Universal Transistor Products Corp. v. United States

• Decision Date: 27 February 1963
• Docket Number: No. 61-C-654.,61-C-654.
• Citation: 214 F. Supp. 486
• Parties: UNIVERSAL TRANSISTOR PRODUCTS CORP., Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of New York

214 F. Supp. 486

UNIVERSAL TRANSISTOR PRODUCTS CORP., Plaintiff, v. UNITED STATES of America, Defendant.

No. 61-C-654.

United States District Court E. D. New York.

February 27, 1963.

Joseph Sachter, New York City, for plaintiff. Lewis, MacDonald & Varian, New York City, of counsel by Robert D. Witte, New York City.

Joseph P. Hoey, U. S. Atty., Eastern District of New York for United States of America. Martin Wright, Asst. U. S. Atty., of counsel.

BARTELS, District Judge.

Plaintiff sues the United States under the Tucker Act (28 U.S.C.A. § 1346(a) (2)) for illegally terminating a contract or, in the alternative, for rescission of the contract. The Government counterclaims for excess costs of reprocurement following the termination and also for liquidated damages as provided in the contract.

On June 27, 1957, plaintiff entered into a contract with the Government to furnish 201 Radiac Computer-Indicators at a unit price of $128.15 and also to furnish maintenance parts and other associated items. While attempting to perform, plaintiff filed a petition for reorganization pursuant to Chapter X of the Bankruptcy Act, and on January 29, 1959, a Trustee in Reorganization was appointed. Thereafter on April 10, 1959, the Government terminated the contract and on May 1, 1959, the Trustee appealed the decision of termination to the Armed Services Board of Contract Appeals, Navy Panel (the Board) pursuant to the disputes clause in the contract. On June 24, 1959, the Contracting Officer demanded payment from the plaintiff for the excess costs of reprocurement and for the liquidated damages and on July 1, 1959, the Trustee appealed this assessment of damages to the Board.

After a hearing the Board on April 19, 1961, denied the appeal relating to the termination (ASBCA No. 5664). Thereafter a hearing was held on the question of the assessment of costs and damages claimed by the Government arising from the termination and the Board again found for the Government and denied the appeal (ASBCA No. 5791). In this latter appeal plaintiff for the first time raised the question of rescission but the Board refused to pass upon the same on the ground that this was a question of law beyond the scope of its review. Both parties now move for a summary judgment on their respective claims.

If plaintiff is successful in rescinding the contract, it is obvious that the question of termination and damages disappears. Therefore, the issue of rescission must be first resolved before further proceedings are entertained.

At the outset, the Court is confronted with the problem of determining whether it has jurisdiction in a Tucker Act suit to determine the rescission issue. Plaintiff has coupled its claim for rescission to its claim for damages arising out of illegal termination of the contract. Over the latter issue the Court has clear jurisdiction, but this issue cannot be determined without first resolving the rescission claim. The fact that these two claims are inconsistent and a preliminary determination in favor of the contract is necessary to justify plaintiff's suit, should be no bar to the Court's jurisdiction. In all breach of contract suits under the Tucker Act, the issue of the existence and validity of a contract is necessarily involved. Other than the fact that in a rescission suit the Court must first determine the existence of the contract, the Court finds no reason, on jurisdictional grounds, to differentiate such a suit from the ordinary breach of contract action under the Tucker Act. While the rescission claim is certainly not a part of the plaintiff's claim for damages, the determination of this claim adversely to the plaintiff is a condition precedent to its claim under the Tucker Act. It is in the nature of incidental equitable relief.¹ Hence, in the present posture of this case, the Court has power to and must determine de novo this question of rescission.

In essence, plaintiff claims that it made a mistake in submitting a ruinously low bid for the manufacture of the units and that the Government had notice of the mistake but failed to give plaintiff similar notice which now places plaintiff in a position to rescind. See Restatement, Contracts, § 503, illustration 1 (1932). To sustain this position plaintiff must demonstrate that a mistake was made and that the Government had notice. Apparently there is no claim that the Government was directly notified of any mistake. Plaintiff, however, relies upon the following: that plaintiff's bid was $128.15 for each unit while the competing bids for the same unit were $260, $318 and $1,010, respectively; that the successful bids for the same units in prior Government contracts were $245 and $277.07, respectively²; and that prior to termination plaintiff had already spent $58,000 on a contract totalling $25,000³.

The Government admits the bid was low but denies that it was aware of any mistake. It also points...