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Reconstruction Finance Corp. v. Martin Dennis Co.

decided.: March 27, 1952.

RECONSTRUCTION FINANCE CORP.
v.
MARTIN DENNIS CO.



Author: Mclaughlin

Before BIGGS, Chief Judge, and McLAUGHLIN and HASTIE, Circuit Judges.

McLAUGHLIN, Circuit Judge.

Reconstruction Finance Corporation (RFC), as the statutory successor of Defense Plant Corporation, recovered a judgment for rent against The Martin Dennis Company from which the latter appeals.

In August 1944, appellant was producing sodium bichromate at its Kearny, New Jersey plant. At that time it entered into an agreement with Defense Plant Corporation (Plancor) whereby it was to construct additional facilities with Defense Plant supplying the funds. The real estate involved, a portion of appellant's Kearny property, was leased by it to Defense Plant which was to have title to the buildings erected and to the property, various machinery, etc., acquired. Defense Plant in turn leased the new facilities, including an option to purchase, to appellant. The rental was fixed at $15.98 for each short ton of sodium bichromate manufactured or furnished by appellant in whole or in part at its Kearny plant. The lease provided "* * * that the date of commencement of rental shall be the date of installation, as determined by RFC, of the Machinery to be provided hereunder or, in any event, not later than the sixtieth (60th) day from the date of commencement of operation of any of the Machinery to be provided hereunder." It was subject to termination by the parties on ten days notice in the event substantial use of the facilities by The Martin Dennis Company to furnish sodium bichromate for the war effort was no longer required.

By the latter part of August 1945 the new facilities were approximately eighty per cent completed. During that month the war with Japan came to an end, in the sense that actual hostilities ceased. Because of this, on August 28th, appellee ordered all engineering and construction work on the plant stopped immediately. Thereafter the War Production Board advised appellee that the Dennis plant was no longer required to produce materials in short supply because of military or civilian demands and recommended that appellee make appropriate disposition of the plant. Appellant was promptly and properly notified and instructed accordingly. On September 12, 1945 appellant requested appellee to complete the plant and lease it to appellant on a long term basis. Walter L. Pope, an attorney in the Defense Plant Section of appellee, replied to that letter saying he had discussed the matter with R. G. Rhett, Chief of appellee's Office of Surplus Property. He enclosed a suggested form of proposal dictated by Rhett. This called for a five year lease at eight per cent a year of the reproduction cost of land, buildings and other improvements as determined by appellee and twelve per cent of the installed cost to appellee of machinery and equipment. The rent was to be paid monthly in advance. No date for the commencement of the rent was stated. If appellee accepted it was to complete the project, the over-all cost including funds previously authorized not to exceed $1,046,589.

On September 18, 1945 appellant sent Pope a signed duplicate of an offer to lease as suggested by Rhett saying in its forwarding letter, "In this connection and in confirmation of our telephone conversation, it is our understanding that no rental shall become due until the project is completed and turned over to us in operating condition." Pope answered this on September 20, 1945, saying, "This is in reply to your letter of September 18, in which you state that it is your understanding that no rental shall become due until the project is completed and turned over to you in operating condition. That is likewise my understanding." On September 21, 1945 the Board of Directors of appellee approved Rhett's recommendation of tentative approval of the proposal for a peacetime lease and on November 21, 1945 gave final approval of such proposal advising appellant to prepare and submit a lease agreement to Washington for approval. Rhett wrote appellant on December 20, 1945 advising of ainal approval of the form of the lease by appellee's directors and stating that the lease could not be executed until the facilities had been completed and the property declared surplus. He said that both parties were making every effort to complete the facilities as soon as possible and stated in conclusion, "In the meantime you have our permission to occupy the premises and continue operation and utilization thereof pending the execution of the Lease Agreement."

Appellee was succeeded by War Assets Administration on March 25, 1946 as the Government's agency for the disposal of surplus property. On November 16, 1946 the original Defense Plant Lease was terminated. On December 9, 1946 the Dennis facilities were declared surplus. Work was finally stopped by appellant on the project on March 5, 1947 at which time all but ten dollars of the authorized expenditure of $1,046,589 had been committed to the Dennis plant. Appellant, according to its answer to an interrogatory of appellee, did not complete the plant because "1. The operation proved not to be economical and experiment shows that the process could not be made economically sound without expensive modifications and 2. Lack of funds." Around March 14, 1947 appellant's attorney advised the War Assets Administration that appellant wished to be relieved of its obligations under the peacetime lease saying that Mr. Dennis was sick and that the company was in a very precarious financial situation. War Assets assented to this on June 9, 1947. On September 11, 1947 appellant offered to purchase the facilities for $204,000 from War Assets Administration and did so on February 16, 1948 for that sum.

Appellant had started production of sodium bichromate using the Defense Plant facilities on August 30, 1945. Under the original lease, that fixed November 1, 1945 as the beginning of the rental period with the first rent payment due the latter part of January 1946. From August 30, 1945 to the termination of the lease on November 16, 1946, the volume of production is not disputed. The amount of rent based on that volume is $56,495.64. The amount of interest calculated from the dates on which the rental became due is $16,346.32.This makes a total sum of $72,841.96. The figures were agreed to be accurate by trial counsel for appellant. The trial court directed a verdict in favor of appellee for that sum on the first count of its complaint.

For the period from December 9, 1946, the date on which the facilities were declared surplus, to June 9, 1947 when War Assets Administration agreed to rescind its peacetime lease authorization the district judge held that there was a binding agreement of lease between the parties and that declaration of the property as surplus eliminated the sole obstacle to its fulfillment. To cover rent for this period the court directed a verdict in favor of appellee in the sum of $44,616.50 which was admittedly the correct amount under the formula of the agreement.

This left two periods unaccounted for: the first, from the date of the expiration of the original lease, November 16, 1946, to the date when the property was declared surplus, December 9, 1946, and the second from June 9, 1947, the date War Assets relieved appellant of its obligation under the letter agreement, to January 26, 1948, the date War Assets accepted accountability from the appellee for the facilities.As to these the court held that for those facilities which were actually used appellee was entitled to reasonable rental value to be determined by the jury after hearing expert testimony on the subject. The jury awarded $45,058.49 which included interest at six per cent from January 26, 1948 to the date of the verdict, March 2, 1951. Less a conceded credit due appellant, the total judgment in favor of the appellee amounted to $156,549.03.

Appellant first of all assumes that there was an agreement whereby rent was waived pending completion of the plant facilities. This method of approach seemingly derives from the fact that the trial judge in granting appellee's motion for direction of verdict on the first count of the complaint which concerned the original lease said: "* * * that no employee of any government agency may act outside the scope of his authority and affect and assume functions which are reserved statutorily for the agency itself, and persons dealing with such an agency are not entitled to rely on these ultra vires acts. And with that situation obtaining it would appear that reliance by the defendant on any such representations would not effect an estoppel."

In its assertion of a waiver agreement, appellant relies chiefly on its letter to Pope of September 18, 1945, Pope's reply of September 20th and Rhett's letter of December 20, 1945. Contrary to its assertion that the only dispute between the parties is regarding authorization of the waiver agreement, the existence of any such agreement in flatly contradicted by appellee. That will be discussed shortly but meanwhile, assuming for the moment that the correspondence does point to Pope or Rhett or both consenting to appellant operating the plant until its final completion without rent obligation, and further assuming that appellee's Board of Directors possessed the power to delegate its authority to deal with the lease, there is no indication that the Board ever authorized or approved waiver of the rent or that there was any consideration for the alleged waiver. The complete record of the Board of Directors' actions in connection with the Dennis plant since August 1945 was in evidence and it is barren of indication that the corporation through its directors or otherwise ever attempted to permit Pope or Rhett to contravene the written contract of lease with its various amendatory agreements. As said in Federal Crop Insurance Corporation v. Merrill, 332 U.S. 380, 384, 68 S. Ct. 1, 3, 92 L. Ed. 10, which appellant admits presents the law of the case: "Whatever the form in which the Government functions, anyone entering into an arrangement with the Government takes the risk of having accurately ascertained that he who purports to act for the Government stays within the bounds of his authority." Dennis points to the titles of the positions Pope and Rhett held and the work they did for RFC in an effort to show implied authority on the part of one or both those persons to void essentials in the elaborate Plancor lease to the serious prejudice of RFC. There is no reasonable inference which can be drawn from the record justifying that contention. In Pine River Logging & Improvement Co. v. United States, 186 U.S. 279, 291, 22 S. Ct. 920, 925, 46 L. Ed. 1164, though they had no authority so to do, Government agents permitted the extending of timber contracts both as to the quantity and quality of timber to be cut. The court held that the conduct of the agents did not estop the Government from asserting its right to recover for timber cut beyond the quantity and quality specified in the contracts and that "* * * the defendants cannot take refuge under the consent or acquiescence of the government agent in the disregard of these contracts." To the same effect see Utah Power & Light Co. v. United States, 243 U.S. 389, 409, 37 S. Ct. 387, 61 L. Ed. 791; Farm Security Administration v. Herren, 8 Cir., 165 F.2d 554, certiorari denied 333 U.S. 875, 68 S. Ct. 904, 92 L. Ed. 1151.

Pope, who was a witness, testified that he had no authority from any source whatever to waive rent under an existing Plancor (Defense Plant Corporation) lease and that the only one he knew having that authority was appellee's Board of Directors. He said that he never waived any rent under the lease before us or told anybody that the rent was being waived under that lease or otherwise. He explained that his letter of September 20, 1945 had replied to that of appellant's president, Marlatt, which in turn had referred to the proposal for the peacetime lease attached to Marlatt's letter. Marlatt clearly testified that he could not say that he believed that Pope had authority to waive the rent and despite appellant's contention that Marlatt's evidence is ambiguous regarding his reference to the peacetime lease by his phrase in his letter "in this connection * * *", Marlatt did so state. If his language was really ambiguous as is now urged, his letter to Pope could not have been less so, and that adds strength to Pope's interpretation of it.

Rhett was also a witness. He stated that his "* * * duties were confined to the negotiation for the sale or lease of properties that were surplus or in process of becoming surplus and to submit definite recommendations to the Board of Directors as to any action hereon." And that, he said, was the limit of his authority. As to his letter of December 20, 1945 he testified that it was ...


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