S & W HOLDING COMPANY v. Kuriansky

• Decision Date: 21 May 1963
• Docket Number: Docket 27918.,No. 268,268
• Citation: 317 F.2d 666
• Parties: S & W HOLDING COMPANY, Appellant, v. Julius KURIANSKY, Trustee, Appellee. In the Matter of W. L. BOFFA, INC., Bankrupt.
• Court: U.S. Court of Appeals — Second Circuit

317 F.2d 666 (1963)

S & W HOLDING COMPANY, Appellant, v. Julius KURIANSKY, Trustee, Appellee. In the Matter of W. L. BOFFA, INC., Bankrupt.

No. 268, Docket 27918.

United States Court of Appeals Second Circuit.

Argued March 13, 1963.

Decided May 21, 1963.

Abraham D. Slavitt and Harry M. Lessin of Slavitt & Connery, Norwalk, Conn., for appellant.

Before MOORE, FRIENDLY and SMITH, Circuit Judges.

J. JOSEPH SMITH, Circuit Judge.

The bankrupt, W. L. Boffa, Inc., occupied premises on the date of bankruptcy leased to it by S & W Holding Company. The lease provided for a ten year term from the effective date, February 1, 1955, at a rental of $650 per month. A deposit of $650 had also been required of the bankrupt "as security for the full and faithful performance and observance by the Lessee of all the terms, covenants and conditions herein contained, and to be returned to the Lessee within thirty (30) days after the expiration of the term herein, provided that the Lessee has fully performed and observed all of the said terms, covenants and conditions on its part to be performed and observed during the term of this lease." It was also "expressly agreed that the sum so deposited is not an advance payment of or on account of the rent herein reserved or any part or installment thereof, or a measure of the Lessor's damages * * *" Lease p. 7. The bankrupt filed a voluntary petition on February 9, 1960. At that time, the rent for February, due on February 1, had not been paid, although there was no other rent in arrears. It is conceded by all that the rent due for the portion of this month, $194.94, is properly chargeable against the security deposit which S & W now holds.

The trustee remained in possession of the leased premises for a period of three and two-thirds months during the administration of the estate and before surrendering possession to the lessor. At a hearing to determine the reasonable value of this use and occupancy, the only evidence presented was the testimony of the lessor's expert witness, who stated that the value was approximately $1,000 per month and S & W had in fact leased the property at this figure to another tenant in December, 1960. Nonetheless, the Referee determined the value to be $400 per month, a total of $1,466. He applied the remainder of the deposit, $455.06, to this amount, leaving as allowance for use and occupancy $1,010.94, payable as administration expense. The lessor objects to the amount of the allowance and contends additionally that it was error to apply the balance of the deposit to satisfaction of the claim for use and occupancy, arguing that it is entitled to keep this deposit under the lease. S & W also claimed damages for breach of the lease of $39,000 — the entire amount of the future rent due — less reasonable rental for the balance of the term as might be determined, but withdrew this claim at the final hearing. No error is asserted concerning its disallowance.

There is merit in the objection to the allowance for use and occupancy. We can sympathize with the reluctance of the Referee to distribute the assets of the estate for administration expenses, when the dividend to general creditors amounted to only one and one-half cents on the dollar. Nonetheless, the general creditors are not to be advantaged at the expense of the lessor.

"The quantum of allowance for use and occupation by the receiver or trustee is measured by `the reasonable value of such use and enjoyment.\' Ordinarily this will be the contractual rental, pro rata temporis, unless it is shown that the contractual rental itself is clearly unreasonable. There is a presumption to the effect that the contractually reserved rent is reasonable." 3 Collier, Bankruptcy 1516 (14th ed. 1961).

This rule has long been followed in this circuit and others. Wiemeyer v. Koch, 152 F.2d 230 (8 Cir. 1945); Oscar Heineman Corp. v. Nat Levy & Co., 6 F.2d 970, 43 A.L.R. 727 (2 Cir. 1925); In re Sherwoods, Inc., 210 F. 754 (2 Cir. 1913); In re North Atlantic & Gulf S.S. Co., 166 F.Supp. 29 (S.D.N.Y. 1958), aff'd sub nom. 120 Wall Associates v. Schilling, 266 F.2d 548 (2 Cir. 1959). S & W attempted to show that the contractual rent was unreasonably low, and there was absolutely no evidence to show that the rent was a reasonable figure, or that it was, on the contrary, too high. Thus, there was no warrant for setting the allowance for use and occupancy below the rental figure, and it might justifiably be higher. We therefore reverse and remand for a determination of what amount — either the contractual rental or some higher figure — will constitute a reasonable allowance.

The security deposit has no legal relation to the allowance for use and occupancy. This allowance is an expense of administration of the estate, given priority by § 64(a) (1) of the Bankruptcy Act, 11 U.S.C. § 104(a) (1). It does not arise out of the lease and has no relation to it. Of course, where the lessor has no other claim against the debtor, it may often be simpler to allow him to apply the deposit against his claim for use and occupancy, with the trustee paying any balance of use and occupancy or recovering any...