43 F.2d 624 | N.D. Ga. | 1930
The referee denied in toto the claim of Commercial Factors Corporation against the estate in bankruptcy of Griffin Manufacturing Company. His decision is for review. A motion was made to refer the matter back to him because he has not specifically ruled on each objection to pleadings and evidence, but this motion was waived with the understanding that the court would examine all such objections and make'neeessary rulings. The claim is for breach of a written contract making the Commercial Factors Corporation sole selling agent of the products of the Griffin Manufacturing Company, for three years ending June 11, 1930, by reason of the involuntary bankruptcy consented'to by the latter, on July 8, 1929. Damages of $90,000 are claimed for loss of commissions, and of $130,000 for the par value of stock in the bankrupt company owned by the claimant and its associates alleged to be payable under a clause of the agency contract. The important facts recited in the written contract or established by other evidence are these: Previous to June 11, 1927, the claimant had acted as selling agent for the bankrupt under an arrangement terminable at will, on reasonable notice, selling the products of the bankrupt’s cotton mills at 5 per cent, commission and agreeing to discount the sales and to lend additional money to the extent of $200,000 on the indorsement of certain officers, pro
The objection to the item of $130,000 therein, the par of common stoek held by claimant and its associates, that upon its face it was not owing, should have been sustained. It need not be decided whether a promise to present a purchaser for the stock was ultra vires or contrary to public policy. There was no such prorpise in the exhibited contract. The contract gave the Griffin Manufacturing Company the option to discontinue it on six months’ written notice, provided it had fully paid the Commercial Factors Corporation all that was due it and procured a bona fide offer for the stoek at par. This option was not sought to be exercised. No written notice was given. The debts were not paid nor the stoek offer procured. Had these things been done, the contract would have been discharged, but by performance. There could have been no claim for future commissions. When they were not done, the-contract remained of force and Commercial Factors Corporation had the right to insist on continuing to be sales agent, and to complain of any breach of it. It could ask compensation for a wrongful loss of commissions arising from its not being suffered to continue as agent until June 11, 1930, but it could not hold the Griffin Manufacturing Company for the value of its stoek. Had the contract not been breached at its expiration, it would have had to keep the stock or sell it itself. The only damages resulting from the breach of the contract of employment would lie in the things that would have been, received through its performance. The item touching the value of the stoek should be stricken as on demurrer. All evidence touching it, of course, becomes irrelevant and to be excluded.
As to the item of loss of commissions, the objection made for vagueness has not been argued and is passed by, though originally meritorious. No objection was made to the original validity of the contract because of fraud. Besides, the contract was acquiesced in with full knowledge and acted on for two years. That a justified bankruptcy, whether voluntary or involuntary, is an anticipatory breach of a contract, so far as it is executory, by disabling the promisor to perform and by putting the business into other hands, must be considered settled by Central Trust Company of Illinois v. Chicago Auditorium Association, 240 U. S. 581, 36 S. Ct. 412, 60 L. Ed. 811, L. R. A. 1917B, 580, unless the present contract be one of the exceptions referred to in that opinion, or unless it really did not bind the Griffin Manufacturing Company to stay in business, or
Whether the contract really bound the Griffin Manufacturing Company to stay in business until June 11, 1930, is a more difficult question. There is no express agreement to that effect. The contract as written may mean only that the Commercial Factors Corporation shall have the right to sell all the goods that the Griffin Manufacturing Company may sell, and not that the latter will continue to produce goods for the former to sell. The construction must depend on the things that are agreed on, on the evident purpose sought to be attained, and the circumstances of the parties. Cases cited by both sides recognize this to be the rule. Hollweg v. Schaefer Brokerage Co. (C. C. A.) 197 F. 689; Great Lakes Co. v. Scranton Coal Co. (C. C. A.) 239 F. 603; Lowery Lock Co. v. Wright, 154 Ga. 867, 115 S. E. 801. A cotton mill is ordinarily run continuously if it can get financial backing to carry its product over dull times. Such backing was arranged for in this contract. It is too much to say that these parties intended the mill to run continuously under all conditions on pain of paying commissions if it did not. Shortage of material, or fuel, or labor, inability to sell goods at all or at a profit, might have justified temporary cessation. But an unopposed bankruptcy, although solvent, that leads to a sale of the mill and permanent cessation of business seems to me equal to a voluntary cessation because of mere financial stress. This ought not to relieve completely from a valid mutual engagement such as this.
The fact that the claimant joined in the withdrawal of credit and in suits which caused the financial embarrassment is impressive. Claimant knew when it sued that in all likelihood cessation of mill operation would follow. Yet the liquid assets of the mill having fallen below the current liabilities, the claimant was under no obligation to lend the $200,000, and could use lawful means to collect it. I do not think it thereby lost all right to complain of a breach of the contract of employment -arising from the bankruptcy. But it did greatly affect the damages which could be recovered. The contract contemplated that this failure of liquid assets might occur, and that claimant might then withdraw its‘financial aid, and common knowledge taught both parties that such a situation would prevent the mill making many goods, because running capital is as necessary as material, labor, and machinery. Nevertheless the parties did not stipulate for a definite output, or that commissions should be maintained notwithstanding production decrease. Nor was there an agreement that capital must be procured elsewhere. The fair conclusion is that the parties understood that the modified situation should have its natural effect both upon the mill and the selling agent. No doubt the mill was bound to exercise itself in good faith to run 'so far as it was able and to get such capital as it reasonably could, but there is nothing in the contract to make it owe commissions on goods which it could not produce and did not sell. If claimant had furnished part of the machinery instead of part'of the capital, with a right'to withdraw it on the same conditions, could it complain of the loss of commissions that resulted by its curtailment of the machines in operation? I think such diminution of product as naturally and necessarily would result from a diminution of working capital due to the act of the claimant itself would be provable in mitigation of expected commissions.
The parties here had had experience in what business could be done in good times and with the mill unembarrassed for money. Had these circumstances continued there
My conclusion is that the claimant has a cause of claim in the item for loss of commissions, but that there are substantial factors of mitigation, discussed above, which have not been very directly examined and that a re-reference is desirable to fix what, if any, damages are allowable in view of them. Direction is given that all the evidence be withdrawn and that each side reoffer such' portions of it as it deems pertinent, with the right to supplement it as desired, the referee ruling on objections and making a new finding as to the allowable damages in accordance with this opinion.