Shalet v. Klauder

• Decision Date: 23 September 1929
• Docket Number: No. 3806.,3806.
• Citation: 34 F.2d 594
• Parties: SHALET v. KLAUDER. In re LEIBOWITZ et al.
• Court: U.S. Court of Appeals — Third Circuit

34 F.2d 594 (1929)

SHALET v. KLAUDER.^* In re LEIBOWITZ et al.

No. 3806.

Circuit Court of Appeals, Third Circuit.

January 23, 1929.

Supplemental Opinion, September 23, 1929.

Charles L. Smyth, of Philadelphia, Pa., for appellant.

Herman N. Silver, of Philadelphia, Pa., for appellee.

Before BUFFINGTON, WOOLLEY, and DAVIS, Circuit Judges.

DAVIS, Circuit Judge.

This is an appeal from a decree of the District Court, affirming an order of the referee in bankruptcy, denying to the landlord's claim for rent against the personal property of the bankrupt priority over administration expenses. The sheriff, at the suit of a creditor, levied upon the property on the leased premises. The referee and District Judge held that the claim of the landlord is controlled by section 64b (5) of the Bankruptcy Act (11 USCA § 104), which subordinates debts entitled to priority under the laws of the states or United States to the costs of administration in bankruptcy. The landlord contends that his claim is controlled by section 67d of the Act (11 USCA § 107(d), which provides that the Bankruptcy Act shall not affect liens given or accepted in good faith and for a present consideration.

The bankrupts, Michael A. Leibowitz, Benjamin Leibowitz, and Benjamin Cutler, were copartners engaged in the candy business, under the name of the Ideal Candy Company, at No. 5935 Market street, Philadelphia. They leased this property for three years from January 15, 1927, at a rental of $175 per month for the first year, $200 per month for the second year, and $275 per month for the third year, payable in advance. One Annie Cutler obtained a judgment against the partners, and on March 21, 1927, issued execution thereon. A levy was made by the sheriff on the same day upon the personal property of the partners found on the Market street premises. When the levy was made, a year's rent of $2,150 became due under the terms of the lease. The landlord claims to have given written notice on March 22, 1927, to the sheriff of his claim; but the trustee disputes it, the record does not disclose it, and the learned District Judge seems to have found as a fact that notice was not given, for his conclusions are based on that assumption.

On March 24, 1927, an involuntary petition in bankruptcy was filed against the partners, individually and as trading as the Ideal Candy Company. A restraining order was issued by the bankruptcy court against the sheriff, forbidding him to sell the property levied upon under the execution. A receiver was appointed, and the sheriff delivered the keys of the premises to him. On April 26, 1927, the receiver sold all the personal property on the premises occupied by the bankrupts for $2,165.24. The landlord presented his claim for one year's rent of $2,150 to the referee, who refused to allow it as a lien prior to the costs of administration, because of his contention that the claim is controlled by section 64b (5) of the Act, and not by section 67d.

The landlord filed a petition for review, and the District Judge affirmed the referee's order of distribution. Thereupon the landlord appealed to this court.

This is a Pennsylvania case, and the decision depends upon the exercise of the landlord's right to distrain on goods for rent under the law of that commonwealth. In re Floyd-Scott Co. (D. C.) 224 F. 987; Hoyt v. Zibell (C. C. A.) 259 F. 186; In re Bonk (D. C.) 268 F. 1012. His right to distrain there is an inchoate, common-law right. "It is a right in the nature of a lien, rather than a lien, until the goods are actually distrained under a landlord's warrant." In re West Side Paper Co. (C. C. A.) 162 F. 110, 15 Ann. Cas. 384. At common law the landlord could distrain upon any goods found on the premises at the time of the taking, but he had no lien on them until he had made his right active by seizure. However, "if the lien is given by statute, proceedings are not necessary to fix the status of the property. But in the absence of this statutory lien it is necessary to take proceedings to acquire a lien on the property of the tenant for the benefit of the landlord." Morgan v. Campbell, 22 Wall. (89 U. S.) 381, 390, 22 L. Ed. 796. In Pennsylvania, a lien is not given by statute. In order that the right may ripen into a lien, distraint must be made.

Admittedly the landlord had not distrained on the goods when the levy of the sheriff was made. After that it was too late to distrain, but the landlord was not left without remedy. He could have given notice to the sheriff of his claim for rent for one year, and his right to distrain would thereby have become a lien. But without such notice a landlord loses his priority, for the mere contract of lease and the unexercised right to distrain do not create a secret lien upon the property found on the premises. The landlord must not only give notice in order to impress the property with a lien, but he must do so with diligence. In some of the cases it is declared that he must do it before the sheriff makes his return of the execution. Others hold that notice must be given before the sale is made. All agree that it must be given before the money resulting from the sale leaves the sheriff's hands, or, if paid into court by him, before distribution. Wadas v. Sharp, 27 Pa. Super. Ct. 233; Ege v. Ege, 5 Watts, 134; Mitchell's Administrator v. Stewart et al., 13 Serg. & R. 295; Work's Appeal, 92 Pa. 258; Brown v. Jaquette, 94 Pa. 113, 116, 39 Am. Rep. 770; Barnes Appeal, 76 Pa. 50; In re Consumers' Coffee Co. (D. C.) 151 F. 933; In re Fleishman, 9 A. B. R. (N. S.) 352.

The legal question before us is whether or not the intervention of bankruptcy changed the status of the landlord's claim and in some way cured his failure to give notice of his claim to the sheriff. No case has been cited which we think so holds. The appellant relies largely upon Moss' Appeal, 35 Pa. 162, but the question of whether or not notice to the sheriff was necessary was not there before the court. Three or four years after the lease was terminated in that case, judgment was obtained against the former tenant, and a fieri facias was issued thereon. Its personal property (the tenant being the Montgomery County Mining Company) found on the demised premises was levied upon and sold, and the money brought into court. The landlord claimed six months' rent out of the money. The execution creditor contended that, since the lease had long been terminated, there was no existing tenancy, and, as the landlord is entitled to claim only out of the property found "upon lands which are demised," which implies an existing tenancy, he could not recover. The appellant quotes the following language of the court (35 Pa. 162, 165) in support of his contention:

"Now, if there must be, as is argued, a subsisting tenancy to give the landlord a right to participate in the proceeds of a sale of goods found on his premises, there must be a subsisting tenancy to give him the right of distress, which were to repeal the act of 1772 which gave the landlord the right to distrain for rent when a lease had ended in the same manner he might have done if the lease had not ended. No attentive reader of the act of 1836 can doubt, that the Legislature meant to substitute the landlord's claim on the proceeds of the execution sale for his right of distress. Where one existed the other was intended to be conferred. The substitution was limited to a year's rent, but to that extent the substitution was complete."

This language does not, in our opinion, support the contention that bankruptcy relieves the landlord of the necessity of giving notice, or that it in some way cures his failure to do so. It certainly does not do so expressly, nor does it do so impliedly from principle. It supports the proposition that an existing tenancy is not necessary to enable the landlord to distrain, and that his right to distrain on the property found on the premises is transferred to the proceeds of the sale of that property. Notice of the landlord's claim was given to the sheriff, who, in order to protect himself against the rival contentions of the execution creditor and the landlord, paid the proceeds of the sale of the property into court.

The landlord, in the case at bar, having only a common-law right of distraint, it would seem on principle, as well as authority, that the sheriff's levy did not relieve him of the duty of giving notice. Otherwise a sheriff might sell property and distribute the proceeds thereof, without knowing it was impressed with a lien, for, as above stated, the contract of lease does not in itself give the landlord a lien, or a secret charge on the property, and creditors might have no actual and would...