028, where it was held sufficient if the claim could be included within section 63a (4). But the Mayhard Case did not withdraw the approval previously given to the holding as to future rents as decided in Re Roth & Appel, supra. Manhattan Properties v. Irving Trust Co., 291 U. S. 320, 54 S. Ct. 385, 78 L. Ed. 824.
But nowhere does it appear that the Supreme Court has ruled that claims otherwise arising from leases, as such, were nonprovable in bankruptcy, and the contrary is to be inferred from Irving Trust Co. v. A. W. Perry (In re Outfitters Operating Realty Co.), 293 U. S. 307, 55 S. Ct. 150, 79 L. Ed.-. In Re Mullings Clothing Co., 238 F. 58 (C. C. A. 2), expressly overruled by the prevailing opinion, this court properly limited its prior decision in Re Roth & Appel, supra. There, as in the instant case, there was a repudiation of the lease prior both to the bankruptcy and to the time the term of the lease was to begin. There, as here, it was not necessary to find the bankruptcy of the lessee an anticipatory breach of the lease since there had been a repudiation prior to bankruptcy. There the court followed Roehm v. Horst, 178 U. S. 1, 20 S. Ct. 780, 44 L. Ed. 953, which held that, where a contract is renounced before performance is due, and the renunciation is in unequivocal terms, the injured party may bring his action at once for a complete breach. Therefore it appears that a repudiation by the receiver amounts to an anticipatory breach and the lessor’s right to damages accrues at that time. In Re Mullings Clothing Co., supra, we distinguished the In re Roth & Appel Case upon the basis that the action was for breach of contract prior to the bankruptcy.
This court has had occasion to consider other eases where the doctrine of nonprovability of future, rents was urged. In Re Marshall’s Garage, 63 F.(2d) 759 (C. C. A. 2), there was a breach, by the lessee, of a covenant to purchase the property in installments. We held that the contract to purchase and the contract to pay rent were divisible and as such the contract of purchase could be considered antieipatorily breached by the bankruptcy although the contract to pay rent could not. In Re Metropolitan Chain Stores (C. C. A.) 66 F.(2d) 485, a breach of a covenant by the bankrupt lessee to restore the premises to their original condition was before the court, and we there held that such a covenant was independent of the covenant to pay rent and that the bankruptcy constituted an anticipatory breach and the claim would be allowed. Subsequently the Supreme Court decided Manhattan Properties v. Irving Trust Co., 291 U. S. 320, 54 S. Ct. 385, 78 L. Ed. 824. There the facts were similar to In re Roth & Appel, and other eases supporting the doctrine of the nonprovability of claims for future rents where bankruptcy caused the breach. The bankruptcy occurred during the term of the lease, and the Supreme Court held that, in view of the great weight of judicial authority and the legislative history, the claim for rent was not provable. It did not refer to situations other than, and whieh courts have considered distinguishable from, the one before it. But the majority of this court, as now constituted, have extended the decision of the Supreme Court so as to cover a class of cases to whieh not only did the Supreme Court not refer, but which had previously been distinguished from, and differently decided than, the case before the Supreme Court. In Possart v. Irving Trust Co. (C. C. A.) 69 F.(2d) 807, the facts were substantially identical with those in Re Metropolitan Chain Stores, supra, but, as there pointed out, substantially different from the facts of the Manhattan Properties v. Irving Trust Co., supra. Plainly, neither In re *658Metropolitan Chain Stores, supra, nor In re Mullings Clothing Co., supra, were overruled by Manhattan Properties v. Irving Trust Co., supra.
No authoritative decision prohibits the proof of a claim such as is now before this court. Two cases definitely permit its allowance. In re Mullings Clothing Co., supra, and In re National Credit Clothing Co., 66 F.(2d) 371, 372 (C. C. A. 7). In National Credit Clothing Co. Case, the Seventh Circuit Court of Appeals followed In re Mullings Clothing Co., saying:
“In the instant ease the breach occurred before the bankruptcy proceedings were begun. It is, therefore, not analogous to the ordinary bankruptcy ease where an insolvent tenant is adjudged a bankrupt and the landlord presents a claim against the bankrupt estate for damages arising out of the breach which the adjudication in bankruptcy occasioned. Upon the breach of the lease by bankrupt’s assignee in the case before us, a cause of action arose in favor of appellant. * * * Our conclusion is that prior to the commencement of the bankruptcy proceedings, there existed a valid claim for damages in favor of appellant, and * * * the claim presented was one provable against the estate of the bankrupt lessee.”
The distinction there drawn between the type of ease represented by Manhattan Properties v. Irving Trust Co., supra, and the ease now before the court, is sound. As said by this court (Manton, A. N. Hand, and Chase, JJ.), A. N. Hand, C. J., writing, in Matter of F. & W. Grand 5-10-25 Cent Stores, Inc., 74 F.(2d) 45, deeided December 3, 1934:
“It is true that the bankruptcy of the tenant is an anticipatory breach, but a claim for a breach of a covenant to improve, demised premises except so far as damages accrued prior to bankruptcy is'of the nature of claims for future rents * * * -which have been held nonprovable.”
There we recognized that, if the breach occurs prior to bankruptcy, damages have accrued, and the contingency .which ordinarily exists in the future rent eases is no longer present.
The prevailing opinion says that “rents which are conditional upon the endurance of the term are not provable, .because they may never become payable.”
But can it'be said that the lessee’s obligation to pay damages as a consequence of his repudiation (which is what the lessor seeks) is -here conditioned upon the “endurance of the term” ? Certainly not. At the moment of his unequivocal repudiation of the lease, the lessee’s liability to damages was unconditional. As often said, when refusing to allow rent claims to be proved, it is not so much the uncertainty in the amount of damages as it is the uncertainty that the lessee would ever incur full liability. Such' contingency is not present here. The liability of the lessee became unconditional and certain at the date of his repudiation, and hence must have been so at the date of the subsequent bankruptcy. The prevailing opinion also says: “It is really impossibly to see what uncertainties infested the claim in Re Roth & Appel that were absent in Re Mullings Clothing Co.”
In Re Roth & Appel, supra, uncertainties are pointed out which forbade proving the claim. The court there found that “if the right to occupy terminate, the obligation to pay ceases.” In the instant ease, the lessee repudiated his right to occupy so that we need not be concerned with the uncertainty of the termination of his right. By repudiation of his right to occupy, he did not and could not release himself from the obligation to pay. And “a covenant to pay rent creates no debt until'the time stipulated for the payment arrives.” But, of course, under the doctrine of Roehm v. Horst, supra, where a contract is repudiated before performance, the’ injured party need not .wait until the time set for performance arrives in order to sue, but a repudiation of a covenant to pay rent creates a debt at the time of the repudiation. It was also said that the lessee might be evicted by the lessor or others. Here, however, the lessee could not be evicted under this lease because by his repudiation the lease was terminated. The court also found that the destruction or disrepair of the property might justify the lessee in abandoning it. But by his repudiation, in this case, the lessee subjected himself to liability whether the premises were destroyed or not. The court also said that the lessee might quit the premises with the lessor’s consent. Such could never have occurred here since, in view of-his repudiation, even his right to enter the premises ended. The court also found that the lessee might assign his term with the consent of the lessor, but, in the instant ease, the lessee by his repudiation left himself without the term to assign. Consequently none of the uncertainties which the court in Re Roth & Appel, supra, 'found a bar to provability exist in the instant ease. An outright repudiation of the entire lease is an anticipatory breach.
*659The prevailing opinion states that “rent claims of all sorts are refused recognition merely because they are rent claims.”
This is a new doctrine. It is not one of the reasons advanced in Re Roth & Appel, supra, or Manhattan Properties v. Irving Trust Co., supra.
The claim here presented is founded upon a contract which at the time of the bankruptcy was fixed in amount or susceptible of liquidation (Maynard v. Elliott, 283 U. S. 273, 51 S. Ct. 390, 75 L. Ed. 1028), and is provable under section 63a (4) of the Bankruptcy Act (11 USCA § 103(a) (4). Indeed, we are not concerned with whether the bankruptcy of the lessee constituted an anticipatory breach of the contract to lease. This contract had already been totally breached prior to the date of the bankruptcy by repudiation thereof. By this repudiation, the entire contract was turned into a right of action for damages. Williston on Contracts, § 1290. It is this right of action and its consequent damages which are presented, and which should be allowed.
The order should be reversed.