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GENERAL HOUSES, INC. v. FLOETE

September 19, 1958

GENERAL HOUSES, INC., a corporation, Plaintiff,
v.
Franklin G. FLOETE, as Administrator of General Services, Marloch Manufacturing Corporation, a corporation, The Greenport Basin & Construction Company, a corporation, and Elizabeth W. Tulloch and Charles M. Ross, as Executors and Trustees of the Estate of Marshall E. Tulloch, Deceased, Defendants



The opinion of the court was delivered by: BYERS

The plaintiff's claims for relief pursuant to which judgment is sought in the sum of $ 6,200,000 with interest at five per cent from August 16, 1947, are alleged to be based upon two separate contracts, one with Reconstruction Finance Corporation (R.F.C.) dated February 7, 1947, and the other with Marloch Manufacturing Corporation (Marloch) dated March 14, 1947.

Judgment in the same amount is sought against Marloch; obviously it is by way of alternative relief, since the subject-matter is the same in both causes, namely 2,000 prefabricated houses which were contract for production by plaintiff according to the first contract. The distinction between these two claims for relief is necessary to an understanding of this litigation.

 The case has been explained in a general way in General Houses, Inc., v. Marloch, 2 Cir., 239 F.2d 510, 511, but inaccurately -- as will be pointed out -- in respect to so much of the opinion as states: 'When the R.F.C. refused either to provide forms for tendering the houses, or to accept the houses when tendered informally, General Houses sued the R.F.C. in the federal court in Chicago.'

 The respects in which the foregoing statement is contradicted by the evidence, will be indicated below.

 Having in mind the different sources of the plaintiff's asserted causes, a word should be said concerning the parties defendant: Floete, the first named, stands in the place of the R.F.C.

 Marloch was a wholly owned subsidiary of Greenport Basin & Construction Company (Greenport). That company was not a party to either contract, and can be disregarded for all practical purposes.

 Elizabeth W. Tulloch and Charles M. Ross, as executors and trustees, were substituted in place of Marshall .e. Tulloch, deceased, who died on November 12, 1954. He had been the president and directing head of Marloch, and was originally named as a defendant in his personal capacity.

 In the so-called Count Three of the complaint it was alleged that R.F.C., Marloch, Greenport and Tulloch entered into a conspiracy 'to induce and cause Marloch to breach' its contract (the second one involved) in certain alleged respects, which are enumerated at length, to the damage of plaintiff as asserted, in the sum of $ 6,200, 000.

 Paragraph 35 under this count reads in part,

 'Neither Marloch, nor Greenport, nor Marshall E. Tulloch are made parties defendant under Count Three of this complaint.'

 However, as stated, they are named as alleged conspirators.

 Count Four alleges in effect that Marloch induced and caused R.F.C. to breach its contract with plaintiff (being the first contract above referred to) whereby plaintiff is said to have been damaged to the extent of $ 6,200,000 for which judgment is asked against Marloch alone.

 Paragraph 37 reads in part: 'The sole defendant under Count Four * * * is Marloch. Neither R.F.C., nor Greenport, nor Marshall E. Tulloch are made parties defendant under Count Four of this Complaint.'

 Count Five alleges that R.F.C., Marloch, Greenport and Tulloch, illegally 'jointly induced * * * R.F.C. to breach and not to perform * * *' the first contract. All four are made defendants in this count, and again judgment is sought in the sum of $ 6,200,000 which is said to include exemplary damages.

 Count Six alleges the making of the second contract, and the existence of an actual controversy between plaintiff, R.F.C. and Marloch as to whether that contract 'is effective or whether all rights and obligations thereunder have terminated.'

 That plaintiff is entitled to an appropriate declaratory judgment in respect thereof.

 Concerning the last count, reference to the prior decision (239 F.2d 510, 513) is necessary. That was an appeal from an order of this court signed by Judge Bruchhausen on May 31, 1956, granting final judgment in favor of Marloch. That decision was reversed for reasons stated in the majority opinion; after holding that the order was appealable as to the first five counts, the opinion says,

 'The sixth count for a declaratory judgment is clearly not appealable at this time for Marloch's * * * assignee status makes it an indispensable party in determining the legal effect of the assignment. * * * Therefore, we think there was no proper basis for the district judge's certificate as to the sixth count and the appeal as to that must be dismissed. We assume that the district judge will take action regarding the sixth count in a manner consistent with our decision.'

 As this was read by me at the outset of the trial, the hasty conclusion was reached that since the appeal was dismissed as to the sixth count, so much of the ruling under review was not affected, i.e. the dismissal was to stand. It seemed obvious that the opinion thus finally disposed of that particular count, because otherwise as to that also, the order in question would have been reversed, if deemed erroneous.

 Upon the assumption that this a priori reasoning was faulty, the sixth count will be adjudicated as though it had not been dismissed, leaving to a reviewing court the decision as to whether in view of the procedural complexity thus revealed, there is still extant a justiciable issue concerning this aspect of the complaint.

 In order to reduce the controversy to its lowest terms, attention is now directed to Courts Three, Four and Five.

 At the close of the plaintiff's case, motions were made on the part of the R.F.C., Marloch and Tulloch, to dismiss for failure of proof, and on the merits. Decision was reserved, but as to Counts 3 to 5 inclusive it was indicated by the court that there was a failure of proof, i.e., testimony to support them. The court then interrogated counsel for the plaintiff on this subject:

 'The Court: You have been familiar with the testimony, and I am asking you what testimony there is.

 'Mr. Bokat: I can't point to any specific testimony at this point, your Honor.

 'The Court: And your answer is the same as to the fourth and fifth counts in the complaint?

 'Mr. Bokat: Yes, sir.'

 The foregoing is not conclusive on the plaintiff of course, and is merely cited to indicate that at the time the court and plaintiff's counsel were of substantially the same mind.

 A careful review of the testimony and the documentary proof serves to confirm the opinion held at the trial.

 The plaintiff's only witness was one Thomas H. Fisher, who described himself as an Illinois attorney. He said he had been familiar with the affairs of the plaintiff corporation as its general counsel, since prior to the date of the first contract. He had never been an officer or director, auditor or other official of the company. He said that the latter went out of business around the end of 1947 because of the unfortunate developments attending the subject-matter of this litigation. It did not formally dissolve.

 He said that he knew nothing of the present whereabouts of the officers who conducted the corporate affairs, namely:

 Frank M. Roberts, President,

 J. W. Schurardt, Vice-President in charge of Sales,

 Edgar R. Boone, Vice-President,

 Fred'k W. Smith, Treasurer,

 Philip Will, Jr., Secretary,

 Goldie Carbaugh, Assistant Secretary, and

 William M. Aiken, Assistant Secretary (a Washington attorney), now deceased.

 He said that he was authorized to institute suit against the R.F.C. in the federal court in Chicago on August 29, 1947, by reason of the matters herein asserted. That suit was dismissed (D.C., 81 F.Supp. 202) for failure to make Marloch a defendant.

 That he was authorized by the officers and directors to bring this suit which was started nearly eight years ago (August 1950), nearly three years after the corporation became defunct. He did not produce (pursuant to the court's request) any copy of a corporate resolution by directors or stockholders, to that effect.

 He was on the witness stand for the better part of three days and his testimony was largely argumentative, discursive and frequently evasive. *fn1"

 Since much of his recital was hearsay, and remote at that, it presented a paucity of factual substance upon which to base a decision. In the language of a distinguished essayist, he believed in the 'efficacy of expostulation.' Indeed, in lieu of evidence his sole contribution to the record was just that -- expostulation.

 Most of the probative material before the court is found in the defendants' case.

 The testimony in its entirety yields the following

 Finding 1:

 Counts Three, Four and Five have not been sustained by any evidence whatever, and for that reason should be dismissed on the merits.

 Turning now to the cause as asserted against the R.F.C. (now Floete) it should be remembered by way of introduction that the Veterans' Emergency Housing Act of 1946, 50 U.S.C.A.Appendix 1821 et seq., was enacted to relieve a housing shortage which was thought to fall most heavily upon former servicemen of World War II.

 The office of Housing Expediter was created by statute to function in that behalf through the issuance of orders and regulations which were intended to influence and guide the activities of other governmental agencies, among them the R.F.C.

 That body was authorized to make contracts with manufacturers of prefabricated houses which would guarantee to them that if they could not sell their product, the Government would in effect become the purchaser of their unsold houses, thus assuming the commercial risk which would otherwise rest upon the producers themselves.

 It was such a contract that was entered into between the plaintiff and R.F.C., being the first contract in suit.

 Omitting details for the present, the short of the plaintiff's case is that while it contracted to produce and sell 2,000 of such units, it actually sold but one, because the selling effort came to naught, and that it should be paid the contract price for the entire 2,000 namely $ 6,200,000.

 It will appear that the plaintiff produced no houses whatever, but farmed out its performance to Marloch, and because the latter in effect terminated its contract with plaintiff for failure to receive orders from it, the second contract under which Marloch undertook to produce the entire 2,000 houses, should be deemed to have been broken, to the plaintiff's asserted damages to the tune of $ 6,200,000.

 The first contract as stated, is dated February 7, 1947, and constitutes Exhibit A annexed to the complaint. It is too long for recital here, and it will suffice to refer only to the provisions directly involved:

 The plaintiff is described as the Contractor and undertakes to produce (i.e. manufacture or assemble) by December 31, 1947, 2,000 prefabricated houses according to plans, specifications and production schedule incorporated by reference; the limit of allowable cost was $ 2,413 per house.

 Article A.

 1. This sets forth in detail provisions concerning the production and marketing of prefabricated houses, according to the plans, etc.

 2. Marketing: This involves an approved plan of distribution, and that

 'The Contractor shall * * * exercise its best efforts to sell the prefabricated housing units produced hereunder to purchasers (having satisfactory credit ratings in cases of credit sales) at the Contractor's standard delivery prices (which the Contractor shall at all times maintain but may revise from time to time), and shall without undue delay accept orders from purchasers and shall deliver the units to such purchasers promptly after production thereof.'

 The importance of the foregoing will appear.

 Article B. is 'Purchase by R.F.C.'

 This is the basis of plaintiff's claim against R.F.C. (i.e. Floete), which constitutes 'Count One' of the complaint.

 It covers 12 typed pages, legal cap, and the presently material portions concern:

 1. Units covered by Guarantee.

 (a) Those completed by December 31, 1947. Exceptions not material here.

 (b) If Contractor has completed production as per contract, except where failure to complete is due to causes not here involved; in that case, partially completed houses may be tendered.

 2. 'Time of Tender.

 (a) Completed units shall not be tendered to R.F.C. earlier than 30 days after the date of completion of production thereof unless earlier tender shall be approved by R.F.C., or later than 120 days after the date of production thereof.'

 3. 'Number of Units.

 'The maximum number of units eligible for tender pursuant to paragraph 1 of this Article, which R.F.C. shall be obligated to purchase at the time of tender, shall be computed as follows:

 '(a) With respect to completed units, the maximum number for each type of unit specified in Exhibit A (Drawings, Specifications and Production Schedule) shall be the number by which the number of completed units of such type which the Contractor has on hand at the close of the day preceding the date of tender exceeds the number of units of such type for which the Contractor has accepted and unfilled purchase orders on hand at the close of the day preceding the date of tender.'

 (b) has to do with partially completed units eligible for tender under 1 (b) above, not here material.

 (c) deals with a possible reduction in the number of completed units as specified in (a) under a variety of circumstances not here involved.

 4. Condition of Units.

 They must conform to specifications, and be in first class condition; further: '* * * at the time of tender to R.F.C. the Contractor shall so warrant in writing in addition to such further warranties as the Contractor customarily makes to purchasers * * *.'

 5. 'Tender.

 'Tender shall be made by mailing to R.F.C., 811 Vermont Avenue, Washington 25, D.C., by registered mail, a notice of tender in form required by R.F.C. together with such documents of title as R.F.C. may require and the warranties to R.F.C. mentioned in paragraph 4 of this Article. The date of mailing such notice and documents to R.F.C. shall be deemed the date of tender for the purposes of this Article.'

 6. 'R.F.C. Purchase Price.

 'The purchase price which R.F.C. shall be obligated to pay for each completed or partially completed unit of any type purchased by R.F.C. hereunder shall be the cost of the unit determined in accordance with the cost and accounting principles specified in Article K; provided, however, that such R.F.C. purchase price shall in no event exceed a maximum amount which,

 '(a) in the case of a completed unit, shall be the lesser of the following: (i) 90 per cent of the Contractor's standard f.o.b. plant delivery price in effect on the date of tender with respect to sale of a unit of such type to a purchaser of the class to which the Contractor's lowest delivery price is applicable, or ...


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