Amicus Curiae Brief — Irving Trust Co. v. AW Perry, Inc.

aD

FILE COPY

IN THE

Supreme Court of the United States

OcToOBER TERM 1934

No. 22

IRVING TRUST COMPANY, as Trustee in Bankruptcy

of Outfitters Operating Realty Co., Inc.,

Petitioner,

against

A. W. PERRY, INC.,

Respondent.

MOTION AND BRIEF OF AMICI CURIAE IN

SUPPORT OF PETITIONER UPON WRIT OF

CERTIORARI TO THE UNITED STATES CIR-

CUIT COURT OF APPEALS FOR THE SECOND

CIRCUIT

}

| WaLTER E. Hope,

H. Struve HENSEL,

Amici Curiae.

iy

:

Supreme Court of the United States

OcToBER TERM 1934

No. 22

IrvING TrRusT ComPANny, as Trustee in

Bankruptcy of Outfitters Operating

Realty Co., Inc.,

Petitioner,

against

A. W. Perry, INc.,

Respondent.

MOTION FOR LEAVE TO FILE BRIEF AS

AMICI CURIAE IN SUPPORT OF

PETITIONER

Now come Walter E. Hope and H. Struve Hensel of

15 Broad Street, New York City, and move this Honorable

Court for leave to file the annexed brief as amici curiae

in support of petitioner, the consent of counsel for peti-

tioner and of counsel for respondent having been first

obtained.

The undersigned ask this leave as counsel for Roy A.

Heymann, Chandler Hovey and Thomas H. McInnerney,

as Trustees in Bankruptcy of Louis K. Liggett Company,

appointed pursuant to an order of the United States District

Court for the Southern District of New York in bank-

ruptcy proceedings entitled “In the Matter of Louis K.

be an

2

Liggett Company, Bankrupt—In Bankruptcy No. 56900.”

In that proceeding there were filed four claims, aggregating

$399,765.34, which are based upon lease clauses almost

identical with the lease clause here involved. All of such

claims were objected to by the Trustees in Bankruptcy of

Louis K. Liggett Company and litigation in respect thereof

has been commenced and will be re-opened or is now pend-

ing in the United States District Court for the Southern

District of New York and in the Circuit Court of Appeals

for the Second Circuit. Furthermore, pursuant to an

agreement of compromise and settlement, confirmed by the

United States District Court for the Southern District of

New York after a special meeting of all creditors, there is

now reserved and will be paid, if such claims are held prov-

able in the amounts filed, a dividend of 85% or $339,800.54.

These four disputed claims aggregate almost as much as

all other claims allowed to landlords, approximately 345

landlords having proved general claims aggregating $458,-

870.02.

There are two additional disputed claims aggregating

$282,902.59, the determination of which claims involves

the validity of certain acceleration of rent clauses which,

it has been contended by claimants, are provable in accord-

ance with the principles announced by the United States

Circuit Court of Appeals for the Second Circuit in the

instant case. Dividends are now reserved upon such claims

in the amount of $250,527.88 (more than 85% inasmuch

as part of such claims are alleged to be preferred). Such

claims have been held to be not provable by the Referee in

Bankruptcy but a petition has been filed for the review of

such decision and order by the United States District Court

for the Southern District of New York.

3

Practically all other disputed claims in the Louis K.

Liggett Company bankruptcy have been finally determined

and the ultimate liquidation of that estate is dependent

largely upon the decision of this Court in the instant case.

New York, N. Y., September 15, 1934.

Wa ter E. Hope,

H. Struve HeEnss1,

Office and Post Office Address:

15 Broad Street,

New York, New York.

INDEX TO BRIEF

PAGE

errr rr rere ee eee ane 1

ne CO 5 ick oie V0 ied ava 2

I eb DS 5 Ab kW Ka Ss Kawa eek ee bie haworb bake a

SUMMARY OF ARGUMENT...........ccccccuccccee 6

ARGUMENT:

I. It appears on the face of the instant proof of

claim that it is not provable under the decision

of this Court in Manhattan Properties, Inc. v.

Iruing Trust Company..........cceccceees 8

II. The instant claim cannot be made provable,

contrary to the Bankruptcy Act, by an agree-

ment between claimant and the bankrupt...... 12

III. The intent of Congress to exclude the instant

claim from the category of provable claims is

clear and has been recognized by this Court... 17

A. Such intent was clear before the 1934

amendments to the Bankruptcy Act...... 17

B. The intent to exclude claims for damages

for loss of future rent prior to June, 1934

was unmistakably manifested in the amend-

ments to the Bankruptcy Att of June 7

WE eae kvs badasebevbieasaxs 20

IV. The judgment of the Gircuit Court of Appeals

should be reversed and the instant claim should

be expunged ....... hb ae Khceh eee awaken eee 31

WR Ge ea og Oo ook tg eh a ate 33

OS a dE a is Eee tA Bh 34

CASES CITED

PAGE

Brown v. Irving Trust Company, 66 Fed. (2nd) 473;

oe gk ae a”: Sa a ere aaa 5

Central Trust Co. v. Chicago Auditorium Association,

og Ae ee ene eae 25, 26, 29

Filene’s Sons Co. v. Weed, 245 U.S. 597.......... 13, 28

First National Bank v. Missouri, 263 U.S. 640, 658.. 21

In re Roth & Appel, 181 Fed. 667................. 12

In re Schechter, 39 Fed. (2nd) 18................. 28

Kothe v. Taylor Trust, 280 U.S. 224........ 5, 15, 16, 28

Manhattan Properties, Inc. v. Irving Trust Company,

66 Fed. (2nd) 470; aff’d 291 U. S. 320,

5, 6, 7, 8, 10, 11, 12, 18,

19, 20, 21, 22, 26, 28, 29, 31.

a ————

Supreme Court of the United States

OcToOBER TERM 1934

No. 22

IrviING Trust CoMPANY, as Trustee in

Bankruptcy of Outfitters Operating

Realty Co., Inc.,

Petitioner,

against

A. W. Perry, INc.,

Respondent.

On WRIT OF CERTIORARI TO UNITED STATES CIRCUIT

Court OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF WALTER E. HOPE AND Hi.

STRUVE HENSEL, AS AMICI CURIAE IN

SUPPORT OF PETITIONER

Opinions Below

Neither the opinion of the Referee (R. 13-23) nor the

opinion of the District Court (R. 26) is reported in the

Federal Reporter or Federal Supplement. The opinion of

the United States Circuit Court of Appeals is reported in-

69 Fed. (2nd) 90.

FS TO EES SS

2

Statutes Involved

Section 63 of the Bankruptcy Act, as applicable to this

case, provides* :

“Debts Which May Be Proved.—a. Debts of

the bankrupt may be proved and allowed against his

estate which are (1) a fixed liability, as evidenced

by a judgment or an instrument in writing, abso-

lutely owing at the time of the filing of the petition

against him, whether then payable or not, with any

interest thereon which would have been recoverable

at that date or with a rebate of interest upon such

as were not then payable and did not bear interest;

(2) due as costs taxable against an involuntary

bankrupt who was at the time of the filing of the

petition against him plaintiff in a cause of action

which would pass to the trustee and which the trus-

tee declines to prosecute after notice; (3) founded

upon a claim for taxable costs incurred in good faith

by a creditor before the filing of the petition in an

action to recover a provable debt; (4) founded upon

an open account, or upon a contract express or

implied; and (5) fouyded upon provable debts re-

duced to judgments after the filing of the petition

and before the consideration of the bankrupt’s appli-

cation for a discharge, less costs incurred and inter-

est accrued after the filing of the petition and up to

the time of the entry of such judgments.

b. Unliquidated claims against the bankrupt

may, pursuant to application to the court, be liqui-

dated in such manner as it shall direct, and may

thereafter be proved and allowed against his estate.”

*See Appendix A for amendments of June 7 and 18, 1934, which

are not here applicable except to disclose the intent of Congress that

the instant type of claim was not provable prior to the enactment

thereof, as explained infra, pp. 26 to 37.

3

Section 1 (11) provides:

“ ‘debt’ shall include any debt, demand, or claim

provable in bankruptcy ;”

Section 17 provides:

“A discharge in bankruptcy shall release a bank-

rupt from all of his provable debts,” * * *

with exceptions not here material. (Act of July 1, 1898,

Sections 1, 17 and 63, 30 Stat. 562, as amended; U.S. C. a

Title 11, Sections 1, 35 and 103. )

Statement

On September 30, 1932 Outfitters Operating Realty

Co., Inc. (formerly known as Lerner Stores Corp., a Dela-

ware corporation) was adjudicated a bankrupt upon its

voluntary petition in the United States District Court for

the Southern District of New York tm. 1}.

On March 29, 1933 A. W. Perry, Inc., the claimant-

respondent herein, as lessor of certain premises located at

459 Washington Street, Boston, Massachusetts, filed a

proof of claim in the sum of $177,788 alleged to be for

“Damages for breach of covenant to pay rent under a

lease” (R. 5) dated January 28, 1929 leasing said premises

to thesbankrupt for a term of fifteen years and ten months

from March 1, 1929 (i.e., until December 31, 1944) at an

annual rental graduated upward over the term of the lease

from $35,000 for the first tén months to $39,805 for the

last five years, plus certain taxes and other charges (R.

6-7). Inter alia, the lease contained the following cove-

nant (R. 10):

ee oes . _

—— ™ a . ne dae VAP SO Ne Re. oye

4

“and, for the more effectual securing to the Lessor

of the rent and other payments herein provided,

it is agreed as a further condition of this lease

that the filing of any petition in bankruptcy or in-

solvency by or against the Lessee shall be deemed

to constitute a breach of this lease, and thereupon,

tpso facto and without entry or other action by the

Lessor, this lease shall become and be terminated;

and, notwithstanding any other provisions of this

lease, the Lessor shall forthwith upon such ter-

mination be entitled to recover damages for such

breach in an amount equal to the amount of the

rent reserved in this lease for the residue of the

term hereof less the fair rental value of the prem-

ises for the residue of said term.”

Nothing appears in the proof of claim or in the record

indicating how the damages in the amount of $177,788

were calculated.

On April 5, 1933 the Trustee in Bankruptcy obtained

an order to show cause why the claim should not be dis-

allowed and expunged (R. 3-4). At the hearing on such

order to show cause, it was stipulated that all questions

as to the amount of the claim, if provable, were reserved

until after final determination of its provability (R. 13).

The Referee disallowed the claim in its entirety, holding

that, as a matter of law, the alleged damages were not

provable, and entered an order expunging the proof of

claim (R. 13-23).

Upon petition for review the order of the Referee was

affirmed by the District Court (R. 26) upon the authority

of the then unreported decisions of the Circuit Court of

Appeals for the Second Circuit in Brown v. Iruing Trust

Company and Manhattan Properties, Inc. v. Irving Trust

—eaE—_

5

Company (1933), 66 Fed. (2nd) 470, affirmed by this

Court, (1934) 291 U. S. 320. Upon appeal, the judg-

ment below was reversed and the proof of claim was re-

manded for liquidation, the damages declared to be the

sum of the discounted series of instalments, each made

up of the rent reserved less the fair rental value for that

period (R. 31-35). This measure of damages was not

precisely the measure provided in the lease covenant

quoted above but a modification thereof deemed necessary

by the Court to save the covenant from the prohibition

of Kothe v. Taylor Trust, (1930) 280 U. S. 224 (R. 33).

The reversal of the decisions of the Referee and the

District Court was explained by the Circuit Court of Ap-

peals as necessary in view of the language of the above

quoted covenant in the lease. It was held by such Court

that the decision in Manhattan Properties, Inc. v. Irving

Trust Company, (1934) 291 U. S. 320, left the door open

for proving claims for damages for loss of future rent pro-

vided the correct clause or covenant was used (R. 32).

The above quoted covenant (after modification of the pro-

vision as to the quantum of damages) was held sufficient

because (a) the lease was terminated and the claim created

tpso facto upon the filing of the petition in bankruptcy and

(b) the modified measure of damages did not seem un-

reasonable (R. 32-33).

A writ of certiorari from this Court was applied for

on the ground that such decision was a misinterpretation of

the Manhattan Properties decision and, in fact, contrary

thereto. The writ of certiorari was granted by this Court

on May 14, 1934.

Summary of Argument

I

It APPEARS ON THE FACE OF THE INSTANT CLAIM

TuHat It Is Not ProvaBLE UNDER THE DECISION OF THIS

Court IN Manhattan Properties, Inc. v. Irving Trust

Company.

The proof of claim admits on its face that it is for

“Damages for breach of covenant to pay rent under a

lease” (R. 5), which is the identical language used by this

Court in Manhattan Properties, Inc. v. Irving Trust Com-

pany, supra, 333-334, 335*, in describing the category of

unprovable real estate claims. Before this claim can be

allowed, the Manhattan Properties case must be reversed

and the language used by this Court therein must be sub-

stantially modified.

II

THE INSTANT CLAIM CANNOT BE Mabe PROVABLE,

CONTRARY TO THE BANKRUPTCY ACT, BY AN AGREEMENT

BETWEEN CLAIMANT AND THE BANKRUPT.

Congress has prescribed the various classes of provable

claims according to the substance and inherent nature of

the claims involved. Parties to a lease cannot escape the

effect of such prescription by agreeing as to what claims

are provable and what are not provable.

*Unless otherwise indicated, all references to the Manhattan Prop-

erties case refer to the decision of this Court reported in 291 U. S.

ee

Stripped of its legalistic verbiage, this instant covenant

is merely an agreement that, in spite of the statute, a claim

for damages for loss of future rent shall be provable. If the

instant claim is sustained, all types of claims can be made

provable (or not provable if desired) by mere agreement

and irrespective of the statute.

III

THE INTENT oF CONGRESS TO EXcLupDE THE INSTANT

CLAIM FROM THE CATEGORY OF PROVABLE CLaims Is

CLEAR AND Has BEEN RECOGNIZED BY TuIs Court.

Such intent was clear before the 1934 amendments to

the Bankruptcy Act as demonstrated by the historical re-

view of the intent of Congress as made in Manhattan

Properties, Inc. v. I rving Trust C ompany, supra, 332-337.

Inasmuch as the 1934 amendments [new clause (7) ]

to Section 63a of the Bankruptcy Act now make the instant

claim provable in future bankruptcies in a limited amount

(not more than rent for one year after the date of sur-

render), such type of claim could not have been intended

to be provable prior to the enactment of such 1934 amend-

ments and, therefore, not in this case.

Such conclusion is clear and is important not only in

respect of this claim but in respect of future bankruptcies,

If the instant claim is not expunged, it will have been con-

strued as outside the scope of new clause (7) of Section

63a and, therefore, all landlords using the mystical language

here used will prove their dlaims in full. The intent of

Congress to limit such claims in the future to a compar-

atively small amount will thus be evaded.

ARGUMENT

It appears on the face of the instant proof of

claim that it is not provable under the decision

of this Court in Manhattan Properties, Inc. v.

Irving Trust Company.

@rhe proof of claim on its face frankly admits that the

$177,788 claimed is for:

“Damages for breach of covenant to pay rent under

a lease.” (R. 5)

In other words, claimant itself, in precise language of its

own selection, has identified its claim with the very type

of claim held to be unprovable by this Court in Manhattan

Properties, Inc. v. Irving Trust Company (1934), 291

U. S. 320, 333-334, 335:

“The courts uniformly held (under Act of 1867)

that claims for future rent or for damages for

breach of covenant to pay rent were not provable

under the act, though differing as to the reason;

some holding them not contingent claims within the

statutory definition, and others thinking the express

permission of proof for rent past due at the date of

bankruptcy impliedly excluded claims for rents

thereafter falling due. (333-334)

* * *

In view of the extended consideration and discus-

sion which preceded the passage of the Act (of

1898), the failure to include a provision for claims

for loss of rent or for damages consequent on the

abrogation of leases is significant of an intent not

.

rer y LE TNT EL NTO NIT AN TTC ATH SRS RATT AT SI tl

Bi

9

to depart from the precedents disallowing them.”

(335) (Italics and parenthetical references ours. )

The claimant has, therefore, on the face of the claim and

long before the Manhattan Properties decision, admitted

that the instant claim is not provable under the law as

announced by this Court.

This argument is not mental “sleight of hand”. It is

not mere coincidence that claimait in March, 1933 selected

the identical language to describe its proof of claim as was

used by this Court in February, 1934 to describe the type of

claim which, as a matter of legislative and judicial history,

has always been unprovable. Until it became desirable

for claimant to avoid the effect of the Manhattan Prop-

erties decision, claimant as well as everyone else recognized

this claim as one “for damages for breach of covenant to

pay rent’’ or “for damages consequent on the abrogation

of leases.” Certainly, in view of the normal and customary

meaning of words and the identity of the types of claims

as a matter of fact and substance, this Court could not have

used such plain and unequivocal language, if it did not

intend to prohibit the provability of this claim as well as

all other similar claims. Fine spun legalistic reasoning may

try to avoid the normal and customary meaning of words.

But it cannot be done. Claimant has itself, unwittingly

perhaps but nevertheless plainly, admitted the truth.

Furthermore, if the circumstances of the Manhattan

Properties case be reviewed, the identity of this claim as a

matter of substance with those defined by this Court as

unprovable is inescapable. Although the covenants involved

in the Manhattan Properties case were covenants of indem-

nity, the case was presented as a test case and the issue was

made as wide as possible, i.e., can claims for future rent

ae FTN SE ES LE PEL RTT ETERS Tae TT CN VPN

a

10

or damages for the loss thereof as a result of an adjudica-

tion of bankruptcy be proved against the bankrupt estate

of a tenant? The landlord-claimant argued that all such

claims were provable since as a matter of logic they were

within the scope of Section 63a(4), being based upon an

express contract. The respondent-trustee in bankruptcy

argued that the construction of the statute was not a matter

of logical interpretation of language but involved an his-

torical analysis of the intent of Congress. The latter prop-

osition was accepted by this Court and all claims for dam-

ages for loss of future rent were excluded unequivocally

(in the language of this Court quoted above) from the

category of provable claims. Exceptions in the case of this

or any other claim were not suggested.

In addition, it should be noted that, as a practical matter,

the damages sought to be proved here are the same in

theory and manner of calculation as those denied provabil-

ity in the Manhattan Properties case. Poth leases were

drawn on the theory that landlords should somehow, con-

trary to the intent of Congress, be given a provable claim

against the estates of bankrupt corporate tenants. In both

instances the damages sought to be proved were equal to

the difference between the rent stipulated in the lease for

the balance of the term and the alleged fair rental value of

the premises in the future—in both instances the calcula-

tion involved a forecast and guess as to probable future

values which are clearly impossible of accurate determina-

tion. All other legal consequences are also identical. In

both instances the leases were terminated—i1 the Manhat-

tan Properties case by action of the landlord and in the

instant case upon the filing of the bankruptcy petition as

provided in the lease. In both instances the trustee in

bankruptcy had a reasonable time to remove from the

—

premises or consummate new arrangements. The only

differences are in respect of words and phrases.

It is impossible to draw any conclusion from the fore-

going quotation from this Court’s Manhattan Properties

decision, except that claims such as the instant claim are

not provable. If the contrary interpretation by the court

below is correct, the elaborate review by this Court of the

earlier acts and cases, of the development of the British

Act and of the rejection of Judge Lowell’s proposed statute

(making these claims provable) is rendered insignificant

and practically meaningless. Yet such review takes up

practically the entire decision and involves the selection of

a theory of interpretation of the Bankruptcy Act of 1898

diametrically opposed to the interpretation of the court be-

low. It is not modified or contradicted by the last two

paragraphs of this Court’s decision which merely discussed

the logical inconsistencies of one of the landlord-claimant’s

arguments concerning indemnity covenants.

We must repeat—it appears on the face of the claim

that it is not provable. This is not because claimant is

chained to the language used in describing its alleged claim

so that the substance and inherent nature of the claim can-

not be examined. It is rather that the identity of claimant’s

language in describing its claim and this Court’s language

in describing a category of claims not provable as a matter

of history and Congressional intent admits the substance

and inherent nature of the claim and makes it now impos-

sible for claimant to assert that the prohibition of the Man-

hattan Properties decision does not refer to this claim.

The instant claim cannot be provable unless the Manhattan

Properties case is reversed and the foregoing quotation

therefrom is substantially modified.

11

12

II

The instant claim cannot be made provable,

contrary to the Bankruptcy Act, by an agree-

ment between claimant ard the bankrupt.

There should be no illusions concerning the purpose or

intent of the covenant in this lease. It was obviously de-

vised for one purpose, 1.e., to give the landlord, in the event

of bankruptcy, a provable claim for damages for loss of

future rent (R. 18). This is generally known and, if not

now admitted by claimant, was admitted in the covenant

itself by the declaration that the purpose was “for the more

effectual securing to the Lessor of the rent and other pay-

ments herein provided® (R. 10). Since the clause was

operative only in the event of bankruptcy, it could only

confer such security by raising a provable claim. In other

words, this covenant was devised to give the landlords pre-

cisely what was denied to them in Manhattan Properties,

Inc. v. Irving Trust Company, supra. It had no other func-

tion. Noone ever expected the tenant to pay anything under

this covenant. Kothe v. Taylor Trust, supra, 226. The

only obligors under this covenant, if it should be sustained,

are the unconsulted and vigorously dissenting other credi-

tors of the bankrupt.

It was known that claims for future rent or damages

for the loss thereof would not ordinarily be held provable.

It was reasonably clear since Jn re Roth & Appel (1910),

181 Fed. 667, that covenants of indemnity would not suffice

to turn an unprovable claim into a provable one. It was

known since Kothe v. Taylor Trust , supra, that tpso facto

termination of the lease upon bankruptcy and a stipula-

Sled batons 2a? nl ee 7 — == ~

“Sag

13

tion that all rent to accrue in the future should be imme-

diately due and owing would not avoid the exclusion of

such claims from the statute. Enterprising landlords and

lawyers have, therefore, been searching for many years

for a magical formula or covenant. The instant one is

about the only one left untried and it succeeded once in an

equity receivership case, although it was there clearly recog-

nized by this Court as insufficient in bankruptcy where a

precise statute is controlling. Filene’s Sons Co. v. W eed,

(1918) 245 U. S. 597, 601-602. Nevertheless, since the

bankruptcy statute could not (until 1934) be changed, this

possibly magical covenant was worth a chance. If it did

not create a provable claim, it was realized that probably

nothing could, short of an amendment to the statute which

was not then feasible. The bankrupt was willing to have

the covenant included in the lease, as it would never have to

pay anything under it.* So the covenant was tried and,

strangely enough, was held to be magical by the Circuit

Court of Appeals.

But the only question in the case which was apparent to

the Circuit Court of Appeals was (R. 32):

Will this clause serve to create a provable claim?

By thus phrasing the question, the Court assumed that

some covenant must have the necessary magic and thus

missed what should have been the main and only question:

Is there any covenant or group of words suffi-

ciently magical to turn an unprovable claim into a

*The question of a discharge was not important in the case of

a corporate lessee. But we have never heard of the covenant bein

used in a lease with an individual lessee who undoubtedly would be

interested in the broadest possible discharge.

ee,

14

provable one and to avoid the provisions of the

statute and the intent of Congress?

Had the Circuit Court of Appeals considered that question

rather than the one propounded, it is believed that such

Court would have arrived at the opposite result as did the

Referee, who stated (R. 19):

“Mere language should not be able to create a charge

against creditors which otherwise does not exist.

Merely changing the label and calling the future

unaccrued rent herein immediate damages, ipso

fecto, should not bring about such an undesirable

result to the serious prejudice of the other creditors

herein who hold ‘just demands based upon adequate

consideration’ as pointed out heretofore.”

Obviously, if this claim is sustained, the Bankruptcy

Act becomes a “game of words”. This is practically ad-

mitted by respondent in its brief in opposition to the writ of

certiorari (p. 5):

“Nor does the allowance of the claim in the instant

case have any far reaching consequences since the

lease stands on its own footing and is not a precedent

for the allowance of other claims unless based on

identical language.” (Italics ours.)*

Under such theory, the type of claim would not be impor-

tant but the words used to create or describe the claim would

be controlling. Such cannot be the law.

The fallacy in the entire argument of respondent and

in the decision of the Circuit Court of Appeals can be dem-

onstrated by stripping the covenant of its legal verbiage.

The covenant would then read as follows:

*This also ignores the fact that, if this claim be sustained, identical

language will become extremely popular in the future.

i

15

“In the event of the filing of a bankruptcy peti-

tion against the lessee, the lessor shall have a prov-

able claim in the amount of $177,788.”

The impropriety and ineffectuality of such type of covenant

to raise a provable claim in bankruptcy is instantly

recognized. Yet, while such type of covenant may be more

naive and have less legalistic flavor or magic, it does not

differ in substance, purpose or desired effect from the cove-

nant here under consideration. If the instant claim is to

be recognized, the magic of the words used is magic indeed.

It is submitted that this issue must be squarely met. Is

the provability of claims to be determined by the language

used in the covenants alleged to create the claims? Or is

the statute to define the types of provable claims? Can

parties, by stipulation or agreement or by the use of speci-

ficaliy approved words, define what claims shall be prov-

able? Or is the intent of Congress as expressed in the Act

to determine the provability of claims?

Such questions answer themselves and were categori-

cally answered by this Court. Unless Congress remains

supreme as the arbiter of how bankrupt estates are to be

distributed, the door to the granting of a type of preference

to certain creditors will be thrown wide open. Parties to

an agreement cannot be permitted to stipulate what claims

are provable. The instant covenant and this case are

already famous. If the decision below is sustained, this

covenant, now appearing in many leases (particularly in

New England), will appeax in all leases. Landlords will

absorb the major portions of bankrupt estates. Landlords

will be enabled to evade the purpose of the Bankruptcy Act

as defined by this Court in Kothe v. Taylor Trust, supra,

227:

—_— al Ee Ee ee eet ae ee ge eee ee

16

“The broad purpose of the Bankruptcy Act is

to bring about an equitable distribution of the bank-

rupt’s estate among creditors holding just demands

based upon adequate consideration. Any agreement

which tends to defeat the beneficent design must be

regarded with disfavor.”

As will be hereinafter pointed out, even the limitation

of rent claims to one year of rent in the new clause (7) of

Section 63a will be of no avail.

In this connection, it should be noted that this Court

was unfavorably impressed by the amount of the claim in

the Kothe case, which was only $5,000. The instant claim

is $177,788. Furthermore, the Kothe case lease had about

one and a quarter years to run while the instant lease does

not expire until December 31, 1944 (R. 7), 1.e., thirteen

years from the date of bankruptcy (R. 1). The admonition

of this Court in the Kothe case should be remembered (p.

227):

“Tf the term were much shorter, or there were facts

tending to disclose a proper purpose, the argument

in favor of the lessor would be more persuasive.”

Yet here the term is longer and the purpose the same.

Furthermore, if this claim be sustained, imagine the effect

on bankrupt estates of the inclusion of these covenants in

99 and 999 year leases.

If parties can by agreement determine what claims are

provable, it is only logically consistent to hold that parties

can by agreement determine what claims are not prov-

able and, therefore, not dischargeable. This is not im-

portant in the case of corporations but it is most im-

portant in the case of individuals who might, by economic

necessity or otherwise, be forced to waive the benefits of

the Bankruptcy Act and agree that certain claims would

be not provable or dischargeable. Such state of affairs

could obviously not be permitted to arise.

The decision below must be reversed. To hold other-

wise, would of necessity mean that a stipulation be-

tween the parties can change an unprovable claim into «

provable one. Such effect may be denied but it is obvious

upon very little reflection. The only safe rule is to follow

the statute. In Section 63a of the Bankruptcy Act Con-

gress has defined the type of provable claims and as stated

by this Court (Manhattan Properties, Inc. v. Irving Trust

Company, supra, 336) :

17

“If the rule is to be changed Congress should so

declare.”

III

The intent of Congress to exclude the instant

claim from the category of provable claims is

clear and has been recognized by this Court.

A. Such intent was clear before the 1934 amendments

to the Bankruptcy Act.

This proposition should not require any argument after

the Manhattan Properties Inc. v. Irving Trust C ompany,

supra, but at the risk of some repetition, the approach of this

Court to the problem presented in that case will be briefly

reviewed. This Court did not proceed to construe the per-

tinent Section 63a by a logical analysis of the language used

therein or by analogy to other types of legal relationships.

Claims for future rent and damages for the loss thereof

were held unprovable not because they were uncertain as to

——

18

amount or liability or contingent at the date of the filing of

the petition in bankruptcy. Claims for future rent and

damages for the loss thereof were held not provable because

Congress did not intend such type of claim to be provable.

As stated by this Court (Manhattan Properties, Inc. v.

Irving Trust Company, supra, 332) :

“The issue is not one of power, for plainly Con-

gress may permit such claims or exclude them.

The sole inquiry is the intent of the Act.’ (Italics

ours. )

As admitted by this Court in the Manhattan Properties

case (p. 332), so in this «ase, the contention of claimant-

respondent may have been, prior to that case, “as a matter

of logic, an admissible one.” Nevertheless, the apparent

logic of the argument that future rent claims should be

deemed provable under Section 63a (4) was disposed of

adversely to the landlords simply by an examination of

the intent of Congress. In this case as in the Manhattan

Properties case, decisions will undoubtedly be cited in sup-

port of the argument that this claim is not contingent or

uncertain. The alleged significance of the device of “ipso

facto termination” of the lease may be expounded. It may

be argued, as it was by the Circuit Court of Appeals (R.

32), that the instant claim became definite as to amount and

liability on the date of the filing of the petition. All such

arguments in so far as there applicable were made in the

Manhattan Properties case and overruled. They are no

more applicable here. The issue cannot thus be settled.

Irrespective of such considerations, we are determining the

intent of Congress with respect to the provability of a type

of claim, i.e., for damages for loss of future rent. Such

intent alone controls.

EMOTE PEO ee PREFER ASTON EU er HRD gry RELATE OPS ote penn — |

ses

19

Once such controlling principle is understood, it is a

simple matter to search the legislative and judicial history

of our Bankruptcy Acts from 1800 to date to determine

just what type of claims Congress intended to include with-

in Section 63a and, therefore, within the scope of the dis-

charge provided for in Sections 1 (12), 14 and 17 of the

Bankruptcy Act of 1898. It is not necessary to repeat

here such history up to the commencement of the year 1934.

It was reviewed at length in this Court’s decision in the

Manhattan Properties case (pp. 332-337 ) and at even

greater length in the brief for respondent in that case (pp.

12-43). The most interesting fact to note, as pointed out

by this Court, is that, while the reasons given by many

courts varied (some being understandable and others

being rather strained and swept away in other cases),

neither Congress nor the courts ever intended that claims

for future rent or for damages for the loss thereof should

be provable or dischargeable. The reasons and explana-

tions therefor as given by the various courts are unimpor-

tant. It is the intent of Congress which governs and a

practical rule is frequently more desirable than a general

rule of logic consistently applied to all similar legal rela-

tionships.

There is one more important principle certainly implied,

if not expressed, in this Court’s review of the intent of

Congress as expressed in the Bankruptcy Act. Congress

intended to make only certain definite types of claims

provable. All other types of claims, including ‘this one,

were to be unprovable. It was not to be a question of the

phraseology of the covenant upon which a claim might be

founded, or a question of analogy to other types of claims,

but rather a question of determining the intent of Congress,

ee ihn ait naaridonat hard cont ron

ME IRPTIE OES PA pete ee:

pomerrrre FP were, = Ry ~ ’ TS Te a eS Pe ect eq ep eee es

20

as expressed, with respect to the substance of each type of

claim. For instance, tort claims, unless merged into judg-

ments, have been deemed not to have been included by Con-

gress within the list of provable claims. Claims for work-

men’s compensation, even though liquidated by an award

of the duly constituted state authority, were also regarded

as unprovable. Likewise, as has been definitely and finally

established, claims for damages for loss of future rent

were nowhere included by Congress within the provisions

of Section 63a and we cannot be so blind to essential mat-

ters as to assume that Congress intended to exclude a claim

only in the event the proper language or clause was omitted.

Congress was dealing with matters of substance. Methods

of expression may be important but the administration of

the bankruptcy law must be more concerned with sub-

stance.

It is, therefore, clear that the language and theory of

the Manhattan Properties case require the reversal of the

judgment below.

B. The intent to exclude claims for damages for loss

of future rent prior to June, 1934 was unmistakably cor-

roborated in the amendments to the Bankruptcy Act of

June 7 and 18, 1934.

Since the decision in Manhattan Properties, Inc. v.

Irving Trust Company, supra, there has been presented

further evidence of the intent of Congress to exclude the

instant claim from the category of provable claims defined

in Section 63a of the Bankruptcy Act as applicable to this

bankruptcy proceeding. It can be shown that, by recent

amendments to Section 63a. Congress has made provable

21

for the first time claims for damages for the loss of future

rent and then only in an amount not exceeding rent for

one year after the date of surrender of the premises and

only in bankruptcy proceedings in which the six months

period had not expired at the time of the enactment. of the

amendments.* Obviously, if an amendment to the Bank-

ruptcy Act was deemed necessary by Cokggress to make

this claim provable in the future, this claing could not have

been intended by Congress to have been’ provable in this

bankruptcy proceeding in which-thé time to file claims ex-

pired March 31, 1933 (R. 1). First National Bank v.

Missouri (1923), 263 U. S. 640, 658. The intent of Con-

gress as set forth by this Court in the Manhattan Prop-

erties case is thus confirmed.

The truth of such conclusion is obvious when it is real.

ized that Congress unmistakably included this type of claim

within a new amendment adding new types of hitherto

unprovable claims to the provable list; unmistakably indi-

cated its belief that such amendment was a change in the

existing law and unmistakably made such new amendment

not applicable to this bankruptcy proceeding. If this claim

had been provable in this case, Congress would not have

so acted or expressed itself.

By Acts of Congress approved June 7 and 18, 1934

three new clauses [numbered (6), (614) and (7)] were

added to Section 63a of the Bankruptcy Act. Each of such

new clauses dealt with a type of claim not provable pri

to the enactment of such amendments.** Clause (6) made

*Therefore, not applicable to this proceeding since the time for

filing’ claims herein expired more than a year prior to the enactment

of the amendments,

**The new clauses thus added to Section 63a are set forth in full

in Appendix A.

22

provable workmen’s compensation claims when founded

upon the award of an industrial commission, other body

or officer of any State or Territory having jurisdiction to

make such awards. Clause (614) made provable claims for

damages evidenced by a judgment in any action for negli-

gence instituted prior to the adjudication in bankruptcy and

pending at the time of the filing of the petition in bank-

ruptcy. Clause (7) referred to the instant type of claim

and made provable claims for damages arising under execu-

tory contracts, including leases, but limited claims for

damages or indemnity under a covenant contained in a lease

to the rent stipulated in the lease, without acceleration, for

the year next succeeding the date of the surrender of the

premises plus an amount equal to the unpaid rent accrued

up to said date.

New clause (7) is the only subdivision of Section 63a

from which, strictly speaking, the past and present intent

of Congress regarding future rent claims can be ascer-

tained. But, in passing, it should be noted that the claims

covered by new clauses (6) and (62) were clearly not

provable prior to the 1934 amendments. Lane v. Jndustrial

Commissioner, (1931), 54 Fed. (2nd) 338, cer. denied 286

U. S. 543; Schall v. Camors, (1920), 251 U. S. 239. Since

this is true in respect of two out of three new clauses, it

is certainly persuasive, particularly in view of the recent

agitation regarding landlords’ claims and the obvious mean-

ing of the Manhattan Properties case, that the same was

intended to be true as to the third new clause, i.e., clause (7).

But there are other evidences that by the enactment of

clause (7) Congress intended for the first time to make

claims for damages for loss of future rent (including this

claim) provable in what may be termed “future bankrupt-

FORE PN TOTAL EEOMMEY POTATO IF EERE wow

“ee,

23

cies.” This may be demonstrated by the establishment of

two major propositions with respect to clause (7):

(a) It was intended by Congress to change the

then existing law and to add a new type of provable

claim. (If such be the case, such type of claims

could not have theretofore been provable.)

(b) It was intended to include the instant type

of claim within the definition of such new type of

provable claim. (The instant type of claim was

therefore not provable prior thereto.)

The first proposition is easily made apparent as it has

been stated by Congress in almost haec verba. When the

new amendments to Section 63a were first presented to the

House of Representatives (H. R. 5884), clause (7) was

plainly designated as one of a number of “changes in exist-

ing law” (House Report 194, 73rd Congress, Ist Session).

Such designation, it is submitted, is conclusive of the intent

of the House and, inasmuch as Senate Report 482 (73rd

Congress, 2nd Session) reprinted House Report 194 as the

sole explanatory note concerning the new amendments,

equally conclusive as to the intent of the Senate. It is

difficult to understand how, after such designation with re-

spect to clause (7), any one can argue that Congress in-

tended merely to clarify one of the other subdivisions of

Section 63a which it believed had been erroneously inter-

preted by the courts.

In addition, the last proviso of clause (7 ) clearly indi-

cates the belief of Congress that such clause dealt with an

entirely new and different claim not theretofore provable.

Such last proviso was approved in one form on June fA

1934 and was later amended by an Act (S. 3779) approved

24

on June 18, 1934. In both its forms the last proviso clearly

indicates the intent of Congress to create a new type of

claim by clause (7). Such proviso, as first enacted, read

as follows:

“Provided further, That the provisions of this

clause (7) shall apply to estates pending at the time

of the enactment of this amendatory Act.”

By the Act approved June 18, 1934 the applicability of

clause (7) was limited “to estates pending at the time of

the enactment of this amendatory Act in which the time for

filing such claims has not expired.” In reporting favor-

ably upon this last amendment to clause (7) (S. 3779), the

Senate Judiciary Committee said (Senate Report 1404;

73rd Congress, 2nd Session) :*

“The committee is of opinion that the provisions

of clause (7), quoted above, should be limited in

operation to those estates in which the time for filing

claims has not expired. If applied to estates in

which the time for filing claims has expired, these

provisions would entail much inconvenience, ex-

pense, and confusion, in many cases necessitating the

reopening of estates which are ready for final settle-

ment and in which the time for filing claims expired

many months ago. The sole purpose of this bill

(S. 3779) is to avoid such undesirable results of the

provisions of clause (7).”

Furthermore, upon the passage of the bill by the House,

it was stated by the member moving its adoption that this

amendment, limiting the application of clause (7), had by

inadvertence been left out of the bill approved June 7, 1934

and that the amendment limited

*House Report 2018, 73rd Congress, 2nd Session, is identical in

language.

eS Bat a a uk : MP TRIES PROM © PIE * OTTO CEE pe OER ——

25

“landlords filing their claims against bankrupt es-

tates”

to proceedings in which the six months period had not

expired (Congressional Record, Vol. 78, 73rd Congress,

2nd Session, p. 12078).

It is submitted that such last proviso of clause (7) would

never have been passed in either its first or final form if

Congress had not thought it was providing for a new type

of claim in clause (7). If clause (7) was intended merely

as a Clarification of the first five subdivisions applicable to

this case, the last proviso would have so stated. This be-

comes even more obvious when it is realized that such pro-

visO was never proposed until the entire Act was passed in

different forms by the Senate and the House and submitted

to conference (Appendix B, cf. Nos. 3 and 4). In addition,

the final form of the last proviso clearly provides that

none of the provisions of clause (7) shall be applicable to

estates in which the time for filing claims has expired. This

is conclusive evidence that a new form of claim was created.

Some argument may be made to the contrary by insist-

ing that clause (7) does not make. provable a new type of

claim inasmuch as a logical dissection of its language would

include within the scope thereof claims of the type hereto-

fore held provable in cases like Central Trust Co. v. C hicago

Auditorium Association (1916), 240 U. S. 581. Such

argument clearly ignores the designation of clause (7) as

a “change in the existing law” and the form of the last

proviso. It is realized that the language used by Congress

in clause (7) is not as definite as might be desired. Never.

theless, it should be obvious from all of the foregoing that

in spite of the loose reference to “executory contracts” there

was no intent on the part of Congress to include within the

—_— PRET GED ONTOS TET IRATE

26

scope of clause (7) claims for damages similar to those

presented in the Chicago Auditorium case.

It is also believed that the second proposition 1.e., that

Congress intended to include the instant claim within the

scope of clause (7), is equally clear. Unfortunately for

its grammatical structure, clause (7) suffered an almost

mushroom growth as a result of a number of amendments*

and was not debated on the floor of either the House of

Representatives or the Senate. It was first proposed and

passed in very short form (H. R. 5884; Appendix B, No.

1); was modified first by an amendment of the Senate

Committee on the Judiciary (Senate Report 482, p. 3, 73rd

Congress, Ist Session; Appendix B, No. 2); was further

changed on the floor of the Senate (Vol. 78, Congressional

Record, 73rd Congress, 2nd Session, pp. 8109-8110; Ap-

pendix B, No. 3) was again modified by the Conference

Committee of both houses (House Report 1821, 73rd Con-

gress, 2nd Session; Appendix B, No. 4). Consequently

the clause is difficult, if not impossible, to parse and must

be read and interpreted in the light of the general back-

ground of recent events in bankruptcy law, such as the

Manhattan Properties case and the general attack by land-

lords on the statutory exclusion of their claims from prov-

ability in corporate bankruptcies. When so examined there

is no doubt but that Congress intended to include the instant

claim within its permissive and restrictive provisions.

The clause as finally passed may be divided into four

parts—

(1) A general provision as to the type of claims

made provable thereby (suggested and passed first

by the House of Representatives) ;

*The various forms through which clause (7) passed, are set

forth in detail in Appendix B.

ional . > ‘ee

ST ee r hue SLOT ITS FALE TLE PT ME RRR TESTE OP ie, OY eee

27

(2) A limitation as to the amount in which cer-

tain of such type of claims, i.e., claims for damages

for the loss of future rent, could be allowed (sug-

gested first on the floor of the Senate) ;

(3) A declaration of policy with respect to the

amount in which assigned future rent claims should

be allowed (suggested first in conference after pas-

sage by both the Senate and the House) ; and

(4) A limitation of the applicability of the

clause to bankruptcies in which the six months

period for filing claims had not expired; thus ex-

cluding reference to this bankruptcy (partially first

Proposed in conference and modified by the subse-

quent amendment of June 18, 1934).

The first part of clause (7), 4.e., the general descrip-

tion of the type of claims made provable, was not changed

from the form in which it was originally introduced and

passed in the House. The phrase “claims for damages re-

specting executory contracts including future rents” has

no punctuation and is most inartistic. Yet the words

“future rents” must refer to damages and not to “execu-

tory contracts”. Otherwise, the phrase is incoherent and

meaningless. And it is well known that the term “future

rents” has been customarily used in bankruptcy practice to

refer not only to the entire rent to accrue under a lease in

the future but also to damages for the loss of such rent

resulting from bankruptcy. Congress obviously used the

term in the same sense and the reference to “future rents”

indicates an intent on the part of Congress to deal with all

claims for damages arising out of a lease including a claim

for rent which, except for the bankruptcy, would have

——s

“i PR PB eo mace eR 3 RES ER ESET LL EN, DOE NEA BT Sere

28

accrued in the future. Congress was familiar with all the

various types of clauses inserted in leases in an effort to

give landlords provable tlaims in bankruptcy, including

those presented in the Manhattan Properties case; Kothe

v. Taylor Trust, supra; Filene’s Sons Co. v. Weed (1918),

245 U. S. 597; In re Schechter (C. C. A. 3rd Cir.-1930),

39 Fed. (2nd) 18. In all but the Schechter case (and then

on a theory contrary to the Manhattan Properties case), the

claims of the landlords had been held not provable in bank-

ruptcy. Congress intended to make all such claims provable

in the future, whether or not special covenants were in-

cluded in the leases. A most comprehensive clause was

selected. The sentence structure may be awkward but the

intent is clear.

Furthermore, it will be noted that in the third part of

clause (7), #.e., the declaration of policy with respect to the

amount in which assigned future rent claims could be

allowed, Congress speaks first of “future rent claims” and

then of “the amount of damages allowed assignee here-

under”, thus clearly indicating that Congress intended to

include all claims for damages for the loss of future rent

(however they might arise) within the generally descrip-

tive and all-inclusive phrase “future rent claims”.

Having made all claims for loss of future rent as a

result of bankruptcy provable, it was evident that such

claims would have to be limited in amount. Otherwise the

landlords would compel a return of their property and, in

these days of long leases and numerous leaseholds, would

by enormous claims (e.g., the instant one) absorb the entire

estate in bankruptcy to the detriment of other creditors.

The first provision of limitation suggested by the Senate

Committee on the Judiciary (Appendix B, No. 2) referred

-

satin Nh tl a ae oY ia a eo hacen br ae ae ee ee as ed «te

: 29

only to an “anticipatory breach of an unexpired lease’.

This was obviously insufficient as claims might otherwise

arise by express covenant. It was also confusing as bank-

ruptcy had been held not to be an anticipatory breach of a

lease. Central Trust Co. v. C hicago Auditorium Associa-

tion, supra; Manhattan Properties, Inc. v. Irving Trust

Company, supra. So the restrictive clause was amended on

the floor of the Senate (Appendix B, No. 3) and sought to

be made all-inclusive as to future rent claims.

It was realized that a single descriptive phrase might not

be sufficient. It was desired to cover both claims arising in

the absence of a'‘special covenant and claims arising on

special covenants for damages or indemnity. The phrase

“claim of a landlord * * * for damages * * * under a cove-

nant contained in such lease” is a perfect description of

this claim and was intended as such. Obviously, all claims

thus defined in the clause limiting them as to amount were

included in the general description of the new claims per-

mitted to be provable in the future, 1.e., “claims for damages

respecting executory contracts including future rents”.

Some argument may be made that the term “such lease”

refers only to “an unexpired lease” and consequently could

not refer to a lease such as the instant one which by its

terms expired on the filing of the bankruptcy petition. Yet

no one, realizing the purpose of the restrictive clause,

would think seriously for a minute that Congress intended

the whole purpose of this Provision of limitation to be

entirely evaded by the simple device of making the lease

terminate on bankruptcy. If*such were once permitted, we

are all sufficient students of human behavior to know that

all leases would provide for automatic termination on bank-

ruptcy and the restrictive provision would be useless. Dam-

_ ——ae DPT EPE LEE ALAIN A | PR A EIEN OE RO PEE VAT ees PEELE

30

ages to landlords would then be provable in the extreme.

As previously pointed out, imagine the effect of unre-

stricted claims based on 99 and 999 year leases. Further-

more, the landlord, in spite of possible assertions to the

contrary, would not run any risk by such provision for

automatic termination. Even without the instant provision,

if a lease should be burdensome to the bankrupt estate, it

would be terminated as a practical matter in the case of

a corporate lessee by disaffirmance by the receiver or trustee.

Likewise, if such lease should be advantageous to the

estate, the landlord would desire termination so as to

negotiate new and higher rentals with the estate or third

parties, if the estate were liquidated. Such construction

would enable the landlord “to eat his cake and have it too”.

Congress obviously intended no such result. The reference

must be construed to mean all leases which, except for the

bankruptcy, would not have expired. As so construed, the

restrictive clause is intelligible, practicable and wise. If

construed otherwise, the clause is impracticable, confusing,

unworkable and fails to accomplish its only purpose.

Furthermore, even if the restrictive provisions of clause

(7) be construed not to refer to this type of claim and

covenant, nevertheless the first part of clause (7)—defin-

ing the claims provable in the future—does refer to this

claim. That language is so broad as to be susceptible of

only that conclusion. This claim is clearly one for damages

for loss of future rents and arose under a contract usually

termed “executory”. As previously stated, this is also

indicated by the reference to all “future rent’ claims and

“claims for damages” under clause (7) as synonymous

in the provision relating to the allowance of assigned

claims. Since that is true, it is not necessary to go further.

ie el eat el Ee aa EY

<i

ot

31

If this claim is included within the first and permissive part

of clause (7), it was not intended by Congress to be prov-

able until the enactment of such clause (7).

One more thing should be noted. If, perchance, the

instant claim is not included within clause (7), it is not

provable in this or any other bankruptcy, past or future.

By the Manhattan Properties decision, it was not provable

prior to the enactment of clause (7 ) and, if clause (7)

relates only to executory contracts or unexpired leases and

not to leases which automatically terminate on bankruptcy,

Congress by dealing with one type of a future rent claim

impliedly excluded this one.

To recapitulate, the intent of Congress as expressed in

the Manhattan Properties case has been confirmed by Con-

gress. By new amendments not applicable to this case,

Congress has made the instant type of claim provable in a

limited amount in future bankruptcies. Therefore, this

claim could not have been provable prior to such amend-

ments.

Iv

The judgment of the Circuit Court of Appeals

should be reversed and the instant claim should

be expunged.

Respectfully submitted,

Wa ter E. Hops,

H. Struve HeEnset,

Amici Curiae.

32

The undersigned counsel for the petitioner and counsel

for the respondent hereby acknowledge service of, and con-

sent to the filing of, the foregoing brief of Walter E. Hope

and H. Struve Hensel, as amici curiae.

CHARLES K. BEEKMAN,

Epwarp K. HANLON,

Attorneys for Irving Trust Company,

as Trustee in Bankruptcy of Outfitters

Operating Realty Co., Inc., Petitioner.

Joun M. Perry,

Tuomas F. DouGHERTY,

Attorneys for A. W. Perry, Inc.,

Respondent.

33

APPENDIX A

The changes in existing law made by the Acts approved

June 7 and 18, 1934, involved, among other things, the

addition of three new subdivisions to Section 63a as fol-

lows:

(6) founded upon an award of an industrial acci-

dent commission, or other commission, body or offi-

cer, of any State or Territory having power or

jurisdiction to make awards as workmen’s compen-

sation in case of injury or death for injury prior to

adjudication ; (634) the amount of any damages, as

evidenced by a judgment of a court of competent

jurisdiction, in any action for negligence instituted

prior to adjudication of defendant in such action in

bankruptcy and pending at the time of the filing of

petition in bankruptcy, whether voluntary or invol-

untary; and (7) claims for damages respecting

executory contracts including future rents whether

the bankrupt be an individual or a corporation, but

the claim of a landlord for injury resulting from

the rejection by the trustee of an unexpired lease of

real estate or for damages or indemnity under a

covenant contained in such lease shall in no event be

allowed in an amount exceeding the rent reserved

by the lease, without acceleration, for the year next

succeeding the date of the surrender of the premises

plus an amount equal to the unpaid rent accrued up

to said date: Provided, That the court shall scruti-

nize the circumstances of an assignment of future

rent claims and the amount of the consideration paid

for such assignment in determining the amount of

damages allowed assignee hereunder: Provided fur-

ther, That the provisions of this clause (7 ) shall

apply to estates, pending at the time of the enact-

ment of this amendatory Act in which the time for

filing such claims has not expired.”

34

APPENDIX B

1. New clause (7) of Section 63a as adopted by the House

of Representatives on June 5, 1933, read as follows

(H. R. 5884):

“(7) claims for damages respecting executory con-

tracts including future rents whether the bankrupt

be an individual or a corporation, which claims

shall be liquidated under Section 63b of this Act.”

2. New clause (7) of Section 63a as suggested by the

Senate Committee on the Judiciary (Senate Report 482,

73rd Congress, 2nd Session, p. 3) :

“(7) claims for damages respecting executory con-

tracts including future rents whether the bankrupt

be an individual or a corporation, but the claim of a

landlord for anticipatory breach of an unexpired

lease of real estate shall in no event be allowed in an

amount exceeding the rent reserved by the lease for

the year next succeeding the date of the surrender

of the premises.”

3. New clause (7) of Section 63a as amended on the floor

of the Senate (Vol. 78, Congressional Record, 73rd

Congress, 2nd Session, pp. 8109-8110) and as passed

by the Senate:

“(7) claims for damages respecting executory con-

tracts including future rents whether the bankrupt

be an individual or a corporation, but the claim of a

landlord for injury resulting from the rejection by

the trustee of an unexpired lease of real estate or for

damages or indemnity under a covenant contained in

such lease shall in no event be allowed in an amount

exceeding the rent reserved by the lease for the year

35

next succeeding the date of the surrender of the

premises plus an amount equal to the unpaid rent

accrued up to said date.”

4. New clause (7) of Section 63a as recommended in the

conference report (House Report 1821, 73rd Congress,

2nd Session) and approved by the President on June 7,

1934 (with the further amendment by S. 3779 approved

by the President on June 18, 1934 in italics) :

“(7) claims for damages respecting executory con-

tracts including future rents whether the bankrupt

be an individual or a corporation, but the claim of a

landlord for injury resulting from the rejection by

the trustee of an unexpired lease of real estate or for

damages or indemnity under a covenant contained in

such lease shall in no event be allowed in an amount

exceeding the rent reserved by the lease, without

acceleration, for the year next succeeding the date

of the surrender of the premises plus an amount

equal to the unpaid rent accrued up to said date:

Provided, That the court shall scrutinize the cir-

cumstances of an assignment of future rent claims

and the amount of the consideration paid for such

assignment in determining the amount of damages

allowed assignee hereunder: Provided further,

That the provisions of this clause (7) shall apply to

estates pending at the time of the enactment of this

amendatory Act in which the time for filing such

claims has not expired.”