Dupont v. Standard Arms Company

• Decision Date: 20 January 1912
• Citation: 81 A. 1089,9 Del.Ch. 315
• Court: Court of Chancery of Delaware
• Parties: PIERRE S. DUPONT, v. STANDARD ARMS COMPANY

81 A. 1089

9 Del.Ch. 315

PIERRE S. DUPONT, v. STANDARD ARMS COMPANY

Court of Chancery of Delaware, New Castle

January 20, 1912

EXCEPTIONS BY RECEIVER TO CLAIM FOR DAMAGES FOR BREACH OF CONTRACT OF SERVICE. The claim of James J. Hartley against the Standard Arms Company was for salary alleged to be due him as general manager of the company under a contract of employment, consummated verbally, on or about September 16th 1909, whereby it was agreed that the claimant should occupy the position of general manager of the company and should receive a salary of $ 333.33 per month for no definite period; but with the understanding that either the Standard Arms Company, the employer, or the claimant, the employee could terminate the contract upon three months' notice given by the party desiring to terminate to the other party; and with the further understanding that in case the employer terminated the claimant's employment without such notice, it should pay him three months' salary. On or about February 27th, 1911, the agreement of employment was so modified as that thereafter the claimant was to receive $ 233.33 per month in cash and four shares of the preferred stock of the company per month, one of such shares to be contributed by the Standard Arms Company and the other three shares to be contributed by Irenee duPont, personally. The par value of each share of the preferred stock was $ 100.00. On June 13th, 1911, a receiver was appointed for said company, and on June 17th, 1911, the receiver was authorized to operate the plant until July 1st, 1911, for the purpose of completing certain partially finished work. On June 20th, 1911, the receiver notified the claimant that his services would not be required after July 1st, 1911. It was admitted that all the cash agreed to be paid to said Hartley under both agreements had been paid in full, up to the time of the appointment of the receiver, and that the preferred stock which the company agreed to deliver to him had not been delivered during the months of March, April and May.

The claim was divided into two parts, viz., a claim of $ 300.00, being $ 100.00 for each of the months of March, April and May, alleged to be due for back, or unpaid salary accruing prior to the receivership, and which was predicated upon the failure of the defendant company to deliver to him the one share of preferred stock for each of those months. The other part of the claim, amounting to $ 888.88, being three months' salary, less the amount paid by the receiver for his services from June thirteenth to July first, is for damages which he claims to be due by reason of what he alleges to be a breach of his employment contract committed by the receiver by its letter of June twentieth, notifying Hartley that his services would not be needed after July first.

Exceptions were filed to said claim, the material parts thereof being, as follows:

"Because the said receiver avers that the said Hartley hath been paid in full for all salary due him up to the date of the appointment of the receiver and for all services rendered by him to the Standard Arms Company up to that date, and hath since the date of the appointment of the receiver been paid in full for services rendered to the receiver and in full for salary due during the period when said Hartley was employed by and under the direction of the receiver.

"WHEREFORE the receiver avers that no part of the said claim is due and owing from the said Standard Arms Company, or from the receivership estate of the Standard Arms Company unto the said James J. Hartley and the said claim should be wholly disallowed."

At the hearing the solicitor for the claimant abandoned the claim for $ 100.00 for each of the months of March, April and May.

Exceptions to the payment of the claim in whole, or in part, from the assets in the hands of the receiver allowed.

William S. Hilles and Robert H. Richards, for the receiver. The receiver's contention is, that the appointment of a receiver for the Standard Arms Company in an insolvency proceeding is such an intervention of the law as to terminate existing contracts, of which there had been no breach by either party prior to the appointment of such receiver, in such manner as that neither party can be liable to the other for breach of contract, for the reason that the intervention of the law makes it impossible for either party to perform the contract. When both parties are in good faith continuing in the performance of a contract up to an intervention of the Court, which makes the continuation of performance by either of them thereafter impossible, neither party can, in such event, be placed, in the eye of the law, in a better position than the other and neither can claim damages from the other for breach of contract. The contract was in effect dissolved by the sovereign power of the State, and its performance by either party rendered impossible. This result was within the contemplation of the parties when they made the contract and must be deemed an unexpressed condition of their agreement. People v. Globe Mutual Life Insurance Co., 91 N.Y. 174; Le Noir v. Linville Improvement Co., 126 N.C. 922, 36 S.E. 185, 51 L. R. A. 146; Griffith v. The Blackwater Lumber Co., 33 S.E. 125; Malcolmson v. The Wappoo Mills, 88 F. 680; Tennis Bros. Co. v. Wetzel & Tyler Ry. Co., 140 F. 193; Eddy v. Co-operative Dress Assn., 3 N. Y. Civ. Proc. Rep. 422; Laucheim v. Clausen Co., 12 Pa. S.Ct. 55; Beach on Receivers, § 328; 34 Cyc., pp. 264-5-6-7-8; 7 A. & E. Enc. L. (2d. ed.) 116. The principle laid down in the above mentioned authorities is reasoned from analogy to the well established proposition that all contracts for personal service are made upon the implied agreement that both the contracting parties will continue to live and do business, and the contract is terminated by the death or sickness of either the employer or the employed, the servant being merely entitled to his services to that date. The appointment of a receiver by the court is considered, in effect, a vis major and terminates the contract of employment.

Reuben Satterthwaite, Jr., for the claimant.

James J. Hartley claims that the receiver of the Standard Arms Company could not cancel and annul his contract, or discharge him, without giving him three months' notice, as provided in the contract. It is admitted that the receiver did give the said James J. Hartley a notice of ten days, or one-third of a month, and his claim in this case is for two and two-thirds months, being the difference between the notice provided in the contract and the notice actually received. It is submitted that the receiver of an insolvent corporation cannot by notice cancel and render void an executory contract for personal services with said corporation, without rendering said corporation and the receiver thereof liable in damages. Rosenbaum v. U. S. Credit System Co., 61 N. J. L. 543; Spader v. The Mural Decoration Mfg. Co., 47 N.J.Eq. 18; Bolles v. Crescent Drug & Chemical Co., (N. J.) 32 A. 1061; Vanuxem, et al., v. Bostwick, 7 A. 598; The Tiffln Glass Co. v. Stoehr, 54 Ohio 157; Kinsman v. Fisk, 56 N.Y.S. 33; The Chemical National Bank v. The Hartford Deposit Co., 156 Ill. 522; s. c. 161 U.S. 1, 40 L.Ed. 595; In re Silverman, et al., 101 F. 219; Ex parte Pollard, 19 Fed. Cas. No. 11,252; Revere v. The Boston Copper Co., 15 Pick. (Mass.) 351. The English cases practically all hold that the insolvency of the defendant entitles an employee who has an executory contract with the defendant to prove his claim for damages. In re London and Scottish Bank, L. R. 9 Eq. Cas. 149; Yelland's Case, L. R. 4 Eq. Cas. 350; Reid v. The Explosives Co., Ltd., L. R. 19 Q. B. Div. 264.

OPINION

THE CHANCELLOR:

On June 13th, 1911, a receiver for the Standard Arms Company was appointed on the ground of its insolvency, and the general statutory powers were conferred upon the receiver without direction to carry on the business. A few days later the receiver was authorized to carry on the business for a short time, in order to complete certain work. At the time of the appointment, Hartley was serving the company as general manager under a contract of service, made by the company without a definite period, whereby either party could terminate the contract upon giving to the other three months' notice. On June 20th, 1911, the receiver notified Hartley that his services would not be needed after July 1st, 1911, and having worked to that date was paid by the receiver for his services to that time. Hartley claims damages for breach of the contract of employment by the termination thereof by...