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3 F.(20) 449 ever, unquestionably true that in conse- bankruptcy of the lessee is not a debt provable quence of what the Stock Exchange had against his estate. done the Mercantile feared that the bank

In Bankruptcy. In the matter of Arthur rupt might not be able to make good any

E. Cushman, bankrupt. On review of oroverdrafts upon its account; but that much

der of referee. Affirmed. the Mercantile told the presenting banks

O'Brien, Malevinsky & Driscoll, of New when it sent back the checks. It said to those banks, “We ask you to take the checks York City (Richard J. Mackey and Joseph off our hands because we have not sufficient Walker Magrauth, both of New York City,

of counsel), for bankrupt. funds to meet them,” which was, of course, in effect a statement that it was not willing (Melville H. Cane and Alfred G. Steiner,

Ernst, Fox & Cane, of New York City to permit any overdrafts upon the bankrupt's account.

both of New York City, of counsel), for

creditor. The bankrupt had been in business in Baltimore for some years, and during that

GODDARD, District Judge. On Novemtime had banked with the Mercantile. It

ber 13, 1919, the Michael E. Paterno Realty was well known in the city. It had been Company, á creditor, entered into a lease believed to be financially sound. Many of with the bankrupt, wherein the bankrupt the checks which the Mercantile was seek leased from the Paterno Company an aparting to return were for comparatively small ment on the twelfth floor in the apartment amounts, averaging about $600 each. The house at No. 895 West End avenue, New return was made after 1 o'clock. Under

York City, for a period of 9 years 1042 such circumstances, what the Mercantile did months, commencing November 15, 1919, itself told the other banks all that it then and expiring September 30, 1929, at an anknew. It warned them that something had nual rental of $4,000, payable in monthly happened which made the Mercantile sus- installments in advance of $333.33. The pect that it would lose money if it held the bankrupt entered into possession and rechecks and with such information the banks mained in possession until about April 15, saw fit to do what the Mercantile requested. 1923. On March 9, 1923, he filed a petition

This conclusion would seem to make the in bankruptcy and was adjudicated a bankMercantile pay heavily because it did for rupt on March 26, 1923. The lease containits fellow bankers what it would have had ed the following clause: them do for it had the circumstances been "First. The tenant hereby agrees to pay reversed. In almost all bankruptcies, there the rent as above stipulated without any are many conflicting equities. Notably, this deduction, fraud or delay and the tenant is true as in the instant case, when disaster also agrees that if said rent is not paid at overtakes stock brokerage concerns. There the time and in the manner provided, or if are here thousands of creditors, many of default shall be made in any covenant or whom never intended to become such. Their agreement herein contained, or if the said claims aggregate millions, and they will re- premises or any part thereof shall become ceive less than 10 cents on the dollar. The vacant during the term hereby demised, or adjustment of such equities, as far as they if this lease is terminated by the landlord are capable of adjustment at all, is among as provided in article 15 hereof, the landthe most difficult problems which the courts lord may resume possession of said premisare called upon to solve. One who, with es by summary proceedings to dispossess or knowledge that the estate is in bankruptcy, otherwise, without notice to the tenant, attempts their solution, does so at its peril. which notice is hereby expressly waived.

And in the event of the landlord so resum

ing possession an amount equal to the whole in re CUSHMAN.

of the term as herein originally demised

shall thereupon become immediately due and (District Court, S. D. New York. July, 1924.) payable by the tenant to the landlord and 1. Bankruptcy Om 31-Debt may not be ex.

the tenant hereby expressly agrees that he punged from bankrupt's schedules. A referee is without power to expunge a

will forthwith pay the same to the landlord debt from the bankrupt's schedules.

and that he will also forthwith pay to the 2. Bankruptcy 314(2)-Rent accruing un- landlord any damage and expense which it

der lease subsequent to bankruptcy not a may suffer in resuming possession and reletprovable debt.

Rent which may accrue under the terms of ting said premises, including the cost of rea lease for the unexpired term subsequent to decorating said premises and putting the same in rentable condition, the cost of adver- enjoin him from applying for a discharge tising and a reasonable commission for relet- in respect of such debt, is a novel procedting, and the landlord agrees that if it there- ure, for which no authority has been proafter relets said premises, which in its op- duced. It is opposed to the theory of the tion it is hereby expressly authorized to do Bankruptcy Act. The lower court evidenteither by written lease or otherwise, and the ly thought the debt not dischargeable, and tenant has made the payments as in this for this reason entered the order above rearticle provided, the landlord will pay to cited. But it is the duty of a bankrupt (secthe tenant on the last day of each month tion 7[8], being Comp. St. § 9591) to file during the balance of the term herein orig- schedules containing 'a list of his creditors,' inally demised the net amount received by and one to whom he owes an undischargeasaid landlord during said month upon such ble debt is as much a creditor as is one reletting.”

3 F.(20)-29

whose claim may be discharged under the At the time the petition was filed, the act. March rent was unpaid, so that the unex- “A bankrupt is lawfully entitled to apply pired period of the lease, including the for å discharge under section 14 (Comp. month of March, 1923, was six years and St. § 9598), and by section 17 (Comp. St. seven months, and the rent specified for this § 9601) such discharge shall release him entire period would have totaled $26,333.- 'from all of his provable debts' with the ex33; this was the amount which the bank- ceptions there enumerated; and the prerupt has scheduled as his indebtedness to the scribed form of discharge (No. 59) merely landlord creditor.

orders that the bankrupt be discharged The landlord's contention is that the only from all debts and claims which are made indebtedness at the time of the filing of the provable by said acts against his estate,' petition was the unpaid installment of the etc. To strike out from a schedule what the March rent amounting to $333.33, and it bankrupt swears is a debt is a power noasks to have the item of $26,333.33 "expung- where given to the District Court, and by ed” from the schedules and to insert in lieu anticipatory order to prevent application thereof the said amount of $333.33.

for discharge in respect thereof is (1) an [1] It is the duty of the referee to ex- implied departure from the statutory proamine lists of creditors and schedules of cedure which contemplates a discharge in property and to require such as are incom- the form laid down by the Supreme Court; plete or defective to be amended, but the and (2) an assumption of power to declare referee has no power to expunge a debt what shall be the effect of a discharge which from the schedules.

as pointed out in Re Havens (C. C. A. [2d “The schedules are the bankrupt's state- Cir.]) [46 Am. B. R. 711], 272 F. 975, is ment under oath of his debts and assets; a function of the court in which any given they do not affect the rights of third par- claim or debt or demand is advanced, and ties in the assets or liabilities, nor are third not of the bankruptcy court. The latter parties bound thereby; a striking out of tribunal issues the discharge; the effect these items interferes with the bankrupt's thereof is to be passed upon in the court in duty. The right of the referee should be which it may be pleaded. confined to requiring the bankrupt to make

“Thus the major and more important porthe allegations more definite and certain— tions of the order complained of are erronot to require him to strike out the name of a

neous and must be reversed. As to the stay creditor whom he says, under oath, is a cred

or the lifting thereof, that under section 11

(and see Collier on section 11a) is largely itor, nor to eliminate an item of property

discretionary, Proceedings on a plainly which he swears he considers to be property

nondischargeable debt cannot be stayed; yet, of the estate.” Remington on Bankruptcy

Dey where the question is debatable, a stay may (3d Ed.) vol. 2, note to section 599.

be granted until the bankrupt shall have That a debt may not be expunged from had a reasonable time within which to prothe schedules has been conclusively deter- cure that discharge. which he must have in mined by the Circuit Court of Appeals for order to present to the proper tribunal the this circuit. In re Bernard (C. C. A. 2d status of the debt in suit. Cir.) 280 F. 715, 48 Am. Bankr. Rep. 359, "It is therefore directed that the order in a per curiam opinion, the court said appealed from be reversed, with costs, withas follows:

out prejudice to any further proceedings in “To expunge a debt or the statement of a the court below in respect of a stay under debt from a bankrupt's schedules, and to section 11."

3 F.(20) 451 The fact that a bankrupt schedules a debt "• • . And it has been too often which is not dischargeable in bankruptcy said to need citation that, while the grantdoes not change the law or relieve him of ing of a discharge is a function of the bankthe obligation after his discharge. The ruptcy court alone, the effect thereof is for bankruptcy law only provides that a dis- any court in which it is duly pleaded or charge shall free the bankrupt from prov- otherwise submitted for judgment." able debts with certain exceptions, which In my opinion, the referee was right in do not include the debt in question. Sec- refusing to expunge the debt of $26,333.33 tion 17 of the Bankruptcy Act (Comp. St. from the schedules. But the only claim that § 9601).

is provable against the bankrupt estate is In the case of 884 West End Avenue Cor $333.33, the rent for the month of March, poration v. Pearlman, 234 N. Y. 589, 138 N. 1923, and therefore all that is dischargeable, E. 458, the New York Court of Appeals and order may be entered accordingly. held a clause similar to the said clause 1, supra, wherein it was provided that in the event of default in the payment of rent, the total amount for the balance of the entire term becomes due, to be void and unenforce

AMERICAN ENGINEERING CO. v. METRO

POLITAN BY-PRODUCTS CO., Inc. able on the ground that "it amounted to a forfeiture or penalty and was illegal.” (District Court, E. D. New York. November [2] There was no bankruptcy clause in

7, 1924.) this lease and the question is—whether un- 1. Receivers 179-Filing of answer by deder this lease rent, which may accrue sub- fendant at direction of its receivers held act sequent to the filing of the petition in bank- of receivers, which they have power to adopt. ruptcy, is provable against the bankrupt's Filing of answer by defendant at direction

of receivers in action for false arrest brought estate. The weight of the authorities is that

by leave of court held act of receivers, which it is not provable.

they had power to adopt. "Even the discharge fails to relieve him from claims against him that are not prov

2. Courts 508 (4)-Federal District Court,

having authorized plaintiff to bring suit able in bankruptcy, and, since his obliga- against receivers, will not restrain further tion to pay rents which are to accrue after proceedings in state court. the filing of the petition in bankruptcy may A federal District Court, having granted not be the basis of a provable claim, his leave to plaintiff to bring action against deliability for them is neither released nor af

fendant company for whom receivers had been fected by his adjudication in bankruptcy, or

appointed, will not restrain defendant and its

receivers from taking appropriate proceedings by his discharge from his provable debts." in such action brought in state court; the latWatson v. Merrill (C. C. A. 8th Cir.) 136 ter tribunal being competent to protect rights F. 363, 69 C. C. A. 185, 14 Am. Bankr. Rep. involved. 453, 69 L. R. A. 719. "There was nothing due and owing when

In Equity. Suit by the American Engithe petition was filed. There might or might

neering Company against the Metropolitan not be such a debt in the future, depending

By-Products Company, Inc. On applica

tion by William P. Langevin for an order upon various contingencies, but it is enough that there was no provable debt when the staying

be staying George M. Moffett, defendant's repetition was filed.” In re Jorolemon-Oliver ceiver, Irom taking further proceedings in Co. (C. C. A. 2d Cir.) 213 F. 625. 626. 130 an action by applicant against defendant C. C. A. 217, 32 Am. Bankr. Rep. 467. .

and others, pending in the New York SuSee, also, Atkins y. Wilcox (C. C. A. 5th preme Court. Application denied. Cir.) 105 F. 595, 598, 44 C. C. A. 626, 53 J oseph Osmun Skinner, of New York L. R. A. 118, 5 Am. Bankr. Rep. 313; Mat- City, for applicant. ter of Roth & Appel (C. C. A. 2d Cir.) 181 Lewis & Kelsey, of New York City, for F. 667, 104 C. C. A. 649, 31 L. R. A. (N. defendant. S.) 270, 24 Am. Bankr. Rep. 588; Zavelo v. Reeves, 227 U. S. 625, 33 S. Ct. 365, 57 GARVIN, District Judge. This is an apL. Ed. 676, Ann. Cas. 19140, 664, 29 Am. plication by William P. Langevin for an Bankr. Rep. 493.

order staying the defendant herein and Judge Hough, speaking for the Circuit George M. Moffett, as receiver thereof, from Court of Appeals of this circuit, in Matter taking any further proceedings in an action of Havens (C. C. A. 2d Cir.) 272 F. 975, brought by said Langevin in the New York 976, 46 Am. Bankr. Rep. 711, said:

Supreme Court, New York County, against

16 of 98. the defendant and others for false arrest SYLVESTER CO. v. NICHOLS, Collector of and malicious prosecution, which action has

Internal Revenue. been dismissed by Mr. Justice Mahoney on (District Court, D. Massachusetts. February motion of certain defendants. An applica

11, 1925.) tion for leave to reargue that decision has

No. 2123. been made, and has been adjourned pending a decision on the motion now before this Internal revenue 7-Corporation in comput.

ing excess profits tax held entitled to retain court. Receivers in equity (of whom Mof

taxes for previous year as part of its invested fett was one) of defendant Metropolitan capital until 105 days after time for filing re. By-Products Company, Inc., were appoint turn. ed on the application of the complainant, Additional income tax and excess profits American Engineering Company, on No- taxes, imposed under Revenue Act October 3,

1917, 88 4, 200–214 (Comp. St. 1918, 88 6336jj, vember 19, 1917.

6336%a-6336380) for fiscal year ending June [1] The action by Langevin was brought 30, 1917, held due and payable under Act Sepby leave of this court, contained in an or tember 8, 1916, § 14a (Comp. St. $ 6336n), 105 der granted July 2, 1918. An answer was

days after expiration of extensions for filing

returns granted by commissioner of internal interposed, in form by the defendant, but

revenue under section 14c, and corporation in at the instance of the receivers. They were computing excess profits tax for fiscal year endin duty bound to defend the action. The ing June 30, 1918 was entitled to retain amount filing of such answer must be held to be of tax for 1917 as part of its invested capital their act. It is contended by the moving

until time tax was so payable. party herein that this act was that of the defendant, but the court is of the opinion

At law. Action by the Sylvester Comthat the receivers have the power to adopt pany against Malcolm E. Nichols, Collector the answer filed as their own, especially in of Internal Revenue. Judgment for plainview of the fact that it was filed at their di- tiif. rection.

Norman W. Bingham, Jr., and Blodgett, [2] The court sees no reason for attempt- Jones, Burnham & Bingham, all of Boston, ing to interfere with the New York Supreme Mass., for plaintiff. Court. To take such action, assuming the Robt. 0. Harris, U. S. Atty., and Albert court has that power, would be in effect to F. Welsh, Asst. U. S. Atty., both of Boston, substitute the discretion of this court for Mass., for defendant. that of the other. Such a course of action would be without precedent, if not actually BREWSTER. District Judge. The Sylillegal, and, if followed, would lead to un- vester Company, a Massachusetts corposeemly conflicts between this court and a ration, brings this action to recover $3,411.tribunal which is fully competent to pro 74 paid the defendant under protest in retect the rights of all hitigants whose differ- sponse to a demand based upon an additionences are submitted to it for determination. al' assessment of excess profits tax, which This court does not doubt but that Mr. Jus- sum the plaintiff alleges was illegally exacttice Mahoney will examine with care the ed by the defendant. application for leave to reargue, and that, The plaintiff corporation had designated if any matters that should have been taken for the purpose of computing its income tax into account were not brought to the atten- imposed by the act of September 8, 1916 tion of the court, they will have prompt, (39 Stat. 756), its fiscal year ending June careful, and conscientious consideration; if 30 in each year. It duly filed its return of injustice has been done, it will be speedily income for the fiscal year ending June 30, corrected.

1917. Thereafter the Revenue Act of OctoIt appears that an appeal to the Appel- ber 3, 1917 (40 Stat. 300), was passed, imlate Division has been taken from the or posing an additional income tax and an exder of dismissal, and it is urged that the cess profits tax upon corporations, to be appeal precludes any reargument. If this measured by income derived subsequent to is correct, and the order is affirmed, plain January 1, 1917. This act required suppletiff may bring to the notice of the Appellate mental return of corporations returning inDivision his contentions of omission, in or- comes for the fiseal year ending prior to der that he may be given leave to make a December 31, 1917, and the commissioner of motion on additional papers, if the court is internal revenue, by successive orders, exsatisfied that the application has merit.' tended the time within which such returns The application is denied.

might be filed to March 1, 1918. The plain

3 F.(20) 452 tiff filed its supplemental return within the Section 14(c) provides for penalties for extended time, and the war profits tax and failure or refusal to file returns or for false excess profits tax were duly assessed and and fraudulent returns, and as a part of paid. No question is raised regarding this this section it was provided : tax. But, when the plaintiff filed its return "That the commissioner of internal rev- . of net income for its fiscal year ending June enue shall have authority, in the case of ei30, 1918, in calculating its average invested ther corporations or individuals, to grant a capital for the purpose of determining the reasonable extension of time in meritorious excess profits tax, it did not deduct from its cases, as he may deem proper." invested capital the amount of the addition- The War Revenue Act of 1917 imposed al tax and excess profits tax paid until June upon corporations two additional taxes. In 14, 1918. Or, to state the case in plaintiff's section 4 of the act (Comp. St. 1918, § own language, it claimed the right to re 6336jj) a war income Tax was imposed, and tain this amount as part of its invested cap- sections 200 to 214 (sections 63363/gaital until June 14, 1918.

63363/80) provide for the war excess profits The commissioner of internal revenue, tax. however, took the position that the sum Relative to the war income tax on corshould have been retained only until De- porations, the following provisions of seccember 15, 1917, when it should have been tion 4 are pertinent to our present inquiry: excluded from invested capital. Proceeding “The tax imposed by this section shall be on this latter theory, the Department of In- computed, levied, assessed, collected, and ternal Revenue arrived at an amount of ex- paid upon the same incomes and in the same cess profits tax due for the fiscal year end- manner as the tax imposed by subdivision ing June 30, 1918, which, with interest and (a) of section ten of such act of September penalties, amounted to $3,411.74 in excess of eighth, nineteen hundred and sixteen, as the amount due if the plaintiff's course had amended by this act, except that for the purbeen adopted. This difference of opinion as pose of the tax imposed by this section the to the date when, for the purpose of arriv- income embraced in a return of a corporaing at the average invested capital, these tion, joint-stock company or association, or taxes should have been deducted has led to insurance company, shall be credited with the present controversy.

the amount received as dividends upon the In order better to understand the occasion stock or from the net earnings of any other and significance of the .controversy, it will corporation, joint-stock company or associabe necessary to briefly refer to certain pro- tion, or insurance company, which is taxable visions of the Revenue Act of 1916 and the upon its net income as provided in this Revenue Act of 1917 with certain pertinent title." regulations of the department.

And as to the war excess profits tax, secThe act of 1916 provided, in substance, tion 200 of the act (Comp. St. 1918, § that a corporation which had designated its 63363/ga) contains the following provisions: fiscal year for the computation of the tax “The term 'taxable year' means the twelve should file a return of its annual net income months ending December thirty-first, exceptwithin sixty days after the close of such ing in the case of a corporation or partnerfiscal year. Section 14a (Comp. St. § ship which has fixed its own fiscal year, in 6336n), provided as follows: .

which case it means such fiscal year. The "All assessments shall be made and the first taxable year shall be the year ending several corporations * . . shall be noti- December thirty-first, nineteen hundred and fied of the amount for which they are respec- seventeen, except that in the case of a cortively liable on or before the first day of poration or partnership which has fixed its June of each successive year, and said as- own fiscal year, it shall be the fiscal year sessment shall be paid on or before the fif- ending during the calendar year nineteen teenth day of June: Provided, That every hundred and seventeen. If a corporation or corporation, joint-stock company or associa- partnership, prior to March first, nineteen tion, and insurance company, computing hundred and eighteen, makes a return covertaxes upon the income of the fiscal year ing its own fiscal year, and includes therein which it may designate in the manner here- the income received during that part of the inbefore provided, shall pay the taxes due fiscal year falling within the calendar year under its assessment within one hundred nineteen hundred and sixteen, the tax for and five days after the date upon which it such taxable year shall be that proportion is required to file its list or return of in- of the tax computed upon the net income come for assessment. • •

during such full fiscal year which the time

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