In re Jay & Dee Store Co.

• Decision Date: 19 March 1941
• Docket Number: No. 21179.,21179.
• Parties: In re JAY & DEE STORE CO.
• Court: U.S. District Court — Western District of Pennsylvania

37 F. Supp. 989

In re JAY & DEE STORE CO.

No. 21179.

District Court, E. D. Pennsylvania.

March 19, 1941.

H. Eugene Gardner, of Philadelphia, Pa., for landlord.

Wexler & Weisman, of Philadelphia, Pa., for trustee.

Before KIRKPATRICK, GEORGE A. WELSH, KALODNER, BARD, and GANEY, District Judges.

WELSH, District Judge.

This matter is before the Court on a certificate for review of the referee's order denying priority of a landlord's claim. On December 27, 1939, the landlord distrained upon the goods of the bankrupt at 24 South 15th Street, Philadelphia, Pennsylvania. The premises had been leased to Jacob and David Finkelman but were occupied by the bankrupt corporation, of which the lessees were officers. On January 9, 1940, one day before the constable's sale under the distress was scheduled, a bankruptcy petition was filed as a result of which an order restraining creditors and appointing a receiver was entered. The receiver took possession of the bankrupt's goods and sold them at public auction for the total price of $918.90. The landlord now claims that sum, less only the auctioneer's charges, by virtue of the statutory priority granted under the Pennsylvania Acts of March 21, 1772, 1 Smiths Laws 370, and June 16, 1836, P.L. 755, § 83, 68 P.S.Pa. § 321. The referee, however, held that the landlord is only entitled to priority after payment of administration costs and wages, as limited in the Bankruptcy Act, which exceed the amount available for distribution.

The sections of the Chandler Act, 11 U.S.C.A. §§ 104, sub. a, 107, sub. c, applicable to landlord's claims provide as follows:

(64, sub. a) "The debts to have priority, in advance of the payment of dividends to creditors, and to be paid in full out of the bankrupt estates, and the order of payment, shall be" (1) costs (2) wages (3) creditors' costs (4) taxes (5) debts entitled to priority under federal laws "and rent owing to a landlord who is entitled to priority by applicable State law: Provided, however, that such priority for rent to a landlord shall be restricted to the rent which is legally due and owing for the actual use and occupancy of the premises affected, and which accrued within three months before the date of bankruptcy."

(67, sub. a) "Every lien against the property of a person obtained by * * * legal or equitable process or proceedings within four months before the filing of a petition in bankruptcy * * * shall be deemed null and void (a) if at the time when such lien was obtained such person was insolvent or (b) if such lien was sought and permitted in fraud * * *."

(67, sub. b) "Statutory liens in favor of * * * landlords * * * created or recognized by the laws of the United States or of any State, may be valid against the trustee, even though arising or perfected while the debtor is insolvent and within four months prior to the filing of the petition in bankruptcy."

(67, sub. c) "Where not enforced by sale before the filing of a petition in bankruptcy * * * though valid under subdivision b of this section, statutory liens * * * on personal property not accompanied by possession of such property, and liens whether statutory or not, of distress for rent shall be postponed in payment to the debts specified in clauses (1) and (2) of subdivision a of section 64 104 of this title, and * * such liens for * * * rent shall be restricted in the amount of their payment to the same extent as provided * * * in subdivision a of section 64 104 of the Act this title."

To summarize those sections, we find that 64, sub. a specifies the order of payment, 67, sub. a declares all liens based upon legal process invalid under certain conditions, 67, sub. b expressly excepts landlord's statutory liens from the operation of 67, sub. a, and 67, sub. c imposes new limitations upon the payment of landlord's liens where they have not been enforced by sale prior to the filing of the petition in bankruptcy. Applying them to rent claims, it appears that they are fifth in the order of priority and are limited to the three months prior to bankruptcy. Where such claim constitutes a lien under state law, it is valid against the trustee even though it arose or was perfected within four months prior to bankruptcy, such lien not being founded on any legal or equitable process. Henderson, Trustee, v. Mayer, 225 U.S. 631, 32 S.Ct. 699, 56 L.Ed. 1233. But if a statutory lien has not been enforced by sale or distress prior to bankruptcy, then the lien shall be paid only after payment of costs and wages, and in an amount covering the three months prior to bankruptcy.

Prior to the Chandler Act, a landlord was entitled to priority to the extent of one year's rent over the costs of administration (Shalet v. Klauder, 3 Cir., 34 F.2d 594), and over wage claims. In re Curran's Restaurant & Baking Co., D.C., 11 F.Supp. 8. Since the passage of that Act, several cases have been decided in which like conclusions were reached in construing ...