IN RE OUTFITTERS'OPERATING REALTY CO.
| Decision Date | 13 February 1934 |
| Docket Number | No. 201.,201. |
| Citation | 69 F.2d 90 |
| Parties | In re OUTFITTERS' OPERATING REALTY CO., Inc. A. W. PERRY, Inc., v. IRVING TRUST CO. |
| Court | U.S. Court of Appeals — Second Circuit |
Larkin, Rathbone & Perry, of New York City (Thomas F. Dougherty and Theodore Pearson, both of New York City, of counsel), for appellant.
Beekman, Bogue & Clark, of New York City (John A. McNaughton and Edward K. Hanlon, both of New York City, of counsel), for appellee.
Before L. HAND, SWAN, and CHASE, Circuit Judges.
This appeal raises the provability in bankruptcy of the claim of a landlord under a covenant in a lease which read as follows: "* * * For the more effectual securing to the Lessor of the rent and other payments herein provided, it is agreed as a further condition of this lease that the filing of any petition in bankruptcy or insolvency by or against the Lessee shall be deemed to constitute a breach of this lease, and thereupon, ipso facto, and without entry or other action by the Lessor, this lease shall become and be terminated; and, notwithstanding any other provisions of this lease, the Lessor shall forth with upon such termination he entitled to recover damages for such breach in an amount, equal to the amount of the rent reserved in this lease for the residue of the term hereof, less the fair rental value of the premises for the residue of said term." The lessee having become bankrupt, the lessor filed its proof of claim under this clause, which the referee expunged as invalid on its face. The judge affirmed the order and the lessor appealed to this court. Meanwhile the Supreme Court (54 S. Ct. 385, 78 L. Ed. ___) on February 5, 1934, affirmed our decision in Manhattan Properties, Inc., v. Irving Trust Co., 66 F. (2d) 470, and has thus finally settled it that claims for future rent are not ordinarily provable, and can become so, if at all, only by virtue of special clauses. The question here is whether this clause will serve; its possible validity was specifically reserved in the Supreme Court's opinion.
The contingencies which make such claims unprovable go both to the right of action and to the amount. If the lease contains no covenant of the lessee to pay the equivalent of rent in case of re-entry, any future claim is contingent; it can only be for rent, and the lessor may have re-entered and ended the term before it falls due. Such leases are now rare; ordinarily there is some covenant designed to protect the lessor in case of reentry. A common form, which was that in Re Roth & Appel (C. C. A. 2) 181 F. 667, 31 L. R. A. (N. S.) 270, is to pay on each rent day the difference between the rent reserved and rent received upon any reletting; another is to indemnify the lessor for any loss suffered during the term. The second requires the lessor to wait till the end of the term (Hermitage Co. v. Levine, 248 N. Y. 333, 162 N. E. 97, 59 A. L. R. 1015); not so the first, under which a separate cause of action arises at the end of each period. But in both kinds it is uncertain at petition filed whether there will be any loss, and that uncertainty is enough to invalidate the claim. The covenant in the lease at bar avoids both these difficulties. It is not contingent in right, because the mere filing of a petition in bankruptcy puts an end to the lease; not at the lessor's option, but unconditionally. It is not contingent, in amount, because at petition filed it is at once ascertainable whether there is a loss and what it is. The fact that the amount of that loss is not fixed in advance is immaterial; the standard of appraisal is prescribed; it involves the kind of determination — that is, the present value of real property — with which a bankruptcy court is entirely familiar and which it is competent to make. The argument contra may be stated as follows: If bankruptcy be an anticipatory breach, as it is, then, in a case where the lessee has promised to pay...
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