Case Name: ATLANTIC CONTRACTING COMPANY v. THE UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1905-03-20
Citations: 40 Ct. Cl. 244
Docket Number: No. 21693
Parties: ATLANTIC CONTRACTING COMPANY v. THE UNITED STATES.
Judges: 
Reporter: United States Court of Claims Reports
Volume: 40
Pages: 244–252

Head Matter:
ATLANTIC CONTRACTING COMPANY v. THE UNITED STATES.
[No. 21693.
Decided March 20, 1905.]
On the defendants' Motion.
The defendants move for an order requiring Gaynor and Greene to appear for examination at a place within the jurisdiction of the court under Revised Statutes, § 1080. The claimant’s counsel contends tliat Gaynor and Greene not being the claimants, can not be examined under that provision of the statute. It appears that they are'substantially the only stockholders, and, consequently, the sole parties in interest.
I.Where an action is by a corporation, the officers thereof are ordinarily the proper persons to be examined by the Government under Revised Statutes, § 10S0; but where all of the stock of the company is owned by two persons, they are in fact and in •legal effect the parties claimant, and are proper persons to be examined under the statute.
II.Where a plea of fraud is interposed by the defendants, they may examine the claimants under the statute; and the examination can not be evaded by the claimants alleging that all the facts are within the knowledge of the defendant’s.
III. The recision of a contract by the Government for the alleged ■ failure of the contractor to perforin does not estop it, in an action on the contract, from setting up fraud or from examining the claimants under Revised Statutes, § 1080.
IV. It is not unreasonable to require claimants to come within the jurisdiction of the court and comply with whatever orders may be made relative to the litigation which they have instituted.
V.In such a case the court will order that a motion to examine the claimants under Revised Statutes, § 1080, be entered and that the prosecution of the case be stayed until compliance with the order.
The Reporters’ statement of the case:
The facts in this case are sufficiently set forth in the opinion of the court.
Mr. F. IF. Collins (with whom ivas Mr. Assistant Attorney-General Praclt) for the motion.
Mr. L. Laflin Kellogg opposed:
1. The court has no power to grant the examination sought, because the persons whose examination is desired are not the claimants, nor officers of the claimant, within the meaning of section 1080 of the Revised Statutes.
2. By the decisions of this court it has been expressly decided that the examination authorized by section 1080 can not be extended to any person but a claimant. (Macauley’s case, 11 C. Cls. R., 575.)
Where, however, a corporation is the claimant, the- officers of the corporation may be examined. (Atchison Railroad Company v. U. 8., 15 C. Cls. B>., 1.)
3. The persons sought to be examined in these actions are neither the claimants nor are they officers of the claimant.
The contracts upon which these actions are based were entered into by the United States with the Atlantic Contracting Company, a corporation duly organized and existing under the laws of the State of West Virginia, and the corporation is the claimant in these actions.
The contracts having been made with the Atlantic Contracting Company, and the actions having been brought in ■ the name of that company, the corporation, as a legal entity, is clearly the claimant within the meaning of section 1080, and under the statute and the rulings of this court, the only persons who can be examined on behalf of the claimant are the officers of the corporation.
4. The United States has for years recognized the existence of the Atlantic Contracting Company as a legal entity by entering into the contracts with it; and, further, by service of notice upon it of the abrogation thereof. Besides, these suits are brought in the name of the Atlantic Contracting Company, and a judgment in its favor or a judgment against it would be a bar to any other proceedings growing-out of the subject-matter. This, it is held, is the real test as to the real party in interest. (Sheridan v. The Mayor, 68 N. Y., 30; City Bank of New Haven v.-Perkins, 29 N. Y., 554; Gage v. Kendall, 15 Wench, 640.)
The decisions by this court show that it has not the power to extend the application of section 1080 to any person other than the claimant of record. To do otherwise would involve the determination on an ex parte application or on a proceeding prior to the trial of the case of important rights and interests, which could best and only properly be solved on the trial itself. ‘
Indeed, in these very actions the defendant has recognized the capacity of the defendant as a corporation to maintain, this action. There is no plea by the defendant that the corporation is not a legal entity or that it is a dummy corporation. On the contrary, the defense proceeds upon the theory that it is a bona fide corporation.
5. It conclusively appears that the Government is entirely aware and in possession of all the facts and circumstances needful to sustain its plea of alleged fraud. Nor, we submit, can such examination be needful to inquire into the nature of the claimant’s claim which is based upon and grew out of written contracts on file in the public departments.
The alleged breach is evidenced by a written notice served upon the claimant by the officers of the Government. Hence the claimant’s proof is purely documentary, and such documents are wholly in the possession of the United States.
There can thus be no real reason for the examination of either of the witnesses named for the purpose of informing the defendants as to the nature of the claim and the facts upon which it is based, nor is such examination necessary in order to sustain their plea of alleged fraud.
C. The granting of an order for examination under section 1080, even in a proper cáse, is wholly discretionary, and the. power given thereby will not be exercised in the furtherance of a fishing excursion or for any ulterior purpose.
That the right to an examination b3^ the United States is not absolute, but discretionary with the court on a proper state of facts shown, has been expressly decided by this court. (Truitt v. The United States, 30 C. Cls. R., 19.)
In these actions it specifically appears that the Government must be in full possession of all the facts upon which it bases its plea of alleged fraud, and the obvious purpose of this motion is not to obtain information respecting the nature of the claim or to support the defense thereof, but to procure a stay of the trial of these actions under the provisions of section 1080. As there are no special circumstances appearing which show that the examination is either material or necessary, the object can only be to serve some ulterior purpose, to wit, staying all proceedings of the claimants.
7. Since the annulment of the contract Greene and Gaynor have been indicted in connection with the alleged fraud, and removal proceedings thereon have been instituted and carried out by the Government. The latter proceedings commencing early in the year 1900, and terminating as late-as February 11, 1902. For a period, therefore, of more than five years the Government must be held to have had full knowledge and notice of the alleged fraud in connection with the contracts sued on in this action. Yet at no time has it ''elected to rescind or terminate the contracts on the ground of fraud, but on the contrary, with the full knowledge of fraud, elected to serve the notice under the contract terminating it on the ground of the alleged failure of the contractor faithfully to prosecute and perform it.
By electing to serve the notice under the contracts and to terminate it for the reasons specified therein, the defendant must be held to have acted, not in disaffirmance of the contract, but in furtherance thereof. (Murphy v. BucJcman, 66 N. Y., 297.)
By electing to proceed in affirmance of the contract, after full knowledge of the alleged fraud in connection therewith, the defendant must be held to have waived any right to abrogate it on the ground of the alleged fraud, or to urge such fraud as a defense to its liability thereon.
The authorities are all to the effect that where a party, with full knowledge of the fraud, elects to proceed in furtherance of the alleged fraudulent contract, he thereby waives any fraud in connection therewith, and may not thereafter plead the fraud as a defense to liability thereon. (Grymes v. Sanders, 93 U. S., 55; Bement efe Sons v. Ladow, 66 Fed. Bep., 185; Alger v. Anderson, 92 Fed. Bep., 696; Ringrrtan c& Go. v. Stoddard, 85 Fed. Bep., 740.)
If, however, this court should, in its discretion, direct the examination desired, then it should be by a commissioner appointed by this court to take the testimony of the witnesses at the place of their residence, Quecbec, in the Dominion of Canada.
This practice, moreover, is in accordance with the orderly and usual practice in such cases. (Cortes Go. v. Tannhauser, 18 Fed. Bep., 667; Hollander v. Baiz, 40 Fed. Bep., 659; Biehojfsehein v. Baltzer, 10 Fed. Bep., 1.)

Opinion:
Weldon, J.,
delivered the opinion of the court:
It is stated in the motion filed herein that at the time of the alleged contracts referred to in the petition the said Gaynor and Greene were owners, respectively, of one-half each of tbe stock of said company. The evidence filed in support of the motion shows that the said parties owned all of the stock of said company except a few shares held by other parties transferred to them for the purpose of the organization of the company, and that said parties, to wit, Gaynor and Greene, are the beneficial owners of the stock of said company; that it is a corporation in law, but practically a copartnership organized for convenience; that said company has never declared a dividend in the ordinary sense of that word; that no dividend has been paid; that there is practically no persop to whom a dividend could be paid except the said Gaynor and Greene; that they always divide the profit between themselves when there is any profit. It is not pretended that any appreciable interest is in any person in the stock of said company except the parties whose testimony is sought to be taken under said section of the statute.
It is insisted upon the part of the'claimant that the relation of said parties to this proceeding is not such as to justify the court in allowing the motion; that in legal contemplation they are not the claimants, but that the claimant is the Atlantic Contracting Company.
To maintain that defense the brief of counsel for the plaintiffs cites the case of Macauley v. United States (11 C. Cls. R., 575), in which it was held in a suit against the United States by the assignee of a Treasury warrant that the assignor could not be examined under the provisions of said section. Counsel also cited the case of the Atchison, Topeka and Santa Fe R. R. v. The United States (15 C. Cls. R., 1), in which it is in substance held that the Revised-Statutes, section 1080, can not be extended to any other person than the claimant.'
The case of Macauley (supra) differs very essentially from this case; in that case -the assignor had no interest; he was not the beneficial plaintiff, and was not 'seeking the jurisdiction of the court to enforce an obligation against the defendants through the medium of a corporation, the substance and property of which he owned and which was to be affected by the decision and result of the proceeding.
In the Atchison R. R. Co v. The United States (supra) it is said: " Our rules contain no provisions as to the exercise of this discretion when the examination of a corporation is desired. The motion should proceed against the corporation claimant and such officer or officers or agents as the Attorney-General may suggest for examination to speak •for it, and it would seem to be just to afford to the claimant an opportunity to answer the suggestion, and to indicate reasons why this or that person should not be examined." In that case the court indicated what officers of the corporation should be examined under the order of the court; and it will be seen that the order is confined to those persons having from their relations to the corporation that intimate knowledge of its affairs which would enable them to answer according to the facts the inquiries of the Government. Now, apply that decision to this case as shown by the facts as to the ownership and the conduct of the affairs of the claimant. It is stated by one of the parties that the corporation is practically a copartnership, and Gaynor and Greene, being the owners in law and in equity of all the stock of the company, are presumed to control its management, and are therefore presumed to know more about the business of the corporation than persons having but a nominal interest, having no appreciable right in the result of the enterprise undertaken by the corporation; therefore the said Gaynor and Greene are in legal effect the parties claimant, inasmuch as they are the sole parties in interest.
The statute by its provisions is not an onerous one so far as claimants are concerned. The only penalty imposed is that the jiroceedings be stayed until the claimant submits himself to an examination under the statute; and as the law now stands (not disqualifying any person on account of the interest) if the United States refuses to offer the result of the examination in evidence, it is within the power of the claimant whose examination has been excluded to testify fully upon the matters embraced within the proper scope of his examination.
It is insisted upon the part of the counsel for the claimant that the examination is unauthorized, because all the facts on which the actions are based, and the answer and the plea of fraud are made are within the possession and knowledge of the defendant. It is sufficient ansAver to this objection that the United States are defending in this proceeding upon the alleged ground that the contract sued on Avas procured from the defendants by fraud, and that such Avork as was done and such material as was furnished thereunder Avas so done and furnished with the intent on the part of the claimant to deceive and defraud the defendants, and that the defendants Avere in fact defrauded through said contract by the claimant. Without now determining the question as to whether the fraud is charged in apt words, as required by the rules of pleading, it is sufficient for the purpose of this motion that the court is acUised that a plea of fraud, in substance, is interposed on the part of the defendants, and, although it may be alleged by the claimant that the defendants are in possession of all the facts of the case, it is not-a sufficient answer to the proposed inquiry which the defendants intend to make of the parties in interest touching the subject-matter of the defense.
The defendants may not be fully possessed of all the facts, and it would be strange if they were in a proceeding of this kind, where it is alleged that such' frauds have been committed as is shown by the defense of the United States. Another point of defense as made the brief of counsel for the claimant is, in substance, that the defendants by their action in electing to rescind the contracts entered into for the alleged failure of the claimant to prosecute the work thereby waived any right Avhich they might have had by reason of the alleged fraud. The rescission of the contract for the alleged failure of the claimant does not estop the Government from defending itself against the payment of money now sought to be recovered by the claimant upon the basis of the contracts entered into betAveen the parties.
It is suggested as the fourth point in the claimant's brief that if the examination should be allowed under the motion of the defendants a commissioner be appointed by the court to take the testimony of the witnesses at the place of their residence. In reply to this it may be said that it is not an unreasonable exercise of the discretion and power of the court to require parties who seek the jurisdiction of the court to come within its jurisdiction to comply with whatever orders may be entered from time to time, in the prosecution of litigation incident to the pendency of suits for compensation and damages on contracts of the kind and magnitude of those involved in these- suits, in which nearly a million dollars are claimed. It is the order of the court that the motion be allowed, and that the prosecution of this case be stayed until the compliance of the said parties with such orders as the court may hereafter enter with reference to the time and place of the examination of said parties.