In re Kellett Aircraft Corporation

• Citation: 77 F. Supp. 959
• Decision Date: 26 May 1948
• Docket Number: No. 22616.,22616.
• Parties: In re KELLETT AIRCRAFT CORPORATION.
• Court: U.S. District Court — Western District of Pennsylvania

77 F. Supp. 959

In re KELLETT AIRCRAFT CORPORATION.

No. 22616.

District Court, E. D. Pennsylvania.

May 26, 1948.

Charles A. Wolfe, of Philadelphia, Pa., for Trustees.

Joseph J. Brown, of Philadelphia, Pa., for Coldaire Corp.

McGRANERY, District Judge.

This case arises on a motion to dismiss two claims growing out of a reorganization proceeding involving Kellett Aircraft Corporation. Coldaire Corporation has filed a proof of claim for Kellett's breach of contract and has brought an amended reclamation proceeding, as well, which is, in effect, proof of another claim. Lengthy hearings were held before the special master, after which the trustees in operation of Kellett filed a motion to dismiss both claims. The master recommended in substance that their motion be granted as to the debtor's alleged breach of contract but denied as to the amended reclamation petition. Briefly, the facts as found by the special master, and hereby adopted, are these:

Findings of Fact

1. Coldaire is an Illinois corporation authorized and qualified to do business in Pennsylvania. Debtor is a corporation which, prior to April 2, 1946, was engaged in general commercial manufacturing operations, as well as in the engineering, manufacture and assembly of helicopters for the United States Army Air Forces. Coldaire and Kellett entered into two basic agreements in April and October, 1946. There is a dispute over the effect and validity of the second one. By the terms of the first contract, Kellett was to manufacture 12,500 frozen food storage and display cabinets for Coldaire in named quantities at specified prices and in accordance with design and specification furnished by Coldaire. Kellett was also to fabricate the tools necessary to such manufacture. The exact terms of the contract on this point were:

"Article I Statement of the Work"

"Kellett shall fabricate the tools * * * specified in Appendix `B' * * * at the prices indicated therein, which tools have been determined by Kellett to be necessary and sufficient for the proper fabrication of said units in the quantities indicated * * *"

"Article III Payments"

"(b) Tools Coldaire shall make payment to Kellett for the tools as set forth in Appendix `B' * * * upon completion thereof by Kellett and within thirty days after receipt of invoices from Kellett."

"Appendix `B' Tools, Dies, Jigs, and Fixtures"

                Description                       Price
                For 3 cubic foot Frozen Food
                 Storage Cabinets                $19,320.00
                For 12 cubic foot Frozen Food
                 Display Cabinets                $20,940.00
                

"A detailed list of tools, dies, jigs, and fixtures and individual prices therefor will be furnished to Coldaire by Kellett at the time of invoicing as provided in Article II above."

On May 3, 1946, and on June 27, 1946, the sums provided for in Appendix B were paid by Coldaire to Kellett. This basic contract was amended twice in respects that need not be detailed. On August 23, 1946, Kellett terminated operation of all its civilian commercial contracts with the exception of those contracts under which it was then in production. The contract with Coldaire fell into the second category. Kellett continued production of cabinets under this contract until the termination of its remaining civilian manufacturing operations on September 9, 1946. At that time it had on hand unfilled mail orders from Coldaire. On the same day, a meeting was held at the Girard Trust Company of Philadelphia, attended by the debtor's President and Vice-President, representatives of the Wilson Cabinet Company and Victor Products Company, for whom debtor had also contracted to manufacture storage cabinets, representatives of Coldaire, and representatives of the Girard Trust Company and the Reconstruction Finance Corporation, to whom debtor was heavily indebted.

2. After termination of debtor's manufacturing operations under its contract with Coldaire, negotiations took place between the attorneys for the respective parties, resulting in a new contract. The principal terms of this contract provided that upon execution of the agreement, Coldaire received (1) immediate Title to "materials, parts and work in process" listed in Exhibit A for $8,000.00. (2) A one-year option to purchase the parts and raw materials in Exhibit B, parts to cost fifty per cent of their fair replacement cost at the time of purchase by Coldaire and raw materials to cost one hundred per cent of their replacement cost. This option was to be secured by a deposit of $7,200.00 to be applied to the purchases under the option. Exhibits A and B included all the raw materials, parts and work in process on hand on September 18, 1946, and acquired by Kellett for the purpose of producing Coldaire units. The total price to Coldaire of these items would be about $128,000.00 which was approximately $152,000.00 less than their approximate value. (3) The open purchase commitments of Kellett as set forth in Exhibit C. The master regarded this as an advantage to Coldaire in what was probably a rising market for parts and materials. (4) The right to lease that part of Kellett's North Wales plant previously used for production for Coldaire, if Wilson Cabinet Company or an affiliated company did not rent it. The lease would then be "on a basis to be determined by Kellett and Coldaire." (5) A promise from Kellett to "do everything in its power to aid Coldaire in securing the agreement of the Reconstruction Finance Corporation and Girard Trust Company to release their respective liens on raw materials and parts as purchased from time to time hereunder by Coldaire."

The "Whereas" clauses of this contract provided:

"Whereas, Kellett has heretofore stopped production and is unable or unwilling to resume production under its contract with Coldaire and White, dated April 2d, 1946, as amended, under which contract Kellett remains obligated to manufacture and deliver to Coldaire a balance in excess of 9800 units Model 3C46, and 2400 units, Model 12D46; and

"Whereas, by virtue of said action Coldaire has suffered substantial losses estimated by Coldaire to exceed $450,000; and

"Whereas, said parties desire to compromise and release said claim for damages and release all parties from any further obligations under said contract;"

Paragraph eleven of the contract was, as follows: "11. Except for the rights and obligations created hereby all contracts, claims, demands, rights, duties, obligations and liabilities existing at any time up to the time of the execution hereof between Kellett and Coldaire and/or Kellett and White are hereby mutually satisfied, discharged and released."

A duplicate and original of this agreement, executed by the parties thereto, but not having Exhibit C attached to it, was delivered by Coldaire's Philadelphia attorney to Kellett's attorney on October 17, 1946. However, Exhibit C was in existence at the time and had been mailed to and received by Coldaire's Vice-President about a week earlier.

3. On October 18, 1946, Paul R. Skilling and Effingham B. Morris, Jr., were appointed trustees of the debtor in reorganization and authorized to conduct the business. Manufacturing operations were continued for a short time under an arrangement between Coldaire and the trustees, but were then halted. On November 22, 1946, the trustees filed their petition requesting permission to reject the agreement of October 9, and in December a Court order was entered granting the relief sought.

4. Thereafter, Coldaire attempted to obtain the tools fabricated by Kellett for production of Coldaire's cabinets and the plans, designs and drawings prepared in connection with these manufacturing operations. When this proved unsuccessful, Coldaire filed a reclamation petition requesting the release of this property and certain cabinets and condensing units, as well. In March, 1947, upon Coldaire's petition, the prayer for relief was amended to a claim for the value of the property "at the time of its wrongful conversion by trustees * * * together with damages for the unlawful detention of said property and such exemplary damages as the Court * * * may deem appropriate." Both before and after the filing of the reclamation petitions, the trustees used the tools and drawings alleged to belong to Coldaire for the purpose of manufacturing cabinets. In January, 1947, Coldaire filed a proof of claim for Kellett's breach of the April, 1946, contract. Lengthy hearings on both claims were held before the special master and the trustees have moved to dismiss both claims and have filed a counterclaim against Coldaire, as well. The principal item in the counterclaim is damage resulting from alleged breach by Coldaire of the April, 1946, contract.

Discussion of Legal Issues

The legal issues raised by the trustees in their motion to dismiss are these: (a) As to Coldaire's claim for Kellett's alleged breach of the April, 1946, contract, the trustees' position is two-fold: rights and liabilities under the April contract were extinguished by the October, 1946, contract; i. e., the later contract was an accord and satisfaction, and that, in any event, there is no proper or legally applicable measure of damages for the alleged breach of the April contract on the evidence before the master. (b) As to the amended reclamation petition, the trustees also urge alternative positions: that there is no evidence of "conversion" or "unlawful detention" of the property, and that there is no evidence of any legally recoverable measure of damages for the alleged conversion.

The special master has filed his report and recommendations, which are, in substance, these: (a) The October, 1946,...