Samuels v. E.F. Drew & Co., Inc.

• Decision Date: 10 July 1923
• Docket Number: 235.
• Citation: 292 F. 734
• Parties: SAMUELS v. E. F. DREW & CO., Inc. In re EL DORADO OIL WORKS et al.
• Court: U.S. Court of Appeals — Second Circuit

292 F. 734

SAMUELS v. E. F. DREW & CO., Inc.

In re EL DORADO OIL WORKS et al.

No. 235.

United States Court of Appeals, Second Circuit.

July 10, 1923

Chadbourne Hunt & Jaeckel, of New York City (William M. Chadbourne and Cyrus F. Smythe, both of New York City, of counsel), for appellant.

Lowenthal & Szold, of New York City (Maxwell Brandwene, of New York City, of counsel), for appellees.

Before ROGERS, HOUGH, and MANTON, Circuit Judges.

MANTON Circuit Judge.

The plaintiff filed this bill in equity for the appointment of a receiver to conserve the assets of the defendant, alleging its inability to meet its obligations. Receivers were appointed, and the El Dorado Oil Works filed a claim for the breaches of three contracts. The claim was allowed for $2,890.43, a much-reduced sum than the amount of the claim as originally filed. The El Dorado Oil Works, feeling aggrieved appeals. The defendant made three contracts, to be performed in California, for the purchase from the appellant of snowflake cocoanut oil. The contracts were dated in July 1920, and called for deliveries of specified quantities of oil in October, November and December, 1920. Before the November and December, 1920, deliveries were made, the receivers were appointed (on October 30, 1920). The appellant was notified by telegrams on November 9th, 10th, and 11th that the receivers had disaffirmed the contract; that they could not handle the oil contracted for. There was a decline in the market price of this oil subsequent to the appointment of the receivers.

On January 13, 1920, an order was entered, requiring all claimants against the defendant to file their claims before April 1, 1921. Appellant filed its claim for $42,692.73, basing the same upon the breaches referred to. A petition was filed requesting that the appellant's claim be allowed, and an answer was filed, alleging that the contracts were not adopted by the receivers, and that the appellant was fully aware of the intention of the receivers not to adopt the same. It was further alleged that the measure of damages due to the breach, which it was claimed occurred when the receivers were appointed, was the difference between the contract price and the market price of the cocoanut oil on the date of appointment. This, we hold, was the date when the performance of the contract was breached. The appellant seeks, on this appeal, as it did below, to recover the difference between the contract and market price of cocoanut oil on the date when performance was due by the defendant under the original contracts; that is, the dates of deliveries. But the receivership intervened before the dates of deliveries. The court below fixed the damages as the difference between the contract price and the market price on October 30, 1920, of goods of like grade, brand, and quality, and for deliveries as specified in the contracts. By the stipulation, it was agreed:

'That the difference, on October 30, 1920, between the contract price (12 7/8 cents) and the market price (12 1/2 cents) of oil of the grade, brand, and quality specified in said contracts, Exhibits B and C, for delivery at the time and place specified therein, was three-eighths (3/8) cents per pound.'

And it must further be conceded that the appellant could have sold to others the same oil on that day at prices equivalent to or negligibly less than the contract price. To constitute a provable claim against assets administered by the court through receivership proceedings, it must be in existence at the time of the appointment of the receiver.

Merrill v. National Bank, etc., 173 U.S. 131, 19 Sup.Ct. 360, 43 L.Ed. 640; Aldrich v. Chemical Nat. Bank, 176 U.S. 618, 20 Sup.Ct. 498, 44 L.Ed. 611; Penn. Steel Co. v. N.Y. City Ry. Co., 198 F. 721, 117 C.C.A. 503. The reason for this is, when a court of equity appoints receivers for an insolvent estate, it takes control of the assets and property of the estate for the benefit of all existing creditors. A fund is thus created to be administered for all creditors, and to be charged with the obligations in favor of all existing creditors. The court seeks to preserve the assets and property indicated so no loss may occur or be sustained by existing creditors. The court does not do this for the protection of prospective creditors. The rights of existing creditors must be in esse and established at the time when the fund is created.

The participation in the fund by creditors is determined by the value of the claim at the time when the fund is created, and that is the date of the appointment of the receivers. These principles were enunciated in Merrill v. National Bank, etc., 173 U.S. 131, 19 Sup.Ct. 360, 43 L.Ed. 640. A distinction exists between the right in personam and the right in rem in receivership proceedings. These proceedings shifted the creditors' remedy to the interest in the assets or in rem. Its rights in the fund were established when the fund was created. Collection subsequently made or audited, or payments made therefrom, cannot operate to change the relations of the creditor and his cocreditors in respect to their rights in the fund. The rule applicable here is well expressed in In re Swift, 112 F. 315, 50 C.C.A. 264, and Hynes v. Illinois Trust & Sav. Bank, 226 Ill. 95, 80 N.E. 753, 10 L.R.A. (N.S.) 472. Illustrating the effect of this rule, it has been held that no interest is allowed generally to unsecured claimants after the appointment of the receiver, even though one creditor may have lent the insolvent estate, prior to the application for the receiver, moneys with interest at 4, 5, or 6 per cent. per annum. Thomas v. Western Car Co., 149 U.S. 95, 13 Sup.Ct. 824, 37 L.Ed. 663; Amer. Iron & Steel Mfg. Co. v. Seaboard Air Line, 233 U.S. 261, 34 Sup.Ct. 502, 58 L.Ed. 949; Amer. Engineering Co. v. Met. By-Products Co. (C.C.A.) 267 F. 290.

The rule underlying these cases is that no interest is calculated on claims from the date of the application for the receivers. It has been held in insurance companies in solvency cases, where the loss is sustained after the receivership, that claimants are allowed to prove only to the extent of the premiums actually paid in, even though the death or accident occurred subsequent to the application for receivers, but prior to the distribution of the assets on the day when all claims must be filed. People v. Commercial Alliance Life Ins. Co., 154 N.Y. 95, 47 N.E. 968; Doane v. Millville Mutual Marine & Fire Ins. Co., 43 N.J.Eq. 522, 11 A. 739. A claim that is contingent on the date of the appointment of the receivers is provable, but it must be definite and certain in amount on or before the last date fixed by the court for filing claims. But, to participate in the fund, a creditor must be able to state that his claim is of a definite and certain amount. Penn. Steel Co. v. N.Y. City Ry. Co., 198 F. 721, 117 C.C.A. 503. A contingent claim must be in existence on the date of the appointment of the receivers, and it cannot participate in the distribution of the fund in an amount in excess of the maximum value of the claim on the date when the fund was created.

We are referred to the cases of Filene's Sons Co. v Weed, 245 U.S. 597, 38 Sup.Ct. 211, 62 L.Ed. 497, and Gardiner v. Butler, 245 U.S. 603, 38 Sup.Ct. 214, 62 L.Ed. 505, as authority opposed to these principles. The first case involved a claim for rent. The lessee corporation, not only undertook to pay as rental all sums payable by its lessor under subleases of the same premises, but also as an inducing consideration for the lease covenanted to pay at all events a certain amount per annum in monthly installments throughout the term. If the lease should be terminated sooner, to pay a sum measured at the same rate for the unexpired portion less a discount. It was held that this...