English v. Richardson

• Decision Date: 04 April 1922
• Citation: 117 A. 287
• Parties: ENGLISH v. RICHARDSON.
• Court: New Hampshire Supreme Court

117 A. 287

ENGLISH

v. RICHARDSON.

Supreme Court of New Hampshire. Grafton.

April 4, 1922.

Transferred from Superior Court, Grafton County; Allen, Judge.

Action by f. h. English, trustee in bankruptcy, of Graham & Plaisted, against Israel C. Richardson. Verdict for plaintiff, and cause transferred. Case returned for further hearing.

Assumpsit for money had and received. Facts found by a referee.

Defendant leased the Northern Hotel at Littleton to the bankrupts by a written lease dated May 23, 1916, for the term of two' years from its date, at an annual rental of $1,800, payable $150 per month on the 23d day of each month following. At the time of the execution of the lease the lessees advanced to the lessor $500, which, with its accumulations, was, by the terms of the lease, to be applied on the second year's rent. The lessees took possession and paid rent in full up to September 23, 1917, in addition to the doposit of $500.

The lessees were adjudged bankrupt on October 11, 1917, and the trustee was appointed November 12. On November 6 the defendant entered into an agreement with the bankrupts as follows:

"Whereas, off the 23d day of May, 1916, Graham & Plaisted, as partners, took a lease of I. C. Richardson of the property in Littleton. New Hampshire, known as the Northern Hotel, for a term of two years, with an option of five years additional. Said lease provided for a deposit of five hundred dollars ($500.00) by said Graham & Plaisted in said Richardson's hands, applying on the last year's rent. Said Graham & Plaisted, having gone into voluntary bankruptcy, have surrendered all their rights under and by virtue of said lease. It is agreed that in event of the reoccupation of the premises by said Richardson, that none of his rights shall be forfeited or prejudiced thereby, to the retention of said five hundred dollars ($500) in the bankruptcy courts, or any branch hereof, shall so rule. Dated at said Littleton, N. H., this 6th day of November, 1917. I. C. Richardson. Said Graham & Plaisted to be bound so far as they legally may be. Edward J. Cummings, Atty. for Graham & Plaisted."

On the date of this agreement the defendant took and has since held possession of the hotel. The trustee was not a party to the agreement, and had no knowledge of it until his appointment. He made no claim to the lease or any rights under it except to recover the $500 and interest. The defendant filed no set-off or counterclaim for damages for the bankrupts' breach of the lease, and filed no claim against their estate in the bankruptcy court for such damages. The referee found that the payment of $500 "was paid as rent, paid in advance. Or, in other words, Graham & Plaisted had credit with Richardson to the amount of $500 plus interest thereon at 4 per cent. from May 23, 1916, to be applied as rent."

The defendant filed a motion for judgment upon the report of the referee. Subject to his exception, the court denied defendant's motion and on the referee's report gave a verdict for the plaintiff for $309.00, being $500, the amount of the deposit and interest, less the rent at the rate of $150 a month from September 23, to November 6.

Harry M. Morse, of Littleton, for plaintiff.

Harry L. Heald, of Littleton, for defendant.

SNOW, J. The defendant contends that the deposit of $500 was not property vesting in the trustee under the terms of the bankruptcy act, and that it therefore passed under the lease and the agreement of November 6; the plaintiff maintains that the defendant took no interest in the fund beyond the accrued rentals, since future rentals do not constitute a provable claim under the act Neither position correctly states the rights of the parties.

The deposit was made with the defendant pursuant to a clause in the lease which recited that "said Graham & Plaisted are this day paying to said Richardson five hundred dollars ($500) to be applied on last year's rent of the Northern Hotel, said Richardson allowing them savings bank interest on the same." It is the fair interpretation of this language that the money was deposited as security for the payment of the second or last year's rental. The fact that the defendant does not appear to have been engaged in the savings bank business, the financial condition of the lessees, as evidenced by their failure so soon to meet their obligation, and the absence of evidence of any other purpose for the deposit support this conclusion. The finding of the referee to the effect that the money was paid as rent in advance, and constituted a credit with the lessor, applicable to rent, is not in conflict with this interpretation. It follows, then, that on October 11, 1917, the date of the adjudication of bankruptcy, the debtors were in possession of the Northern Hotel under an unexpired written lease, by the terms of which the accrued rental from September 23, 1917, and the future rental until the expiration of the lease on May 23, 1918, were secured by a deposit in the hands of the landlord which had matured against bankruptcy proceedings.

In the absence of a provision in the lease to the contrary, a trustee in bankruptcy may, at his option, assume the lease of a bankrupt tenant, but in that case he takes the leasehold in the same plight as the debtor held it, subject not only to the burdens which rested upon the debtor, but also to all the valid claims, liens, and equities in favor of third parties. In re Barnhardt Coal & L. Co. (D. C.) 265 Fed. 385-387; In re Scruggs (D. C.) 205 Fed. 673, 675; Atchison, Topeka & Santa F6 Railroad Co. v. Hurley (C. C.) 153 Fed. 503, 509, 510, 82 C. C. A. 453, 53 L. Ed. 729, 733, 734; Thompson v. Fairbanks, 196 U. S. 516, 25 Sup. Ct. 306, 49 L. Ed. 577, 586. In such event, the debtor is relieved from liability for future rent. In re Scruggs, supra (D. C.) 205 Fed. 677; Rosenblum v. Uber, 256 Fed. 584, 588, 589, 167 C. C. A. 614; In re Ells (D. C.) 98 Fed. 967, 968; Watson v. Merrill, 136 Fed. 359, 363, 69 C. C. A. 185, 69 L. R. A. 719. If, on the other hand, the trustee renounces the lease, the relations of the landlord and tenant subsist, and the batter's discharge in bankruptcy does not release him from his obligation to pay rent. Watson v. Merrill, supra, 136 Fed. 363, 69 C. C. A. 185, 69 L. R. A. 719; Rosenblum v. Uber, supra, 256 Fed. 589, 167 C. C. A. 614; In re Scruggs, supra (D. C.) 205 Fed. 677; In re Ells, supra (D. C.) 98 Fed. 968; Dunlap v. Goodman Menzer Lighting Co. (Pa. Com. PI.) 31 Am. Bankr. Rep. 504; In re Sapinsky & Son (D. C.) 206 Fed. 523, 524; Id., 219 Fed. 57, 134 C. C. A. 595; Shapiro v. Thompson, 160 Ala. 363, 49 South. 391; In re Roth & Appel, 181 Fed. 667, 670, 104 C. C. A. 649, 31 L. R. A. (N. S.) 270; Colman v. Withoft, 195 Fed. 250, 251, 115 C. C. A. 222.

It follows that the debtors and defendant on November 6, the date of the agreement, had subsisting rights and obligations under the lease with which it was their privilege to deal (Hubbard v. Gould, 74 N. H. 25, 29, 64 Atl. 688; Ramsey v. Fellows, 58 N. H. 607, 609; Towle v. Rowe, 58 N. H. 394; Lane v. Moore, 59 N. H. 80), contingent, however, upon the action of the trustee, who had a reasonable time after his appointment on November 12 in which to exercise his option. In re Rubel (D. C.) 166 Fed. 131, 133; Fleming v. Courtenay, 98 Me. 401, 57 A. 592, 595, 99 Am. St. Rep. 414; United States Trust Co. v. Wabash Western Railway, 150 U. S. 287, 14 Sup. Ct. 86, 37 L. Ed. 1085, 1088; In re Scruggs, supra (D. C.) 205 Fed. 677; Rosenblum v. Uber, supra, 256 Fed. 588, 167 C. C. A. 614. But these rights existed only to the extent of the property ultimately abandoned by the trustee. The trustee subsequently elected to abandon the interest of the debtor tenants in the leasehold, but not their interest in the security. If, then, the debtors had any interest in the deposit which might pass to the trustee, irrespective of the leasehold, it was not subject to the agreement of November 6, but may be recovered in this action.

The defendant contends that the trustee must look to the Bankruptcy Act for his title, and that the terms of section 70a of that act (U. S. Comp. St. § 9654), specifying estate of the debtor which vests in the trustee are not broad enough to include the deposit. The properties enumerated in this section include "(5) property which prior to the filing of the petition, he (the debtor) could by any means have transferred." It is not perceived why the debtors in the instant case could not, any time before bankruptcy, have transferred whatever equity they had in the deposit over and above the obligation secured by it. But, if there were any doubt upon this question, it is sufficient to say that the enumeration of property in section 70a is not exclusive of other assets of the debtors not therein specifically defined. Section 70b provides that "all real and personal property belonging to bankrupt estates shall be appraised," etc. This and other provisions of the act show that the act was designed to cover all assets and estate of a bankrupt that can in any manner be made legally available for the payment of his debts. In re Baudouine (D. C.) 96 Fed. 536, 539, 540; Id., 101 Fed. 574, 41 C. C. A. 318; In re Gailey, 127 Fed. 538, 540, 62 C. C. A. 336. In specifying the properties of debtors which vest in the trustee, the bankruptcy act of 1898 deals in particulars where in the act of 1867 (14 Stat. 517) general words were used. It is not thought, however, that they differ in meaning. Collier on Bankruptcy (10th Ed.) 994. The statute is broad enough to include the right to redeem the property of a debtor hypothecated to secure future rentals. Matter of Sherwoods, Inc., 31 Am. Bankr. Rep. 769, 779, 210 Fed. 754, 127 C. C. A. 304, Ann. Cas. 1916A, 940; Sanford v. Zimmern, 76 Misc. Rep. 434, 134 N. Y. Supp. 1116.

But it is the contention of the plaintiff trustee that the defendant landlord has no interest in the deposit, because future rentals, by reason of their...