In re Greenpoint Metallic Bed Co.

• Citation: 113 F.2d 881
• Decision Date: 19 August 1940
• Docket Number: No. 401.,401.
• Parties: In re GREENPOINT METALLIC BED CO., Inc.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

113 F.2d 881 (1940)

In re GREENPOINT METALLIC BED CO., Inc.

No. 401.

Circuit Court of Appeals, Second Circuit.

August 19, 1940.

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Samuel Rubin, of New York City, for appellant.

Delafield, Marsh, Porter & Hope, of New York City (Eugene Blanc, Jr., of New York City, of counsel), for appellee.

Before SWAN, CHASE, and CLARK, Circuit Judges.

SWAN, Circuit Judge.

On December 13, 1939, the debtor filed a petition for an arrangement under Chapter XI of the Chandler Act, 11 U.S.C.A. § 701 et seq., and orders were made continuing the debtor in possession and referring the proceeding to one of the referees in bankruptcy. The proposed arrangement provided for the transfer of the debtor's assets to a new corporation which should deposit cash sufficient to pay in full all secured and priority creditors of the debtor and to pay 20 per cent. on the claims of unsecured creditors. The appellant, Ratner, was in the employ of the debtor under a written contract providing for a term of service extending to December 31, 1940, at a weekly salary of $75 up to February 1, 1940, and $100 thereafter. Neither the debtor's petition nor the proposed arrangement mentioned Ratner's contract; no statement of it was filed as required by section 324, 11 U.S.C.A. § 724, and no provision was made to pay him salary during the debtor's continuance in possession prior to confirmation of the arrangement. The debtor's schedules listed Ratner as an employee entitled to priority payment of $50 for earned wages. Ratner was informed of the foregoing facts on the evening of December 13th. For the purpose of preserving his supposed rights under the contract he continued to report daily at the office of the debtor in possession but was told there was nothing for him to do, unless he wished to attempt to sell certain property on commissions. By letter dated January 2, 1940, the debtor in possession notified Ratner that his contract was terminated "as of this day" because "you have broken your contract with us." He replied by letter dated January 4th denying any breach of contract on his part, formally tendering his services and asserting his intention to hold "you and your successors" fully accountable for performance of the contract and for damages for breach thereof. January 4th was the date previously set by the referee as the last day for the filing of claims of creditors. Ratner had received due notice thereof, but filed no claim. Thereafter, on January 16, he brought on before the referee a motion for an adjudication (1) that his contract was not terminated by the filing of the debtor's petition or plan of arrangement and that it was in full force and effect and survived the arrangement, and that any transfer of the assets should be subject to his rights; or (2) that breach of the contract by the debtor in possession gave him a claim entitled to priority of payment; or (3) that he is a creditor materially and adversely affected by the proposed arrangement and the plan should make provision for paying in full creditors having executory contracts; and (4) that confirmation of the proposed arrangement be stayed until determination of the status of his contract and the claim thereunder. After hearings the referee made an order dated February 2, 1940, denying the motion and allowing Ratner's claim only in the amount of $50, for which it was listed in the debtor's schedules. On March 8th the District Court affirmed the referee's order; Ratner promptly appealed. In the meantime, on February 17th, the arrangement was confirmed. No review of the order of confirmation was sought. From motion papers filed in this court it appears that the cash deposited by the new corporation is $1,006.50 in excess of the amount necessary to carry out the terms of the arrangement and disposition of such excess deposit has been stayed pending determination of this appeal.

The referee found that there had been no breach of contract by Ratner up to the time of the filing of the debtor's petition and it was then in existence as an executory contract provided it was valid. He held it invalid because of the provisions of paragraph 14 declaring that it should be binding on the employer in the event of any corporate reorganization under the Chandler Act. The District Judge, however, correctly ruled that the invalidity of that paragraph would not vitiate the entire contract. Consequently, discussion must start upon the premise that Ratner had a valid executory contract with the debtor when its petition was filed.

As this court pointed out in Mohonk Realty Corp. v. Wise Shoe Stores, Inc., 2 Cir., 111 F.2d 287, the holder of an executory contract with the debtor occupies an equivocal position. Until his contract is rejected he is not a creditor with a provable claim; but he is not helpless, for he may insist that his contract be either rejected or assumed under the plan and may apply to the bankruptcy court to protect his interest at the confirmation hearing or before. The provisions of Chapter X, 11 U.S.C.A. § 501 et seq., which were discussed in the case above cited have their counterparts in Chapter XI....