In re Metropolitan Chain Stores

• Decision Date: 17 July 1933
• Docket Number: No. 314.,314.
• Citation: 66 F.2d 482
• Parties: In re METROPOLITAN CHAIN STORES, Inc. MALAVAZOS et al. v. IRVING TRUST CO.
• Court: U.S. Court of Appeals — Second Circuit

66 F.2d 482 (1933)

In re METROPOLITAN CHAIN STORES, Inc. MALAVAZOS et al. v. IRVING TRUST CO.

No. 314.

Circuit Court of Appeals, Second Circuit.

July 17, 1933.

Cabell, Ignatius & Lown, of New York City, and Dolle, O'Donnell & Cash, of Cincinnati, Ohio, for appellants.

Zalkin & Cohen, of New York City (Israel Akselrod, of New York City, of counsel), for appellee.

Before MANTON, SWAN, and CHASE, Circuit Judges.

SWAN, Circuit Judge.

The appellants as lessors and the bankrupt as lessee entered into a written lease, dated January 15, 1930, by which premises in Ohio were leased to the bankrupt for a term of thirty years from January 1, 1935, at a graduated rental payable monthly in advance after possession should be given to the lessee. The lease gave the lessors the privilege of requiring the lessee, upon thirty days' notice, to take possession prior to January 1, 1935; and it further provided that the lessors should not rent the adjoining property for a store of a type competing with the lessee's business. Subsequently the lessee released the lessors from their covenant last mentioned, and as consideration therefor the lessors paid the lessee $2,000 and relinquished their option to require the lessee to take possession prior to January 1, 1935.

On January 12, 1932, and before the term began, the lessee was adjudicated bankrupt. Thereafter the lessors filed their proof of debt in the sum of $52,750, composed of the following items: (1) $40,000 damages for breach of the contract of lease; (2) $5,000 paid out by the lessors to a broker as commission for securing the lease; (3) $750 paid to an attorney as a fee in connection with the lease; (4) $2,000 paid to the bankrupt in part consideration for the release of the lessors' covenant respecting the rental of adjoining property; and (5) $5,000 damages suffered by the lessors by canceling their aforesaid privilege of requiring the bankrupt to take possession prior to January 1, 1935, such cancellation being part of the consideration for the bankrupt's aforesaid release of the lessors' restrictive covenant, and having been obtained at a time when the bankrupt knew and concealed from the lessors the fact that it could not and would not carry out the terms of the lease contract. Upon the trustee's motion to expunge the claim as contingent, unliquidated, and nonprovable, the referee so ordered, treating the motion as a demurrer. This order the District Court confirmed.

A copy of the lease was annexed to the proof of claim. It contained a covenant to pay rent monthly in advance, and provided that, in the event of the lessee's bankruptcy, the lease shall terminate at the lessors' election, and they may lawfully re-enter. There was no covenant by the lessee to indemnify them for loss of rents.

The first item of the proof of claim alleges an indebtedness of $40,000 "as damages by reason of the breach of the covenants of a certain lease and a contract to lease from the deponents, as lessors, to the bankrupt, as lessee." If this be construed as a count based on breach of a covenant to pay rent to accrue in the future, it does not state a claim provable in bankruptcy. This rule has been so often declared that it may be accepted as established law until the Supreme Court shall decide otherwise or the Congress shall amend the act. Atkins v. Wilcox, 105 F. 595, 53 L. R. A. 118 (C. C. A. 5); Watson v. Merrill, 136 F. 359, 69 L. R. A. 719 (C. C. A. 8); Colman Co. v. Withoft, 195 F. 250 (C. C. A. 9); In re Roth & Appel, 181 F. 667, 31 L. R. A. (N. S.) 270 (C. C. A. 2); Slocum v. Soliday, 183 F. 410 (C. C. A. 1); Wells v. Twenty-First Street Realty Co., 12 F.(2d) 237 (C. C. A. 6); In re Marshall's Garage, 63 F.(2d) 759 (C. C. A. 2); Remington, Bankruptcy (3d Ed.) §§ 788-795. The appellants concede this to be the rule where the legal relations created by a lease are determined according to the common law, but contend that their rights are governed by the law of Ohio and that under the law of that state the lessor has a right of action for damages for the anticipatory breach of a covenant to pay rent. They admit that Wells v. Twenty-First Street Realty Co., 12 F.(2d) 237 (C. C. A. 6), is directly contrary to their contention, and they ask us to refuse to follow it. The decisions which they cite do not convince us that the Wells decision is wrong; on the contrary, we think it correctly construed the state law. See, also, State ex rel. Ross v. Donahey, 93 Ohio St. 414, 421, 113 N. E. 263; Cain v. Brown, 105 Ohio St. 264, 273, 136 N. E. 916.

The appellants further urge that their claim should be differentiated from a claim for future rent because the term had not commenced when the petition in bankruptcy was filed. Relying upon the doctrine of Central Trust Co. of Ill. v. Chicago Auditorium Ass'n, 240 U. S. 581, 36 S. Ct. 412, 60 L. Ed. 811, L. R. A. 1917B, 580, they urge that before the commencement of the term the tenant acquires no estate in the land, the legal relations of the parties are wholly contractual, and bankruptcy should be deemed an anticipatory breach of the tenant's implied executory promise to take possession and perform his obligations under the lease. To adopt this contention would necessitate overruling In re Roth & Appel (C. C. A.) 181 F. 667, 31 L. R. A. (N. S.) 270, for there also the petition in bankruptcy was filed before the commencement of the leasehold term. It is true that that fact was not taken note of in the opinion and seems...