Hadden v. United States

• Decision Date: 05 April 1955
• Docket Number: No. 50115,49831.,49884,48867,413-52,50115
• Parties: John A. HADDEN, Trustee for Manufacturers Trading Corporation, v. The UNITED STATES. UNION INDUSTRIES, Inc., and John A. Hadden, Trustee for Manufacturers Trading Corporation, v. The UNITED STATES.
• Court: U.S. Claims Court

130 F. Supp. 610

131 Ct. Cl. 326

John A. HADDEN, Trustee for Manufacturers Trading Corporation, v. The UNITED STATES.

UNION INDUSTRIES, Inc., and John A. Hadden, Trustee for Manufacturers Trading Corporation, v. The UNITED STATES.

Nos. 50115, 49884, 48867, 413-52, 49831.

United States Court of Claims.

April 5, 1955.

COPYRIGHT MATERIAL OMITTED

Leward C. Wykoff, Washington, D. C., for plaintiffs. Arter, Hadden, Wykoff & Van Duzer, Peter Reed, Richard C. Weiss and Samuel K. Walzer, Cleveland, Ohio, were on the briefs.

William A. Stern, II, Washington, D. C., with whom was Warren E. Burger, Asst. Atty. Gen., for defendant.

Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and LARAMORE, Judges.

JONES, Chief Judge.

Seven separate cases have been consolidated in this proceeding. Two have been dismissed by stipulation. Four of the remaining cases involve several claims by John A. Hadden as trustee for Manufacturers Trading Corporation and the Government's counterclaims thereto. We shall take them up separately, discussing the fifth case at the end of the opinion. The facts are naturally complicated and the procedure difficult.

First, some of the claims have already been decided or are conceded. In Case No. 49884 (Contract NOrd-7426, Item No. 2) defendant has conceded that the plaintiff is entitled to recover $63,000. Hadden v. United States, 105 F.Supp. 1010, 123 Ct.Cl. 246. Furthermore, in Case No. 413-52 the defendant concedes its indebtedness to plaintiff for overassessment of taxes in the amount of $231,276.61 with interest as provided by law. In Case No. 48867 (Contract UNR-TPs-2786) the Government also concedes an unpaid obligation of $248,375.

There remains the claim in Case No. 50115 where, under Contract NOrd-7426, Item No. 1, there is due Manufacturers Trading Corporation $113,417 if its contention is correct, or $8,879.83 if defendant's contention prevails. Contract NOrd-7426 originally was made between the Bureau of Ordnance of the Navy Department and Canonsburg Steel & Iron Works Division of Union Mining Company, subsequently known as Union Industries, Inc. (hereinafter sometimes referred to as Union). Union's contract called for the manufacture of 400,000 five-inch rocket bodies at a total price of $5,020,000. Under a financing agreement with the now bankrupt Manufacturers Trading Corporation (herein sometimes described as MTC), Union assigned all moneys due or to become due under this contract to MTC. The defendant does not dispute that the assignment was made in accordance with the applicable law and is valid.

The contract was subsequently terminated by the Government and the issue is whether it was terminated for default under section 23 of the contract or for the convenience of the Government under section 24. The parties agree that if the latter is the case more compensation is due the plaintiff than under the former hypothesis.

The parties entered the contract about November 1, 1944, and by March of the following year the Navy advised the contractor of its failure to perform satisfactorily. The Navy issued a further reminder to this effect and revised the production schedule on June 8. The Navy then decided to cancel the contract for default. In a conference on June 27 with the contracting company which had recently come under new management, the Navy and the company agreed, in order to save face for the new management, to cancel the contract for the convenience of the Government upon the express understanding that the contractor would only be permitted to submit in its termination claim (1) tooling costs and (2) its inventory of existing special material.

In a letter of July 2, 1945, one of the managers of the Canonsburg Division of Union, referring to the conference of the 27th of June, made the formal proposal that all work on the contract cease (except for work in progress), that termination be on the basis of paying the contractor for all tooling costs and special materials and that an advance be made to the contractor on this basis. The Navy acknowledged this communication and replied that termination for the convenience of the Government would be instituted upon receipt of approval by Union's directors of the proposed procedure. Shortly thereafter the Navy was advised by a representative of the Canonsburg Division that Union's board of directors had approved the agreement of the 27th.

There followed a series of communications and instructions which indicate that the Government was proceeding as though the termination had been for the convenience of the Government. Finally, on February 14, 1947, the Navy withdrew its previous notice of termination for the convenience of the Government, saying the conditions agreed upon at the June 27 conference had been inadvertently omitted therefrom, and issued a notice of termination for default. The dispute as to what type of termination had been made came before the Armed Services Board of Contract Appeals which held in favor of the Government; it found that the agreement had been made at the conference to restrict compensation to the formula applicable to terminations for default, that the letter of July 2 was reasonably understood by the Navy as confirming that agreement, and that the Navy's reply was made with that understanding. There being no allegation that these findings were arbitrary, capricious, or not supported by substantial evidence, they are binding on us to the extent that they involve disputed facts.

The contentions made, however, primarily turn on questions of law. The plaintiff relies on the terms of section 23 of the contract which reads in part:

"Termination of work hereunder shall be affected by delivery to the Contractor of a Default Notice of Termination specifying that termination is for default or failure, the extent to which performance under this contract shall be terminated, and the date upon which such termination shall become effective."

There is no doubt that Union never received such a notice until 1947. On the other hand, the fact that no such notice was delivered can hardly be raised by the party at whose request the Government refrained from issuing such a notice.

Sections 23 and 24 provide varying bases for compensating contractors whose contracts had been terminated. The agreement of June 27 restricted the contractor's compensation to what is allowed for termination for default under section 23. In the later stages of the correspondence Government instructions and termination proposals made by the plaintiff were made on the much more generous grounds allowed under section 24. They included compensation for work in progress, administrative expenses, profits, etc. This was in accord with the part officials of the Government had agreed to play. Nevertheless, the defendant never paid more than it was required to pay under section 23; in fact, if the defendant's contention is sustained, the Government still owes the contractor over $8,000. Thus the Government did not act inconsistently with the agreement of June 27 that the termination would ostensibly be for the convenience of the Government even though the compensation would be limited to the terms of section 23.

The plaintiff also argues that the communications between Union and defendant subsequent to Union's letter of July 2 amounted to an offer for termination for the convenience of the Government on the part of the Government and its acceptance by Union, thus constituting a contract. The plaintiff then relies on the parol evidence rule to exclude any evidence of the prior oral agreement of the 27th of June. The plaintiff's position is not tenable. In the first place, termination by the Government in this case is not properly subject to contract. Termination here is a unilateral act by the Government which it may undertake at any time for its own convenience, or, if the contractor defaults, for his default. The Government is only required to properly signify its intention, to properly signal the jural act which it wishes to take. This it did on the 27th of June. None of the Navy's subsequent written communications was inconsistent with that first jural act, nor did the Government attempt to withdraw its original act, as was the case in Line Construction Co. v. United States, 109 Ct.Cl. 154. The parol evidence rule would apply if the act had been executed by signing a specific and complete document, but it was executed here by an oral communication.

For these reasons we hold that the contract was terminated for default or pursuant to an understanding that compensation would be limited to the liabilities that would be incurred in a termination by default. There is no allegation that this termination was not deserved, nor that the facts are not as the Board of Contract Appeals has found them. The defendant, therefore, owes the plaintiff only $8,879.83 on this contract.

Originally the defendant's counterclaims against MTC were largely restricted to derivative liabilities based on Government claims against Union. These claims against Union totaled $2,517,872.69, consisting of $1,085.15 balance under renegotiation of a Government contract, $140,553 for excess profits, $507,706.91 for materials and supplies furnished by the Government under a Government contract, and $1,868,527.63 for income and excess profits taxes remaining unpaid. The plaintiff does not dispute the fact that Union is liable in these amounts, but insists that they cannot properly be set off against the claims of MTC.¹

In the beginning the defendant claimed that MTC was Union's successor in interest and thereby became liable for all of Union's debts. Defendant has now abandoned this position. The defendant presses its counterclaims based on the fact that MTC claims by virtue of assignments from Union. All the contracts except the one involved in Case No. 48867 contain clauses which prohibit the Government from asserting claims against the assignees of the contracts where...