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contracted for and its ascertainable value or cost. See Masterton v. Mayor of Brooklyn, 7 Hill [N. Y.] 61 [42 Am. Dec. 38], and cases there referred to. We hold it to be a clear rule that the gain or profit of which the contractor was deprived by the refusal of the company to allow him to proceed with and coulplete the work was a proper subject of damages.’”
Measured by this rule, and applying the facts of this case, we are of opinion that the measure of damages was the difference between the cost of manufacture and the contract price, and they were in no sense speculative as ruled by the referee. Nor does the fact that the evidence shows that the claimant sold some of the burners to others, but does not show the amount obtained for them, alter the claimant's right to recover the difference between the cost and the contract price. The evidence does not show how many burners were manufactured by the claimant, either before or after the filing of the petition in bankruptcy and the consequent breach of the contract, nor how many were disposed of by the claimant nor the price therefor, but the evidence does show that the claimant after the breach was required to buy “mantels, boxes, cases, glassware, and excelsior” to complete the burners for sale and prepare them for the market, and also to furnish a market for them. None of these things was the claimant required to do under the contract with the bankrupt, and, if the trustee or the creditors wished to show these sales in mitigation of damages, they had an opportunity to do so when the case was being heard. The burden was on the objectors to show anything they wished in mitigation of damages and the opportunity was at hand when the witnesses were on the stand testifying to the damages suffered by the claimant. If the objectors chose to pass by their opportunity, they cannot now complain, and the referee erred in using this evidence to weaken claimant's proof of cost.
The only question that remains is whether the claimant is entitled to recover these damages against the bankrupt; the breach having been occasioned by the filing of the petition in bankruptcy. We are of the opinion that he is. Section 63a of the bankrupt act (Act July 1, 1898, c. 541, 30 Stat. 562 [U. S. Comp. St. 1901, p. 3447]) provides:
“Debts of the bankrupt may be proved and allowed against his estate which are * * * (4) founded upon an open account, or upon a contract express or implied.” . The claim under consideration was founded upon an express contract in writing, the damages for the breach of which were unliquidated. The claim was therefore a provable claim, and under section 63b could be liquidated upon application to the court in such manner as it should direct. As no application was made to the court, and as there is no standing order or rule providing a method of procedure by jury trial upon issue framed or by an adjudication upon evidence before the referee or judge, and as the parties submitted themselves to the referee, who after a full hearing and careful consideration of all the evidence adjudicated the claim, which in our opinion was a most satisfactory and appropriate method for the proper liquidation of the damages, we See no reason why the claim is not to be considered as having been proved and liquidated in accordance with sections 63 a and b of the act. In Re Swift, 112 Fed. 315, 50 C. C. A. 264, in the Circuit Court of ^ppeals for the First Circuit, it is said:
“Under some bankruptcy statutes, provision was made for liquidating the present values of contingent debts and contingent liabilities for provable purposes. Rev. St. § 5068. But the present statute does not expressly provide any machinery for that purpose. It provides without apparent restriction for proof of debts founded on contracts, express or implied, and also, in a general way, for liquidating unliquidated claims; but, in the absence of any express provision for contingent engagements including those for property to be delivered on demand and payment of purchase money, there seems to be some difficulty in applying the statute. However, we need not go into the troublesome questions that are raised by this omission, because we have already seen that in the case at bar the proceedings in bankruptcy rendered unnecessary a demand and tender, and, like the great mass of matters affected by such proceedings, we must hold that this proof of debt relates to the time when they were commenced. From that time the stocks in question were put beyond the power of the stockbrokers to deliver effectually. The contract ripened simultaneously with the beginning of the proceedings in bankruptcy, as the consequence thereof in connection with the adjudication which followed. Of course, as everything related back to the filing of the petition, the ripening of the claim did not occur before it was filed, nor afterwards, but simultaneously with it, as already said. Consequently, by necessary effect, there was created and existed when the proceedings commenced a provable claim.”
So in the case at bar upon the filing of the petition in bankruptcy and the adjudication thereon it was impossible for the bankrupt to accept a delivery of the goods and make payment for them. A breach of the contract therefore occurred upon the filing of the petition, and the claimant was relieved from making tender of the goods.
Under all the facts and the law of this case, we are satisfied that the referee erred in disallowing this claim. The report of the referee must therefore be reversed as to the claim of the Iron City Stamping Company, and the claim must be allowed, and the report of the referee affirmed as to the other findings allowing and disallowing claims.
In re AUTOMOBILE LIVERY SERVICE CO.
1. SUBRogATIon (§ 23*)—AdvancEs BY PLEDGEE—DIscHARGE of INCUMBRANCE. Where, at the time certain automobiles were pledged to a bank for a loan to pay the purchase price, the title was in the seller as security for the price, the bank's money having been used to satisfy the seller's claim, the bank was subrogated to the seller's rights as against the buyer's trustee in bankruptcy, though the pledge may have been invalid because made by the buyer's officers without authority from its board of directors. [Ed. Note.—For other cases, see Subrogation, Cent, Dig. §§ 60, 62, 64; Dec. Dig. § 23.”]
2. SUBRogATION (§ 23*)—ForM of TRANSACTION.
Where a loan was made by a bank to a buyer of certain automobiles, and the proceeds were availed of to release them from the seller's lien sor the purchase price to the buyer, it was no objection to the bank's right of subrogation to such lien that the note was in form made by the buyer to its president and immediately indorsed by him to the bank to secure the president's individual liability. - .
[Dö. Note.—For other cases, see Subrogation, Cent. Dig. §§ 60, 6.2, 64; Dec. Dig. § 23.”]
*For other cases see same topic & 3 NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes *For other cases see same topic & S NUMBER in Dec. & Am. Digs. 1907 to date, & Rep'r Indexes
3. PLEDGEs (§ 11*)—ELEMENTs—I)ELIVERY TO PLEDGEE.
In the matter of the bankruptcy of the Automobile Livery Service Company. On petition to review findings of a referee denying the claim of the Jefferson County Savings Bank and the Harris Transfer & Warehouse Company. Petition granted, and claims allowed.
L. J. Haley, Jr., for claimant. -
GRUBB, District Judge. The Jefferson County Savings Bank and the Harris Transfer & Warehouse Company propounded their claim before the referee in bankruptcy for two automobiles, which were in the possession of the latter, as warehouseman for the former, when the petition was filed, and which were surrendered by the latter to the receiver in bankruptcy. The automobiles were shipped to the bankrupt by the makers, with draft and bill of lading attached, and the president and secretary of the bankrupt, in order to raise the money to take up the drafts and secure the bills of lading, executed its notes, payable to its president, and indorsed by him to the claimant, the Jefferson County Savings Bank, the proceeds of which, when discounted, were credited to the bankrupt and used by it to take up the drafts and secure the bills of lading for the two automobiles, which were then delivered to it by the railroad company. Each of the notes recited that the automobile, the release of which it secured, was pledged for the payment of the note and all subsequent indebtedness to the bank, but possession of each automobile remained in the bankrupt until the maturity and default of the first note falling due, whereupon the claimant, with consent of the bankrupt, took possession of the automobiles under its contract for pledge, and stored them with the warehousing company, in whose possession they were when the petition was filed, and by whom they were surrendered to the receiver of the bankrupt estate.
he transaction constituted a pledge as distinguished from a mortgage. The bankrupt was insolvent when the claimant took possession of the automobiles.
The trustee asserts title to be in the bankrupt upon the grounds: (1) That the pledge was made by the officers of the bankrupt, without authority from its board of directors; (2) that the note, to secure which the pledge was given, was executed to the president of the bankrupt, and not to the claimant; and (3) that there was no delivery of the articles pledged to the pledgee at the time of the creation of the pledge. The referee denied the claimant's petition, and to review his order this petition is filed by the claimant.
1. The first objection to the validity of the pledge is that the pledge was executed by the officers of the bankrupt, without authority from its board of directors. At the time the pledge was given, the title to the pledged property was in the maker for his security for the purchase price. The pledge was given to secure, and did secure, money, which was used by the bankrupt to pay the purchase price and relieve the property from the lien upon it, created by the retention of title in the maker. Conceding the want of authority in the officers of the bankrupt, in the absence of a resolution of its directors, to give the pledge, the trustee cannot claim the title to the pledged property, the purchase money lien upon which was relieved by the loan, secured by the pledge, and at the same time repudiate the loan and pledge. His rights in that event would be those of the bankrupt only, and would consist of an election to repudiate the loan and pledge, surrendering possession of and title to the pledged property to the claimant, or electing to retain the pledged property to ratify the loan and pledge by which the bankrupt secured possession of and title to it. The bankrupt or his trustee can only take the pledged property cum onere, and the claimant is subrogated to the lien of the maker of the automobiles, to satisfy which the proceeds of the loan were used. In the case of Bolman v. Lohman, 74 Ala. 511, the Supreme Court of Alabama said:
“But the rule is settled that where money is expressly advanced in order to extinguish a prior incumbrance, and is used for this purpose, with the just expectation on the part of the lender of obtaining a valid security, or where its payment is secured by mortgage, which for any reason is adjudged to be defective, the lender or mortgagee may be subrogated to the rights of the prior incumbrancer, whose claim he has satisfied: there being no intervening equity to prevent.” Scott v. Land Co., 127 Ala. 161, 28 South. 709; Bigelow v. Scott, 135 Ala. 236, 33 South. 546.
It is consequently unnecessary to consider the question of the authority of the president and secretary to borrow the money and give the pledge. The cases of Jordan & Co. v. Collins, 107 Ala. 572, 18 South. 137, and Goodyear Rubber Co. v. Scott, 96 Ala. 439, 11 South. 370, involve the authority of an officer of a corporation, without action of its directors, to make a transfer of all its property for the payment of existing debts, constituting a general assignment, and are to be distinguished from the transaction in this case, which was had in the due course of the bankrupt's business as a going concern, and did not have the effect of terminating its existence as such, as in the cases mentioned.
2. The note was payable to the president of the bankrupt, but was immediately indorsed by him to the claimant bank, which placed the proceeds to the credit of the bankrupt, by whom they were used to take up the drafts and secure the automobiles. This form of the transaction was doubtless to secure to the claimant the individual liability of the president of the bankrupt, as indorser of the note, in addition to the pledge of the property described therein. The loan was made to the bankrupt, and the proceeds availed to release the pledged property to the bankrupt, and the claimant should be subrogated to the lien on the automobiles, which its money so advanced satisfied, regardless of the form which the transaction took. 3. The agreement to pledge the automobiles was not accompanied by their delivery to the pledgee, and was invalid as a pledge, for that reason, in its inception. Upon the maturity of the first hote which fell due and the dishonor of it by the bankrupt, the claimant took possession of the automobiles and stored them for its account with the warehouse company. This was done before bankruptcy proceedings were instituted, but within four months thereof, and while the bankrupt was insolvent; and from the default in payment of the note, the insolvency of the bankrupt and an intent to prefer, if a preference was created by the transaction, was reasonably to have been inferred by the claimant. In the absence of the prior agreement to give the pledge, the subsequent surrender of the property would without doubt have constituted a voidable preference. If possession had accompanied the agreement to give the pledge, the pledge would equally without doubt have been valid, though given within four months of the filing of the petition, because of the contemporaneous consideration moving to the bankrupt for the agreement to give the pledge. The pertinent inquiry then is as to whether the subsequent delivery of possession of the pledged property to the pledgee, though without a new consideration, relates back to the original agreement and is rescued from the infirmity it would otherwise be subject to by reason thereof. Subsequent delivery of property agreed to be pledged has been held by the Supreme Court of Alabama to validate the pledge, except as against intervening liens which have attached in the interim. Nobles v. Christian & Craft Grocery Co., 113 Ala. 220, 20 South. 961; American Pig Iron Storage Warrant Co. v. German, 126 Ala. 239, 28 South. 603, 85 Am, St. Rep. 21. If the decisions of the state court hold valid transactions to create liens in cases in which delivery is made subsequent to the agreement to give the lien but before the right of intervening creditors has been fastened upon the property, the delivery of the property, under such circumstances, will not constitute an illegal and voidable preference under the bankruptcy law. Thompson v. Fairbanks, 196 U. S. 516, 25 Sup. Ct. 306, 49 L. Ed. 577; Humphrey v. Tatman, 198 U. S. 91, 25 Sup. Ct. 567, 49 L. Ed. 956. In the case of Sabin v. Camp (C. C.) 98 Fed. 974, the court held that a transaction which was so consummated within the four months was not a preference, because it had originated before, and used this language: "What was done was in pursuance of the pre-existing contract, to which no objection was made. Camp furnished the money out of which the property, which is the subject of the sale to him, was created. He had good right, in equity and in law, to make provision for the security of the money so advanced, and the property purchased by his money is a legitimate security and one frequently employed. There is always a strong equity in favor of a lien by one who advances money upon the property which is the product of the money so advanced. This was what the parties intended at the time, and to this, as already stated, there is and can be no objection in law or in morals. And when,