In re Arnstein

• Decision Date: 06 October 1899
• Parties: In re ARNSTEIN et al.
• Court: U.S. District Court — Southern District of New York

101 F. 706

In re ARNSTEIN et al.

United States District Court, S.D. New York.

October 6, 1899

The report of the referee was as follows:

The proofs of claims objected to are for unaccrued rent under leases having yet by their terms several years to run, and the estimated cost of changing certain alterations made by the tenants, to restore the premises to the condition they were in at the time of the leases having provided that the tenants might make said alterations, they agreeing at the expiration of the lease to restore the premises to their former condition. The claimants filed also petitions asking to have their claims liquidated in such manner as the court might direct, under subdivision b, Sec. 63, Bankr. Act. Section 63 of the bankruptcy act provides as to what are provable claims substantially as follows: (a) Debts of the bankrupt, which are (1) a fixed liability, as evidenced by a judgment or instrument in writing, absolutely owing at the time of the filing of the petition, whether then payable or not; * * * (4) founded upon an open account, or upon a contract, express or implied. (b) Unliquidated claims against the bankrupt may be liquidated in such manner as the court shall direct, and may thereafter be proved and allowed against the estate. Classes of three claims are above provided for: (1) Debts which are a fixed liability, and evidenced by instrument in writing, absolutely owing, but not necessarily then payable; (2) debts founded on contract express or implied; (3) unliquidated claims after they are liquidated.

Section 1 of the bankruptcy act, defining the meaning of the words used, provides that 'debt' shall include any debt demand, or claim provable in bankruptcy. This definition does not assist much in determining what are debts, within the above provision. The question presented on this hearing is as to whether the above claimants have any debt or claim provable in bankruptcy, under the above provisions of the act.

A contract of lease is peculiar in its nature, and differs in many respects from other contracts. Rent, as such, is an incident to, and grows out of, the use and occupancy, and is the consideration therefor. Unaccrued rent cannot be said therefore, to be a fixed liability then absolutely owing payable in the future, or, indeed, a 'debt' of any kind, as that word seems to be used in the act. It is only an unmatured obligation to pay in the future a consideration for future enjoyment and occupancy. This cannot be said to be properly speaking, a present debt, demand, or claim at all, as these words are apparently used in the foregoing provisions, due regard being had to the context, and cannot come within either the clause as to fixed liability then owing or a debt founded on the present one, seem unanimous to this effect. Ex parte Houghton, 1 Low. 554, Fed. Cas. No. 6,725; In re Breck, 12 N.B.R. 215, Fed. Cas. No. 1,822; Bailey v. Loeb, 11 N.B.R. 271, Fed. Cas. No. 739; In re May, 9 N.B.R. 419, Fed. Cas. No. 9,325. The above are under the late act. In re Jefferson, 1 Nat.Bankr.N. 288, 93 F. 948, is under the present act. Bosler v. Kuhn, 8 Watts & S. 183, is under the act of 1841. It is equally clear, I think, that the claim for the estimated cost of restoring the premises does not come under either of said clauses.

It is urged, however, that the claimants have a claim for unliquidated damages, and they have filed an application under subdivision 'b' that the same be liquidated in order that it may be proved. The bankrupts in this case, prior to the proceedings in bankruptcy, became insolvent, and made an assignment for the benefit of creditors of all their property, including presumably the lease in question and delivered possession to the assignee. By the provisions of the lease, an assignment was expressly prohibited, except with the consent of the landlord. The bankrupts, therefore, violated the lease, and have practically put it out of their power to comply with its terms. On the breach of the whole of a continuing contract, whereby the contract is repudiated or disavowed and abandoned, the other contracting party is entitled to treat it as at an end and destroyed by such act, and seek his remedy in an action for damages for the loss of the contract. Amos v. Oakley, 131 Mass. 413; Marybury v. Land Co., 10 C.C.A. 393, 62 F. 335, 351; Sedg. Meas. Dam. Sec. 90; Tod v. Land Co. (C.C.) 57 F. 47, 63.

It is urged that the claimants are entitled, on the above principle, to consider the contract and lease disavowed and destroyed, and assert a claim for damages for the value of their contracts; that such a claim is unliquidated, but when liquidated can be proven as a claim against the estate. It seems manifest that such a claim is capable in law of being liquidated, and the measure of damages would be the difference between the fair rental value of the premises and the amounts reserved and provided for in the lease.

One, at least, of the claimants has alleged, in his proof filed against the trustee asking for the payment of rent during the time the premises were occupied by the trustee, that the rent reserved was the fair value for the use and occupancy of the premises. On this statement there would seem to be no claim for damages, as the landlord has possession of the premises although probably the question as to the amount of the damages is not properly involved in this hearing. Whether a claim of the nature above suggested is provable in bankruptcy was discussed, but not necessarily decided, in Ex part Houghton, 1 Low. 554, Fed. Cas. No. 6,725,-- a case under the old act. In Re Jefferson, above mentioned, a case under the new act, the learned justice evidently considered that such a claim could not be proven, but his opinion on that point is unfortunately very meager. In the case of People v. St. Nicholas Bank, 151 N.Y. 592, 45 N.E. 1129, it was held a claim of similar nature was provable against the receiver of a defunct corporation. See page 598, 151 N.Y., and page 1130, 45 N.E. It is true there had been a...