In re Sarnoff-Irving Hat Stores

• Decision Date: 04 February 1935
• Citation: 10 F. Supp. 733
• Parties: In re SARNOFF-IRVING HAT STORES, Inc.
• Court: U.S. District Court — Southern District of New York

10 F. Supp. 733

In re SARNOFF-IRVING HAT STORES, Inc.

District Court, S. D. New York.

February 4, 1935.

McManus, Ernst & Ernst, of New York City (Lester D. Melzer, of New York City, of counsel), for Irving Trust Co., trustee in bankruptcy of Sarnoff-Irving Hat Stores, Inc.

Stroock & Stroock, of New York City (Robert D. Steefel, of New York City, of counsel), for claimant Miller.

HULBERT, District Judge.

Morris Miller, landlord, petitions to review a referee's report reducing claim filed by him against the bankrupt from $16,625 to $400.

It was stipulated that the claimant and the bankrupt entered into a lease for ten years on January 17, 1928, which was modified in writing on December 29, 1931. An equity action was begun in this District on April 27, 1932, against the now bankrupt company, and two receivers were appointed. One of these receivers subsequently resigned, and the Irving Trust Company continued to act as the sole receiver until it was elected and qualified as trustee, and remained in possession of the premises until July 18, 1932. On June 1, 1932, said sole receiver disaffirmed the lease, and on July 18, 1932, vacated the premises pursuant thereto. The claimant re-entered and took possession on July 25, 1932. On August 27, 1932, the Sarnoff-Irving Hat Stores, Inc., filed a voluntary petition in bankruptcy.

The proof of claim filed by petitioner consisted of two items:

                (a) Rent for March and April
                    1932, @ $300.00 per month ......... $     600.00
                    and
                (b) The difference between the
                    rent reserved in the lease
                    from May 1st, 1932 to July
                    31st, 1938 amounting to $32,000.00
                    and the fair annual
                    rental of the said premises, to
                    wit, the sum of $2,400.00 per
                    year for a period of three
                    years, and the further sum of
                    $2,700.00 per year for a period
                    of three years, three
                    months, being the balance of
                    said terms as called for in
                    said lease ......................... $16,025.00
                                                         __________
                         Total ......................... $16,625.00
                

The first item (a) was filed as a priority claim, and the second (b) as a general claim.

The trustee objected to the claim and sought to have it reduced to $1,000. After a hearing, the referee reduced it to $400 ($600 having already been allowed and paid as a priority claim).

The claimant now seeks to review the referee's findings.

The lease provided that in the event of a breach the tenant would pay to the landlord, monthly, the difference between the amount obtained on reletting and the reserved rent provided for in the lease.

The questions involved in the instant case are (1) whether the claim is one founded upon a contract, express or implied, and provable under section 63a, of the National Bankruptcy Act, 11 USCA § 103 (a), and (2) whether the damages may be liquidated under section 63b of the act, 11 US CA § 103 (b).

The breach having occurred before the petition in bankruptcy was filed, there seems to be no question that the claim is provable under section 63a, but there is a vigorous dispute that the claim can be liquidated under section 63b, and that was the ground upon which the referee disallowed all but that amount accruing before bankruptcy.

The claimant contends that this case is not distinguishable from Central Trust Company v. Chicago Auditorium Association, 240 U. S. 581, 36 S. Ct. 412, 414, 60 L. Ed. 811, L. R. A. 1917B, 580, in which there was an anticipatory breach of an executory contract covering a license privilege for the maintenance and operation of a baggage and livery concession, with a provision for damages similar to the one in this case. The Supreme Court held that intervening bankruptcy constituted a breach, and that the claim for damages was one founded upon a contract express or implied and provable under section 63a, and that the damages could be liquidated under section 63b.

The claimant argues that since the breach of the lease in the instant case occurred some time before bankruptcy, and since the landlord had already re-entered before the filing of the petition, his damages now are those for the breach of a personal covenant to pay damages, and not for the breach of the lease, and hence falls within the Chicago Auditorium Case, supra.

However, it seems to me that:

First, the damages for the breach of the personal covenant are identical with those which could be claimed for breach of the lease and are determinable in the same way. Clearly, the instant case comes within the class of those dealing with a breach of the landlord-tenant relationship.

Secondly, in the Chicago Auditorium Case, 240 U. S. 581, at page 590, 36 S. Ct. 412, 414, 60 L. Ed. 811, L. R. A. 1917B, 580, supra, the court said, "besides which a number of cases arising out of the relation of landlord and tenant are cited: In re Ells D. C. 98 F. 967; In re Pennewell, 119 F. 139, 55 C. C. A. 571; Watson v. Merrill, 136 F. 359, 69 C. C. A. 185, 69 L. R. A. 719; In re Roth & Appel, 181 F. 667, 104 C. C. A. 649, 31 L. R. A. (N. S.) 270; Colman Co. v. Withoft, 195 F. 250, 115 C. C. A. 222. Cases of the latter class are distinguishable because of the `diversity betweene duties which touch the realty, and the meere personalty.' Co. Litt. 292, b, § 513." That would seem to indicate that the court did not consider landlord and tenant type cases in its opinion and so the decision should not be binding as to them.

In re Roth & Appel, 181 F. 667, 31 L. R. A. (N. S.) 270, decided in 1910 by the Circuit Court of Appeals, Second Circuit, there was a lease with a provision similar to the one here in question. The lessees became bankrupt and the landlord sought to prove a claim for damages for breach of the lease. The court said that claims for future rent were, of course, never provable, and that this claim for damages was likewise not provable. It was said at page 672 of 181 F.:

"Indeed, looking at the claim as it existed either at the time of the petition or the adjudication, it was altogether contingent in its nature:

"(1) It was uncertain, as just pointed out, whether the lessor would reenter and terminate the lease.

"(2) In case the lease was terminated, it was uncertain whether there would be any loss in rents. If the rent received by the landlord from the new tenant equaled or exceeded that stipulated in the lease, there would be no loss, and, consequently, no foundation for any claim upon the indemnity covenant."

It is significant that in the Roth Case, the landlord had already relet the premises at a substantially lower rental prior to the filing of the claim which was after the petition was filed but before adjudication, and still the court found that the damages were too speculative, under (2) above, to be determined.

Later, in the case of Manhattan Properties, Inc., v. Irving Trust Co., 66 F.(2d) 470, 471, decided in 1933 by the Circuit Court of Appeals, Second Circuit, affirmed in 291 U. S. 320, 54 S. Ct. 385, 78 L. Ed. 824, the court, in discussing the Roth & Appel Case, said that its former determination as to the contingency of the claim had been expressly overruled by Maynard v. Elliott, 283 U. S. 273, 51 S. Ct. 390, 75 L. Ed. 1028, and, "our decision must rest upon the ground that, though the contingency of the claim is no objection to its proof, it is practically too uncertain to be liquidated." The provision of the lease in the Manhattan...