IN RE OUTFITTERS'OPERATING REALTY CO.

• Decision Date: 05 March 1934
• Docket Number: No. 135.,135.
• Citation: 69 F.2d 484
• Parties: In re OUTFITTERS' OPERATING REALTY CO., Inc., (DELAWARE). WINSTON-SALEM MASONIC TEMPLE CO. v. IRVING TRUST CO.
• Court: U.S. Court of Appeals — Second Circuit

69 F.2d 484 (1934)

In re OUTFITTERS' OPERATING REALTY CO., Inc., (DELAWARE) WINSTON-SALEM MASONIC TEMPLE CO. v. IRVING TRUST CO.

No. 135.

Circuit Court of Appeals, Second Circuit.

March 5, 1934.

Hall, Cunningham, Jackson & Haywood, of New York City (John H. Jackson, of New York City, of counsel), for appellant.

Beekman, Bogue & Clark, of New York City (Edward K. Hanlon and John A. McNaughton, both of New York City, of counsel), for appellee.

Before MANTON, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

MANTON, Circuit Judge.

The Outfitters' Operating Realty Company, Inc., was adjudicated a bankrupt September 30, 1932. A trustee was elected October 15, 1932. The bankrupt leased appellant's property at Winston-Salem, N. C., June 28, 1929, for a term of thirty years.

Paragraph 4 of the lease provided for demolition or reconstruction of the building thereon and the erection of a new or remodeled building by the lessee. The lessor agreed "to advance to Lessee the total amount of money which the said alteration or new building will cost * * * not exceeding the sum of Fifty Thousand Dollars ($50,000.00), and that such money shall be advanced by the Lessor to the Lessee semi-monthly in the amounts necessary to cover all work done and materials furnished. * * * After the completion of the above work, all advancements so made by Lessor shall be consolidated into one amount and the date thereof fixed (interest adjustments at the rate of six per cent. per annum shall be made from the respective date of each advance to the consolidated date fixed), and Lessee agrees to repay to the Lessor the total amount so advanced and consolidated, in annual instalments, each instalment to be equal to two per cent. of the total amount so advanced, the entire balance remaining unpaid to be due and payable at the end of the thirty-year term hereby demised, with interest on the unpaid balances, * * * such instalments and interest to be payable at the end of each lease year. Each instalment and the interest payable as aforesaid shall be deemed additional rent hereunder and for the non-payment thereof on the dates aforesaid the Lessor shall have the same rights and remedies with respect thereto as it has hereunder for the non-payment of the specified rent herein provided for. The Lessee has the privilege of paying larger instalments, if it so desires, or of paying the whole amount remaining unpaid at any time prior to its due date, with interest as aforesaid to the date of payment."

On the 19th of March, 1930, the following receipt was given by the lessee:

"We hereby acknowledge receipt of the sum of Fifty Thousand Dollars ($50,000.00) for advance made to us by The Winston-Salem Masonic Temple Company on account of the new building in accordance with the terms of the contract existing between the parties hereto, dated June 29, 1929, * * * and agree to repay said The Winston-Salem Masonic Temple Company the said principal sum of $50,000.00 with interest thereon from March 19, 1930, in accordance with the terms of said contract, that is: in twenty-nine annual instalments of $1,000.00 each, beginning March 19, 1931, and March 19th of each year hereafter until November 1st, 1959, when the balance of $21,000.00 will be due and payable.

"The said principal sum of $50,000.00 so advanced to bear interest. * * *"

The lease was disaffirmed, by the trustee, January 12, 1933.

The claim filed is for the balance of the advance, $48,000 plus interest. Below the claim was expunged because it was regarded as a claim for future rent. It was said the bankrupt's promises contained in the lease and the receipt to repay the advances are not absolute but contingent upon the continuance of the relation of landlord and tenant until the maturity of the several installments. Appellant contends that this full amount was a loan and became due immediately as a result of the breach of the lease caused by the bankruptcy.

In Manhattan Properties, Inc., v. Irving Trust Co., 290 U. S. ___, 54 S. Ct. 385, 389, 78 L. Ed. ___ (decided February 5, 1934), the court reviewed the matter of future rent claims there involved, and said:

"There can be no debt provable in bankruptcy arising out of a contract which becomes effective only at the claimant's option and after the inception of the proceedings, the fulfillment of which is contingent on what may happen from month to month or up to the end of the original term. * * * Such a covenant is not, as petitioners contend, the equivalent of an agreement that bankruptcy shall be a breach of the lease and the consequent damages to the lessor be measured by the difference between the present value of the remainder of the term and the total rent to fall due in the future."

And it was there held that the covenants appearing in the lease in question could not be made the basis of a proof of debt against the estate.

In the instant case, we must read the terms of the lease and the receipt together in construing the character of the obligation assumed by the tenant. The promise to repay the advances made in both are unconditional. Sixty per cent. of the indebtedness is payable during the term and the remainder was payable at the end of thirty years. It is clear there was no intention by the parties to measure the obligation in terms of the period of...