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315

Opinion of the Court.

a part of the scheme of state insurance and not otherwise. The Act of Congress vested in Murray no right to sue the respondents, had he survived his injury. Nor did it authorize the State of Washington to collect assessments for its state fund from an employer conducting work in the Navy Yard. If it were held that beneficiaries may sue, pursuant to the compensation law, we should have the incongruous situation that this law is in part effective and in part ineffective within the area under the jurisdiction of the federal government. Congress did not intend such a result. On the contrary, the purpose was only to authorize suits under a state statute abolishing the common law rule that the death of the injured person abates the action for negligence.

The petitioner urges that if the Act of Congress failed to extend the workmen's compensation law to the Navy Yard, she is, nevertheless, entitled to maintain her action in behalf of herself and her child as heirs of the decedent, because the Code of 1881( supra) was in effect at the date of cession and remained applicable until Congress altered it. She relies upon the principle that when political jurisdiction and legislative power over territory are transferred from one sovereign to another, the municipal law of the place continues in force until abrogated by the new sovereign. Chicago, Rock Island & Pacific Ry. Co. v.

Glinn, 114 U.S. 542; Vilas v. Manila, 220 U.S. 345, 357. But the weakness of her position is that by the Act of February 1, 1928, Congress did abrogate the Code provision as respects the Navy Yard by enacting that “such right of action shall exist as though the place were under the jurisdiction of the State,” and “ in any action brought to recover on account of injuries sustained in any such place the rights of the parties shall be governed by the laws of the State within the exterior boundaries of which it may be.” This plainly means the existing law, as declared from time to time by the state; and Washington,

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by the Act of 1917, has substituted for the action, given in the alternative to heirs or personal representatives by the Code of 1881, one vested exclusively in the personal representative. It results that the petitioner could sue only under the Act of 1917. The judgment is

Affirmed.

MANHATTAN PROPERTIES, INC. υ. IRVING

TRUST CO., TRUSTEE IN BANKRUPTCY.*

CERTIORARI TO THE CIRCUIT COURT OF APPEALS FOR THE

SECOND CIRCUIT.

No. 505. Argued January 10, 1934.--Decided February 5, 1934.

1. The claim of a landlord for future rents based on a covenant to

pay rent in a lease terminated by reëntry on the bankruptcy of the tenant, is not a provable debt under $ 63 (a) of the Bankruptcy Act. P. 332.

So held in view of the great weight of judicial authority construing that section and similar provisions of earlier Acts, and in

view of the legislative history of the subject. 2. The fact that a provision of a statute which has received a settled

construction from federal courts has remained unaltered notwithstanding that Congress has repeatedly amended the statute in other respects, is persuasive that the construction accords with the legis

lative intention. P. 336. 3. Sections 73–76, added to the Bankruptcy Act by the Act of

March 3, 1933, were enacted to permit extensions and compositions not theretofore possible, for individuals only; and the clause of § 74 (a) providing that “A claim for future rent shall constitute a provable debt and shall be liquidated under $ 63 (b) of this Act," is to be related to this novel procedure and not taken as an amend

ment of § 63 (a) or as declaratory of its meaning. P. 336. 4. A covenant by a tenant to indemnify the landlord for loss of rent

he may suffer during the residue of the term after reëntry by the

* Together with No. 506, Brown et al. v. Irving Trust Co., Trustee in Bankruptcy, certiorari to the Circuit Court of Appeals for the Second Circuit.

320

Argument for Petitioners.

landlord upon the bankruptcy of the tenant, and which can come into operation only after the bankruptcy, and only if the landlord sees fit to reënter on that ground, is not a basis for a debt provable

in the bankruptcy proceedings. P. 338. 5. Such a covenant is not the equivalent of an agreement that bank

ruptcy shall be a breach of the lease and that the consequent damages to the lessor shall be measured by the difference between the present value of the remainder of the term and the total rent to

fall due in the future. P. 338. 66 F. (20) 470, 473, affirmed.

2d

REVIEW by certiorari, 290 U.S. 619, of orders sustaining the rejection of claims for loss of future rents, in two bankruptcy cases.

Mr. William D. Mitchell, with whom Messrs. C. Dickerman Williams, Rollin Browne, Ralph Montgomery Arkush, and Amos J. Peaslee were on the brief, for petitioners.

The lower courts have become involved in a maze of technicalities and distinctions based on ancient maxims of the law of landlord and tenant and developed by indemnity clauses, reëntry clauses, ipso facto clauses, acceleration clauses, liquidated damage clauses, and a variety of other covenants contained in modern leases. They have to a large extent lost sight of fundamentals and of the purposes of the Bankruptcy Act, and of the fact that Congress may have intended that such claims should be allowed, the tenant discharged from liability for future rents, and the landlord allowed to share with other creditors in the distribution of assets.

The correct rule is to be found in the Bankruptcy Act and in the decisions of this Court. Williams v. U.S. Fidelity & G. Co., 236 U.S. 549; Central Trust Co. v. Chicago Auditorium Assn., 240 U.S. 581; Wm. Filene's Sons Co. v. Weed, 245 U.S. 597; Gardiner v. Wm. S. Butler & Co., 245 U.S. 603; Kothe v. R. C. Taylor Trust, 280 U.S. 224; Maynard v. Elliott, 283 U.S. 273.

46305-34

-21

Argument for Petitioners.

291 U.S.

To deny provability of such claims defeats the purposes of the Act. It leaves the bankrupt liable indefinitely, while denying the landlord the right to participate with other contract creditors.

If the tenant be a corporation, it rarely is rehabilitated after bankruptcy; and if the claim be not allowed in bankruptcy, the landlord is left to pursue the empty husk of a corporation without assets. For all practical purposes his claim is discharged. It is true he may resume possession, but the value of what he resumes is depreciated below the rent contracted, otherwise he would have no claim. The persons interested in the corporation may organize a new one to take over the assets at bankruptcy sale at a price which will satisfy other creditors or pay them in full, and then continue the business and leave the landlord to pursue a defunct corporation, with only the possibility of mitigating his loss by renting the property for less than the original lease provided. How this system works is well stated in an article on “ Rent Claims in Bankruptcy,” 33 Col.L.Rev. 213. See 7 Univ.Cin.L. Rev. 162

Claims have been allowed on instalment contracts to buy ice (In re Stern, 116 Fed. 604); contracts to buy cotton bagging (Lesser v. Gray, 236 U.S. 70); instalment contracts to sell rubber (In re Portage Rubber Co., 296 Fed. 289); contracts to buy stock (In re Pettingill & Co., 137 Fed. 143); employment contracts (Re Schultz & Guthrie, 235 Fed. 907); annuities (Cobb v. Overman, 109 Fed. 65); and on contracts to make monthly payments similar to rents for the privilege of handling baggage at a hotel (Central Trust Co. v. Chicago Auditorium Assn., 240 U.S. 581).

There should be no distinction between leases having special indemnity or ipso facto covenants and those which have not.

320

Argument for Petitioners.

The special covenants have been relied on to remove the element of contingency, to endeavor to make claims absolute at the time of the filing of the petition, and also to avoid the objection that a covenant to pay rent is extinguished by the landlord's resumption of possession. On the latter theory, these special covenants have been said to substitute for the covenant to pay rent a personal covenant of indemnity, the liability to perform which is not extinguished as is the rent obligation by reëntry. There is support for this theory in Gardiner v. Butler, 245 U.S. 603, and in other decisions.

The resumption of possession is not the voluntary act of the landlord; it is forced upon him by the bankruptcy. For the purposes of the Bankruptcy Act the argument that the obligation to pay rent no longer forms a basis for awarding damage because the consideration for rent is the possession of the land, is no more forcible than the argument that the obligation of the bankrupt to pay for goods on future delivery is extinguished because the goods will not be delivered to an insolvent purchaser.

The argument that reëntry cancels the covenant to pay rent, the only covenant on which a claim could be based, unless there is a special indemnity covenant, ignores the fundamental purpose of the Bankruptcy Act as announced in Williams v. U.S. Fidelity & G. Co., and Maynard v. Elliott, supra. Cf. Central Trust Co. v. Chicago Auditorium Assn., 240 U.S. 581.

On the narrower view as to the operation of the Bankruptcy Act, the claims involved in these cases are provable because of the special indemnity covenants. In both leases the parties expressly contracted for personal liability of the tenant to indemnify the landlord for loss of rent consequent upon default or bankruptcy leading to reëntry and stipulated that resumption of possession of the leased premises by the landlord would not discharge that liability.

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