*1 HAND, Before AUGUSTUS N. CLARK, FRANK, Judges. Circuit CLARK, Judge. Circuit bankrupt, When the B. Westermann Inc., Company, bankruptcy petition filed its March Realty on the Tonto Cor- poration, although itself a lessee from fee, the owner of the tain was landlord of cer- space premises 18-20 on West 48th Street, City, New York under a lease with expiring January the By 1948. the time of the the rental become, by adjustment, $22,769.95 per had' year $4,- and there was owing the sum of sum, back rent. This 904.38in latter how- ever, included for rent the month of March; trustee and since the occupied premises, along with a sub- agreed rental, tenant and at the until June arrears, the net amount of after paid rent deducting overlap- March, ping period $3,313.70. premises Thereafter Tonto rerented the substantially rental at a. lower than that the- lease with the bankrupt. reserved in defaulted, however, new tenant months, dispos- and Tonto itself was
two
nonpayment
sessed
its land-
January,
It
then
lord
filed a claim
damages.
back rent and for
*2
“ipso
of
the
for dam-
facto clause”
limitation that
claim
landlord’s
an
a
Under
upon
unexpired
21),
ages
the bank
the rejection
Tonto and
of an
(Paragraph
lease
damages
upon
indemnity
the
bank
lease or “for
or
under a
rupt
latter’s
agreed
had
ipso
“expire
facto
shall in
should
covenant contained
such
ruptcy
lease
end,”
which
no event be
an
event
allowed
an amount exceed-
and come to
(cid:127)cease
lease,
liqui
by
ing
as
the rent reserved
without
due the landlord
the
there should be
acceleration,
computed
year
succeeding
sum
be
as
for the
next
damages a
dated
to
premises
difference the date of the
provided representing the
surrender of the
therein
reentry
future rent
to the
the date
value of the
landlord or
of
between the cash
of
landlord,
occurs,
value the
whichever first
wheth-
the cash rental
reserved and
as
term,
bankruptcy, plus
exceeding er before or after
for the
of the
an
balance
accrued,
Ap
equal
unpaid
any
by governing
statute.1
amount
to
limit set
rent
acceleration, up
this clause the without
plying the formula stated in
to such date.” Be-
statutory provision,
liqui cause
this
bankruptcy
found that
of
the ref-
referee
application of a eree reduced
total claim
damages
dated
allowed to
—before
$40,307.81,
rent,
$22,769.95,
statutory
plus
one
limitation —would be
back rent
$3,313.70,
$26,083.65.
the sum
or
from which
be deducted
of
the trus-
should
of
On
security
petition
$3,000
review,
by Tonto as
under the tee’s
held
to
district court
lease,2
$37,307.81.
$3,000
By
deposited
leaving
total
of
Bankruptcy Act in
be deducted not
amendment
of
from the
$43,621.51,
a(9), 11
now
sub. claim
from
U.S.C.A.
of
the allowable
$26,083.65,
(9), however,
of
there were
to the al claim
and
added
hence modified the
referee’s order
lowable claims in
claims for
to allow Tonto’s claim in the
contract,
$23,083.65. D.C.S.D.N.Y.,
including
breach
sum of
of
F.
unexpired
realty,
Stipp.
parties
appealed,
leases
but with the
776. Both
provided
Paragraph
prejudice
of this
follows:
lease shall
be without
any
during
right
prove
term
to
ages
to
“If at
time
here
Landlord’s
in full dam-
by
petition
prior
demised,
filed,
for rent
be
accrued
shall
termi-
* * *
* *
*,
lease,
paid.
then
nation of this
provision
but not
This
any
immediately upon
happening
lease
this
shall
without
be
any entry
any rights
event,
prejudice
given
such
and without
oth
or
to Landlord
by any pertinent
by Landlord,
expire
prove
any
er act
this lease shall
for
statute
thereby.
ipso
and
amounts allowed
facto cease
come to an end
making any
with the
and
if the
computation,
same force
effect as
“In
such
happening
any
of the
event
date
such
then cash rental
value
the demised
premises
were
piration
for
prima
the date herein fixed
the ex
shall
deemed
be
facie to
upon any reletting,
term of
It is
lease.
bo the
realized
rental
that,
stipulated
agreed
reletting
accomplished
and
if such
can be
by
event of
term
the termination of the
Landlord
within a
time
reasonable
by
any
lease,
happening
lease
such
after such termination of this
and
event,
forthwith, upon
present
Landlord shall
the then
cash value of the fu-
any
termination,
pro
and
such
other
ture rents hereunder
reserved to the
contrary
unexpired portion
visions of this lease to the
not
Landlord for the
withstanding,
hereby
become entitled to recover
the term
demised shall be deemed
liquidated damages
sum,
per
and
caused
to be such
if invested at four
provisions
(4%) simple
such
interest,
pro-
breach
of this
cent
duce the
as will
equal
amount
period
difference
future
over the
question.”
between the then cash
value of the rent
time
unexpired
reserved hereunder
deposit
was made
the ten
portion
hereby demised,
term
and
pursuant
Paragraph
ant
42 of the
(cid:127)the then cash rental value of the de
lease, providing that
it should
secu
be
premises
unexpired por
mised
for such
rity
perform
the full
faithful
hereby demised,
tion of the term
unless
of all the terms
ance
and conditions of
governs
gov
the statute which
or shall
lease, that it should
bear interest at
proceeding
ern
dam
per
which such
annum,
that,
if the tenant
2%
ages
proved
are to
fully performed, $2,000
be
limits or shall limit
of it should
capable
expiration
the amount of
of be
returned at
ing
proved,
originally
term,
in which
case Landlord
demised
notwithstand
prove
ing
(cid:127)shall be entitled to
as and for
termination
reason of
sooner
the
ap
liquidated
equal
default,
amount
tenant’s
the balance
plied
allowed
such stat
under
on the last month’s rent.
provisions
paragraph
ute. The
of this
ex-
is due
lease.”
contending
nothing
trustee
We are clear that Tonto had security,
rent,
cept
a(9), subject
the arrears of
less the
valid claim
$313.70,
asserting that
i.e.,
specified
the creditor
and
should be
claimed,
latter’s
limitations.
deposit
from the
the
Collier on
1898.
14th Ed.
deducted
rather than from
total
allowable
*3
claim,
ref-
and hence
the
however, presents
appeal,
The landlord’s
eree’s,
court’s, computa-
rather than the
interesting
far
question.
an
and novel
As
be followed.
tion should
determine,
can
no decisions
there are
prior
present
specifically
to the
de-
case
that no
trustee’s contention
The
ciding
required
whether a
is
landlord
the lease should be
damages for breach of
deduct the
amount
held under
of
premise the admitted
allowed has as its
provided by
a lease
damages
from
total
limitation,
ter
was
fact that
the lease or from the total claim allowable
term,
minating the.lease before the demised
63,
under
(9)
Bankruptcy
Act.
of
step
that no
but
requires also
background
Some consideration of the
provision
for the
should have
made
history
therefore,
legislation is,
damages in
event
payment
of
of
necessary.
obviously just
is so
termination. Since this
parties
attempting
what
to do
were
Bankruptcy
origi-
The
Act of 1898 as
21, the
of
Paragraph
trustee’s construction
nally
provability
enacted
silent
to the
least,
tortured,
say the
language
is
of claims
for rent to
the future.
accrue
justifying the “scant consideration” of the
courts, however,
The
virtually unan-
point
of
ignoring
referee and the total
the
so
imous
deciding
that rent destined to ac-
court,
vigor
by the
which the trustee
of
filing
crue after the
petition
á
was not
of
complains.
ously
asserts
Thus he
capable
theiie
proof,
of
since there was no fixed
unexpired
could be
“for the
no
liability
merely
absolutely owing, but
de-
demised,”
hereby
portion of the term
since
contingent upon
mand
uncertain events. In
terms;
expired by
but the
the term had
its
Cir.,
667,
Appel,
re Roth &
2
181 F.
31 L.R.
paragraph quoted
270;
line
above in A.,N.S.,
first
of
Twenty-First
Wells v.
St.
—
“term”
Co.,
the footnote—shows that
in
Cir.,
Realty
237;
12 F.2d
Watson v.
years. Merrill,
original
Cir.,
719;
term of ten
359,
tended
Under the relevant state
136 F.
69 L.R.A.
authorities,
Inc.,
Properties,
as Manhattan
Irving
Trust
substantially
Co.,
320;
well as the
identical case
54 S.Ct.
78 L.Ed.
824;
Realty Co.,
Metropolitan
Operating
Inc.,
In re Outfitters’
Stores,
In re
Chain
Irving
Cir.,
Cir.,
appeal
69 F.2d
affirmed
Trust Co.
66 F.2d
dismissed Mal-
Perry, Inc., 293
Co.,
U.S.
avazos et
709,
v. Irving
v. A. W.
al.
U.S.
express provision
609;
79 L.Ed.
54 S.Ct.
In re Mar
breach,
Garage, Inc., Cir.,
is a
for which dam
759;
shall’s
In re F.
63 F.2d
valid;
ages
provided,
concededly
is
but
Stores,
& W. Grand 5-10-25 Cent
attempted
pro
distinction here that the
appeal
74 F.2d
dismissed Urban
Properties
vision for
fails because of lack of
Co. v.
296 U.
This,
altogether
“breach” seems to
the word
too thin
intent,
us
S.
lord,
calling
although
Roeder,
attention
Tale L.J.
see
problem,
Landlords, Bankruptcy,
77B,
'has not claimed the 'full
dam-
ages
.limitation;
2S5, 299;
Finletter,
without
and it
Corn.L.Q.
cf.
seems
(cid:127) Congress
surely
Reorganization,
better
view that
Law of'
291-292;
.clauses;
intended to include such
well
and 2 Gerdes
bn Cor
provisions
porate Reorganizations,
other
nature,
of a like
rationally
protecting
most
it
means of
505),
themselves
event
bankruptcy.
with the
the tenant’s
this doctrine
A first
difficult
reconcile
bankruptcy expedient was the
in the
liberal treatment
reservation
lease
generally
types
right
of re-entry
landlord and
cases
other
result
indemnity
Hence
the inclusion
of contracts.4
covenant
breaches
though the
landlord,
lessee
all
loss
rent oc
was often harsh as
of future
by bankruptcy.
prevent
did
the exhaustion of
casioned
branded this
the courts
But
disproportionately large
contingent
incap
also a
estates for
proof,
able
of
filing
since at the
claims.
time
bankruptcy petition
there still re
Beyond
claims
the fact
landlords’
uncertainty
mained
as to whether or not
future
rent were
option
would be exercised
the land
*4
event,
the earlier
also
cases
Inc,
Properties,
lord. Manhattan
ing
v. Irv
bankruptcy
of
tenant constituted
Co,
supra;
Ap
Trust
Roth
In re
&
lease,
of the
absolute termination
pel, supra;
Soliday, Cir,
Slocum
1
v.
183
any
kind
claim of
remained
no
F. 410. Resort was
then had
the so-
Jefferson, D.C.Ky,
In re
93
the landlord.
clause,
ipso
called
facto
in
the lease
which
948;
Co,
re Hays,
In
Foster
F.
D.C.W.D.Ky,
& Ward
automatically
upon
filing
terminates
of
F. 879.
117
This rule was
petition,
exemplified
by Paragraph
however,
supplanted,
majority
soon
view
21 of the instant
lease. This covenant
had
all
no effect at
eventually
judicial
received
approval, as we
claims;
they
provable,
on such
seen, in
have
Irving
y.
Trust
A.
Co.
W.
discharge
and the debtor did not receive a
supra,
Perry, Inc,
which was not decided
therefrom. The landlord thus retained a
passage
until after the
1934
amendm
damages
valid
for
as long as he did ent.6
obligations
not terminate the
of
by re-entering;
justi
Although
easily
but unless
there
result could be
was
specific stipulation
for
legal grounds,
technical
contained fied on
its conse
lease,
re-entry
distinctly
quence presented
did
ten-
release the
unattractive
standpoint
liability
policy.7
from
for
ant
future
elements from the
rents. South
It
Watson, Cir,
depend
Side Trust Co. v.
3
Co,
made landlords’ claims
200
on the nice
F.
50;
law,
In re
property
Gallacher Coal
ties of ancient
D.C.N.D.
than
rather
Ala,
183;
Co,
aspects
205
In re
practical
F.
H. M.
Lasker
on
Then
of modern business.
53,
landlords,
Cir, 251
Meyran
3
F.
certiorari
especially
-depres
denied
in
S.Ct,
Watt, Trustee,
562,
years
on,
248
v.
8,
U.S.
sion
from 1929
39
when there was
depreciation
A
values,
.of made. fail to our problem Bldg. that is podrome But not v. the that, Co. courts; were, might consider if it certiorari denied F.2d in day land owners of our do and In re generally, Corp., “unearned increment” Retail benefit from Schulte Stores supply any pertinent analogies. from “unearned decrement.”3 us suffer with again Boyd, was securities as- of the return L. question might hopes sumed, the main Ed. frustrate summary seeking reorganization suit or not debtors in whether proper. obligations their avoid un- trustee Holdsworth, History English der leases. See Yale L.J. 1003. The See 479, 489-491; probably Law, in Vol. cf. amendment 77B§ 1923) (3d inspired part in desire II Ed. Vol. re- nightmare Forness, reoi'ganizers 125 F. States lieve United Boyd 928, 938, 939. case. 2d Moreover, Abrams, called attention Revolution Land ruling, coupled (1939). the fact that (cid:127)to of Northern Pac. doctrine R. Co. v. th'e guarantor FLINT SHEET et al. YOUNGSTOWN cases we that where those or bankrupt lessee & TUBE CO. of the lease reorganization process is itself in No. 404. limited 77B, must be claim the landlord’s Appeals, Circuit. Circuit Court of Second if way in the same estate the estate of July 18, 1944. the lessee.4 that, reasons for the I think Because noted, my colleagues reached above conclusion, not discuss I shall an erroneous 3 of the suggested note problem I discuss opinion. Nor shall majority light of whether, in question detail the reasoning in Kuehner v. the Court’s constitutionality concerning the provision 77B(b) (l0), 3-year constitutional; I provision one-year is limitation— merely note that such a severe saying Congress, while one in which that, corporate reorganizations in bank years’ rent ruptcy, a maximum three substantially reasonable, very fixed this explanation of with no smaller maximum brings a rational basis distinction— provision statute close that, therefore, invalidity and edge of interpreted create such hardships may bring it still The decision is the more closer.5 here previous serious because of our decision 1934 amendment is retroactive.6 applica peculiarly It will be harsh in its where, al tion to leases before made security is less than the ac though the security exceeds in damages, the value tual rent, un next amount trustee bank here the the decision der recover that ex
ruptcy entitled to will be cess. *8 1061; Blodgett which, 4 Holden, 60 L.Ed. no cases since v. found I have brought 142, 148, amendment, 48 275 U.S. S.Ct. a suit was 75 L. the 1934 206; guarantor Ed. Harriman v. Interstate Com solvent Comm., merce 211 U.S. tenant. 29 S. a lease 253; Knights Templars’ position Ct. 53 L.Ed. case of the landlord posi- Indemnity analogous perhaps & Masons’ Life Co. v. Jar would man, 197, 205, 187 U.S. bar ref- S.Ct. that at like tion cases 139; Johnson, L.Ed. Panama R. Co. v. erence 375, 390, 264 U.S. S.Ct. 68 L. Hud & v. Delaware States United 748; Barnett, Ed. Baender v. 255 U.S. 407, 408, Co., 29 S.Ct. son 597; 226, 41 S.Ct. 65 L.Ed. 836; United States v. L.Ed. Alexander, v. Lucas 210, 220, Brewery, 251 U.S. Standard 73 L.Ed. S.Ct. 61 A.L.R. 229; of Texas State 64 S.Ct. S.Ct. 906; Reinecke v. Northern Trust 204, 217, Texas R. U.S. Eastern 339, 348, 349, U.S. 49 S.Ct. Bratton 410, 66 A.L.R. 397. Chandler, U.S. Fuey Co., Cir., United States v. re Shoe Jin Winn 394, 401, 402, Moy, 713.
