CONSOLIDATED GAS ELEC. L. & P. CO v. United Rys. & Elec. Co.

• Decision Date: 06 October 1936
• Docket Number: 3988.,No. 3945,3945
• Parties: CONSOLIDATED GAS ELECTRIC LIGHT & POWER CO. OF BALTIMORE v. UNITED RAILWAYS & ELECTRIC CO. OF BALTIMORE et al. (two cases).
• Court: U.S. Court of Appeals — Fourth Circuit

85 F.2d 799 (1936)

CONSOLIDATED GAS ELECTRIC LIGHT & POWER CO. OF BALTIMORE v. UNITED RAILWAYS & ELECTRIC CO. OF BALTIMORE et al. (two cases).

Nos. 3945, 3988.

Circuit Court of Appeals, Fourth Circuit.

April 6, 1936.

On Rehearing October 6, 1936.

Charles Markell, of Baltimore, Md. (Cook & Markell, of Baltimore, Md., on the brief), for appellant.

Edwin G. Baetjer, of Baltimore, Md. (Joseph C. France, Edgar Allan Poe, Charles McH. Howard, and Henry H. Waters, all of Baltimore, Md., on the brief), for appellees.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

SOPER, Circuit Judge.

In Consolidated Gas Electric Light & Power Company of Baltimore v. United Railways & Electric Company of Baltimore, 76 F.(2d) 535, we considered a contract for the sale of electric energy by the Power Company to the Railways Company, and decided a controversy which had arisen between the receivers of the Railways Company, in equity, and the Power Company as to the validity and effect of the instrument. We held that the contract had not been abrogated, as had been contended, and that the rate and amount payable for power furnished prior to and during the receivership should be determined in accordance with certain applicable provisions of the agreement, and remanded the case for further proceedings.

Our opinion was filed on April 2, 1935, and our mandate went down on May 6, 1935. Between these dates, to wit, on April 11, 1935, proceedings for the reorganization of the Railways Company were instituted under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207. The District Court appointed the former receivers as trustees; directed that the property of the debtor should be subject to the payment of all obligations incurred by the receivers; retained jurisdiction of pending proceedings in the receivership relating to contracts with and liabilities to the Power Company for power furnished prior to and since the appointment of receivers; and authorized the trustees at any time prior to July 1, 1935, notwithstanding any other period expired or unexpired fixed by any other order therein to elect to adopt or reject any executory contract.

A plan of reorganization was submitted by creditors on April 15, 1935. It provided for the issuance by the reorganized corporation of debentures, preferred stock, and no par common stock to be distributed in certain proportions to the bondholders, unsecured creditors, and stockholders of the debtor. Some of the bondholders and creditors received a portion of their allotment in debentures. Save for one class of bondholders of the debtor, all of the distributees, including bondholders, unsecured creditors, and stockholders, received all or a part of their allotments in preferred stock or no par common stock of the new corporation. No provision was made in the plan for the possible rejection of the contract in question and the payment of damages arising therefrom; although provision was made for the payment by the reorganized company of any sums that might be found to be due the Power Company in the pending litigation over the power contracts. A hearing on the plan was held on May 13, 1935, at which time the trustees filed a list of executory contracts, including the power contract. The plan was confirmed by the District Court on June 14, 1935, by an order which reserved for further determination the question of the affirmance or rejection of all of the executory contracts on the list. Minor modifications of the plan followed, and on July 18, 1935, the modified plan was approved, the court again reserving jurisdiction to instruct the receivers with respect to the disaffirmance of the contract in question, and in the event of such disaffirmance, to determine what, if any, damages might be due the Power Company and to provide for the payment of any amount so due by the reorganized corporation. From this reservation of jurisdiction, these appeals were taken.

Two questions are presented: (1) Whether the receivers in the equity proceeding or their successors, the trustees in the reorganization proceeding, have in effect adopted the contract with the Power Company; and (2) whether the District Court, in the event that the contract has not been adopted, had the power under section 77B of the Bankruptcy Act to finally confirm the plan of reorganization which made no provision with respect to the disaffirmance of the contract, and at the same time to reserve jurisdiction to instruct the receivers (the trustees) with respect to such disaffirmance and the resulting damages.

The Power Company contends, in the first place, that before July 18, 1935, the contract had already been adopted on behalf of the Railways Company on account of the expiration of the time allowed by the court for disaffirmance; the continued demand and acceptance of performance by the prosecution of the prior litigation to enforce the rates provided by the contract; and by the failure to disaffirm or to make a new contract promptly after this court's decision on the prior appeal. In this connection, certain additional facts should be stated. The parties had never reached an agreement as to the meaning of the contract although it had been in force since 1921. During the progress of the receivership, the period of election as to the acceptance or rejection of executory contracts by the receivers had been extended from time to time to October 5, 1934. In the meantime, the controversy over the power contract had been carried to the District Court which held on June 11, 1934, that the contract had been abrogated, and fixed what it regarded as a reasonable rate on the basis of an implied contract. Then the case came on appeal to this court, whose decision, as we have seen, became effective by mandate on May 6, 1935. Further proceedings in the District Court which, at the time of the pending appeal had not been had, were still necessary to determine the applicable rate. Under these circumstances it is manifest that neither the receivers nor the trustees adopted the contract expressly or by implication. Before the period fixed for election had expired on October 5, 1934, they had obtained a decision of the District Court that the contract had been abrogated by consent and were awaiting an opportunity to defend that finding in this court. Nor were they required after the decision of this court to make an election on or before July 1, 1935, in literal compliance with the general order of April 11, 1935, since that order could not have been intended to relate to a contract whose terms, even then, awaited final settlement by the District Court. But even if it should be supposed that July 1, 1935, was the binding date, it was within the reasonable discretion of the court under the special circumstances to reopen the matter a few days later on July 18, 1935, so as to preserve the Railways Company's right of election. For cases which hold that a receiver has a reasonable time, which may be fixed in the discretion of the court, within which to adopt or reject executory contracts, see Sunflower Oil Co. v. Wilson, 142 U.S. 313, 322, 12 S. Ct. 235, 35 L.Ed. 1025; Quincy, Mo. & Pac. R. Co. v. Humphreys, 145 U.S. 82, 99, 12 S.Ct. 787, 36 L.Ed. 632; United States Trust Co. v. Wabash Western R. Co., 150 U.S. 287, 299, 14 S.Ct. 86, 37 L.Ed. 1085; Fleming v. Noble (C.C.A.) 250 F. 733; Pennsylvania Steel Co. v. New York City R. Co. (C.C.A.) 198 F. 721, 729; American Brake Shoe & Foundry Co. v. New York Rys. Co. (D.C.) 278 F. 842; Peabody Coal Co. v. Nixon (C.C.A.) 226 F. 20; Landon v. Public Utilities Comm. of Kansas (D.C.) 245 F. 950; General Finance Corp. v. New York State Rys. (C.C.A.) 54 F.(2d) 1008; Pacific Western Oil Co. v. McDuffie (C.C. A.) 69 F.(2d) 208.

The right to reject the power contract in this case was not lost either because it had been accepted by the receivers or the trustees or because the time within which an election to accept or reject should be exercised had expired. We must therefore consider whether the right was lost through the course which was pursued when the receivership in equity was superseded by the reorganization proceeding under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207. This section provides that a plan of reorganization may reject executory contracts of the debtor, subsection (b) (6), 11 U.S.C.A. 207(b) (6); that in case any creditor shall not be affected by the plan, it shall so specify and shall contain such provisions with respect thereto as may be appropriate, subsection (b) (7), 11 U.S.C.A. § 207(b) (7); that the term "creditor" shall include for all purposes of the section and of the reorganization plan, its acceptance and confirmation, all holders of claims of whatever character, including claims under executory contracts; and that in case an executory contract shall be rejected pursuant to the direction of the judge in a proceeding under the section, or shall have been rejected by a trustee or receiver in bankruptcy or a receiver in equity in a prior proceeding, any person injured thereby shall for all purposes of the section and of the reorganization plan, its acceptance and confirmation, be deemed a creditor, subsection (b) (10), 11 U.S.C.A. § 207(b) (10). The judge has the power upon approving the petition or at any time thereafter to direct the rejection of executory contracts of the debtor, subsection (c) (5), 11 U.S.C.A. § 207(c) (5). Other provisions of the section relative to creditors are also pertinent. For example, a plan of reorganization must specify what claims, if any, are to be paid in cash in full, subsection (b) (8), 11 U.S. C.A. § 207(b) (8). The judge is empowered to fix a reasonable time within which the claims of creditors may be filed, and after which no claim may participate in a plan; and to divide creditors into classes for the purposes of the plan and its acceptance and to cause notice to be given of the time for filing claims and for holding hearings for the consideration...