Black Industries, Inc. v. Bush

FORMAN, Chief Judge. The plaintiff, Black Industries, Inc., a citizen of Ohio, is suing the defendant, George F. Bush, a citizen of New Jersey doing business as G. F. Bush Associates, for breach of a contract. The defendant has moved for a summary judgment in its favor.

The complaint alleges as a first cause of action that the plaintiff, a manufacturer of drills, machine parts and components thereof and a purchaser of subcontract work from other suppliers, obtained an invitation to bid upon certain contracts with The Hoover Company upon three parts known as anvils, holder primers and plunger supports. The plaintiff assumed the task of obtaining a supplier of these parts and on about March 22, 1951, the defendant reached an agreement with the plaintiff to manufacture 1,300,000 anvils at a price of $ 4.40 per thousand; 750,000 holder primers at $ 11.50 per thousand and 700,000 plunger supports at a price of $ 12 per thousand, all of which were to be made in accordance with government specifications and in conformity with certain drawings. The plaintiff agreed to 'service the contract', be responsible for all dealings with The Hoover Company and would be entitled to the difference between the defendant's quotations and the ultimate price. The Hoover Company agreed to purchase the parts from the plaintiff at a rate of $ 8.10 per thousand anvils, $ 16 per thousand holder primers and $ 21.20 per thousand plunger supports.

The complaint further alleges that after undertaking performance of this contract, the defendant failed to complete the order, which caused a loss of $ 14,625 to the plaintiff, for which sum, together with interest, the plaintiff demands judgment.

As a second cause of action the plaintiff alleges that pursuant to understandings between the parties, the defendant agreed to manufacture 525,000 plunger supports at a price of $ 13.20 per thousand, and 969,500 anvils at a price of $ 4.40 per thousand. Relying upon this the plaintiff accepted a purchase order from Standby Products Company, quoting a price of $ 23.20 per thousand for plunger supports and $ 8.10 per thousand for anvils. The defendant failed to comply with this undertaking, causing a loss to the plaintiff of the sum of $ 4,460.95 and interest thereon, for which the plaintiff seeks judgment. . .

The defendant now moves for a summary judgment in his favor asserting that the agreements alleged in both the first and second causes of action are void as being against public policy. The alleged contract covering production for The Hoover Company was set forth in a 'memorial document' consisting of a letter dated April 13, 1951, signed by Mr. Franklin G. Gepfert of Black Industries and signed and agreed to by the defendant. [The letter reads in pertinent part]. . . “I have spent considerable time, effort and money in developing the contract and bringing it to the point of issuance of a purchase order by The Hoover Co. . . The purchase order, when received, will run directly to G. F. Bush and Associates of Princeton, New Jersey, but will be forwarded to me and then remitted to your company.

'It is understood that I am to service the contract and follow through with certain duties which I have undertaken in connection therewith.

'Your company is to manufacture the order and ship the material directly to The Hoover Co. in accordance with the specifications which are part of the purchase order. Your company, however, is not to bill The Hoover Co. All shipping invoices, documents of transfer and title are to be forwarded to me, and I shall have the exclusive right to bill, upon G. F. Bush and Associates' billing forms and receive payment therefor in your behalf. . .

'It is understood that I shall have the right to receive payment, cash checks made payable to your company under The Hoover Co. contract; and to remit to you the amounts payable to G. F. Bush and Associates under the agreement contained in the communications of March 22nd and April 1st. I shall be entitled to retain the balance as compensation due me. . .

The defendant points out that the products to be purchased by The Hoover Company and by the Standby Products Company were to be used by those companies to fulfill government contracts in aid of the defense effort. He notes that on The Hoover Company contract, Black Industries for its relatively minor role, was to receive a profit of 84.09% on the anvils, 39.13% on the holder primers and 68.33% on the plunger supports. On the Standby Products Company contract, the plaintiff was to receive a profit of 84% on the anvils and 75.75% on the plunger supports. The defendant asserts that provisions in the contract as to the manner of ordering the goods, shipping them, billing and paying for them were designed to conceal these large profits from both The Hoover Company and the defendant.

In support of its contention that these alleged contracts are void as against public policy the defendant maintains that the profits accruing to Black Industries would have been passed on to the government and the public in the form of increased prices. . .

In order to declare a contract, entered by the parties freely and without evidence of fraud, void as against public policy, the contract must be invalid on the basis of the recognized legal principles. Public policy is to be ascertained by reference to the laws and legal precedents and not from general considerations of supposed public interests. Vidal v. Mayor (Aldermen and Citizens) of Philadelphia, 2 How. 127, 197, 198, 11 L.Ed. 205. As the term 'public policy' is vague, there must be found definite indications in the law of the sovereignty to justify the invalidation of a contract as contrary to that policy. Twin City Pipe Line Co. v. Harding Glass Co., 283 U.S. 353, 51 S.Ct. 476, 75 L.Ed. 1112; Frost & Co. v. Coeur D'Alene Mines Corp., 312 U.S. 38, 61 S.Ct. 414, 85 L.Ed. 500. It is a matter of public importance that good faith contracts of the United States should not be lightly invalidated. Only dominant public policy would justify such action. In the absence of a plain indication of that policy through long governmental practice or statutory enactments, or of violations of obvious ethical or moral standards, this Court should not assume to declare contracts of the War Department contrary to public policy. The courts must be content to await legislative action.' Muschany v. United States, 1945, 324 U.S. 49, 66-67, 65 S.Ct. 442, 451, 89 L.Ed. 744. . .

[The court acknowledges that in order for a government contract to be “void as against public policy” it must “fall into [one of] three general categories.”]

The contract in the present case, however, does not fall in any of these categories. It is not a contract by the defendant to pay the plaintiff for inducing a public official to act in a certain manner; it is not a contract to do an illegal act; and it is not a contract which contemplates collusive bidding on a public contract. It should be noted that the first and third categories of cases, upon which the defendant relies most heavily, involve agreements which directly impinge upon government activities. In the case at hand, the contract's only effect on the government was that ultimately the government was to buy the product of which defendant's goods were to be a component. Neither the defendant nor the plaintiff had any dealings with the United States on account of this contract, and therefore the profit accruing to the plaintiff was not to have been earned as a result of either inducing government action or interfering with the system of competitive bidding. This contract cannot, therefore, be declared void as against public policy on the basis of the precedents cited by the defendant.

It is quite possible that the plaintiff was to have received a very high profit on the sale of the parts, either because The Hoover Company agreed to pay too high a price or because the defendant quoted too low a price. Further proof would be required to establish this as a fact. Even if it were proved that the plaintiff was to have received a far greater profit than the defendants for a much smaller contribution, the defendant would nevertheless be bound by his agreement by the familiar rule that relative values of the consideration in a contract between business men dealing at arm's length without fraud will not affect the validity of the contract. . .

The fact that the government is the ultimate purchaser of the product in which defendant's parts are used is cited by the defendant as a reason to hold that this contract is void as against public policy. To so hold would necessitate either ruling that all contracts are void if they provide for compensation for middlemen, such as Black Industries, between producer and purchaser of goods which ultimately are incorporated in products sold to the government, a result which is not supported by precedent and which would defy the realities of our economic life, or deciding in every case involving such a contract whether the compensation paid a middleman such as the plaintiff here who locates purchasers and assists the producer in other ways, is reasonable. This latter course would, in effect, impose price regulatory functions on the court. There are other and more effective methods of insuring that the government does not pay an unreasonable price for its supplies. The manufacturer selling directly to the United States must conform to procedures such as bidding designed to protect the government, and which should, in conjunction with the ordinary considerations of profits and loss, insure that prime contractors do not pay outlandish prices for the products they buy in order to fulfill a government contract. The contract may be subject to renegotiation. 50 U.S.C.A.Appendix, § 1211 et seq. I do not believe that it is the function of the court to interfere by determining the validity of a contract between ordinary business men on the basis of its beliefs as to the adequacy of the consideration. Consequently, I hold that, assuming the facts to be as stated by the defendant, the contract sued on in this case is not void as against public policy and the defendant's motion for a summary judgment will, therefore, be denied.

Let an order be submitted in accordance with this opinion.