219 F. 57 | 6th Cir. | 1914
This is an appeal from a decree of the court below reversing one order, a.nd in part affirming and in part reversing a second order, theretofore made by a referee in bankruptcy. The first order canceled a lease of the Fidelity Trust Company^ executor and trustee under the will of John D. Taggart) and certain individuals to the bankrupt, Julius Sapinsky, but the lease seems to have been in fact taken over and held by the bankrupt firm, J. Sapinsky & Son; and the second disallowed in whole a claim of the lessors against the estate of the bankrupts for rent to accrue during the remainder of the term of the. lease, and for a lien upon the personalty of the bankrupts, located on the leased premises, to secure payment of the rent ($15,000) to accrue under the lease during the year following the date of filing the petition in bankruptcy, viz., April 8, 1912.
The lease, bearing date February 24, 1912, was for a term of 10 years from November 1, 1912, of certain improved real estate situated on Fourth street in Louisville, Ky., and the rent reserved was $12,000 a year, but for reasons not important here was subsequently increased to $15,000, payable in installments of $1,250 at the end of each month. The petition in bankruptcy was filed against J. Sapinsky & Son, a partnership composed of Jacob Sapinsky and Julius Sapinsky, and the firm and each of the members were adjudicated bankrupts, on April 8, 1913. The firm had been engaged in the clothing business, and, under orders of sale entered by the referee, the goods and effects of the firm within the leased permises were sold, and the purchaser was given until May 31st to remove them. May 30th, it appearing that no bid could be obtained for the leasehold interest, a further order was made by the referee, canceling the lease as of June 1st, and directing the trustee prior to that date to surrender the lease and the realty covered by it to the lessors.
The claim first filed by the lessors was in the usual form, stating, in material part:
That the bankrupt partnership was “justly and truly indebted” to the deponents “for a sum of money representing the rents to become due according to the terms” of the lease; “that the total amount of said indebtedness is one*60 hundred and forty-one thousand two hundred and fifty ($141,250) dollars, representing rent that is to accrue between June 1,1913, and November 1,1922, at a monthly rental of twelve hundred and fifty ($1,250) dollars a month; * * * that the only security held by deponents is a landlord’s lien on the property of the said bankrupt that was on the premises let in said lease, said lien being given by the statute law of the state of Kentucky, which statute gives a lien for rent to accrue or to become due for one year, thereby giving these deponents a lien for fifteen thousand ($15,000) dollars; that these deponents are entitled to a priority of payment out of the assets of this bankrupt in the hands of the trustee, to the extent of fifteen thousand ($15,000) dollars, by virtue of said lien; that they are entitled to a claim for the balance.”
Subsequently, in July, 1913, the lessors filed an amended proof of claim, with a stipulation showing that at the time of the adjudication there was on the leased premises personal property belonging to the bankrupts of “far greater value” than $15,000; that the trustee had taken possession of such personalty and sold it for more than the sum last stated; and repeating the claim that deponents were “entitled to a priority of payment out of the assets of this bankrupt in the hands of the trustee to the extent of fifteen thousand ($15,000) dollars by virtue of said lien.” v
“Construing the sections above quoted under this rule, with a view to promote their object, we think it clear that they give the landlord a superior lien, for not exceeding one year’s rent, due or to become due, on all the property of the tenant, subtenant, or assignee on the premises, subject to execution. <■ * * ”
And at the time the present bankruptcy law was enacted, it had been settled by the same court that the lien was enforceable in the courts of Kentucky having jurisdiction of insolvency proceedings under the state laws, and also that no steps need be taken to perfect the lien. Loth & Haas v. Carty, 85 Ky. 591, 595, 4 S. W. 314. True, this latter case had reference to past due rent; but it is not perceived why the rule of informality touching enforcement of the lien should not apply to rent to accrue in the future. See, also, Slack & Perkins v. Koon & Perry, 39 S. W. 26, 18 Ky. Law Rep. 1103, 1104. Our attention has not been called to any decision in Kentucky which purports to change or modify these decisions.
We next come to the question whether this statutory lien is entitled to recognition in a bankruptcy court. Section 67d of the Bankruptcy Act provides:
“Liens given or accepted in good faith and not in contemplation of or in fraud upon this act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall Lto the extent of such present consideration only], not be affected by this act.”
Applying the provisions of this section to the case in hand, it hardly need be said that a lien created by statute must be treated as having been given in good faith and independently of the Bankruptcy Act; indeed, it is not claimed that this lien was not given and accepted in good faith, nor that it was given and accepted in contemplation of or in fraud of the Bankruptcy Act. Whether the lease was recorded, or not, does not appear in the evidence; it is to be presumed that, if counsel on either side regarded the record of the lease as necessary under the recording act of Kentucky (Carroll Ky. Stat. [Ed. 1909J § 494), to validate the statutory lien, the fact of whether the lease was recorded or not would have been shown; no assignment of error upon
It would seem to follow that section 67d, standing alone, is broad enough fairly to embrace a statutory lien like the one under consideration. It is not questioned that this would be true as respects rent accrued and unpaid at the time of filing a petition in bankruptcy; but the lien' is strenuously resisted as to rent accruing thereafter. Apart from this contention, which is considered later, the very safeguards which section 67d sets up against fraudulent liens indicate a purpose to include all classes of liens that are given and accepted in good faith. It must be remembered that the present lien is in terms imposed upon tangible property; and while it may be said that the lien is imperfect and inchoate unless and until default in rent occurs,, still this fact alone is not sufficient to defeat the maturing of the lien upon the happening of the event. In re Bennett, 153 Fed. 673, 677, 82 C. C. A. 531 (C. C. A. 6th Cir.) and citations; In re Southern Hardware & Supply Co. (D. C.) 210 Fed. 381, 382.
That section 67d embraces a lien to secure rent to accrue during a limited time after bankruptcy, which is enforceable in a court of bankruptcy, has been held in respect of a lien created by a statute of Texas, in a well-considered decision of Judge Pardee, in which Judges McCormick and Shelby concurred. Martin v. Orgain, 174 Fed. 772, 778, 98 C. C. A. 246 (C. C. A. 5th Cir.). That court reached a like conclusion in affirming a decision of Judge Foster, where a decree enforcing a similar lien created by a statute of Louisiana was involved (In re Meyer & Bleuler [D. C.] 195 Fed. 653, 654, affirmed in Denechaud v. Tulane Educational Fund, 200 Fed. 1022, 118 C. C. A. 665 [C. C. A. 5th Cir.]); and this rule'still prevails in that circuit (In re Gallacher Coal Co. [D. C.] 205 Fed. 183, 187; In re Varley & Bauman Clothing Co. [D. C.] 188 Fed. 761; In re Scruggs [D. C.] 205 Fed. 673, 676, involving a like lien given by a statute of Alabama; In re Southern Hardware & Supply Co., 210 Fed. 381, 382, and citations).
The ultimate contention is, notwithstanding these decisions, that 67d is so restricted by 63a ‘(1) as to forbid enforcement of the lien in a bankruptcy court; and it must be conceded that as respects future rent the question is attended with difficulties. The argument is that, under the Bankruptcy Act, provability of a claim for rent to accrue after bankruptcy is the test of the right to enforce the statutory lien, and that a claim for rent so to accrue is not provable under section 63a (1). Counsel rely upon Watson v. Merrill and In re Roth & Appel, supra, and similar decisions, which are bottomed on the idea that a claim for rent to accrue is not a debt; that is, it was not “a fixed liability * * * absolutely owing at the time of the filing of the petition” in bankruptcy, within the meaning of 63a (1). It is to be
Furthermore, in Martin v. Orgain, supra, it was not found necessary definitely to decide that the claim for rent to accrue after bankruptcy was either required to be proved or that it might not be proved under sections there mentioned; but it was decided that a number of the sections, so pointed out, should be construed in connection with section 67 (relating to liens) and to the effect that a state statutory lien accepted in good faith should be allowed and given priority; Judge Pardee saying (174 Fed. 778, 779, 98 C. C. A. 252, 253):
“If a contract and a statute can fix a liability, it must be conceded that it was fixed in this case. Without conceding that appellant’s claim is required to be proved under section 63, or that it may not be provable under clause 1 or 4 of that section as a fixed liability founded upon an'express contract evidenced by an instrument in writing and absolutely owing at date of filing petition, we are of opinion that section 63 relates principally to unsecured debts, and that all creditors who wish to participate in creditors’ meetings and dividends must bring their cases under some one of the heads therein specified, but that in relation to claimed liens, such as here presented, section 57, Proof and Allowance of Claims, section 63, Debts Which may be*65 Pro's ed, section 64, Debts Which Have Priority, and section 67, Liens, should he construed together and to the effect that a lien under a state law given in .good faith, not impaired or affected by the bankruptcy law, should be allowed and given its legal priority.”
In Re Caloris Mfg. Co. (D. C.) 179 Fed. 722, 723, under a covenant of a lease in substance permitting the landlord, upon condition broken, to relet the premises for the whole or any part of the remainder of the term, and obligating the first tenant to pay the landlord each month the difference between the amount of rent originally reserved and the amount of rent collected and received by him monthly from the second tenant during the residue of the term, Judge McPherson, in passing upon a claim of the landlord embracing rent to accrue after bankruptcy of the tenant, held:
“Even although the landlord’s claim * * * was not a fixed liability” under 63a (1) “when the petition [in bankruptcy] was filed, it was liquidated within the year, and thus became provable, as a claim founded upon a contract express or implied under section 63a (4).”
The case of In re Keith-Gara Co. (D. C.) 203 Fed. 585, involved a landlord’s claim for rent to accrue after bankruptcy of the tenant — certainly in the sense that the rent was not earned and in material part might never be. The lease provided, among other things, that in the event of the lessee becoming bankrupt the whole rent for any unexpired portion of the term should “at once become due and payable as if by the terms of this lease it were payable in advance. * * * ” The claim of the landlord was based on this covenant, and also on the statute of Pennsylvania which in effect provides that goods and chattels of the lessee upon the leased premises shall be liable for payment of not to exceed one year’s rent. 1 Brightly’s Purdon’s Dig. Laws of Pa., p. 752. Judge McPherson, after referring to decisions of the Supreme Court of Pennsylvania upholding the state statute, and considering quite a number of federal decisions showing the contrariety of opinion on the subject, sustained the claim of the landlord, saying (203 Fed. 587):
“in our opinion, however, the Bankruptcy Act is not only not in conflict with the law of Pennsylvania on this point, but is in harmony therewith. Section 64b (5) provides that among the debts to have ‘priority shall be * * * (5) debts owing to any person who, by the laws of the state or the United States, is entitled to priority.’ If, then, the landlord’s claim now in dispute is a ‘debt owing to any person,’ the question must be answered in the landlord’s favor. Now, a ‘debt’ is defined by the act to mean ‘any debt, demand, or claim provable in bankruptcy’; and the question, therefore, may be stated in this form: Is the foregoing claim to priority provable in bankruptcy? At this point the decisions diverge and cannot be reconciled. Some courts hold that a landlord’s claim under such a provision in the lease is essentially contingent, and therefore is incapable of proof. * * - * While other courts permit the claim to he proved, holding that section 63a (4) is broad enough to cover it. * * * In this circuit, as I think, the latter opinion has been more frequently followed, although dissatisfaction is apparent now and then. * * * Of course, if a landlord retakes possession of the property, his right to claim priority can .no longer be enforced. * * * In the present case, therefore, following what 1 understand to be the prevailing current of decision, I hold that when the adjudication was entered the landlord had a valid provable claim for the remaining portion of the term,, that he did not destroy or impair his claim by resuming possession of the premises, and that*66 under the Pennsylvania law he is entitled to priority of payment for the period referred to.”'
In both of these cases reliance was placed upon Judge Acheson’s analysis of 63a in Moch v. Market St. Nat. Bank, 107 Fed. 897, 898, 47 C. C. A. 49, 50 (C. C. A. 3d Cir.), where the question was whether the liability of a bankrupt indorser of commercial paper, whose liability had not become absolute until after bankruptcy, might be proved against' his estate after the liability had become fixed, and within the time limited for proving claims:
“If it can be affirmed that such an unmatured liability is not a ‘debt,’ in a technical sense, certainly it is a ‘demand’ or ‘claim,’ and comes, it seems to us, within the scope of the fourth subdivision of section 63 of the act. * * * We are unable to agree to the proposition that subdivision 1 qualifies, and is to be carried down and read into, .subdivision 4. On the face of the act they are distinct. Moreover, reasonable effect can be given to both by treating them as separate and independent clauses. * * * ”
We are therefore unable to discern any sufficient reason why — as respects a subsisting lease, with its premises and improvements intact— a statutory lien like the one in question should not be enforced at least to the extent that the landlord sustains loss of rent within the year next succeeding the date of filing the petition in bankruptcy, wherever, as here, the rent has been paid until that time. This limitation in time is necessitated alike by the period fixed for the duration of the lien sought to be enforced and the settled rule that the title of the, trustee to the property of the bankrupt relates to he time of filing the petition in bankruptcy; and the limitation to actual loss of rent is due (a) to the fact that the lien is simply a security, (b) to the possible destruction of the improvements' within the life of the lien, in which event the rent reserved was by the lease to be suspended until restoration, and (c) to the fact that the lessors were entitled under the lease to re-enter for condition broken, such as -default in payment of rent. We are not unmindful of the contingent character of the liability so created by the lease; but this liability would, through mere lapse of time, be rendered certain in amount, within the proving period fixed by 57n of the Bank
We should add that section 2314 of the state statute, before quoted, in terms provides that if, after the commencement of any tenancy, a lien be created on the property upon the leased premises liable for rent, the person making or acquiring the lieu may remove such property only upon condition that he first pay at least one year’s rent secured by the lien. Could not the lessors, in this instance, by prompt arid appropriate proceeding have enforced this right against the tenants’ personalty, which came into the hands of the trustee in bankruptcy?
It is said this result will require the general creditors, in effect, to pay the year’s rent; but this overlooks the rightful priority of the lien. Moreover, prompt measures might have been taken to relet the leased premises; a landlord could not both claim the year’s- rent and prevent the trustee from letting the premises, according to the covenants of the lease, for the highest obtainable sum.
An effort has been made, through an affidavit of the trustee, to show that payment of appellee’s rent was guaranteed by a surety company; but there is no finding of facts upon the subject, and, moreover, the matter is not properly a part of the transcript and so cannot be considered. However, in the court below, a motion was made by the trustee to refer the case to a special master to take proofs and repoxt the facts concerning the lease and the matters set out in this affidavit. Whether such a reference would reveal any facts upon which further reduction of the amount of recovery should be made, is of course not shown; but we think the court should give opportunity to make a showing in this respect.
In disposing of the case presented by the present record, it should be stated that the portion of the decree below which reversed the order of the referee canceling the lease (like the portion which as before mentioned affirmed his order disallowing the claim for rent to become due), is not involved and so is not passed upon; and that the portion alone of the decree, which allowed and fixed the amount of the lien, is presented for decision. Although we agree with the court below touching the enforcement of the lien for actual loss of rent, we are constrained to believe that this portion of the decree should be reversed without costs to either side; that the cause should be remanded with direction to enter such order or orders as shall seem to the court necessary to secure ail the facts pertinent to the adjudication and payment of the amount of the
“Sec. 2317. A landlord shall have a superior lien on the produce of the farm or premises rented, on the fixtures, on the household furniture, and other personal property of the tenant, or undertenant, owned by him, after possession is taken under the lease; but such lien shall not be for more than one year’s rent due or to become due, nor for any rent which has been due for more than one hundred and twenty days. And if any such property be removed openly from the the leased premises, and without fraudulent intent, and not returned, the landlord shall have a superior lien on the property so
“See. 2814. If, after the commencement of any tenancy, a lien be created on the property upon the leased premises liable for rent, the party making or acquiring such lien may remove the property from the premises upon the following terms, and not otherwise: that is, by paying to the person entitled to the rent so much as is In arrear, and securing to him so much as is to become due; wbat is so paid and secured not being more altogether than a year's rent.”