Court Opinion

ID: 9459161
Source: CourtListenerOpinion
Date Created: 2023-08-04 21:12:06.360861+00
Date Added: 2024-06-11T17:36:02.642457
License: Public Domain

ADAMS, Circuit Judge
(dissenting).
I respectfully dissent from the conclusion reached by the majority in this case because it is based, I believe, on an unrealistic appraisal of the situation.
The Fellows Gear Shaper Company (Fellows), appellant here, had contracted with F. H. MeGraw & Co., general contractors, for the erection of a building in Springfield, Vermont. Upon Mc-Graw’s entry into receivership, Fellows became concerned about the possibility of delays and sought an arrangement which would permit Fellows to complete the building. An agreement was entered into between Fellows and the receiver which would achieve this end. The agreement was made effective by an order of the referee in bankruptcy. This order, embodying the agreement, provided that in exchange for a release by the receiver, Fellows could immediately undertake completion of the building, would not be liable to the assertions by the debtor of its right to complete construction, and that the debtor would assign to Fellows its interest in contracts with its laborers and material-men. The order further provided as follows:
“And it is further ordered and decreed that Philip F. Newman, Esq., receiver herein, shall not be liable for any claim for deficiency if the costs of completion of the contract exceed the balance of the contract price.”
At the time this order was issued, pursuant to the agreement entered into between Fellows and the receiver for MeGraw, it was assumed by both that Fellows’ cost to complete the building would not exceed the contract price. However, the cost of building did, in fact, ultimately surpass the contract price. Fellows now seeks to assert this excess amount as a claim against the bankrupt company. The receiver, who by the time of this proceeding had been elected trustee, on the other hand, contends that the agreement and release preclude Fellows from asserting such a claim.
Fellows argued to the referee, to the district court, and to this Court, that the disputed release provision should not be deemed to release MeGraw from Mc-Graw’s liability under the construction contract for any costs over the contract price. The arguments by Fellows have been, at various times, that (1) the provision was inserted into the order unilaterally, (2) the provision was intended to release only the receiver from personal liability and not to release MeGraw, and (3) the provision is ambiguous and, therefore, to be interpreted against the released party. The referee rejected Fellows’ contentions and held (1) that because Fellows had knowledge of the *470clause in question and had neither sought review nor modification of the order it was bound thereby and could not now claim that it had been unilaterally inserted; (2) that it could reasonably be believed that the release was intended for the benefit not only of Philip F. Newman, Receiver, but for the debtor, McGraw as well; and (3) that there was only one reasonable interpretation that could be given to the release language.
The district court, holding that the findings of the referee must be accepted unless clearly erroneous, affirmed the findings.
The standard to be applied by this Court in reviewing an order of a referee, affirmed by the district court, has been stated to be:
“If the debt is ascertained to be not duly proved, or to be without lawful existence, the referee shall disallow the claim. His findings, if based on conflicting evidence, and particularly if involving questions of credibility, should not be disturbed upon review 'by the district judge unless clearly erroneous. Upon appeal to the circuit court of appeals this presumption of correctness is strengthened where the district judge has approved such findings, and they will be accepted unless a mistake is clearly shown.” 3 Collier on Bankruptcy, § 57.14(5) pp. 219-20 (14th ed.).
Nevertheless, the majority in this case reversed the district court’s affirmance of the referee’s ruling. Instead, the majority held that “under the circumstances presented to the referee, he should have found the language to be ambiguous. And, recognizing the principle that ambiguous language will be resolved against the author thereof, and mindful of the desirability of strict construction of a release from claims not yet accrued or matured, [he] should have allowed Fellows’ claim as a general unsecured creditor.”
I differ from both the approach taken by the majority and the result reached. It would appear that the majority has reviewed the referee’s findings not from the point of view that the findings ought not be overturned unless no reasonable basis existed, but rather as if they were viewing the case de novo.
Moreover, business realities would indicate that the result reached by the referee is an eminently reasonable interpretation of the provision of the order, or release, in question. An experienced receiver, participating in a transaction of the kind involved here, would be concerned not only with protecting himself from personal liability but more importantly, with protecting the debtor company from any potential claims. Indeed, the majority seemingly acknowledges that such is a reasonable interpretation, when they state that they do not agree with an interpretation of the provision as releasing the receiver from personal liability only. In addition, a failure by the receiver to secure such protection for the debtor while obtaining such protection for himself might raise serious questions regarding the receiver’s administration of the debtor’s estate, because it would appear that his concern with his own liability was greater than his concern for the interests of the creditors.
The referee, a most experienced official, extremely conversant with bankruptcy proceedings, orders and forms, did not find the ambiguity claimed by the majority. Rather, he found that the provision in question was intended to release both the receiver and the debtor, McGraw, from all claims. That order was affirmed by the district court and in turn, I would affirm the district court.