Brief for Respondents — Manhattan Properties, Inc. v. Irving Trust Co.

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IN THE | :

‘jun Court of the United States

Ocroser TERM, (1933.

No. 505 °

MANHATTAN PROPERTIES, INC., .

Petitioner,

. VS.

IRVING TRUST COMPANY, as trustee in bank-

ruptcy of OLIVER A. OLSON CO.,; INC. |

No. 506

SAMUEL. R. BROWN, ALMIRA B. MILLARD,

A |

;

ALFRED MILLARD and HUGH MILLARD,

Petitioners,

vs. .

IRVING TRUST COMPANY, as trustee in bank-

ruptcy of UNITED CIGAR STORES COMPANY

: OF AMERICA.

On Writs OF CERTIORARI TO THE UNITED STATES CiR-

‘cuIT CourRT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF FOR RESPONDENTS. >

_ WGpREDERICK H. WOOD

HAROLD L. FIERMAN

DONALD C. SWATLAND

J WILLIAM D. WHITNEY

, . Attorneys for Respondents .

ie x

Opinions below

ore eee eee eee eee ee ee

Statutes involved

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Statement

Summary of argument

Argument :

1. (A) The Legislative and Judicial history of the Bank-

ruptcy Act is persuasive, if not conclusive, that

Congress did not intend that claims for damages for

loss of future rent should be provable in bankruptcy 11

(B) Moreover, only compelling language in the Act itself

—which is wanting therefrom—would warrant the

rejection of the construction placed upon the Act

by the courts below, which is .a construction ac-

cepted.and followed with substantial unanimity by

Bench and Bar practically ever since the enactment

OF er ee 6 wana eee be bedessbudeneceuduseves 11

(1) The Legislative and Judicial background of the

present Bankruptcy Act ..........eeceecess 12

(2) The interpretation placed upon the Act since its

passage and the subsequent action of Congress,

GU OP Ge FON TI a cc iccccccceccccceses 19

(3) Decisions of this Court and subsequent legis-

lative history of the Act up to March, 1933... - 24

(4)-The foregoing review of the legislative and

judicial history of Section 63a conclusively

demonstrates that the long accepted interpreta-

tion thereof by Bench and Bar coincides with

the intent of Congress itself................ 29

(5) The amendment of March 3, 1933 was not, as

asserted by petitioners, declaratory of the in-

tent of the Act as originally passed.......... 34

(6) In view of the legislative and judicial history

of the Act, the Court should affirm, because

there is lacking in the statute itself that com-

pelling language which alone would warrant

the Court in overturning an interpretation of

the Act followed and accepted by Bench and _.

Bar practically ever since its enactment...,.. 43

(a) There is no compelling language in the statute

requiring the overturning of the long estab- -

lished interpretation ......ccccescccccsoess 43

(b) As in Maynard v. Elliott, to overturn the set-

tled practice of more than thirty years would

involve serious consequences..........6606. 47

II. The long accepted interpretation of the Act upon which

the decisions below are based is consistent with the deci-

sions of this Court and is supported by well established

and long recognized principles of law (Answer to Points

I, III, IV, V, VI of Petitioners’ Brief)............... 52

III. The specific claims presented in these cases, arising out

of the particular covenants contained in the leases before

the Court, are in no event provable in bankruptcy...... 67

(1) In the Brown Wee i Wes ep cencvess 67

(2) In the Manhattan Properties case, No. 505... 77

(3) Even though a claim for damages under breach

of a simple covenant to pay rent should be

held to be provable, claims arising under the

leases here in question are not provable....... 79

CITATIONS

CASES: | PAGE

eS eer eer 33

Ss Oe Os Be WI ence cececcecccccvecsceus 20 |

Amdur Shoe Company, In re, 13 Fed. (2d) 147.......... 46n

Atkins v. Wilcox, 105 Fed. 595...... seecesees +++ +20, 29, 63

PONy ST. EMD, FOE. COR. FOR cc occcccesstvesvvercoesces 14

B. & O. Railroad v. Baugh, 149 U.S. 368............... 33

Barton Co., in ve, Hh Ped. (BA) SZ. onc cccccccccvccecen 21

, Bliss Auto Sales Co., In re, 22 A. B. R. (N.S.) 44..... 21,71

Blum Bros. Co., In re, 55 Fed. (2d) 723..... rere te nwat 21

Bosler v. Kuhn, 8 Watts & S. (Pa.) 183.............0.. 13

Bay Y. GOOD, FON POG BGs sccm ccccateciocctecvenecss 22

Beewder 0. Gage, TOU. B. BFF oo occ cccccccccececsveess 33

Britton v. Western Iowa Co.; 9 Fed. (2d) 488........... 20

Brooks Sample Furniture Co., In re, 4 Fed. Supp. 858.... 21

Buzzini & Co., Inc., In re, 183 Fed. 827........:.. Ate 46n

Carson v. Arvantes, 10 Colo. App. 382..............0. 56

Central Trust Co. v. Chicago Auditorium Association, 240

i Ree rn 24, 25, 27, 28, 57, 58, 59, 60, 72, 76

Central Trust Co..v. Louisville Trust Co., 100 Fed. 545.... 69

Chaude Vv. Shepard, 122 N. ¥. FBZ... ccccccccccceccocs 57

* Collignon, Inre;4 A. B. R. 250. ..... 0. ccc ce cece cece 20

Colman Co. v. Withoft, 195.Fed. 250.............. 20, 25, 46n

Commercial Bulletin Co., In re; Fed. Cas. 3060.......... 14 |

COG WM, Cae, Bir Ole BOE ook cds cece cdsccccsccvens ce 39

Courtney v. Fidelity Trust Co., 219 Fed. 57.........0000. 46n

Cress-McCormick Co., In re, 25 A. B. R. 464............ 20

Cromey, 10 90, Wak. Can, Bb) ccc cccccctcvccvcnnccedes 1

Crowder v. Virginian Bank of Commerce, Inc., 127 Va. 299. 57

Cunningham v. Stockton, 81 Kan. 780............... j.. &

Cushman, In re, 3 Fed. (2d) 449...................... 20

De Long Hook & Eye Co. v. Tait, 108 Pa. St. 369........ 57

Dunbar.v. Dienbar, 190 U. S. 340,................... 55, 56

Ells, In re, 9 Fed. 967......... 19, 20, 23, 25, 46n, 70, 72, 73

Filene’s Sons Co., William, v. Weed, 245 U. S. 597,

, 26, 28, 64, 65, 66, 74

Frischknecht, In re, 223 Fed. 417.0... .0.0cecececeeees 20

iv .

CASEs: ‘PAGE

Galbraith v. Wood, 124 Minn. 2f0...............0005. 56

Gardiner v. Butler & Co., 245 U. S. 603, ©

27, 28, 47, 57, 58, 60, 65, 79

Gardiner v..Parsons, 224 Mass. 347........-0eeeeeee 70, 75

Germania Savings Bank & Trust v. Loeb, 188 Fed. 285...

Goldberg, In re, 52 Fed. (2d) 156..........ceeeeeeees 21

‘Henderson-Achert Lithographic Co. v. John Shillita, Co.,

i Ce Oe a ee ce edeeeeeesunesded _— 69

Hendricks v. Judah, I. vera ae ceaenenwsen te

Hermitage Co. v. Levine, SD Dae Be GOMcecccccceceesess 69

Hook, Po re, 25 Fed. (2d) Sie ccebssvevedsdevccecess 21, 22

Houghton, Ex SeTEE, WE, COO, Glas cccvevcccepsevcnens 14

Hubbard, In re, 57 Fed. (2d) 213.........eeeeeeees 21,71

Hufnagel, Ie ve, Pod. Cas. G6a7 ..cgnccccccccvvcccceses 14

Katz, S. & H., In re, 6 Fed. (2d) 581........---eeeeeee 20

Keith-Gara Co., In re, 203 Fed. 585, aff’d. 213 Fed. 450.. 22n

Kepner v. U. ¢. "48 |" YO pny PTTTTTe 33

Koshkonong v.. Burton, B06 U. BS. GER. cccccccpeesserece 38

Kothe v. R. C. Taylor Trust, 280 U.S. 224.........+.... 63

Kottler v. New York Bargain House, Inc., 242 N. Y. 28. a

Lake, Ex parte, Fed. Cas. 7991........ iuelaswheousus 14, 70

Lansalot v. Mihaljevich, 12 La. App. 174. ......:+eeeeees 56

Lansing v. Prendergast, 9 Johns. 127........++.0+ee0005 12

Lasker Co., Inc., In re, 251 Fed. 53, cert. denied 248

Be PRR Rea meri aetna 22n

Lemaud, Mlle., Inc., In re, 13 Fed. (2d) 208, aff'd. 16

Fed. (2d) PERERA S ai LORS 21 ©

Levindale Lead Co. v. Coleman, 241 U. S. 432........... 38

Mahler, In re, 105 Fed. 428. ....... 0c eee ccc eeeeeeeeees 20

Marshall's Garage, Inc., In re, 63 Fed. 13) Fave vcadeeues 21

May, In re, Fed. Cas. ERR Nea RARE RIS Sa 14

Maynard v. Elliott, 283 U. S. 273,

10, 23, 29, 33, 43, 44, 45, 46, 47, 62, 63, 72

McAllister-Mohler Co., In re, 46 Fed. (2d) 91...:. 21, 46n, On

McCready v. Lindenborn, B72 WH. FH. GED. cccccccceccvese 78

McDonnell v. Woods, 298 Fed. 434.........+. Kucewenns .. 20

Merrill & Baker, In re, 186 Fed. 312..........+.-+. 71, 72, 73

Metropolitan Chain Stores, Inc., In re, 66 Fed. (2a)

SE... coccwabdocesesestiacsduetinddnesscoeenas

Moore v. Security Trust & Life Insurance Co., 168 Fed.

496, cert. denied 219 U. S. 583......... cece cece eens 77

Mullings C ——* Co.,; In re, 238 Fed. 58...... gennedies 20

Vv :

CASES: PAGE

National Credit Clothing Co., In re, 66 Fed. (2d) 371.... 23n

National Lead Co. v. United States, 252 U. S. 140........ 34

Northern Pacific Ry. Co. v.. Boyd, 228 U. S. 482.... 5... 49n

Northern Pacific R.R. Co. v. Musser-Sauntry Land, Log-~

ging & Manufacturing Co., 168 U. S. 604............. 33

O’Connor v. Aetna Life Insurance Co., 67 Neb. 122...... 69

O’Donnell, In re, 131 Fed. 150 ..... wesveessécosceoens 46n

Orr v. Neilly, 67 Fed. (2d) 423 ..........eccceeeeeeees 21

ee SF Ge Es SP nk bc vecuencdccedeasnse ee

‘ennewell, In re, 119 Fed. 139 .................. 20, 25, 46n

Philip Semmer Glass Co., In re, 135 Fed. 77............. 46n .

Philiips-Hollman v. Peerless Stages, Inc., 210 Cal. 253.... 70

Pittsburgh Drug Co., ¥n re, 164 Fed. 482............... 22n

Providence Building Co. v. Atlantic National Bank, 228

Fed. 814 ..... hedbebsndaspadsieteecesdbeuedsdeneus 70

Riggin v. Magwire, 15 Wall. 549 ......... 0... cece eens 13

See, Gs Bs I bewbevccccecesevcecceotos 76

Rosenblum v. Uber, 256 Fed. 584 ....... enedbuasneeea 22n

‘Roth & Appel, In re, 181 Fed. 667... .20, 25, 46n, 71, 72, 73

Rothenberg, In re, 140 Fed. 798 ........... Neeendeesee 46n

Se, Ser ee es ED oc bb coendeueecétesvedetiades 23n

Salters v. Tobias, 3 Paige (N. Y.) 338 ....... evdduscees 38

Sapinsky & Sons, J., In re, 206 Fed. 523........ Sevawwe 20

Savory v. Stocking, 4 Cush. (Mass.) 607............... 13.

Schall v. Camors, 251 U. S. 239............ auhee 18, 19, 31

Schell’s Executors v. Fauche, 138 U. S. 562............. 34

Schulte-United, Inc., In re, 2 Fed. Supp. 285.......... 21, 60n

Scruggs, In re, 205 Fed. 673 ...... seeees bccvcouncbess 20

Service Appliance Co., Inc., In re, 39 Fed. (2d) 632, 45

ts ME ee edie bes Cckt osha oo et eed ve cce dat 21

., Shaffer, In re, 124 Fed. 111 .....0...... inwdwn easter 20, 46n

RD SS Se OO ee 39

Slocum v. Soliday, 183 Fed. 410 ................005. 20, 46n

ey 8. 8 eee 46n

South Side Trust Co. v. Watson, 200 Fed. 50............ 22n

Southern Surety Co. v. Sheldon, 33 Fed. (2d) 289....... 69

Staton v. Robinson, 150 Okla. 234 ......... cc ccc cece 57

Stdrne & Levi, In re, 26 A. B. R. 535)... 2.20. c cc ccc eee . 20

Sterne & Levi, In re, 30 A. B. R. 915................ .. 20

- Stinemets v. Ainslie, 4 Denio (N. Y.) 573.............. 13

Sutton v. Conga £99 Pe eb bcdoedcdeeduereuesen 56

vi .

CASES :, - PAGE

Pe Oy CE Gs PRs cre ccvcetisercicseesatene &

~~ Trinity Church v. Higgins, 48 N. Y. 532........-.+.04.. 69

Frust Co. of ‘Georgia v. Whitehall Holding Co., 53 Fed.

Nee ai ecg hous ceiaerebaceee 21

Twentieth Century Millinery Exchange, I ne., In re, 41 Fed.

(2d) 297 wie Timer ee QD edi eaeeNnswedneeeeeess 21

United Cigar Stores C ompany of America, In re, 4 Fed.

ON EISE A Ge Fa itay.. SR ee 21

United States v. Alabama Great Southern R. R. Co., 142

8 BR Rr Ar rr rey An eee 34

United States v. Bank of North Carolina, 6 Pet. 29....... 34

United States v. Cerecedo Hermanos y Compania, 209 U. S. ey

OPEL SACU Oe NUT EET ISN E TARAS 680066 KR CARR OC OHS ae,

United States v. Falk, Gs i Bc ened eWervnceesesae 33

United States v. Farrar, 281 U.S. 624.........ecceecees 24

United States v. Jackson, 280 U.S. 183....... iealcwee see

United States v. Magnolia Petroleum Co., 276 U. S. 160... 39

C'ated States ¥. Ryan, TO4 U.S. 1G7 occa cccccvesecdces OW

United States v. Stafoff, 260 U. S. on EE Oe ee ps

» Walling v. Christie & Hobby, Inc., 54 S. W.. (24) 100... W

Watson v. Merrill, 136 Fed. 359.......... 2.50000. 20, 22, 25

Wells v. 21st St. Realty Co., 12 Fed. (2d) a... Peerer ai,

' Western Electric Co., Inc. v. Powers Accounting Machine

Co. (unreported) .... 0.06. cece eect eee cece eeeees 3n

White v. United States, 191 U.S. 545...........0 eee ees YO

Wicker v. Hoppock, 6 _ ke eee 69.

Williams v. United States Fidelity & Guaranty Co., 236

NE Arr ry errr errr Te rrer 60

Wilson v. Pennsylvania Trust Co., 114.Fed. 74Z..-...... ° 22

Wise Shoes, Inc., In re, 2 Fed. Supp. 521, aff'd 64 Fed.

(2d) Se ea Pore of err 21, 46n, 7

Yuen Suey v. Fleshman, 65 Ore. 606 ........... re 57

- a

a : “3

Vii

é :

SraTUTES, TEXT Books, ETC.: _ ‘PAGE

“\ Act of February 25, 1871, c. 71, § 1 (16 Stat. 431)...... 41

25 I FE GE TIID oie ccccciincenecsescececctes ae

‘Bankruptcy Act of 1841 (5 Stat. 440)...... 0.000: yereg 12

Bankruptcy Act of 1867 (4 Stat. 517) pecgeveeuens 13, 16, 70

Boskrugtcy Act of 1898° (30 Stat. 562), -

tM Chu levpeke ess ees 6 ae bee 6eRa Deer 8 cceees aun ~~. 2

DU EP dvteccevécscrecebeteceere eT enetsepenses 2

CN cs vied iuseot dashes encesesessavesouuss ss 61

MeSesssecedeseees “2,18, 23, 28, 30; 34; 36, 38, 40, 42

a re eds esbesebensceneesuaveteens 41

Se Oe Ms GUE Decesecederses 23, 34, 37, 40, 41, 42

_ See. 77 (47 Stat. 1474)..... Secckeeewesevereteenebes 41

Black on Interpretation of Laws (2d ed.), § 181........ 38

British Bankruptcy, Act of 1869 (32 & 33 Vict., c: 71), :

15, 16, 56

British Bankruptcy Act of 1883 (46 & 47 Vict., c. 52) ..16, 56

Collier on Bankruptcy (13th ed.) Vol. 2, ae ~a S

Congressional Record, Vol. XIV} pp. ae 16 ;

"7 Geo. I, €. 3b... ee eee eisaeniee Vaceieeekenstoveaa cee

H.R. 5884, 73rd Cone.; 4th aoe eadvtvaresduvausee™ 42.

House Rept. No. 1228, 54th Cong., Ist Session........... 18

House Rept. No. 65, 55th Cong., 2nd Session rane eh aes 18.

- House Rept. No. 194, 73rd Cong., Ist Session.....: eeieks 42.

Lowell Bill, U. S. Sen. Ed., 1883.......... ..16, 17n, 19, 30

‘Remington on Bankruptcy (3d ed.) Vol. 2, §§'789, 793, 795 23

. Senate Doc. No. 294, 55th Cong., 2nd Session...:........ 18

| Tiffany on L4ndlord and Tenant, Vol. 1, § 182-j, p. 1174.. 57

United States Cade, Title I, § 24................ aaren 41

42 Yale Law Jourrial 1003........ Pat intone leeeee eaten 49n -

IN THE

Supreme Court of the Rnited States

October Term, 1933. =

MANIA \TTAN PROPERTIES, INC.,

Petitioner,

| Us. a “| No. 505

IRVING Trust CoMPANY, as trustee in

bankruptcy of On ivER A, OLSON Co., -

INC. .

SAMUEL Rk. Brown, ALMIRA B. MIE- 2} .° |

. i 2 . : : .

LARD, “ALFRED MiLLarp and HuGu C

MILLARD, : 3

: . Petitioners, }-

vs. oo ‘ No. 506 . ‘

. ‘ y j

IrvING Trust COMPANY; as trustee in .

‘bankruptcy of UNITED C1GaR STorEs

- COMPANY OF AMERICA. *

ON WRITS OF CERTIORARI TO THE UNITED STATES

) CIRCUIT COURT OF APPEALS FOR :

- THE: SECOND CIRCUIT

BRIEF FOR RESPONDENTS

OPINIONS BELOW |

The District Court rendered no opinion. The

opinions of the United States Circuit Court of Appeals

aré reported in 66 Fed. (2d) 470, 473. |

STATUTES INVOLVED

Section 63 of the Hankeuptey Act: provides ;

“Debts which may be proved. (a) Debts

e of the bankrupt nay be proved and allowed

against his estate which are (1) a fixed lia-

__ bility, as cv idenced by a j dgment or an instru-

ment in writing, absolutely owing at the time

‘of the filing of the petition agaiyst hit,

» whether then payable or mot, with ot, Bs

thereon Which would have been recoverable at

that date or with ja. rebate of interest upon

such as were not then payable and did not

bear interest; * * * (#) founded upon an apen

account, or upon a contract express or im-

plied; * * +,

“(b) Unliquidated © " élgims against’ the

bankrupt may, pursuant to application to the

és court, be. liquidated in sach manner as it shall

direct, and may thereafter be proved and ~

. allowed against his estate.”

Section 1 (11) provides ;

. ‘debt’ shall include any debt, deniand’ or

‘claim provable.in bankruptcy ;”"

Section 17 provides :

OA discharge in, bankruptcy | shall release

Bi. . bankrupt from all of his provable debts”.

-* * * with exceptions not heresmaterial.

(Act of July 1, 1898, ‘Section 1, 17 and 63, 30

Stat. 562, as amended; U. -€: “A, Title 11,

Sections 1, 35 and 103.)

. STATEMENT

— /

No. 506. Brown v. ivebeig T rust Company. — 4 at

On August 29, 1932, United Cigar, Stores Company. oe

of Aimerica, a New Jersey corporation, was adjudicated’a

bankrupt upon its voluntary petition in the: Southern

District of New York (KR. 1). On June 14, 1920, cer-

tain premises located in Nebraska were leased to United

Cigar Stores C ompany of America at a Stated rental for

a term of years commencing July 1, 1920, and expiring

June 30, 1945. .(K. 2). The petitioners, Samuel R.

‘Brown, Almira 1. Millard, Alfred Millard and Hugh

Millard, are now ownera of these. premises subject to

the lease (R. 2). The lease contained the ‘following

covenant (R. 7): 3

“Provided sleo, and these presents are upon

this covenant, that if the Lessee do or shall *'

neglect or’ fail to perform or observe any of the

- covenants contained in these presents and on its

part to be observed and performed for ten (10)

days after notice by the Lessor, or if the estate’

hereby created: shall be taken on execution, and

such execution shall not be satisfied;*cancelled or

otherwise removed within thirty days after notice ©

by Lessor, or if the Lessee shall be adjudicated

bankrupt or insolvent according to law, or if any

- assignment of its property shall. be made for the ~

benefit of creditors, then and in any of said cases

_ the Lessor lawfully may enter into and upon the

' said premises or any part.thereof in the name of

the whole, and repossess the same as of the

former estate of the Lessor and expel the Lessee -

and. those claiming under and ‘through it and.

4 ,

remove its effects (forcibly .if necessary), without

_ . being deemed guilty of any manner of trespass

and .without prejudice to any remedies which _

might otherwise be used for arrears of rent or .

» preceding breach of covenant, and upon entry as

aforesaid this lease shall determine, awd the

Lessee covenants that in case of such termination |

it will indemnify the’ Lessor against all loss of

rent which the Lessor may incur by reason of

such termination, ong the residue of the term

above specified.”

On November 23, 1932, Irving Trust Company,

Trustee in Bankruptcy, disaffirmed the lease (R. 21).

‘Thereafter, on November 26, 1932, the petitioners re-

entered upon the premises and terminated the lease

_(R. 21). The%petitionergy filed a proof of claim on Janu-

-ary 13, 1933, which, as am@pded (R. 19), included an

‘item of $4,404.40, representing the difference between

the rent accrued to the date.of re-entry and the collec-

tions ‘from occupants of the premises during that’ period,

and an item of $140,615.80 (R. 21), representing the

_loss alleged to have been suffered by reason of such

termination for the residue of the term, computed as

- follows? The rent reserved i in the lease was $20,000 per

annum after taxes and charges. . The petitioners alleged

the property had a rental value for the residue of. the

term of $5,000. a year after taxes and charges, and

claimed that their‘loss was $15,000 per annum from |

November 26, 1932 to June 30, 1945, the. present value

of which, discounted at 5% annually, they assert to be

$140,615.80 (R. 21). On February 28, 1933, the peti-

tioners made application for liquidation of this claim

under Section 63b of the ‘Sittin Act (R. 16). On

March 8, 1933, the Trustee~obtained ari i Order to show

_ cause why | the clainr should not be disallowed and the ~

proof thereof. expunged (R: 18). The Referee disal-

lowed both items of the claim, holding that as a matter.

of law they were not provable, and expunged the proof

thereof (R. 23-30). On petition for review, the order. ©

of the Referee was affirmed. ‘by the District. Court (R.

33), and, on appeal, the judgment bélow was affirmed

by the United States Circuit Court of Appeals.

¢ i

_ No. 505. Manhattan Properties, Inc. v. Irving Trust

Company. . : ~

Oliver A. Olson. To., Inc. was adjudicated a bank-

rupt in thé Southern District of New York on March

18, 1932. On December 20, 1927, one Reid, then

owner. of certain real estate’ in New, York City, leased

such property to the Oliver A. Olson Co., Inc. at a stated .

rental. for a term commencing February 1, 1928, and

expiring Octobér 1, 1937 (R. 3). In December, 1928,

the property was conveyed to Manhattan Properties, Ane.

_subject‘to the lease.

Oliver A. Olson Co., Inc. biteuliea in the payment os,

of rent for February and March, 1932. Upon its ad judi-

cation in bankruptcy, Manhattan Properties, Inc. filedits |

Claim, comprising one item of $1,558.93 (representing

rent for February and March less $107.75 received from —

the Receiver for use and occupation), and another item

for $25,00Q damages for loss of future rentals, being

the difference between the total unaccrued rent for the |

' balance of the term reserved in the lease, viz., $58,000

and $33,000 which Manhattan Properties, tn. alleged

ILLS EELS OEE CEA Pal ARES GEE AREER RINGER AE OTE

: . : . . P . * e ;

‘ ae . e +

6 %

- _ a - ‘ga

_to be the present rental value of. ‘the remainder of the

term (R. 2). The lease (R. 3) provided R. 13): |

PROVIDED ALWAYS NEVERTHELESS, that if de-

fault be made by.the Tengnt i in the performance.

of any covenant herein, exgept-the covenant for

the payment of rent or additional rent, or in the ~- -

covenants’ of any other lease between the Land-*

- Jord and Tenant, the Landlord, upon the happea- *

4ng of any such events, may give to the Tenant

five days’ notice of intention to end the term of

‘this lease or y other lease-between the Landlord

-and. TenantAind thereupon, at the expiration of

said five. days, thé term of this lease and any and

all other leases affecting the sanie Landlord and

Tenant shall expire as fully and completely as if

that day were the date herein or therein definitely |

fixed for the expiration of the term, and the

Tenant will then quit and surrender to the Land- .

lord the demised premises mentioned in this or any

such lease; but the Tenant shall remain liable as .

herein provided, except that if the demised prem-: .

ises be destroyed by fire or other casualty the ‘fore-

going provision shall not affect any other: lease

between the same Landlord and Tenant; or, if

the Tenant make default in the payment of the

rent reserved hereunder, or any part-thereof, or-

in making any other payment herein provided for,

or if the notice last above provided for shall have

. been given and said five days’ ‘period shall: have

elapsed, or .if the Tenant abandon said premises,

“if said premises become vacant, if the Tenant be-

. come insolvent, if the Tenant make an assignment

for.the benefit of creditors, if bankruptcy proceed-.. ©

ings be instituted by. or against ‘the Tenant, if a —

‘Receiver or Trustee of the Tenant’s property be °:

appointed, or if any similar event happen in re- —

spect to any other lease between the L

the Tenant, then it shall be lawful f

lord, or the Landlord’s gent, wit

re-enter said premj every/ part thdreof,

either by ejectment, summary proceedings; per-

sonal entry, or oth¢rwise, and remove. all persons

and property therefrom without being liable to in-

dictment, prosecution, or damages therefor, and in

the event of such re-entry or the cessation or

cancellation of such estate, lease, renewal ‘or ex-

tension, the Tenant, for the Tenant and for all

persons claiming through or under the Tenant,

hereby waives any and all right to redemption now |

or hereafter given by any-law. The Landlord

may, after obtaining possession of said premises,

re-let the same or any part thereof as the agent

of the Tenant for the whole or any part of- the

term herein demised, from time to tithe, as the

Landlord may deem best.. In the event that the

Landtord shall obtain possesion by re-entry, dis-

possess, summary proceédings or otherwise, the

Tenant hereby agrees to pay to the Landlord on?

demand the expense incurred by the Landlord in

obtaining possession of said premises, including .

degal expenses and attorneys’ fees, and to pay such |

other expenses“as.the Landlord may incur in

putting the premises in good order and condition,

_ arid also any other. expense or commissions which -

may be paid by the Landlord in and about the

letting of the same. The Tenaft further agrees —

to. pay each month to. the Landlord the deficit

accruing from the difference between the arhount

_ to be paid as rent as herein reserved and the

amount’of rent which shall be collected and re-

ceived from the demiiséd premises for such month ~

‘during the residue of the term herein’ provided

for after the taking possession by the Landlord;

t noti¢’ to

the overplus, if.any, at the‘expiration of the full

term herein. provided for shall be paid to the

Tenant unless the Landlord within a period of

six months from the termination of this lease as .

provided herein shall, by notice in writing, rélease

the Tenant*from any and all liability. created by

this provision of the lease, which it is agreed the

Landlord shall, at the Landlord’s option, have the

right to do, in which event it is agreed that’ the

Landlord ,and the Tenant shall have no -further

rights and liabilities hereunder. The Landlord

‘may sue for and enforce the collection by law of

such amount as above provided for which may be

due at the expiration of each month, and the Ten-

ant expressly agrees that any. such’suit shall not

be a bar to of prejudice in any way the rights of

the Landlord to enforce the collection of: the

amount due at the end of any other future’ month

by a like or similar proceeding. If said Tenant

shall, at the\date of the execution of this lease,

be in possession of said premises under’ an exist-

ing lease, it is agreed that if the said lease under

which said Tenant holds said premises shall for |

any cause be cancelled before its date of expira-’

tion, then this lease shall likewise, at the option

of the Landlord, be void and of no effect.

The dalen ‘jacofar as it related to rent accrued to

the date of bankruptcy was allowed. Insofar as it related

‘to damages for loss of future rentals, it was disallowed by

the Referee in Bankruptcy (R. 17), on the ground that,

as a matter of law, it did not constitute a provable claim

in bankruptcy (R. 20). On petition to review, the United

States District Court affirmed the order of the Referee

(R. 21). The order of the District Court was affirmed

_ on appeal to the United States Circuit Court of Appeals .

(R. 25). °.

SUMMARY OF ARGUMENT.

cg ee

“(A) The Legislative and Judicial history of the

Bankruptcy Act is persuasive, if ‘not conclusive, that

Congress did not intend that claims fo. damages for loss _

of future rent should be provable in bankruptcy.

ae B) Moreoygr, only compelling language in the Act

itself—-which i is wanting therefrom—would warrant the

rejection of thé construttion placed upon the Act by the

courts below, which ‘is a construction accépted and fol-

lowed with substantial unanimity by Bench and Bar prac-

7 tically ever since the enactment of the statute.

(1) The Legislative and Judicial background

of the present Bankruptcy Act.

(2) The interpretation placed upon the Act

since its passage and the subsequent action of

Congress, down to the year 1933.

(3) Decisions of this Court and subsequent

legislative history of the Act up to March, 1933.

(4) The foregoing review of the legislative

and judicial history of Section 63a conclusively

demonstrates that the long accepted interpreta-

tion thereof by Bench and Bar coincides with the

intent of Congress itself. _

(5) The amendment of March, 3, 1933 was

not, as asserted by petitioners, decla y of the

. intent of the Act as originally passed.

(6) In view of the legislative. and judicial

history of the Act, the Court should affirm, be-

- cause there is lacking in the statute itself that com-

pelling language which alone en warrant the

Court in overturning: an interpretation of the’ Act

followed and accepted by Bench and Bar practi-

cally ever since its enactment.

(a) There is no compelling language in the

statute requiring the overturning of the — es-

tablished interpretation:

(b) As in Maynard v. Elliott, to overturn the

. settled practice of more than thirty years would

involve serious consequences.

ptm

The long accepted interpretation of the Act upon

‘which the decisions below are based is consistent with

' the decisions of this Court and is supported by well

established and long recognized principles of law (An-

swer to Points I, III, IV, V, VI of Petitioners’ Brief).

ITI.

feck \

The specific claims presented in these cases, arising ©

out of the particular covenants contained in the leases

before the Court, are in no event provable in bankruptcy.

(1) In the Brown case, No. 506.

(2) In -the Manhattan Properties case, No.

505.

(3) Even though a claim for damages under .

breach of a simple covenant to pay rent should be

held to be provable, claims arising under the leases

here in question are not provable.

—

ll 4

ARGUMENT

i» (A) THE LEGISLATIVE AND JUDICIAL HISTORY

OF THE BANKRUPTCY ACT IS PERSUASIVE, IF NOT

CONCLUSIVE, THAT CONGRESS DID NOT INTEND

THAT CLAIMS FOR DAMAGES FOR LOSS OF

FUTURE RENT SHOULD BE PROVABLE IN BANK-

_RUPTCY.

_ (B) MOREOVER, ONLY COMPELLING LANGUAGE.

IN THE ACT ITSELF—WHICH IS WANTING THERE-

FROM—WOULD WARRANT THE REJECTION OF

THE CONSTRUCTION PLACED UPON THE ACT BY

THE COURTS BELOW, WHICH IS A CONSTRUCTION

_ ACCEPTED. AND FOLLOWED WITH SUBSTANTIAL

UNANIMITY BY BENCH AND BAR PRACTICALLY

EVER SINCE THE ENACTMENT OF THE STATUTE.

Under Point II we shall endeavor. to show that, con-

trary to the contentions of the petitioners, the construc-

tion placed upon the Act by the courts below is not in-

consistent with the decisions of this Court, But is, in fact,

sustained by well established so a of law. recog-

nized by this Court. :

At the outset ‘of the argument, however, it will be

helpful to review briefly the legislative and judicial his-

tory of the Bankruptcy Act relating to future ‘rent

claims. Such history is a helpful guide to interpretation °

in any cage, and particularly so in this instance. In this,

as in many other cases, legislative and judicial history

‘are so interwoven that they may appropriately be con-

sidered together.

1. The Legislative and Judicial background of the

present Bankruptcy Act.

- Under the Bankruptcy Act of 1800, claims for future

rent were not provable and the bankrupt’s discharge did

not relieve him from liability under a lease. Hendricks

v. Judah, 2 Caines 25 (N: Y., 1804). The same doctrine.

was applied under state insolvency laws on the theory

that rent to accrue was not a present debt, the court fol-

lowing the rule then being applied by the British courts

under the British Bankruptcy Act (7 Geo. I., c. 31).

Lansing v. Prendergast, 9 Johns, 127 (N. Y., 1812). —

The Bankruptcy Act of 1841 made express provision

for proof and allowance of “uncertain or contingent de-

mands” against a bankrupt, although claims for future

rent were not specifically mentioned.*. Notwithstanding

the express provision for proof of uncertain and con-

tingent. demands and for the determination of their

present value, this Court held that claims based upon ~

contracts, in respect of which it was uncertain whether

*The Bankruptcy Act of 1841, Sec. 5, provided in respect of

claims for unmatured obligations :

. “# ® * all creditors whose debts are not due and payable

a a future day, all annuitants, holders of bottomry and

re§pondentia bonds, holders of policies of insurances, °

sureties, indorsers, bail, or other persons, having’ uncertain

or contingent demands against such bankrupt, shall be per-

mitted to come in and prove such debts or claims under ~.

this act, and shall have a right, when their debts and claims

become absolute, to have the same allowed them; and such

annuitants and holders of debts payable in future may have

- the present value thereof ascertained under the direction

of such court, and owes them sential as debts in

presenti * * *.”

any actual liability would ever arise and if so to what

. ‘ >

extent, and such uncertainty could not be removed by

calculation, were not provable. Riggin v. Magurre, 15

Wall. 549 (1872). In the state courts, it was spectiically

held that claims for future rent were not provable under

- that Act and hence not discharged, the courts refusing to

assimilate claims for future rent to the various classes

of claims mentioned in the Act of 1841, as being neither .

a present debt nor a contingent claim susceptible of —

preset valuation. Bosler v. Kuhn, 8 Watts & S. 183

(Pa., 1844), Stinemets v. Ainsli8, 4 Denio 573 (N. Y.,

1847), Savory v. Stock:1g, 4 Cush. 607 (Mass., 1849).

The Bankruptcy Act of 1867, Sec. 19, provided :

“* * * In all cases of contingent debts and contin- _

gent liabilities contracted by the bankrupt, and not

herein otherwise provided for, the. creditor may

make claim therefor, and have his claim allowed,

with the right to share in the dividends, if the con-

tingency shall happen before the order for the,

final dividend ; or he may at any time apply to the

court to have the present value of the debt or lia- |

bility ascertained and liquidated, which shall'then

_ be done in such a manner as the court shall order,

and he shall be allowed to prove for the -amount

so ascertained.

* * ot en * *

“* * * Where the bankrupt is liable to pay rent or ty,

other debt falling due at fixed and stated periods,

‘the creditor may prove for a proportionate part

thereof up to the time of the bankruptcy, as if the

., Same grew due from day to day, and not at such

fixed and stated periods.” ~

Under this Act, the courts continued to hold that

claims for future rent or damages for breach of lease .

were not provable. Some of the cases so holding relied

upon the provision permitting proof for a proportionate

part of the rent up to the date of bankruptcy, holding

that this impliedly prohibited pryof of any rent accruing

thereafter, particularly jn view of the further provision

in the Act that.only specified debts should be proved. /n

re May, Fed. Cas. 9325 (D. C. S. D. N. Y., 1874) 3 In re

Hufnagel,-#ed. Cas. 6837 (D.C. E. D. Mich., 1875);

Bailey v. Loeb, Fed. Cas. 739 (C. C. M. D. Ala., 1875).

. Others, Ex garte Houghton, Fed. Cas. 6725-(D. C.

Mass., 1871) and Ex parte Lake; Fed. Cas. 7991 (D.C.

Mass., 1877), disallowed such claims upon the common

law principle. that rent was not a debt?until the rent

day and did not fall within the provisions of the Act

permitting proof of contingent claims. See also /n re

' Croney, Fed. Cas. 3411 (D.C. S. D. N. Y., 1875); Jn re

Commercial Bulletin Co., Fed. Cas. 3060 ‘ c. 5

1876). In Ex parte Houghton, supra, the leading case

arising under this Act, the court also pointed out that.at

common law re-entry by the landlord terminated the lease

and discharged all obligations thereunder and that dam- -

ages were not thereafter recoverable for a breach of the

covenant to pay rent. It was pointed out that the question

whether future rent can be proved as a debt in bankruptcy

must depend upon the particular language of the statute,

and that the law in this respect had been changed by

. statute in England but not by the Federal Bankruptcy

Act.

As stated in petitioner’s brief (p. 46), claims for loss

of future rent were riot provable under the British Bank-

ruptcy Acts until expressly made so by Sectiofi 23 of

the Act of 1869 ad & ad Vict., c. 7 ),° ‘which. provided

as follows:

“23: When any property of the bankrupt

acquired by the Trustee under- this Act consists

of land of any tenure burdened with onerous

covenants, of unmarketable shares in companies,

of unprofitable contracts, or of any other property

that is unsaleable, or not readily saleable, by rea-—

son.of its binding the possessor thereof to the

performance of any onerous act, or to the pay-

‘ ment of any sum of money, the trustee, notwith-

: Standing he has endeavoured to sell, or has taken

possession of such property or exercised any act

of ownership in relation thereto, may, by writing

under his hand, disclaim such property, and upon

the execution of such disclaimer the property dis-

claimed shall, if the same is a contract, be deemed

to be determined from the date of the order of

adjudication, and if the same is a lease be deemed

to have been surrendered on the same date, and

if the’same be shares in any company be deemed

to be forfeited from that date, and if any other

species of property it shall revert to the person

entitled on the determination of the estate or in-

terest of the bankrupt, but if there shall be no

person in existence so entitled, then in no case

shall any estate or interest therein remain-in the

bankrupt. -Any person interested in any dis-

claimed property may apply to the Court, and the

Court may, upon such application, order posses~

sion of the disclaimed property to be delivered

up to him, or make such other order as to the

possession thereof as.may be just.

“Any person injured by the gegen of this

section shall be deemed a credito of the hank-

_rupt to the extent°of such injury, and may accord-

ingly prove the\ same as a debt under }the bank-

ruptcy.”

This sentialh: sete incorporated and amplified in Section

55 of the British Bankruptcy Act of 1883 (46 & 47 Vict.,

c. 52, s. 55), set forth in haec verba in petitioners’ brief,

pages 47-52, which Act was in effect at the time the Bank- .

_ ruptey Act of 1898 was passed.

No corresponding change was made in our Bank-

ruptcy Act of 1867 although it remained in effect for

eleven years and until repealed ‘ht 1878.

In 1880, Judge Lowell, then United States Circuit

Judge for the First Circuit,“at the request of the Board

of Trade of Boston and othér mercantile associations,

- drafted a new Bankruptcy Act which, after* revision by

“the National Convention of the Boards of Trade and

other commercial organizations held in Washington on

_ January 19 and 20, 1881, and after amendment and.

modification by the Judiciary Committee of the United

States Senate, was introduced in Congress (Vol. XIV

Congressional Record, pp. 42-49, 399; U. S. Sen. Ed.

of Lowell Bill—1883)- but failed of passage. This bill

contained provisions similar in effect to those of the

British Act of 1869 above referred to. Sec. 60 provided

- specifically for proof and allowance of all damages suf- .

fered by reason of the rejection by the trustee of a lease.

Sec. 61 provided that the landlord or any ereditor might

in writing require the trustee to elect within twenty days

after such notice whether to accept or decline a lease;

_ that failure to accept within such time should be deemed

a declination, in the event of which

“the landlord may have any damages he shall suf-

fer thereby assessed, as the court shall direct,

and prove the amount as a debt in the bank- .

ruptcy.”* +

*Section 6Q and 61 of Judge Lowell’s bill were as follows:

“Debts.

“Sec. 60. That the following debts and liabilities and no

. others, shall be provable in bankruptcy: All debts absol

due by the bankrupt at the commencement of the proce

ings, whether then. payable or not, with any interest which

would have been recoverable thereon at that date, or with

a rebate of interest upon such as were not then payable,

and do not bear interest by the terms of the contract; all

damages suffered by reason of the rejection by the trustee '

of a lease, as hereinafter provided; all demands for or on

“ account of any goods or chattels wrongly taken, converted.

, or withheld by the bankrupt, to the amount of their value,

with interest ; all unliquidated damages arising out of any

contract or promise, a pon me or contingent, express or im-

plied, whether the breach is before or after the bankruptcy,

' the amount of all such demands and damages, and of

- all equitable “debts te be assessed in such: mode as the

court shall direct; all taxable costs incurred in good fai

by a creditor before the bankruptcy, in an action to recover

a provable debt, may be added to the proof thereof ; all

costs then taxable against a plaintiff who shall become bank-

rupt se a cause of action which would pass to the trustee,

and which the trustee declines to prosecute after notice. If

= ent‘is-obtained upon a provable debt pending the pro-

ings, and before the bankrupt’s discharge, the debt and

judgment had beer ‘obtained. If the bankrupt shall be

und as drawer, endorser, surety, bail or guarantor u

any bill, note, bond, specialty or contract, or for the debt of

another, the creditor may prove the same at any time after

the liability shall become fixed, and before the final dividend

shall be declared. In all cases of contingent debts, demands

and liabilities contracted by the bankrupt, and not herein

otherwise provided for, Mad creditor may\make claim there- .

for and have his claim allowed,’ with the ‘right. to share in

the dividends, ¢f the contingency shall before the

order for the final dividend; or he may a to the ‘court,

seasonably before such final ‘order, to have the value of the |

debt or liability ascertained and liquidated, which shall then .

‘be‘done in such manner as the court shall direct; and he

cm to the time of bankruptcy may be proved, as if no.

' The Report of the Committee on the Judiciary of the

House of Representatives (House Rept. No. 1228, 54th

Cong., Ist Session), submitting and recommending the

bill which subsequently became the present Act, does not

disclose the origin of the phraseology contained in Sec.

63a. Neither does it discuss the classes: 6£ debts or

_ claims intended to be included therein or excluded there-

from. See also Hote Rept. No. 65, 55th Cong., 2nd

Session, p. 21; Senate Doc. No. 294, 55th-Cong., 2nd

Session, p. 22; Schall v. Camors, 251 U. S.-239, 250-

251. In reporting this bill, the Committee was full

cognizant of prior acts and of the decisions thert.-

under, and of Judge Lowell’s bill (which is referred. to

in the report), and must have been familiar with the

~~ may prove for the amount so’ ascertained. p Ban court

shall find such debt or liability incapable of Yaluation, a

decree to that effect shall be entered upon the record.

“Debts falling due at stated periods shall be apportioned

up to the time of bankruptcy, and on be made for the

proportionate part thereof.

- “Leases, Rents.

“Sec. 61. That the bankrupt shall not be entitled to

the benefits, nor be bound by the covenants or engagements

of any lease held by him at the time of his bankruptcy, but

such lease shall be deemed to be surrendered, so far as he

is personally concerned. The trustee may decline the lease

at any time, notwithstanding that he may have endtavored

to sell the same, or have exercised acts of ownership in

respect thereto: Provided, That the landlord or any creditor

may, in writing, require him to elect, within twenty days

after such notice, whether to accept or decline the same;

afid the failure to accept within such time shall be deemed

a declination. When a lease is declined, the landlord may

have any damages he shall suffer thereby assessed, as the

court shall direct, and prove the amount as a debt in the

bankruptcy. Such declination shall not affect any right of

the trustee to deal with fixtures belonging to the bank-

rupt.”

a 19. a

British Bankruptcy Act. Moreover, the Committee Re-

port discloses that both’ the subject and the text of a

new bankruptcy act had been a matter of public debate

by various disinterested organizations for a period of

several years and that three national conventions had con-

vened to discuss and perfect the bill which was reported, —

‘in the course of which consideration must have been.

given tq prior acts and the decisions thereunder, to Judge

Lowell’s bill and to the British Act. ome a. ©

The Act as introduced and passed, however, made no

specific provision -for proof and allowance of claims for

-damages for los? of rent, whidh had been held not to be

- provable under’ previously existing acts, both American

and British, and to meet which Judge Lowell’s bill and

the then existing British Act made specific provisiop~

The omission must have.been by design. The inference —

is plain that by such omission Congress intended that . -

claims for damages for loss of rent should remain, as

_ before, unprovable under the Act. Schall v. Camors, .

supra. .

2. The interpretation placed. upon the Act ‘since its .

| passage and the subsequent action of Congress, down

to the year 1933.

Whether or not Congress intended by such omission .

that such, claims should be unprovable, it was. apprised

by the courts almost imthediately after the Act became

effective that in their opinion such claims were not prov-

able. Within ‘two years after the passage. of- the Act

it was held in In re Ells, 98 Fed, 967 (D. C. Mass..

1900), that neither claims for damages for loss of rent

nor claims arising) under a contract of indemnity, sim-

ilar to the contracts in. these cases, were provable in

~ bankruptcy. The rule therein stated has been subsequently

followed by the Circuit Courts of Appeals for the First,

Second, Fifth, Sixth, Eighth and Ninth Circuits (as im-

pliedly conceded in petitioners’ brief) and by the District

Courts generally. These cases, cited in the order of their

determination, are as follows: Jn re Ells, supra; In re

Collignon, 4 A. B. R. 250 (D. C. N. D. N. Y., 1900);

Atkins v. Wilcox, 105 Fed. 595 (C. C. A. 5th, 1900) ; In

re Mahler, 105 Fed. 428 (D. C. E. D. Mich., 1900) ; In re

Pennewell, 119 Fed. 139 (C. C. A. 6th, 1902); In re

Shaffer, 124 Fed. 111 (D. C. Mass.; 1903) ; Watson v.

Merrill, 136 Fed. 359 (C. C. A. Sth, 1905); In re Roth&

Appel, 181 Fed..667.(C. C. A. 2d, 1910) ; Slocum v. Soli-

day, 183 Fed. 410 (C. C. A. Ist, 1910); In re Cress-_

McCorgjck Co., 25 A. B. R. 464 (D.C. S. D. Miss.,

1910) ; In re Sterne & Levi, 26 A. B. R. 535 (D.C. E. D. ~

Tex., 1911); ColmanCo. v. Withoft, 195 Fed. 250 (C. .

C. A. 9th, 1912) ; In re Sterne & Levi, 30 A. B. R. 915

(D. C. E. D. Tex., 1912); In ré Abrams, 200 Fed. 1005

(D. C. N. D. Ia., 1913); In re Scruggs, 205 Fed. 673

(D. C. S. D. Ala., 1913); In re J. Sapinsky & Sons,

206 Fed. 523 (D. C. Ky., 1913); In re Frischknecht, -

223 Fed. 417 (C. C. A. 2d, 1915); In re Mullings

Clothing Co., 238 Fed. 58 (C. C. A. 2d, 1916);.

McDonnell v. Woods, 298 Fed. 434 (C. C. A. 1st, 1924) ;

In re Cushman, 3 Fed. (2d) 449 (D. C. S.“D. N. Y.,

1924); Inre S. & H. Katz, 6 Fed. (2d) 581 (D.C. N. D.’

Miss., 1925); Britton v. Western Iowa Co., 9 Fed. (2d)

21 |

488 (C. C. A. 8th, 1925); Wells v. 21st St. Realty Co.,

12 Fed. (2d) 237.(C. C. A. 6th, 1926); In re Mlle.

* Lemaud, Inc., 13 Fed. (2d) 208 (D. C. Mass., 1926), _ .

aif’d 16 Fed. (2d) 780; In re Hook, 25 Fed. (2d) 498

(D.C. Md., 1928) ; In re Barton Co., 34 Fed. (2d) 517

(D. C..N: H., 1929) In re Service Appliance Co., Inc.,.

2 Fed. (2d) 632, 45 Fed. (2d) 884 (D.C. N. D.N. Y.,

1930); In re Twentieth Century Millinery Sodenes,

Inc., 41 Fed. (2d) 237 (D.C. S. D. N. Y., 1930) ; In re

McAllister-Mohler Co., 46 Fed. (2d) 91 (D. C. 5. D.

Ohio, 1930); In re Goldberg, 52 Fed. (2d) 156 (D. C.

S. D..N. Y., 1931); Trust Co. of Georgia v. Whitehall

Holding Co., 53 Fed. (2d) 635 (C. C. A. 5th, 1931) ; Jn

re Blum Bros. Co., 55 Fed. (2d)-723 (D.C. S, .D. Ohio,

1932); In re Hubbard, 57 Fed. (2d) 213 (D. é W. D.

N. Y., 1932); In re Schulte-United, Inc., 2 Fed.. Supp.

285 (D. Cc. S. D. N. Y., 1932); In re Bliss Auto Sales

Co., 22 A. B. R. (N. S.) 44 (D. C. N. D. Ohio, 1932) ;

_ In‘re Wise Shoes, Inc., 2 Fed. Supp. 521 (D.C. S. D.

N. Y., 1932), aff'd 64 Fed. (2d) 1023; In re Marshall’s «

Garage, Inc., 63 Fed. (2d) 759 (C. C. A. 2d, 1933) ; In

re Metropolitan Chain Stores, Inc., 66 Fed. (2d) 482

(C. C. A. 2d, 1933) ; In re United Cigar Stores Company

of America, 4 Fed. Supp. 859 (D. C. S. D. N. Y., 1933) ;

In re Brooks Sample Furniture Co., 4 Fed. Supp. 858

(D. C. Conn., 1933); Orr v. Neilly, 67 Fed. (2d) 423

(C. C.A. 5th, 1933).

We have found. no decisions on the point by

‘the Circuit Courts of’ Appeals of the Fourth or .,

‘Fenth Circuits. In thesonly cases which have arisen

Lee 22

in the District ‘Courts of the Fourth Circuit, however,

~ rent claims have been held not ee! be provable. Bray v

Cobb, 100 Fed. 270, (D. C. N. C., 1900) ; In re Hook;

supra. So far as the Tenth’ Pieck is concerned it may

be safely assumed that the rule, which, as appears from’

the foregoing citations, is so. well established in the

Eighth Circuit beginning with [Vatson v. Merrill, supra,

in which the opinion was written by Judge Sanborn and

concurred in by Judge (now Mr. Justice) Van Devanter,

is still the law in the Tenth Circuit.

The statement in petitioner’s brief (p. 16) that

“decisions in other Circuits show confusiort and conflict”

is inaccurate.* —

*Cases in the Third Circuit disclose the application in that

Circuit of a somewhat different rule but one which is not-in con-

flict.: These cases are chiefly Pennsylvania cases, in which state

there is a statute giving to the landlord a statutory lien: for accrued

rent. In cases in that Circuit where the lease contains an accclera-

tion clause, under which all rent for the remainder of the term

becomes immediately due and payable upon bankruptcy, it has

been held that the effect of this clause is to accrue such rent as

of the date of bankruptcy and entitle tlie landlord to the benefit of -

the statutory. lien. Jn re Pittsburgh Drug Co., 164 Fed. 482

(D. C. W. D. Pa.,-1908): /n re Keith-Gara Co., 203 Fed. 585

(D. C.-E. D. Pa., 1913), aff’d 213 Fed. 450. On the other

hand it is the settled law in that Circuit that if the lantk

lord re-enters and terminates the lease he forfeits all right

to future rent: and all obligation to pay rent ceases there-

with, and the landlord is not entitled either to rent or dam-

ages for. the remainder of the. term. Wilson v. Pennsyl-

vania Trust Co., 114 Fed. 742 (C. C. A. 3rd, 1902); South

Side Trust Co. v. Watson, 200 Fed. 50 (C. C. A. 3rd, 1912) ;Inre

* Lasket Co., Inc., 251 Fed. 53 (C. C. A. 3d, 1918), cert. denied

248 U. S. 562; Rosenblum v. Uber, 256 Fed. 584 (C. C. A. 3d,

1919). The theory of the rule in the Third Circuit appears to be

that under the acceleration clause the rent for the entire remainder

of the term becomes due and payable at the date of bankruptcy and

that in return for the allowance of the landlord’s claim the lease for

the full remainder of the term becomes an asset of the estate to be

disposed of along with other assets, free from any charge for rent

| 23

The construction therein placed upon the Act, which

is the construction placed upon it by the courts below,

has been accepted by leading text writers and announced

by them to.be the law, 2 Collier on Bankruptcy (13th ed.)

p. 1422; .2 Remington on. Bankruptcy (3d ed.) § 789,

793, 795, a circumstance stressed by the Court in May-

nard v. Elliott, 283 U. S. 273 (1931), at p. 276.

Between the decision in Jn re Ells, supra, in 1900, and —

March 3, 1933, when an: amendment of the Act %

referred to in the petitioners’ brief was made (see pp.

34-43, post), Congress has amended the Bankruptcy

Act seven times, on February 5, 1903, June 15, 1906,

June 25, 1910, March 2, 1917, January 7, 1922, May

27, 1926, and February 11, 1932. 47 Stat. 1467.

During the intervening thirty-three years, however,

‘no amendment was made to Sec. 63 so as to change

the situation created by the ‘substantial unanimity

of opinion on the part of Bench and Bar, as dis-

closed above. Congress could not have been unmind-

ful of these decisions. On the contrary, it is ‘pre-

during the remainder of the term, but that if the landlord, instead

of invoking the acceleration clause, re-enters and terminates the

lease, he is not entitled either to future rent or to damages.

Whether the first part of the rule as thus affnounced is correct or

not—a question not presented in this case—the corollary which

accompanies it is in complete harmony’ withthe: rule in other

Circuits that neither claims for future rent as such nor under

contracts of indemnity aré provable in bankruptcy.

| The cases in the Seventh Circuit are in some confusion, but in

In re National Credit Clothing Company, 66 Fed. ¢(2d). 371

(1933), the Circuit Court of Appeals for that Circuit specifically

recognized the general rule, and in /n re Rubel, 166 Fed. 131

(D. C. E. D. Wis., 1908), it was expressly held that a claim for

future rent could not be proved, even though liquidated by lease

provisions.

sumed to know the interpretation placed upon its ©

- statutes by the courts. United States v. Farrar, 281

U. S. 624, 634. The inference is plain, that the decisions

of the courts coincided with the intent of Congress and

that Congress did not intend that claims for loss of futtire

rent, whether arising under the covenant to pay rent itself °

or under a covenant of indemnity, should be provable in

bankruptcy (See I, 4, pp. 29-34, post, for authorities. )

3. Decisions of this Court and subsequent legislative

history of the Act up to March, 1933.

In Central Trust Co. v. Chicago Auditoraum Asso-

ciation, 240 U. S. 581 (1916), one of the cases relied on

by the petitioners, the Court héld that damages growing

out of an anticipatory breach of a contract for personal

services, which the bankrupt -was disenabled to perform

by reason of bankruptcy, constituted a provable claim.

In so doing, this Court itself pointed out the: distinction

_ between such a case and a claim for damages arising: out

of the relation of landlord and tenant. After citing a

‘number of cases relating to claims, growing out. of con-

tracts relating to personalty or to performance Of per- _

sonal services, the Court said (p. 590) : oy —

‘“* * * besides which a number of cases arising

out of the relation of landlord and tenant are

cited: In re Ells, 98 Fed. Rep. 967; In re Penne-

well, 119 Fed. Rep. 139; Watson v. Merrill, 136

_ Fed. Rep. 359; In re Roth & Appel, 181 Fed. Rep.

667; Colman Co. v. Withoft, 195 Fed. Rep. 250.

Cases of the latter class are distinguishable, be-

cause of the ‘diversity betweene duties which

_ ° 3

al ° 25 of

touch the realty, and the mé€re personalty.’ -

‘Litt., 292, b, § 513.”

Of the cases cited in the foregding excerpt, In re Ells

(to which referenée has previously been made) and |

In re Roth & A ppel involved claims arising out of

contracts of indemnity similar to those involved in the

present cases. Watson v. Merrill was a case in which

damages for breach of,a simple covenant to pay rent were

sought to: be proved ‘as a claim in bankruptcy. . In re

Pennewell involved a claim for’ breach of covenant of

quiet enjoyment against the estate of the bankrupt by his —

sublessee because of the latter’s eviction by the head land-

lord. Colman Co. v. Withoft involved a claim founded

upon a bankrupt-lessee’s contract to reimburse his joint

lessee for half the cost of procuring a cancelation of the

lease.

In varying forms, each of the cases cited in the

foregoing | excerpt t thus related to claims growing out of

the relation of landlord and tenant and of the contract-

ary

ual agreements entered into between them. As to each of

these cases, the court declared them to be distinguishable -

from Central Trust Co. v. Chicago Auditorium Associa-

‘. tion upon the authority of the quotation from Lord Coke,

which recognizes a fundamental distinction in the law

between the rights and obligations of parties to contracts

relating to realty and those of parties to contracts con-

cerning personalty or personal services. Counsel for the

petitioners in their brief concede that the rule laid down

by Lord Coke is an insurmountable obstacle to the sus-

taining of their position and invite this Court to reject

and overrule it. It is not our purpose in this portion of

the brief to argue the distinction between the cases relied

upon by the petitioners and the question at issue. The

foregoing dictum—if it be dictum—is important in con-

nection with this review of the legislative and Judicial

_ history of the statute as at least a quasi-approval of the ~~

decisions: of the lower Federal courts that claims for

damages for loss of rent, as distinguished from claims

for damages growing out of an anticipatory breach of a

contract relating to personalty or personal services, were

not provable in bankruptcy.

In William Filene’s Sons Co. v. Weed, 245 U. S. 597

. (1918), the Court allowed recovery of damages in an

equity receivership, on a claim filed by the landlord under

a clause whereby the tenant agreed to pay upon re-entry

and termination for any default, or becausé of bank-

ruptcy, the difference between the stipulated rental and

the fair rental value at the date of entry. It may be ob-

served in passing that no such provision is to be found

in either gf the leases in these cases, but as to such an

- obligation, the Court said (pp. 600-602) :

; “The Circuit Court of Appeals seems to have

, considered also that the filing of the bill had the

‘ same effect as a petition in bankruptcy in stop-

ping claims that like this were not provable at

that date. 230 Fed. Rep. 31. 144 C. C. A.-329.

* * * ek *-

“When a statutory system is administered the

only question for the courts is what the statutes

- prescribe. But when the courts without statute

take possession of all the assets of a corporation

‘under a bill like the present and so make it im-

possible to collect debts except from the court’s

hands, they have no warrant for excluding ¢cred-

itors, or for introducing supposed ,equities other

than those determined by the contracts that the

debtor was content to inake and the creditors to

accept. In order to make a distribution possible

“they must of necessity limit the time for the proof

of claims. But they have no authority to give

to the filing of the bill the effect of the filing of a

petition in bankruptcy so as to exclude any pre-

‘viously made and lawful claim that matures with-

in a reasonable time before distribution can be-

made. Pennsylvania Steel Co. v. New York City

Ry. Co., 198 Fed. Rep. 721, 740, 741.”

In'the same volume, at the same term, and through

the same justice; the Court, in Gardiner v. Butler & Co.,

245 U. S. 603 (1918), held unprovable in equity a claim

for damages for loss of rent through breach of covenant -

to pay the same. In so doing, the Court said:

“But the law as to leases is not a matter of logic

im vacuo; it is a matter of history that has not

forgotten Lord Coke.”

In the same case, the Court cited Central Trust Co. v.

Chicago .Auditorium Association, supra, in support of

the proposition that “in the absence of statute or express

contract a lessor who has terminated a lease and evicted ©

the tenant has no further claim against the lessee”.

By reference to Lord Coke’s maxim and to the Chi-

cago Auditorium case, the Court therefore not only

gave full force to the former but ‘interpreted the dictum

in the latter as we have interpreted it, viz., as the recog-

nition of a distinction between claims for the anticipatory

breach of a contract relating to persapaty or to the per-

formance of personal services and claims for breach of ©

) covenants in leases and other contracts involving the re-

lation of landlord and tenant.

\ The excerpts quoted from Central Trust Co. v.

Chicago Auditorium Association, supra, and William

Filene’s Sons Co. v. Weed, supra, may be dismissed as

dicta, although, for reasons hereinafter given, we think

~ “they rise considerably higher in their authoritative effect.

_ The decision in Gardiner v. Butler, supra, however, may

not be so dismissed. It was the decision of the Court on

the point at issue.

Moreover, dicta of this Court, particularly when

taking the’form of setting forth the distinctions between

the case decided and other cases relied on to support’ a

contrary view, are commonly and properly regarded by

the lower courts ard by the Bar as expressive of the

views of this Court and, it may be assumed, are so re-

garded by Congress.

Eight Congresses assembled after the decision in

the Chicago Auditorium case and seven after the deci-

~ sions in the Filene and Gardiner cases, down to the begin-

ning of 1933. During the same period, four amend-

ments to the Bankruptcy Act were passed: on March 2,

1917; January 7, 1922; May 27, 1926; and February 11,

1932. If, as petitioners assert, the expressions of this

Court, as well as the interpretation long ‘since universally

given to the Act, were at variance with the congressional

intent, it is indeed strange that during this whole period

no amendment of -Section 63a was either enacted or

introduced for the purpose of conforming the law to the.

- intent of Congress.

29 .

In Maynard v. Elliott, 283 U-S. 273. (1931), likewise

relied on by petitioners, this Court sustained the there-

tcfore generally accepted view of the lower courts and the

‘legal profession that the liability of.a bankrupt-endorser-

of unmatired commercial paper was a provable claim, |

although contingent in nature, but was careful to point

out that not all contingent claims were so provable, citing,

as an illustration, Atkins v. Wilcox, .105 Fed. 595, which

was a future rent case.

Since the enactmen®of the present Bankruptey Act,

there: have therefore been four distinct expressions of —

opinion by this Court recognizing that claims for dam-

” ages for loss of future rent, whether by reason of breach

of the.covenant to pay rent itself or of contracts of in-

demnity or for liquidated damages, were not provable ;

“in ankruptcy.

4. The foregoing review of the legislative and judi-

cial history of Section 63a conclusively demonstrates that

' the long, accepted interpretation thereof by Bench and

Bar coincides with the intent of Congress ‘itself.

To sum up the foregoing review of the legislative and

judicialhistory of this section of the Act: Under prior

acts, both in this country and in England, claims for dam-

ages. for loss of future’rent had been held to be unprov-

able in bankruptcy, even when the statute made express

provision for proof. and allowance of contingent claims.

Prior to the passage of the present Act, a bill had been

introduced in'‘Congress making specific provision for the

allowance. of future rent claims, and the British act had

’ been so amended for the purpose of overcoming prior

judicial decisions that they werenot provable. Congress

cannot be assumed to have been unmindful of the fact

that, under previous decisions, in the absence of express

provision in the statute, such claims were not provable,

or unmindful of the express provisions made therefor

in the Lowell bilt and in the British act. It neverthe-

-less made no express provision in Section 63a for their

provability arid allowance. a

Thirty- three years ago and within two years after

\ the passage of the Act, the rule theretofore applied both

in this country and in England to statutes containing no

such provisions was held to be applicable to the present

Act. Such rule ‘has been accepted and applied with —

substantial unanimity. in a multitude of cases in the

lower Federal courts ever sincévand has throughout this

long period been accepted and followed by ‘text writers

, and by the profession generally, This Court in four

cases lias expressed approval of the accepted rule, its first ©

.expressions having been uttered eighteen years ago.

In all, since the enactment of the Act, down to the

beginning of 1933, seven amendments were made to .

the Bankruptcy Act. In non¢ of them has Section

63a been amended so as tg change the accepted inter-

pretation placed upon it, and at no time during such

period has any amendment for that purpose been offered. .

The foregoing circumstances are not only highly per-

suasive but conclusive that the long accepted interpreta-

tion of this section, followed by the courts below, corre-

sponded to the intent of Congress itself and may not and

should not now be overridden.

_ Inenacting the Bankruptcy Act of 1898 without mak-

_ ing specific provision for the provability of claims for

damages for loss of. future rent, notwithstanding the —

fact that such claims had been held to be unprovable in

the absence of such specific provision in prior acts, both

in this country and in England, Congress must have in-

tended the omission of such provision to have the same

effect.

In Schall v. Camors, 251 U. S. 239, this Court was

called upon to decide whether tort claitns were provable

under the Bankruptcy Act-of 1898 and held that as such

claims had-‘not been provable under earlier bankruptcy »

acts, the omission of Congress to provide for the prov-

ability of such claims in the Act of 1898 made it clear

_ ‘that tort chuims were not provable under that Act. The

Court said (pp. 250, 251):

“Historically, bankruptcy laws, both in Eng-

land and in this country, have dealt primarily and

particularly with the concerns of traders. Our

earlier bankruptcy acts invariably have been re-

garded as excluding from consideration unliqui-

dated claims arising purely ex delicto. _- [Citing

previous statutés and decisions. |

“Can it be supposed that the present act was

intended to depart so widely from the precedents

as to include mere tort claims among the provable

debts?. Its 63d section does not so declare in

terms, and there is nothing in the history of the

act to give ground for such an inference. It was

the result of a long period of agitation, partici-

pated in by commercial conventions, boards of

_trade, chambers of commerce, and other commer-

cial bodies. To say nothing of measures pro-

32.

posed in previous Congresses, a bill in substan-

tially the present form was favorably reported

by the Committee on the Judiciary of the House

of Representatives in the First Session of the 54th

Congress. Having | then failed Of passage, it was

submitted again in the Secorid Session of the 55th

Congress as a substityté for a Senate bill; after

disagreeing votes of the two Houses, it went to

conference, and 4s. the result of a Conference

Report became law. It is significant that §63 de-

‘fining ‘Debts which may be Proved’ remained un- °

changed from first to last, except for a slight and

insignificant variance'in clause (5) in the final

. print, the word ‘interests’ having been substituted

’.. for ‘interest.’ House Rep.. No. 1228, 54th Cong.,

Ist sess., p. 39; House Rep. No. 65, 55th Cong.,

2d sess<-p721 ; Senate Doc. No. 294, 55th Cong.,

2d sess., p. 22. Evidently the words of the section

. were carefully chosen; and the express mention

- of contractual obligations naturally excludes tho

arising from a mere tort. Since claims founded .

upon an open account or upon a contract express

or implied often require to be liquidated, some

provision for procedure.evidently was called for;

clause b fulfills this function, and would have

to receive a strained interpretation in order that

it should include claims arising purély ex delicto.

Such claims might easily have been mentioned if

intended to be included. Upon every consideta-

tion, we.are clear that claims based upon a mere

"tort are not provable.” {Italics ours. ]

In other words, the principle is the same as that-in-

volved in the rule that when Congress adopts or re-enacts

a statute in substantially the’Same terms as a previous

statute, it enacts with it the judicial interpretation which

has been placed upon such previous act. The “A bbotts-

ford’, 98.U. S. 440, 444; Kepner v@U. S., 195 U. S. 100,

124; Northern Pacific R. R. Co. v. Musser-Sauntry Land,

- Logging & Manufacturing Co., 168 U. S. 604, 608;

United States v. Falk, 204 U. S..143, 152; United States

v. Cerecedo Hermanos y Compania, 209 U. S. 337, 339;

Brewster v. Gage, 280 U. 5S. 327, 337.

In effect, therefore, the omission of Congress. to make

future rent cl. ms provable by express provision there-

for in the statute is an expression of legislative intent

that such claims should not be provable in bankruptcy.

Whether this be so or not, certain it is that the silence

of Congress in the face of long continued. judicial con-

struction of the statute must be considered as constitut-

ing an adoption of that construction by the legislative

body. As stated in B. & O. Railroad v. Baugh, 149 U. 5.

368, 372:

“Notwithstanding the itiiteeliabi placed by

this decision upon the thirty-fourth section of

the Judiciary Act of 1789, Congress has never

amended that section; so it must be taken as clear -

that the construction thus placed is the true con-

’ struction, and acceptable to the legislative as well

as to the judicial branch of the government.”

This Court has said that even if it were in doubt as

to the meaning of an Act of Congress, it should hesitate -

to set aside the uniform construction over a long period

of years by the lower Federal courts. United States v.

Ryan, 284 U. S. 167, 174; see also Maynard v. Elliott,

supra,

And the rule that the established construction of Fed-

eral statutes by administrative branches of the Govern-

ment will not be overruled by this Court, unless such

construction is clearly violative of the express terms of

the statute, on the ground that such established con-

struction could not be disturbed without introducing “se-

rious mischiefs’’, applies with even greater force to:a long

established construction of the Bankruptcy Act in the

course of its administration by the lower Federal courts

and referees in bankruptcy throughout the country. See

United States v. Bank of North Carolina, 6 Pet. 29, 39; —

Pease v. Peck, 18 How. 595, 597; Schell’s Executors v.

_ Fauche, 138 U. S. 562, 572; United States v. Alabama

Great Southern R. R. Co., 142 U. S. 615, 621; United

States v. Jackson, 280 U. S, 183, 193; National Lede Co.

v. United States, 252 U. S. 140, 146.

The conclusion is unavoidable, therefore, that the

judicial construction of Sec. 63a of the Bankruptcy Act,

whereby claims for damages for breach of lease or loss

of future rents are held not to be provable, has been

tacitly adopted by Congress. :

5. The amendment of March 3, 1933 was not, as as-

serted by petitioners, declaratory of the intent of the Act

as originally passed.

By an act of March 3, 1933, Congress added a new

Chapter Eighth to the Bankruptcy Act. 4/7 Stat. 1467.

As stated in the petitioners’ brief :(p.-54), this chapter

provided for bankruptcy proceedings for compositions

and extensions in the case of individuals, and for exten-

sions and reorganizations in the.case of railroad corpo-

rations. Section 74(a) of the chapter added is as

follows: |

“74(a) Any person exceptingy®a corporation

may file a petition, or, in an involuntary proceed-

ing before adjudication, an answer within the

time limited by section 18(b) of this Act, accom- -

panied in either case, unless further time is

granted, by his schedules, stating that-he is insol- _

vent or unable to meet his debts as they mature,

and that. he desires to effect a composition or an

extension of time to pay his debts. The term

‘debt’ for the purposes of an extension proposal

under this section shall include all claims of what-

ever character against the debtor or his property,

including a claim for future rent, whether or not

such claims would otherwise constitute provable

claims under this Act. Upon the filing of such a

petition or answer the judge shall.enter an order

either approving it-as properly filed under this

section, if satisfied that such petition or answer

complies with this section and has been filed in

good faith, or dismissing it. If such petition or

answer is approved, an order of adjudication shall

not be entered except as provided in subdivision

(1) of this section: Provided, however, That in

staying the action for adjudication in an involun-

tary proceeding the court shall make such stay

conditional upon such terms for the protection

and indemnity against loss by the estate as may

be proper, and that.in any other proceeding under

this section the court may, as the creditors at the

first meeting may direct, impose similar terms as

a condition of delaying the appointment of a trus-

tee and the liquidation of the estate. Any person

by or against whom a petition is filed shall be re-

ferred to in the proceedings under this section as

‘debtor.’ The term ‘creditor’ shall include for

the nurposes of an extension proposal under this

; : " , _

36 |

section all holders of claims of whatever character ~

against the debtor or his property including a

claim for future rent, whether or not such claims

would otherwise constitute provable claims under

this Act. A claim for future rent shall constitute

a provable debt and shall be liquidated under sec-

tion 63(b) of this Act.” [Italics ours. ]

Counsel concede that the amendment was not retro-

‘spective in effect (brief, pp. 55-56) as to claims in

respect of which, as here, the time for filing claims had

expired. Petitioners assert, however, that the amend-

ment was declaratory.

If so, Congress took a long time and adopted a strange

method to declare its original intent.

_ The Act had been in effect for thirty- five years. For

thirty-three years Section 63a had been interpreted as .

excluding claims for damages for loss of future rent in

any form. Seventeen years prior to the supposed declara-

‘tory amendment, this Court had expressed the same view

by way of dictum; and fifteen years prior to this amend-

ment, had decided that claims for damages for loss of

future rent were not enforcible even in equity. There is

nothing in the Congressional Record which indicates that

any member of Congress regarded the amendment as

declaratory. Were it otherwise, long acquiescence upon

the part of Congress in the settled interpretation given

to the Act during all these years is in itself sufficient to

negative the remotest: suggestion that the amendment

passed at this late date was intended even by Congress

itself to be declaratory. That it was not so intended is

further evidenced by the fact that the new language in-

‘troduced was not introduced as an amendment to Section

63a, but as~a part of an added chapter relating to an

entirely different subject and in itself — as related

to that subject. ;

The purpose of the shied chapter, as stated by peti-

tioners’ counsel, was to ‘provide for bankruptcy proceed-:

ings relating to compositions and extensions in the case

of individuals and for extensions and reorganizations in

the case of railroad corporations. For this purpose it set

up a scheme of administration quite at variance with that

contained in the Act in respect: of bankruptcies generally.

The scheme so set up was self-contained and complete. .

It would be idle to suggest that Chapter Eighth as a whole

was declaratory of the original purpose of Congress in

_ view of the fact that-it was so at variance therewith and _

introduced new machinery and created new privileges and —

rights.

Neither will it be seriously contended that Section’

74(a) of the added chapter was, as a whole, declaratory.

of the original Act. It likewise was at variance there-

with. By its very terms, the new definition of the:word

“debt” so ‘as to include claims for future rent is limited

o “the purposes of an extension proposal under this *

section” (Section 74a), and by the very terms of the

Act, the new definition of the word “creditor” ‘so as to

include holders of claims for future rent is similarly

limited.

For the purpose of sustaining their contention that

this. new Act is. in any way declaratory of the intent of

the original Act, counsel for the petitioners are driven to

wrest the last sentence of Section 74a forcibly from that

section and from its context and convert it into an amend-

ment of the Act generally. For Congress so to have

amended Section ‘63a would have been a strange proce-

dure indeed. ieee |

- The cases in which an amendment to an existing act

of Congress has been held to be declaratory of the orig-

inal act instead of an amendment changing the law for

the future are rare indeed. Petitioners have cited none

in which such an amendment has been held ‘to be declara-

tory where its effect is directly contrary to previous judi-

cial interpretation of the same statute. Even in cases -

where no constitutional rights are violated, it is clear

that courts will not give a retrospective effect to a declar-

atory law unless the language of the law is so plain and

explicit as to render it impossible to put any other con-

struction upon it, and even in such cases, as stated in

Salters v. Tobias, 3 Paige 338 (N. Y., 1832) at p. 344, |

_ “Courts will treat such laws with all the respect

which is due to them as an expression of the opin-

ions of the individual members of the legislature

as to what the rule of law previously was. But

beyond that they can have no binding effect; and

if the judge is satisfied the legislative construc-

tion is wrong, he is bound to disregard it.”

See also Koshkonong v. Burton, 104 U. S. 668,

678; Levindale Lead Co. v. Coleman, 241 U. S. 432,

439; United States v. ‘Stafoff, 260 U.S. 477, 480; Black

on Interpretation of Laws (2nd ed.) § 181.

As already pointed out (p. 33, supra), failure

of Congress to amend a statute which has been inter-

preted over a course of years.in a certain way in itself

indicates that the judicial interpretation corresponded to

the congressional intent. To give to the amendment of

. 1933 the effect of a declaratory statute would so fly in

the face of this rule, in view of the history hereinbefore

reviewed, as to impugn the intelligence of both Congress

and the courts. : . °

In none of. the cases cited by petitioners had there

been any prior judicial - interpretation contrary to the

amendments referred to, which were construed-to be of a

clarifying character and declaratory because in harmony

with the interpretation placed upon the statute by

. the courts. In one of them, Cope v. Cope, 137 U. S. -

682, the subsequent act was so phrased as to be held by

the Court not to be declaratory that the original intent of |

the two acts were the same but as declaratory of a con-

trary intent in the prior act. Such, we think, is the initer-

pretation to be placed upon the amendment of 1933,

however restricted or general in its scope, when con-

sidered in the light of previous judicial history of the

Act. : |

What constitutes a declaratory statute has never been

clearly defined. The most familiar case of a declaratory

statute, of course, is one declaratory of the common law, ©

as to which the test is fairly simple. A mere amendment

to an act itself, particularly where the language speaks

im futuro, would according to ordinary interpretation con-_-

stitute a change in the law for the future and be neither a

retrospective enactment or a declaration of the meaning

of the prior act, retrospective statutes not being favored.

United States v. Magnolia Petroleum C 0., 276 U. S. 160,

162; White v. United States, 191-U. S. 545, 552; Shwab

v. Doyle, 258 U. S. 529, 534.

In any event there must be some indicia within the .

language of the act that it was intended to be declara-

si : : — ae

40°

tory of the prior act itself rather than to change the law

for the future. The most certain way of accomplishing’

this purpose would be the enactment of a statute which tn

its terms was declaratory of the meaning of the previous

act. .The 1933 amendment contained no such statutory

declaration. ;

The question in this case turns upon thé definition »

to be given to the word “tlebt” in the Act of 1898. If

- Congress had intended the amendment to have the effect

urged by the petitioners, seemingly it would have at least

been enacted in the form of a definition of the word

“debt”, e.g., by providing that the word “debt” as used in

the act or in Section 63(a) thereof “should be deemed to

- include claims for future tent”. This it did not do. On

the contrary, by preceding language in the same section’in

which it did undertake to define the word “debt” as used

in the Act, its definition is confined so as to be limited to

extension proposals made under the section itself, as:

hereinbefore pointed out. Moreover,. the language re:

lied on not only speaks in futuro but does not in terms

refer to Section 63(a), which is the section enumerating

classes of claims. provable, but to Section 63b, which pro-

vides for the liquidation of unliquidated claims when —

provable. The added sentence may, as counsel assert,

have been surplusage, but its obvious purpose was to pro-

vide that the claims for future rent, made provable for

the limited purposes of the section by its preceding lan-

guage, should be liquidated as other provable claims are

liquidated under Section 63b.

If Congress had intended the last sentence of Section

74(a) to apply not only to extensions, but also to ordi-

nary bankruptcy proceedings, the other references to

' future rent contained in Section 74(a), as well as the

_ provision in Sectien 77 making claims for future rent

provable debts in a railroad reorganization, would have

_ been unnecessary surplusage. It should also be noted

that to make the last sentence of Section 74(a) .(which

Section is entitled “Compositions and Extensions”) apply

te the entire Bankruptcy Act, would be to ‘violate the

canons of construction laid down in United States Code,

Title I, Section 24, (See Act of February 25, 1871, c. 71

§1, 16 Stat. 431) requiring that each section shall “be -

numbered, and shall contain, as nearly as may be, a single

proposition of enactment.” Petitioners on page 59 of

their brief argue that the words “under this Act” as used

in Section 74(a) immediately preceding the last sentence

show that Congress was speaking of provable claims |

under the Bankrupcty Act. This argument distorts the

natural meaning of the words. It is perfectly plain that

Congress intended to make provable, for purposes of ‘ex-

tensions, certain classes of claims, including claims for

future rent, which were not provable under the Bank-

ruptcy Act in ordinary bankruptcy proceedings.

That Congress did not intend that the last sentence

of Section 74a should be applicable to ordinary bank-

_ ruptcy proceedings, is also indicated by the provisions

of Section 73 of the Act of March 3, 1933, providing

“In addition to the jurisdiction exercised in vol-

untary and involuntary proceedings to adjudge .

persons bankrupt, ‘courts of bankruptcy Shall

exercise original jurisdiction in proceedings for ©

the relief of debtors, as provided in Sections 74,

75 and 77 of this Act.” [Italics ours. |

42 °

and also by the provisions of Section ‘2 of the Act of |

March 3, 1933, providing

“This Act shall take effect and be in force from

and after the date of its approval, and shall

-apply as fully to debtors, their stockholders and

‘ creditors, * * *” [not. bankrupts, their stock-

holders and creditors,]. [Italics ours. ]

- Following. the enactment of the Act of March 3,

1933, the House of Representatives, during the ensuing

special session of Congress, on June 5, 1933 passed H. R.

5884 (which is now pending in the Senate). This bill,

among other things, contained a proposed amendment of

Section 63a of the Bankruptcy Act to make claims for

damages respecting executory’ contracts, “including

future rents whether the bankrupt be an individual or a

corporation”, provable claims (and by implication ex-

cluded such claims in pending bankruptcies), It, is evi-

dent that this amendment was intended not \as a mere

clarifying change in the text, as suggested by petitioners

(brief, p. 64), but as a change in the existing law, as

indicated in the Report of the House Committee on the

Judiciary (House Rept. No. 194, 73rd Cong., Ist Ses-

sion) and that the Act of March 3, 1933, was not re-

garded as having declared that claims for damages for

loss of future rent constitute provable claims in ordinary

bankruptcy. proceedings.

In short, to give to the last sentence of Section 74(a)

the effect of an act declaratory of the intent of a prior

Congress’ sitting 38 years ago is to disregard the

context as well as to disregard the rtles generally ap-

plicable in respect of amendments made to change a long

established interpretation of the statute amended.

;

. Moreover, if intended‘ to be declaratory, the declara-

tion is not binding upon the courts, whose function it is

to construe the act as originally written by reference not

only to. the words employed but to the history of.the act

and the interpretation generally placed thereon inthe

interim.

6. In view of the legislative and judicial history of

| the Act the Court should affirm, because there is lacking

in the statute itself that compelling language which alone

would warrant the Court in overturning an interpretation

of the Act followed and accepted by Bench and Bar prac-

tically ever since its enactment. _

a. THERE IS NO COMPELLING LANGUAGE IN THE

STATUTE REQUIRING THE OVERTURNING OF THE LONG _

ESTABLISHED INTERPRETATION.

This case, although distinguishable on. other points,

as hereinafter set forth, is like Maynard v. Elliott, 283

U. S. 273; in that the Court is asked to overturn an

interpretation of the Bankruptcy Act which has been

accepted and followed with substantial unanimity ever

since its passage, In declining so to do, in that case, the

Court said (pp. 276-277 ):

“Within three years after the enactment of the

Bankruptcy Act, the Court of Appeals for the

Third Circuit, in Moch v. Market § treet National

Bank, supra, held that the liability of a bankrupt

‘ endorser of commercial paper, which did not ma-

ture until after the filing of the petition, was a

provable claim under § 63 (a) (4). This ruling

was followed by the Court of Appeals for the Sec-

ond Circuit in Jn re Semmer Glass Co., supra, and

* 4A

appears to have been accepted by the Court of

“age: Appeals for the Ninth Circuit, Colman Co. v.

_ Withoft, supra, p. 253, and by the district courts ~~.

~~ * generally. [Citing numerous cases. ]

“The rule thus ‘announced seems not to have

been seriously challenged until the decision,

twenty- six years later, of the Court of Appeals

_ for the Sixth Circuit in First National, Bank v.

\ Elliott, supra. * * * In the meantime, leading

‘ ‘text writers have stated that the liability of an

endorser, upon a note falling due after the peti-

tion, is provable under § 63 (a) (4).° 1 Loveland

on Bankruptcy (4th ed.) p. 609; 2°Collier on

Bankruptcy (13th.ed.) pp. 1399- 1400; 2 Reming-

ton on Bankruptcy (3rd ed.) § 777.

“Only compelling language in the statute itself

would warrant the rejection of a construction so

? long and so generally accepted, especially where |

overturning the established practice would have

«stich far reaching consequences as in the present

instarice. * * *”

' Every circumstance present in that case leading to

the conclusion stated is present here, including the far

mt reaching consequences of overturning the established

practice in respect of the disposition of landlords’ claims

in bankruptcy. (As to such practical consequences, see °

pp. 47-51, post.) In addition, there are expressions of

this Court on the question in dispute’ not to be found in

respect of the question before the Court in Maynard V.

Elliott. P,

The rule that only compelling inneinae' in the statute

‘itself would warrant the rejection of a construction so

long and: so generally accepted is neither novel nor new.

Courts have repeatedly given weight to the pes ohare

placed upon a statute by the courts, administrative

branches of the Government and the Bar, when long con-

_tinued and generally accepted. If such interpretation is

clearly wrong, no court is, of course, bound to follow it.

But where the question is in any way debatable, orderly

administration -of ‘justice requires that an interpretation —

accepted and followed for a long period of time by sub-

stantially all courts and concurred in, albeit through

dicta, by the court of last resort should not be ov vn.

(cases supra, pp. 33-34.)

It is not contended by petitioners that the plain word-

ing of the statute itself requires the interpretation placed

upon it by them. Any such contention, if made, would

. be untenable. Claims for future rent are clearly not ©

debts within the ordinary meaning of the word. Whether

they are’ claims or demands, contingent or otherwise,

_ depends upon their legal characteristics ; and, if regarded

as contingent claims or demands, whether they are prov-

able or not, requires interpretation of the Bankruptcy

Act. As the Court was careful to point out in Maynard

v. Elliott, not all contingent claims are provable, even

when founded on contract. The question ‘is therefore

one which calls for interpretation.

In such circumstances, we know of no better guide -

by which to determine whether. the language of the

statute itself is compelling to a certain conclusion than

by a consideration of the decisions of the courts which

have been called upon to determine the question. In this

case, as evidenced by the foregoing review, the lower

courts, with substantial unanimity, have held that claims |

for damages for loss of future rent are not provable in

bankruptcy. . Many of the very same courts which prior

46 .

to Maynard v. Elliot held that the liability of a bankrupt-

endorser of commercial paper was a provable claim also

-held that claims for damages for loss of future rent

were not provable.* None of these courts saw any in-

consistency between the two rules.

*C ases applying rule that claims Cases applying or approving rule

for damages for loss of future that claims against bankrupt en-

rent are not provable. dorsers on unmatured notes are

: : provable.

] First Circuit |

Slocum v. Soliday, 183 Fed. 410 In re Smith, 146 Fed. 923 (D.

; (C. C. A. Ist, 1910). C. R. I.,-1906) ; ;

4 In re Ells, 98 Fed. 967 (D.C. In re O’Domnell, 131 Fed. 150

‘ Mass., 1900) ; : (D. C. Mass., 1904) ;

F In’ re Shaffer, 124 Fed. 111 (D. In re Amdur Shoe Company, 13

C. Mass., 1903) ; Fed. (2d) 147 (D. C. Mass.,

. 1926).

SECOND CIRCUIT ~

In re Roth & Appel, 181 Fed. In re Philip Semmer Glass Co.,

- 667 (C.C.-A. 2d, 1910) ; 135 Fed. 77 (C. C. A. 2d,

In re Metropolitan Chain Stores, 1905) ; é

Inc., 66 Fed. (2d) 482 (C.C. In re \Buzzini & Co., Inc., 183

A. 2d, 1933) ; Fed. 827 (D: C. S. D. N. Y.,

In re Wise Shoes, Inc., 2 Fed. 1910) ;

Supp. 521 (D.C.S.D.N.Y., Jn re Rothenberg, 140 Fed. 798

* 1932), aff'd 64 Fed. 1023. (D. C. S. D. N. ¥\, 1905). .

SixtHu Circuit

In re Pennewell, 119 Fed. 139 Germania Savings Bank’ &

(C. C. A. 6th, 1902) ; Trust Co. v. Locb, 188 Fed.

W ells v. 21st Street Realty Co., 285 (C..C.-A. 6th, 1911) ;

12 Fed. (2d) 237 (C. G. A. Courtney v. Fidelity Trust Co.,

6th, 1926) ; 219 Fed. 57 (C.-C..A. 6th, -

In re McAllister-Mohler Co., 46 1914).

Fed. (2d) 91 (D.C. S. D.

Ohio, 1930). ‘

NINTH CIRCUIT

~ Colman Co. v. Withoft, 195 Colman Co. v. Withoft, 195

Fed. 250 (C.. C. A. 9th, Fed. 250 (C. C. A. 9th,

1912). 1912).

This Court itself, by its decision in Gardiner v.

Butler, 245 U. S. 603, and by its dicta in the other cases

cited (1, 3, pp. 24-29, supra), has given expression to

the view that such’ claims are not provable in the very

cases which petitioners now claim are inconsistent with

such conclusion.

In the face of these judicial opinions, it clearly cannot

be said that the statute itself contains that compelling

language which, as stated in Maynard v. Elliott, would

alone warrant the over-turning of an interpretation of

the Act so long accepted and followed by Bench and Bar.

b. As IN Maynard-V~EHiott, TO OVERTURN THE SET-

TLED PRACTICE OF MORE THAN THIRTY YEARS WOULD

INVOLVE SERIOUS CONSEQUENCES.

It should be obvious without elaboration that’ over-

turning by judicial decision the settled practice of over

30 years would have serious consequences, a circumstance

given recognition in Maynard v. Elliott.

In the meantime, thousands of bankrupt’ estates have

been administered, thousands of bankrupts discharged,

_ the rights of their creditors determined and distribution

made in accordance with such settled practice. At the

present time hundreds, perhaps thousands, of bankrupt

estates are in the course of administration. In some,

time for: filing proof of claims has expired, in others

not.. In some, final distribution is imminent, in others

compositions effected or agreed upon. In all, save the

limited number of individual ‘extensions and composi-

tions . affected by the amendment of 1933, these

estates have been administered in accordance with the

interpretation and practice so long accepted and followed.

—|

Some landlords, like the petitioners, have attempted to

make proof of claims for loss of future rent. Others

' have not. This is true of the United Cigar Stores bank-

ruptcy, one of those involved in the instant cases, in

which the time for filing claims has expiréd. The result

of over-turning the present rule, therefore, would be to

discriminate as between landlords. On the other hand,

if it is proper that the rule be changed—a question upon

which there is a difference of opinion—such change

should be made by Congress and should be made ap-

plicable only to future cases. Only confusion and injus-

tice could result, however, from changing the existing

rule by judicial decision.

| The foregoing considerations relate to questions of

legal machinery and discrimination among landlords.

There are more fundamental consequences affecting busi-

: ness engagements, extensions of credit and the rights of.

7. creditors past, present and future. As a result of the

long accepted rule of law, banks, merchandise creditors

| and others ‘in granting credit have assumed that, in case

of any insolvency, the tangible assets of the borrower

would be-available for such creditors to the exclusion of

landlords asserting claims for loss of future rent.

Corporate balance sheets do not show liability for future

rent either as a fixed or contingent liability and banks

and merchants have advanced funds and merchandise,

and manufacturers have sold goods and advanced credit, .

on the basis of such balance sheets. Doubtless, credit so

obtained in many instances has enabled the borrowing

enterprise to avoid bankruptcy and survive temporary

financial embarrassment. The effect of over-turning the

established practice. by judicial decision at this late date

ae we ees

would be to dislodge these creditors from their present

position, depriving them of a portion of the security upon

which they relied and subjecting them to hazards which

they did not anticipate in extending credit and which they

had a right to assume did not exist. —

It is equally obvious that to over-turn the existing

practice will require banks, manufacturers, merchants

and others extending credit tc reconsider and revise all

existing lines“of credit in the light of the new rule, in ©

many instances to the disadvantage of the borrower.

Indeed, such revision may well precipitate bankruptcies

which would not otherwise occur. ;

It would seem that whether such far reaching conse-

quences in respect of both past and future transactions

should be brought about by changing existing practice is

a matter which should primarily be determined by Con-

gress. Certainly it can be more effectively dealt with

legislatively than judicially.* : |

The effect of a change in the existing practice would

vary to the extent that landlords’ claims are large or

small. Petitioners in their brief lay particular stress

upon the hardship falling upon landlords of large chain

stores, such as United Cigar Stores Company of

America, one of the bankrupts involved inthe instant

cases. . This, of course, is because in the case. of such

*Petitioner’s brief = 33) argues that under the existing prac-

tice a corporate tenant_with sufficient assets to pay all other classes

of creditors may;-f0r the purpose of escaping liability on leases, file

a voluntary petition in bankruptcy. The argument assumes that

the corporation or its stockholders can through bankruptcy benefit °

at the expense of these having prior rights. In this connection

" _ see. Northern Pacific Railway Co. v. Boyd, 228 U. S. 482; “Land-

lord Claims in Reorganization” by William O. — and Jerome

Frank, 42 Yale Law Journal 1003 (1933).

éstatesthere are numerous long term leases at high

rentals. The aggregate of landlords’ claims in such cases

is very large and represents a high percentage of all

claims. While landlords in such cases may suffer, their

leases could not have been entered into in any other

expectation than that in the event of bankruptcy their

claims would not be provable. Other creditors have ex-

tended credit to such corporations upon the same hypoth-

esis. As between the two classes of creditors the equities

of the latter would seem to be superior.

In considering the practical consequences df a change

in the existing rule, it is self-evident that the longer the

‘lease the less likelihood of ultimate loss to the landlord

through re-entry and reletting, but at the same time the

greater proportion of.the bankrupt estate which would be

absorbed by him where the bankruptcy occurs during a

period of depression. In other words, the longer the term

the greater the uncertainty of any loss, but the greater

the certainty that the landlord will receive a dispropor-

tionately large part of the proceeds of sale. Among all .

creditors, landlords are the only ones who, to any sub-

stantial degree, if at all, receive their property. back in

the condition in which delivered to the tenant, and at the

same time, if the existing rule be changed, will be permit-

ted to share in the distribution of the bankrupt estate, to

which; of all creditors, they have contributed nothing.’

There is no distinction between the legal status of such ©

a landlord whose lease runs 10, 20 or 100 years into the

future and one whose lease expires within a single year.

If the petitioners prevail, there is little likelihood that

the former will suffer any actual loss; yet they will be

entitled to recover from the estates amounts 10, 20 or

51:

100 times those recoverable by landlords with short term

leases, to the prejudice of the latter, as well as of banks

and merchandise creditors who have put real value into

the estate and have no chance to recoup their losses other

than through participation in the distribution of.its assets.

This presents a practical problem of real importance

which Congress could meet either by limiting the per-

centage of landlords’ claims which might be provable or

the period of leases saya might be

provable, or providing that the landlord, if he. desired

to participate in the distribution of the estate’s assets,

should throw his lease into the pot to be sold along with

the other assets of the bankrupt.*

It is thus made apparent that the greatest confusion

and much. injustice would result from over-turning by

judicial decision the well settled practice, which would not

and could not have arisen had the practice been different

from the start. These consequences are not such as to

warrant the Court in affirming, if there is in the statute

itself compelling language requiring reversal. These are

circumstances, however, which should lead the Court in

the absence of such compelling language to follow the

long established rule.

*A distinguished committee under the chairmanship of Mr.

Paul H. King, Chairman of the Committee on Uniformity of

Practice of the National Association of Referees in Bankruptcy,

has suggested certain amendments to the Bankruptcy Act dealing

with the provability of future rent claims, which indicate the belief

on the part of the committee that such legislation should not

simply declare that damages for loss of future rent shall be prov-

able, without more. A copy of the present draft of amendments

suggested by such committee in this connection is set forth in the

brief herein of Godfrey Goldmark as amicts curiae -(p. 7).

THE LONG ACCEPTED INTERPRETATION OF THE

ACT UPON WHICH THE DECISIONS BELOW ARE

BASED IS CONSISTENT WITH THE DECISIONS OF

THIS COURT AND IS SUPPORTED BY WELL ESTAB-

LISHED AND LONG RECOGNIZED PRINCIPLES OF

LAW (Answer to Points I, III, IV, V, VI of Petitioners’

Brief ). oa

Petitioners argue in Point I of their brief that the

grounds for the decision of the leading casé in the Second

Circuit which was followed by the courts below have been

overruled by the décisions of this Court; in their Point

IV, that under the principles, announced in the decisions .

of this Court, reviewed in their Point II], claims for

damages for loss of future rent are provable in bank-

ruptcy; in their Point V that there is no distinction

between such claims and claims founded on breach of

executory contracts relating to personalty or to the per-

_ formance of personal services; and in their Point VI that

the same rule is applicable to claims for future rent

whether arising from breach of a simple covenant to

pay rent or under an indemnity or acceleration clause.

Taken together, these several subdivisions of petitioners’

brief are parts of but a single argument, to wit: (1) that —

the generally accepted rule reviewed in Part I of this

brief is inconsistent ‘with the decisions of this Court, and ©

(2) that under such decisions, and upon principle, claims —

for damages for loss of future rent are provable in bank-

ruptcy. This argument, and the several subdivisions of

petitioners’ brief in which it is presented, will be answered

together, except that Point I will be dealt with in part

III of this brief in the discussion with reference to in-

demnity contracts, to which the case discussed in Point I

of petitioners’ brief relates.

As indicated in the foregoing summary of peti-

tioners’ argument, and as evidenced by petitioners’ brief

(Point V1), it is the petitioners’ contention that there is

no distinction between the status of claims arising under

an indemnity covenant and claims arising under a

simple covenant to pay rent. Petitioners’ position is

predicated in the first instance upon the broad ground

that all claims for damages for loss of future rent are’

provable in bankruptcy and stand upon the same footing

as claims for damages for breaches of covenants and of ©

contracts relating to personalty or to the performance of

personal services. In a subsequent, subdivision (Part

VII), petitioners-argue that even if this be not so, claims

arising under the particular clauses contained in the leases

involved in these cases are so provable. We shall adopt

the method of approach pursued by the petitioners, and

first.discuss the questions presented in the light of their

broader aspect as presented by petitioners’ brief and

thereafter and in the immediately succeeding section of

__ this brief CI, at p. 67 past.) address ourselves to the

particular provisions of the particular covenants relied

on by the petitioners in these cases.

Of the decisions of this Court relied on by the peti-

tioners, none a¥e cases involving the provability in

bankruptcy of claims for damages for loss of future °

rent, whether arising from breach of simple covenants to

pay rent or frbm breach of covenants of indemnity or of

some other description. On the contrary, as already

pointed out, this Court, in at least three of the cases relied

on by petitioners, has distinguished between claims for

damages growing out of the anticipatory breach of con-

tracts relating to personalty or the performance of per-

, sonal services, and claims for damages for loss of future

rent, and by the making of such distinction ha@ clearly

indicated—whether sth expressions be regarded as

dicta or as a part of the decision of the Court—that the

latter are not provable in bankruptcy. In its last analysis,

the contention of petitioners is that there is no distinction

between these two classes of cases, that in expressing

the existence of such a distinction this Court was-

wrong, and that the Court should now hold, despite

the accepted interpretation of the Act generally for

a period of over 30 years, that there is no distinction and ;

that all claims for damages for loss of future rents, -hke

claims growing out of the anticipatory breach of con-

tracts relating to personalty and to the performance of

personal services, are provable in bankruptcy. Unless

the petitioners shall sustain this contention, the primary

; and broad ground upon which they seek a reversal of ~

- these cases must fall.

The whole argument. of petitioners as contained in

the various subdivisions of their brief noted above is

summed up under Point VI (p. 40) as follows:

“The question narrows down to the conten-

tion that in the application of the bankruptcy law

a distinction must be made between a claim for

damages for loss of future rents under a lease of

personalty and one for loss of future rents under

a lease of realty.

* * * * * * * *

“With due respect for Lord Coke’s quaintly

spelled maxim and for the ancient law, we sub-

mit that in the application of the Bankruptey Act

such a distinction has no place. It is highly tech-

nical. There is no practical difference between

the two cases so far as the purposes of the bank-

ruptcy system are concerned. The Act itself

makes no exception of contracts for lease of realty

and its purposes are defeated if the claim is not

\_ provable and, therefore, not discharged, and: if

the landlord may pursue the bankrupt after dis-

_charge. The distinction loses sight of the fact

that it is sumaieen for the Congress, notwith-

standing the technical law of landlord and tenant,

to absolve every bankrupt tenant from his liabil- |

ities, and to allow the landlord a provable claim

for his loss. As pointed out in Point IX of this

brief, England, the place of origin of our law of

landlord and tenant, long ago did that very thing.”

With regard to the law of. England, it is pertinent —

to observe that it took an act of Parliament to-abolish

_ the distinction predicated upon what petitioners concede

to be “the technical law of landlord and tenant” and the

law governing contracts relating to personalty or to the

performance of personal services. That result, which

required an act of Parliament in England, petitioners

request this Court to achieve by judicial decision con-

trary to the distinction recognized at common law ever

since the days of Lord Coke and to the general accept-

ance of such distinction not, only by the lower Fed-

eral cougts and ‘the text writers, but. by this Court in

its previous decisions. Furthermore, the case of Dun-

bar v. Dunbar, 190 U; S. 340, constitutes a complete

- f

answer to the conténtion of the petitioners in Point IX 9

of their brief, that this Court should follow‘the rule now

applicable in England as a result of express provisions

‘in the. British Bankruptcy Acts’ since 1869 permitting

the proof of claims forydamages for loss of future rent.

In Dunbar v. Dunbar, this Court refused to follow Eng-

lish cases decided under the broad: provisions of the Brit-

ish Bankruptcy Acts of 1869 and 1883 expressly allow-

ing prodf of all claims, however contingent. (See pp.

14-16, supra; petitioners’ brief, pp. 47-52.) On the con-

trary, this Court applied‘and followed English casés dé

cided under British Acts prior to those of 1869 and 1883.

In other words, tlie only decisions of the English courts

which bear on thé construction of our Bankruptcy Act

of 1898 are those decided prior to the British Bankruptcy

Act of 1869, which cases, it is admitted by petitioners

(brief, p. 46) refused to allow claims for damag; for

loss of future rent. i

The “‘technical-law of landlord and tenant” referred

to in the foregoing excerpt from. petitioners’ brief, is to

be found in the rulg that,-while breaches of executory.

contracts relating to personalty and to the performance

‘of personal services give rise to claims for damages, the

landlord by re-entry arid termination terminates all lia-

bility of the tenant o pay rent, and that upon, uch re-

-entry and termination no cause of action in favor: of the «'

landlord for the recovery of damages for the consequent

loss of future rent ariseg: Treff v. Gulko, 214 Cal. 591 |

(1932) ; Carson-v. Arvantes, 10 Colo. App. '382 (1897) ;

Cunningham v. Stockton, 81 Kan. 780 (1910) ; Lansalot

v. Mihaljevich, 12 La. App. 174 (1929) ; Sutton v. Good-

man, 194 Mass. 389 (1907); Galbraith v. Wood, 124

“

Minn. 210 (1914); Chaude v. Shepard, 122 N. Y. 397

(1890); Staton v. Robinson, 150 Okla. 234 (1931) ;

Yuen Suey v.. Fleshman, 65 Ore. 606 (1913); De

Long Hook & Eye Co. v. Tait, 108 Pa. St. 369 (1933) ;

Walling v. Christie & Hobby, Inc., 54 S. W. (2d), 186

(Tex., 1932) ; Crowder v. Virginian Bpnk of C ommerce,

Inc., 127 Va. 299 (1920); 1 Tiffany on Landlord &

Tenant, § 182), p. 1174. anes

It is this rule of law, covering cases arising out

of the relation of landlord and tenant, and the conse-

quent distinction between claims for loss of future rent

in such a case and claims for the breach of executory

contracts relating to personalty or to the performance —

of personal services, that this Court recognized and

followed in Gardiner v. Butler, 245'V. S. 603, wherein it

specifically referred to Lord*Coke’s maxim as expressive

thereof and to the language of the court in the C hicago

Auditorium case in further support. When this substan-

tive rule of law and the resulting distinction is borne in

mind, the distinction becomes plain: between cases involv-

ing the provability of*such claims on the one hand and

_ those involving the provability of claims arising out of

the breach of executory contracts or coyenants relating

to personalty or to the performance of personal services:

on the other hand, as recognized ‘and expressed in the

decisions both bf the lower courts and of this Court. .

The distinction is perhaps best illustrated by the Chi-

petitioners. In that case, the Court held that a claim for

damages -growing out of an anticipatory breach of a -

contract for the-continuing performance of personal

services was provable in bankruptcy. At the e time, |

the Court distinguished between such a case afffta case

involving .a claim for damages for loss of future rent,

‘basing the distinction upon Lord Coke’s maxim: which

was.quoted in the opinion itself. This maxim may be,

as stated in petitioners’ brief, “‘quaintly spelled” and exe- °

pressive of ancient law, but it is likewise expressive of |

existing law relating to cases growing out of the relation

of landlord and tenant (cases, pp. 56-57, supra), as.

recognized by this Court, in the Chicago Atfditorium case

and in Gardiner v. Butler, supra. ;

The fundamental distinction is that the anticipatory

breach of a contragt relating to personalty-or to the per-

formance of sersbaal services,-such as was involved, in

the Chicago A uditorium case, gives rise to an action in

damages, whether Such anticipatory breach is committed

by a person who is wholly solvent or results from the

fact that bankruptcy has disenabled the party bound from

performing; whereas breach of a covenant to pay rent.

gives rise to no such cause of action. Breach of a cove-

nant to pay rent, followed by a re-entry and termina-

tion by the landlord, would give rise to no cause of action

quently, it gives rise to no claim where the breach of such

_ covenant is the result of bankruptcy. This being so, the

claim asserted is not even a contingent claim since all

liability of the tenant, whatever the occasion for the de-

fault; is extinguished by re-entry and termination of the

lease on the part of the landlord.

Counsel for. the petitioners asserts that there is no-

- distinction and should be none between a ciaim for dam-

ages for loss of future rents predicated upon the breach

of a simple covenant to pay rent, whether the lease also *

contains a covenant of indgmnity ¢ or other covenants hav-_

ing the same purpose. In-this counsel for petitioners i

at one with the Circuit Courts of Appeals and the Dis-

trict Courts which have recognized the absence of any

such distinction and have applied the same rule in both

classes of cases. (cases, pp. 20-21, supra.)

As heretofore pointed out, it is significant that this

Court in the Chicayo Auditorium cas€, -in directing atten-

tion to the distinction between claims for future rent and

claims arising out of the breach of executory contracts

relating to ‘personalty, cited decisions of the lower Fed-

eral courts applying such rule to contracts: of indemnity,

‘ similar to those in this. case, and to claims arising

from the breach of other covenants contained in leases

as well as to claims asserted te accrue by reason of. the

breach of a simple covenant: to pay rent. (See excerpt

from opinion, p. 24; supra.) It may not be assumed

that the citation of these cases was inadvertent or other

than advisedly made. All werestated to be distinguish-

able from the case presented in the C hicago Auditorium

case upon the ground that the former were-cases arising—

out of the relation of landlord and tenant and governed

by Lord Coke’s maxim. The language employed in that

case and the reference to these several classes of land-

lord and tenant cases as distinguishable from the case

then under decision would be dismissed by counsel for

the petitioners as dictum. As appears from the opinion,

the cases cited had been called to the attention of the

Court as in conflict with the contention that claims in-

volved in the Chicago auditorium case were provable.

60 ote wy

The Court met this contention by pointing out the dis-

tinction between the two classes. of cases.’ The deter-.

mination ef the existence or absence of such a distine-

tig) would appear to have been necessary to the deter- .

mination of the case. In any event, whether a part of the

decision itself and fhe determination of a point necessary

thereto, .or dictum, the Court saw fit to make the distinc-

tion, and_the dictum, if it be dictum, was expressive of

existing law.

Moreover, in the subseguent case of Gordiee V.

Butler, supra, the Court, in addition to referring to Lord

Coke’s maxim, referred-to the*Chicago Auditorium-case

in support of its ruling that claims for damages for loss

of future rents were not provable in yeny.

The distinction may be based upon “‘the technical law

- of landlord and tenant’’,* but substantially all rules of law

gov erning real estate and the rights. of parties growing .

out of title thereto, its use and possession and the rights _

of persons under instruments relating thereto, are like-

wise technical.

The foregoing also. iia of the additional % Cases

cited under Point V of petitioners’ brief (pp. 34-35), each

of which mvolved a contract relating to personalty or to

strictly personal obligations and not. to one arising out

of the relation of landlord and tenant.

Williams v. United States Fidelity &eGuaranty C On,

236 U. S. 549, is distinguishable upon the same ground,

*This Court’s language in the Chicago per case with

reference to this distinction has been interpreted as we interpret

it in well reasoned opinions in the lower Fedral courts. See

In re Schulte-United, Inc., 2 Fed. Supp. 285 (D.C. S. D.N. Y.,

1932); In re McAlister-Mohier Co., #6 Fed. (2d) 91 . C.

S. DD. Ohio, 1930).

to wit, it did not arise out of the relation’ of fandlord

and tenant or of covenants contained.in leases creating

such relation. This case is further distinguishable, since

it appears from the opinion itself that the construction

contract, for which the claimant had given a construction

bond, had ‘been abandoned by the contractor more than :

six months before he filed his petition in bankruptcy, that

sion and completed the structure prior to the bankruptcy

"of the contractor and had, also prior to bankruptcy, made

its demands for payment of the amount expended beyond

the contract price, The liability of the surety had there-

fore becomne a matured -and subsisting’ liability and de-

mand for its observance had been made prior to bank-

ruptcy. The only thing which remained was the liquida-

tion of the amount due, but all faéts, upon which deperrded

the determination of the extent of such liability, were

_ known on the date of bankruptcy for the reason that the

structure had been’ completed. In other words, every event

necessary to determine both the fact of liability of the

surety, and its amount, had taken place prior to bank-_

ruptcy, and appropriate demand therefor had been made.

The claim, therefore, was from every point of view a,

presently existing claim. Whether or not the surety could —

_ have maintained an.a¢tion against the contractor at the

date of the latter’s bankruptcy, had bankruptcy not inter-

__vened, the surety at that date not having made any pay;

ment under the construction bond, it is clear that the

holder of the bond had a provable: claim at the date of

bankruptcy which, in fact, was proved by him and

allowed, and which, had he not done so, could have been

-. proved by the surety under the express provisions of °

Section 57(i) of the Bankruptcy Act. Accordingly, the

a | ma -

62°

surety’s right over against the principal, being as this

Court said’ “ancillary” to a provable claim which the

surety - -might have proved had the creditor not done $0,

- was’ discharged.

Maynard v. Elliott, supra, is likewise distinguishable

upon the ground that it was not a claim arising out .of

the relation of landlord and tenant or out of covenants

relating to the use and occupation ‘of land." It was not

“a rent case but a note case. The Court had already, in

the previous cases hereinbefore referred to, distinguished

between rent cases and cases irivolving purely personal -

obligations and nothing in the Maynard case discloses

any departure from the recognition of such-distinction.

Moreover, that case, as.we read it, was based primarily

“upon the \ground thatthe provability of a bankrupt-

endorser’ s liability upon coftmercial paper had been the

~ accepted ‘interpretation of the Bankruptcy Act almost

ever since its passage. Under these circumstances the

“Court held that only compelling Janguage in the statute .

itself would. warrant it in overturning an interpretation

- of the Act so long. accepted and followed, and upon an

examination of the statute found so such compelling

language therein. \Future rent claims during the same

period have, with thé same substantial unanimity, been

held not to be provable. « :;

Maynard. Vv: Elliott was not a case > the purpose and

_ effect of which was to revolutionize either the principles —

governing the interpretation of the Bankruptcy: Act or

the practices thereunder. It was a very simple case based

upon the familiar rule that.an interpretation so long

accepted. and followed generally should not be overturned

in the absence of such compelling language. In its refer-

7 ™

ences to the statute and to the decisions thereunder in the

subsequent .part of the opinion, the Court, it is true, held

that a~claim is not to be disallowed merely beeatise con-

tingent upon date of bankruptcy, but was then careful to -

~ point out that not all contingent claims were so provable,

citing as an illustration.of this cautionary expression

Atkins v. Wilcox, 105 Fed. 595, which’was a future rent

‘case. Seemingly, the Court went out of its way to make it

plain that, in sustaining the previously accepted interpre-

tation of claims arising through the¢endorsement of com-

mercial paper, it did not mean to overturn the equally’

long established interpretation placed upon the Act in

respect of claims for future rent. In addition, as we have:

~ seen, a.claim for damages for future rent is not, under the

established rules of: law concerning cases arising out of

the relation of landlord. and tenant, even a contingent

claim, since default upon the part of a solvent tenant gives

rise to no right’to the recovery of damages. . The very

same courts found nothing inconsistent between the rule

affirmed in Maynard v. Elliott and the rule rejecting

chains for future rent. (Footnote p. 46, supra.)

“ Kothe v..R. C. Taylor Trust, 280 U. ‘S. 224, does

not help the petitioners. In that casé, the Court: dis-

allowed a claim based upon a covenant, in the event of

‘automatic termination upon bankruptcy, to pay damages

equal to the amount of ‘rent reserved for the residue of-

the term. In so doing, the Court treated this covenant as

ga penalty and requiring the payment of sums |

pin A reasonable relation to any probable damage

resulting from the breach. The argument of the: peti-

tioners is that the Court, by so holding, excluded by

inference the existence of ground for rejecting the claim

- -golvent.

under the generally accepted’ rule. But it.was not neces-

sary for the Court to give expression to every ground

upon which the claim might Hy ag In the light

of this Court’s views as expressed in the cases referred

to above (I, 3, pp. 24-29, supra) ‘it is difficult to see how |

this Court’s opinion in the Kothe case can be taken 0

indicate that the claim would have been allowed if the *

obligation had been different or. had more nearly cor-

responded to the payment of actual damages. Certainly

there is nothing — opinion fo-indicate that a claim —

' based: upon partictilar covenants such as in these ¢ases

would be provable in bankruptcy when it would not have

given rise to any poceent liability had the tenant remained

William Filene’s Sons Co. v. Weed, 245 U. S.

597, is the only case cited in ‘which a claim for

_ damages for loss of future rent was. allowed. This |

was am equity case. and not a bankruptcy case. In-

the dictum heréinbefore: quoted, (pp. 26-27, supra),

the Court clearly intimated that the claim’ -would

not have been allowable in bankruptcy. Otherwise |

there was no occasion for the dictum. It was inserted,

without doubt, for the purpose of removing the conten- |

-tion which might otherwise have beén made that the Court

intended by that-case to overturn the long accepted jinter-

pretation of the Bankruptcy Act concerning such claims.

_ The Court pointed out that where a court_is administeg-

"ing a statutory system it must administer it according to

the statute, but that the lower court was wrong in assum- .

ing that the rule.applicable under the statutory proceed-_

ings in bankruptcy was likewise applicable in equity.

Having so stated, the Courtssaid that when a court with-

out a statute takes possession of all the assets of a cotpo-

ration and. makes it. impossible to co.

. through the court, there is is no warrant

by the equivinte the

‘Court- merely “held

_ under the general equity jurisdicition of a court, it was

~ consistent with both the powers and obligations assumed

by th 4. :

y the court in such a proceeding.

-_ ° Moreover, this case must be read in the light of the

immediately succeeding case of Gardiner v. Butler, supra,

in which the Court expressly disallowed, even in an equity —

proceeding, a claim for damages. for loss of future rent

growing out of the breach of a simple covenant to pay —

rent as distinguished. from a covenant toggay an amount

to be determined as liquidated damages in a‘ stipulated

manner as in the Filene case. These casés read together,

completely dispose of the petitioners’ primary argument -

that all claims for damages for loss of rent are prqvable

in bankruptcy whether arising from breach of a simple

covenant to pay rent, under covenants for payment of

liquidated damages as in ‘the Filene.case or under con-

tracts of indemnity, as in these cases. When the dictum ‘ °

in the Filene case is given that effect which it was obvi-

ously intended to have, we think the Filene case also dis- |

» ‘*posés of any contention that while a cldim for-damages

for future rent by reason of a breach of the simple cove-

riant to pay: rent would not. be provable in bankruptcy

under the reasoning of Gardiner v. Butler, a claim based |

‘upon such a provision as was #» found in the Filene chse_ |

would be so provable. Otherwise there was no occasion

for the court to distinguish between the rule in. bank-

ruptcy and the rule in equity.

Assuming, ‘owerer,. for the sake of. argument

that such is the effect of the F ‘ilene case, the obligation *

therein undertaken by the tenant. was entirely different

from the obligation undertaken by the tenants in the

‘instant cases, &s we shall point out inthe next succeeding:

subdivision of this brief dealing with the status of Claims

arising under .the*particular clauses to be found in the

leases now before the Court.

As hereinbefore stated, and as evidenced Gainiateet

their brief, the petitioners’ major and: fundamental con-

tention is that claims ‘for damages for loss of future rent

are in no way distinguishable from claims for damages

growing out of exectitory contracts relating to personalty

_and to the perforntance of personal services, and that no .

‘distinction should be made tm respect thereof in the

administration of the Bank ruptcy Act. As demonstrated

above, this contention cannot be sustained. It cannot -

be sustained because fundamentally claims for damages

for loss of future rent are not recoverable against a

solvent defaulting tenant, while claims for damages grow-

ing out of breaches of executory contracts relating to

personalty and to the performance of personal services: ‘

give rise to an immediate cause of action against the

party at fault, if solvent.

The necessary result is that claims of the latter class

are generally provable in bankruptcy, the exceptions

thereto being exceptions to the general rule, and that,

conversely, claims for damages for loss of future rent

are not provable in bankruptcy, the exceptions, if any,

being exceptions to the general rule.

These cases constitute no such. exception.

_ < *

iW -

\_- THE SPECIFIC CLAIMS PRESENTED IN THESE

“CASES, ARISING OUT OF THE PARTICULAR COVE-

NANTS CONTAINED IN THE LEASES BEFORE THE

COURT, ARE IN NO EVENT PROV 2LE IN BANK- |

RUPTCY. ayes |

1. In thegBrown Case, No. 506.

The covenant relied on in support of ‘this claim is:

“Provided also, and these pfesents are upon .

this covenant, that if the Lessee do or shall neg-

“lect or fail to perform Or observe any of the ¢ove-

rants contained in these presents and on its part

to be observed and performed for ten (10) days

- after notice by the Lessor, or if the estate hereby

created shall be taken on execution, and such exe- .

cution shall not be satisfied, cancelled or otherwise

removed within thirty days after notice by Lessor,

or if the Lessee shall be adjudicated bankrupt or

insolvent accordifg to law, or if any assignment

of its property shall be made for the benefit of

creditors, then and in any of said cases the Lessor

lawfully may enter into and upon the said prem-

ises or any part thereof in the name of the whole,

and repossess the same as of the former estate

of the Lessor and expel the Lessee and those

claiming under and through it and remove its

effects (forcibly if necessary), without being

deemed guilty of any manner of trespass and

without prejudice to any remedies which might

- otherwise be used for arrears of-fent or pt

ceding breach of covenant, and upon entry as

aforesaid this lease sh 'l determine, and the Lessee —

68 -

covenants that in case of such termination it will

indemnify the Lessor against all loss of rent

which the Lessor jnay incur by reason of such

termination, duriny.the residue of the term above.

Speci ail CR. 7 | Italics ours. ]

The covensint relied On was not a covenant for the pay-

ment of liquidated damages. Neither was it one giving

rise to any liability er right-of action whatsoever. at the

date of re- entry, and termination. It was a covenant to

indemnify against actual loss, only. ‘The loss against

which the tenant agreed*to indemnify the landlord was,

in the words of the instrument itself,

“all loss of rent which the lessor may incur by

reason of such termination, hy enreng the residue of

the term”,

The words employed thus.plainly limited the obliga-

tion of the tenant in the event of default, re-entry and

termination to the payment only of such loss of rent as

the landlord might suffer during the remainder of the

term, until the conclusion of which it could not be deter- .

mined whether there was ‘a loss or, if- so, its amount.

It imposed no present liability and its provisions could

not be breached unless at the end of the term it developed

that there ‘was an actual loss and the tenant refused to

mrake good his covenant. . Until the happening of these

events, no liability whatsoever-attached and no cause of

action could arise.

It is well settled that, under a contract of indecnnity

against loss, no liability arises unless and until loss has

actually been suffered by the indemnitee, that no cause of

action arises until such actual loss has been suffered and

69 h

‘that hence no liability attaches and no action may be

brought until after the expiration of the period necessary

in respect of eacly particular case for the determination

of the existénce or absence of such loss. Wicker v. Hop-

y pock; 6 Wall. 94; Southern Surety Co. v. Sheldon, 33

Ved. (2d) 289 (C. C. A. 9th) ; O’Connor v. Actna Life

Insurance Co., 67 Neb. 122; Trinity Churcn v. Higgins, .

48 N. Y° 532; Henderson-Achert Lithographic Co. v.

John Shillito Co., 64 Ohio St. 255; Central Trust Co. v.

— Lauisville Trust Co., 100 Fed. 545 (C. C. A. 6th).

The rule was thus stated by this Court in Wicker v.

Hoppock, supra:

“If the contract in the case before us were one

of indemnity, the argument of the counsel for the

plaintiff in error would be conclusive. In that

class of cases the obligee cannot recover until he

has been actually damnified, afd he can recover

only to the extent of the injury he has sustained

up to the time of the institution of the suit. But

there is a well-settled distinction between an

agreement to indemnify and an agreement to pay.

In the latter case, a recovery may be had as soon

as there is a breach of. the contract, and the

measure of the damages is the full, amount agreed

to be paid.”

| The general rule stated above is equally applicable

_ to contracts of indemnity for loss of rent. It was so held

in Hermitage.Co. v. Levine, 248 N. Y. 333, in an opin-

ion by Mr. Justice Cardozo, then Chief Judge of the

Court of Appeals New York. As the Court said in that

case (p. 338): .

Me & & it may turn out in the end that there. has

been a gain and not a loss”.

To the same effect are Gardiner v. Parsons, 224 Mass. .

347; Providence Bldg. Co. v. Atlantic National Bank

ct al., 228 Fed. 814 (D.C. R. I.); Phillips-Hollman v.

Peerless Stages, Inc., 210 Cal. 253.

Had the tenant in this case remained solvent and

the lease been terminated for its default, it would have .

- incurred no lability whatever at the date of the termina-

tion and re-entry or until the end of the term ahd tlien

only if it appeared at that time that the landlord had

suffered an actual loss. It follows of necessity that the

covenant relied on gave rise to no liability upon the part |

of the Bankrupt by reason of re-entry .and termination

and hence to no claim subsisting at the date of bankruptcy

even if such re-entry and termination be relatéd back to

such date. ’

Prior to the enactment of-tlie Act of 1898, it had been

held that a claim under a similar contract of indemnity

was not provable in bankruptcy under the Act of 1867,

although that Act permitted proof of ‘contingent elaims.

Ex parte Lake, Fed. Cas. 7991 (1877). The first

case which arose.after the Act of 1898 involving such

an indeninity covenant in a lease was the case of Jn’ re

Ells, 98 Fed. 967 (D. C. Mass. 1900). In that case the

Court said (p. 969) :

. ‘What, then, would be the remedy of the land-

lord against the former tenant immediately after

he re-entry under the clause mentioned, had there .

) been no bankruptcy of the tenant? Could the

. landlord have recovered at once the difference be-

tween the present letting value and the rent for .

the residue of the original term? I think not.

The contract was one of indemnity for loss of

‘rent and other payments, and would be broken

——

<“3

only after, and so far as, rent had bgen lost and

payments had been made. . Doubtless, the cove-

nant night have been expressed otherwise.- if the .

debtor in this case had made a contract to take a

lease at a fixed rent, and had broken the contract °

by refusing to execute the lease, damages for the

entire breach could have been recovered at once,

and might perhaps have been estimated at the

difference between the rent stipulated j in the con-.

tract and the rental value of the premises. A

covenant in a lease might be worded expressly to

require the lessee, in case of re-entry, to pay at -

. once damages calculated upomthis basis. But the

contract or covenan* supposed is not the covenant

in this case. The contracts sued upon in the cases

cited in argument by counsel for the creditor—

contracts to take water for a specified time, to:

employ the plaintiff, to furnish board or support,

etc.—were not contracts of indemnity. Immedi-

ately after re-entry the lessor in this case, even

if unhampered by bankruptcy, could not have

brought suit on this covenant against the lessee to ~

recover the damages for which he seeks to prove

against the lessee’s estate in memrnapeny: .

To the same effect are Jn re Roth. & A ppel, 181 Fed.

667 (C. C. A. 2d, 1910); In re Wise Shoes, Inc;, 2 Fed. -

Supp. 521 (D. C. S. D. N. Y. , 1932), aff'd 64 Fed. (2d)

1023; In re Hubbard, 57 Fed. (2d) 213 (D. C. W. D.

N. Y., 1932) ; and In re Bliss Auto Sales Co. , 22 A.B. R.

(N. S.) 44 (D. C. N. D. Ohio, 1932).

Another case in which the ground for decision was

that the claimant could not have recovered at the date

of the adjudication against a solvent indemnitor is In re-

Merrill & Baker, 186 Fed. 312 (C.-C. A. 2d). In

’ ms

se)

that case the claimant-had loaned money to a subsid-

iary corporation of the bankrupt upon collateral security.

The bankrupt had guaranteed that in case the proceeds

of the pledged collateral should be insufficient to pay the

loan it would pay the amount of the deficiency. At the

date of the bankruptcy of the parent corporation, the

"loan was unpaid and the collaferal was still intact in the

hands of the claimatit. The District Court held that

the contract was not one to pay the amount borrowed at

all events but only to pay if and to the extent that the

security for the loan was insufficient and that an action |

could not have been maintained against the bankrupt on —

- the day of bankruptcy, saying (p. 315J: * os

“There was no certainty that anything ever would

be due nor certainty as to whatewould be due if

liability ever arose.”

On appeal the Circuit Court of Appeals affirmed, on_ the

decision of the District Judge. ‘

As‘heretofore pointed out, the cases of Jn te Ells and

In re Roth & Appel were both cited by: this Court in the

Chicago Auditorium case. The case of In re Merrill

| & Baker was cited in this Court’s opinion in Maynard v.’

Elliott as exemplifying a claim which was not provable

in bankruptcy. —

In Point I of their brief, petitioners argue that the

grounds: of the decision in Jn re Roth & Appel, supra.

(the leading case in the Second Circuit which the court

below followed .in these cases) have been overruled by

subsequent decisions of this Court. With this we dis-

agree. It is true that in that case the court expressed

the view that, reading the provisions of sub-division 1

into sub-division 4 of section 63, a debt to bé provable

must be absolutely owing at the date of the ‘bankruptcy.

While it may have been influencéd by this view, its deci-

sion was not predicated thereon and, the caurt* stated

that this expression of its view was unnecessary for the

decision. -It is apparent that the court was following

the decision of In re Ells, supra, to which it referred

_and from which it quoted. The court stated (p. 672):

“In case the: lease was terminated, it-~vas un-

certain’ whether there would-be any ldss in rents.

If the rent received by the landlord from the new

\ tenant équalled or exceeded that stipulated in the

lease, there would be no loss, and, consequently,

‘no foundation for any claim upon the indemnity

covenant.”

But if every reason advanced by ,the court in Jn re Roth

& Appel for its decision were erroneous, the decision

would still be correct, for, in that case, just as in the cases

of In re Ells and In re Merrill & Baker and just as in the

instant cases; the claimant would have had no claim on

his indemnity covenant at the date of bankruptcy had his

indemnitor remained solvent.* |

Counsel for petitioners (brief, p. 42) -erroneously —

treat the covenant ‘of indemnity in these cases as the

equivalent of the liquidated damage clause under which

damages were allowed to be proved in equity in William

*It should be noted that this rule has been applied to prevent

the proof of -a claim for damages: for loss of future rent in an

equity case. ‘ See the well reasoned opinion of Circuit Judge Mack

in Western Electric Co., Inc. v. Powers Accounting Machine Co.

(referred to in Referee’s opinion in Case No. 506, R. 25-26).

Judge Mack’s opinion is quoted at length in the brief herein of

' Arthur A. Ballantine as amicus curiae (pp. 13-14).

Filene’s Sons Co. v. Weed, supra. The distinction is, of

course, plain. A cont¥act to indemnify against actual

loss gives rise to no liability, except in the-event of such

loss, and tosno cause of action until the existence of an

actual loss has’ been ascertained. A contract to pay

liquidated damages is a contract to pay a fixed sum, or

an ainount to be ascertained under -some formula pro- -

vided by the parties in the contract, immediately upon

the breach of some covenant contained in the contract.

A contract of indemnity is in ‘no way the legal equiva-

lent of'a contract-for the payment of liquidated dam-

ages. To allow the present claims would be to apply

to contracts of indemnity in_leases a rule completely at

variance with contracts of indemnity in other cases.

. Moreover, the factual situation upon which the

- amount of the recovery in,the two cases depends is wholly

different. - The agreement in the Filene case was to pay

the difference between two presently ascertainable’ sums,

t.e. the reserved rent and the estimated rental value of

the premises for the remainder of the term at the dale

of re-entry and termination. The agreement under a con- i

tract of indemnity is to pay: the actual loss suffered, dur-

ing the residue of the term, the existence or amount oi

which is not a presently ascertainable fact. Opinion

- dence as to the present rental value of-the premises for

the remainder of the term at the date of re-entry and

termination is obviously admissible under*an agreement

such as that made in the Filene case, and such opinion

évidence will be based upon the then existing state of

_the rental market. Even if opinion evidence on which

to base an estimate of the rent which the landlord will

. 75:

‘receive in future years were admissible, it remains true

that any such estimate is purely a matter of speculation

and conjecture, and does not and cannot determine the

‘actual loss which the landlord may suffer during the

residue of\the term, to pay which is the only hability of

the tenant under tts indemmity covenant..

This distinction is well illustrated by the case. of Gar-

‘ diner v. Parsons, supra, in which an assignment for

.creditors had been made by.a tenant under a lease’ pro-

viding :

“and the Lessee covenants that in case of such

termination * * * it will indemnify the Lessor

against all loss of rent and other payments which

he may incur by reason of such termination dur-

ing the residue of the time * * * specified for the

duration of the. said term; or at the election of

the Lessor the /AeSsee will upon such ee

pay to the Lessor as damages such a sum as at

the time of such termination represents the differ-

ence between the rental value of the premises for

the remainder of the said term and the rent and

other Peyments herein named. * * *”

The Court said (p. 350) :

“The plaintiff however could not recover both

indemnity and damages, but must elect the ground

of liability on which he proposed to hold the lessee.

* * * If indemnity is chosen, the lessee becomes

liable for any loss resulting from a- rental less

than’ the rent reserved with other payments -

which the lessor may incur ‘by reason of such ter-

mination during the residue’ of the term. It is a

_ liability contingent upon events thereafter occur- -

ring, because the full amount which the lessee

eventually must: pay for the remiainder of. the

term cannot be wholly ascertained until the’period |

ends. * * *

If,. however, the lessor elects to take dam-

ages, they are assessed as of the date of ter-

mination, and are measured by the difference be-

tween the rental valué of ‘the: premisés in the .

_ market for the remainder of the term ‘and the

_ rent and other payments herein named’.”

It is said in petitioners’ brief that the covenant of

' indemnity, like the covenant broken in the Chicago”

Auditorium case, was.a personal covenant and as in that.

case affords a basis for a provable claim in bankruptcy.

As we have already pointed out, the Court’ in that very

case distinguished between covenants relating to person-

alty and to the performance of personal services and

those growing out of the relation of landlord an#tenant.

_ There is, however, this further insurmountable distinc- _

tion. The breach relied on in the Chicago Auditorium case ~

had already occurred, giving rise, under the doctrine of

anticipatory breach of ‘contracts relating to personalty

and to the performance of personal services, to an imme-

diate right of action iri damages. No breach of the cove-’

nant of indemnity had occurred or could occur until the

end of the term, before which time no liability whatever

attached and no cause of action arose, and then only in

_the event of actual loss. The doctrine of anticipatory

breach is wholly inapplicable to a contract of indemnity

as distinguished from a contract for continuing perform-

ance in respect of personalty or personal services, such as

for the delivery of goods or performance of personal ;

services over a period of time. Roehm v. Horst, 178 U. S.

eee a 2

1, 17, 18; Moore v. 5 ecurity Trust & Life Insurance Co.,

168 Fed. 496 (C. C? A. 8th), cert. denied 219 U. S..

\ 583. A contract of indemnity tan be breached, if at all,

but once and then onfy at the time when the indemnitor

refuses to make the indemnitee good as ageuet an actual

loss. *— . |

te Bing.

2. In the Manhattan Propertids Case, No. 508.

In the Manhattan Properties. case, the tenant agreed, |

_ in*the event’ of re-entry and re-letting by- the landlord,

eM to pay eac cena ‘to the Landlord the

deficit accruing from the difference between the

amount to be paid as rent as herein reserved ‘and

the amount of rent which shall be collected and

.month during’ the residue of the term herein pro-

vided for after the taking possession by the Land

lord; * * *”

and it was further provided,

‘“* * * the overplus, if. any, at the expiration of

the full term herein provided for shall be paid to ~

the’ Tenant unless the Landlord within a period

of six months frorfl the termination of this lease

‘as provided herein shall, by a notice in writing,

release the Tenant from any and-all fiability cre-

‘ated by this provision of the lease, which it is

» agreed the Landlord shall, at the Landlord’s

option, have the right to do, in which event it is.

agreed that the Landlord and the Tenant shall

have no furthetights and liabilities oe

As i in the Brown case, there was no covenant for the _

payment of liquidated damages or of damages to be’ -

we.

78 Y a

ascertained in any manner at the date of re-entry. The

obligation of the tenant was only to pay, as stated above,

such deficit, if. amy, as should accrue from month_to

month during the residue of the term arid only if and t&

‘the extent that there should be such a deficit would the

tenant be under. any liability. -

It is therefore clear that, at the date of the petition, |

the landlord in the Manhattan Properties case would have

had no cause of action against the tenant had bankruptcy

not intervened, except for the current month’s rent which

has been allowed. “cCready v. Lindenborn, 172 N. Y.

400; Kottler v. New srk Bargain. House, Inc., 242

N. Y. 28. o> a | ;

. The lease moreover contemplated that if the landlord —

should actually receive during the residue of the term an

aggregate amount exceeding the’ reserved rent, the

amount of the excess should be paid to the tenant at the

end of the term. In other words, while providing for a

possible liability on the part of the tenant in the event of

actual loss by the landlord, it also provided fora possible - —

liability upon the part of the landlord in the event of |

actual gain, a liability which the landlord could extinguish |

only by release of the tenant by notice in writing within

the six months period provided for. The periodic pay-

ments to be made by the tenant in the event of loss from

month te month therefore constituted interim payments

only to be taken into account at the end of the term in

determining the ultimate. liability of either party which

- would be in no wise affected thereby. a

. If at the end of the term there should be arf overplus

in excess of the reserved rent, the mutual covenants con- -

tained in the lease would give rise to the creation of ah

asset rather than of a liability. If it is now competent

for the Court under the provisions of this lease to under-

take to determine whether at the end of the term there

will be a loss-and, if so, how much, and to allow the same

as a claim against the bankrupt estate, it is equally com-

' petent for the Court and equally its duty to determine by

the same process of conjecture that there will be an ulti-

mate gain and to permit a recovery against the landlord

- of the amount of such gain as a part of the assets of the

estate. Either: determination would equally involve con-

jecture and speculation.. Neither is permissible. either

under the Bankruptcy Act or at common law. Just as

under the ordinary contract of indemnity re-entry and

termination would give rise to no present liability or

cause of action against a defaulting solvent tenant SO,

under the peculiar provisions of this lease, no present

cause of action in favor of the tenant and against the

‘landlord under the overpjus provision would ‘arise and

the existence or,amount of his possible liability there-

‘under would not be ascertainable until the end of the

term. Clearly the liabilities of either landlord or tenayt

under the covenant relied on and their present enforce-

ment rest on the same foundation. Clearly neither is a

presently existing or presently ascertainable liability and

neither may be asserted or adjudicated in the bankruptcy

proceedings:

3. Even though a claim for damages under breach of

a simple covenant to pay rent should be held to be prov-

able, claims arising under the leases here in question are

not provable. pas

Petitioners invite this Court to overrule its decision

in the case of Gardiner v. Butler, 245 U. S. 693. For the

ao. oe

reasons hereinbefore stated, we think it plain that that"

decision was correct and that a claim for,damages for

breach of a simple covenant to pay rent is not provable :

because re-entry and termination terminated all obliga-

tion of the tenant to pay without giving rise to any cause

of action, even as against a solvent tenant, for damages

- for breach of such covenant. |

_ Even if this Court should otherwise determine, how-

ever, the claiins presented in these cases are not provable

in bankruptcy. The parties in these cases by contract

themselves provided the remedy for:breach. By so pro-

viding, the landlord waived any claim which might have

otherwise arisen through-a breach of the covenant to

pay rent itself and limited ‘his right of recovery to actual

loss sustained, if any. In neither lease is provision made

for concurrently alternative remedies. The parties them- ~

selves fixed their respective rights and liabilities by con-

tract and, for the reasons given above, no provable claim

may arise under the covenants adopted by the parties as

_measuring their respective rights in the event of default.

IT IS’ RESPECTFULLY SUBMITTED THAT THE

_ JUDGMENTS OF THE CIRCUIT COURT OF APPEALS

SHOULD BE AFFIRMED. w

FREDERICK H. Woon,

Harrop L. FIERMAN,

DonaLp C. SWATLAND,

Wittiam D. WHITNEY,

Attorneys for Respondents.

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