C & S Grain Co., Inc., Matter of

• Citation: 47 F.3d 233
• Decision Date: 08 March 1995
• Docket Number: No. 94-1976,94-1976
• Parties: , Bankr. L. Rep. P 76,395 In the Matter of C & S GRAIN COMPANY, INCORPORATED, Debtor-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 233

47 F.3d 233

26 Bankr.Ct.Dec. 939, Bankr. L. Rep. P 76,395

In the Matter of C & S GRAIN COMPANY, INCORPORATED, Debtor-Appellant.

No. 94-1976.

United States Court of Appeals Seventh Circuit.

Argued Nov. 10, 1994.

Decided Feb. 8, 1995.

Rehearing and Suggestion for Rehearing En Banc Denied March 8, 1995.

Karen L. McNaught, Asst. Atty. Gen., Office of the Atty. Gen., Springfield, IL, Jerald S. Post, Asst. Atty. Gen. (argued), Office of the Atty. Gen., Civ. Appeals Div., Chicago, IL, for Ill. Dept. of Agriculture.

Thomas Smith, Steve Miller, Derek J. Girton, Acton & Snyder, Danville, IL, for Palmer American Nat. Bank, Tim Thornsbrough, Opal Smith, Mike Nicholson, Harold Perry, Barbara Thornsbrough, Steve Thornsbrough, First Midwest Bank/Danville.

Thomas Smith, Robert Acton, Steve Miller, Derek J. Girton, Acton & Snyder, Danville, IL, for Mary L. Cameron, Jeff Acton.

Timothy Smith, Smith & Kagawa, Danville, IL, for First Nat. Bank of Danville, Ill.

James L. Brougher, Gunn & Hickman, Danville, IL, for William F. Matthews.

Steve Miller, Acton & Snyder, Danville, IL, for Gertrude Moore, John Lee.

Clyde Meachum, Meachum & Meachum, Danville, IL, for Rossville Packing Co.

Bruce Meachum, Meachum & Meachum, Danville, IL, Larry Frerichs, Harms Farms.

D. Phillip Anderson (argued), U.S. Trustee, Peoria, IL, Martha L. Davis, Leander D. Barnhill, Executive Office for U.S. Trustees, Washington, DC, for U.S. Trustee.

Barbara K. Parker, Thomas W. O'Neal (argued), Westervelt, Johnson, Nicoll & Keller, Peoria, IL, James L. Van Winkle, Van Winkle & Van Winkle, McLeansboro, IL, for C & S Grain Co., Inc.

Before POSNER, Chief Judge, and COFFIN ^* and BAUER, Circuit Judges.

BAUER, Circuit Judge.

C & S Grain Company, a debtor in bankruptcy, appeals from a decision of the district court affirming a bankruptcy court's orders pertaining to the disposition of its grain reserves. Because we find no justification for disturbing the decisions below, we affirm.

C & S Grain was formed for purposes of buying, selling, and storing grain. During the months preceding its bankruptcy, C & S Grain struggled to maintain the debt-to-equity ratio that was required under the conditions of its grain dealer's and warehouseman's licenses. After unsuccessfully attempting to improve its weakening financial position, C & S Grain finally surrendered its grain licenses to the Illinois Department of Agriculture ("Department") on December 13, 1993. Upon surrender of a grain license, the Department is entitled to liquidate immediately the unlicensed dealer's grain reserves. 20 ILCS 205/40.23. The Department decided, however, to allow C & S Grain a week in which to either remedy its financial situation or find a suitable successor to continue operation of the grain facility. Instead, on December 20, 1993, C & S Grain filed for bankruptcy under Chapter 11 of the Bankruptcy Code, thereby temporarily staying any action by the Department to liquidate its grain reserves.

The Department sought and obtained an order relieving it from the provisions of the automatic stay on January 6, 1994, after the bankruptcy court determined that the creditors were better protected if the Department were to liquidate the debtor's grain assets. The court also granted motions made by several parties each of whom had entered into so-called "to arrive" contracts with C & S Grain and each of whom, in light of the bankruptcy, sought to be excused from the remaining obligations of those contracts. These contracts required the moving parties to sell grain to C & S Grain at a specified price at a future date. Finding that upon relinquishment of its license, C & S Grain was no longer authorized to perform such contracts, the court declared the contracts void for illegality. In so holding, the court denied C & S Grain's request to appoint the Department as a limited trustee with the power to assume or reject the "to arrive" contracts. The district court affirmed the bankruptcy court's decision in all respects.

C & S Grain wishes to handle the disposition of its grain assets on its own by assuming the "to arrive" contracts and assigning them to entities capable of performing their underlying obligations. By doing so, C & S Grain believes that it will earn substantial revenues from which it can pay its creditors. To aid it in this endeavor, C & S Grain asks that we reverse three decisions of the bankruptcy court: the denial of C & S Grain's motion requesting a limited trustee, the granting of the several motions for rejection of the "to arrive" contracts, and the granting of the Department's motion for relief from the automatic stay.

Although we review a bankruptcy court's factual findings for clear error, we evaluate its legal decisions de novo. In re West, 22 F.3d 775, 777 (7th Cir.1994). The court's decision refusing to appoint the Department as a limited trustee was justifiable on several grounds. First, the authority to select the bankruptcy trustee resides in the United States Trustee, subject only to the court's approval. 11 U.S.C. Sec. 1104(c). ¹ Second, the Bankruptcy Code requires that a trustee be a "disinterested person." Id. The Department is neither disinterested nor a person under the terms of the statute. It is not disinterested because as administrator of the Illinois Grain Insurance Fund--an indemnity fund from which creditors of failed grain dealers and warehousers are paid--the Department, through its subrogation rights, stands to become one of C & S Grain's more significant creditors. Nor is the Department a person as defined by the Bankruptcy Code; governmental units are specifically excluded from the definition. 11 U.S.C. Sec. 101(41). For all of the foregoing, the bankruptcy court's refusal to appoint the Department as a trustee and the district court's affirmance of this decision were appropriate.

We consider next the court's decision on the rejection of the "to arrive" contracts. C & S Grain sought to assume and assign the contracts to licensed grain dealers who would be willing to perform C & S Grain's obligations under the contracts and who would pay C & S Grain for that right. C & S Grain claims that as long as its assignee could provide adequate assurance of future performance, namely that the debtor's contract partner would receive the benefit of its bargain under the contract, C & S Grain was entitled to assign profitable executory contracts for performance by third parties. 11 U.S.C. Sec. 365(a), (f)(2).

The Bankruptcy Code does indeed allow debtors to assume and assign executory contracts with court approval. 11 U.S.C. Sec. 365(a), (f)(1). ² A threshold matter, however, is whether the contracts were in fact executory. For if the "to arrive" contracts were either completed or terminated before the bankruptcy filing, C & S Grain could not have assumed them.

For purposes of the Bankruptcy Code, an executory contract is one in which the obligations of each party remain substantially unperformed. In re Chicago, Rock Island & Pac. R.R. Co., 604 F.2d 1002, 1003-04 (7th Cir.1979). Consequently, "when the debtor has not only failed to perform but has breached the contract pre-petition with the result that the other party has no further duty to perform, ... the contract is no longer executory for purposes of section 365." In re Murtishi, 55 B.R. 564, 567 (N.D.Ill.1985). The extent of a party's obligations after another party repudiates its own obligations is a matter of state law. See In re Streets & Beard Farm Partnership, 882 F.2d 233, 235 (7th Cir.1989) (referring to state law to determine whether a contract remained executory).

In Illinois, once a statute imposes licensure as a precondition for operation and provides a penalty for its violation, a contract for the unlicensed performance of that act is void. See T.E.C. & Assocs., Inc. v. Alberto-Culver Co., 131 Ill.App.3d 1085, 87 Ill.Dec. 220, 228, 476 N.E.2d 1212, 1220 (1985); Broverman v. City of Taylorville, 64 Ill.App.3d 522, 21 Ill.Dec. 264, 267, 381 N.E.2d 373, 376 (1978). Therefore implicit in every grain contract entered into by C & S Grain was an assurance that it was licensed to deal and store grain. But by surrendering its licenses to the Department, C & S Grain declared itself unable to perform and effectively repudiated its contractual obligations. Upon one party's anticipatory repudiation, the other party is entitled to rescind the contract for all purposes of performance. Ahern v. Knecht, 202 Ill.App.3d 709, 150 Ill.Dec. 660, 665, 563 N.E.2d 787, 792 (1990). Unless the non-repudiating party wishes to hold the repudiator...