Appeal from the United States District Court for the Southern District of Illinois. No. S-BK-72-1459, Harlington Wood, Jr., Judge.
Cummings and Bauer, Circuit Judges, and Jameson, Senior District Judge.*fn*
Both the defendant, Archer- Daniels-Midland Co., Inc. (ADM), and the bankrupt, Commodity Merchants, Inc. (CMI), were active participants in the business of trading commodities futures. This case involves ADM's claim against the bankruptcy estate of CMI and a counterclaim by its trustee against ADM arising from the cancellation of various commodities contracts between the parties. Prior to CMI's bankruptcy, ADM and CMI engaged in commodities transactions with each other, resulting in CMI's building an account balance with ADM of $45,352.80.
In early December 1972, it became apparent to both concerns that CMI was in serious financial trouble and would not be able to fulfill its obligations under five contracts then outstanding between the two parties. In four of those contracts, CMI was the purchaser and in one, No. 10233, it was the seller of the commodity. On December 12, 1972, Albert Bailey, then vice president and secretary of CMI, conferred by telephone with ADM's representative John Simpson and told him that CMI was experiencing financial difficulties. Bailey told Simpson to withhold further shipments until CMI might resolve its financial difficulties. On the same date, the First National Bank of Springfield returned unpaid to ADM five of CMI's checks totaling $13,945.25. On that day ADM also learned that the commodities under contract No. 10233 were stopped in transit for CMI's failure to pay for them.
During subsequent telephone conferences, Bailey told Simpson that CMI had not yet secured additional financing to resolve its financial difficulties. On December 18, 1972, Bailey asked the credit manager of ADM for permission to allow CMI to pay its open account over a period of time. However, on December 19, 1972, ADM's credit manager telegraphed CMI that the four contracts were cancelled pursuant to a contractual provision allowing ADM to terminate if CMI's financial position became unsatisfactory.*fn1 CMI was adjudicated bankrupt ten days later. The commodities required by contract No. 10233 were never delivered.
In the bankruptcy proceeding, ADM filed a claim for $54,908.94,*fn2 consisting of CMI's account balance which the trustee admits is a legitimate claim (Br. 8) and a $9,556.14 loss which ADM s uffered when CMI failed to perform under contract No. 10233. In response, the trustee filed a petition for a rule to show cause why the bankruptcy court should not enter judgment against ADM, claiming that the contracts between ADM and CMI were executory and asserting that pursuant to Section 70b of the Bankruptcy Act (11 U.S.C. § 110(b)),*fn3 he had notified ADM that he elected to go forward with the contracts and therefore claimed $125,816.14. By amendment of May 13, 1974, the trustee credited ADM with said $54,908.94 and made other adjustments reducing his prior request to a $19,945.79 judgment from ADM.*fn4
On October 4, 1974, the bankruptcy judge entered findings of fact and conclusions of law allowing ADM's unsecured claim of $54,908.94 and denying CMI's claim for a judgment of $19,945.79 against ADM. In his conclusions of law, the bankruptcy judge decided that ADM had in good faith terminated its contracts pursuant to the legally enforcible termination clauses therein.*fn5 Since the contracts were no longer executory at the time of CMI's bankruptcy, the bankruptcy trustee's purported assumption of the contracts pursuant to Section 70b of the Bankruptcy Act (note 3, supra) was a nullity. Upon appeal by the bankruptcy trustee, the district court accepted the findings of fact of the bankruptcy judge and "found no evidence of a transfer of property of the debtor on account of antecedent debt." Therefore, the district court affirmed the bankruptcy judge's order of October 4, 1974. We likewise affirm.
The bankruptcy trustee no longer seriously argues that the contracts were executory when he attempted to assume them under Section 70b of the Act. The purchase contract (No. 10233) had already been breached by CMI. Paragraph 12 of the other contracts permitting ADM to terminate upon CMI's unsatisfactory financial condition is a garden variety contractual clause and consistent with Article 2-609 of the Uniform Commercial Code dealing with the right to adequate assurance of performance. Ill. Rev. Stats. (1975) ch. 26, § 2-609. The validity of such a clause is well settled,*fn6 and CMI concedes that its financial condition permitted ADM to terminate the contracts on December 19, 1972, ten days before the filing of the bankruptcy petition. Accordingly, Section 70b of the Bankruptcy Act did not permit the trustee to assume these contracts.
After losing the Section 70b point before the bankruptcy judge, the trustee shifted ground by amending his petition to show reliance on Sections 1(30), 60 and 67(d)(2)(a) of the Bankruptcy Act (note 4 supra). This belated tactic is also of no avail.
While the broad definition of "transfer" in the Bankruptcy Act*fn7 would include transfers of CMI's property by debtor or creditor, when ADM cancelled the four contracts, there was no transfer of CMI's property. The essence of a transfer is the relinquishment of a valuable property right. In re Columbus Malleable, Inc., 459 F.2d 118, 120 (6th Cir. 1972); In re Forney, 299 F.2d 503, 506 (7th Cir. 1962). At the time the four contracts were cancelled CMI acknowledged that it was not entitled to the commodities covered by the contracts, for its Mr. Bailey had told ADM to withhold further shipments. Quite understandably, the contracts contemplated that CMI could not obtain ADM's commodities if in an unsatisfactory financial situation, as it was. ADM did not reacquire any rights from CMI upon cancellation, for ADM had reserved the option of terminating the contracts if CMI's financial condition deteriorated.
The trustee argues, however, that the cancellation deprived CMI of its property right to resell the contracts. If the contracts had been freely transferable, perhaps we could agree. However, paragraph 4 of each of them forbad CMI to assign its rights under the contract without ADM's written consent and such consent was neither requested nor given.*fn8 Furthermore, purchasers would hardly be obtainable in view of the red flag termination provisions of paragraph 12 (note 1 supra), and such contracts are rarely assigned (Supp. App. 49).
We also disagree with the trustee's claim that the four contracts had a market value on the date of cancellation. He argues that on that date similar commodity futures contracts had an ascertainable market value and that the contracts here therefore had the same value. It is uncontested that before cancellation on December 19 CMI could have written and sold a separate contract whereby it agreed to sell the commodities it was to purchase from ADM. The trustee's argument is premised on equating this sale of a separate contract with an assignment of the contracts between ADM and CMI. Because these transactions differ materially with regard to the obligations they impose upon ADM, his argument must fail. The sale of the separate contract would be valid without regard to CMI's interests in the underlying goods and hence ADM would have no interest in the transaction. However, the assignment of the contracts at issue here would require ADM to accept a new obligor. Because it reserved the right to refuse to accept a thirdparty's promise in lieu of CMI's, the assignment is not the functional equivalent of the sale of the separate contract, and the market would not treat them as such. Due to their limitations on alienability, the contracts did not have a market value (In re Portland Newspaper Publishing Co., 271 F. Supp. 395, 398 (D. Ore. 1967), affirmed, ...