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IN RE KELLETT AIRCRAFT CORP.

May 31, 1951

In re KELLETT AIRCRAFT CORP


The opinion of the court was delivered by: MCGRANERY

This case arises on exceptions to the report and recommendation of the special master, dated February 23, 1951, on a motion by the debtor, the Kellett Aircraft Corporation, to dismiss the claims of the Coldaire Corporation. Factual background to these proceedings may be found in the opinions of this court reported in D.C., 77 F.Supp. 959, affirmed 3 Cir., 173 F.2d 689, Id., D.C., 94 F.Supp. 103. The master has, in effect, recommended the granting of the motion in part, and its denial in part, and both parties have filed exceptions.

Findings of Fact.

 1. On April 2, 1946, Kellett and Coldaire entered into a contract whereby the former undertook to manufacture for the latter a quantity of refrigerating cabinets. But in September of 1946, Kellett notified Coldaire that it would not continue production under the April contract.

 2. On October 9, 1946, after negotiations between the parties, a new contract was entered into, which has been held to have been an accord and satisfaction of the April contract, 77 F.Supp. 959, affirmed 173 F.2d 689. The October contract contained, into alia, the following provisions:

 '1. Kellett hereby sells and transfers to Coldaire the materials, parts and work in process listed in the schedule attached hereto as Exhibit 'A' and now located in the plant occupied by Kellett, situated in North Wales, Pennsylvania. Coldaire will within thirty days from the date hereof pay Kellett $ 8,000.00, for said materials, parts and work in process. Full title to and property in said assets shall be transferred to and vest in Coldaire by and upon the execution of this agreement and Coldaire shall thereupon be given immediate possession thereof. * * *

 'Kellett represents that said Exhibit 'A' includes all raw materials, parts and work in process on hand on September 18, 1946 applicable to or acquired for the completion of 300 Coldaire Units Model 12D46 and 700 Coldaire United Model 3C46 under said contract of April 2, 1946, less in each case deliveries already made by Kellett.

 '2. Kellett will continue to hold for one year from the date hereof for the account of Coldaire existing stores inventories listed in Exhibit 'B' subject to liens in favor of the R.F.C. or Girard Trust Company or other bank. * * * Coldaire shall have the right to purchase for cash any or all of the parts and raw materials listed in said Exhibit 'B' as it desires during said one year period at the following prices:

 '(a) Parts: 50% of their fair replacement cost at the time of purchase by Coldaire.

 '(b) Raw Materials: 100% of their fair replacement cost at the time of purchase by Coldiare.

 '3. Coldaire will within thirty days from the date hereof pay Kellett $ 7,200.00 to secure Coldaire's option to purchase the parts and raw materials listed in Exhibit 'B'. This deposit shall be applied on purchases of the first portions of parts or raw materials subject to said options, but in the event said options are not exercised shall be retained by Kellett as its sole and absolute property.'

 '8. If Wilson Cabinet Company or an affiliated company does not rent that part of the premises, machinery and equipment at Kellett's North Wales plant heretofore used or set aside for Coldaire's productions, Coldaire shall have the right to lease said premises, machinery and equipment on a basis to be determined by Kellett and Coldaire.'

 3. On October 18, 1946, Kellett filed its petition under Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 501 et seq., and trustees were appointed for the debtor in reorganization and authorized to conduct the business. When the trustees took possession they found the debtor's plant in operation under the October contract. They entered into an oral agreement with Coldaire whereby operation was permitted to continue pending a decision by trustees on the affirmance or rejection of the contract.

 4. On October 31, 1946, the trustees, at a meeting held at the office of their attorney, stated categorically to Coldaire that they proposed to reject the October contract. On November 22, 1946, a petition was filed asking for leave to reject it and such leave was granted by this court.

 5. Meanwhile operation under the oral agreement had progressed in a small way only, in part by reason of dispute between Coldaire and the trustees over the use of certain parts and materials. On November 14, 1946, ...


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