Court Opinion

ID: 6846750
Source: CourtListenerOpinion
Date Created: 2022-07-23 20:30:08.659623+00
Date Added: 2024-06-11T16:04:59.436258
License: Public Domain

STONE, Circuit Judge.
I find myself compelled to dissent. The vital point of cleavage between the majority of the court and myself is as to the effect upon the original contract (as it was when bankruptcy intervened) of the contract made with the receiver and of the effect of the orders made thereafter in connection with the sale by the trustee.
At the time bankruptcy intervened, the contract contained a clearly expressed obligation and liability upon the part of the bankrupt to continue the payments thereunder, and the contract provided the remedies by which that obligation and liability might .be enforced. The receiver had a right to *71accept the contract or to decline it. Appel-lees had the right to require him to elect, within a reasonable time, which he would do. The receiver desired to do neither absolutely, but to have the right to continue the payments without any legal obligation so to do. This desired result could be attained only by consent of appellees. There were somewhat extended negotiations between the receiver and appellees upon this subject. Finally, the receiver sent a proposed form of contract to appellees which was returned as unsatisfactory because “it contains no promise whatever on your [receiver’s] part as to future performance and does not obligate the receivership to make the payments. * * * ” The same letter from appellees contained their proposition which eliminated the above objection. The receiver declined to accept this form, saying, “Your contract specifically requires the receiver and any trustee that may be selected to continue the payments under the contract, while the form which Mr. Dickey [the receiver] submitted to you merely gives the receiver the right to do so. * * * ” A contract was finally agreed to and was approved by the court. In the succeeding quotations from this contract and from the various subsequent court proceedings, I shall italicize portions which seem to me to show clearly that there was a modification of the contract (as it stood before the bankruptcy) by the contract with the receiver, and that it was this modified contract which was sold to appellant’s assignors. It will be borne in mind that there had been but one amendment or change in the contract theretofore. This is important, because the word “amendments” is frequently used after the contract with the receiver, and the plural could refer to nothing else, since the contract with the receiver was the second and last contract. The contract with the receiver sets forth the existing defaults in the payments, provides for the extension thereof for three months, and provides that, “so long as said payments are made and continued by said receiver, the said contract shall remain in full force and effect except as modified by a certain agreement heretofore entered into on or about the 23rd day of December, 1927 [before the bankruptcy], and except as modified by this contract.” It provides that, “in the event that there shall be or occur any failure to make any payment provided for in said contract of February 26th, 1926 as herein amended and modified or in the performance of any of the several covenants and agreements of the purchaser party to said contract of February 26th, 1926, as amended and modified, * * * the said Receiver or Trustee will consent to and not resist” an appropriate action “for the purpose of foreclosing or cancelling and terminating the certain contract of February 26th, 1926, as amended and modified.” Also, it provides for sale (as part of the assets of the bankrupt estate) of the contract, “provided, however, that such sale shall be without prejudice to any right or remedy of first parties [appellees] created or existing under and pursuant to said contract, except as herein or heretofore amended and modified.”
In the order approving the contract, the court found, inter alia, “that so long as payments are made said agreement heretofore entered into shall be continued in force except as modified by the proposed contract,” and ordered the receiver to execute the contract and to continue to make such payments until further order of the court.
From the above extracts from the contract with the receiver and from the order of approval it seems to me clear that the parties expressed the intention, and the court understood the intention to be, that the former contract was modified and amended by the contract with the receiver. If this be true, the only contract then in existence was the former contract as modified and amended by the contract with the receiver. Undoubtedly, that modification and amendment removed all obligation to continue payments, and confined appellees to taking back the property, if payments came in default. When it is considered that the total purchase price was $150,000, that $48,429.75 had been paid in principal, interest, taxes, and insurance by the bankrupt before the receiver made his contract; and that the appellees could take back the property, the incentive for appellees to make such a contract with the receiver is readily understood.
In my judgment, the court proceedings in connection with the sale of the contract further emphasize the verity of'the above view of the effect of the receiver’s contract. Pri- or to the order of sale, appellees filed a “Statement of Interest in Property,” which stated their claim to title in the property (covered by the sale contract) as “subject only” to the original contract (February 26, 1926) “as amended by” the contract of December 23, 1927 “and as further amended by agreement betioeen claimants and Fred L. Dickey, as receiver, * * * made on or about February ¿1st, 1928.” It further states that “under and pursuant to the terms of said agreement of February 26th, 1926, *72and said amendments thereto,” certain payments had been made leaving unpaid certain sums, and that certain parts of the plant had been allowed to get out of repair. It then alleges :
“The claimants do not hereby and have not in any manner heretofore waived or relinquished any right or remedy existing on account of any breach of any condition, covenant or agreement of the purchaser parties under the terms of said agreement of February 26th, 1926, and amendments thereto.
“That any sale of the right, title and interest of the Trustee in Bankruptcy and the bankrupt corporation in and to said agreement of February 26, 1926, and said amendments thereto shall and must be without prejudice to any remedy or right of claimants created or existing under and pursuant to the said agreement of February 26th, 1926, mid said amendments thereto.”
The order of sale (in group I, division E of part 1 of paragraph A) was of “All of the right, title and interest of the trustee in bankruptcy and the bankrupt corporation in and to a certain contract of sale for property * * * which contract is dated February 26th, 1926 * * * and Amendato-ry Agreement * * * dated December 23, 1927, and agreement * * * dated February 21, 1928 [the receivership contract], all as more fully set forth in said contracts to which reference is hereby made.” In a later part of the order, under the title “Keal Property Not Mortgaged,” the description is:
, “All of the right, title, and interest of the Trustee in Bankruptcy and the bankrupt corporation in and to:
“(1) A certain contract of sale for property known as the McKissick plant or plant No. 33, Carlisle, Warren County, Iowa, all as more fully described in Group I, Division E, of Part One of Paragraph (A) of this order containing the description of the property to be sold hereunder.”
And in this connection is the statement: “The purchaser of said McKissick contract shall assume and indemnify the estate against all liability arising out of said contract as the court may determine.”
The description of the property in the confirming order and in the conveyance of the trustee is identical with that first above quoted from the order of sale.
The repeated inclusion of and reference to the receiver’s contract in the description of this property as contained in the order of sale, in the order confirming the sale and in the conveyance of the trustee, seem to me to be significant to the point of determining this controversy. What pertinency could such expressions possibly have had therein, unless the receiver’s contract affected what was to be sold by the trustee? How could that contract affect the matter except in the one essential manner in which it modified the prior contract? That one manner was clearly to release from the obligation to continue the payments — such was the purpose and effect of the contract made by the receiver. The above recital of the terms of the receiver’s contract and of what was done concerning this contract of the receiver is convincing that the parties did not merely suspend, during the bankruptcy, the theretofore existing contract, but that such prior contract was modified and changed for all purposes and as to all persons. The order of sale would have had no reason for mentioning or including the receivership agreement in its description of the contract to be sold if the entire efficacy of that contract was confined to the estate and ceased when the contract of sale passed from the estate, yet it would so cease if its purpose and effect were suspension and not alteration of the sale contract. If this be true, the trustee could not sell any other contract than the modified one, because no other contract existed.
Appellees attempt to avoid the above situation by introducing evidence of statements made by the auctioneer at the time of the sale to appellant under the order of sale. Their contention is that these statements were that the purchaser must assume the obligations of the contract. All of such statements were seasonably objected to by appellant. The language used is in some respects ambiguous because much of it might be applicable to either theory of the situation — he repeatedly speaks of the “burden” of the contract, which might have applied to the necessity of paying the unpaid balance in order to secure the property instead of meaning the assumption of a legal obligation to make such payments. However, he did say that the “re-, ceiver ratified those and took them up,” so that a purchaser who had not familiarized himself with the contracts and the situation might possibly have gained the impression which appellees advance. The purchaser here represented the reorganization committee of the bondholders, and it is very improbable that he and the committee were not very familiar with this entire situation. Appel-lees insist that this parol evidence was admissible (1) “to explain and interpret” the or*73der of sale; and (2) “to show consideration.” They urge, also, that no sufficient objection was made to the introduction thereof.
A provision of the order of sale was that “the purchaser of said MeKissick contract shall assume and indemnify the estate against all liability arising out of said contract as the court may determine.” Appellees contend that this language was ambiguous, and the parol evidence is competent “to see what the parties themselves did in putting a construction upon the language.” This is not tenable. The language is not ambiguous. The estate could be liable for such “liabilities” only as were assumed; such assumption was solely through the contract of the receiver and the order approving that contract; neither that contract nor that order assumed any obligations of payment, but clearly and expressly negatived such assumption. There could be no ambiguity as to that situation. •The “liability” of the estate could be only for payments coming due while it had the property and did not renounce, it or for waste committed during such retention.
The contention as to consideration is that the parol evidence was admissible “to show the consideration for defendant’s purchase of the contract.” This is not well founded. No question of consideration is involved here. Appellant does not deny purchasing the contract — -the dispute is as to what the purchased contract was.
The contention that there was no proper objection or exception to this evidence is of no practical value to appellees. This was tried as an equity ease; this evidence was in-compent to vary the terms of the order of sale so that a contract not in existence could be sold.
I think the decree should be reversed, with directions to dismiss the substituted bill with prejudice.