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In re Philadelphia Penn Worsted Co.

decided: May 23, 1960.


Author: Kalodner

Before McLAUGHLIN, KALODNER and STALEY, Circuit Judges.

KALODNER, Circuit Judge.

The bankrupt, Philadelphia Penn Worsted Company, a Pennsylvania corporation, on December 12, 1958, made a general assignment for the benefit of creditors to Harvey Hurwitz as assignee. At the time of the assignment the bankrupt was the owner of a property at the northeast corner of York and Jasper Streets, Philadelphia.

On March 31, 1959, the assignee, pursuant to his agreement with the mortgagee of the property, put it up at public auction through Samuel T. Freeman & Co., auctioneers. The property was "knocked down" to the appellants, Barney Cramer and Harvey Mencoff, copartners trading as Advanced Textile Company, on their high bid of $25,000.

The auctioneer accepted a 15% down payment of $3,750, and, as agent for the assignee, entered into an agreement of sale providing for the payment of the balance of the purchase price in cash and delivery of a deed and possession of the property at the time of settlement. The provisions in the agreement relating to the time for settlement read as follows:

"Balance of purchase price in cash, or as hereinafter provided at final settlement which shall take place on or before thirty days from the date hereof or from date of confirmation if such be necessary."

On April 9, 1959, an involuntary petition in bankruptcy was filed against Philadelphia Penn Worsted Company ("bankrupt"), premised on its December 12, 1958 assignment for the benefit of creditors. G. A. Wilderman was appointed Receiver. At the time of filing of the bankruptcy petition the parties to the agreement of sale had not fixed a date for settlement.

On April 17, 1959 the appellants gave written notice of settlement to take place on April 27, 1959 and the Receiver petitioned the District Court for leave to consummate the sale and gave written notice to creditors and parties in interest that hearing would be held on his petition at 10 A.M. April 27, 1959.

At the April 27th hearing one Benjamin R. Schmerling appeared and made an offer to the District Court of $30,500 for the property. The appellants thereupon asserted that the public sale was valid and could not be disturbed. The District Court ruled that the Receiver was not bound by the prior public sale and stated that it would entertain the highest bid and that unless appellants raised their offer beyond that made by Schmerling that it would direct sale of the property to him. The hearing was then adjourned to April 28th. At that time, on hearing, appellants, reserving their right to appeal the District Court's ruling rejecting their $25,000 contract, increased their bid, under protest, to $31,000. In doing so they suggested they be permitted to deposit $6,000 in the registry of the court pending ultimate determination, on appeal, of their rights. Schmerling countered with a higher offer of $32,600 but it was rejected because of qualifications with respect to costs and expenses of maintaining the property pending appellate determination of the issue. The District Court accepted appellants' bid of $31,000 and entered an Order directing a sale and conveyance of the property to them upon payment to the Receiver of $25,000 and the deposit of $6,000 in the court's registry in accordance with appellants' suggestion as above stated. The property was subsequently conveyed to appellants in accordance with the District Court's Order. Appellants then appealed to this Court from rejection of its March 31st public sale contract. Schmerling also filed an appeal but later withdrew it.

Appellants here contend as follows:

(1) The property was not a part of the bankrupt's estate since it had been sold on March 31st prior to the filing of the bankruptcy petition on April 9th and the sale at public auction has "the same force and effect as if it had been sold by the Sheriff of Philadelphia" inasmuch as prior to the assignee's agreement with the mortgagee to sell the property at public auction the mortgagee had instituted foreclosure proceedings.

(2) Sales at public auction are binding upon the bankruptcy court under the doctrine of In re Stanley Engineering Corporation, 3 Cir., 1947, 164 F.2d 316, certiorari denied 332 U.S. 847, 68 S. Ct. 351, 92 L. Ed. 417, sub nom. Root v. Galman.

(3) Under Pennsylvania law the agreement of sale between the public auctioneer as agent of the assignee and appellants is not an executory contract and accordingly was not subject to rejection under the provisions of Section 70, sub. b of the Bankruptcy Act,*fn1 relating to the rejection or assumption of executory contracts entered into prior to bankruptcy.

The bankruptcy trustee, in reply, urges that the appellants' contentions are based upon erroneous ...

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