Megan v. Updike Grain Corporation

• Decision Date: 07 February 1938
• Docket Number: No. 11015.,11015.
• Citation: 94 F.2d 551
• Parties: MEGAN v. UPDIKE GRAIN CORPORATION.
• Court: U.S. Court of Appeals — Eighth Circuit

94 F.2d 551 (1938)

MEGAN v. UPDIKE GRAIN CORPORATION.^*

No. 11015.

Circuit Court of Appeals, Eighth Circuit.

February 7, 1938.

Wymer Dressler, of Omaha, Neb. (Robert D. Neely, of Omaha, Neb., and William T. Faricy, of Chicago, Ill., on the brief), for appellant.

Alfred G. Ellick, of Omaha, Neb. (Edward J. Shoemaker and James J. Fitzgerald, Jr., both of Omaha, Neb., on the brief), for appellee.

Before GARDNER, SANBORN, and THOMAS, Circuit Judges.

THOMAS, Circuit Judge.

This is an action at law brought by Charles P. Megan, trustee of the property of the Chicago & North Western Railway Company in proceedings under section 77 of the National Bankruptcy Act, as amended, 11 U.S.C.A. § 205, appellant, against the Updike Grain Corporation of Omaha, Neb., appellee. Jurisdiction is based upon diversity of citizenship.

The appellant sought to recover $33,963.31 due and unpaid rental, and accruing rental at the rate of $4,823.33 per month, under a written lease between appellee and the railway company. The demised property was a 2,500,000-bushel grain elevator upon the right of way of the railway company in Council Bluffs, Iowa. The petition alleged that the original written lease, a copy of which is set out, was executed November 23, 1928, and was for a term of five years beginning August 1, 1928. A second lease supplemental to and continuing the term of the first lease for a further period of five years was executed June 5, 1933. The rental agreed to be paid in the supplemental lease for the extended term was $56,370.96, payable in monthly installments of $4,823.33 in advance. The appellee paid rental regularly at all times during the existence of the lease up to the first of October, 1936, since which time it has failed and refused to pay any rent.

The answer is in the nature of a plea in confession and avoidance. The execution of the lease, performance thereunder until October 1, 1936, and refusal to pay rent thereafter are admitted. It was denied that any rental accrued after that date for the reason that "the situation and state of affairs upon which the defendant's promise was grounded, in the making of said contracts, have been frustrated, the object of the contracts has failed, and said contracts have been voided and were void on and prior to and ever since October 1st, 1936." The facts, or state of affairs, constituting frustration of the contracts, or which render their performance legally impossible, are stated in substance and in brief as follows:

In 1904 Omaha and vicinity, including Council Bluffs, Iowa, became a public grain market through the incorporation of the Omaha Grain Exchange in 1903 and by the establishment on June 10, 1904, of certain railroad rates and tariffs upon grain moving into and through such market; that such favorable rates and tariffs and certain transit, service, and other privileges then established encouraged the movement of grain and of grain products through the Omaha market and made the operation of grain elevators there a profitable business; and that it was during the continuance of these favorable conditions that the leases were made. It is further alleged that at the time the leases were made "it was mutually contemplated, assumed, anticipated and understood by both parties" that the favorable rates and tariffs would remain in effect during the term of the leases and indefinitely thereafter; and that such assumption was the inducing cause for appellee's, and the basic reason for both parties', entering into the contracts.

It is then alleged that the Chicago & North Western Railway Company joined with all the other railroad companies entering the Omaha market in filing rates and tariffs with the Interstate Commerce Commission effective July 1, 1935, so materially changing the rate and transit and other privileges as to divert large quantities of grain away from the Omaha market, as a result of which the elevator has become practically worthless and its rental value destroyed. In his reply the appellant denied that the contracts were entered into because of existing or anticipated rates on grain or transit privileges at Omaha, and averred that both parties knew that the rental was fixed upon the basis of a fair return upon the cost of the elevator, and that they knew that rates were subject to the Interstate Commerce Act and the lawful orders of the Interstate Commerce Commission.

At the trial appellant put the leases and the admissions in the answer in evidence and rested. The testimony of the appellee showed the rates and privileges in effect at Omaha prior to July 1, 1935, and that the changes then effected were the result of an order of the Interstate Commerce Commission. The president of the Updike Grain Corporation testified that the changed conditions had destroyed more than 50 per cent. of the business of the demised elevator, and that it was no longer possible to operate it at a profit under the lease.

Both the president of the railway and the president of the grain company testified, over objection, that when they negotiated the renewal of the lease in 1933 they did not anticipate any substantial change in the rates which had existed without any important variation since 1904.

The introduction of evidence was concluded on May 20, 1937, at which time appellant moved for a directed verdict, and his motion was overruled. Thereupon appellee moved for a directed verdict, and its motion was sustained. On June 1, 1937, the court adopted findings of fact and conclusions of law submitted by appellee, and judgment was entered against the appellant.

At the outset there is a claim that the findings of fact so made by the court are conclusive. Appellee, however, claims for them no greater effect than that they "sufficiently present the facts necessary to be known for the application of the rules of law contended for by the Updike Company, without recital of the particular testimony upon which the findings are based." We have compared the findings with the testimony and we find no "disputed question of fact which could operate to deflect or control the question of law" presented. Beuttell v. Magone, 157 U.S. 154, 157, 15 S.Ct. 566, 567, 39 L.Ed. 654.

Although some of the assignments of error relate to the admission of testimony, all are governed by a determination of whether the facts pleaded and proved by appellee were sufficient to establish a defense.

The theory of appellee's defense, adopted by the trial court, was and is that by reason of the change which took place in railroad rates and in transit and other privileges at the Omaha grain market on July 1, 1935, contrary to the assumption and expectation of both parties to the contracts, through no fault of the Updike Company, the leased elevator can no longer be used for the purpose and in the manner contemplated by the parties without unconscionable loss to the lessee; that hence the object of leasing the property and the basic reason inducing the contracts have been frustrated and the operation of the elevator in the manner anticipated has become impossible within the legal definition of the term.

In their brief counsel for appellee formulate the rule of law for which they contend as follows. "Generally, parties to a contract assume the chance that performance may become more difficult and expensive than it was at the time when the contract was entered into, or appeared likely to become; but where an excessive and unreasonable increase in expense is caused by a circumstance not only unanticipated, but inconsistent with the facts or condition of affairs which the parties actually or obviously assumed as likely to continue, the promisor who is harmed thereby, if without fault for the changed condition of affairs, is excused from performance."

It is settled in the courts that, "In contracts in which the performance depends upon the continued existence of a given person or thing, a condition is implied, that the impossibility of performance arising from the perishing of the person or thing shall excuse the performance." Taylor v. Caldwell, 3 Best & Smith, 826, 6 E.R.C. 603; The Tornado, 108 U.S....