Watson v. Merrill
| Decision Date | 18 March 1905 |
| Docket Number | 2,087. |
| Parties | WATSON v. MERRILL. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Syllabus by the Court
Rents which the bankrupt had agreed to pay at times subsequent to the filing of the petition in bankruptcy do not constitute a provable claim under the bankruptcy law of 1898, because they are not a 'fixed liability * * * absolutely owing at the time of the filing of the petition against him,' and because they do not constitute an existing demand, but both the existence and the amount of the possible future demand are contingent upon future events, such as default of lessee re-entry of lessor, and assumption by trustee, so that they neither form the basis of an unliquidated nor of a liquidated provable claim. Act July 1, 1898, c. 541, Sec. 63, cls 'a,' 'b,' 30 Stat. 562, 563, 3 U.S.Comp.St..1901, p. 3447.
Damages for the breach of a contract of the bankrupt to pay rents at times subsequent to the filing of the petition in bankruptcy do not constitute a provable claim, for the same reason that the claim for the rents is not provable.
The retaking of the premises by the lessor releases the lessee from payment of all subsequently accruing rents unless the contract expressly provides otherwise.
The trustee in bankruptcy has the option to assume or renounce the leases and other executory contracts of the bankrupt, as he may deem for the best interest of the estate.
An adjudication of bankruptcy absolves the bankrupt from no agreement, terminates no contract, and discharges no liability.
An adjudication of bankruptcy in a case in which there was no rent due at the time of the filing of the petition in bankruptcy does not constitute a breach at that time of the covenants of the bankrupt in his lease to pay rents accruing thereafter.
This is an appeal from a decree of the District Court, sitting in bankruptcy, which reversed an order of the referee that the appellant, Watson, should be allowed a claim of $1,437.50 for damages for the breach by P. A. Brown, by means of his adjudication as a bankrupt, of a lease which he had taken from the appellant. On May 1, 1902, Brown leased of Watson a storeroom in a building about to be erected for a term of 10 years from October 1, 1902, and agreed to pay a monthly rental of $60 in advance during the term. He paid this rent to March 1, 1903. On February 6, 1903, a petition in bankruptcy was filed against him, and receivers were appointed, who took possession of his personal property in the rented premises. On April 2, 1903, Watson and Brown made a written contract which recited that it had become impossible for Brown to comply with the terms of his lease and that he was obligated to his lessor thereby in the sum of $6,900, and in which he acknowledged himself to be indebted to Watson in the sum of $2,300, and surrendered to him all his rights and privileges under the lease, while Watson by the same contract released Brown from any further obligation to pay rent for the leased premises. Afterwards Watson filed his proof of claim for $2,300 against the estate of Brown, which was founded on the lease and on the contract of March 2, 1903. He also filed a petition for the liquidation of this claim, in which he alleged that he had incurred extraordinary expense in the construction of the building in expectation of the rental, that the rental value of the premises was only $40 per month, and that he had sustained damages to the amount of $20 per month from March 1, 1902, until the end of the term of the lease, which amounted in the aggregate to $2,300. The referee found the rental value of the premises to be $47.50 per month, and allowed the claim of Watson for $1,437.50 for damages for a breach of the lease. Upon a petition for review, the District Court reversed this decision, and directed the referee to disallow the claim.
David Ritchie, for appellant.
H. C. Tobey, W. S. McClintock, I. J. Ringolsky, and Thomas L. Bond, for appellee.
Before SANBORN and VAN DEVANTER, Circuit Judges, and PHILIPS, District Judge.
SANBORN Circuit Judge, after stating the case as above, .
The contention of counsel for the appellant is that the claim of the lessor is not for rents which were payable after the petition for adjudication in bankruptcy was filed, but for damages for a breach of the contract in the lease to pay these rents; that the adjudication in bankruptcy dissolves all contractual relations of the bankrupt at the date of the filing of the petition in bankruptcy (In re Jefferson (D.C.) 93 F. 948; Bray v. Cobb (D.C.) 100 F. 270; In re Hays, Foster & Ward Co. (D.C.) 117 F. 879); that the dissolution of a contractual relation is a breach of the contract; and that for the breach of the contract to pay the rents accruing subsequent to the filing of the petition a claim for damages may be allowed in bankruptcy (In re Swift, 112 F. 315, 50 C.C.A. 264; In re Stern, 116 F. 604, 54 C.C.A. 60; In re Frederick L. Grant Shoe Co. (C.C.A.) 130 F. 881).
It is, however, the nature of the claim, and not the name which is applied to it, that conditions its provability in bankruptcy. Watson's claim was for $20 of the $60 per month which the lessee had agreed to pay him for rent of the leased premises for 115 months after the petition in bankruptcy was filed. In reality, his claim was for the entire $60 per month, but he had received by the surrender to him of the premises by Brown under their contract of March 2, 1903, and had credited to him, the rental value of the premises, $40 per month, so that the rent which he claimed remained unpaid was but $20 for each month.
At the close of the hearing the referee found that the rental value of the premises was $47.50 per month, and that the only rent remaining unpaid was $12.50 per month for the 115 months subsequent to February, 1903, and this amounted to $1,437.50, which he allowed to the appellant under the name of damages for the breach of the contract in the lease.
These facts demonstrate the proposition that, while counsel and the referee call this allowance damages for a breach of the lease, it is in fact nothing but that part of the monthly rent which was to accrue after the petition was filed, which the referee found that the lessee had not paid by his surrender of the leased premises to the lessor in March, 1903. But rent which the bankrupt has agreed to pay, and which is to accrue subsequent to the filing of the petition in bankruptcy, does not constitute a provable claim under the bankruptcy law of 1898 (Act July 1, 1898, c. 541, 30 Stat. 562, 563, 3 U.S.Comp.St. 1901, p. 3447), because it is not 'a fixed liability * * * absolutely owing at the time of the filing of the petition against him' (section 63a), and because it is not an existing demand, but both the existence and the amount of the possible future demand are contingent upon unforeseen events, such as default of the lessee, re-entry by the lessor, and assumption by the trustee, so that it is neither an unliquidated nor a liquidated provable claim (section 63b). City of Walla Walla v. Walla Walla Water Co., 172 U.S. 1, 19, 19 Sup.Ct. 77, 43 L.Ed. 341; In re Ells (D.C.) 98 F. 967, 969, 970; In re Mahler (D.C.) 105 F. 428, 430; Fidelity Safe Deposit & Trust Co. v. Armstrong (C.C.) 35 F. 567, 569; Matter of Hevenor, 144 N.Y. 271, 274, 39 N.E. 393; In re Commercial Bulletin Co., Fed. Cas. No. 3,060; In re Collignon, 4 Am.Bankr.Rep. 250; Atkins v. Wilcox, 105 F. 595, 44 C.C.A. 626, 53 L.R.A. 118; In re Curtis (La.) 9 Am.Bankr.Rep. 286, 292, 295, 33 So. 125; In re Heinsfurter (D.C.) 97 F. 198; Beers v. Hanlin (D.C.) 99 F. 695; Lamson Consol. Store Service Co. v. Bowland, 114 F. 639, 642, 52 C.C.A. 335, 338; Wilson v. Pennsylvania Trust Co., 114 F. 742, 52 C.C.A. 374. In Deane v. Caldwell, 127 Mass. 242, 244, Chief Justice Gray (subsequently Mr. Justice Gray of the Supreme Court) announced the true rule upon this subject in these words:
'Before the day at which rent is covenanted to be paid- it is in no sense a debt-- it is neither debitum nor solvendum-- for, if the lessee is evicted before that day, it never becomes payable. Bordman v. Osborn, 23 Pick. 295. It is not within the provision of a bankrupt act allowing 'uncertain or contingent demands' to be proved against the estate of a bankrupt, because it is not an existing demand, the cause of action on which depends upon a contingency, but the very existence of the demand depends upon a contingency.' The lease before us admirably illustrates the principle. It provides that the lessee shall pay $60 per month for the term of 10 years 'for the use and benefit accruing to him from the use and occupancy' of the premises; that, if he pays these sums as they fall due, and performs all...
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