Reconstruction Finance Corp. v. United Distill. P. Corp.

• Decision Date: 25 July 1952
• Docket Number: Civ. A. No. 2338.
• Citation: 113 F. Supp. 468
• Court: U.S. District Court — District of Connecticut
• Parties: RECONSTRUCTION FINANCE CORP. v. UNITED DISTILLERS PRODUCTS CORP.

113 F. Supp. 468

RECONSTRUCTION FINANCE CORP. v. UNITED DISTILLERS PRODUCTS CORP.

Civ. A. No. 2338.

United States District Court D. Connecticut.

April 30, 1952.

On the Merits July 25, 1952.

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Harry Bergson, Boston, Mass., for plaintiff.

Samuel Rosenthal, Hartford, Conn., for defendant.

HINCKS, Chief Judge.

This is an action for breach of contract brought by the Reconstruction Finance Corp. (hereinafter called "R.F.C."), as successor in interest of the Defense Supplies Corporation (hereinafter called "D.S.C."), the buyer under the contracts in question, against the United Distillers Products Corp. (hereinafter called "Distillers"), a New Jersey corporation. The matter is now before the court on plaintiff's motion for summary judgment.

D.S.C. was an agency of the government which entered into the contracts now in suit as a means to acquire for wartime purposes ethyl alcohol, then a strategic material, from the defendant which had a plant for its production in Amston, Connecticut. The contracts were four in number, all in writing. The first, dated December 28, 1942, was in effect during the first quarter of 1943; the second, dated March 31, 1943, controlled the relations of the parties during the balance of 1943; a third was substituted on January 1, 1944 and this remained in effect until July 1, 1944 when the final contract was executed. Although the third and fourth contracts are entitled variously "Amendment" and "Amendatory Agreement", they appear each to embody all the provisions which are relevant to the decision of this case so they may most conveniently be treated as separate contracts.

The first contract provided that the purchase price was "not to exceed the maximum price for the Processor's alcohol * * * as determined in accordance with Office of Price Administration procedure under the O.P.A. General Maximum Price Regulations," etc. The successive contracts each contained a provision that "the purchase price shall be the maximum price for the Distiller's alcohol established or determined in accordance with the appropriate regulation of the Office of Price Administration," etc.

The appropriate Maximum Price Regulation provided that the price should be determined on the basis of a formula depending on actual costs of raw materials, direct labor, other conversion costs, plant overhead, and general administrative expense not in excess of 3¢ per gallon: plus a profit to the distiller of 4¢ per gallon above the costs thus computed. And the regulation set forth a procedure whereby the price for each quarter should be determined on the basis of actual production costs as thereafter ascertained. Each contract also contained a provision that in event of a revision by O.P.A. of defendant's ceiling price the purchase price was to be adjusted accordingly.

On October 25, 1946, O.P.A. issued a series of amendatory price orders purporting to change the ceiling prices of alcohol theretofore sold to D.S.C. by the defendant for the entire period covered by said four contracts, except for the third quarter of 1945. And on the basis of these amendatory orders of O.P.A. the plaintiff by this action seeks to recover of the defendant so much of the consideration previously paid by D.S.C. as exceeded the price determined on the basis of these amendatory orders, this excess amounting to $82,215.27.

The plaintiff's present right to recover must necessarily depend upon the proper interpretation of these contracts. The plaintiff contends that the plain meaning of the contracts is such that the purchase price should be the defendant's ceiling price as fixed by O.P.A. And the defendant contends that the contracts should be interpreted to mean that the parties shall be bound only by a purchase price which is actually in accordance with the formula of the O.P.A. Regulations, referred to above. The defendant's contention as to the construction of the contract is basic to its further claim that the prices as set in the O.P.A. orders of October 25, 1946 are without binding effect because not in conformity with the stipulated formula. The dispute as to the proper interpretation of the contracts lies at the heart of the controversy and to this problem I now turn.

Are the contracts here involved ambiguous? As to this, the interpretation for which the defendant contends certainly is not plainly required from the face of the writings. And I incline to the view that neither is the plaintiff's interpretation so required. If as to this latter conclusion there be any doubt, the benefit thereof for all purposes of this memorandum I give to the defendant and treat the writings as ambiguous. Cf. Boro Hall Corp. v. General Motors Corp., 2 Cir., 1947, 164 F.2d 770. I thus take the case as a proper one for application of the doctrine that "when the parties to a contract of doubtful meaning, guided by self-interest, enforce it for a long time by a consistent and uniform course of conduct, so as to give it a practical meaning, the courts will treat it as having that meaning, even if as an original proposition they might have given it a different one." Brooklyn Public Library v. City of New York, 1929, 250 N.Y. 495, 166 N.E. 179, 181.

Did Contracts Contemplate Price-Fixing Orders Which Were Retroactive?

In support of its position as to the point of interpretation the defendant points to the undisputed fact that the O.P.A. orders of October 26, 1946, on which plaintiff now counts, as to the transactions involved were retroactive and argues that the contracts should not be so interpreted as to make the final purchase price depend upon a retroactive order. And if I understand the defendant's position aright, it argues further that, even if the price might be fixed by orders having some, "reasonable", retroactive effect, the contracts may not be so interpreted as to give price-determinative effect to the orders of October, 1946, the issuance of which was so long deferred after the final shipment under the contracts as to be "unreasonably" retroactive.

This interpretation, however, is in direct conflict with express language contained in the contracts. The price terms, and other relevant sections, of the contracts are set forth in an accompanying footnote.¹ The first and second contracts, it will be observed, expressly mention retroactive price changes. And none of the contracts expressly negatives the possibility of retroactive price changes. And all the contracts expressly set as the limiting factor the maximum price as determined under the O.P.A. regulations. All of the O.P.A. orders to Distillers were issued under Maximum Price Regulation 28, issued originally on September 15, 1941, 6 F.R. 4761; 32 C.F.R., 1941 Supp. 3265-7, Secs. 1335.150-1335.159. The defendant has quoted parts of Regulation 28 in an appendix to its first affidavit and there is no dispute as to the fact that this is the regulation which the parties had in mind in executing the various contracts. On September 17, 1942, prior to the execution of the first contract, Appendix A to Regulation 28 was amended by the addition of new subparagraphs (e), (f) and (g). 7 F.R. 7401. These subparagraphs, which are set out in part in an accompanying footnote, were intended to establish a special formula to be used in computing the ceiling price for ethyl alcohol sold to the United States. The formula embodied in these subparagraphs, as amended, is the one actually used by the O.P.A. in computing Distillers' ceiling prices on the alcohol which was sold under the contracts here. Subparagraphs (e), (f) and (g) were later amended and consolidated into new subparagraph (h) of Appendix A. 8 F.R. 2339. Subparagraph (h) was in turn modified by subsequent amendments to the Regulation, but throughout the period of price regulation the basic content of the Regulations remained the same in all important respects as in the original amendment issued on September 17, 1942.

The regulation contemplated that a distiller's ceiling price should be established initially by the distiller itself through the medium of a report of its costs to be filed with the O.P.A. for each quarter in which alcohol was sold to the United States. (It will be noted that the Regulations contemplated that the ceiling price for each manufacturer should be individually fixed in accordance with his costs). Prices so reported were "subject to disapproval at any time by the Office of Price Administration." (Emphasis supplied.) This right to disapprove prices as reported by Distillers "at any time" by O.P.A. shows clearly that the parties in entering into the contracts envisaged the possibility of retroactive changes in alcohol prices. The O.P.A. did in fact, prior to October 25, 1946, issue price orders disapproving the ceiling prices reported by Distillers for each of the quarterly periods which subsequently were covered by the later orders of October 25, 1946. The validity and effectiveness of these pre-October 25, 1946 orders is not contested by the defendant. All of them were issued at times which, in relation to the period of the sales to which they were intended to apply, necessarily made the orders operate retroactively as to some or all of the sales during each of these periods.

Hence, it appears that, not only at the times that the various contracts were executed, did the O.P.A. regulations contemplate retroactive price-fixing but also that the defendant's prices were in fact subjected to retroactive changes under each of these contracts even before the issuance of the orders now in question. By providing in each contract that prices should thus be determined, therefore, the parties necessarily must have intended that such retroactive determinations should be effective.

The defendant points out also that the third and fourth contracts provided that they were to be subject to the...