Summary
In New York Trust Company v. Island Oil Transport Corp., 34 F.2d 653, 654 (2d Cir. 1929), Judge Learned Hand considered the question of subsequent inability to perform by reason of insolvency after a breach by the solvent party.
Summary of this case from Hodes v. Hoffman International CorporationOpinion
No. 273.
June 24, 1929.
Appeal from the District Court of the United States for the Southern District of New York.
Action by the New York Trust Company against the Island Oil Transport Corporation and others, in which Stevens Marshall were appointed receivers of the Island Oil Transport Corporation. The American Trust Company filed a claim against the receivers, and, from a decree adjudicating the claim, both parties appeal. Decree reversed, and claim dismissed.
On October 18, 1920, the Paritan Refining Company and the Island Oil Transport Corporation entered into a contract as part of the settlement of differences between them and the Eastern Potash Corporation, arising out of an earlier contract of May 14, 1919, between the potash company and the oil company, to which the refining company had succeeded by assignment on July 15, 1919. By the substituted contract the oil company agreed to sell, and the refining company to buy, for a period of two years after March 1, 1921, such crude oil up to 4,000 barrels a day as the buyer might require to operate his refinery. The seller was bound to furnish 120,000 barrels a month at 40 cents, but, if the wells under his control did not have sufficient flow, his total output should be prorated among his "customers" at the time in accordance with certain provisions not necessary to set forth. Any deliveries excused by this limitation the buyer might take in monthly installments after the contract expired, unless rebought by the seller at the market. Similarly, if the buyer failed to take the full quota, and the seller failed to accept the untaken balance at the going market price, the buyer might carry it over beyond the two-year period. The contract contained the following clauses: "All oil delivered under this contract shall be only for the use of the buyer in the operation of its refinery now in process of erection * * * and may not be resold except to the seller as expressly provided in this contract." "This contract is personal to the buyer and buyer's right, title and interest therein may not be assigned, either voluntarily, by operation of law or otherwise."
The seller performed in full until October, 1921, whereupon he availed himself of the clauses excusing performance, but delivered all that these required up to March 1, 1922, together with about 4,000 barrels applicable to that month. On March 20, 1922, receivers were appointed upon the seller's insolvency, and the default continued until the 28th, when a correspondence ensued which, as the buyer argues, shows that the receivers did not within a reasonable time elect to adopt the contract, and which made their appointment an anticipatory breach. Receivers were appointed for the buyer on January 20, 1923, and he was adjudged bankrupt in the following February. He had executed a mortgage on August 15, 1919, to the Bankers' Trust Company, for which the claimant had been substituted as a trustee. The original contract of May 14, 1919, and later the contract of October 18, 1920, had been assigned under this mortgage, and the mortgagee was its "legal owner." The mortgagee foreclosed the mortgage upon default in payment of the January, 1923, coupon, and the decree presumably conveyed all the buyer's right in both contracts. The mortgagee bought the rights conveyed under the decree and filed the claim in its own behalf against the receivers. The court referred the case to a master, who reported that the appointment of the seller's receivers was an anticipatory breach for which the mortgagee could recover, but only until February, 1923, when the receivership of the buyer brought into operation the clause against assignment. The District Court confirmed this report, and both parties appealed.
Paul B. Barringer, Jr., of New York City, for mortgagee.
Saul J. Lance, of New York City (Francis L. Kohlman, of New York City, on the brief), for receivers.
Before MANTON, L. HAND, and CHASE, Circuit Judges.
We do not find it necessary to decide whether the appointment of the seller's receivers and the subsequent correspondence constituted an anticipatory breach of the contract. Even if they did, the damages are not to be computed in disregard of what took place between then and the filing of the claim, or for that matter — this being in equity — up to the entry of the decree. It is, indeed, one of the consequences of the doctrine of anticipatory breach that, if damages are assessed before the time of performance has expired, the court must take the chance of forecasting the future as best it can. That does not mean that it will ignore what has happened, when the period of performance has already expired. Damages never do more than restore the injured party to the position he would have been in, had the promisor performed; this is not a rule peculiar to anticipatory breach, though that is an instance. Hence it is always an answer, in that or other similar situations, to show that, had the contract continued, the promisee would not have been entitled to the performance, though he was apparently so entitled when the promisor disabled himself or repudiated. Gray v. Smith, 83 F. 824 (C.C.A. 9); Winston v. Brown, 247 F. 948 (C.C.A. 5); Texas Co. v. Pensacola Maritime Corporation, 279 F. 19, 24 A.L.R. 1336 (C.C.A. 5); Gerli v. Poidebard Co., 57 N.J. Law, 432, 31 A. 401, 30 L.R.A. 61, 51 Am. St. Rep. 611; Williston on Contracts, § 884.
In the case at bar the contract was personal to the buyer; he was not to assign it, nor were there to be assignments by operation of law. This was a valid provision, and really did no more than in earlier times the law itself effected. Burck v. Taylor, 152 U.S. 634, 14 S. Ct. 696, 38 L. Ed. 578; Tabler v. Sheffield Land, Iron Coal Co., 79 Ala. 377, 58 Am. Rep. 593; Mueller v. Northwestern University, 195 Ill. 236, 63 N.E. 110, 88 Am. St. Rep. 194; Zetterlund v. Texas Land Cattle Co., 55 Neb. 355, 75 N.W. 860; Wakefield v. Amer. Surety Co., 209 Mass. 173, 95 N.E. 350. The trustee in bankruptcy could not therefore demand the oil, not because of any defect in his title under the statute, but because the contract excluded him by its terms. Nor could the buyer have done so, at least without composition; certainly not if the contract passed by the adjudication, and not, even if it did not, because he could demand oil only for his refinery, which in any case had passed to the trustee. Moreover, if the mortgagee had previously got the receivership extended for his benefit, the same result followed. We need not say that the assignment under the mortgage alone brought the claim into play, but, as soon as the mortgagee entered upon default, performance ceased to be personal to the buyer, and he could not demand it. Nor could the mortgagee, who must claim as assignee, if at all. Thus the master was clearly right in his ruling as to the period after default and entry.
As to the earlier period, what we have already said in disposing of the claim of the Gulf States Oil Transport Company (claim B-6), New York Trust Co. v. Island Oil Transport Corporation, 34 F.2d 649, applies here. Even were we to suppose that the clause against assignments did not invalidate the assignment of an existing cause of action (Burck v. Taylor, 152 U.S. 634, 14 S. Ct. 696, 38 L. Ed. 578, seems to decide that it did), the mortgage gave the mortgagee no rights to the oil which should have been delivered before entry. Thus the contract at least prevented any assignment for oil due after entry, and the mortgage created no lien before. It follows that the mortgagee had no claim of any kind; the only person who could sue was the buyer or his receivers. We are therefore relieved of any consideration of whether the assignment was partial, and whether the obligor had contracted to make separate performances.
Decree reversed; claim dismissed.