Kessler v. Slappey

Jenkins, P. J. 1. The parties to a lease may, by subsequent express agreement, annul the contract, or such intention may be implied by their joint acts and conduct inconsistent with the preexistent relationship. In all cases the true purpose and intent of the parties, as manifested by their words or conduct, viewed in the light of the surrounding facts and circumstances, must govern; but the mere acceptance of the keys by the landlord from a vacating tenant will not itself alone operate to establish as a matter of law an implied surrender and acceptance. Ledsinger v. Burke, 113 Ga. 74, 77 (38 S. E. 313); Schachter v. Tuggle Co., 8 Ga. App. 561 (70 S. E. 93). In the instant ease the agreed statement of facts specifically states that the plaintiff 'did not “consent to the termination of any contract which he then had for the rental of said premises.” [618] 2. In regard to defendant’s other contention, the rule laid down in the cases relied on by him (In re Inman & Co., 171 Fed. 185, followed in Lesser v. Gray, 8 Ga. App. 605, 70 S. E. 104; In re Jefferson, 93 Fed. 948; In re Hayes, Foster & Ward Co., 117 Fed. 879; Bray v. Cobb, 100 Fed. 270) appears to have been in effect abrogated by the ruling of the United States Supreme Court in the later case of Central Trust Co. of Illinois v. Chicago Auditorium Asso., 240 U. S. 581 (36 Sup. Ct. 412, L. R. A. 1917B, 580, 60 L. ed. 811). There it was said that it is the purpose of the bankruptcy act, generally speaking, to permit all creditors to share in the distribution of the assets of a bankrupt, and to leave the honest debtor thereafter free from liability upon previous obligations ; and it was in effect held that the intervention of bankruptcy, whether voluntary or involuntary, does not terminate executory contracts as a class, but may constitute a breach thereof such as to give rise to a claim provable and dischargeable in the bankruptcy proceedings. In this decision the Supreme Court calls attention, however, to the distinction which exists between executory contracts in general and contracts arising out of the relation of landlord and tenant by reason of the “diversity between duties which touch the realty, and the mere personalty,” quoting Coke on Littleton. Accordingly it appears that in cases of executory contracts other than such as arise out of the relationship of landlord and tenant, bankruptcy, while not terminating the obligations per se, does ordinarily amount to a breách; yet in contracts involving this relationship not only is it true that bankruptcy does not terminate the relationship, but it does not constitute a breach such as would permit a claim for damages provable in bankruptcy, and thus prevent the enforcement of the contract itself. In Watson v. Merrill, 136 Fed. 359, decided by the Circuit Court of Appeals, eighth circuit, and cited by the Supreme Court in the case referred to, it was held that “Damages for the breach of a contract of the bankrupt to pay rents at times subsequent to the filing of the petition in bankruptcy do not constitute a provable claim, for the same reason that the claim for rents is not provable. The retaking of the premises by the lessor releases the lessee from payment of all subsequently accruing rents unless the contract expressly provides otherwise. The trustee in bankruptcy has the option to assume or renounce the leases and other executory con [619] tracts of the bankrupt, ás he may deem for the best interest of the estate.” In re Roth & Appel, 181 Fed. 667 (C. C. A. 649, 31 L. R. A. (N. S.) 270), decided by the circuit court and cited by the Supreme Court, it was held that “The bankruptcy of a lessee does not sever the relation of landlord and tenant, and the tenant’s obligation to pay rent under his lease is not discharged as to the future, unless the trustee elects to retain the lease as an asset.” The same rule is stated in 7 Corpus Juris, 396 (§ 705) : “A tenant’s discharge in bankruptcy does not terminate the lease nor change the legal relation of landlord and tenant unless the landlord re-enters, or the trustee assumes the lease.” In Rosenblum v. Uber, 3 Circuit Court of Appeals (256 F. 584, 167 C. C. A. 614, 43 Am. B. R. 480), it was said: “A trustee may, with the consent of the landlord, surrender a lease; whereupon the landlord regains possession of the premises, and all unmatured obligations between the parties depending upon the continuance of the leasehold estate are terminated. But a valid- surrender consists not only in an offer by the lessee to surrender but an acceptance of that offer by the landlord” In the same case it was said: “A trustee may, at his option, assume a lease of the bankrupt or decline to assume it as an asset of the estate; and he has a reasonable time within which to exercise his option. If he assumes it-the bankrupt is released, if he does not the lease is in force.” In English v. Richardson, 80 N. H. 364 (22 A. L. R. 1302, 48 Am. B. R. 582), it was said: “In the absence of a provision in a lease to the contrary, a trustee in bankruptcy may, at his option, assume the lease of a bankrupt tenant, but in that ease he takes the leasehold in the same plight as the debtor held it, subject not only to the burdens which rested upon the debtor, but also to all valid claims, liens, and equities in favor of third parties, and in such event, the debtor is relieved from liability for future rent. If, on the other handj the trustee renounces the lease, the relations of the landlord and tenant subsist, and the latter’s discharge in bankruptcy does not release him from his obligation to pay rent.” Thus, these cases and others seem to formulate the rule in executory contracts pertaining to lease of realty, that not only is the contract not terminated by bankruptcy, but that a breach is not occasioned thereby so as to give rise to a claim provable in the bankruptcy court, but that upon the adjudication in bankruptcy of a tenant he may, with the consent [620] of the landlord, and only with the consent of the landlord, surrender the rented premises and terminate the lease. Or if the lease has a value the trustee may elect to assume it as part of the assets of the bankrupt estate. If he does so he assumes all the burdens of the lease, including the obligation to pay rent, and in that event the bankrupt is released, the trustee being substituted in his place. On the other hand, if there be no trustee, or if he renounces the lease or elects not to assume it, the relations between landlord and tenant are not affected by bankruptcy, and the obligation on the part of the tenant to pay future rent exists and can only be terminated with the consent of the landlord. Especially would the ruling of the court below seem to be correct under the facts of the instant case, where it appears that the contract was neither terminated nor breached upon the institution of the bankruptcy proceedings, because of the continued occupancy and possession of the store by the tenant, Kessler, and his continued payment of rent under the terms of the lease for two months after bankruptcy. Independently of the general rule these facts would constitute an implied election on his part, with the consent and acquiescence of the landlord, to continue the contract in force. Judgment affirmed. Stephens and Bell, JJ., concur.