1. A claim based upon a covenant in a lease which provides that
the filing of a petition in bankruptcy by or against the lessee
shall constitute a breach of the lease, that
ipso facto
and without entry or other action by the lessor, the lease shall be
terminated, and
Page 293 U. S. 308
that thereupon the lessor shall be entitled to damages equal to
the amount of the rent reserved for the residue of the term less
the fair rental value of the premises for the residue of the term,
is provable in bankruptcy under §§ 1(11) and 63(a) and
(b) of the Bankruptcy Act, as it was prior to the amendments of
June 7 and 18, 1934. P.
293 U. S. 311.
So
held upon construction of the covenant 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.
2. The claim is not for rent reserved or upon the lease as such,
but is one founded upon an independent express contract, and is
within the very word of § 63(a)(4) of the Bankruptcy Act.
Manhattan Properties, Inc. v. Irvin Trust Co.,
291 U. S. 320,
distinguished. P.
293 U. S. 311.
69 F.2d 90 affirmed.
Certiorari, 292 U.S. 620, to review a judgment reversing a
judgment of the District Court which affirmed an order of the
Referee in Bankruptcy disallowing a claim based upon a covenant in
a lease.
Page 293 U. S. 309
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
Page 293 U. S. 310
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. [
Footnote 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. [
Footnote 2] The subsequent amendments of June 7
and 18, 1934, [
Footnote 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
Page 293 U. S. 311
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.
[
Footnote 1]
In re Outfitters' Operating Realty Co., 69 F.2d 90.
[
Footnote 2]
U.S.C. Tit. 11, §§ 1 and 103.
[
Footnote 3]
Public No. 296 (c. 424, 48 Stat. 911) and Public No. 387 (c.
580, 48 Stat. 991), 73d Congress.
