In re Gallacher Coal Co.
| Decision Date | 09 May 1913 |
| Docket Number | 11,425. |
| Parties | In re GALLACHER COAL CO. |
| Court | U.S. District Court — Northern District of Alabama |
Campbell & Johnston, of Birmingham, Ala., for petitioner.
A Latady, of Birmingham, Ala., for trustee in bankruptcy.
This is a petition to review the order of the referee, disallowing in part the claim of the Southern Iron & Steel Company against the bankrupt estate. The claim is based on the bankrupt's liability upon a mining lease for unpaid royalties and damages alleged to have been brought about by the abandonment of the lease by the bankrupt, either before or at the time of the filing of the petition. At the time of the filing of the petition there was due and unpaid four months' minimum royalty, amounting to $2,000. This was allowed by the referee as an unsecured claim against the bankrupt estate. It was denied any standing as a secured claim. The lease provided for its own termination by the giving of written notice six months in advance of the intention to do so. It was conceded that this notice had been given prior to the time of the filing of the petition, and that the term of the lease was thereby fixed at not more than six months from the date of bankruptcy. In this period the minimum royalty would have amounted to $2,400. This part of the claim was entirely disallowed by the referee. The balance of the claim represented the cost of pumping water out of the mine during the six months period from the time the receiver in bankruptcy surrendered the premises to the claimant. The referee also disallowed this part of the claim entirely.
With reference to the part of the claim representing the damages alleged to have been caused the claimant by reason of the expense of its pumping operations, made necessary by the abandonment of the lease by the bankrupt and the receiver, the action of the referee is approved in disallowing the claim. It is contended by the claimant that there had been a breach of the lease before the filing of the petition, in that the bankrupt had notified the claimant, some weeks before bankruptcy, of its intention to terminate the lease. The letter relied upon by the claimant as an abandonment of the lease by the bankrupt does not bear that construction. At most, it was a tentative proposal to the claimant, or notice of an intention to cancel under the six months stipulation contained in the lease. It is clear that the claim for damages for continued cost of pumping after bankruptcy, due to abandonment of the lease brought about by the bankruptcy, in view of the stipulations of the lease, was a contingent liability; in duration dependent upon the continuance of the term of the lease which itself was uncertain, and contingent. It was, therefore, not a provable claim in bankruptcy. Atkins v. Wilcox, 105 F. 595, 44 C.C.A. 626, 53 L.R.A. 118; In re Roth & Appel (D.C.) 174 F. 64 (affirmed, 181 F. 667, 104 C.C.A. 649); In re Abrams (D.C.) 200 F. 1005.
Nor were the damages, so caused, a claim secured by the contract lien created in favor of the claimant by the terms of the lease. The lien was created to secure all amounts that might become due under the lease. The damages claimed cannot be said to be an amount that became due under the lease. They were rather a liability incurred by the bankrupt, as lessee, not under or by the terms of the lease, but because of and arising from a breach of it by the lessee. They were, therefore, not secured by the lien retained.
The referee allowed the past-due royalty only as an unsecured claim against the bankrupt estate. Complaint by the claimant is made that it was not allowed as a secured claim. The contention is based on a reservation of a lien in the lease in favor of the lessor 'on all such machinery, fixtures, and other property of every kind whatsoever, for anything due or to become due to the lessor under this contract,' referring to property placed on the leased premises by the lessee. The lease was not recorded. The trustee contends that the stipulation for security was in legal effect an equitable mortgage, and was required to be recorded to be effective against third parties by the registration laws of Alabama.
If record of the instrument was required in order that it might be effective as against subsequent creditors, then the trustee, under the amendment to the bankruptcy act of June 25, 1910, might avail himself of the failure to record. In re Stoughton Wagon Co. (D.C.) 198 F. 336, affirmed (C.C.A.) 201 F. 1023. The controlling inquiry is whether record was necessary to the validity of the lien. Sections 3376 and 3386 of the Alabama Code of 1907 are relied on as requiring the record of the lien. The language of each is identical in its description of the character of the instruments required to be recorded. It is 'conveyances of personal property to secure debts, or to provide indemnity,' in each section. In order to come within the statute, the instrument must come within the description of 'a conveyance of personal property,' and its purpose must be to secure a debt or to provide indemnity.
The lien created by the lease was a pledge of personal property for the purpose of securing the royalty fixed by the lease, which was a debt. Can it be described as a conveyance? It did not purport to transfer title or possession out of the lessee, but merely to charge the property with the payment of the royalty. In the case of Donald v. Hewitt, 33 Ala. 534-550 (73 Am.Dec. 431), the Supreme Court of Alabama said (referring to a similar registration law of Kentucky):
In the case of Fash v. Ravesies, 32 Ala. 451, the Supreme Court of Alabama said:
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