Black Industries, Inc. v. Bush
110 F. Supp. 801 (1953)
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Rule of Law:
A contract between private parties is not void as against public policy merely because it allows a middleman to earn a very high profit on goods that will ultimately be incorporated into a product sold to the government, absent evidence of an illegal act, improper influence on a public official, or collusive bidding.
Facts:
- Black Industries, Inc. (plaintiff) secured an opportunity to supply parts (anvils, holder primers, plunger supports) to The Hoover Company.
- Black Industries contracted with George F. Bush (defendant) to manufacture these parts at fixed prices.
- Black Industries' compensation was to be the difference between the price it paid Bush and the higher price The Hoover Company agreed to pay Black Industries.
- This arrangement resulted in profit margins for Black Industries ranging from approximately 39% to 84%.
- The parts were components for products The Hoover Company was producing under government defense contracts.
- A similar arrangement was made for parts to be supplied to Standby Products Company, also for government contract fulfillment.
- Bush failed to manufacture and deliver the parts as agreed upon in both contracts.
Procedural Posture:
- Black Industries, Inc. filed a complaint against George F. Bush in federal court for breach of contract.
- Bush filed an answer, asserting several defenses, including that the contract was void as against public policy.
- Bush then moved for summary judgment in his favor on the grounds that the contracts were void as against public policy.
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Issue:
Does a private contract for the manufacture of goods violate public policy and become unenforceable simply because the plaintiff, acting as a middleman, stands to gain a substantial profit on goods that are components of a final product sold to the government?
Opinions:
Majority - Forman, Chief Judge
No. A private contract is not rendered void as against public policy simply because one party earns a large profit, even if the goods are ultimately used for government contracts. For a court to invalidate a contract on public policy grounds, there must be a plain indication of that policy in statutes or legal precedents, such as contracts involving bribery, illegal acts, or collusive bidding. The contract at issue does not fall into any of these prohibited categories, as neither party dealt directly with the government, and the agreement did not involve influencing public officials or rigging bids. The court will not evaluate the adequacy of consideration in a contract between business people dealing at arm's length, and it is not the court's function to act as a price regulator; other mechanisms, like the Renegotiation Act, exist to protect the government from excessive pricing.
Analysis:
This decision reinforces the principle of freedom of contract and the judiciary's reluctance to intervene in private, arm's-length business transactions. It narrowly construes the public policy exception, limiting its application to contracts that are clearly contrary to established law or ethical standards, such as those involving corruption or illegality. The court explicitly defers to legislative and executive mechanisms for controlling costs in government procurement, refusing to take on a price-regulating role. This case establishes that high profits alone, without more, are an insufficient basis to void a subcontract related to government work.
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