IRVING TRUST CO., TRUSTEE IN BANKRUPTCY,
v.
A. W. PERRY, INC.
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A landlord filed a proof of claim in the tenant's bankruptcy proceeding seeking liquidated damages based on a lease covenant that automatically terminated upon the tenant's bankruptcy filing, with damages calculated as the difference between remaining rent and fair rental value. The Supreme Court held that the landlord's claim for stipulated damages was provable in bankruptcy because it arose from an independent express contract at the moment the bankruptcy petition was filed, rather than being a claim for future rent or conditional damages dependent on the landlord's subsequent reentry, and the liquidated damages formula was a reasonable measure of harm rather than an unenforceable penalty.
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Mr. Justice Roberts delivered the opinion of the Court.
The respondent was lessor in a lease having a number of years to run at the date of the tenant’s bankruptcy. The writing stipulated:
“. . . 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 insolvency by or against the Lessee shall be deemed to constitute a breach of this lease, and thereupon, ipso 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 termination 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 premises for the residue of said term."
Respondent filed a proof of claim, based upon this clause, which the referee expunged. The District Court affirmed the order. The Circuit Court of Appeals, reversing the decree of the District Court, directed that the claim should be allowed.1 The case is here upon writ of certiorari.
Decision is to be made under §§ 1 (11) and 63 (a) and (b) of the Act of July 1, 1898, as they stood prior to the filing of the petition on September 30, 1932, and the presentation of respondent's proof of claim on March 29, 1933.2 The subsequent amendments of June 7 and 18, 1934.3 are by their terms inapplicable.
In Manhattan Properties, Inc. v. Irving Trust Co., 291 U. S. 320, we reserved the question of the provability of a claim for liquidated damages arising upon such a covenant. The petitioner’s contention is that inasmuch as claims for future rent, or for damages for the breach of the covenant to pay rent, or claims upon contracts of indemnity conditioned upon reentry by the landlord subsequent to bankruptcy, were there held not provable, it logically follows that a claim for stipulated damages for breach of the lease may not be proved. We hold otherwise.
By the terms of the contract the filing of the petition in bankruptcy was, of itself, and irrespective of the election of lessor or lessee, a breach of the lease. The claim of the landlord, consequent upon the breach, arose and matured at the moment of the filing of the petition. The claim is not for rent reserved or upon the lease as such, but is founded upon an independent express contract, and hence within the very words of § 63 (a) 4.
The Circuit Court construed the stipulation as an agreement on the part of the tenant to pay as liquidated damages, in the event of the specified breach, an amount equal to the difference between the present fair value of the remaining rent due under the lease and the present fair rental value of the premises for the balance of the term. The covenant is fairly susceptible of this construction. So read, the court held the clause provided a reasonable formula for ascertaining the damages of the landlord, did not smack of a penalty, and was therefore enforceable. See Wm. Filene’s Sons Co. v. Weed, 245 U. S. 597. We concur in the view that the contract, as its terms were interpreted and applied, supports a provable claim for the stipulated damages.
The judgment of the Circuit Court of Appeals is
Affirmed.
U. S. C. Tit. 11, §§ 1 and 103.
Public No. 296 [c. 424, 48 Stat. 911] and Public No. 387 [c. 580, 48 Stat. 991], 73d Congress.
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Conn. Ry. & Lighting Co. v. Palmer, 305 U.S. 493 (U.S. 1939)…of June 18, 1934, c. 580, 48 Stat. 991, June 5, 1936, c. 512, § 1, 49 Stat. 1475, and June 22, 1938, c. 575, 52 Stat. 840, are immaterial upon this point. Manhattan Properties v. Irving Trust Co., 291 U. S. 320, 330. Irving Trust Co. v. Perry Co., 293 U. S. 307, 310. City Bank Co. v. Irving Trust Co., 299 U. S. 433, 437. Cf. Manhattan Properties v. Irving Trust Co., supra; Maynard v. Elliott, 283 U. S. 273, 278; Central Trust Co. v. Chicago Auditorium Assn., 240 U. S. 581, 589-90. 47 Stat. 1467-68. “In…
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Kennedy v. Boston-Continental Nat. Bank, 84 F.2d 592 (1st Cir. 1936)…matured by the agreement for liquidated damages, as indicated in Manhattan Properties v. Irving Trust Co., supra, at the bottom of page 338 of 291 U.S., at page 389 of 54 S.Ct., 78 L.Ed. 824, and as was held in Irving Trust Co. v. A. W. Perry, Inc., 293 U.S. 307, 308, 55 S.Ct. 150, 79 L.Ed. 379, so that the claim would be provable in bankruptcy. But that is not this case. There is no such covenant or agreement in this lease. In the Manhattan Case, a case in bankruptcy, the time of filing the petition was th…1 / 3
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Hughes v. Commissioner of Internal Revenue, 104 F.2d 144 (9th Cir. 1939)…e it was not timely filed, or it may have been because such evidence was “available to the petitioner in ample time to present it before the Board had made and filed its ■ findings of fact and opinion”. Bankers Coal Co. v. Burnet, 287 U.S. 308, 313, 55 S.Ct. 150, 77 L.Ed. 325. Whichever it was, we cannot say the Board abused its discretion. In this connection, the taxpayer relies on Helvering v. Taylor, 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623, where it was held that remand to the Board was proper where th…
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Join FLexlaw to unlock all legal intelligenceAuthorities Cited
- Manhattan Props., Inc. v. Irving Tr. Co. in Bankr., 291 U.S. 320 (U.S. 1934)
- William Filene's Sons Co. v. Weed, 245 U.S. 597 (U.S. 1918)
- In re Outfitters' Operating Realty Co. v. Irving Tr. Co., 69 F.2d 90 (2d Cir. 1934)