Lesser v. Gray

• Docket Number: 2,785.
• Decision Date: 24 January 1911
• Citation: 70 S.E. 104,8 Ga.App. 605
• Parties: LESSER v. GRAY.
• Court: Georgia Court of Appeals

70 S.E. 104

8 Ga.App. 605

LESSER v. GRAY.

No. 2,785.

Court of Appeals of Georgia

January 24, 1911

Syllabus by the Court.

An adjudication in bankruptcy against a partnership dissolves the firm, and terminates its executory contracts by operation of law. Especially is this true where the adjudication follows involuntary bankruptcy proceedings.

Damages are not recoverable against a firm, or any member thereof for a failure to perform a contract of the firm for the purchase and acceptance of merchandise to be delivered at designated periods, where the performance of the contract was prevented, not by the act of the buyer, but solely by the bankruptcy law in seizing the assets of the firm and the members thereof under involuntary bankruptcy proceedings. Any damage that may result in such case is in law damnum absque injuria.

Error from City Court of Atlanta; H. M. Reid, Judge.

Action by S. Lesser against Jas. R. Gray. Judgment of dismissal, and plaintiff brings error. Affirmed.

H. A Alexander and C. H. & R. S. Cohen, for plaintiff in error.

King & Spalding and J. L. Hopkins & Sons, for defendant in error.

HILL C.J. (after stating the facts as above).

Under the view entertained by this court of the third ground of the demurrer, it will be unnecessary to consider the other two. The federal decisions are not entirely harmonious on the question here involved. Judge Newman, of the United States District Court for the Northern District of Georgia, in an elaborate and exhaustive opinion, embracing all the authorities on both sides of the question, rendered in Re Inman & Co., 171 F. 185, concludes that where proceedings in involuntary bankruptcy are instituted, and followed by an adjudication, and the bankrupt is a party to an executory contract, the bankruptcy proceedings do not amount to an anticipatory breach of the contract on the part of the bankrupt, but the contract is annulled by operation of law, and the bankrupt discharged from any further liability thereon. A creditor who holds such a contract can prove his debt against the bankrupt estate for any proportionate part which may have been fully performed on the day of the filing of the petition, followed by adjudication. But future earnings under the contract are not provable. The case in which Judge Newman rendered this opinion was that of an employé of a bankrupt firm, who claimed to have the right to prove future earnings under his contract--that is, which had not been earned at the date of the filing of the petition. Judge Newman held that an adjudication in involuntary bankruptcy against Inman & Co., a partnership, terminated the contract of employment by operation of law, and that the employés of the bankrupts had no claim for damages for breach of the contract, provable against the estate in bankruptcy.

We think that the conflict between the decisions on this subject is more apparent than real. Those decisions which announce the rule asserted by Judge Newman will be found, on examination, to have been cases where the proceedings in bankruptcy were involuntary; and those which hold the contrary view, that the adjudication in bankruptcy does not dissolve or terminate the contractual relations of the bankrupt as to executory contracts, will be found to have been cases in which the bankruptcy proceedings were voluntary; it being held in this class of cases that, if the proceedings are voluntary, the machinery of the law was set in motion by the bankrupt himself and for his own benefit and therefore he could not be allowed to sever his contractual relation by his voluntary act. But where the proceedings are involuntary, forced upon the bankrupt apparently against his will by his creditors, the existing contractual relations are not then severed by his own act, but are discharged entirely by the operation of the law itself.

The decision by Judge Newman, supra, is in no respect different in principle from the one now under consideration. In that case an employé of the bankrupt firm had a contract of employment with the firm for a stipulated period. In the present case the plaintiff in error had a contract with the bankrupt firm to deliver articles of merchandise to the bankrupt firm for a stipulated price and during a stipulated period. In the first case the bankrupt was to pay for the services when rendered, and in the second case for the merchandise when delivered. In neither case was there any breach of the contract by the bankrupt when the petition was filed in bankruptcy, and Judge Newman places his decision, following the great number of cases which he cites, solely upon the ground that the partnership and its executory contract are dissolved by operation of law, where the adjudication is had upon involuntary proceedings. To use his own language:

"The adjudication in bankruptcy ends all such contracts [referring to executory contracts]. Of course, proof may be allowed for any amount due prior to the institution of the proceedings in bankruptcy. It is provided by the bankruptcy act [Act July 1, 1898, c. 541, 30 Stat. 544 (U. S. Comp. St. 1901, p. 3418)] that for most personal services the employé would have priority for any amount due him for as much as three months preceding the bankruptcy proceedings. This fact of priority of payment for three months extending to so large a class of employés is another reason why I believe it was the intention, in passing this act, that such contracts should terminate with the adjudication in bankruptcy. All this is certainly true as to a partnership. The adjudication dissolves it by operation of law, and that dissolution ends all its liabilities, except such as are expressed in the act."

It is well settled that, whatever may be the rule as to cases of individual bankrupts, a partnership is dissolved by bankruptcy proceedings against it. 22 Amer. & Eng. Enc. Law (2d Ed.) 202; 30 Cyc. 654, and many cases...