Hotz v. Federal Reserve Bank of Kansas City, Mo.

• Decision Date: 13 December 1939
• Docket Number: No. 11459.,11459.
• Citation: 108 F.2d 216
• Parties: HOTZ v. FEDERAL RESERVE BANK OF KANSAS CITY, MO.
• Court: U.S. Court of Appeals — Eighth Circuit

108 F.2d 216 (1939)

HOTZ v. FEDERAL RESERVE BANK OF KANSAS CITY, MO.

No. 11459.

Circuit Court of Appeals, Eighth Circuit.

December 13, 1939.

William J. Hotz and Hotz & Hotz, all of Omaha, Neb., for appellant.

William A. Schall and Edward G. Garvey, both of Omaha, Neb., for appellee.

Before THOMAS and VAN VALKENBURGH, Circuit Judges, and DEWEY, District Judge.

VAN VALKENBURGH, Circuit Judge.

Appellant seeks to reverse an order of the district court for the District of Nebraska, in proceedings under section 77B, 11 U.S.C.A. § 207, p. 1057, 48 Stat. 912, allowing in full, and as an expense of administration, a claim for rental of office rooms from appellee. The amount in controversy is $770. The facts were stipulated and can best be stated in the language of the court's findings:

"This cause having been presented to the court upon a stipulation of facts agreed to in writing by and between the parties hereto, the court specially finds the facts to be in accordance with said stipulation, as follows, to-wit:

"1. That on the 23rd day of June, 1930, the Federal Reserve Bank of Kansas City, claimant herein, entered into a written agreement with debtor, Equity Finance & Investment Corporation (said agreement having been executed by the duly authorized officers of both corporations), whereby claimant leased certain office space in the Federal Reserve Bank Building in Kansas City to debtor, for a period of five (5) years, from July 1st, 1930, to June 30th, 1935, at the agreed annual rental of $1694.00, payable in equal monthly installments in advance of $141.16. That the Equity Finance & Investment Corporation entered and took possession under said lease, and paid rent in accordance with the terms thereof, until sometime during the month of November, 1932, when one M. Hanley was duly appointed Equity Receiver for said Equity Finance & Investment Corporation in a proceeding instituted in the District Court of the United States for the Western Division of the Western District of Missouri.

"2. The court further finds that negotiations were then had between claimant and said M. Hanley, who was the duly appointed and qualified Equity Receiver of debtor corporation, for the purpose of determining whether said M. Hanley, Receiver, on behalf of the debtor corporation, should adopt or reject aforesaid lease. That finally, when claimant reduced the rental from $141.16 to $110.00 monthly rental, said M. Hanley, Receiver, made formal application to the District Court of the United States for the Western Division of the Western District of Missouri, for an order authorizing and directing said Receiver to adopt said lease at said reduced rental. That the District Court of the United States for the Western Division of the Western District of Missouri, being fully advised in the premises, duly entered an order authorizing and directing said M. Hanley, Receiver, to adopt aforesaid lease in writing for the remainder of the term, at the reduced rental of $110.00 a month. That in compliance with said order of the court, said M. Hanley, Receiver, renewed said lease in writing for the remainder of the term, and continued in possession of the premises under said lease up to and including the 1st day of October, 1934.

"3. The court finds that on September 29th, 1934, debtor's petition for corporate reorganization under Section 77B of the Bankruptcy Act as amended, 11 U.S.C.A. § 207 was transferred to this court from the District Court of the United States for the Western Division of the Western District of Missouri, and on that day, one Thomas C. Mustain was duly appointed Trustee for said Equity Finance & Investment Corporation, in place of M. Hanley, Receiver.

"4. The court finds that on the 10th day of October, 1934, Thomas C. Mustain, Trustee, removed all furniture and equipment from the Equity Finance & Investment Corporation's leased office space in the Federal Reserve Bank Building in Kansas City, and transferred said equipment to Omaha, Nebraska. That said Equity Finance & Investment Corporation and its Trustee, Thomas C. Mustain, paid rent for the use of said office space, up to and including November 30th, 1934, but that thereafter and ever since November 30th, 1934, said Trustee has refused to remit to claimant the rental due under the terms of said lease, which was entered into pursuant to an order of the District Court of the United States for the Western Division of the Western District of Missouri, for the last seven (7) months of the term covered by said lease, to-wit, from December 1st, 1934, to June 30th, 1935, inclusive, amounting in the aggregate to the sum of $770.00.

"5. The court further finds that at no time did the debtor corporation or its Trustees apply to the court in Missouri, or to this court for an order rejecting said lease as a burdensome contract, although said lease had been adopted pursuant to an order of court, but that said lease expired by its own terms on June 30th, 1935.

"6. That on the 21st day of January, 1935, Federal Reserve Bank of Kansas City, claimant herein, filed its proof of claim herein, with the original lease attached to said proof of claim. That on February 28th, 1935, Thomas C. Mustain and Mary A. Mullen, Trustees, filed their report herein, recommending that said claim for rent be disallowed; but the court finds that the Trustees at no time applied for an order of court to reject the lease as a burdensome contract. That on March 8th, 1935, said Federal Reserve Bank of Kansas City filed herein its exceptions to the above mentioned report of the Trustees recommending that said rental claim be disallowed in its entirety.

"7. The court further finds that each and every fact as set out in the stipulation entered into by and between the parties hereto, is true and correct."

Upon the facts thus found the court announced the following conclusions of law:

"1. The court finds as a matter of law that since the Trustees of debtor corporation adopted the lease under consideration, pursuant to an order of court, said lease was to remain in full force and effect until such time when a court order was entered rejecting said lease as a burdensome contract. Since, in the case at bar, no application was ever made to the court for a rejection of said lease, the court therefore finds that said lease remained in full force and effect until it expired by its terms, and that debtor is liable for the last seven months rental under the lease, amounting to the sum of $770.00.

"2. The court further finds that since the lease was entered into by the Trustees pursuant to a court order, while debtor was reorganizing under Section 77B of the Bankruptcy Act as amended, said lease is properly classified as an expense of administration, and will therefore be allowed as a preferred claim against debtor.

"Dated this 1st day of February, 1939."

In their brief counsel for appellant urge what are designated as four points of law, the substance of which is that, where a lease has been terminated by nonadoption, rejection, and surrender of the premises, the landlord has a claim for damages and the measure of damages is the difference between the rental agreed upon, in the lease for the fixed period and the actual rental value of the premises for such term at the time of the breach. It is insisted that neither the statute nor rules of court provide any special form of notice of rejection, nonadoption, or surrender, and that it is sufficient if the landlord is free to deal with the property as he chooses regardless of whether there was a technical surrender. It is contended that Section 207, sub. b, 11 U.S.C.A. page 1061, etc., supplies the procedure for the ascertainment of such damages in reference to unexpired leases after a petition for reorganization is filed and approved, and that said section has been reasonably and substantially complied with by appellant in the instant case. A further contention is that, with respect to allowances in prior receivership proceedings, the judge under 77B shall make such orders as he may deem equitable respecting administrative expenses in the prior proceedings "as may be fixed by the court appointing said receiver or prior trustee"; and that the action of the court in making the order of allowance from which this appeal is taken is not in law the approval of a claim in the receivership proceedings after the filing and approval of a petition in bankruptcy under 77B.

It will be observed that counsel for appellant base their assignment, that the trial court erred in allowing the claim of appellee, upon the contention that there was a surrender by operation of law when the trustee in bankruptcy abandoned the premises and...