856 F.

2d 424

In re 29 NEWBURY STREET, INC., Debtor.

SAUNDERS & ASSOCIATES, Plaintiff, Appellant,
v.
29 NEWBURY STREET, INC., Defendant, Appellee.
No. 87-2100.

United States Court of Appeals,

First Circuit.
Argued April 8, 1988.
Decided Sept. 12, 1988.
Rehearing Denied Oct. 5, 1988.

Alvin S. Nathanson with whom Nathanson & Goldberg, P.C., John S.

Rodman and Gargill, Sassoon & Rudolph, Boston, Mass., were on brief,
for plaintiff, appellant.
Robert Owen Resnick with whom Cullen & Resnick, Charlestown, Mass.,
was on brief, for defendant, appellee.
Before BOWNES, BREYER and TORRUELLA, Circuit Judges.
BREYER, Circuit Judge.

When a firm enters bankruptcy, Section 362 of the Bankruptcy Code, 11 U.S.C.
Sec. 362 (1982 & Supp. VI 1988), automatically stays litigation against it in
other courts, though the bankruptcy judge may lift the stay for "cause." Id. In
this case, Saunders Associates, a landlord's agent, asked the bankruptcy court to
lift the stay to allow it to evict a tenant (the debtor in bankruptcy) called 29
Newbury Street Inc. (whom we shall call "Street"). All parties agree that the
bankruptcy court need lift the stay only if, as a matter of Massachusetts law, the
landlord is entitled to evict the tenant and repossess the property. Mass.Gen.L.
ch. 239, Secs. 1-3 (1987). The bankruptcy court refused to lift the stay, 75 B.R.
650; the district court affirmed; the landlord's agent now appeals. The basic
legal issue raised is whether or not Massachusetts law permits eviction, where,
in essence, a landlord, in bad faith, sent a 'rent due' notice listing an incorrect
amount of rent due, while the tenant, in good faith, tried to pay the amount of

rent actually due. We conclude that the law does not permit eviction, and we
therefore affirm the district court.
I.
Background
2

The basic background facts and circumstances are as follows. (In so far as
appellant, in its brief, gives an account of different facts or circumstances, we
find those differences immaterial or without adequate support in the record.)1.
In 1981, Saunders entered into a ten-year lease with a restaurant called
Newbury Cafe (whom we shall call "Cafe"), leasing the premises at 29
Newbury Street, on terms that the parties now apparently believe are favorable
to the lessee.

2. Cafe became bankrupt. The bankruptcy court approved an assignment of

Cafe's lease to Street, provided Cafe's trustee in bankruptcy would cure all
defaults by paying all rent due and by replenishing the security deposit. The
"closing" between Street and Cafe took place on June 2, 1986, but the parties
agreed to wait until June 13, 1986 (the date they believed the appeal period
would expire) to make the final financial arrangements. On June 13, 1986, the
trustee in bankruptcy paid Saunders $40,000 in back rent and $10,000 to
replenish the security deposit--the sum the bankruptcy court had approved as
"satisfy[ing] all rental payments under the Lease through June 2, 1986." Street
was responsible for June rent though it did not take full possession until June
13, 1986. The trustee had agreed to reimburse Street for rent from June 1-13.

3. On October 21, 1986, Saunders sent Street an invoice for $2,635.20 (invoice
# 7161). Saunders said that Street owed that amount because of an automatic
Consumer Price Index (CPI) adjustment in the lease, as applied to the lease
year November 1985 to November 1986. As Saunders knew, Street was not
liable for the added rent for the period November 1985 to June 1986, but it was
liable for the added rent from June onwards.

4. About a month later, Saunders sent a letter to Street asking it to pay invoice #
7161.

5. On December 11, 1986, Saunders sent two more messages to Street. The first
was a letter that again asked for payment of invoice # 7161, and added that "if
we do not receive full payment in the amount of $2,635.20 or written legal
documentation which specifically states that you are not obligated to or
responsible for paying this invoice in full by 5:00 P.M. on Monday, December

15, 1986, then we will have no recours[e] but to commence a legal action to
evict you from the premises for non-payment of rent."
The second was a form document headed:
7
"NOTICE
TO QUIT FOR NON-PAYMENT OF RENT TENANCY UNDER
LEASE"
8

The form notified Street "to quit and deliver up in fourteen days from receipt of
this notice" the Newbury Street premises. Under the section entitled "RENT
DUE" the notice lists "Additional Rent: $2,635.20 11/1/85-10/31/86." The legal
significance of this "notice to quit" is set forth in Mass.Gen.L. ch. 186, Sec. 11
(1987):

9
Upon
the neglect or refusal to pay the rent due under a written lease, fourteen days'
notice to quit, given in writing by the landlord to the tenant, shall be sufficient to
determine the lease unless the tenant, on or before the day the answer is due, in an
action by the landlord to recover possession of the premises, pays or tenders to the
landlord or to his attorney all rent then due, with interest and costs of suit.
10

6. Four days later, on December 15, 1986, Street sent Saunders a check for
$1,002.84, which represents the CPI amount prorated from June 13, 1986
(when Street took full possession) until October 31, 1986. Street also provided
legal documentation showing that it did not take full possession of the premises
until June 13, 1986.

11

7. Street heard nothing further about the CPI rent until January 29, 1987, when
it was served with a summary process complaint alleging nonpayment of rent in
the amount of $2,635.20. The answer to the complaint was due on February 17,
1987.

12

8. On February 11, 1987, Street filed its answer. On February 22, Saunders
amended the account attached to the complaint so that, in effect, it claimed that
Street owed additional money because of a "late-fee" clause in the lease (a
matter to which we shall return at the end of this opinion). On February 27,
before trial, Street asked the federal bankruptcy court (which had approved the
assignment of the lease in the Cafe bankruptcy proceeding) to enjoin the state
proceeding; the court granted the injunction.

13

9. On March 16, 1987, Street itself became bankrupt and entered into Chapter
11 proceedings. The automatic stay prevented Saunders from proceeding

further in state court. Saunders asked the bankruptcy court to lift the stay on the
ground that: because Street had failed to pay all rent owed before the answer in
summary process was due, the lease had terminated. The court agreed with
Saunders that Street had not paid quite the right amount of money. It was
responsible for paying $1,080, not $1,002, for it should have paid for the first
thirteen days of June and then sought reimbursement from Cafe's trustee in
bankruptcy. The court nevertheless refused to lift the stay because it found that
Saunders had acted in bad faith when it sent the notice to quit. Indeed, after an
evidentiary hearing, the court held that "Saunders went to tremendous expense
and time to obfuscate the issue of the amount of additional rent due in an
attempt to extricate itself from an unfavorable lease"--a conclusion that the
record fully supports. The court (and the district court) concluded that the
Massachusetts courts would not permit eviction in these circumstances.
II.
The Law
14

Saunders, here and in the courts below, has pointed to the statute which says
that a fourteen-day notice to quit "shall be sufficient to determine" a lease for
"neglect ... to pay the rent due" unless before the day the answer is due (in an
action to recover possession), the tenant pays "all rent then due with interest
and costs of suit." Mass.Gen.L. ch. 186, Sec. 11. Saunders says it is conceded
that Street did not make timely payment of "all" the rent due--it did not pay the
$78 in CPI rent for the first thirteen days of June, nor did it pay interest or costs
of suit. Hence, the notice automatically "determine[d]" the lease and the
landlord is entitled to possession. The courts below rejected this argument on
the ground that a "notice to quit" sent in "bad faith" is ineffective, relying on
cases such as Oakes v. Munroe, 62 Mass. 282 (1851) (discussing the need for
precision as to when the tenant must quit the premises) and McGrath v.
Mishara, 386 Mass. 74, 434 N.E.2d 1215 (1982).

15

We are reluctant to make so absolute a statement about Massachusetts

landlord/tenant law as did the courts below, in part because the supporting case
law cited is somewhat ambivalent, in part because of our reluctance to generate
broad new legal principles in a matter of such intimate state concern, and in part
because we find that other lines of legal authority (as the bankruptcy court
itself mentioned) offer adequate legal support for the district court's decision.

16

Our legal conclusion is simply that the Massachusetts courts would not permit
the landlord to recover the premises in a case such as this one, where the tenant
is willing, able, and has made reasonable good faith efforts to pay the rent due,

where the landlord has acted in bad faith in respect to the rent, and where the
tenant, prior to trial of the summary process action, has asked for an injunction
to stop the eviction proceedings. We rest this conclusion on three lines of
authority. First, Massachusetts case law disfavors forfeitures in landlord/tenant
cases. See, e.g., Howard D. Johnson Company v. Madigan, 361 Mass. 454, 280
N.E.2d 689 (1972) (granting equitable relief to prevent a forfeiture where
tenant's breach of lease did not prejudice landlord and where the tenant, in good
faith, subsequently complied); Edward's Fine Furniture, Inc. v. DiTullio, 356
Mass. 380, 252 N.E.2d 348 (1969) (equitable relief appropriate where delay in
paying additional rent was due to "honest difference of opinion," landlord was
not prejudiced, both parties had miscalculated the amount due, and tenant had
acted in good faith); Judkins v. Charette, 255 Mass. 76, 83, 151 N.E. 81 (1926)
(courts will grant equitable relief to prevent a forfeiture even if the tenant's
failure to pay rent was willful); Atkins v. Chilson, 52 Mass. 112 (1846)
(common law court has authority to stay eviction proceedings to prevent a
forfeiture).
17

Second, at least since the time of Justice Holmes, Massachusetts law has stated
that a tenant may interpose an equitable defense in a landlord's legal proceeding
to recover possession. Ferguson v. Jackson, 180 Mass. 557, 558, 62 N.E. 965
(1902) (Holmes, C.J.) (In a summary process action to recover possession of
leased property, the court found "no difficulty" in allowing the tenant to "set up
... an equitable defence." "It does not matter that the defence was not available
in the Municipal Court. The equitable defence merely dispenses with the
necessity for filing an independent bill." (Citations omitted).); see LawlessMawhinney Motors, Inc. v. Mawhinney, 21 Mass.App.Ct. 738, 739, 490 N.E.2d
475 (1986) (equitable defenses available in summary process); 16 Annual
Survey of Massachusetts Law Sec. 5.7 at 104 (1969) ("The tenant may
interpose an equitable defense based upon wrongful action if the landlord
sought the summary process for fraudulent or malicious motives.")

18

Third, Massachusetts case law has permitted a tenant upon whom a landlord has
served a notice to quit to prevent the eviction, not simply by paying all the rent
owed prior to answering a complaint seeking repossession, but also by
interposing an equitable defense. See, e.g., Howard D. Johnson, supra;
Edward's Fine Furniture, supra. Thus, Massachusetts courts permit a defense to
eviction even where the tenant has not complied literally with the terms of the
statute, for the interposition of an equitable defense before the answer is due
does not constitute payment of "all rent then due, along with interest and costs
of suit." Mass.Gen.L. ch. 186, Sec. 11. Of course, in this case, the tenant raised
its equitable defense 10 days after the answer was due; Street filed its motion to
enjoin the eviction proceedings on February 27. But, we cannot imagine why

that fact should make a legal difference when the state action has not been
tried; it was still pending and the timing of the tenant's motion seems to have
made no difference to the balance of the equities.
19

In sum, this is a case where eviction would work a forfeiture; the landlord acted
in bad faith, the tenant acted in good faith; the tenant has been willing and able
to pay any money owed under the lease; and the tenant raised these matters
prior to trial of the landlord's action for repossession. In our view,
Massachusetts would not permit repossession under these circumstances.
Whether it would do so were the equities less obviously, or less strongly,
favorable to the tenant is a matter we do not know and need not decide.

20

We have perhaps somewhat belabored the point because we have found a

contrary authority, though not that of a Massachusetts state court. In a federal
bankruptcy decision, In re Players' Pub, Inc., 45 B.R. 387, 391
(Bkrtcy.D.Mass.1985), the federal bankruptcy court wrote:

21
While
it cannot be debated that "equity does not favor a forefeiture [sic]" and that
"remedial statutes are to be liberally construed", a tenant who has been served with a
fourteen-days' notice to quit and against whom a summary process action has been
brought may only avoid a forfeiture by complying with the specific terms of the
statute.
22

After reviewing Massachusetts case law, however, we have concluded that this
language somewhat overstates the absolute nature of the obligation that Sec. 11
imposes on the tenant. The Massachusetts cases cited in Players' Pub,
Margosian v. Markarian, 288 Mass. 197, 192 N.E. 612 (1934) and Ullian v. Les
Tuileries, Inc., 361 Mass. 863, 281 N.E.2d 229 (1972), do not stand for the
proposition that the equities are always irrelevant, no matter how extreme the
facts, and that a landlord can deliberately mislead a tenant and then oust him on
a technicality. Margosian involved a tenancy at will, governed by Mass.Gen.L.
ch. 186, Sec. 12. The version of Sec. 12 in effect when Margosian was decided
did not allow the tenant to cure a default in rent. But a landlord can terminate a
tenancy at will, in any event, on 30 days notice under Sec. 12. And, a landlord
willing to pursue a tenant at will to court to evict him for nonpayment of rent is
a landlord who, in all likelihood, would want simply to terminate the tenancy.
To allow the tenant to cure the rent default, therefore, would likely do the
tenant no good. Thus Margosian offers little guidance here where the tenant is
under a written lease.

23

Ullian, the other case cited in Players' Pub, involved a tenant under a written
lease. But, Ullian is a one paragraph rescript opinion, which does not state all

the facts, and which does not say that failure to comply with the literal language
of Mass.Gen.L. ch. 186, Sec. 11 always automatically terminates a lease. The
equities in Ullian may not have favored the tenant as strongly as they do here.
24

We therefore believe, Players' Pub and its cited cases notwithstanding, that
Massachusetts will allow the assertion of a timely equitable defense to a Sec.
11 action in an appropriate case, and it will prevent forfeiture of a lease where
the equitable circumstances favor the tenant so strongly as they do here. See
cases cited at pp. 427-28 supra.

25

The only remaining question is whether the equities are in any way changed by
the following facts, which we have not yet fully described. The lease in
question contains a provision that says:

26 tenant defaults in the payment of rent or any other payment hereunder and such
[If]
default continues for a period of twenty (20) days, ..., in addition to any and all other
remedies provided in this Lease, as amended, commencing on the 21st day after
such default Tenant shall pay to Landlord, without notice, additional rent in the
amount of Thirty Dollars ($30.00) a day for each and every day until such time as
Tenant has paid in full all such arrearages in good funds or Landlord regains
possession of the premises....
27

Saunders says that, in light of this provision, the amount that Street owed it at
the time of the state proceeding (or even later) was not a trivial $78 but, rather,
$30 per day since "20 days after default." It counts as the default day, in respect
to the $1,080 in CPI rent owed, the date it sent invoice # 7161, namely October
21, 1986. It notes that Street did not pay any CPI money until December 15,
1986; and it concludes that Street owed it $30 per day for 34 days (October 21
to December 15 equals 54 days, minus the 20 day grace period equals 34 days)
or $1,020. Saunders adds that Street still seems unwilling to pay this amount.

28

We believe the "default" rent does not change the equities in any significant
way for the following reasons. First, as the bankruptcy court noted, the
"default" date in respect to a CPI rent claim is unclear. Since one needs
government figures to calculate that rent, the tenant might reasonably have
believed he was not in "default" until a reasonable time after the landlord sent
its CPI rent bill (invoice # 7161). When the tenant actually received invoice #
7161 is unclear from the record, but, regardless, the "default" date could not
have been as early as October 21.

29

Second, given the uncertainty in respect to the "default" date, the tenant could

reasonably have believed it did not owe "default" money until the landlord gave
some indication it expected such payment, or, at least, until considerably after
November 10 (20 days after October 21).
30

Third, Saunders apparently did not ask for "default" money until February 23,
1987, when it sought to amend the amount in its summary process complaint.

31

These three circumstances, taken together, show that Street behaved reasonably
in not paying the unrequested "default" money by December 15, 1984, or even
by February 17, 1987, when its summary process answer was due. And, they
show that it would be most inequitable to use the "default" provision as a basis
for what here would be a forfeiture of the lease. Saunders points out that the
lease says it need not give "notice;" but even assuming, purely for the sake of
argument, that the "no notice" provision applies to CPI rent, as well as to
normal monthly rent (in respect to which the tenant normally needs no notice),
at most the provision, read technically (and if lawful) would give Saunders a
legal right to an additional (now unspecified) amount of "default" money. The
provision, under the circumstances we have spelled out, would not change the
basic equities significantly. We do not see how, given those circumstances
(including the landlord's apparent failure to mention the matter until February
1987) the default rent provision could permit a forfeiture that the law would not
otherwise allow.

32

For these reasons, the judgment of the district court is

33

AFFIRMED.