In re Portage Rubber Co.

• Decision Date: 14 March 1924
• Docket Number: 3935.
• Parties: In re PORTAGE RUBBER CO. v. BATES. BAIRD RUBBER & TRADING CO., Inc.,
• Court: U.S. Court of Appeals — Sixth Circuit

296 F. 289

In re PORTAGE RUBBER CO.

BAIRD RUBBER & TRADING CO., Inc., v. BATES.

No. 3935.

United States Court of Appeals, Sixth Circuit.

March 14, 1924

On Reconsideration, April 11, 1924.

Jesse P. Dice, of Akron, Ohio, for appellant.

W. E Young, of Akron, Ohio, for appellee.

Before DENISON and DONAHUE, Circuit Judges, and HICKENLOOPER District judge.

HICKENLOOPER District Judge.

On March 14, 1921, Baird Rubber & Trading Company, Inc. appellant herein, entered into two written contracts for the sale of rubber to the Portage Rubber Company, for arrival and delivery in New York City in May and June of that year. Part of the rubber so sold was delivered in accordance with the contract, and delivery of the balance was postponed upon request of the purchaser. On May 31, 1921, three creditors of the Portage Rubber Company filed a petition in involuntary bankruptcy against it, and immediately afterward the Portage Rubber Company filed its answer, admitting the allegations of the petition and averring its willingness to be adjudicated a bankrupt. The adjudication was made on June 21, 1921.

During the 21 days between the filing of the petition in bankruptcy and the adjudication, the price of rubber declined rapidly and continuously. The Baird Rubber & Trading Company, Inc., filed its petition in the District Court for an order directing the manner in which its claim might be liquidated, contending that it was entitled to the sum of $17,358.19, the difference between the contract price and the market price of the undelivered portion of the rubber as of the date of the adjudication. The matter was referred to a master, who reported in favor of an allowance of the claim only in the sum of $9,183.14, the difference between the contract and market prices on the day of the filing of the petition in bankruptcy. Exceptions were filed to this report of the master, which were subsequently overruled by the District Court and the Baird Rubber & Trading Company, Inc., appeals from the final judgment entered.

The sole question involved in this appeal is therefore whether, under the facts stated, the damages should be computed as of May 31, 1921, the date of the filing of the petition in bankruptcy, or as of June 21, 1921, the date of the adjudication. It is not disputed that the filing of the involuntary petition, resulting in an adjudication of bankruptcy, was the equivalent of a disablement to perform on the part of the Portage Rubber Company, and that the Baird Rubber & Trading Company, Inc., thereupon had the option to treat the contract as ended, as far as further performance was concerned, and to maintain an action to recover damages as for anticipatory breach. Central Trust Co. v. Chicago Auditorium, 240 U.S. 581, 36 Sup.Ct. 412, 60 L.Ed. 811, L.R.A. 1917B, 580. In that case, after a review of the earlier authorities as to the effect of bankruptcy upon executory contracts and the provable nature of claims based upon such contracts (see Ex parte Pollard, 2 Low. 411, Fed. Cas. No. 11252; In re Swift (C.C.A. 1) 112 F. 315, 50 C.C.A. 264; In re Stern (C.C.A. 2) 116 F. 604, 54 C.C.A. 60; In re Pettingill & Co. (Dist. Court, Mass.) 137 F. 143, 146, 147; In re Neff (C.C.A. 6) 157 F. 57, 61, 84 C.C.A. 561, 28 L.R.A. (N.S.) 349) the Supreme Court holds at page 592 (36 Sup.Ct. 415):

'We conclude that proceedings, whether voluntary or involuntary, resulting in an adjudication of bankruptcy, are the equivalent of an anticipatory breach of an executory agreement, within the doctrine of Roehm v. Horst, supra.'

The earlier cases are reviewed in the careful and comprehensive opinion of the court below, and it is unnecessary to re-examine each of these cases in detail. It is sufficient to note that in none of them, apparently, is the present question directly presented as a controlling element of consideration. The expressions in the opinions as to the date at which damages are to be computed, being made only incidentally and upon an issue not seriously controverted, should not be given undue weight, nor accorded greater force than is usually given to such dicta. The question is here presented as one of first impression.

Unquestionably the general rule is that damages shall be computed as of the date of the breach. On behalf of the appellant it is urged that the date of such breach cannot be definitely fixed as the date of the filing of an involuntary petition in bankruptcy, for such petition may be defended by the alleged bankrupt or by creditors, and subsequently dismissed, either because the alleged bankrupt is solvent or because he has committed no act of bankruptcy; that the vendor to an alleged bankrupt cannot feel free to consider himself discharged from the contract obligations, and free to dispose of his goods elsewhere, until the final adjudication of bankruptcy; and that section 63a(4) of the Bankruptcy Act (Comp. St. Sec. 9647) specifically permits the proving of claims in bankruptcy proceedings which are 'founded upon an open account, or upon a contract, express or implied,' although the right of action, as in the case of an indorser of commercial paper or a surety, does not accrue to the creditor until after the adjudication; and that this is such a case.

In none of these contentions do we find such persuasiveness as overcomes the balance of convenience of the contrary rule or the general intent of the entire Bankruptcy Act. The manifest purpose of the Bankruptcy Act is that the insolvent debtor shall be relieved of his debts and that his property shall be ratably distributed among his creditors. Williams v. U.S. Fidelity Co., 236 U.S. 549, 554, 35 Sup.Ct. 289, 59 L.Ed. 713; Acme Harvester Co. v. Beekman Lumber Co., 222 U.S. 300, 307, 32 Sup.Ct. 96, 56 L.Ed. 208. To this end it is highly desirable, if not absolutely essential, that some definite date shall be fixed as of which the debtor's property shall be distributed among those to whom he then owes debts. It is not reasonable that debts not owing at that date should share in the distribution, any more than that property subsequently acquired should be applied to pay pre-existing debts. See Everett, Tst. v. Judson, 228 U.S. 474, 33 Sup.Ct. 568, 57 L.Ed. 927, 46 L.R.A. (N.S.) 154.

This date for the balancing of accounts might have been fixed as of the date of adjudication, but by the Bankruptcy Act itself, and the authorities under it, has in fact been fixed as the date of the filing of the petition, whether voluntary or involuntary. It is the solvency or insolvency...