Rosenblum v. Uber

• Decision Date: 02 April 1919
• Docket Number: 2407.
• Citation: 256 F. 584
• Parties: ROSENBLUM v. UBER. In re B. M. STERN CO.
• Court: U.S. Court of Appeals — Third Circuit

256 F. 584

ROSENBLUM v. UBER.

In re B. M. STERN CO.

No. 2407.

United States Court of Appeals, Third Circuit.

April 2, 1919

H. A Wilkison, of New Castle, Pa., for petitioner.

Leonard M. Uber, of New Castle, Pa., for respondent.

Before BUFFINGTON, McPHERSON, and WOOLLEY, Circuit Judges.

WOOLLEY Circuit Judge.

This petition raises two questions of law on an agreed state of facts. The first question is: Whether a landlord, who had at the time of filing the petition in bankruptcy a landlord's lien or the right to distrain upon goods and chattels on premises demised to the bankrupt, and who had not accepted a surrender of the lease subsequently tendered by the Trustee, is entitled under section 64b, cl. 5, of the Bankruptcy Act July 1, 1898, c. 541, 30 Stat. 563 (Comp. St Sec. 9648), to priority of payment of rent in arrear (not exceeding one year) out of the proceeds of the sale of such goods, by virtue of the Pennsylvania statute (Act of June 16 1836 (P.L. 777) Sec. 83) granting priority for such rent in the distribution of proceeds of execution sales. This question-- which is the important one in the case-- is dependent somewhat upon the determination of the second question, which is: Whether in Pennsylvania, a landlord, who has refused the Trustee's tender to surrender the lease but has accepted the key and has taken possession of the building for the purpose, expressly declared at the time, of protecting and caring for the property and repenting it for the benefit of the estate, is entitled, in the distribution of the proceeds arising from the sale of goods and chattels on the premises, first to payment of rent for one year, and second, to payment of rent for the balance of the term under proof of claim filed as a general creditor, when under the terms of the lease all rent was due at the date of the institution of bankruptcy proceedings.

The relevant facts are these: At the time the petition in bankruptcy was filed (December 30, 1916), the petitioner was the owner of a building occupied by the bankrupt under a lease for three years, from April 1, 1916, at a total rent of $9,225.00, payable at the rate of $256.25 monthly in advance. The lease provided that, if default be made in any of its conditions, or if execution be issued against the lessee, or if assignment be made for the benefit of creditors, rent for the entire balance of the term shall at once become due and payable, and a landlord's warrant may issue forthwith. It is conceded by both parties that such a provision in a lease is, under the law of Pennsylvania, not against public policy and will be sustained to the extent of giving the landlord priority for one year's rent out of proceeds from an execution sale. Platt Barber Co. v. Johnston, 168 Pa. 47, 31 A. 935, 47 Am.St.Rep. 877; In re Keith-Gara Co. (D.C.) 203 F. 585; Id., 213 F. 450, 136 C.C.A. 96. And it is conceded further that on the filing of the petition in bankruptcy in this case, the rent for the balance of the term became due and payable.

The receiver, who afterward became the Trustee, took possession of the building and its contents. The building contained goods and chattels belonging to the bankrupt and also goods and chattels belonging to the bankrupt's sub-tenant, Sperry-Hutchison Co. This concern immediately obtained a rule upon the Trustee to turn over the goods belonging to it. On this rule, Sperry-Hutchison Co. prevailed but before it got its property, the landlord levied on it by landlord's warrant for the full rent due for the balance of the term. The Sperry-Hutchison Co. finally regained possession of its property by replevin. There is nothing in the record which shows what happened thereafter. We allude to this phase of the case only to dispose of it as not bearing on the questions of law raised for revision, for, manifestly, if the landlord obtained by this action of replevin a part of his rent from the goods of another upon the premises, his claim against the estate would be reduced by the amount he so received, and a demand by Sperry-Hutchison Co. for the amount which it had thus contributed to the payment of the bankrupt's rent would, in all probability, appear in the form of a claim duly filed against the estate.

We shall address our discussion solely to matters between the tenant and his estate in bankruptcy on the one hand and the landlord on the other. The receiver came into possession of the premises on December 30, 1916, and occupied them for the months of January, February, and March, 1917. He sold the bankrupt's goods and chattels found on the premises and liable to the landlord's distress, and converted them into money. This money now constitutes the fund for distribution. From this fund he paid the landlord $150.00 on account of rent in arrear for November and December, 1916, leaving due for these months a balance of $387.50, and paid $768.75 for use and occupation of the premises during the months of January, February, and March, 1917, declining later to pay more on the ground that at the end of this period he had surrendered the lease to the landlord and the landlord had accepted the surrender. Subsequently, the landlord filed proof of claim for the rent of the entire term, which, under the terms of the lease, became due on the date of the filing of the petition in bankruptcy, amounting to $7,306.25. The claim was divided into two parts; the first was for the full amount of one year's rent, claimed as a priority by virtue of his lien as landlord; the second was for rent for the balance of the term, and was made by the landlord as general creditor.

Of the total amount of the proof of claim, the landlord claimed priority for $3,075.00, under the law of Pennsylvania giving a landlord priority for one year's rent, less the following deductions: $150.00 paid him by the Trustee on account of rent for the months of November and December, 1916; $768.75 paid him by the Trustee for his use and occupation of the premises for the months of January, February, and March, 1917; $525.00 collected by the landlord from the Star Clothing Company within the year as rent under a lease which he subsequently made; leaving $1,781.25 as the balance of one year's rent, for which the landlord claimed priority. There is manifest inaccuracy in this calculation due perhaps to the payment to the landlord of $150.00 after the filing of the claim. Subject to correction by the Referee, we make the balance of rent due for one year by priority to be $1,631.25.

The determination of the landlord's priority for rent covering one year (whether for the admitted balance of $387.50 for rent in arrear prior to bankruptcy, or for the claimed net balance of $1,781.25-- or $1,631.25-- for a full year) depends, as we have said, upon a determination of the second question involved, which is: Whether the transaction on which the Trustee relies as a surrender of the lease was in fact a surrender. This must first be disposed of.

On the question of surrender of the lease, there is no testimony. It was decided upon a stipulation which both parties agreed contained all the facts. This stipulation is as follows:

'5. On March 16, 1917, the Trustee filed a petition setting forth the fact * * * that the landlord had demanded of the Trustee the rent for the months of January, February, and March, requesting that the question as to whether the Trustee should continue to hold the possession of the building, during the term of the lease, be submitted to the creditors.

'5(a). On the same day a like petition was filed by the Trustee, stating that under the facts therein stated, the Trustee was unable to determine whether the estate was liable for the rent and prayed for a rule on the landlord to show cause why the claim should be paid by the Trustee.

'5(b). On the first petition, a meeting of the creditors was called and the question of the surrender of the lease was submitted to them. At the said meeting the landlord and his attorney were present in person and after a lengthy discussion the Trustee was directed by the creditors to surrender the lease and turn over the building to the landlord and an order was made and filed by the Referee to this effect. The Trustee thereupon, and at the said meeting, handed the key to the attorney for the landlord and stated that he thereupon surrendered the lease. The landlord, by his attorney, received the key, but stated that he accepted same upon the express conditions that he would care for the building and rent it if possible for the benefit of the estate.

'5(c). As appears by the subsequent proceedings, the landlord immediately took possession of the building, and shortly thereafter rented the first floor to the Star Clothing Company, at a rent of $150.00 per month.'

In this situation the Trustee filed exceptions to the landlord's proof of claim for rent on the ground that he had surrendered the lease to the landlord in March, 1917, and that, in consequence, no rent should be allowed him after that date, and, further, that the landlord had no priority for rent either for the months preceding or the months succeeding that date.

In an elaborate opinion, showing a very careful study of the case the Referee found that the Trustee had a right to surrender the lease and that he did surrender it; that the landlord had no power to decline to accept the surrender and that he could not validly make a conditional acceptance of surrender; that the landlord's attempted conditional acceptance was in fact a complete acceptance; and that, in consequence, he is estopped from claiming rent for the remainder of the term; and, finally, that a landlord is not entitled under the law of Pennsylvania to priority in the payment of rent from proceeds of the sale of property on demised...