Opinion ID: 268421
Heading Depth: 1
Heading Rank: 4

Heading: subcontractors' right to relief

Text: 63 Along with its own claim, Acme has brought suit on behalf of a number of firms to which it sublet portions of the prime contract. The three major subcontract claims are those of All Metals Industries, Manalapan Machine Works, and Foley Machine Company. Each of these subcontractors obtained orders from Acme through the payment of kickbacks to Harry K. Tucker, Jr. 38 See findings 18-23. At the time the kick-backs were given, All Metals knew of Tucker's double agency, and the other two subcontractors either knew or should have known of it. On the other hand, Acme was unaware of Tucker's duplicity. 64 When a contract is obtained by a person secretly acting as a dual agent, and one party knew or should have known of the double employment, only the innocent party has the option of either affirming or avoiding the agreement. 39 Affirmance is not effective as ratification until after the innocent party obtains full knowledge of the material facts concerning the fraudulent procurement. See Restatement, Agency 2d, §§ 91, 313. In the present case, it was not until well after cancellation of its prime contract that Acme, the innocent party, learned of the kickback arrangements. See Acme Process Equipment Co. v. United States, Ct.Cl., No. 538-59, 347 F.2d 538, fn. 20, decided this day. Prior to that time, it did not have the requisite knowledge to effect ratification. 65 When its prime contract was canceled by the Government, Acme responded by immediately requesting all its subcontractors to halt performance. From that time forward, the plaintiff had nothing to gain by ratification of its voidable subcontracts. Yet long after conclusion of performance, Acme has nonetheless chosen to ratify these agreements. The reason is not difficult to discern: Only if Acme is liable to the subcontractors, may Acme recover from the defendant in their behalf. See J. L. Simmons Co. v. United States, 304 F.2d 886, 158 Ct.Cl. 393 (1962). Acme was apparently willing to affirm the agreements on the theory that the Government would probably bear any resulting liability. 40 As is pointed out in the discussion of All Metals' claim in the companion case, No. 538-59, this form of after-the-fact ratification cannot be accepted since it violates the rule that affirmance is    inoperative as ratification    as against persons who in the meantime have acquired interests with which it would be unjust to interfere. 2 Williston, Contracts § 278A n. 1 (3d ed. 1959). 41 See, also, Restatement, Agency 2d, § 101(c). Had Acme acted reasonably, avoiding these subcontracts after it found out about the improper double agency, the Government would not be liable. This freedom from liability is an interest with which it would be unjust to interfere. Acme's attempt to destroy that interest by post-cancellation ratification of the moribund subcontracts is unavailing. 66 It is still necessary to determine whether the Government would be liable to All Metals, Manalapan, and Foley, if Acme had in fact avoided these subcontracts, as we have held it was bound to do. Before a contract may be rescinded because of its fraudulent procurement by one of the parties, to prevent unjust enrichment, the defrauded party is generally required to return the goods it received under the contract, or their reasonable value. See Restatement, Restitution §§ 65, 66. Since these three subcontractors would have been entitled to the reasonable value of the goods they actually delivered, the defendant should in turn be liable to that extent. 42 Cf. Crocker v. United States, 240 U.S. 74, 81-82, 36 S.Ct. 245, 60 L.Ed. 533 (1916). In the future proceeding before the Commissioner, if plaintiff is able to prove that the value of the items delivered by any of the three subcontractors exceeded the total amount it was paid, then recovery on behalf of that subcontractor will be permitted — unless the Severin doctrine is a bar (see footnote 41, supra). 67 With respect to the claims of the remaining subcontractors, there has thus far been inadequate proof of damages. Although the defendant audited the accounting records of each one, such verification is no substitute for actual evidence of injury. See River Constr. Corp. v. United States, 159 Ct.Cl. 254, 271 (1962). When this question arose during the trial, plaintiff's counsel acknowledged that further proof was required, explaining that, although the other subcontractors had been invited to submit more detailed claims, they had failed to do so. Tr. 1396-97. These claims being unproved, they cannot be accepted at the present time. Plaintiff, however, may present further proof, if it can, in the proceedings under Rule 47(c).