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City Bank Farmers Trust Co. v. Irving Trust Co., 299 U.S. 433 (1937)

City Bank Farmers Trust Co. v. Irving Trust Co.

No. 260

Argued December 16, 1936

Decided January 4, 1937

299 U.S. 433


1. The purpose of § 77B of the Bankruptcy Act was to facilitate rehabilitation of embarrassed corporations by scaling or rearrangement of their obligations and shareholders' interests, thus avoiding a winding up, a sale of assets, and a distribution of the proceeds. P. 299 U. S. 437.

2. A salient element in such a reorganization is the discharge of all demands of whatsoever sort, executory and contingent, presently due or to mature in the future, and, of such claims, not the least important are those for rent to accrue under a lease, or for damages or indemnity payable because of the termination of a leasehold. P. 299 U. S. 438.

3. Section 77B of the Bankruptcy Act provides:

"In case an executory contract or unexpired lease of real estate shall be rejected pursuant to direction of the judge given in a proceeding instituted under this section, or shall have been rejected by a trustee or receiver in bankruptcy or receiver in equity, in a proceeding pending prior to the institution of a proceeding under this section, any person injured by such rejection shall, for all purposes of this section and of the reorganization plan, its acceptance and confirmation, be deemed to be a creditor."

Held: that the lessor, in a lease having no covenant upon the part of the lessee to indemnify against or pay damages arising out of its termination, was a "person injured" by the rejection of the lease by the lessee's trustee in bankruptcy, and, in a subsequent proceeding under §77B, has a provable claim against the debtor's estate for the injury, even assuming that the lessor's reentry, reletting, and restoration of the premises, after rejection of the lease, had terminated the leasehold and ended the tenant's liability under the local law. Pp. 299 U. S. 438, 299 U. S. 443.

4. In relation to § 77B of the Bankruptcy Act and the contemporaneous amendment of § 63(a), judicial notice is taken of the plight of landlords resulting from the flood of corporate bankruptcies caused by the economic depression, and in particular of the situation

Page 299 U. S. 434

of owners of business properties leased to chain store organizations, which had resorted to voluntary bankruptcy largely as a lever to force revision of leases. P. 299 U. S. 438.

83 F.2d 209 reversed.

Certiorari to review the affirmance of an order of the District Court rejecting a claim in a reorganization proceeding under § 77B of the Bankruptcy Act.

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