United States v. Skinner & Eddy Corporation

• Decision Date: 31 July 1928
• Docket Number: No. 9124.,9124.
• Court: U.S. District Court — Western District of Washington
• Parties: UNITED STATES v. SKINNER & EDDY CORPORATION.

28 F.2d 373 (1928)

UNITED STATES v. SKINNER & EDDY CORPORATION.

No. 9124.

District Court, W. D. Washington, N. D.

July, 1928.

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Oliver P. M. Brown, Sp. Asst. Atty. Gen., Clarence L. Reames, Special Counsel, and Ben L. Moore, Special Counsel, both of Seattle, Wash., for the United States.

Louis Titus, of Washington, D. C., and George Donworth, L. B. Stedman, C. H. Winders, and Wm. Edris, all of Seattle, Wash., for defendant.

NETERER, District Judge (after stating the facts as above).

The defendant moved the court that the report signed as auditor be considered and treated as if signed as master in chancery, the two reports to be considered by the court as signed in both capacities of special master and auditor; and, second, that the evidence reported and filed with the report be considered by the court in the same way as any evidence taken and reported by a master in chancery is usually considered by the court. The court at the time denied the first part of the motion, and as to the second part said the report will be admitted and received and treated as prima facie evidence of the findings and conclusions, subject to the exceptions that had been filed, and, if necessary to pass upon the exceptions, the court will consider the testimony taken before the auditor and master and returned to the court, and, if during the consideration of this case the court concludes that right cannot be administered, except on the equity side of the court, the case will be transferred to equity for final disposition. After hearing the testimony and the argument, I feel that the case cannot be rightly disposed of without the application of equitable principles, and it will be transferred to equity.

Right to Sue.

The defendant at the outset challenged the right of the plaintiff to maintain this action. The challenge was denied. United States v. Skinner & Eddy Corporation (D. C.) 5 F.(2d) 708. The question is again seriously raised. This court in United States v. Clallam County, 283 F. 645, where the county sought to tax railroad property held by the United States Spruce Production Corporation, organized under the laws of the state of Washington, under powers conferred by Congress to expedite the production of airplanes for war purposes, all the stock being owned by the United States, held that the issue presented had no relation to rule of conduct and responsibility therefor, and that it was not sought to subject the Spruce Production Corporation for responsibility for overt or omitted acts, but involved ownership by the United States of property reserved for public use. This was certified to the Supreme Court of the United States on appeal to the Circuit Court of Appeals, and this court was affirmed. Clallam Co. v. U. S., 263 U. S. 341, 44 S. Ct. 121, 68 L. Ed. 328.

The issue here does not involve tortious conduct of the corporate officers of the instrumentality, but relates to property reserved and owned by the United States. The contracts entered into between the Fleet Corporation and the defendant disclosed the principal for whom the Fleet Corporation was acting. See, also, Act June 15, 1917, 40 Stat. 182. The Fleet Corporation was merely "an instrumentality of the Government." United States ex rel. Skinner-Eddy v. McCarl, 275 U. S. 1, 48 S. Ct. 12, 72 L. Ed. ___. Right was reserved in the contracts for the cancellation of the contracts by the United States. The contracts were canceled by direction of the President. The United States is the party benefited or injured by the judgment or decree (Stinchcomb v. Patteson, 66 Okl. 80, 67 P. 619), the real party in interest, and as such is the proper party to prosecute this action. West & Wheeler v. Longtin, 118 Wash. 575, 204 P. 183. The plaintiff clearly has the right to control this action and receive the fruits of the litigation. Gross v. Heckert, 120 Wis. 314, 97 N. W. 954. See, also, Taylor v. Hurst, 186 Ky. 71, 216 S. W. 95; Greene v. McAuley, 70 Kan. 601, 79 P. 133, 68 L. R. A. 308. When payment is made to the plaintiff it is full protection to defendant on further liability. Los Robles v. Stoneman, 146 Cal. 203, 79 P. 880.¹

The principal may sue on the contract of his agent. Stinson v. Sachs, 8 Wash. 391, 36 P. 287; First Nat'l Assur. Soc. v. Farquhar, 75 Wash. 667, 135 P. 619; Albany, etc., Iron Co. v. Lundberg, 121 U. S. 451, 7 S. Ct. 958, 30 L. Ed. 982. The contract of the agent is the contract of the principal, and the principal may sue thereon.² The defendant is not deprived of establishing any credit on striking a balance on just demands. United States v. Eckford, 73 U. S. (6 Wall.) 484, 18 L. Ed. 920; Schaumburg v. United States, 103 U. S. 667, 26 L. Ed. 599.

Lease or Contract of Sale.

During the early part of 1918 the Seattle Construction & Dry Dock Company was the owner of a shipyard in the city of Seattle immediately adjacent to the defendant's yard, and was constructing 10 ships for the Fleet Corporation, 4 of them being on the ways. The Fleet Corporation was dissatisfied with the work being done, and opened negotiations with the owners of the yard and with the defendant. The Director General, executive head of the Fleet Corporation, said of the defendant: "They were very reluctant to undertake the additional responsibility, but finally, through persuasion and an offer of additional contract of ships, induced them to take over the added responsibility," and the Fleet Corporation purchased the yard from the Seattle Construction and Dry Dock Company on the 10th day of May, and on the following day closed with the defendant to take it over. This proposal suggested a lease to the defendant upon a rental of $125,000 per ship for the first 30 ships, "and at the time of the completion of the thirtieth ship we will sell to you and you will buy all of the property," the rent paid to apply on the purchase price of the yard. The defendant accepted it. The proposal (Exhibit S) also recited: "The Fleet Corporation, representing the United States, agrees to award to petitioner a contract for 15 ships and additional contract for 35 ships, and also agrees to sell to petitioner the plant, equipment, and machinery, purchased by the United States," at the cost of the yard to the Fleet Corporation, and that the defendant should finish the 4 hulls on the ways and receive therefor a proportion of the contract price which the Seattle Construction & Dry Dock Company had agreed to accept, and required the defendant to purchase five-twelfths of all of the old stock and material at cost price, and not do any work on private account, and maintain a complete shipbuilding plant adequate for ship construction, and be ousted of possession of the entire enterprise if the work was not proceeding to the satisfaction of the Fleet Corporation.

The defendant went into possession of the yard and immediately commenced its reconstruction. Mr. Piez, the Director General and executive head of the Fleet Corporation, testifying, said he knew, at the time that the contract with Skinner-Eddy was made, that they would have to expend a large sum of money in rebuilding the yard — knew that the yard was ineffective, badly arranged, and that the purpose of the change and arrangement with the defendant was to insure greater speed.

The plaintiff contends: That the relation between the defendant and the plaintiff was that of lessor and lessee. That by the terms of the lease the full sum of $3,750,000 as rental accrued, while the defendant contends that the proposal, the acceptance, the lease and the contract for ships must be considered together. That the lease was based on three things: (a) The contract for the ships; (b) the use of the yard; and (c) fee-simple title to the yard, clear of incumbrance. That the contract for the ships being canceled, the defendant ousted from the possession over its protest, and the property sold to another, the consideration for the lease failed, and that the defendant be only chargeable for the reasonable rental.

After the acceptance of the proposal of May 11, conversations continued with relation to the transfer and after the execution of the lease, on August 23, the Fleet Corporation asked the defendant if it desired a more formal contract covering the purchase of the yard, and the defendant on August 30 stated that it did as soon as the exact purchase price of the yard was ascertained. Both parties, thereafter, on conference, considered Exhibit S complete as a contract of sale and had no intention of abandoning any of its provisions.

Where the meaning of an agreement is obscure or doubtful, or susceptible of two constructions, the probable, rational, and equitable construction must be employed in preference to an unfair and improbable contract. Pressed Steel Car Co. v. Eastern Ry. Co. (C. C. A.) 121 F. 609; American Bonding Co. v. Pueblo Co. (C. C. A.) 150 F. 17, 9 L. R. A. (N. S.) 557; A. Leschen v. Mayflower (C. C. A.) 173 F. 855, 35 L. R. A. (N. S.) 1; Barnsdall Oil Co. v. Leahy (C. C. A.) 195 F. 731; W. J. Foye Lumber Co. v. Penn. Ry. Co. (C. C. A.) 10 F.(2d) 437; Id., 271 U. S. 681, 46 S. Ct. 632, 70 L. Ed. 1149. From the disclosures it must be concluded that the probable, equitable, and rational conclusion as to the memoranda of May 11, and contract for ships and lease relating to the same subject-matter, must be construed together as one contract. Barrett Co. v. United States, 273 U. S. 227, at page 234, 47 S. Ct. 409, 71 L. Ed. 621. The payments made, while called "rental," were in fact payments to be applied on the purchase price, and $3,750,000 was to be paid as and when 30 vessels were delivered; when the contracts were canceled, the defendant had no use for the yard and was deprived of the ability to pay, the method and time for which was provided in the contract and in the lease, the intent of the parties, no doubt, being that, while the sale was complete, the title...