Standard Oil Co. of New Jersey v. Elliott, 3924.

• Decision Date: 12 November 1935
• Docket Number: No. 3924.,3924.
• Citation: 80 F.2d 158
• Parties: STANDARD OIL CO. OF NEW JERSEY v. ELLIOTT et al. KRUPNICK v. PEOPLES STATE BANK OF SOUTH CAROLINA et al.
• Court: U.S. Court of Appeals — Fourth Circuit

80 F.2d 158 (1935)

STANDARD OIL CO. OF NEW JERSEY v. ELLIOTT et al.

KRUPNICK v. PEOPLES STATE BANK OF SOUTH CAROLINA et al.

No. 3924.

Circuit Court of Appeals, Fourth Circuit.

November 12, 1935.

George L. Buist, of Charleston, S. C. (Buist & Buist, of Charleston, S. C., on the brief), for appellant.

E. W. Mullins, of Columbia, S. C. (Nelson, Mullins & Grier, of Columbia, S. C., on the brief), for appellees.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

PARKER, Circuit Judge.

On January 2, 1932, the Peoples State Bank of South Carolina was closed by resolution of its board of directors, and shortly thereafter receivers were placed in charge of its affairs. These receivers, on June 24, 1932, instituted suit in the court below to recover of the Standard Oil Company a balance of $805.40 on account of rent. On August 4, 1932, the oil company filed an answer admitting liability for the rent claimed but setting up five different counterclaims and asking affirmative relief against the receivers. The third and fourth counterclaims were allowed as preferential claims against the funds in the hands of the receivers and are not involved in this appeal. Error is assigned to the action of the court with respect to the other three counterclaims as follows: (1) In not permitting the oil company to set off against liability for rent the indebtedness due it by the bank at the time of its closing; (2) in not holding that the cash assets which came into the hands of the receivers were impressed with a trust in favor of the oil company to the amount of funds deposited with the bank for transmission, amounting to $9,595.83; and (3) in not holding that these cash assets were impressed with a trust in favor of the oil company to the amount of a certified check for $250 drawn on the Peoples National Bank, the payment of which had been assumed by the failed bank. As entirely different legal questions are involved in these several contentions, we shall discuss them separately.

The Rent Set-Off Claim.

At the time the bank closed, the oil company was occupying certain premises under a written lease from the bank, which did not expire until the October following. This lease provided for an annual rental payable monthly, the monthly installments of which had been paid up to the time of the bank's closing. No question arises with respect to these installments which had been paid, but the oil company claims the right to set off the monthly installments subsequently accruing against the indebtedness of the bank; and the action of the court below in denying this set-off constitutes the company's first ground of complaint on appeal.

We think that the court's action with respect to this was clearly correct. The liability of the oil company for the monthly rental provided in its contract arose out of the right to use and enjoy the property leased, and created no debt until the time for payment had arrived. Watson v. Merrill (C.C.A.8) 136 F. 359, 361, 362, 69 L.R.A. 719; In re Roth & Appel (C.C.A.2d) 181 F. 667, 669, 31 L.R.A.(N.S.) 270. As said by Judge Noyes, speaking for the Circuit Court of Appeals of the Second Circuit in the case last cited: "Rent is a sum stipulated to be paid for the use and enjoyment of land. The occupation of the land is the consideration for the rent. If the right to occupy terminate, the obligation to pay ceases. Consequently, a covenant to pay rent creates no debt until the time stipulated for the payment arrives. The lessee may be evicted by title paramount or by acts of the lessor. The destruction or disrepair of the premises may, according to certain statutory provisions, justify the lessee in abandoning them. The lessee may quit the premises with the lessor's consent. The lessee may assign his term with the approval of the lessor, so as to relieve himself from further obligation upon the lease. In all these cases the lessee is discharged from his covenant to pay rent. The time for payment never arrives. The rent never becomes due. It is not a case of debitum in præsenti solvendum in futuro. On the contrary, the obligation upon the rent covenant is altogether contingent."

The installments of rent falling due subsequent to the appointment of the receivers were payable to them, therefore, not as debts due the bank, but as the income of property administered by them as officers of the court for the benefit of the bank's creditors. Not only were the installments of rent not owing at the time the receivers were appointed, but there was lacking, also, the element of mutuality essential to set-off. See Hood v. Brownlee (C.C.A.4th) 62 F.(2d) 675, 676. The claim of the oil company arose out of the debt of the bank, and the only liability of the receivers with respect thereto was to apply on it a pro rata portion of the bank's assets under order of court. The liability of the oil company for the subsequently accruing installments of rent was to the receivers, not as representatives of the bank, but as officers of the court administering the property of the bank for the benefit of its creditors. The exact question was before the Supreme Court of South Carolina in the recent case of Zimmerman v. Home Insurance Co., 175 S.C. 18, 177 S.E. 895; and we thoroughly approve the reasoning as well as the conclusion of Judge Townsend, adopted by that court, in holding that the set-off should not be allowed. He said:

"I do not think this right of set-off should be allowed. In theory, the right of set-off is allowed in such cases on the ground that the real sum owing, or asset of the insolvent, is the balance owing as between mutual debts, and hence that by striking such balance no preference is granted as against the other creditors entitled to the ratable distribution of the estate. So the right of set-off against an insolvent is governed by the state of things existing at the time of the adjudication of insolvency, for then it is that the rights of creditors are fixed. Bank of Anderson v. Allen, 146 S.C. 167, 143 S.E. 646, 60 A.L.R. 580. It is generally held that rent to be earned and accrue in the future is not an existing debt, but a mere contingent liability which may arise in the future. 24 Cyc. 1137. Such a contingent right is not a provable claim in bankruptcy, is not a debt which can be made a basis of an action for attachment (Skalowski v. Joe Fisher, Inc., 152 S.C. 108 122, 149 S.E. 340, 65 A.L.R. 1427), and, not being ascertained at the adjudication of the insolvency, but its existence and amount depending upon uncertain future events, should not upon principle be allowed as a set-off. Moreover, upon appointment of the conservator, the leased property and the reversion passed to him as the agent or arm of the court, carrying with it the right to rent thereafter to accrue, and it follows that the subsequently accruing rent was owing to the conservator-receiver as officer of the court and as trustee for the creditors. Peurifoy, Receiver, v. Gamble, Receiver, 145 S.C. 1, 142 S.E. 788, 71 A.L.R. 783. This rent, being an asset in equity of the general creditors, should...