In re Owl Drug Co., 480.

• Decision Date: 30 September 1935
• Docket Number: No. 480.,480.
• Citation: 12 F. Supp. 447
• Parties: In re OWL DRUG CO.
• Court: U.S. District Court — District of Nevada

12 F. Supp. 447

In re OWL DRUG CO.

No. 480.

District Court, D. Nevada.

September 30, 1935.

Russell E. Sewall, of Portland, Or., and Rosenshine, Hoffman, Davis & Martin, of San Francisco, Cal., for claimant.

Thatcher & Woodburn, of Reno, Nev., and Clarence A. Shuey and Grant H. Wren, both of San Francisco, Cal., for trustee, George K. Edler.

YANKWICH, District Judge.

On June 26, 1926, the Swetland Building Company of Portland, Or., the holder of a leasehold upon a building in Portland, Or., under lease from X. J. Faling, the owner of the premises, leased a portion of the premises to the Owl Drug Company, the bankrupt herein. The term of the lease was from August 1, 1926, to May 31, 1946, at a minimum rental of $1,850 a month, payable in advance on the 1st day of each month.

The petition in bankruptcy was filed on October 10, 1932. The rental due on October 1, 1932, had not been paid. Neither had charges for light and heat furnished by the claimant to the lessee from August 24, 1932, to October 9, 1932, been paid. The claimant presented a claim consisting of two items. The first item was for $620.90 and consisted of $537.09, the pro rata of rental from October 1, 1932, to October 9, 1932, and $83.81 for light and heat charges. As this claim was allowed by the referee, it need not concern us any longer. The second item was for damages in the sum of $108,020, being, as stated by counsel for claimant, "the difference between the stipulated minimum rental of $1,850 a month, and the market, fair or reasonable rental value, alleged to be $1,190 a month for the remainder of the term of the lease." The referee having refused the rental item, the matter is before the court for review.

It is conceded by both sides that, in view of the decisions in Manhattan Properties v. Irving Trust Co. (1934) 291 U. S. 320, 54 S. Ct. 385, 78 L. Ed. 824, and Quinn v. Jaloff (C. C. A. 9, 1934) 71 F. (2d) 707, a claim for damages on account of the termination of the lease by the bankrupt which covers the unascertained damage that might be suffered by the lessor during the remainder of the term is not a provable claim in bankruptcy. These decisions are grounded upon the proposition that a lessor's claim for total or partial loss of rents payable in the future, being uncertain and contingent, is not provable in bankruptcy. The claimant contends, however, that while, under these decisions, the claim should not have been allowed in full, it was nevertheless entitled to have it allowed partially in accordance with the provisions of the Amendment of June 7, 1934, to section 63a of the Bankruptcy Act. This amendment added clause (7) to the section (11 USCA § 103 (a) so as to permit proof and allowance of debts consisting of: "(7) claims for damages respecting executory contracts including future rents whether the bankrupt be an individual or a corporation, but the claim of a landlord for injury resulting from the rejection by the trustee of an unexpired lease of real estate or for damages or indemnity under a covenant contained in such lease shall in no event be allowed in an amount exceeding the rent reserved by the lease, without acceleration, for the year next succeeding the date of the surrender of the premises plus an amount equal to the unpaid rent accrued up to said date: Provided, That the court shall scrutinize the circumstances of an assignment of future rent claims and the amount of the consideration paid for such assignment in determining the amount of damages allowed assignee hereunder: Provided further, That the provisions of this clause (7) shall apply to estates pending at the time of the enactment of this amendatory Act June 7, 1934." The effect of this amendment was to allow proof of claims for damages for breach of a lease to an amount not exceeding the rental for the year next succeeding the date of the surrender of the premises together with an amount equal to the unpaid rent accrued up to the date of surrender.

On June 18, 1934, this clause was again amended so as to read as follows: "(7) claims for damages respecting executory contracts including future rents whether the bankrupt be an individual or a corporation, but the claim of a landlord for injury resulting from the rejection by the trustee of an unexpired lease of real estate or for damages or indemnity under a covenant contained in such lease shall in no event be allowed in an amount exceeding the rent reserved by the lease, without acceleration, for the year next succeeding the date of the surrender of the premises plus an amount equal to the unpaid rent accrued up to said date: Provided, That the court shall scrutinize the circumstances of an assignment of future rent claims and ...