United States v. Paddock

• Decision Date: 09 December 1949
• Docket Number: No. 12738.,12738.
• Citation: 178 F.2d 394
• Parties: UNITED STATES v. PADDOCK.
• Court: U.S. Court of Appeals — Fifth Circuit

178 F.2d 394 (1949)

UNITED STATES v. PADDOCK.

No. 12738.

United States Court of Appeals Fifth Circuit.

December 9, 1949.

A. W. Christian, Asst. U. S. Atty., Fort Worth, Texas, O. Morris Harrell, Asst. U. S. Atty., Fort Worth, Texas, Frank B. Potter, U. S. Atty., Fort Worth, Texas, for appellant.

Richard U. Simon, Fort Worth, Texas, Frank B. Appleman, Fort Worth, Texas, for appellee.

Before HOLMES, McCORD and WALLER, Circuit Judges.

HOLMES, Circuit Judge.

This appeal is from a judgment of the court below that confirmed, on petition for review, an order of the referee in bankruptcy, which disallowed two claims of the United States, as follows: (a) One for the recovery of $383,527.47, hereinafter referred to as the contingent-fee claim, being the amount paid by the bankrupt, Globe Aircraft Corporation, to Production Engineering Co., Inc., as commissions for the procurement of government contracts during World War II; (b) the other for $200,000, being the amount of excessive profits, alleged to have been realized by Globe Aircraft Corporation on war contracts during the year 1945, hereinafter referred to as the renegotiation claim. Of these two claims in the order above mentioned:

(a) We agree with appellant that the payment of the contingent commissions by the Globe Aircraft Corporation to Production Engineering Company, Inc., constituted a breach of the warranty embodied in each of the contracts between the Government and said corporation. This warranty was required by Executive Order No. 9001, 50 U.S.C.A.Appendix, § 611 note; it was promulgated by the President of the United States on December 27, 1941, pursuant to the powers conferred on him by the Constitution and laws of the United States. Said order is as follows:

"Every contract entered into pursuant to this order shall contain a warranty by the contractor in substantially the following terms:

"The contractor warrants that he has not employed any person to solicit or secure this contract upon any agreement for a commission, percentage, brokerage, or contingent fee. Breach of this warranty shall give the Government the right to annul the contract, or, in its discretion, to deduct from the contract price or consideration the amount of such commission, percentage, brokerage, or contingent fees. This warranty shall not apply to commissions payable by contractors upon contracts or sales secured or made through bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business."

All of the bankrupt's contracts and subcontracts with the Government contained said warranty, which, it will be noted, contains an exception providing that it shall not apply to commissions payable by contractors upon contracts or sales secured or made through bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business. The trustee in bankruptcy contends that Production Engineering Company comes within this exception, and the Government contends that it does not. The required specifications are that Production Engineering Company must be bona fide, must be established, must be a commercial or selling agency, and must be maintained by the contractor for the purpose of securing business. The evidence shows that said Engineering Company maintained its own office and paid all its expenses in connection with the maintenance thereof. The only substantial compensation received by it in connection with its contract with Globe was the contingent fees received from Globe for the procurement of contracts and subcontracts with the United States. One does not come within the exception to the warranty who merely receives a contribution to the support of its agency in the form of a contingent fee.

The primary decision on this item turns upon the meaning of the word maintained; for present purposes, it is the key word in the exception. If the word is given its usual and ordinary acceptation, and interpreted in the spirit of the order, the exceptive class of procurement agencies is limited to those maintained by the contractor in good faith for the purpose of securing business. To maintain here (according to the dictionary) means to keep in a particular state or condition; to sustain; to keep possession of; to hold and defend; not to surrender or relinquish; to bear the expense of; to support; to keep up; to supply with what is needed. Consequently, a procurement agency, employed merely on contingent fees to secure war contracts, did not meet the test prescribed by the exceptive clause in what was known in army circles, as the standard warranty against contingent fees.

The Production Engineering Company was not such an established agency. It was organized in 1939, and started representative work in 1940; it is said to have been initially established for the purpose of procuring government contracts.¹ Whether this is true or not, no substantial amount of the sums paid it by Globe Aircraft Corporation was for services other than that of procuring contracts with the Government on contingent fees. Consequently, it was not a bona fide selling agency maintained by the contractor for the purpose of securing business. The right of action here asserted against the bankrupt was not created by Executive Order No. 9001, and is not predicated upon a violation thereof. That order was not violated. This claim is wholly contractual; it arose from a breach of the warranty contained in the contracts signed by the United States and Globe Aircraft Corporation. When any such contract was breached, the right arose to liquidated damages in the amount of the contingent fee named in the agreement between the contractor and the person employed to secure the government contract. Two permissive self-help remedies were also given, but judicial remedies were not excluded. One seeking redress for breach of a valid contract will not be denied access to the courts except where the contracting parties have clearly evinced their intention to do so. The general rule is: Ubi jus, ibi remedium; and this means a remedy in the courts.

A provision of the warranty gives the Government the right to annul the contract or, in its discretion, to deduct from the contract price the amount of such commission, brokerage, or contingent fee. The appellee contends that this provision creates exclusive remedies; but it does not do so by express language, nor, we think, by necessary implication. It is a generally recognized principle of law that remedies provided in a contract for breach of warranty are permissive only, and not exclusive unless so provided in the contract either expressly or by necessary implication: See 55 Corpus Juris, pages 810, 811, and 37 Tex.Jur., p. 511. The Government in this claim is merely asserting its right under the covenant to deduct from the consideration the amount of the contingent fees wrongfully paid in violation of the covenant; it is not asserting a penalty claim within the meaning of Section 57, sub. j of the Bankruptcy Act, 11 U.S.C.A. § 93, sub. j. This clause of the warranty merely provides a method of computing the liquidated damages to the Government resulting from the breach.

Executive Order No. 9001 was a declaration of public policy, and its purpose was to preserve the contractual integrity of the United States. Bradley v. American Radiator & Standard Sanitary Corp., 2 Cir., 159 F.2d 39, 41. Before the issuance of that order, a contract procured by the methods therein condemned could not be enforced by the agent against the contractor. Providence Tool Co. v. Norris, 69 U.S. 45, 17 L.Ed. 868, 870; Oscanyan v. Winchester Repeating Arms Co., 103 U.S. 261, 26 L.Ed. 539; Hazelton v. Sheckles, 202 U.S. 71, 26 S.Ct. 567, 50 L.Ed. 939, 6 Ann.Cas. 217; Crocker v. United States, 240 U.S. 74, 36 S.Ct. 245, 60 L.Ed. 533.

Turning to the question of voluntary payments, see United States v. City of Philadelphia, 171, 50 F.Supp. 170, wherein the court said: "It has also been repeatedly held that the defense of voluntary payment is not good as against the United States." See also United States v. Wurts, 303 U.S. 414, 58 S.Ct. 637, 638, 82 L.Ed. 932, wherein the court said: "The Government by appropriate action can recover funds which its agents have wrongfully, erroneously, or illegally paid. `No statute is necessary to authorize the United States to sue in such a case. The right to sue is independent of statute,' United States v. Bank of Metropolis, 15 Pet. 377, 401, 10 L.Ed. 774. Section 610 of the 1928 Act 26 U.S.C.A. § 3746, relied upon as barring recovery of this erroneous and unwarranted tax refund, does not grant the Government a new right, but is a limitation of the Government's long-established right to sue for money wrongfully or erroneously paid from the public treasury. Ordinarily, recovery of Government funds, paid by mistake to one having no just right to keep the funds, is not barred by the passage of time. * * The Government's right to recover funds, from a person who received them by mistake and without right, is not barred unless Congress has `clearly manifested its intention' to raise a statutory barrier."

In Heidt v. United States, 5 Cir., 56 F. 2d 559, 560, certiorari denied, 287 U.S. 601, 53 S.Ct. 8, 77 L.Ed. 523, the Government recovered judgment for overpayments made to an active officer of the Army. This court said: "One contention is that by long continuance of the payments with knowledge of the facts the United States is estopped to recover. A voluntary payment made by an individual under no mistake of fact is ordinarily not recoverable, because he may do what he wills with his own money. But the rule is quite otherwise in payments of public money made by public officers. Norfolk County v. Cook, 211 Mass. 390, 97 N.E. 778, Ann.Cas.1913B, 650 and note. They have no right of disposal of the money, but must act according to law,...