Glade Mountain Corp. v. Reconstruction Finance Corp.

• Decision Date: 18 April 1952
• Docket Number: Civ. No. 274-51.
• Citation: 104 F. Supp. 695
• Parties: GLADE MOUNTAIN CORP. v. RECONSTRUCTION FINANCE CORP.
• Court: U.S. District Court — District of New Jersey

104 F. Supp. 695

GLADE MOUNTAIN CORP. v. RECONSTRUCTION FINANCE CORP.

Civ. No. 274-51.

United States District Court D. New Jersey.

April 18, 1952.

Frederick F. Richardson, New Brunswick, N. J., for plaintiff.

Charles R. L. Hemmersley, Hoboken, N. J., for defendant.

HARTSHORNE, District Judge.

Defendant earlier moved to dismiss the complaint in the above entitled cause on presentation of matters outside the pleadings and for summary judgment, F.R.C.P. 12(b) (6), 56, 28 U.S.C. On this motion plaintiff attempted to rely on a point not pleaded and the Court, of its own motion, but on terms, as justice required, authorized such amendment to the pleadings F.R.C.P. 15(a). The first question is whether plaintiff has complied with such terms, the second is on the motion for summary judgment.

The complaint is filed for recovery under the Contract Settlement Act of 1944, chapter 358, 78th Congress, 2nd Sess., 58 Stat. 649, 41 U.S.C.A. § 101 et seq., and is based on two contracts, both entered into during World War II, for the delivery of manganese, a critical war material, between plaintiff and the Metals Reserve Company, hereafter known as M R C, to which defendant Reconstruction Finance Corporation is the successor. The first contract, hereinafter referred to as Contract 1, was entered into in July, 1943, and is for the delivery of low grade ore, the last delivery date being December 31, 1944. The second contract, hereinafter referred to as Contract 2, was entered into between the same parties in January, 1945, for the delivery of high grade ore.

The Act provides that "it is the policy of the Government * * * to provide war contractors with speedy and fair compensation for the termination of any war contract * * *." Section 106(a). The Act further provides that "the terms `termination', `terminate', and `terminated' refer to the termination or cancelation, in whole or in part, of work under a prime contract for the convenience or at the option of the Government (except for default of the prime contractor) * * *." Sec. 103(d). The typical situation to which these provisions of the Act refer are those where the exigencies of war, or perchance of reconversion, require the Government, for the benefit of the public, to terminate an existing contract, in violation of the terms under which such contract would otherwise continue. While such governmental action is justified from the public standpoint, it is, of course, unjustified, so far as the other party to the contract is concerned. Such a situation would thus give rise normally to troublesome litigation, and to a vast extent, in the light of the tremendous number of war contracts which existed during World War II, were it not for the speedy remedy provided therefor by the Contract Settlement Act.

On the other hand, where the Government, under exactly the same circumstances, terminates the contract for the public welfare, due to the exigencies of war, and in that aspect "at its convenience" or "option", but there has been a "default of the prime contractor", the Act, by its very words, excepts this situation from its provisions. Nor, where such default exists, does the Act differentiate between a situation where such default by the contractor is regretted by the Government, and a situation such as plaintiff here claims exists, where the Government welcomes such default, as giving the Government the right to terminate the contract for its own convenience as well as for the benefit of the public. This, indeed, is quite in accord with the ordinary principle that compensation is not payable to one party to the contract by the other, who has completely performed the contract according to its terms.

The final situation is where the contract has expired by its own terms, without being violated by either party. Here it is simply at an end, there having been no termination or cancellation at all. In short, the sole basis for recovery by a contractor under the Contract Settlement Act is where the Government, by its termination or cancellation, has itself violated the contract. The entire tenor of the statute itself is to the same effect, as is the historical purpose of the Act. Senate Committee on Military Affairs Report, Senate Report No. 836, May 2, 1944, U. S. Code Congressional Service, 78th Cong., 2nd Sess. 1944, p. 1161.¹

Since, in Contract 2, the complaint admits that such contract ended by its own terms without any performance whatever by plaintiff thereunder, this Court held that Contract 2 was not terminated "for the convenience or at the option of the Government", i. e., was not violated by the Government because of public exigency, but simply expired of its own terms. Hence, summary judgment for defendant as to the cause of action on Contract 2 was ordered. As to Contract 1, the Court, in its previous opinion, called attention to the undisputed fact "that the date for the last delivery of ore by plaintiff under the contract passed without such delivery", and that therefore for that reason and because of the letter of the M R C to plaintiff of December 23, 1944, in regard to that contract, Contract 1 either came to an end by its own terms, or was cancelled by the Government, not in violation of the contract, but "pursuant to its terms." Thus Contract 1 also would not appear to have been terminated "for the convenience or at the option of the Government".

However, in its previous opinion, filed herein January 8, 1952, the Court called attention to the argument of plaintiff that the delivery expiration date in Contract 1 had been waived by the M R C, defendant's predecessor, but that this argument was unsupported by the complaint. Hence, the Court suggested "that it would seem unjust to foreclose it (plaintiff) from formally alleging and substantiating such fact issue". Accordingly, an order was entered January 28, 1952, not only entering judgment in favor of defendant on Contract 2, but providing as to Contract 1, that plaintiff should have the opportunity to amend its pleadings, but only if it should first show by "competent testimony and proof" that such belated amendment had substantial merit. The present proceeding thus is not merely an application by defendant for summary judgment, under which is applicable the rule laid down in Hart & Co. v. Recordgraph Corp., 3 Cir., 1948, 169 F.2d 580, Reynolds Metals Co. v. Metals Disintegrating Co., 3 Cir., 1949, 176 F.2d 90, but is first an application by plaintiff to obtain "leave of Court" to amend its pleading, as justice may require, by presenting competent proof of the merits of such amendment.

The parties have accordingly submitted proof in the above regard. In substance, plaintiff's...