Case Name: MERIDEN INDUSTRIES COMPANY v. THE UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1967-11-09
Citations: 181 Ct. Cl. 438
Docket Number: No. Cong. 5-58
Parties: MERIDEN INDUSTRIES COMPANY v. THE UNITED STATES
Judges: Before Cowen, Chief Judge, Laramore, Dureee, Davis, Collins, Skelton, and Nichols, Judges.
Reporter: United States Court of Claims Reports
Volume: 181
Pages: 438–496

Head Matter:
386 F. 2d 885
MERIDEN INDUSTRIES COMPANY v. THE UNITED STATES
[No. Cong. 5-58 .
Decided November 9, 1967]
John W. Kline, attorney of record, for plaintiff.
Edward Weintraub, with, whom was Assistant Attorney General Edwin L. Weisl, for defendant.
Before Cowen, Chief Judge, Laramore, Dureee, Davis, Collins, Skelton, and Nichols, Judges.
The petition in the instant case was filed on October 20, 1958, prior to the decision of the Supreme Court in Glidden Co. v. Zdanok, 370 U.S. 530 (1962). The court deems it proper to file this report at this time without reference to the Supreme Court’s opinions in the latter case or to the recent Congressional Reference Act, Public Law No. 89-681, 89th Congress, 2nd Session, October 15, 1966, 80 Stat. 958, because, although filed as a Congressional Reference Case, the petition also seeks judgment under the general jurisdiction of the court and the court alone can dispose of that part of the petition and of the government’s counterclaim.

Opinion:
Per Curiam :
This case was referred to Trial Commissioner Saul Eicliard Gamer with directions to make findings of fact and recommendation for conclusions of law. The commissioner has done so in an opinion and report filed on July 28,1987. Plaintiff has filed no exceptions to or brief on this report and the time for so filing pursuant to the Eules of the court has expired. On September 19, 1967, defendant filed a motion that the court adopt the commissioner's report to which plaintiff has failed to respond. Since the court agrees with the commissioner's opinion, findings and recommended conclusion of law, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in this case without oral argument. Plaintiff is, therefore, not entitled to recover on the petition insofar as it asserts a claim under the general jurisdiction of this court and, as such, the petition is dismissed. Defendant is entitled to recover on its counterclaim against plaintiff and judgment is entered thereon for defendant in the sum of $813.62, plus interest at 6 percent per annum from December 30, 1958. It is further concluded that plaintiff has not stated a claim either legal or equitable against the United States and this opinion and the findings, so concluding, will be reported and certified by the Clerk to Congress pursuant to House Eesólution 519,85th Congress, 2nd Session.
OPINION OF COMMISSIONER
Gamer, Commissioner:
A Government contractor undertook the performance of certain supply contracts. During the course of their performance, however, the contractor suspended operations and failed to complete deliveries, the contracts subsequently being terminated for default. When the contractor ceased production, it was heavily indebted on all aspects of its operations, including amounts owing to its subcontractors and suppliers, as well as to the Government itself as a result of Eeconstruction Finance Corporation loans.
In this Congressional Keference case, one of its subcontractors, Meriden Industries Company (originally a Connecticut corporation), is seeking payment from the Government of the amount of the prime contractor's indebtedness for parts delivered. When operations terminated, the subcontractor's unpaid bills covering such parts shipments totaled $1,794.55. At that time, the subcontractor also had on hand an inventory of raw materials and work in process, and it also seeks payment from the Government of the loss it has incurred on such inventory, its claim in this respect totaling approximately $14,000.
The prime contractor was Harvey-Whipple, Inc., a Massachusetts corporation. The contracts it undertook to perform, entered into in 1952 (during the Korean war), called for the furnishing to the Army of over 1,000,000 units of a folding pick and shovel, called a "Combination Intrenching Tool." The difficulties, financial and otherwise, that Harvey-Whipple encountered in the performance of these contracts are detailed in this court's opinion and findings in Harvey-Whipple's own Congressional Reference case, in which it sought relief in the sum of over $2,100,000. In that case, the court concluded that Harvey-Whipple had no claim, legal or equitable, against the United States. Harvey-Whipple, Inc. v. United States, 169 Ct. Cl. 689, 342 F. 2d 48 (1965).
Since all of Harvey-Whipple's liabilities at the time it suspended operations in 1955, including its debts to its subcontractors, were included in its claim against the Government, thus at least in part duplicating Meriden's claim, Meriden's request that the proceedings in its case be suspended pending the final determination of Harvey-Whipple's case was granted by the court. However, the ultimate conclusion by the court that Harvey-Whipple's claim had no legal or equitable merit was based upon its execution of a complete release to the Government, for which it had received valuable consideration. The events of which it complained in the proceedings before this court (i.e., the furnishing to it of defective plans and specifications) preceded the execution of, and was therefore covered by, the release. Thus, this basis for the conclusion that Harvey-Whipple's claim lacked merit not only left Meriden still uncompensated but also left undetermined the merits of Meriden's claim. Accordingly, it then became necessary to proceed with an independent adjudication of such claim.
At tbs time it entered into the intrenching tool contracts in May 1952, Harvey-Whipple was already in poor financial condition, and its situation progressively worsened until it suspended operations in July 1955. The company had long been in the business of manufacturing and distributing heating equipment and related articles and it was experiencing a drastic slump therein. It was greatly in need of new business. It had never before manufactured an item such as the intrenching tool. In 1949 it had received an RFC loan to finance certain Government contracts and now required additional funds to finance the 1952 tool contracts. Despite a' large balance due on the 1949 loan, RFC authorized in August 1952 a second loan to finance the tool contracts. All of Harvey-Whipple's physical resources were already mortgaged to RFC to secure the first loan, so the second loan was made upon the additional security (the security for the first loan also being made applicable to the second) of the moneys to become due from the Army for the tools, which moneys were assigned to the RFC.
Except for an initial advance of $56,000 to be used for capital expenditures, the arrangement between RFC and Harvey-Whipple for the disbursement of loan funds for operating purposes was that, upon a shipment of tools by Harvey-Whipple, the Army would send to RFC its check in payment of the shipment and RFC would then, upon application by Harvey-Whipple (indicating the intended uses of the funds) and approval by RFC (which included an investigation as to whether there had been any such adverse change in the borrower's financial condition as would indicate an an inability to repay) release a portion of the funds to Harvey-Whipple, the balance being retained for interest and principal applications on the loan. The amounts to be released to Harvey-Whipple from the Army's payments were within RFC's discretion, but as a practical matter it was recognized that these funds were the only moneys available to Harvey-Whipple with which to conduct contract operations. Harvey-Whipple had no substantial funds of its own, nor could it borrow from any other sources. Consequently, EFC released the bulk of the Army's payments to Harvey-Whipple. Up to the time production ceased in 1955, RFC received over $1,000,000 from the Army for tool shipments and of such amount disbursed over $860,000 to Harvey-Wliipple, or approximately 86 percent of such receipts.
Thus, under this arrangement, Harvey-Whipple's receipt of loan fends was dependent upon its making shipments of completed tools to the Army. In the meantime, subcontractors and suppliers who shipped component parts to Harvey-Whipple would have to wait for payment therefor until Harvey-Whipple could assemble and ship them to the Army, the Army's check in payment therefor would issue to RFC, and RFC would make its disbursement therefrom to Harvey-Whipple, and provided, of course, such disbursement would be sufficient to pay all of Harvey-Whipple's outstanding operating obligations.
Meriden had previously supplied certain parts to Harvey-Whipple in connection with its commercial heating equipment business, and after Harvey-Whipple obtained the tool contracts, Meriden agreed to manufacture and supply four important components of the intrenching tool, i.e., the blade, the pick, the socket (in which a wooden handle, to be supplied by another subcontractor, was to 'be inserted) and the hinge (which connected the blade to the pick and the socket, and which made the "folding" possible). Harvey-Whipple subcontracted the manufacture of all the components of the tool. It itself was to do only the assembling, painting, packing and shipping of the final product. In June 1952, Harvey-Whipple placed an order with Meriden for approximately 500,000 pick, socket, hinge, and blade units, constituting half of Harvey-Whipple's total requirements. It was Harvey-Whipple's plan at that time to obtain a second source of supply for the balance. However, after it found it was unable to obtain such a second source, Harvey-Whipple, in November 1952, placed a second order with Meriden for the balance of the four parts, which order Meriden also accepted.
Meriden was a relatively small company. These orders were, for it, a large undertaking. Its plant had to be equipped for this new venture, and steel had to be purchased. However, in its attempts to obtain outside financing for these purposes, it found that, because of Harvey-Whipple's poor credit rating, the banks it approached were unwilling to lend the necessary funds merely on the strength of the prospective subcontract receipts. (The handle supplier experienced the same difficulty.) However, Meriden's president and sole stockholder, Henry H. Townshend, Jr., was a wealthy man, and bank financing for the company was finally arranged on the security of Townshend's personal guarantee. Meriden spent approximately $100,000 just to tool up for the two subcontracts. It ultimately borrowed over $200,000 to finance these subcontracts (which amount Townshend finally had to pay under his personal guarantee).
After initial delays (attributable to a steel strike and Harvey-Whipple's inability to obtain approval of preproduction samples), production on the contracts commenced in February 1953. However, during this initial period, Harvey-Whipple was not able, for various reasons, to ship any substantial number of completed tools to the Army. Although part of the difficulty was due to faulty drawings and poor specifications issued by the Army, Meriden itself was at least in good part responsible for this early unsatisfactory situation. It was experiencing difficulty with its equipment for the preheating of the steel tubing out of which the sockets were produced. In addition, it found it had to make a new socket forging die, which, however, broke down after installation. Its pick-making die and equipment also broke down. It could thus ship few picks and sockets during this period, resulting in unbalanced shipments of the four parts and a bottleneck in Harvey-Whipple's assembly operations. Furthermore, there were generally poor inspection and quality control procedures in both Meriden's and Harvey-Wliipple's plants, some of the steel used being defective. The upshot was that Harvey-Whipple could not make quantity shipments, and of the lots it was able to present for shipment, many were rejected. It fell far behind in the deliveries required by the contracts.
Few tool shipments to the Army resulted in the receipt of insubstantial funds from the SFC, and Harvey-Whipple's indebtedness to its subcontractors, including Meriden, mounted. By August 1953, Meriden's unpaid bills totaled some $32,000.
Furthermore, since Harvey-Whipple was in serious default on its Army contracts, the EFC refused to make any further loan disbursements, such default, making the contracts subject to termination, being considered an "adverse condition" seriously threatening Harvey-Whipple's financial status.
In September 1953, Meriden refused to make any further parts shipments unless its past due bills were paid and assurances were forthcoming that its future invoices would be promptly paid as they became due. Meriden was aware of the EFC action. Lacking both component parts and financing, Harvey-Whipple was compelled to cease operations and contract production thus came to a halt.
However, Harvey-Whipple made strong efforts to revive the contracts. It pressed its defective drawings and specifications claim against the Army and obtained a change order with $59,000 in increased compensation. It obtained extended delivery dates from the Army (the first of a series) thus curing, temporarily at least, its default status and making itself again eligible to receive EFC financing. It settled its indebtedness to Meriden and urged it to resume production of parts, giving assurances that, with the resumption of EFC financing, it would be able to pay Meriden for parts shipped within two weeks, for, with the large-scale production it envisioned under the new, improved plans and specifications, it planned to assemble the components into completed tools and to ship them within a week of the receipt of the parts, and then to receive its EFC release of funds from the Army's payment check within another week. It was confident the fund releases it would receive from the EFC would be sufficient to defray Meriden's (as well as the other subcontractors' and suppliers') bills.
Townshend gave serious consideration to resuming production, which necessitated his making an additional capital investment in his plant because of the new dies and tooling the revised plans and specifications would necessitate. He would be willing to proceed (and thus possibly recoup his already large capital investment) if he could satisfy himself that his bills would be paid within 14 days, as Harvey-Wliipple indicated. He decided, however, to check personally with the RFC concerning the details of the loan arrangements between RFC and Harvey-Whipple, and whether Harvey-Whipple's assurances of payment of his invoices within 14 days were valid.
Accordingly, on December 22,1953, Townshend (and his attorney) went to the Boston Office of the RFC (which was handling the Harvey-Whipple account) and had a conference with the Manager, the top official of the office. It is upon this conference that much of Meriden's case is based. Although Townshend sought RFC assurances in the nature of guarantees that its bills would be paid if it resumed production, the Manager made plain that RFC's contractual relationship was only with the prime contractor, Harvey-Whipple, that no such assurances or guarantees could therefore be given by RFC to Meriden or any subcontractor, and that Meriden would have to continue to look only to Harvey-WTipple for payment of its bills. He explained the nature of the Harvey-Whipple loan arrangements, including the assignment of the contract proceeds to RFC 'as security. The practice that had been in effect between Harvey-Whipple, the Army, and the RFC, with RFC permitting the release of the bulk of the Army's payments to Harvey-Whipple for use as operating funds, was also discussed. Similarly, suggestions by Town-shend and his attorney (reflecting, obviously, the fear that the release of RFC funds to Harvey-Whipple would not necessarily lead to payment by Harvey-Whipple to Meriden) that some kind of an escrow fund from the RFC loan moneys be established and used to pay the subcontractors was negatived by the Manager as being beyond the terms of RFC's loan agreements with Harvey-Whipple and therefore outside the Manager's authority. The Manager stated that, when and if RFC financing was resumed (Harvey-Wliipple again being in contract default, there having been as yet no resumption of parts shipments by Meriden and therefore, completed tool shipments by Harvey-Whipple), it would necessarily be pursuant to the same arrangements that had been previously followed and in accordance with such loan agreements. Under such arrangement, however, he felt that, if Harvey- Whipple was able to assemble and ship completed tools within a week 'after receipt of Meriden's component parts, it would be possible, insofar as a time schedule was concerned, for the Boston RFC Office to receive the Army's check from the Quartermaster Depot in Chicago, where the tools were shipped, and to disburse the funds therefrom to Harvey-Whipple, all within a week, so that, if Harvey-Whipple used such funds to pay Meriden, such payment could be made within the 14-day period Harvey-Whipple had proposed.
After this conference, Townshend decided to resume his subcontract production on the basis of Harvey-Whipple's 14-day credit plan and, after Harvey-Whipple was again able to work out an arrangement with the Army for a new and less onerous delivery schedule (upon the consideration of a small reduction in the contract price of the tools), thus taking it out of default and again making it eligible for RFC financing, Meriden commenced making new shipments of components in February 1954. These shipments were, of course, followed by shipments of completed tools by Harvey-Whipple to the Army.
However, up to the time all production ceased almost a year and a half later, Harvey-Whipple continued to be plagued by financial and production difficulties, and, despite the resumption of RFC financing on the basis described, had constant difficulty in paying its subcontractors and suppliers. It was losing large sums on its overall operations, with its financial condition constantly worsening. Its heating equipment business continued in a serious slump. In 1952, the year it took on the tool contracts (but before any large-scale production commenced thereunder) it lost $147,000, and in 1953, it suffered another loss of over $220,000. At that time, it became insolvent. Its losses continued in 1954, its loss for the year totaling $180,000. Although, as stated, RFC financing was reestablished in February 1954, by April 1954, it again fell behind in the payments of its bills, and in that month, by a general notice issued by Harvey-Whipple, a creditors' meeting was called, a condition which was again considered an adverse change by the RFC, resulting in its again suspending the advancing of further loan funds. In addition, Meriden again suspended further shipments of components, its unpaid bills again mounting, and once more Harvey-Whipple fell into default in its contract deliveries.
But again Harvey-Whipple struggled to salvage the situation. After production had resumed in February 1954, an unexpected production difficulty arose. Meriden's hot-forming method of producing sockets was proving unsatisfactory, resulting in a high rate of rejections, and seriously affecting Harvey-Whipple's ability to ship completed parts. A change in the socket production method became necessary, which would take two months to complete and during which production under the contract would have to be suspended. It became obvious that the contract rate of production, even as amended, could not be attained by Harvey-Whipple with Meriden as the sole source of its supply for the important components it was manufacturing. Again a search (unsuccessful) for a second source was instituted. In the meantime, Harvey-Whipple once more beseeched the Army for a delivery schedule extension, and was able to persuade the BFC to make some straight loan advances, although it was not making any tool shipments, so that it could pay some of its creditors and overhead expenses and thus stay alive pending Meriden's socket-method changeover, when (assuming the Army would permit the contracts to stand) production could resume. And indeed, although, in August 1954, the Army did partially terminate for default some of the contract amounts, it allowed a large balance to stand and, as to such balance, again readjusted the delivery schedule to make compliance easier. Thus production and shipments once more resumed.
But still Harvey-Whipple was not able to meet its adjusted contract delivery requirements. Nevertheless for several months the Army, despite the contractor's default, allowed it to ship whatever tools it could, and the BFC (pursuant to special authorizations 'by its Administrator) continued to release funds from the Army's payments. However, January 15, 1955 was the final contract delivery date, and the contractor's delinquency on such date had risen to over 400,000 tools. In February 1955, the Army finally gave formal notice of its intent to terminate the contracts for default, but once again Harvey-Whipple strongly urged that it be permitted to continue. As inducement and consideration, it offered another price reduction and the withdrawal of its pending appeal with respect to the already effected partial termination. This proposal was accepted, and, in March 1955, with the execution of appropriate documents (a release by Harvey-Whipple and a supplemental agreement) a new and extended delivery schedule for the remaining tools was again worked out.
However, despite the continued release of RFC funds to Harvey-Whipple against Army payments for tool shipments on the same basis as previously, Harvey-Whipple was not able to meet its obligations to certain of its suppliers and subcontractors (including its handle supplier and heat treater) although as of July 1, 1955, it was current with respect to Meriden's bills. Around July 1, the unpaid suppliers and subcontractors, including the heat treater, whose unpaid bills went back to March, began to press vigorously for payment. Harvey-Whipple, attributing its plight to the RFC releases of Army funds being insufficient to defray its obligations, admitted its inability to liquidate its obligations to the complaining subcontractors. During this time, Meriden made several additional shipments of parts, but on July 12, 1955, Harvey-Whipple advised it would not be able to pay the $4,794.55 balance due to Meriden resulting from such shipments, again attributing its condition to the insufficiency of the funds it was receiving from RFC.
Meriden and the other subcontractors took Harvey-Whipple's statements to mean that the RFC, contrary to its past practice, had decided not to release any further funds to Harvey-Whipple, or that it had reduced such releases. Whether or not such belief was justified on the basis of what Harvey-Whipple told them, the true facts were that there had been no change in RFC's policy or practice concerning such fund releases. In June, RFC had received $58,709.30 from the Army, and released to Harvey-Whipple $50,798.53. On July 11, Harvey-Whipple made two tool shipments, and of the $34,003.46 paid therefor by the Army, RFC released to the contractor $25,267.08, but neither Meriden nor, ap parently, tlie other subcontractors received any part thereof. The record does not indicate what Harvey-Whipple did with these funds.
In any event, after Harvey-Whipple's July 12,1955 statement to Meriden of its inability to pay its then outstanding invoices, Meriden suspended further contract operations and formally so advised Harvey-Whipple by letter of July 15. This in turn effectively cripi>led Harvey-Whipple's further performance of the contracts.
Meanwhile, the subcontractors began complaining to the EFC about their unpaid bills and RFC's alleged withholding of funds causing such condition, but RFC denied that their plight was due to any such circumstance, and demanded an explanation from Harvey-Whipple as to the erroneous information it was seemingly giving the subcontractors. Harvey-Whipple assured RFC the subcontractors had misunderstood, and, as it promised RFC it would do, wrote to Tatem Manufacturing Company, the handle supplier (and presumably to the other subcontractors) that RFC's fund releases were "in strict accordance" with agreed procedures but that its financial plight was due to cost increases (for one thing, Meriden had, in 1954, increased the price of its components), and that "stoppage of two vital components prevented a shipment which was scheduled for July 15, and this precipitated the current strained situation."
In the meantime, four subcontractors, including Meriden, conferred with the Chicago Quartermaster Depot and advised they would make no further shipments or do any further work on their subcontracts unless their past due bills were paid. The Army, considering the problem a financial one (at that time, Harvey-Whipple was not, under the amended schedule, in default on contract deliveries) referred them to RFC. The subcontractors then inquired of RFC whether, if they resumed work, RFC would give them assurances their bills would be paid, 'but RFC replied that it could give no such assurances and that the subcontractors and suppliers would have to continue to look to Harvey-Whipple alone for payment.
Harvey-Whipple was, meanwhile, still desperately attempting to stave off the impending disaster. It had made no tool shipments since the aforementioned July 11 ones, had therefore received no RFC funds since then, and was in default on its RFC loans. Although the subcontractors had ceased production, it had on hand from prior subcontractor shipments enough components to assemble 10,000 tools. On July 26, 1955, its representatives conferred with RFC officials in Washington and stated that a shipment by it of such 10,000 tools would generate $19,430.55 in Army funds, and that RFC could clear the default by retaining $5,200. Furthermore, the release of the $14,230.55 balance to Harvey-Whipple would enable it to make at least some payments to its subcontractors and possibly induce them to resume production, which appeared to be Harvey-Whipple's last hope of salvaging the situation. The RFC officials agreed to go along with this effort to continue the life of the contracts.
However, later that same day, three subcontractors, including Townshend of Meriden (who apparently were not aware of Harvey-Whipple's prior meeting with RFC or its plan to make a 10,000 tool shipment) conferred with RFC in Washington and categorically stated, as they had previously advised the Chicago Quartermaster Depot, that they had decided to make no further shipments of component parts, and to perform no further services (such as heat treating) unless their past due indebtednesses were paid in full and satisfactory arrangements, in the nature of RFC guarantees, made for the payment of their future invoices. This would mean that RFC would now, and very probably hi the future, have to make further straight loan advances to Harvey-Whipple over and above those released, as in the past, from Army payments, for the total of their current indebtednesses exceeded the proposed $14,230.55 release from the forthcoming 10,000 tool shipment, and, as shown, in the past such releases against shipments had not proved to be sufficient to defray Harvey-Whipple's indebtednesses to them. Since this would practically amount to a guarantee by RFC of the payment of their current and future bills, the RFC officials refused and stated that the only funds RFC would continue to make available to Harvey-Whipple would, as in the past, be a portion of the Army receipts after deducting appropriate amounts for application to the RFC loans. This was not satisfactory to the subcontractors, since such, system had not resulted in the prompt payment of their invoices. They accordingly advised the NFC officials that their contract performance was definitely ended. It was thus plain that, in turn, there was no hope for the completion of the contracts by Harvey-Whipple.
-By letter of July 29,1955 to the Quartermaster, Meriden confirmed that, in view of the position taken by the BFC that it "would not make available additional financing for the prime contractor, except on an invoice discounting basis" and that "the prime contractor has stated it has no other source of financing immediately available" and was "unable to pay past due invoices and cannot meet payment of invoices on our credit terms", it was suspending further shipments of component parts. (By letters of August 1, 2, and 3, to Harvey-Whipple and the Army three other subcontractors also confirmed their decisions not to resume contract performance unless their accounts were paid in full.)
Since it was now clear that the arrangements made at the July 26 conference with the Harvey-Whipple officials for the 10,000 tool shipment and the release of some $14,000, all for the possible purpose of revival and completion of contract performance, were now frustrated and could not materialize, BFC, on July 29, 1955, wired Harvey-Whipple that, in view of the subcontractors' advice to both the Quartermaster and the BFC concerning their refusal to make further deliveries of components, the BFC would not follow through with such arrangements. The record does not indicate whether Harvey-Whipple received this telegram prior to its shipment of the 10,000 tools to the Army. In any event, it did make such shipment, but BFC refused to make any fund releases to it from the Army's $19,430.55 payment check, which BFC received on August 2, 1955. Instead, it applied the full proceeds thereof to Harvey-Whipple's BFC loans. There was, thereafter, no further contract performance by the subcontractors or Harvey-Whipple. There is still due to Meriden from Harvey-Whipple said sum of $4,794.55 for its unpaid invoices, and, when further performance ended in July 1955, Meriden had an inventory which was usable for contract performance upon which it has suffered a net loss of $12,641.04.
Meriden says that the statements made by the Manager of the Boston Office of the RFC during his conference with Townshend in December 1953, constituted a representation that the major portion of the Army payments would always be released by RFC for the benefit of Harvey-Whipple's subcontractors and suppliers, and that this induced Meriden, after its long suspension, to resume production, resulting in the losses now claimed. It argues that its acting in reliance on this oral promise constituted a contract implied in fact, and that RFC's appropriation of the full amount of the Army's final check was a breach of such contract for which this court may award damages under its general jurisdiction. It further urges that even if no such legal cause of action can be spelled out, it is, on broad equitable or moral bases applicable to Congressional Reference cases (Burkhardt v. United States, 113 Ct. Cl. 658, 84 F. Supp. 553 (1949)), deserving of relief since it was Meriden's performance of its subcontract which, in the form of completed tools, inured to the Government's benefit. It contends that it was RFC's action in retaining for its own benefit the entire proceeds of the final Army payment which prevented Harvey-Whipple from completing its tool contracts, with the resultant payment to it (and the other subcontractors) of the amounts owed them, as well as the profitable consumption of its unused inventory.
None of these contentions are valid.
First, no contract of any kind resulted from Townshend's conference with the Manager in December 1953. As shown, the Manager made plain at that time that RFC was in no contractual relationship with Meriden or any subcontractor, and therefore rejected all attempts to obtain direct payment guarantees by RFC or to establish RFC fund escrow arrangements. He emphasized that Meriden would have to continue to look solely to Harvey-Whipple for payment. Not only does Townshend admit in his testimony that he thoroughly understood this, but his actions throughout the life of the project confirmed such understanding. As noted, whenever Harvey-WTfipple fell behind in its payments to Meriden, Meriden pressed Harvey-Whipple, or suspended shipments entirely. It never made claim against the RFC. Even toward the end in July 1955, when the subcontractors, acting in concert, attempted to obtain direct RFC assurances of payment if they would resume production, RFC again refused, making plain once more that its agreement was only with Harvey-Whipple and that the subcontractors would have to continue to look solely to Harvey-Whipple for the payment of their bills.
Nor was there anything in the nature of a promise that RFC would, under any and all circumstances, always 'and automatically make partial releases of Army tool payment funds to Harvey-Whipple. The Manager fully explained to Townshend and his attorney, and they well understood, the nature of the Harvey-Whipple—Army—RFC financial arrangements, and the governing Harvey-Whipple — RFC loan agreements. Meriden understood thait the Army funds would, pursuant to Harvey-Whipple's assignment, be sent to and held by RFC (in a "cash collateral" bank account), that Harvey-Whipple would have to request the release of such funds, and that such request would have to be backed up by a showing of eligibility (i.e., it was not in default on its Army contracts and that repayment of the loan funds requested to be released was, in RFC's opinion, reasonably possible). Indeed, Meriden had already seen in August 1958 that, when Harvey-Whipple fell into default on the contracts, RFC would not, because of such "adverse condition", make further disbursements to Harvey-Whipple. Obviously, although RFC, unlike the normal commercial lender, could take greater risks, yet it also had the ordinary lender's interest in making certain that there was a reasonable prospect that the borrower could repay the loan. Thus, RFC's refusal to advance to Harvey-Whipple any part of the Army's last check breached no understanding, promise, or "implied in fact" contract between RFC and Meriden.
Nor, at the December 1953 stage of the project, was there any such strong favorable feeling by RFC toward Meriden which would impel it to make special promises or arrangements in its favor so as to "induce" Meriden's continued participation, with such "inducement" constituting the basis for a contract "implied in fact".
While it was recognized, of course, that Harvey-Whipple was wholly dependent on subcontractors, and that RFC could not hope to obtain repayment of the loans already made unless Harvey-Whipple was kept alive and was able to complete its contracts, nevertheless Meriden's own performance up to then had been far from satisfactory. Indeed, much of Harvey-Whipple's poor performance during this period was attributable to Meriden. Its equipment breakdowns and other contributions to contract delays are detailed above. The Army was urging Harvey-Whipple to obtain another source of supply for the components Meriden was manufacturing. There is thus little basis for concluding that there was then any special reason for RFC's "inducing" Meriden's continued performance. Throughout the project both the Army and the RFC emphasized the need for another source, for it became obvious that, with Meriden as the principal subcontractor, Harvey-Whipple would always have extreme difficulty in meeting its contract obligations. However, although Harvey-Whipple kept giving assurances that such a second source of supply would be acquired, it never succeeded in obtaining one. Indeed, after contract production resumed in February 1954 following the long 1953 suspension, Meri-den again ran into socket production trouble and had to change its entire manufacturing method (from the hot to the cold rolling process), causing a two-month cessation in the entire tool production program, and resulting in another intensive (but again unsuccessful) search for a second subcontractor source of supply. Meriden's performance hardly generates a strong case based on general equitable considerations.
Nor does the record support Meriden's contention that RFC's decision not to honor Harvey-Whipple's request that funds be released from the Army's $19,430.55 payment for the July 29, 1955, 10,000 tool shipment was a contract termination device reflecting the fact that the Army no longer needed the tools and, with no regard for Harvey-Whipple's or the subcontractors' welfare, was therefore no longer interested in contract performance. On the other hand, the proof makes plain that further contract performance was made impossible not by the Army or the RFC but by the subcontractors themselves, and particularly Meriden. It was Townshend who, after being advised by Harvey-Whipple on July 12, 1955, of its inability to pay Meriden's then outstanding indebtedness, made the decision, set forth in its firm letter of July 15, 1955, and thereafter stubbornly adhered to, that it was through with Harvey-Whipple and further contract performance unless past debts were promptly cleared up and there were more certain assurances of future payments, conditions which could not then be met. No criticism of Meriden for adopting this attitude can fairly be made. This was an understandable business decision on its part. But this, together with the identical attitude thereafter adopted by the other subcontractors acting hi concert with Meriden (seemingly in an attempt to force NFC's hand and cause it to pay their debts, the repayment of Harvey-Whipple's large indebtedness to NFC also being dependent upon continued contract performance by Harvey-Whipple), is, nevertheless, what finally terminated Harvey-Whipple's performance. It was only after these ultimata, issued by the subcontractors to both the Army and the NFC, that NFC reasonably concluded to cease making further loan advances. Since the purpose of the loans was to finance contract performance, and since such performance was, by the subcontractors' action, clearly over, further loans to Harvey-Whipple would obviously serve no useful purpose.
Indeed, the record shows a liberal and considerate attitude by both the Army and NFC throughout the project in keeping Harvey-Whipple and contract performance alive. Harvey-Whipple was constantly in default both on its contract deliveries and its NFC payments, but time and again the Army modified and extended the delivery schedule and NFC the loan maturity dates. Financing continued even though, as of December 31, 1953, Harvey-Whipple was insolvent. For long periods the Army waived huge contract defaults and permitted Harvey-Whipple to continue to make whatever shipments it could, and NFC tolerantly made further loan advances despite such contract default status, at one time even making straight loan advances without the security of contract shipments in an attempt to get Harvey-Whipple back on its feet by providing some funds with which to stave off its creditors. Had the Army or RFC wanted to effect a termination of the contracts because the tools were no longer needed or for other reasons, there were plenty of opportunities to have done so. The charge of inconsiderate treatment of Harvey-Whipple and the subcontractors by the Army and the RFC on this project is not supported by the record.
Finally, although it is difficult to see how Meriden has any standing to complain about RFC's failure to make a certain loan advance pursuant to a loan agreement to which Meriden was not even a party and with respect to a tool shipment it did not even know would be made, nevertheless even if it be assumed that there was some direct obligation, legal or otherwise, running from RFC to Meriden to make the $14,-230.55 advance to Harvey-Whipple with respect to the last tool shipment, there is no showing that Meriden would have received any benefit from it anyway, or if so, how much. The fact that RFC provided Harvey-Whipple with funds did not mean that Harvey-Whipple would necessarily pay over any part thereof to Meriden. Despite the impression Harvey-Whipple was apparently giving its subcontractors hi July 1955 that its financial plight was due to RFC and its failure to provide sufficient financing, the fact was that RFC had in that and the previous month continued to provide Harvey-Whipple with the same type of financing against shipments that it had provided in the past. As above noted, in J une 1955, RFC received approximately $59,000 from the Army and released approximately $51,000 to Harvey-Whipple, and on July 13, 1955, released another $25,200 from some $34,000 received. Thus, Harvey-Whipple received over $25,000 from RFC in July at the very time it was complaining to the subcontractors that it was not receiving RFC funds. As stated, what Harvey-Whipple did with those funds the record does not show. Suffice it to say that neither Meriden nor the other subcontractors received any of them, nor is there any more reason to believe that Meriden would have received any part of the $14,230.55 which it now contends RFC was obligated to release to Harvey-Whipple, or if so, how much. Actually, this problem existed throughout the entire project. Despite RFC financing, Harvey-Whipple was constantly under financial strain. There simply was not enough income to defray all of its debts. This may have been due to the possible unprofitableness of the Army contracts (at the very beginning the Army officials questioned the bid price, which they considered quite low), or to the huge losses it was suffering on its regular heating business, or to other reasons. The fact is that RFC financing of these particular contracts did not automatically result in payment to the subcontractors of their bills, of which Meriden was more than once well aware.
Meriden's inventory claim is on even less sound footing, for some inventory on hand in July 1955 (the record does not show how much) was purchased at the very beginning of the project, and prior to any of the events of which Meri-den here complains. Certainly when Meriden first decided to embark on this venture, RFC played no part in its decision. At that time Meriden must have known that it was assuming a real risk, for even then Harvey-Whipple was already in poor financial condition, a fact which, if it did not know from its past dealings with Harvey-Whipple, was forcibly brought to its attention when it attempted to obtain bank financing for the subcontracts here involved.
The approximately $17,000 unpaid invoice and inventory loss for which Meriden here seeks recovery is only a small part of its total loss of around $300,000 on this project. Of course, one naturally sympathizes with its plight. However, it went into this venture as a subcontractor with full knowledge of the business risks involved and of the fact that its fate depended primarily on Harvey-Whipple's ability to complete the contracts successfully. There is no justification, legal or equitable, for its attempt here to shift any part of its losses to the Government with which it had no contractual relationship at all.
DEFENDANT'S COUNTERCLAIM
Meriden is indebted to the Government in the sum of $813.62, the indebtedness arising out of two supply contracts between Meriden and the Department of the Army entered into on March 6,1950 and May 26,1950, respectively. There is no dispute between the parties as to this indebtedness and they have stipulated that judgment may be entered against Meriden for such amount, plus interest.
Even though the petition is filed pursuant to a Congressional Reference, judgment may be granted on a Government counterclaim where the claim set forth in the petition is one over which the court otherwise has jurisdiction, such as one for breach of contract. Maco Warehouse Company California v. United States, 144 Ct. Cl. 538, 169 F. Supp. 494 (1959). Here the court could, under its general jurisdiction, consider Meriden's claim that a contract implied in fact existed between it and the Government and that RFC's action constituted a breach thereof. See Padbloc Co., Inc. v. United States, 161 Ct. Cl. 369 (1963) ; Grace Line Inc. v. United States, 155 Ct. Cl. 482 (1961).
Accordingly, judgment should be entered against Meriden Industries Company in the sum of $813.62, plus interest at six percent from December 30,1958, the date of the filing of the counterclaim herein.
Findings of Fact
1. On April 80, 1946, there was incorporated under the laws of the State of Connecticut a corporation with the name of Meriden Industries Company (hereafter "Meriden"), which became engaged in the manufacture of toys and such other miscellaneous items as pipe hanger brackets, and oil burner and baby carriage parts.
2. On January 6, 1949, there was incorporated under the laws .of the State of Connecticut a corporation with the name of Toy Metal Mfg. Company (hereafter "Toy Metal"), which thereupon purchased all of the capital stock of Meriden. However, Meriden continued to do business as a corporation and to perform its contracts. Toy Metal as a corporation engaged in no manufacturing operations. It simply owned all the capital stock of Meriden. In 1950, Henry H. Townshend, Jr., the president of Toy Metal, purchased all of the outstanding stock of the Company which he did not already own and thereby became the company's sole owner.
3. On May 26, 1952, Harvey-Whipple, Inc., a Massachusetts corporation, entered into three contracts with the United States, acting through the Chicago Quartermaster Depot, Department of the Army, for the manufacture and delivery of 1,067,000 "Combination Intrenching Tools" (a folding pick and shovel) for an aggregate price of $1,920,600. The difficulties Harvey-Whipple experienced after the execution of these contracts, culminating in the termination of its business activities in 1955, are set forth in Harvey-Whipple, Inc. v. United States, 169 Ct. Cl. 689, 342 F. 2d 48 (1965). The findings of fact therein are incorporated herein by reference.
4. Harvey-Whipple was then in the business of manufacturing heating equipment, and Meriden had manufactured a component part of the Harvey-Whipple oil burners. Accordingly, Meriden had had business relations with Harvey-Whipple prior to the intrenching tool contracts.
Harvey-Whipple was not equipped to manufacture an intrenching tool and it therefore planned to subcontract the manufacture of all the component parts of the tool, with Harvey-Whipple only assembling the component parts into a completed tool, and then painting, packing and shipping the tools. In early June 1952 Meriden, pursuant to Ilarvey-Whipple's invitation, submitted a quotation to Harvey-Whipple for the manufacture of four important component parts of the tool, i.e.,- the blade, the pick, the hinge, and the socket.
5i At the time Harvey-Whipple entered into the intrenching tool contracts, it was already experiencing financial difficulties. Following an industry trend, it had experienced a drastic drop in heating equipment sales in 1951 and suffered a loss ($27,000) on its operations for that year. Although its balance sheet showed a net worth of approximately $580,000, it wound up the year with only $18,500 in cash, causing it to be quite nonliquid and in consequent difficulty in meeting its current obligations. A development program for new heating equipment had been costly but unproductive. The company was seeking new business in other fields. A 1949 Reconstruction Finance Corporation loan in the amount of $325,000 (made to finance certain Government contracts) was, according to its terms, repayable at the rate of $60,000 annually ($5,000 monthly), but during 1951, the annual payments were reduced to $30,000, with no payments at all to be made during six months of the year. The loan was secured by a first mortgage covering all of the company's fixed assets, including land, buildings, and equipment. During the years 1945-47, the company had made large profits, but in 1948 it had a substantial loss, and in 1949 and 1950 its profits were relatively small. When it entered into the intrenching tool contracts in May 1952, it had a poor credit standing, which fact was known or available to the business world through the usual credit information channels.
On May 19, 1952 (seven days before it entered into the three intrenching tool contracts), being in need of working capital, it was able, by an assignment of its accounts receivable as collateral, to obtain a bank loan.
6. On June 18,1952, Harvey-Whipple placed an order with Northern Handle Mills, Inc. (hereafter "Northern") for 1,067,000 hickory handles, thus covering its full requirements for this important component, and on June 20, it also placed an order for 1,067,000 handle nuts with Blue Ridge Pressure Castings, Inc.
7. On June 25,1952, Harvey-Whipple placed an order with Meriden for the manufacture and delivery by Meriden of 533,500 units of picks, sockets, hinges, and blades at a price of $0.70 for each set of the four components, making a total contract price of $373,450. Thus, this order constituted only one-half of Harvey-Whipple's total requirements rnider its three contracts. Harvey-Whipple was seeking another source of supply for the other half of its requirements of these four components. Meriden was a relatively small company which would have to engage upon what would be for it a rather large program of tooling, installing production dies, and the purchasing of special steel. Harvey-Whipple felt it would better guarantee production of the four components in the amounts necessary to meet its delivery requirements of the contracts if there was a second source of supply.
8. Upon receipt of the June 25, 1952 order, Meriden attempted to obtain outside financing to fulfill its subcontract obligations. Among other things, it needed funds to equip its plant and to purchase steel, the orders for which it began placing on July 9, 1952. However, it found that the banks it approached were unwilling to lend the necessary funds to finance the performance of its subcontract because of Harvey-Whipple's poor credit rating.
Northern experienced the same difficulty.
9. (a) Harvey-Whipple too needed substantial financing to perform the three contracts. However, the RFC was its only possible source therefor. Despite the fact that it still owed RFC over $207,000 on its 1949 loan on which adjustments had to be made in 1951, as hereinabove set forth, RFC, on August 4,1952, authorized, under specified terms and conditions, a second loan to Harvey-Whipple in the amount of $500,000 for the purpose of enabling it to perform the contracts. At that time, the Korean war was in progress and the intrenching tool was regarded as a critical war item.
In addition .to the security for the 1949 loan, which was also made applicable to the 1952 loan, the 1952 loan was also secured by an assignment of all moneys due or to become due from tbe Army under tbe tool contracts, as well as a factor's lien on all inventory relating to tbe contracts.
Under Harvey-Whipple's loan agreement, an initial advance of $56,000 was to be made from tbe loan funds for capital expenditures, principally to enable Harvey-Wbipple to equip its assembly line. Thereafter, all further advances would be made only against shipments by Harvey-Wbipple of tools to tbe Army. Tbe loan agreement restricted tbe use of tbe loan funds to expenditures necessary and essential to tbe operation of tbe tool contracts. A separate bant account, called tbe "cash collateral account", was required to be maintained for deposits and withdrawals in connection with the contracts. Pursuant to Harvey-Whipple's assignment to NFC of the moneys due under tbe contracts, tbe Army would send to RFC all payments due to Harvey-Wbipple for tools delivered, which payments would then be deposited in the cash collateral account. Moneys so received by RFC were releasable by RFC to Harvey-Wbipple in tbe sole discretion of RFC and (1) only for operating expenses to perform the tool contracts, (2) provided the amounts that would be due to Harvey-Wbipple from deliveries on tbe contracts at tbe time funds were released exceeded by 25 percent tbe unpaid balance of the RFC loan, and (3) provided that, in RFC's opinion, there bad been no adverse change in Harvey-Whipple's financial condition, operations, or business prospects sufficient to warrant withholding further disbursements.
(b) Since tbe tool contracts and the Army's cash payments for tool deliveries thereunder constituted tbe important security for tbe loan, and since tbe only way Harvey-Wbipple could possibly repay tbe loan was to generate income by shipments of tools to tbe Army, Harvey-Wbipple was required to submit monthly reports to RFC showing tbe shipments of tools it bad made to tbe Army during tbe previous month, and tbe indebtedness it bad incurred in tbe performance of tbe contracts, including amounts owed to subcontractors and suppliers. In addition, Harvey-Wbipple was required to submit weekly inventory statements to RFC.
(c) In practice, Harvey-Wbipple, promptly upon making a shipment, billed tbe Army for the shipment. The Army made prompt payment for tbe shipment, taking tbe appli cable discount, and then remitting the payment to the RFC, which deposited the payment in the cash collateral account. Thereafter, upon assuring itself of the propriety of releasing funds from the payment, RFC then retained certain amounts to reduce the balance of the loan resulting from advances that had been previously made, and then disbursing the balance to Harvey-Whipple. Since Harvey-Whipple was in such need of funds to defray operating expenses for the performance of the contracts, including the payment of its obligations to its subcontractors and suppliers, most of the Army payments received by RFC were disbursed by RFC to Harvey-Whipple. In toto, $1,023,367.80 was received by RFC from the Army for tool shipments, and of such amount, RFC disbursed to Harvey-Whipple $869,639.13, or approximately 86 percent of such receipts.
Harvey-Whipple had little general funds with which to pay subcontractors and suppliers. Accordingly, these creditors usually had to wait until Harvey-Whipple received the RFC disbursements, as above described, before they could receive any payments from Harvey-Whipple.
(d) Although on or about September 28,1953, by virtue of the Reconstruction Finance Corporation Liquidation Act, all of the right, title and interest of the RFC in said loans to Harvey-Whipple were transferred to the Secretary of the Treasury, the accounts after June 30,1954 being handled by the Defense Lending Division of the Treasury, such loans will hereinafter sometimes be referred to as the RFC loans and the agency in interest as the RFC.
10. On June 2, 1952, a steel strike had commenced. This strike, which lasted a considerable period of time, prevented the obtaining of the steel required for the performance of the tool contracts, the orders for which had been placed by Meriden, as stated, in July 1952. Harvey-Whipple ultimately received a time extension of 154 days as excusable delay in the performance of the contracts attributable to the strike.
11. (a) The loans by RFC to Harvey-Whipple were managed through the Boston Regional Office of the RFC from the dates when they were first approved until July 1, 1954, at which time the accounts were transferred to the Defense Lending Division (DLD) of the Treasury in Washington, D.C. On sucb date, tlie Boston Regional Office of the RFC was (except for a skeleton staff) closed.
(b) Under the procedure hereinabove described, a disbursement by RFC to Harvey-Whipple was initiated by Harvey-Whipple's making a request for such a disbursement to RFC which, among other things, specified what the money was to be used for. RFC then turned the request over to a Loan Examiner for investigation. The proposed use of the disbursement would have to conform to the loan agreement negotiated between RFC and Ilarvey-Whipple. Thereafter, the Loan Examiner would, after investigation, submit a memorandum either recommending or not recommending the disbursement. The memorandum would then be submitted to the Manager of the Boston Office, who was responsible for its approval or disapproval. If approved, appropriate 'arrangements would be made for the disbursement check to be drawn. In the event the Loan Examiner and Manager concluded that there had been an adverse change with respect to the borrower's ability to repay the balance due on its loan, the Manager of the Regional Office then had no authority to approve the borrower's request for funds. If such an adverse condition existed, the Manager was required to submit the borrower's request to the Board of Directors (or later to the Administrator) of RFC in Washington for final approval. However, no permission was required from Washington to make a disbursement unless an adverse change occurred.
(c) The Boston Regional Office of RFC was managed by Everett W. Barber, from July 1, 1953 to July 1, 1954, with Bernard F. O'Neill as Assistant Manager from June 1945 through June 1954. Edgar S. Black was a Loan Examiner in the office from 1952 to May 1954, and was assigned the Harvey-Whipple account.
12. On November 3, 1952, by a second Harvey-Whipple purchase order, Meriden agreed to deliver an additional 533,500 sets of the same components, the same number that had been ordered on June 25,1952, and constituting the balance of the components required for the contract. Harvey-Whipple had not been successful in obtaining a second source of supply.
13. By the end of 1952, there was still, for various reasons (including the steel strike and Harvey-Whipple's failure to obtain approval of its preproduction samples), no production on the tool contracts either by Meriden or Harvey-Whipple with respect to components or completed tools. For that year, Harvey-Whipple suffered another large loss ($147,000) and a further decline in its civilian heating equipment business. Its working capital fell to only approximately $12,000.
1,4. In January 1953, after the submission by Harvey-Whipple of a second set of preproduction samples, the Army approved the commencement of production by Harvey-Whipple and shortly thereafter Meriden commenced producing the component parts. Meriden was required to spend between $90,000 and $100,000 simply to tool up for its two subcontracts with Harvey-Whipple. Although, as set forth above, Meriden found that the banks it approached to finance the subcontracts were unwilling to lend the necessary funds, it ultimately was able to work out an arrangement with the Union & New Haven Trust Company of New Haven, Connecticut, for such financing loans provided, however, its president, Townshend, would personally endorse and guarantee the payment of Meriden's notes. To finance the performance of the subcontracts, Meriden found it necessaiy, by a series of loans, to borrow sums eventually totaling $210,000. The bank's representative in managing these loans was W. Perry Curtiss, its senior vice president. The only reason the loans were made by the bank was due to the personal underwriting of the loans by Townshend, who was known by the bank to be a wealthy man. Ultimately, Townshend personally repaid these loans. The bank's series of loans to Meriden commenced in January 1953.
15. Meriden thereupon proceeded to order the materials still required for the manufacture of the parts (it had already ordered the steel). During this entire period, Meriden was well aware that Harvey-Whipple was in poor financial condition.
16. The first deliveries of components from Meriden to Harvey-Whipple were in February 1953.
17. On February 27, 1953, the Army granted Harvey-Whipple a 154-day extension of time due to the steel strike. This extended the first delivery date of tools under one of Harvey-Whipple's three contracts to April 3,1953, and under the other two to May 3, 1953.
18. (a) On March 15, 1953, the corporate existence of Meriden was duly terminated. A "Certificate of Termination" to such effect was duly executed and filed in the office of the Connecticut Secretary of State on April 28, 1953. The tax loss which Toy Metal had realized upon the purchase of Meriden had by this time been used up, and it was now concluded that it was no longer necessary to have two corporations in existence with one simply being a wholly owned subsidiary of the other. Since Toy Metal owned all the assets of Meriden, Toy Metal remained as the surviving corporation.
(b) However, all active business had previously been carried on by Meriden. All contracts had been entered into, and all commercial transactions had been carried out, in such name, which was familiar to the trade, and Toy Metal therefore decided to carry on the business under such name. Accordingly, on March 25, 1953, Toy Metal duly executed and filed (in the office of the Town Clerk of Hamden, Connecticut, the principal place of business of both Meriden and Toy Metal) a Trade Name Certificate certifying that it was conducting business under the trade name of Meriden Industries Company. Toy Metal took over the performance of all the Meriden contracts, and carried them out under such Meriden name. However, its tax returns, both State and Federal, were filed under the Toy Metal name.
19. (a) During this first production stage, Harvey-Whipple was unable to make any substantial amount of acceptable completed tool deliveries to the Army. Thus, it could not generate cash from its cash collateral KFC bank account with which to pay its bills to its subcontractors and suppliers for their shipments of component parts.
(b) Harvey-Whipple's inability to ship substantial amounts of acceptable completed tools to the Army was due in part to (a) many rejections by defendant due to failure of the tools to pass the specification requirements, such failure being due to causes such as defective steel but also at least in part attributable to certain defective drawings which had been issued by the Army to Harvey-Whipple, as well as the less than satisfactory nature of certain specifications, (b) unbalanced deliveries of component parts by Meriden, preventing Harvey-Whipple from initiating large-scale assembly operations, (c) difficulty experienced by Meriden with its equipment for the preheating of the tubing out of which the sockets were to be produced, (d) a breakdown of Meriden's pick-making die and equipment, (e) Meriden's having to make a new forging die for the socket, (f) a breakdown, after installation, of Meriden's new socket-forging die, (g) poor inspection and quality control procedures by both Harvey-Whipple and Meriden, (h) the serious bottleneck caused by Meriden's failure, despite Harvey-Whipple's urging, to ship sufficient sockets and picks, and (i) Harvey-Whipple's inefficient assembly procedure in the fitting of Northern's handles to Meriden's sockets.
(c) By April 3,1963, the first delivery date under Harvey-Whipple's contracts, no completed tools had as yet been accepted by the Army.
20. On April 23, 1953, the September 30, 1953 maturity date of Harvey-Whipple's second RFC loan was extended to April 1,1954.
21. As a result of a three-day investigation at Harvey-Whipple's and Meriden's plants by Army representatives, commencing May 27, 1953, concerning Harvey-Whipple's failure to make deliveries, the Army concluded and recommended to Harvey-Whipple, among other tilings, that it obtain a second source of supply for the component parts Meriden was producing. By letter of June 30, 1953, to Harvey-Whipple, the contracting officer on the tool contracts also so Wrongly suggested in order to obviate such bottlenecks in production as had been caused by Meriden's pick-die failure which had caused delays in pick production of approximately two months. However, Harvey-Whipple was unable to obtain such a second source.
22. In July 1953, Northern, Harvey-Whipple's handle supplier, began complaining about its unpaid bills. It stated that from the beginning it had been unable to obtain bank financing because of Harvey-WTiipple's unsatisfactory financial condition and that it was therefore carrying the Harvey-Whipple account on its own resources, which was straining its financial situation.
23. In August, Meriden began complaining both to Harvey-Whipple and to the Army about the nonpayment of the approximately $32,000 which Harvey-Whipple then owed it for such components as it had shipped. Harvey-Wliipple was unable to pay its obligations to its subcontractor because of its inability to ship, and receive payment for, acceptable tools in any appreciable amornit. Although on August 7, 1953, Harvey-Whipple had finally completed its deliveries on the 50,000 tools required under the smallest of the three contracts (which deliveries had been due on April 3, 1953), by September 3, 1953, the Army had accepted only 20,000 tools on the other two contracts under which 600,000 had been scheduled for delivery by such date. Since Harvey-Whipple was in default on its Army contracts, the EFC would not, because of such adverse condition, make any further disbursements to Harvey-Wliipple. Thus, such disbursements were dependent on the Army contracts being in good standing because were there a cancellation of Harvey-Whipple's contracts for default, Harvey-Whipple would not have the wherewithal to liquidate the amounts already due EFC, let alone any further advances that would be made on account of the loan.
24. On September 8, 1953, Meriden ceased production and shipments of components to Harvey-Whipple because it was not being paid for its shipments and because of Harvey-Whipple's outstanding indebtedness to it. Meriden, being advised by Harvey-Whipple that its operations were hampered because EFC financing had been suspended, advised Harvey-Whipple it would not resume production until Harvey-Whipple's indebtedness to it was paid and assurances were forthcoming that future invoices would be promptly paid as they became due. Since Harvey-Whipple was dependent upon Meriden for the component parts, this shutdown action by Meriden effectively caused a cessation of further shipments by Harvey-Whipple to the Army. Harvey-Whipple closed down its assembly line and released its 35 employees who bad 'been engaged in tbe tool contract operations. However, on October 19,1953, tbe April 1,1954 maturity date of Harvey-Whipple's second RFC loan was extended to November 1, 1954. At tbe same time, $175,000 of tbe original $500,000 loan authorization was canceled.
In the meantime, as a result of credits due to Harvey-Whipple from Meriden with respect to past shipments, Harvey-Whipple's outstanding account to Meriden was agreed to amount to $20,000.
25. On September 21, 1953, tbe Army granted Harvey-Whipple a change order which revised certain drawings and specifications in certain respects about which Harvey-Whipple had complained, increased the contract price by almost $59,000, and again revised the delivery schedules on the two remaining contracts, making the next deliveries due November 30, 1953, which took Harvey-Whipple out of default. The changes made would necessitate the reworking by Meriden of some of its dies and tooling, but Meriden at first refused to increase its investment in the subcontracts until its past due accounts were paid in full. Thus, the suspension of production continued. However, Meriden subsequently decided to do what was necessary to get its dies and tooling in shape so as to resume production should Harvey-Whipple make a satisfactory financial arrangement with it. On October 30, 1953, however, its pick-forming die became damaged and a new one was not obtained until the end of November 1953.
For the above reasons, Harvey-Whipple was not able to meet the new revised delivery date of November 30, 1953.
26. On November 24, 1953, Harvey-Whipple again sought from the Army another extension of its delivery dates, i.e., a 30-day extension, to avoid the default which would again preclude further RFC financing. It urged Meriden's pick-die trouble as a reason for the extension, and gave assurances that it would obtain a second source of supply for the Meri-den components.
27. On December 4,1953, Townshend, accompanied by his attorney, inquired of the Union & New Haven Trust Company whether it would be willing to increase its outstanding-loan to Meriden (Toy Metal) so that Meriden could, assum ing Harvey-Whipple could make satisfactory financial arrangements with it, resume production with changed dies and tooling. However, the bank was reluctant to do so without better assurances that Harvey-Whipple would be able to meet its obligations to Meriden as they became due. Town-shend being familiar with Harvey-Whipple's dependence on the RFC, it was decided that Curtiss (the bank's senior vice president in charge of the Meriden account), should attempt to ascertain directly from RFC the nature of RFC's financial arrangements with Harvey-Whipple and what assurances RFC could give that Harvey-Whipple would pay its subcontractors. Accordingly, Curtiss then placed a long distance telephone call to Barber, the Manager of the Boston Regional Office of the RFC, and made such inquiry. However, Barber advised that since Harvey-Whipple was then in default on its Army contracts, RFC could make no further loan advances until the default was cured. Accordingly, the bank did not make any further loans to Meriden at that time, and Meriden continued in its suspension of production.
28. On December 8,1953, Harvey-Whipple's November 24. 1953 request for a 30-day time extension was granted, the next delivery date under the contracts thus being extended to December 31,1953.
29. On December 19, 1953, Townshend of Meriden conferred with Harvey-Whipple about its unpaid bills, but Harvey-Whipple stated its financial condition was such as to prevent its paying the bills or proceeding with the contracts. Townshend suggested an assignment of the contracts to Meriden, but this possibility did not materialize. On December 21,1953, Meriden advised Harvey-Whipple that since its accounts were still unpaid, it would persist in refusing to resume production, and on that day also so advised the Army directly. Harvey-Whipple, however, urged Meriden to resume production, assuring that, if it could keep itself out of default with the Army, RFC financing would then be in a position to resume and Harvey-Whipple could then pay Meriden for its shipments. Harvey-Whipple stated that it felt certain that Meriden could be paid approximately 14 days after Meriden would make a shipment of component parts to Harvey-Whipple because Harvey-Whipple planned to make weekly tool shipments to the Army. Meriden's components could thus be assembled into completed tools and shipped to the Army in a week and Harvey-Whipple envisaged an acceleration of the process of the Army's paying NFC, and RFC's releasing funds from such payment, so that Harvey-"Whipple could have the BFC funds in hand and be able to pay Meriden (and the other subcontractors) in another week. Thus Meriden would receive payment for any parts shipment made approximately two weeks after such shipment.
Consequently, Townshend began considering resuming shipments, but first decided to check personally with RFC in Boston as to exactly what arrangements Harvey-Whipple had with the RFC, and whether Harvey-Whipple's assurances of payment within 14 days, as described, were valid.
30. Following Meriden's December 21, 1953 advice to the Army that it would not resume production unless satisfactory financial arrangements were made for the payment of its bills, which indicated that Harvey-Whipple would again not be able to meet the extended December 31, 1953 delivery date (no deliveries of completed tools having been made in December), the Army requested Harvey-Whipple to indicate its capability of performing the contracts.
31. (a) On or about December 22, 1953, Townshend and his attorney went to the RFC Boston Regional Office to discuss the situation. They first conferred with Black, the Loan Examiner in charge of the Harvey-Whipple account, and then with Barber, the Manager. Meriden's representatives sought assurances from RFC that payment of Meriden's bills would be made, but Barber stated that there could be no such guarantee by RFC to any subcontractor, RFC's only contractual arrangement being with Harvey-Whipple, the prime contractor, and that Meriden, as a subcontractor, would therefore necessarily have to look to Harvey-Whipple for payment. The discussions included the suggestion by Meriden of c.o.d. shipments, but it was recognized that this would not be feasible since Harvey-Whipple would not have the cash in hand to make such payments. Meriden also suggested the establishment by RFC of some kind of an escrow fund from RFC loan moneys to be used only to pay Harvey-Whipple's subcontractors, but this suggestion too was negatived by-Barber. Such an arrangement was not within the terms of RFC's loan agreement with Harvey-Whipple. As such, it would in any event be beyond Barber's authority to put into effect. Since this would constitute a material change in Harvey-Whipple's loan contract, only higher officials in Washington could approve such an arrangement.
Meriden then inquired as to the possibility of Harvey-Whipple's being able to make payment within 14 days of Meriden's shipments of component parts, in accordance with Harvey-Whipple's plan. Barber then explained the system under which RFC had made its loan advances to Harvey-Whipple against Army payments that went into the cash collateral account (as above described) and stated the same procedure would be followed in the future should deliveries be resumed by Harvey-Whipple and the Army contracts and Harvey-Whipple's financial future be maintained in a status satisfactory to RFC. He explained that although RFC had retained and would retain from each Army payment a certain amount to be applied against the loan, the bulk of the payments would, if Harvey-Whipple qualified therefor, be released to Harvey-Whipple since it was known that Harvey-Whipple was dependent thereon for operating funds and payment of its bills. He also explained that Harvey-Whipple, in requesting the release of funds from the cash collateral account, would be obliged to state for what proper operating purposes the funds would be used. He also detailed the checks RFC had been making and would continue to make on Harvey-Whipple's financial condition, such as the required submission by Harvey-Whipple of periodic data concerning its financial condition, the status of the Army contracts and Harvey-Whipple's deliveries thereunder, and the amount of its inventories. He felt that if Harvey-Whipple converted Meriden's shipments into completed tools the same week that Harvey-Whipple received them, Harvey-Whipple could, by taking appropriate steps to expedite the submission of its bills to the Army, the forwarding of the Army's check to RFC, and the submission of Harvey-Whipple's request to RFC, receive its RFC disbursement in time to make payments to Meriden in 14 days.
(b) As a result of the information Townshend received from Barber at the above-described conference, Townshend concluded that the probability of obtaining payment for future shipments within 14 days was sufficiently good so as to warrant his starting up production again and resuming making shipments to Harvey-Whipple. In a conference with Harvey-Whipple on December 24, 1953, he advised that he would be willing to resume production and shipments on the basis of the 14-day credit plan that Harvey-Whipple had proposed.
32. (a) By letter of December 26, 1953, Harvey-Whipple responded to the Army's request for information concerning its capability of performing the contracts. It pleaded with the Army for another extension that would again remove its default and enable further BFC financing. It stated that, as a result of the change order, retooling had been necessary which was now complete and that if BFC financing could again become available, both Meriden and Northern would continue to furnish the necessary components, in accordance with their advices of December 24 and December 26, respectively. Harvey-Whipple again assured that additional sources of supply would be obtained for both the Meriden and the Northern components. In requesting another time extension of two months, i.e., to February 28,1954, for additional deliveries to be made in specified quantities (and a revised schedule thereafter), Harvey-Whipple stated that a grant of its request would enable it to secure the necessary BFC financing and to stay in business, as well as enable its suppliers to remain in business.
(b) Harvey-Whipple then followed up the December 26, 1953 letter with a conference with Army officials in Chicago on December 28,1953, at which Harvey-Whipple again urged a continuation of its contracts, and on December 29, 1953, it sent another letter to the Army in support of its request for a 60-day extension, stating that such an extension would avoid "a critical situation" for Harvey-Whipple, Meriden and Northern, and save the investment which BFC already had in the tool contracts.
33. For the year 1953, Harvey-'Whipple suffered another large loss of over $220,000, its civilian sales of heating equip ment baying continued to fall off sharply. As of December 31,1953, it was insolvent.
34. The Army took no action by December 31, 1953, upon Harvey-Whipple's request for an extension of its December 31, 1953 delivery obligations, nor was any such action taken in January 1954. Thus, in January 1954, Harvey-Whipple was in default on its contracts, being delinquent by the end of the month to the extent of 195,000 tools.
35. On January 26, 1954, Curtiss of the Union & New Haven Trust Company again called the RFC Boston Regional Office to ascertain the status of Harvey-Whipple's contracts, and talked to Bernard O'Neill, the Assistant Manager. However, O'Neill advised that the Harvey-Whipple matter was at that time being considered at higher levels in Washington. O'Neill was unable, therefore, to give Curtiss any definitive information.
36. On January 29, 1954, the November 1, 1954 maturity date of Harvey-Whipple's second RFC loan was extended to January 15, 1955.
37. On or about February 1, 1954, Harvey-Whipple, in order to stave off a default termination of its contracts, offered, in consideration of the grant of a further time extension and revision of its delivery schedules, to reduce the price of the remaining tools to be delivered by six-tenths of a cent per tool.
38. On February 5, 1954, Barber, the RFC Boston Office Agency Manager, called Curtiss of the Union & New Haven Trust Company and advised that the decision had been made by the Army to permit Harvey-Whipple to proceed with the contracts, that a new delivery schedule would be worked out which would take Harvey-Whipple out of default, and that this would permit the resumption of RFC financing under the procedures that had been previously described by Barber to Townshend and his attorney on December 22, 1953. As a result, the bank agreed that, upon the resumption of production by Harvey-Whipple and Meriden, it would continue to provide for Meriden's needs for working capital (under the same personal-guarantee-by-Townshend arrangement).
39. Harvey-Whipple's offer of a price reduction to keep its contracts out of default was acceptd by the Army, and the tool contracts were, on February 17, 1954, amended to so reflect. At the same time, a new delivery schedule was agreed upon, specified quantities being required to be delivered by April 15, 1954, and monthly thereafter with final deliveries to be made January 15,1955. Thus, NFC financing again became available to Harvey-Whipple.
40. Production operations thereupon resumed in February 1954, and weekly shipments of completed tools were thereafter made to the Army, with payments made therefor by the Army to the NFC, and disbursements made by NFC to Harvey-Whipple, as above-described. Harvey-Whipple submitted periodic reports to NFC concerning the status of the contracts, including weekly reports of the quantities of components sent to it 'by the subcontractors and the amounts it owed to its subcontractors.
Under the revised dra/wings and specifications, there was only a negligible number of rejections of completed tools.
41. Despite the resumption of production and the flow of NFC moneys to Harvey-Whipple, its financial condition remained critical. Although, as stated, NFC released to Harvey-Whipple the bulk of the moneys it received from the Army, i.e., approximately 86 percent, this amount was still insufficient to enable Harvey-Whipple, as it was operating, and under its contract price, to timely liquidate its obligations. Shortly prior to April 13,1954, a general notice was sent to Harvey-Whipple's creditors calling for a creditors' meeting to be held on such date. In view of such adverse change in Harvey-Whipple's financial situation, the NFC, coincident with such call, suspended the advancement of further funds to Harvey-'Whipple.
42. Since Meriden at this time had unpaid bills, and since Harvey-Whipple advised it that NFC had suspended the advancement of additional moneys, Meriden, by letter of April 21, 1954, advised Harvey-Whipple that it was suspending further shipments of components "until some suitable plan can be worked out." Further shipments to Harvey-Whipple were suspended. Thus, it became impossible for Harvey-Whipple to continue making any substantial shipments to the Army.
43. From the time Meriden liad resumed production in February 1954, it had bad difficulty witb its bot forming method of producing the sockets. It had experienced a high rate (approximately 25 percent) of socket rejection, a circumstance that an BFC engineer, who periodically visited both Harvey-Whipple's and Meriden's plants, criticized. Around May 1954, Meriden decided to change from the hot to the cold rolling or forming method. This change took approximately two months. Thus, the production of sockets ceased from early May to the end of June 1954. This too disrupted the entire production program under the contracts.
Harvey-Whipple commenced negotiations with Burlington Industries as a second source of supply for the Meriden components. The BFC engineer visited Burlington's plant and approved the company as such a second source.
44. (a) Faced with again falling into a default position on its revised delivery schedule, Harvey-Whipple, by letter of May 19,1954, sought a five-week delivery schedule extension from the Army. In support, it stated that Meriden's new socket method would result in fewer socket rejections, better production and a superior product, and that Burlington Industries, if the Army permitted the contracts to proceed, was ready to become a second source of supply. At around this time, Harvey-Whipple was able to persuade BFC to make certain loan advances so it could pay some of its debts, and by specific instructions and authorization from Washington, Barber in Boston was authorized to make certain limited advances to Harvey-Whipple (in addition to cash collateral account moneys) to pay for materials and supplies, as well as overhead expenses, "notwithstanding any adverse change."
(b) By letter of June 18,1954, the contracting officer, holding that inability to obtain satisfactory financing was not an excusable cause of delay, denied Harvey-Whipple's request. At that time Harvey-Whipple was in substantial default in its deliveries. The contracting officer warned Harvey-Whipple of some default action if substantial deliveries were not made in 30 days.
(c) By July 15, 1954, Harvey-Whipple's delinquency in deliveries was, on both of its contracts, almost 150,000 tools.
45. (a) On August 13, 1954, the Army issued a "Notice of Partial Termination For Default" on each of Harvey-Whipple's two contracts. The termination eliminated 319,740 tools from the 1,017,000 combined total originally required by the contracts. The contracts as a whole were, however, not terminated. The new delivery schedule that had been set up on February 17,1954, was allowed to stand but was readjusted in reduced amounts as a result of the terminations. Final deliveries under both contracts remained due on January 15, 1955.
(b) On September 17, 1954, Harvey-Whipple appealed the partial termination actions under the disputes clauses of its contracts.
46. Despite the reduced monthly quantities required to be delivered under the adjusted schedules, ITarvey-Whipple was still not able to make the balance of the deliveries in the required amounts. By January 15, 1955, the final scheduled delivery date, it was delinquent by over 410,000 tools. No second source of supply was ever obtained for the four components Meriden was manufacturing. However, near the end of 1954, Harvey-Whipple itself took over the manufacture of the blades, leaving Meriden with the manufacture of the picks, sockets, and hinges.
Although the delinquencies mounted, the Army permitted Harvey-Whipple to make such deliveries as it could, and the BFC, despite the adverse condition of its being in default on the contracts, continued, upon special authorization of the Administrator, to make advances to Harvey-Whipple against such shipments. On December 31,1954, the BFC extended the January 15,1955 maturity date of its second Harvey-Whipple loan to July 15, 1955, this being the fourth such extension.
For the year 1954, Harvey-Whipple suffered a loss of $180,-000 on its operations, its civilian heating equipment business again dropping drastically.
47. Shortly after the final contract delivery date of January 15, 1955, Harvey-Whipple again sought a contract time extension. In the meantime, and in the absence of a formal notice of default by the Army, it still continued to make some shipments, upon which BFC continued to make partial dis bursements. However, on February 10, 1955, tbe contracting officer issued a formal notice of default to Harvey-Whipple and gave it ten days to demonstrate its capability of effecting substantial deliveries. Such ten-day limit was extended, however, pending the holding of a requested conference with Harvey-Whipple.
48. On February 24,1955, Harvey-Whipple held a conference with the Army and urged the continuance of the contracts. As consideration, Harvey-Whipple offered another reduction of one-half cent in the unit price, as well as to withdraw its appeal of the partial termination notices and to release the Army from any claims Harvey-Whipple had against it (Harvey-Whipple was contending it had a claim against the Army for some $200,000).
By that time, the Defense Lending Division (DLD) of the Treasury Department had succeeded the BFC, and Harvey-Whipple assured the Army that DLD would continue its financing arrangement provided the Army would not declare the contracts to be in default.
49. (a) The Army accepted Harvey-Whipple's proposal and on March 17, 1955, entered into a supplemental agreement to such effect. A new delivery schedule was arranged for the approximately 347,000 tools remaining to be delivered under both contracts, with the final deliveries to be made in March 1956. At the same time, Harvey-Whipple gave the Army a release of any and all claims it had arising out of the contracts up to the date of the release.
(b) Thus, again cleared of its default, the July 15, 1955 maturity of Harvey-Whipple's second BFC loan was again extended (the fifth) to December 31, 1955.
50. Harvey-Whipple thereupon proceeded to make shipments under the new schedule in March, April, May, and June 1955, successfully meeting the contract requirements and keeping itself out of default. During this period it continued to receive DLD financing in the same manner as it previously had. However, it still had difficulty in defraying its obligations to its subcontractors. The amounts released by DLD' were insufficient to defray all of its operating expenses, some of which had increased since the first of the year. In February 1955, it had obtained a new handle sub contractor, Tatem Manufacturing Company, which replaced Northern, and which commenced shipping in March 1955. Harvey-Whipple was able to keep up its payments to Tatem in March, April, and May, but by June 15, it began to fall behind. Invoices representing shipments made on June 15, 17, 21, 24, and 28, totaling $4,777.50, remained unpaid as of July 1. Harvey-Whipple's heat treater's unpaid bills went back to March.
51. (a) In early July 1955, Tatem and some other subcontractors or suppliers, but not including Meriden (whose payments from Harvey-Whipple appear to have been current as of July 1,1955) began pressing Harvey-Whipple for payment of their unpaid invoices. Harvey-Whipple attributed the situation to its not receiving sufficient funds from DLD to enable it to defray its obligations.
(b) During the period July 6-12, Meriden made ten shipments of parts to Harvey-Wliipple, and submitted ten invoices, totaling $7,285.14. A payment was received on July 7, 1955 — the last one received by Meriden from Harvey-Whipple — and this brought the indebtedness down to $4,794.55 as of July 12, none of which was past due, however, under the 14-day credit plan arrangement between Meriden and Harvey-Whipple. However, on that date, Whipple, of Harvey-Whipple, called Townshend and advised that Harvey-Whipple would not be able to make any payment on these recent invoices in accordance with their 14-day credit arrangement. He again attributed Harvey-Whipple's inability to pay to the insufficiency of the funds it was receiving from DLD.
(c) The subcontractors, including Meriden, understood Harvey-Whipple's explanation concerning its current inability to pay its bills to mean that DLD was either withholding and retaining the entire amount of the Army's remittances, or that it was at least retaining unduly large amounts, and that the past practice of making substantial releases to Harvey-Wliipple from the Army's payments so that Harvey-Whipple could pay its operating expenses was being discontinued. However, this was an erroneous conclusion on their part. An analysis of the cash collateral account shows that on every shipment made by Harvey-Whipple in 1955, DLD released the bulk of the Army's proceeds to Harvey-Whipple. In June 1955, Harvey-Whipple was able to make weekly shipments, i.e., on June 6,10,17, and 24. On these shipments, it received the following amounts from the Army's payments to DLD:
Date of Shipment Funds Received by DLD from Army Amount Disbursed by DLD to Harvey-Whipple
June 6,1955.-$14,572.91 $14,062.14
June 10, 1955. 14,990.57 10,990.92
June 17,1955-. 14,572.91 11,372.91
June 24,1955-14,572.91 14,372.66
Total_ $58,709.30 $50,798.53
After June 24, 1955, however, Harvey-Whipple, for unexplained reasons, made no further shipments until July 11, 1955, and thus received no funds from DLD. However, on July 11,1955, Harvey-Whipple did make two shipments and received funds as follows:
Funds Received by DLD from Army Amount Disbursed by DLD to Harvey-Whipple
$19, 430. 55 $14, 594.17
14, 572. 91 10, 672.91
Total_$34, 003.46 $25,267.08
The disbursements to Harvey-Whipple with respect to these shipments were made by DLD on July 13,1955, the amounts retained by DLD being applied to the payment of principal and interest amounts on the loan as they became due. These were the last disbursements made. Thus, although Harvey-Whipple received DLD disbursements of over $25,000 on July 13, 1955 with respect to its July 11 shipments, it did not use any of these funds to liquidate its comparatively small indebtedness to Meriden or its other subcontractors or suppliers. The record does not show what disposition Harvey-Whipple made of these funds.
52. (a) As a result of Whipple's telephone call of July 12, 1955, Meriden decided that it would make no further shipments to Harvey-Whipple. On July 15, 1955, Meriden sent the following letter to Harvey-Whipple:
We regret to inform you that it is necessary for us to suspend operations on the manufacture of picks, sockets and hinges for the intrenching tool..
At a recent meeting of our Board of Directors it was determined that it is impossible for this Company to continue manufacturing and placing orders in advance for material to be used on this contract when the payment for shipments to you is on such an uncertain basis.
We regret very much having to take this action because we realize the hardships that both of us have been through on this contract. However, we have no alternative and feel that this action must be taken at tills time.
This letter was, as stated, written in the erroneous belief that DLD had at that time suspended the making of disbursements to Harvey-Whipple from Army payments (or was releasing unduly small amounts) and that that was the cause of Harvey-Whipple's then strained financial condition. Meri-den knew that Harvey-Whipple had no source of financing the tool contracts other than DLD.
(b) Since Meriden was Harvey-Whipple's key subcontractor, its refusal to make any further shipments of component parts caused a suspension in Harvey-Whipple's performance of the contracts.
(c) As is illustrated by said letter of July 15, at no time throughout the life of the Harvey-Whipple contracts or Meriden's subcontracts did Meriden ever make a direct demand upon the RFC or DLD for payment of its bills. It recognized that only Harvey-Whipple was liable to it and always looked to Harvey-Whipple alone for such payment.
53. (a) On July 18,1955, Mr. Kenneth Walker, president of Tatem Manufacturing Company, the handle supplier, talked by telephone with W. A. Henrich, the Assistant 'Chief of DLD's Administrative Division, Office of Loan Administration and Liquidation (which was handling the Harvey-Whipple loan), about its unpaid bills (approximately $6,000). He stated that Walter Harvey (chairman of the Harvey-Whipple Board of Directors) had indicated that Harvey-Whipple could not pay its obligations because DLD had been withholding excessive amounts from the Army payments. Henrich denied that this was the situation, stating that DLD had only been withholding the usual amounts, and that in any event, DLD had no responsibility to Harvey-Whipple's suppliers, who would have to look only to Harvey-Whipple for payment.
('b) As 'a result of this conversation, Henrich called Harvey-Whipple and complained to an official thereof (Pauly, its treasurer) about Harvey-Whipple's having given Walker the impression that DLD was improperly withholding excessive amounts from the Army's remittances. The official gave assurances that such statements had not been made and that Walker had received an erroneous impression.
(c) On July 20, 1955, Mr. P. C. Wilson of Blue Nidge Pressure Castings, supplier of the handle nut, called Hen-rich about its past due bills (approximately $3,100). The conversation was essentially similar to that of July 18,1955 between Walker and Henrich.
54. (a) On July 21,1955, Townshend of Meriden, Wilson of Blue Nidge Castings, Whipple (no relation) of the Springfield Heat Treating Company, Harvey-Whipple's heat treater, and Walker of Tatem Manufacturing went to the Army Quartermaster's Office in Chicago to ascertain the status of Harvey-Whipple's tool contracts which were then, insofar as Harvey-Whipple's performance was concerned, in a state of suspension. They advised they would make no further shipments of component parts to, or perform further services for, Harvey-Whipple unless their past due bills were paid. Since the basic problem appeared to be Harvey-Whipple's financial condition, the Army suggested that the subcontractors contact DLD in Washington. Thereupon, Wilson again called Henrich about Harvey-Whipple's and the subcontractors' situations and further inquired whether, if the subcontractors and Harvey-Whipple were to resume production, DLD could not assure the subcontractors that they would receive payment for their shipments of component parts to Harvey-Whipple. However, Henrich replied that the subcontractors would have to look for payment to Harvey-Whipple, and not to DLD, since their contractual relationship was only with Harvey-Whipple.
(b) Later that same day, Henrich again called Harvey-Whipple to complain about the apparent impression it had given the subcontractors that DLD was the cause of Harvey-Whipple's difficulties. This time his conversation was with Harvey, who too gave assurances that the subcontractors had an erroneous impression and stated that he would write letters to the suppliers to explain the true situation. At the same time, Harvey confirmed that Harvey-Whipple was in a state of suspension but that it was working on a plan of possible reorganization so that it could resume operations and complete the tool contracts. He was hoping that, if it could resume, DLD would be able to work out an arrangement whereby, on some shipments, it could release to Harvey-Whipple the full amount of the Army payment.
(c) Still later that same day, Walker of Tatem Manufacturing Company again called Henrich and stated that he had, in accordance with Henrich's previous advice, attempted to contact either Harvey or Whipple, but without success. Henrich informed Walker that both were probably engaged in conferences concerned with a possible reorganization of the company in an effort to continue operations.
55. (a) As he had promised Henrich he would do, Harvey sent the following letter, dated July 22, 1955, to Walker of Tatem Manufacturing Company (and apparently to the other subcontractors):
We want to clarify any possible misunderstanding which may have arisen as a result of our phone conversation earlier this week relative to deductions made by the Keconstruction Finance Corporation in Washington.
These deductions have been in strict accordance with a schedule set up by ourselves and were predicated on a schedule of shipments which was considered attainable.
Increases in the price of certain components have amounted to over $13,000.00 since the first of 1955. These increases had to be absorbed by us, and this resulted in slowing up of payments to our suppliers; which, in turn, caused delays in receipt of components and consequent slow down in production.
The resultant combination of the above and stoppage of two vital components prevented a shipment which was scheduled for July 15, and this precipitated the current strained situation.
We hope the above will make plain the canse of our difficulty.
(b) In addition to its unpaid June invoices, Tatem had by that time made three more Shipments on July 1, 6, and 14, increasing its indebtedness by an additional $2,221.17. As adjusted, Harvey-Whipple at that time owed Tatem $6,389.94. Upon the receipt of such letter, Tatem decided that the only shipments it would thenceforth make would be c.o.d. It made such shipments on July 25, 27, and 28.
56. (a) On Tuesday, July 26, 1955, Harvey-Whipple was in default on its EFC loans and Harvey-Whipple officials (Whipple and Pauly) conferred with DLD officials in Washington. They discussed, among other things, such default, as well as Harvey-Whipple's general situation. As of such date, Harvey-Whipple owed a balance of $216,362.97 on the second EFC loan and $134,402.34 on its first loan, making a total amount owed of $350,765.31. Harvey-Whipple had made no shipments of tools to the Army since July 11, 1955. However, it had on hand enough component parts to make a 10,000-tool shipment. Harvey-Whipple hoped that, if DLD would release sufficient funds from the Army's remittance for such shipment, Flarvey-Whipple would 'be able to make at least some partial payments to its suppliers and perhaps persuade them to continue to ship components. It was finally agreed at the conference that, if Harvey-Whipple made the shipment of tools, which it stated it would make on Friday, July 29, DLD would deduct from the Army's check of $19,-430.55, $5,200 for application to the loans and which would clear it of its default, and then release the balance of $14,-230.55 to Harvey-Whipple. Harvey-Whipple planned to have its representative hand-carry the Army's check from Chicago to the DLD in Washington, and there personally receive the DLD $14,230.55 check. Since early 1955, Harvey-Whipple had instituted the procedure of hand-carrying its invoices from its plant in Springfield, Massachusetts, to Chicago and then the Army's check to the DLD in Washington where it would receive from DLD its portion of the Army check. (Of the 56 disbursements made by EFC-DLD to Harvey-Whipple with respect to the tool contracts, 20 were made, because of Harvey-Whipple's constant dire need for cash, on the same date the funds were received from the Army. The remaining 86 were made within a week of the receipt of the funds.)
(b) However, later that day, three of Harvey-Whipple's subcontractors (Townshend, Whipple, and Wilson) had another meeting with DLD officials (at which Harvey-Whipple was not represented) and. advised that, as they had already informed the Chicago Quartermaster Depot, they had decided to make no further shipments of components, and to render no further services (such as heat treating) to Harvey-Whipple unless their past due indebtednesses were paid in full and satisfactory arrangements, in the nature of DLD guarantees, made for the payment of their future invoices. Walker of Tatem Manufacturing could not be present but he had sent a letter to DLD stating that Tatem agreed with the other subcontractors, that it had discontinued shipments, and that it would not resume "unless guarantee of payment can be given This decision by the subcontractors meant that, unless DLD lent Harvey-Whipple sufficient funds to pay the subcontractors' past due invoices from moneys other than the cash collateral account, Harvey-Whipple would not be in a position to complete the contracts. Even assuming that Harvey-Whipple would use the DLD funds to make payments to these particular subcontractors (Harvey-Whipple had not used the releases from the July 11 shipments to make payments to them), the arrangement previously made by DLD with Harvey-Whipple for the release of $14,230.55 to Harvey-Whipple would not be sufficient to meet the subcontractors' demands for full payment of their debts. However, the DLD officials told the subcontractors that the only funds they would presently make available to Harvey-Whipple would be, as was the situation for the most part in the past, a portion of the funds which came to them from the Army, i.e., DLD would proceed only on the basis of Harvey-Whipple's cash collateral arrangement and would not give any guarantees. This was not satisfactory to the subcontractors since such partial amounts released to Harvey-Whipple from the cash collateral account had not in the past resulted in the payment of their bills. They accordingly advised the DLD officials that they would no longer proceed with the performance of their subcontracts.
It was thus plain that the further performance of Harvey-Whipple's contracts was, to all intents and purposes, over and that there would, therefore, be no further financing by DLD with respect thereto. The DLD officials told the subcontractors that, in light of their position, no further DLD financing would be forthcoming to Harvey-Whipple. There is no showing that the subcontractors knew at this time of Harvey-Whipple's plans to make a shipment on Friday, July 29, or that they expected any payments from Harvey-Whipple as a result thereof.
57. By letter of July 27, 1955, to DLD, Harvey-Whipple confirmed the arrangement made the previous day whereby it would, on July 29,1955, ship 10,000 tools to the Army, and DLD would release $14,230.55 from the Army's payment therefor. At that time Harvey-Wliipple itself did not even have sufficient capital with which to defray the expenses necessary to make the proposed shipment. Consequently, a group of its employees made personal contributions of approximately $2,000 for the purpose of defraying such expenses, hoping to obtain reimbursement from the funds DLD was expected to release.
58. (a) On Friday, July 29, 1955, the DLD officials concluded that the conference they had had with the subcontractors on July 26 subsequent to their conference with Harvey-Whipple, and the adamant position taken by the subcontractors, which served in effect to terminate the contracts, had caused a change in the situation which prevailed previously when they had agreed to release the $14,200. Such agreement was predicated upon the possible continuance and completion of the contracts. However, in view of the subcontractors' position, the release of $14,200 to Harvey-Whipple would, insofar as contributing to continued contract performance was concerned, serve no useful purpose. They therefore decided to advise Harvey-Whipple that, as a result of their subsequent conference with the subcontractors, the arrangements that had been made at the conference with the Harvey-Whipple officials were, insofar as the DLD was concerned, no longer effective. Accordingly, DLD sent to Harvey-Whipple that day the following telegram:
we have been advised bt tour four principal suppliers THAT THET WILL NOTTFX OR HAVE ALREADY NOTIFIED YOU AND QUARTERMASTER THEY WILL MAKE NO FURTHER DELIVERIES OF COMPONENTS UNLESS PAST DUE ACCOUNTS ARE PAID. THIS WILL UNDOUBTEDLY PRECLUDE FURTHER SHIPMENTS BY YOU TO QUARTERMASTER. IN VIEW OF THIS ANY IMPLIED COMMITMENTS MADE DURING YOUR MEETING WITH BRODIE, DAVIS AND ME ON TUESDAY, JULY 26 ARE WITHDRAWN.
(b) On that day, Harvey-Whipple, as previously arranged, shipped 10,000 tools to the Army. The record does not indicate whether the shipment was made before or after it received the telegram. With this shipment, there was no delinquency by Harvey-Whipple at that time in the number of tools it was, under the revised monthly delivery schedules, required to ship.
(c) The record does not indicate that Meriden or any other subcontractor knew that Harvey-Whipple was going to make such shipment or that Harvey-Whipple made any promises of any payment to any subcontractor from the funds Harvey-Whipple expected DLD to release to it with respect to such shipment.
59. (a) By letter of July 29, 1955 to the Chicago Quartermaster Depot, Meriden advised as follows:
With reference to the recent visit to your Depot of subcontractors manufacturing parts for the Harvey-Whipple Company, Springfield, Massachusetts, used on the intrenching tool, this Company wishes to advise that no further deliveries will be made to the prime contractor on sockets, hinges and picks.
This action is being taken only after a visit to the RFC disclosed that that Agency would not make available additional financing for the prime contractor, except on an invoice discounting basis and the prime contractor has stated it has no other source of financing immediately available. The prime contractor has stated to us that he is unable to pay past due invoices and cannot meet payment of invoices on our credit terms. As a consequence, we have suspended shipments to the prime contractor, have notified him and are so notifying you.
(b) By letter of August 1, 1955, Harvey-Whippie's beat treater, tbe Springfield Heat Treating Company, advised Harvey-Wbipple that it would not resume beat treating until its account was paid in full.
(c) By letter of August 2, 1955, Blue Bidge Castings, Harvey-Wbipple's supplier of nuts, similarly advised tbe Army that it would withhold future shipments unless its delinquent invoices were paid in full.
(d) By letter of August 3, 1955, Tatem advised Harvey-Whipple that unless it received prompt payment of its outstanding indebtedness of $6,389.94, it would be obliged to take appropriate collection action, and that it would not resume shipments of handles unless its account was paid in full.
Thus, after its July 29th shipment, Harvey-Whipple was no longer able to proceed with the performance of the contracts.
60. (a) The July 29,1955 shipment of 10,000 tools was the last made by Harvey-Whipple on the contracts. On August 1, 1955, Harvey went to Chicago, obtained the Army check for the shipment, and then went to Washington where, on August 2,1955, he turned it over to DLD. At that time, however, Henrich advised that in light of the information DLD had received from the subcontractors, which would make it impossible for Harvey-Whipple to further perform the contracts, as set forth in DLD's telegram of July 29, and the fact that Harvey-Whipple was then in default on its loan, DLD had decided to release no part of the proceeds of the check to Harvey-Whipple. This decision had been made by the Assistant Secretary of the Treasury (the former Administrator of the BFC having become the Assistant Secretary of the Treasury in charge of the liquidation of the BFC), since such a deviation from the past practice of releasing a part of the Army proceeds to Harvey-Whipple would have to be approved by such official. At a conference the following day between Harvey, Whipple, and Pauly of Harvey-Whipple, and several DLD officials, the DLD decision was reaffirmed. DLD retained the full proceeds of the $19,430.55 Army pay ment, applying such, amount to Harvey-Whipple's indebtedness on the BFC loans.
(b) The record is not sufficient to show whether, had DLD released the $14,230.55 to Harvey-Whipple as discussed at the July 26,1955 meeting between the DLD and the Harvey-Whipple officials, Meriden would have received any part thereof, or if so, how much. As stated, although DLD had released over $25,000 to Harvey-Whipple on July 13, 1955, Meriden had failed to receive any part thereof. Thus far in 1955, Harvey-Whipple's losses had continued. Its loss on its 1955 overall operations, including its heating equipment business, was almost $126,000. It was hopelessly insolvent, with a deficit in working capital of over $293,000.
61. In August 1955, Meriden attempted to work out a plan with the Army whereby Meriden and the other principal subcontractors would take over the Harvey-Whipple tool contracts and completed them. Of the 1,067,000 tools originally called for by Harvey-Whipple's three contracts, only 520,260 had been shipped. However, under the Army's partial terminations of August 13,1954, 319,740 tools had been eliminated from the total orginally contracted. Thus, only 227,000 tools remained to be delivered. However, Meriden's plan never materialized. Meriden itself was in a precarious financial situation at that time.
62. On September 9, 1955, Harvey-Whipple filed a petition for reorganization under Chapter X of the Bankruptcy Act. However, no such reorganization plan was ever presented to the District Court, and on July 27, 1956, the petition was discharged.
63. On January 30 and February 4, 1957, the Army formally terminated for default the Harvey-Whipple contracts.
64. DLD instituted proceedings to foreclose the mortgages it took on Harvey-Whipple's plant and property as security for its loans. A judgment for foreclosure was entered on March 8,1957, and the sale of the property was completed on March 21, 1958. However, the proceeds of the sale were not sufficient to cover Harvey-Whipple's indebtedness, the deficiency amounting, as of October 24,1958, to $156,578.03. In terest bas accrued on such amount from such date at the rate of $21,449 per day.
65. There is due to Meriden from Harvey-'Whipple the sum of $4,794.55 for its unpaid invoices representing the last deliveries of components. Harvey-Whipple has no assets out of which it can make payment of any sums due Meriden.
66. As of July 31, 1955, Meriden had on hand, as shown by an inventory taken on such date, materials, including work in process, that it had acquired and was fabricating for the Harvey-'Whipple tool contracts. The value of these materials and work in process resulted in an ultimate net loss of $14,052. 82, as follows:
(a) The value of the inventory of materials and work in process on July 31,1955, was $19,272.17.
(b) The July 31, 1955 inventory valuation of $19,272.17 is reduced by $4,700. 35 as a result of subsequent sales of inventory materials.
(c) The balance of the material remaining in the inventory was not salable except as scrap. In December 1956, there remained on hand in Meriden's inventory an amount of material procured specifically and solely for the Harvey-Whipple contracts, totaling 36,423 pounds. This scrap material is salable at a price of about $15 a ton at the present time. The conversion of the inventory from parts to scrap gives a valuation of $519 on December 31, 1956. Meriden has no way to salvage the parts by assembling them into completed shovels.
(d) With the further credit of $519 for the scrap value, the loss to plaintiff on materials and work in process is reduced to $14,052.82.
However, $1,411.78 of Meriden's $14,052.82 inventory claim, computed as set forth above, constitutes rejected materials. Accordingly, such amount is not compensable on any theory. Deducting said amount, Meriden's net inventory loss, measured by the value of the inventory usable for the performance of the tool contracts, is $12,641.04.
67. The total loss sustained by Meriden on the subcontracts for the Harvey-Whipple intrenching tool contracts was, including investments in tools and dies, approximately $300,-000. Townshend himself repaid $210,000 to the Union & New Haven Trust Company as a result of his personal guarantee of Meriden's indebtedness to tbe bank on the series of loans the bank made to Meriden to finance the subcontracts.
68. (a) On April 15, 1957, there was introduced in the House of Representatives, 85th Congress, 1st Session, House Bill H.R. 6923, which read as follows:
A Bill
For the relief of Meriden Industries Company.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury is authorized and directed to pay, out of any money in the Treasury not otherwise appropriated, to the Meriden Industries Company, Hamden, Connecticut, the sum of $24,357.42. The payment of such sum shall be in full settlement of all claims of the Meriden Industries Company against the United States for amounts due such company as a subcontractor to Harvey-Whipple, Incorporated, Springfield, Massachusetts, under contract CLN-DA-11-009-QM-18702, 18703, 18704, entered into between Harvey-Whipple, Incorporated, and the Chicago Quartermaster Depot, Department of the Army: Provided, That no part of the amount appropriated in this Act in excess of 10 per centum thereof shall be paid or delivered to or received by any agent or attorney on account of services rendered in connection with this claim, and the same shall be unlawful, any contract to the contrary notwithstanding. Any person violating the provisions of this Act shall be deemed guilty of a misdemeanor and upon conviction thereof shall be fined in any sum not exceeding $1,000.
SEC. 2. Upon the payment to the Meriden Industries Company of the sum authorized by the first section of this Act, all rights and remedies of such company against Harvey-Whipple, Incorporated, to recover amounts due such company as a subcontractor to such corporation under the contract referred to in such first section, shall be transferred to the United States.
The $24,357.42 figure contained in section 1 of the bill is the sum of $4,794.55, the amount of Meriden's unpaid invoices (finding 65) and $19,562.87, the amount Meriden was then claiming as the value of its inventory on hand as of July 31, 1955.
(b) On March 25, 1957, a bill (H.E. 6358) had been introduced for the relief of the Tatem Manufacturing Company.
69. After production on the Harvey-Whipple contracts ceased, Meriden was unable to finance any new business and could obtain no new capitalization.
On October 31, 1957, the corporate entity of Toy Metal was terminated, although it has continued (under the name of Meriden) to prosecute this claim, the laws of the State of Connecticut permitting dissolved corporations to continue their existence for the purpose of collecting any assets to which they may be entitled.
70. On April 22, 1958, the House of Eepresentatives, 85th Congress, 2d Session, agreed to House Eesolution 519, which read as follows:
Resolved, That the bills (H.E. 6358) entitled "A bill for the relief of the Tatem Manufacturing Company" and (H.E. 6923) entitled "A bill for the relief of Meriden Industries Company", together with all accompanying papers, are 'hereby referred to the Court of Claims pursuant to sections 1492 and 2509 of title 28, United States Code; and said court shall proceed expeditiously with the same in accordance with the provisions of said sections, and report to the House of Eepresentatives at the earliest practicable date, giving such findings of fact, including an analysis or the amounts included as the basis for the sums stated in the bills, and conclusions thereon, as shall be sufficient to inform the Congress of the nature and character of the demands, as claims legal and equitable, against the United States.
71. (a) On April 1, 1958, the House of Eepresentatives, 85th Congress, 2d Session, had also agreed to a House Eesolution (No. 487) referring to this court a House Bill (H.E. 9552) for the relief of Harvey-Whipple. By decision of March 12, 1965 (motion for rehearing denied June 11, 1965), this court reported to the Congress that Harvey-Whipple had no claim, legal or equitable, against the United States. The principal basis for this conclusion was the release executed by Harvey-Whipple on March 17, 1955 (finding 49(a)) for which it received valuable consideration, the matters about which Harvey-Whipple was complaining having antedated the release. (169 Ct. Cl. 689, 342 F. 2d 48.)
(b)Meriden's petition herein was filed on October 20, 1958. However, trial proceedings were suspended pending the completion of the Harvey-Whipple proceedings.
Defendemos Counterclaim
72. (a) Defendant asserts a counterclaim against Meriden based upon an agreement dated March 6, 1950, whereby Meriden agreed to furnish to the Department of the Army 3,000 parts for Browning Automatic Rifles at a total price of $939. On or about May 26,1950, the parties entered into a similar agreement for delivery of 3,000 parts for the same type rifle for the contract price of $750.
(b) Meriden failed to deliver the required amount of parts under the March 6, 1950 contract and thereafter refused to perform the May 26,1950 agreement until the March 6,1950 contract was resolved to its satisfaction. Defendant terminated both contracts for default on grounds of anticipatory breach.
(c) Defendant thereafter purchased, at an excess cost of $829.95, the parts which Meriden had agreed to furnish.
(d) The parties have stipulated that judgment may be entered against Meriden for the sum of $813.62, being the balance due defendant with respect to such excess cost, plus interest. The parties have not stipulated, nor does the record show, when defendant purchased the supplies. Accordingly, interest at six percent should be calculated from December 30, 1958, the date of the filing of the counterclaim herein.
Conclusion of Law
Upon the foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes that as a matter of law plaintiff is not entitled to recover and its petition, insofar as it asserts a claim under the general jurisdiction of this court, is therefore dismissed.
It is further concluded that defendant is entitled to recover on its counterclaim against plaintiff and it is therefore adjudged and ordered that defendant recover of and from the plaintiff the sum of eight hundred thirteen dollars and sixty- two cents ($813.62) on its counterclaim, plus interest at six percent per annum from December 30, 1958.
It is further concluded that, upon said findings and opinion, plaintiff has not stated a claim either legal or equitable against the United States, and that such findings and opinion be reported to the House of Representatives in accordance with House Resolution 519, 85th Congress, 2d Session.
The opinion, findings of fact, and recommended conclusion of law are submitted under the order of reference and Rule 57(a).
The court found in Harvey-whipple's case (findings 127-128) that the record did not sustain Harvey-Whipple's contention that its financial plight when it suspended operations in 1955 was due in any substantial or measurable amount to alleged breaches of contract by the Government.
By that time the Defense Lending Division of the Treasury Department had succeeded the EEC. However, the agency will be referred to herein throughout as the REG.
After subsequently applying amounts collected as a result of foreclosure proceedings, there was still due the RFC $156,578.03 on, account of Its loans to Harvey-Whipple.
Meriden's existence as a Connecticut corporation -was terminated in 1953. Thereafter, the business -was conducted by Toy Metal Mfg. Company, another Connecticut corporation -whose stock was also wholly owned by Townshend. However, Toy Metal continued to carry on under Meriden's name, duly executing and filing the required Trade Name Certificate certifying that it was conducting business under the trade name of Meriden Industries Company. The relief bill introduced in the House of Representatives was for the benefit of Meriden. However, on October 31, 1957, prior to tbe time tbe House of Representatives, by Resolution, referz'ed the relief bill to this court for a report, Toy Metal too was dissolved.
The petition filed herein on October 20, 1958, on behalf of Meriden recites that "The plaintiff is a corporation organized under the laws of the State of Connecticut and at the time of the filing of this petition and all times mentioned herein maintained and maintains its principal office in the Town of Hamden, County of New Haven and State of Connecticut."
The Goverment sayB that the claim herein should not even be considered on the merits because the allegations in the petition (and the similar statements made to the Congress) are false, that there no longer is a "Meriden" entity, that even its successor corporation, Toy Metal, no longer exists, and that there is no proper claimant at all before Congress or this court.
However, while the allegations of the petition are not technically correct, nevertheless, in view of Toy Metal's carrying on of the business in Meriden's trade name, the lawfulness of which defendant does not challenge, and the fact that the laws of the State of Connecticut both at the time the petition was filed (Conn. Gen. Stat., § 33-7) and now (§ 33-378 (e)) permit dissolved corporations to continue their existence for the purpose of collecting any assets to which they may be entitled, defendant's contention lacks merit. In fact, the claim is for the benefit of Townshend, who was the sole stockholder of both Meriden and Toy Metal.
Meriden's original price for each set of the four components it was manufacturing was $0.70. However, some time in 1954, the price was increased to $0.84 per set.