Gulf Compress Co. v. Merchants' Cotton Press & Storage Co. , 265 F. 199 ( 1920 )

DONAHUE, Circuit Judge

(after stating the facts as above). [1] It appears from the memorandum opinion of the District Court, on exceptions to the master’s report, that its refusal to allow the claim of the Merchants’ Company for deficit in rentals for the season 1909— 1910 is based upon the conclusion that, in light of the correspondence between the parties just prior thereto, the Merchants’ Company, by electing to take over and operate these properties, contracted with the Compress Company that it would continue such operation for the life of these leases; that its failure to do so was a breach of contract; that because of this breach it could not recover for that year, but that at the time it filed its petition for the amount of deficiency in rentals for the season 1908-1909 no such breach had occurred, and that therefore the rights of the parties must be determined as of the date of filing the petition, February 15, 1910, and for that reason approved and confirmed the master’s report as to that item. These are the important questions, and perhaps, in view of the state of the record as filed in this court, the only questions, presented by the respective appeals.

It is evident that the letters themselves did not constitute a new contract between the parties. The Gulf Company had been declared insolvent, and its property was then being' administered by the court for the benefit of its creditors, so that it had no capacity to contract with reference to this property. The receiver could not make or enter into a contract, except with the approval of the court appointing him; but no such contract was presented .to the court for its approval. On the contrary, the court had ordered the receiver to discontinue operations and return these properties to the lessor. In obedience to that order the receiver had tendered possession to the Merchants’ Company and had notified it that he would no longer operate the same. Nor was there any consideration for. such new. contract.

It is also apparent from the correspondence itself .that no agreement was reached by the parties, for on the 5th day of September the Merchants’ Company recalled its letters of September 1st and notified the Gulf Company that it had decided to 'exercise without qualification the first alternative option. In other words, it specifically refused to acr cept the receiver’s interpretation of this contract, or to attempt any interpretation of its own, but declared its intention of taking over this property and operating it under the first alternative option contained in the leases, without qualification of any kind or character, so that, if these letters could be considered as negotiations leading up to a contract or agreement between the parties as to the effect of the exercise of this option, no such agreement was reached, and the attempt to do so was finally and conclusively abandoned. For these reasons these letters cannot be read into the leases, 'in order to change or modify their terms in any particular whatever, but, on the contrary, the rights, duties, and obligations of the lessor must be determined, not only by the provisions of the particular paragraphs under which the right of election was exercised, but also by all the terms and provisions of the entire contracts of which these paragraphs are part.

[2] The election by the lessor to take over and operate the properties brought into full force and effect paragraphs 5 and 15 of the respective leases, which prior thereto were not operative, and were not intended to be operative, until default in payment of rent occurred and the lessor had elected to proceed under their provision. These paragraphs, 5 and 15, specifically provide that, if the profits arising from operation by the lessor should prove insufficient to pay the rentals, then the Gulf Company would be responsible to the Merchants’ Company for the difference; but they do not specifically provide at what time or times the Merchants’ Company might demand an accounting and payment of these deficits. Therefore it becomes important to consider the other provisions of the leases in order to ascertain the lessor’s rights in that behalf.

The leases do not stipulate a sum in gross as rental for the entire term, but they do provide for a fixed and annual rental to be paid in monthly installments. This provision as to monthly installments might be waived by the lessor," without prejudice to its right to insist upon the payment of any balance due on the annual rental at the end of each year. It further appears from the evidence that this business is operated by seasons, beginning the 1st of September in each year and ending the 31st of August of the succeeding year. The lessor, during the time it operated this property, could not by any practical system of accounting have arrived at the exact amount of the deficiencies from month to month; this would appear only at the end of each season’s business.

Therefore, if it were conceded that the election by the lessor to take over these properties, under the provisions of paragraphs 5 and 15 of the respective leases, required it to continue such operations for the full life of the leases, certainly it must follow that this obligation to continue operations upon the part of the lessor was predicated upon the promise and agreement by the lessee that it would pay to the lessor any deficit in the rentals over and above the profits earned by such operation, not at the end of the term, but monthly, as the contracts specifically provide. If, however the payment of monthly installments of the annual rentals was waived by the lessor, then the deficit in the fixed annual rental would become due and payable at the end of the year, when the amount of such deficit could be definitely fixed and ascertained from the accounts covering the business for the entire season.

The failure of the lessee to do this would be a further breach of contract on its part that would authorize the lessor to discontinue operations and recover from the lessee the amount of the deficits in rentals then accrued. The District Court evidently reached the same conclusion with reference to the right of the lessor to demand payment of the deficits and annual rentals at the end of each year; for upon no other theory could it have approved and confirmed the master’s finding in favor of the Merchants’ Company for the year 1908-1909.

These lease contracts do not admit of the construction that the lessor must operate these properties for the life of the leases at an enormous loss to itself, regardless of the failure of the lessee to pay the deficits in the annual rentals at the end of each season’s business,' upon the theory that it could recover the full amount of its losses at the end of. the term from a lessee shown to be entirely solvent. Certainly it caimot be required to do this when it is conceded that the lessee was then insolvent and that its property was then in the hands of a receiver.

For the reasons above stated, the Merchants’ Company, in discontinuing operations, did not commit any breach of the contracts on its part, and is therefore not precluded from recovering under the terms of these contracts.

It is claimed, however, that the disastrous result from the operation of these properties by the lessor, for the two years it did operate the same, was occasioned by carelessness, lack of ability, and refusal to adopt certain business methods of operation suggested by the receiver, that items for permanent repairs of property were charged as operating expenses, and that the evidence does not sustain the amounts found by the master to bé due from the lessee to the lessor under these contracts.

These are questions of fact, upon which the master and the District Court were in agreement. It is also evident from the printed record that there is a direct conflict in the evidence relating to these issues and that there are many items of evidence introduced before the master that are not contained in this record. The books of account are not here. Neither is the amended nor supplemental petition filed by the Merchants’ Company on July 5, 1916, covering the claim of that company fo,r the deficit 'in rentals for the year 1909-1910 contained in the printed record. It is therefore impossible for this court to say, from the record before it, that the findings of facts returned by the master and approved and confirmed by the District Court are not sustained by evidence.

The judgment of the District Court is reversed, and the cause is remanded to that court, with directions to overrule all the exceptions to the master’s report, and to approve and confirm the same, with interest on the amounts found due the Merchants’ Company by the master from the date of the filing of his report.