Citation Numbers: 181 Iowa 108
Judges: Evans, Gaynor, Ladd, Salinger
Filed Date: 9/29/1917
Status: Precedential
Modified Date: 7/24/2022
Among the property so coming into the hands of the
From the pleadings filed, it appears that the plaintiff claims in his petition and amendment that, about June, 1913, he, as receiver, entered into an oral contract with the defendant to furnish electric current for power according to a specific schedule which he sets out. In an amendment, he claims that the prices and values which he charged and for which he seeks to recover are the reasonable prices and values for such services, and that, after allowing all credits on account of such current furnished, there was due him as receiver, $445.51.
The defendant in his answer claims that the services rendered were rendered under a contract previously entered into between the defendant and the corporation for which plaintiff was receiver; that the plaintiff simply continued the business under said contract, as a representative and successor of the Iowa Nebraska Public Service Company, and by way of counterclaim, says that the plaintiff failed to comply with the terms of that contract, and by reason thereof, the defendant has been damaged in a sum far in excess of the amount claimed. Defendant denies that there was any new contract between the- receiver and the plaintiff.
The real question presented involves the right of the
It may be conceded, for the purposes of this case, that the receiver, did not comply with the requirements of this contract. It may be conceded that the defendant could not rescind or annul or destroy the efficacy of this contract so far as the service company is concerned. The question here is, Was the receiver bound to perform this contract by reason of his appointment as receiver? This was an executory contract. Of course, a failure to perform it on the part of the service company would be a breach for which that company might be liable. A claim based thereon was a matter for adjustment in the bankruptcy proceedings. The question
It clearly appears in this record that, when the existence of this contract relied upon by the defendant was brought to the notice of the receiver, plaintiff, he notified the manager of the defendant company that he repudiated and would not'be bound by it; that the manager asked time for further consideration, which was given; that he told the manager at the time that he would furnish power, if needed, at scheduled rates, but not under the written contract ; that thereafter, the manager told him that they would take the current; that thereafter ft was furnished,- but not under the contract. This was notice to the company that, as receiver, he repudiated and refused to be bound by the contract, and refused to render service under the contract. The defendant company was, therefore, bound to know thereafter that service would not be rendered by the receiver under the contract. The receiver testifies, and this is not disputed:
“When I came over to Missouri Valley, either the last of June or the first of July, I was informed that there was a contract between the defendant company and the service company, touching the furnishing of electric current to the defendant company. I asked to see the contract and they produced it. I went over the contract with the- manager. I spoke to him about the ice company not paying its June bill. He said, ‘Well, the contract provides that, if the ice*114 company sustains loss by reason of a failure to furnish current, the ice company was to be compensated for it/ and that they had sustained a considerable loss during the previous month because of the. interruptions of service, which more than offset the bill we had against the ice company. I told him when I had examined that contract that I was not bound by it and would not recognize it; that I was not controlled by any agreement; and that, if they wanted any current, they would have to pay according to the printed schedule that we have for those power rates. I told him further that I would not be responsible in any way for any damages caused by interruptions of service or any breakdown ; and that, if they were not willing to take the current on these terms, I would simply discontinue service. Trapp asked me for 3 or á days in which to consider 'it. I was back in 3 or i days, and they paid the June bill, and Mr. Trapp indicated to me that they had decided to take the current. Mr. Trapp complained to me during the summer about interruption of service. I told him that I would get those things fixed up just as quick as we could. That was the very best we could do. The plant was in very bad condition when I got charge of it, and I saw the income was not sufficient to take care of it.”
Without setting out the testimony further, we have to say, as a basis for our ultimate conclusion, that, upon discovering the existence of this contract, the receiver, within a reasonable time, notified the manager of the defendant company that he would not be bound by it. This was a distinct repudiation by the receiver of the obligations of the contract so far as he was concerned as receiver. The contract, therefore, cannot be made the basis of a claim for damages against him, resting as it does solely upon the claim that he did not perform this contract. It would seem like a simple proposition that one cannot be held in damages
“By the insolvency of the company and the appointment of a receiver, * * * it was made impossible for the corporation to carry out its part of the contract, and this being so, it must answer in damages for its violation; but a liability flowing therefrom should have no better standing than any other claim for money. * * * It will be seen that, if the receiver has not the right to terminate executory contracts when their continuance would not be for the interests of the creditors, every such contract would, in effect, become a preferred claim and entitled to full performance at the expense of claims growing out of executed contracts which, in good conscience, should in all cases have the same consideration, and in some, by reason of their greater age, even more. * * * But whatever may be the logic of the matter, the rule contended for * * * is so well settled that it is not now open to question. The general proposition is well stated in 20 Am. & Eng. Encyc. of Law, on page 375, in the following language: ‘The re*116 ceiver is not bound to respect or continue a contract entered into before his appointment. To do so on any grounds other than necessity for the operation of the road would be to divert the earnings from the purposes for which the receivership was created. * • * * Claims for loss incurred by the refusal of the receiver to fulfill such contracts remain in the same status as other debts of the company incurred before the receiver’s appointment.”
See also Commercial Bank, etc. v. Gates, (Mich.) 80 N. W. 13; Brown v. Warner, (Tex.) 11 L. R. A. 394. In this case it is said:
“Let us suppose, then, that the proprietor of a cotton gin has contracted to gin the cotton of his neighbor at a certain rate, and that, before he has performed his contract, the property is placed in the hands of a receiver, who is directed to operate it. Can it be said that he is liable in damages should he refuse to comply with the contract? Certainly not. He is appointed, not to carry out the proprietor’s contracts, but to manage and preserve the property.”
In that case, it is further said:
“If appellee were unable to recover damages of the company for its breach of the contract by reason of its insolvency, it is a misfortune he has suffered, doubtless, in company with numerous other simple contract creditors. For the failure to perform the contract, his cause of action was against the company, and it was not of that character which could be brought against the receivers without leave of the court.’”
The holding of that case is that the party to the breached contract might have a cause of action against the original contract party, but had no cause of action against the receiver for the breach of the contract, unless the receiver had ratified and adopted it as his own. Then, we take it, such
The better practice is that, before adopting an executory contract and binding the estate in his hands by such adoption, the receiver should submit the matter to the court for its approval. Improvident contracts are often the very basis of the conditions which make the appointment of a receiver necessary for the protection of the assets in the interest of creditors. Casey v. Northern Pac. R. Co., (Wash.) 48 Pac. 53; Spencer v. World’s Columbian Exposition, (Ill.) 45 N. E. 250. In this case it is said:
“The general principle * * * that a receiver has. subject to the order of the court, the right to elect whether he will perform the contract or not, and is entitled to a reasonable time, after taking possession, in which to make such election, is not denied. It is so laid down by many authorities.”
This case affirms the general doctrine. See also United States Trust Co. of New York v. Wabash Western R. Co., 150 U. S. 287 (37 L. Ed. 1085). The general rule is there recognized and adopted that a receiver is not bound to accept the executory contracts, or otherwise step into the shoes of the one for whose property he is appointed receiver, if, in his opinion, it would be unprofitable or undesirable to do so, and he is entitled to a reasonable time to elect whether to adopt or repudiate such contract. Ellis v. Boston, H. & E. R. Co., 107 Mass. 1; Fountain v. Stickney, 145 Iowa 167. For a full discussion of the subjects here under consideration, see High on Receivers (4th Ed.), Sections 273-a, 273-b, 273-c, and 273-d.
We hold, therefore, that the court was right in refusing to recognize defendant’s counterclaim, and in refusing to hold the receiver responsible to the defepdant for a breach thereof.
Thus modified, the case is affirmed. — Modified and affinned.