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November 19, 1945


The opinion of the court was delivered by: GANEY

This is a petition for review involving certain claims for severance pay, discharge pay, and vacation pay.

 Public Ledger, Inc., had a contract with the Newspaper Guild of Philadelphia and Camden dated December 23, 1940, which was to remain in effect until July 31, 1941, with the proviso that at least sixty days before its expiration, notice should be given by either of the parties for any alteration or extension of the contract subsequent to that date. Provision was made in Section 21 thereof for severance pay *fn1" .

 On February 3, 1942, a contract was entered into between Public Ledger, Inc., and the Philadelphia Typographical Union No. 2 to run for a period of two years, the 19th article of which contained a severance clause *fn2" and the 9th clause a provision for vacation pay *fn3" .

 With respect to the Guild contract, notice was given on May 28, 1941, bu the Guild of its desire to negotiate a new contract, which, if adopted, would effectuate extensive alterations in the one about to expire. There were meetings held between representatives of the Ledger and the Guild looking forward to changes in the contract including consideration of a proposal to permit the Ledger to dismiss for reasons of economy, fifteen percent of the Guild members in its employ, as the Ledger had been operating at a loss for a number of years, amounting for the year 1940 to approximately one half million dollars. At a meeting of the parties on July 29, 1941, two days prior to the expiration of the contract, the parties orally agreed to extend the contract until August 14, 1941. The contract was extended at the expiration of this date until August 22nd and then extended to August 29th. At a meeting held on August 25th between the Negotiating Committee and the Ledger representatives, the Ledger made a complete statement of the changes it desired in the whole contract. On August 26th, Mr. Robert Cresswell, publisher of the Ledger, advised the Guild that the Ledger would not extend the contract beyond August 29th unless the Guild agreed to delete a section which provided that no dismissals for the purpose of economy could be made by the Ledger, without the consent of the Guild, and further that, in the event this condition were agreed to, all other provisions of the contract would be extended to such a period of time, as might be necessary to agree upon the balance. This was rejected by the Guild and on the 28th a written proposal was made by the Ledger that the Guild permit the Ledger between that date and October 15, 1941, to discharge a maximum of thirty-one of its members, and further providing that if these conditions were consented to, the contract could be extended for whatever further period was necessary to conclude negotiations. The Guild on the same date agreed to this proposal of the Ledger with the provision that between that date and October 15th the Ledger present to the Guild the names of the persons they proposed to discharge, and that if the Guild would not agree to their discharge, an arbitrator was to be appointed to pass on the propriety of the discharges. This provision was acceptable to the Ledger. No further meetings were held until September 9th and at that meeting as well as on those of the 12th, 18th and 20th, the subject under discussion concerned itself almost entirely with the propriety of the discharge of the individuals specified by the Ledger. At a meeting on September 25th the discussion of changes in the contract proposed by the parties was resumed, and as has been indicated with the exception of August 25th, there had been no discussion of changes in the contract itself since July 29th. No agreement having been reached with respect to the dismissals, arbitration was initiated on September 29th, and in pursuance thereof six hearings were held up to, and including, October 28th. At the arbitration hearings, discussions looking toward amendments of the contract were had. On November 4th, the Guild by letter *fn5" covering meeting of October 21, 1941, rejected the proposed contract submitted by the Ledger pending negotiations of certain provisions including hours of work, minimum wages and pay increases. On the same date, November 4th, Mr. Cresswell of the Ledger sent to the Guild a letter containing inter alia, 'That the unit which you represent has definitely refused to accept the proposals last made at a meeting held on October 21, 1941. Such being the case you are hereby notified that the contract, expiring by its terms July 31, 1941, is no longer effective or binding upon us and we recognize no responsibility thereunder'. This letter was received on November 6th and on the same day, not being able to reach Mr. Cresswell, the Guild chairman dictated over the telephone to Mr. Cresswell's secretary the following: ' * * * The Guild could not accept his unilateral termination of the existing contract * * * '.

 On November 7th, 1941, the Public Ledger, Inc., filed its petition under Chapter X of the Chandler Act, 11 U.S.C.A. § 501 et seq. The court entered an order *fn6" appointing trustees who were directed 'to manage, maintain and operate' the business for a period of six days from the date of their appointment. Further order *fn7" were made on November 13, December 12, December 17, December 29, continuing the operation of the paper for 30, 5, 12, and 7 days in succession.

 On January 5, 1942, the court ordered a discontinuance of the operation of the paper by the Trustees. All current wages incurred by the Trustees between November 7, 1941 and January 5, 1942, have been paid as were all wages incurred by the bankrupt in the course of its operation until November 7, 1941, the day on which the petition was filed.

 Severance Pay

 It is the contention of the claimants, whose claims total $ 223,528.20, that (a) the contract entered into between the Guild and the Ledger on December 23, 1940, was in existence as of November 7, 1941, the date of the filing of the petition under Chapter X of the Chandler Act, and that the same was assumed and adopted by the Trustees during the period of their operation of the paper under the supervision of the court and that on January 5, 1942, when the paper was discontinued by order of the court, they were discharged by the Public Ledger, and that accordingly they are entitled to severance pay under section 21 of the Guild contract and that those under the Typographical Union Contract are entitled to two days pay under section 19 thereof, and (b) that this severance pay has the status of wage claims and as such is entitled to priority under section 64, sub. a(2). *fn8" of the Bankruptcy Act up to $ 600. If the claims are allowed this status, the rights of priority urged aggregate $ 108,123.09, and if the claims are not given the priority of wage claims, claimants argue (c) that their claims should be classified as wages earned during the operation of the business by the trustees and as such are costs of administration to be paid in full *fn9"

 The broad question here posed is whether the Referee, in an extremely well considered opinion, erred in denying the claims by the Unions on behalf of their employees for severance and vacation pay. More particularly, the first question to be disposed of is whether or not the contract of the Newspaper Guild of December 23, 1940, and that of the Typographical Union of February 3, 1941, was in force and effect as of the date of the filing of the petition under Chapter X of the Chandler Act, November 7, 1941, and if so, whether or not the contract was assumed and adopted by the Trustees in the operation of its business until its close on January 5, 1942.

 The instant case demonstrates the difficulties which are likely to arise when Trustees in bankruptcy fail to expressly adopt or reject executory contracts as expediently as possible. The Referee found that the contract was in existence as of November 7, 1941, but that the Trustees neither accepted nor rejected it during the course of the operation of the business, and hence no right to severance or vacation pay could properly arise.

 It may be noted that Section 70, sub. b, of the Bankruptcy Act, 11 U.S.C.A. § 110, sub. b, which provides for the automatic rejection of contracts not otherwise acted upon by the Trustees, whithin sixty days, does not come into play, for the reason, as pointed out by the Referee, the order of liquidation was made on January 5, 1942, whereas the proceedings were begun on November 7, 1941, a lapse of only fifty nine days.

 In determining whether the contract was in existence on November 7, 1941, at the time of the filing of the petition under Chapter X of the Chandler Act, due consideration must be given to Cresswell's letter of November 4, 1941, addressed to the Chairman of the Negotiating Committee of the Newspaper Guild in which they were notified that the Ledger no longer considered the contract binding. The Referee decided that Mr. Cresswell's letter was ineffective to terminate the contract, since his refusal to be bound was predicated on the refusal alleged in the letter of the Guild 'to accept the proposals last made at a meeting held on October 21, 1941'. The Referee found that the Guild had not refused to accept the contract but merely suggested certain matters for further negotiation and that there was no warrant for the position taken by Mr. Cresswell, and hence the contract was in effect as of November 7, 1941. It is apparent that the Referee's conclusion is valid only if a finding is made, that Mr. Cresswell intended his renunciation to be effective, if the Guild had refused to continue negotiations, or if he was correct in assuming that the Guild had refused to continue negotiations. It is patent, however, that there was no such intention. The letter was a categoric refusal to recognize the contract, and the fact that Mr. Cresswell erred in the basis for his rejection does not make his act any less a breach. If there was no justification for his act, it constitutes an anticipatory breach, and since the Guild rejected his act, it had a right to (a) sue immediately, or (b) wait until an affirmative act, such as the refusal to perform a contract term occurred. 5 Williston on Contracts, § 1337. In taking the latter course, the Guild would leave the contract in effect, thereby making itself subject to the terms of the contract should Cresswell decide to perform. Since there was no suit on the contract before November 7th, and no act other than the anticipatory breach, there can be no doubt that the contract was in effect until November 7th. Therefore, though reasoned differently, the same conclusion is reached here, as the Referee did.

 In the disposition of these claims it must be borne in mind that the commencement of bankruptcy proceedings constitute an anticipatory breach of an executory contract. Central Trust Co. of Illinois v. Chicago Auditorium Ass'n, 240 U.S. 581, 36 S. Ct. 412, 60 L. Ed. 811, L.R.A. 1917B, 580; 3 Williston on Contracts, § 2476. Accordingly, the employees on November 7, 1941, could have stopped working and elected to treat the bankruptcy as a breach unless the contract was expressly assumed by the Trustees. Instead they elected to continue working, thus consenting to the breach. It is not the rule that the contract is binding until rejected, but in order for the Trustees to be bound, they must positively indicate such intention. The trustees are not ...

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