Black Industries, Inc. v. Bush

United States District Court for the District of New Jersey · Contracts

ContractsPublic policySummary judgmentpublic policycontract validitysummary judgmentmiddleman compensationgovernment-related contracts

Facts

Black Industries alleged that Bush agreed to manufacture parts that Black had arranged to sell to The Hoover Company and, in a second transaction, to Standby Products Company, with Black to retain the difference between Bush's quoted prices and the customer prices as compensation. The April 13, 1951 memorial document for the Hoover transaction provided that Bush would manufacture and ship the goods, while Black would service the contract, handle billing, collect payment, remit Bush's share, and retain the balance. Bush argued that Black's profits were excessive, that the arrangement concealed those profits, and that the parts were to be used in products sold under government defense contracts. Bush sought summary judgment solely on the ground that the agreements were void as against public policy.

Issue

Are private contracts under which a middleman earns substantial compensation on goods ultimately incorporated into products sold to the government void as against public policy, so that the defendant is entitled to summary judgment? More specifically, does the alleged arrangement fall within established public-policy categories such as inducing official action, illegal-object contracts, or collusive bidding on government contracts?

Rule

Courts should not invalidate freely made contracts as against public policy absent definite indications in law or precedent, long governmental practice, statutory enactments, or obvious ethical or moral violations. A contract is not void merely because a middleman receives large compensation on a transaction connected indirectly to government purchasing, and courts will not invalidate an arm's-length agreement solely on the basis of the relative adequacy of consideration.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

Riverton Tooling, a parts broker in Columbus, arranges for Mesa Forge of Tulsa to manufacture valve inserts for Lakefront Systems, a private company in Milwaukee. Lakefront will use the inserts in equipment it later sells to the federal government, and Riverton's compensation is the spread between Mesa Forge's quote and Lakefront's purchase price.

Mesa Forge refuses to perform and argues the agreement is void as against public policy because Riverton's profit is large and will ultimately be passed on to the government. How should a court rule on that argument?

Explanation. The majority held that courts should not invalidate freely made contracts on generalized public-interest grounds. Where the parties deal privately and the government's only connection is that it is the ultimate purchaser of a product containing the goods, the contract is not void merely because a middleman earns substantial compensation. The agreement does not fall within recognized categories such as inducing official action, performing an illegal act, or collusive bidding. (Derived from Black Industries, Inc. v. Bush (n.d.).)