Cooper v. Casco Mercantile Trust Co.

• Decision Date: 08 September 1936
• Citation: 186 A. 885
• Parties: COOPER, Bank Com'r v. CASCO MERCANTILE TRUST CO. Petition of PREBLE CORPORATION'S TRUSTEES.
• Court: Maine Supreme Court

186 A. 885

COOPER, Bank Com'r

v. CASCO MERCANTILE TRUST CO.Petition of PREBLE CORPORATION'S TRUSTEES.

Supreme Judicial Court of Maine.

Sept. 8, 1936.

Report from Supreme Judicial Court, Cumberland County, in Equity.

Proceedings by Thomas A. Cooper, State Bank Commissioner, against the Casco Mercantile Trust Company, wherein a conservator was appointed for the Casco Mercantile Trust Company, and wherein the trustees of the Preble Corporation petitioned to establish a claim for damages sustained by it, due to breach of rental covenant with the Casco Mercantile Trust Company. On report.

Decree in accordance with opinion.

Argued before DUNN, C. J, and STURGIS, BARNES, THAXTER, HUDSON, and MANSER, JJ.

Ralph O. Brewster, of Portland, and Edgar M. Simpson, of Bangor, for plaintiff.

Leon V. Walker and Richard K. Gould, both of Portland, for defendant.

MANSER, Justice.

On report. The Preble Corporation, as petitioner in these proceedings, seeks to establish a claim for damages sustained by it, alleged to be by reason of breach of rental covenant under its lease of banking rooms in the Chapman Building in Portland. The petitioner was the lessor and the lease was granted originally to the Chapman National Bank and later assumed by the Casco Mercantile Trust Company. Some other questions are raised by the pleadings, not dependent for determination upon the principal issue involved, and under the final stipulation of the parties and the order of court for report of the case, these become nonessential of extended consideration.

The lease, and a separate written agreement, incorporated by reference, together provided for a term of thirty years from July 1, 1924. The rent reserved was $21,500 per annum for the first five years, $26,500 for the second five years, $31,500 for the third period of five years, and for the remaining fifteen years an amount to be determined by mutual agreement or arbitration.

The Casco Mercantile Trust Company, hereinafter for convenience referred to as the Bank, took possession on October 1, 1930, and assumed the obligations of the original lessee. It paid the stipulated rental to March 31, 1933, and occupied the premises until March 18, 1933. On the latter date, by order of the Supreme Judicial Court, a temporary conservator for the Bank was appointed, who on April 14, 1933, became permanent conservator by further order. The appointment was made under authority of the Emergency Banking Act, Pub.Laws 1933, c. 93, and the conservator had all the rights, powers, and privileges of receivers of banks and trust companies. Section 4 of the act. The conservator upon his appointment occupied the premises, but on March 31, 1933, notified the petitioner that such occupancy was not to be considered as an affirmance or disaffirmance of the terms of the lease, and on June 30, 1933, further informed the petitioner that, as it was then apparent the lease would not be an asset for the creditors of the Bank, he intended to vacate. On July 31, 1933, the conservator, acting under an order of court, did so vacate the premises and abandoned the lease. The petitioner relet the premises, and from August 1, 1933, they have been occupied, for four months by a committee engaged in organizing a new bank and from December 1, 1933, by the bank so organized. A lease was given to the new bank for two years with option of renewal for three years, and the rental provided was at a greatly reduced rate.

The petitioner, by letter of July 31, 1933, acknowledged notice of abandonment by the conservator and agreed that he should not be liable for further use and occupancy, but such acknowledgment and agreement were stated to be without prejudice to the claim for damages against the Bank for breach of the lease.

The brief for the petitioner states its contention thus: The appointment of a conservator to wind up the Bank and the subsequent abandonment of the lease and vacation of the premises by the conservator under authority of the court is a breach of the executory contract of the Bank, and the petitioner is entitled to prove its damages for breach of the rent covenant, measured by the difference between the rental value of the premises for the remainder of the term and the present worth of the rent reserved in the lease.

The precise question has not heretofore been considered by our court, but numerous cases involving similar situations have been adjudicated in both state and federal courts, and there is a wealth of judicial reasoning upon the subject. A review of the opinions in these cases makes it seem advisable to point out certain distinctions in factual conditions arising therein, as results apparently conflicting may thus often be reconciled.

At the outset it is to be noted that some attention is given in the decided cases to the effect of receivership of the lessee, and as the conservator here is endowed with the rights and duties of a receiver, the terminology is applicable.

The lease was in force when the receiver was appointed on March 18, 1933. There had been no default in payment of rent. It had been paid in advance to the end of the current month.

There is no provision in the indenture which provided for its termination in event of bankruptcy or receivership, either automatically or at the election of the lessor. Neither was there any contract or covenant that in such event or on such abandonment by the receiver the lease should be terminated and the lessor be entitled to a penalty, or damages, either liquidated or based upon a rule of computation therein adopted.

The only provision in the lease relating to cancellation was the usual and ordinary one that the lessor might enter "to expel the Lessee if it shall 'fail to pay the rent aforesaid, whether said rent be demanded or not, if it shall make or suffer any strip or waste thereof, or shall fail to quit and surrender the premises to the Lessor at the end of said term, in manner aforesaid, or shall violate any of the covenants of this lease by said Lessee to be performed."

In the absence of a contract or covenant provision in the lease, the determination is affected in some jurisdictions by consideration of a statute in force in the particular state, which, however, is without influence in the present case, as there is no legislative enactment in this state which is operative upon the situation.

Again, cases of this character arising in bankruptcy have sometimes been considered and decided by federal courts with direct reference to the provability of such claims in view of their contingent character. These cases, with the effect of changes in the Bankruptcy Act (11 U.S. C.A.), are reviewed at length in the recent case of Manhattan Properties, Inc. v. Irving Trust Co, 291 U.S. 320, 54 S.Ct. 385, 78 L.Ed. 824, in an opinion by Justice Roberts.

With this preliminary presentation we find that in the consideration of the issues as presented by the petitioner it must be kept in mind that the lease was in full force and effect when the conservator was appointed; that officer seasonably and by order of court declined to assume it as an obligation of the estate under his charge; the lease contained no provision for cancellation, and no contract or covenant for penalty or damages in event of receivership; no statute creating such liability exists in this state; and the issue is not affected by any Bankruptcy Act relating to provability of the claim.

Thus narrowed, the issue is presented of whether under the principles of the common law there is an allowable claim.

The facts show that a substantial actual and expectant loss has resulted to the petitioner. Was there a breach of the covenant of the lease which creates a claim? If so, do damages flow as a matter of law from such breach? Is it such loss as entitles the petitioner to prove its claim as an unsecured creditor against the assets of the lessee in the hands of the conservator?

There is no doubt that a covenant to pay rent for leased premises constitutes an executory contract. It is to pay sums of money as rent accruing at stated times in the future.

Ordinarily a breach of an executory contract gives rise to an action for anticipated damages. This doctrine is applied uniformly to contracts concerning personalty. Many cases have upheld the principle. They are cited by the petitioner as supporting and controlling the contention in the instant case.

Illustrative decisions in Maine are: Sibley v. Rider, 54 Me. 463; Fales v. Hemenway, 64 Me. 373; Crooker v. Holmes, 65 Me. 195, 20 Am.Rep. 687; Sutherland v. Wyer, 67 Me. 64; Dixon v. Fridette, 81 Me. 122, 16 A. 412; Alie v. Nadeau, 93 Me. 282, 44 A. 891, 74 Am.St.Rep. 346; Brackett v. Knowlton, 109 Me. 43, 82 A. 436; Eugley v. Sproul, 115 Me. 463, 99 A. 443.

And so in Massachusetts: Amos v. Oakley, 131 Mass. 413; Parker v. Russell, 133 Mass. 74; Foternick v. Watson, 184 Mass. 187, 68 N.E. 215. See, also, Central Trust Co. v. Chicago Auditorium Ass'n, 240 U.S. 581, 36 S.Ct. 412, 60 L.Ed. 811, L.R.A.1917B, 580.

None of these cases were concerned with the breach of a covenant to pay rent, and this distinction is important. It is clearly and aptly stated in an article in 46 Harvard Law Review, 1117:

"For reasons grounded in the history of our land law, it is necessary to distinguish between the affirmative rights of a contract creditor and those of a lessor on rejection by a receiver. From an early date a covenant to pay rent has been treated differently from contracts generally. In the early common law, a rent covenant did not give rise to a present obligation (even contingent) to render performance in the future, as did, for example, a promise to pay in instalments for goods purchased. No obligation was held to exist until the rent day. Furthermore, if the tenant failed to pay rent when it accrued, his failure did not accelerate the rent in the absence of a provision in the lease to that effect. If a right of entry was reserved and the lessor...