Courtney v. Fidelity Trust Co.

• Decision Date: 18 December 1914
• Docket Number: 2520.
• Citation: 219 F. 57
• Parties: COURTNEY v. FIDELITY TRUST CO. In re J. SAPINSKY & SON.
• Court: U.S. Court of Appeals — Sixth Circuit

219 F. 57

COURTNEY v. FIDELITY TRUST CO.

In re J. SAPINSKY & SON.

No. 2520.

United States Court of Appeals, Sixth Circuit.

December 18, 1914

[Copyrighted Material Omitted]

D. A Sachs, Jr., of Eminence, Ky., for appellant.

A. G Moseley, of St. Louis, Mo., and C. C. Smith, of Louisville, Ky., for appellee.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

WARRINGTON Circuit Judge.

This is an appeal from a decree of the court below reversing one order, and in part affirming and in part reversing a second order, theretofore made by a referee in bankruptcy. The first order canceled a lease of the Fidelity Trust Company (as executor and trustee under the will of John D. Taggart) and certain individuals to the bankrupt, Julius Sapinsky, but the lease seems to have been in fact taken over and held by the bankrupt firm, J Sapinsky & Son; and the second disallowed in whole a claim of the lessors against the estate of the bankrupts for rent to accrue during the remainder of the term of the lease, and for a lien upon the personalty of the bankrupts, located on the leased premises, to secure payment of the rent ($15,000) to accrue under the lease during the year following the date of filing the petition in bankruptcy, viz., April 8, 1912.

The court reversed the first order, and affirmed the second, except as to the lien sought, but allowed the lien only for $13,250, which was the balance of rent that was to accrue in the current year, after crediting rent theretofore paid by the trustee to June 1, 1913, and directed the trustee to pay the sum named to the lessors out of the funds of the bankrupts' estate. The appeal is prosecuted by the trustee in bankruptcy, and was prayed for and allowed on the date of the decree; and since the decree rejects a claim, and allows a lien covering a portion of the rent, we think the case is properly here.

The lease, bearing date February 24, 1912, was for a term of 10 years from November 1, 1912, of certain improved real estate situated on Fourth street in Louisville, Ky., and the rent reserved was $12,000 a year, but for reasons not important here was subsequently increased to $15,000, payable in installments of $1,250 at the end of each month. The petition in bankruptcy was filed against J. Sapinsky & Son, a partnership composed of Jacob Sapinsky and Julius Sapinsky, and the firm and each of the members were adjudicated bankrupts, on April 8, 1913. The firm had been engaged in the clothing business, and, under orders of sale entered by the referee, the goods and effects of the firm within the leased premises were sold, and the purchaser was given until May 31st to remove them. May 30th, it appearing that no bid could be obtained for the leasehold interest, a further order was made by the referee, canceling the lease as of June 1st, and directing the trustee prior to that date to surrender the lease and the realty covered by it to the lessors.

The claim first filed by the lessors was in the usual form, stating, in material part:

That the bankrupt partnership was 'justly and truly indebted' to the deponents 'for a sum of money representing the rents to become due according to the terms' of the lease; 'that the total amount of said indebtedness is one hundred and forty-one thousand two hundred and fifty ($141,250) dollars, representing rent that is to accrue between June 1, 1913, and November 1, 1922, at a monthly rental of twelve hundred and fifty ($1,250) dollars a month; * * * that the only security held by deponents is a landlord's lien on the property of the said bankrupt that was on the premises let in said lease, said lien being given by the statute law of the state of Kentucky, which statute gives a lien for rent to accrue or to become due for one year, thereby giving these deponents a lien for fifteen thousand ($15,000) dollars; that these deponents are entitled to a priority of payment out of the assets of this bankrupt in the hands of the trustee, to the extent of fifteen thousand ($15,000) dollars, by virtue of said lien; that they are entitled to a claim for the balance.'

Subsequently, in July, 1913, the lessors filed an amended proof of claim, with a stipulation showing that at the time of the adjudication there was on the leased premises personal property belonging to the bankrupts of 'far greater value' than $15,000; that the trustee had taken possession of such personalty and sold it for more than the sum last stated; and repeating the claim that deponents were 'entitled to a priority of payment out of the assets of this bankrupt in the hands of the trustee to the extent of fifteen thousand ($15,000) dollars by virtue of said lien.'

The orders of the referee were based on the theory that the adjudication in bankruptcy terminated the relation of landlord and tenant, following the rule laid down in Re Jefferson (D.C.) 93 F. 948, and Re Hays, Foster & Ward Co. (D.C.) 117 F. 879. Judge Evans, having rendered the decisions in those cases, explained and modified them in his opinion in the present case. In reversing the order canceling the lease, and affirming the other order so far as it rejected the claim for rent, the court followed the decisions in Re Roth & Appel, 181 F. 667, 104 C.C.A. 649, 31 L.R.A. (N.S.) 270 (C.C.A. 2d Cir.), and Watson v. Merrill, 136 F. 359, 69 C.C.A. 185, 69 L.R.A. 719 (C.C.A. 8th Cir.). The lien claimed and allowed was given by statute of Kentucky, which in terms provides that a landlord shall have a 'superior lien' on the 'personal property of the tenant, or undertenant, owned by him, after possession is taken under the lease. ' The lien extends to the personal property located on the leased premises, but 'shall not be for more than one year's rent due or to become due, nor for any rent which has been due for more than one hundred and twenty days. ' The particular sections of the statute relied on are part of the chapter entitled 'Rent-- How Recovered' (Carroll Ky. Stat., Ed. 1909), and appear in the margin. ^[1] It is conceded that at the time the petition in bankruptcy was filed there was personalty of the bankrupts, located on the leased premises, worth much more than the rent to accrue within the ensuing year, and that this has been converted into money which is in the hands of the trustee. In Meyer Bros.' Assignee v. Gaertner, 106 Ky. 481, 489, 50 S.W. 971 (45 L.R.A. 513), the Court of Appeals of Kentucky, having under consideration a question of future rents and sections 2305, 2307, 2314, 2316, and 2317, concerning the statutory lien mentioned, in connection with another statute of that state modifying the rule of the common law touching the construction of statutes, said:

'Construing the sections above quoted under this rule, with a view to promote their object, we think it clear that they give the landlord a superior lien, for not exceeding one year's rent, due or to become due, on all the property of the tenant, subtenant, or assignee on the premises, subject to execution. * * * '

And at the time the present bankruptcy law was enacted, it had been settled by the same court that the lien was enforceable in the courts of Kentucky having jurisdiction of insolvency proceedings under the state laws, and also that no steps need be taken to perfect the lien. Loth & Haas v. Carty, 85 Ky. 591, 595, 4 S.W. 314. True, this latter case had reference to past due rent; but it is not perceived why the rule of informality touching enforcement of the lien should not apply to rent to accrue in the future. See, also, Slack & Perkins v. Koon & Perry, 39 S.W. 26, 18 Ky.Law Rep. 1103, 1104. Our attention has not been called to any decision in Kentucky which purports to change or modify these decisions.

We next come to the question whether this statutory lien is entitled to recognition in a bankruptcy court. Section 67d of the Bankruptcy Act provides:

'Liens given or accepted in good faith and not in contemplation of or in fraud upon this act, and for a present consideration, which have been recorded according to law, if record thereof was necessary in order to impart notice, shall (to the extent of such present consideration only), not be affected by this act.'

Applying the provisions of this section to the case in hand, it hardly need by said that a lien created by statute must be treated as having been given in good faith and independently of the Bankruptcy Act; indeed, it is not claimed that this lien was not given and accepted in good faith, nor that it was given and accepted in contemplation of or in fraud of the Bankruptcy Act. Whether the lease was recorded, or not, does not appear in the evidence; it is to be presumed that, if counsel on either side regarded the record of the lease as necessary under the recording act of Kentucky (Carroll Ky. Stat. (Ed. 1909) Sec. 494), to validate the statutory lien, the fact of whether the lease was recorded or not would have been shown; no assignment of error upon the subject is presented; and we shall, at least for the purposes of this decision, assume that the lease was recorded. If anything more than the lease itself were needed in the instant case to show that a present consideration was given and accepted in respect of the lien so created, it might be found in the fact that the lessors made costly improvements upon the leased building for the use and benefit of the bankrupts.

It would seem to follow that section 67d, standing alone, is broad enough fairly to embrace a statutory lien like the one under consideration. It is not questioned that this would be true as respects rent accrued and unpaid at the time of filing a petition in bankruptcy; but the lien is strenuously resisted as to rent accruing thereafter. Apart from this contention, which is considered later, the very safeguards...