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United Nations Korean Reconstruction Agency v. Glass Production Methods Inc.

May 17, 1961


Before Lumbard, Chief Judge, Madden, Judge, United States Court of Claims,*fn* and Waterman, Circuit Judge.

Author: Lumbard

LUMBARD, Chief Judge.

These are appeals from judgments entered by the United States District Court for the Southern District of New York denying relief to the United Nations Korean Reconstruction Agency (hereinafter UNKRA) on its claims against Glass Production Methods, Inc., formerly Frazier-Simplex International Corporation (hereinafter International), and Frazier-Simplex, Inc. (hereinafter Simplex). In its complaints, UNKRA alleged that Simplex had, through its agent International, contracted with UNKRA for the design and construction of a flat glass plant in Korea, or that it had created apparent authority in International to enter into such a contract in its behalf. Both Simplex and International are also charged with fraud, and International with breach of a warranty of authority. Simplex repudiated the contract signed by International, and UNKRA brought these suits to recover for the added expenses and delay caused by the repudiation.

The actions were consolidated for trial. After hearing the evidence, Judge Weinfeld filed an opinion, 184 F.Supp. 51, in which the facts are fully stated and we need not repeat them here. He held that Simplex had been bound to perform under the contract signed in its name by International because it had created apparent authority in International to sign a contract in its behalf; that UNKRA thereafter waived all its claims against Simplex in exchange for Simplex's promise to perform engineering services for the plant to be built in Korea; and that all rights against International arising out of the negotiations leading up to the first contract signed by International were surrendered by UNKRA in exchange for International's promise to supervise various phases in the construction of the plant. The court directed entry of final judgment for the defendants, and the plaintiff has taken these appeals.

UNKRA maintains that the district court erred in several respects, some involving questions of fact on which our power to review is limited by Rule 52(a) of the Federal Rules of Civil Procedure, 28 U.S.C.A., and others turning on the construction of written contracts, which are fully open to appellate review. See Iravani Mottaghi v. Barkey Importing Co., 2 Cir., 244 F.2d 238, 248, certiorari denied 1957, 354 U.S. 939, 77 S. Ct. 1402, 1 L. Ed. 2d 1538.

1. The first contract signed by any of the parties was the one of June 1954, to which Lyon McCandless, International's principal executive officer and Thomas Jamieson, contracting officer for UNKRA, were signatories. UNKRA does not claim here that McCandless had actual authority from Simplex to enter into this contract on its behalf. The agreement between Simplex and International clearly reserved to Simplex the right to reject any business submitted to it by International, and Simplex exercised this prerogative.

Judge Weinfeld found, however, that Simplex had, by its arrangement with International and by its acquiescence in the acts of International, conferred on McCandless apparent authority to conclude an agreement that would bind Simplex. The facts upon which this conclusion is based are supported by the record, and we agree with the trial judge's finding that the appearance of authority in International was "abundantly established."

Simplex contends that the doctrine of apparent authority is available only to parties who act with reasonable prudence, and that UNKRA was not justified in relying on the representations of McCandless. Judge Weinfeld disagreed and held that "UNKRA * * was justified in relying upon the apparent authority of International to enter into said agreement." 184 F.Supp. at page 57. This conclusion required the formulation of a standard of care and an application of that standard to the facts as determined by the trial court. Under the rule in this circuit, such a finding is freely reviewable on appeal. Romero v. Garcia & Diaz, 2 Cir., 1960, 286 F.2d 347, 355, certiorari denied 1961, 81 S. Ct. 905, and cases there cited.

On the record in this case, we agree with Judge Weinfeld's conclusion that UNKRA was reasonable in relying on the indicia of authority conferred upon International by Simplex. Not only did Simplex forward the original request for information submitted by UNKRA to International for response, but it permitted International to distribute advertising material the content of which implied that International was Simplex's alter ego "Outside the U.S.A." The mere fact that the contract was a specialized and detailed one and that it called for a considerable expenditure of funds did not impose upon UNKRA the duty of inquiring as to the written authority of International, which it may well have considered to be established beyond question.

Since we agree with Judge Weinfeld that Simplex was bound by the contract of June 1954 because it had conferred indicia of authority on International, we need not inquire into whether, regardless of any apparent authority, Simplex ratified the contract by its actions after June 1954.

2. In October 1954, when UNKRA discovered that Simplex did not consider itself bound by the contract of June 1954, UNKRA entered into negotiations directly with Simplex, which then maintained that it was not obligated to perform under the June contract. As a result of these conferences, a contract was signed in January 1955 by J. Earl Frazier for Simplex, John L. Thurston for UNKRA, and Lyon McCandless for International and for Frazier-Simplex Korea, Inc., a newly organized Connecticut corporation not a party to this litigation, which was the assignee of the June contract and which undertook responsibility for the work other than the engineering duties which were assumed by Simplex. Under the contract Simplex agreed to perform the engineering and design services required for the construction of the flat glass plant in Korea. It was Simplex's conduct during these conferences which, according to UNKRA's complaint, amounted to fraud and vitiated the agreement which the parties reached in January.

In the district court UNKRA contended that Simplex's false disclaimer of liability and its failure to disclose the full terms of its agency agreement and dealings with International amounted to fraud. UNKRA's counsel testified that the attorney for Simplex had refused to show him a copy of the agency agreement between Simplex and International, and that all during the negotiations prior to the January 1955 contract UNKRA was ignorant of the real relationship between Simplex and International. Simplex's attorney testified to the contrary. Judge Weinfeld resolved the issue of credibility in favor of Simplex and decided that "the terms of the agency agreement were known to UNKRA's representatives before the January 1955 agreement was signed." We accept this finding of fact as it is not shown to be clearly erroneous. Federal Rule of Civil Procedure 52(a).

On this appeal UNKRA abandons its claim of fraud and contends that the January 1955 contract was voidable because UNKRA accepted its terms under a material mistake of fact or law induced by Simplex. UNKRA claims that Simplex did not, during the course of the negotiations, disclose fully the part it played in creating the appearance that International had authority to bind Simplex. Thus, even if, as Judge Weinfeld found, Simplex in good faith disputed its liability without any purpose of misleading UNKRA, UNKRA would have us relieve it of the effect of the January 1955 contract on the ground that Simplex's conduct during negotiations was in fact misleading. This contention is without merit.

The issue of Simplex's liability under the June 1954 contract was disputed by the parties in good faith. UNKRA certainly had knowledge of the representations which had caused it to believe that International had been authorized to bind Simplex, and it could have discovered the source of those representations during the conferences with Simplex by asking Simplex's attorney about them. Simplex did not believe that it was liable on the contract, and it was not obliged to volunteer, for ...

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