Buckley v. Coyne Electrical School, Inc.

99 N.E.2d 370, 343 Ill. App. 420

• Court: Appellate Court of Illinois
• Decided: June 22, 1951
• Docket: Gen. 45,259
• Status: Published

Opinions

Mr. Justice Feinberg

delivered the opinion of the court.

Plaintiffs filed this action for an accounting against defendant for commissions allegedly due them under a contract of employment with defendant, by which plaintiffs were to negotiate and secure government contracts for technical training of those in the armed services at defendant’s school, and to be paid a certain compensation per man-hour, covered by the number of men and period of time fixed by such contracts with the government. There was a limited reference to a master to determine and report his findings of fact and conclusions of law as to whether a contract existed between the parties under which plaintiffs would be entitled to an accounting. After prolonged hearings before the master, and over 2,000 pages of testimony taken and about 200 exhibits introduced in evidence, the master made his report, containing 41 findings of fact. His conclusions of law were that the contract in question was not void as against public policy; that it did not violate government regulation 9001 which provided :

“Every contract entered into pursuant to this order shall contain a warranty by the contractor in substantially the following terms:

“The contractor warrants that he has not employed any person to solicit or secure this contract upon any agreement for a commission, percentage, brokerage, or contingent fee. Breach of this warranty shall give the G-overnment the right to annul the contract, or, in its discretion, to deduct from the contract price or consideration the amount of such commission, percentage, brokerage, or contingent fees. This warranty shall not apply to commissions payable by contractors upon contracts or sales secured or made through bona fide established commercial or selling agencies maintained by the contractor for the purpose of securing business” ;

that plaintiffs are entitled to an accounting, and recommended a decree accordingly. His finding No. 34 was as follows:

“It was not contemplated by the parties that political influence, personal influence, chicanery or bribery were to be used by plaintiffs in procuring for defendant contracts with the Government nor in fact was political influence, personal influence, chicanery or bribery used by plaintiffs in securing such contracts.”

To this report defendant filed objections, and upon a hearing the chancellor sustained the objections as to some of the findings of fact and conclusions of law and overruled the objections as to others. As to finding of fact. No. 34, the words “chicanery” and “bribery” were stricken; otherwise the finding was sustained in the decree.

- The chancellor heard no evidence and based his decree upon the record made before the master. The decree made the following specific findings:

“A. That an agreement concerning 800 students was entered into between Plaintiffs and Defendant as found in the Master’s Report.

“B. That no express agreement concerning any students other than the said 800 was entered into by Plaintiffs and Defendant in that they did not agree as to the terms of the compensation to be paid Plaintiffs, but that Plaintiffs performed services in relation to said other students at the request and for the benefit of Defendant.

“0. That the express agreement set forth in 3A above and the implied agreement set forth in 3B above is illegal and void as against public policy in that it involves the payment.of contingent fees for securing war contracts with the Federal Government.”

The decree dismissed the complaint for want of equity, from which decree plaintiffs appeal.

The record establishes the following essential facts out of which this controversy arose: Plaintiffs, husband and wife, doing business as F. J. Buckley and Company, engaged in the real estate brokerage and insurance business in New York City and later in Los Angeles, California, and in the latter city conducted a large volume of business in real estate and insurance, and oil and gas leases; that in 1939, F. J. Buckley became identified as an officer and director of an aircraft company that required his spending considerable time in Washington, D. C., developing considerable business contacts with governmental agencies and acquiring considerable knowledge as to the methods employed by these governmental agencies, involving supply of materials and services; that in the early part of 1942, National Schools, conducting vocational schools in Los Angeles, California, employed him as its agent to negotiate contracts with the government for the training of military personnel and to assist in servicing such contracts, at a compensation to him of five cents per man-hour of training given government trainees by the school; that he was successful in securing several contracts with the government for this school; that he also was engaged by the Delehanty School of New York, the Electronics and Television Institute of Omaha, the American Television Laboratories of Chicago, and Midwest Motive Trades of Bloomington and Danville, Illinois; that Harold C. Lewis was the president and managing head of defendant’s school, in existence in Chicago since 1912, until his death in 1946; that Bennett Cooke was vice president, director and owner of one-half of the school’s stock; that the school had a main building, containing 60,000 square feet, as well as an annex; that both buildings were equipped with classrooms, workrooms, apparatus and equipment necessary for the instruction of such trainees; that upon the death of Lewis, Cooke succeeded him as president.

It appears that in December 1941, the War Department circularized the various schools of the country, including defendant’s school, requesting information as to the facilities for technical instruction and training ; that about March 9, 1942, without any solicitation by Buckley, deféndant’s superintendent, Richards, telegraphed Buckley requesting an appointment, and by subsequent appointment, Lewis and Richards met Buckley on March 11 in Washington; that it was their first meeting with Buckley; that they made known to him their desire to secure government training contracts, and detailed to Buckley their unsuccessful experience in their efforts to negotiate such contracts, and inquired if Buckley could help them; that Lewis said that his health would not permit him to make frequent trips to Washington; that defendant was losing many of its civilian students and was anxious to secure government contracts; that Buckley informed them of his background and experience, and suggested that he was in a position to act for them; that the price for his services was discussed, and it was agreed that Buckley was to act as defendant’s Washington representative for a period of one year and at his own expense negotiate and procure government contracts for defendant; that he was to be paid five cents per man-hour upon all contracts, or renewals or extensions thereof, providing for a rate of thirty-five cents per man-hour or higher for trainees, and that Buckley could continue to represent other schools; .that this arrangement, so verbally made, was confirmed in writing by Lewis, with the condition that all contracts negotiated for training at defendant’s school would first be approved by Lewis; that Buckley thereupon began his service for defendant, exerted considerable effort and performed considerable services in a preliminary way for the negotiation of contracts with the government for defendant; that Buckley familiarized himself with all of the facilities and equipment of defendant; that he had prepared pictorial booklets and pamphlets containing data and distributed them among the various branches of the armed services interested in training in private vocational schools; that he secured books, manuals and other data concerning governmental training in radio subjects and furnished them to defendant; that he visited a great number of schools located in different cities and familiarized himself with the methods of teaching and handling and housing the trainees, and reported his findings to the defendant; that he assisted Lewis and Richards in working out time schedules for arrivals of trainees at defendant’s school to accommodate the maximum number the space, equipment and teaching personnel could take care of in defendant’s school and that would meet the approval of the government; that he assisted defendant in securing priorities for equipment as well as for the needed addition to the school building; that when defendant had complaints from the government as to lack of discipline and crowded conditions among the trainees in defendant’s school, he was entrusted with the duty of taking care of the complaints; that he assisted in expediting payments by the government on the training contracts with defendant; that the rate of pay to Buckley was modified about March 21, 1942, when defendant ascertained that the government pay would be twenty-seven cents per man-hour of training for radio operators and thirty-two cents per man-hour of training for radio mechanics; that Buckley’s commission was accordingly reduced to two cents per man-hour for training radio operators and three and one-half cents per man-hour for training radio mechanics ; that this modification was evidenced in writing by a letter from Lewis; that some contracts, of which Buckley was not aware at the time, were awarded by the government to the defendant for personnel training, which Buckley claims were the result of his efforts and for which plaintiffs claim commissions; that on March 28, 1942, Lewis wrote to Buckley, complaining about his absence from a conference and stating:

“If it was your intention that I was to do all the work after you formally met them, then I must be thinking of getting someone to represent me, for I cannot give all my time to this ’ ’;

that on May 19, 1942, defendant paid plaintiffs $563.12 on account of commissions due plaintiffs under the contract of employment, and on June 19, 1942, defendant paid plaintiffs $2,000 on account, and again on July 9, 1942, an additional $2,000 was paid; that on June 4, 1942, Lewis wrote to Buckley that he had been advised by his lawyer about payment of commissions to agents, and that the government might disallow all deductions for payments made, and that he would advise him later after another conference with his lawyer; that a postscript to the letter read:

“P. S. It is not me. I am satisfied but will Govt, be”;

that finally on September 17, 1942, Lewis, by letter to the government and by letter to Buckley, terminated the employment of Buckley as agent.

It is for commissions claimed to be due to plaintiffs upon contracts between the government and the defendant that the accounting is sought.

The decree, having found that the contract in question was illegal and void as against public policy because it involved the payment of contingent fees for seeking war contracts with the Federal government, necessarily presents the following questions for consideration: (1) Is such a contract void in the absence of any evidence that the parties contemplated the use of influence or employment of means contrary to public policy to secure such contracts from the government? (2) Does the contract violate government regulation 9001? (3) Does the evidence clearly bring plaintiffs within the exception in regulation 9001? We shall discuss these questions in the order stated.

The rule of law in this State, as well as in nearly all other jurisdictions, was stated in Lewy v. Standard Plunger Elevator Co., 296 Ill 295:

11 There can be no question that a contract based upon an illegal or immoral consideration is unenforceable and that a contract to perform services which would tend necessarily to improperly influence action as to public contracts or the administration of justice is also unenforceable. ’ ’

Finding No. 34 of the master, which was sustained by the decree below, adjudicates the fact that it was not contemplated by the parties that political or personal influence was to be used by plaintiffs in procuring for defendant contracts with the government, and that in fact political or personal influence was not used by plaintiffs in securing such contracts. In view of the finding by the master, amply supported by the evidence and approved by the decree, the rule of law stated is not applicable to the instant case. The instant contract did not violate government regulation 9001.

In Ebeling v. Fred J. Swaine Mfg. Co., 357 Mo. 549, 209 S. W. (2d) 892, 895, the Supreme Court of Missouri, dealing with the government regulation in question, said:

“Looking to the facts of the instant case, Executive Order No. 9001 did not prohibit the employment of agents to procure war contracts on a percentage commission basis. Muschany v. United States, 324 U. S. 49, 61-66, 65 S. Ct. 442, 80 L. Ed., 744. It merely provided that the contract should contain a warranty that the contractor would not employ other than a bona fide, established commercial or selling agency to obtain the contracts. Neither did it say the contract should be void if the warranty were violated. It merely reserved to the Grovernment the option to annul the contract, or to deduct the commission of the spurious agent —which latter provision would recognize the contract as still existent and affect only the price, or cost, of the work.”

In Reynolds v. Goodwin-Hill Corp., 154 F. (2d) 553, where the regulation in question was under consideration and a recovery sustained for contingent fees, the court, speaking through Justice Learned Hand, said:

“Even though we assume for argument that the contract here in suit would be illegal under the decisions which we mentioned at the outset — a point we do not decide — this appeal turns upon whether the regulation just mentioned absolved it. We think that it did. In obtaining its supplies the War Department was free to impose upon bidders such conditions as it thought necessary in the national defence; and it need impose no more than it thought necessary. Even though the law made all contingent fees illegal, it might believe that production would be speeded, if some kinds of contingent fees were allowed, and it might so provide by its regulations. If it did so provide, not only would the contracts between itself and contractors be legal, but any taint would be removed from contracts between the contractors and their agents. This is plain, because by hypothesis the vice of the practice was in fostering deviation from their loyalty by officials of the Department; and if the Department was content to accept that risk, that necessarily presupposed that the risk might be actually imposed. Muschany v. United States, 324 U. S. 49, 65 S. Ct. 442. Thus, the case turns upon whether the plaintiff was the kind of agent whom § 81.323 allowed contractors to engage upon a contingent fee.”

In Valdes v. Larrinaga, 233 U. S. 705, which upheld a judgment for plaintiff based on a contingent fee contract, Mr. Justice Holmes, distinguishing his previous decision in Hazelton v. Sheckels, 202 U. S. 71, said:

1 ‘ But we discover nothing in the language of the letters that necessarily imports, or even persuasively suggests any improper intent or dangerous tendency.”

In Bradford v. Durkee Marine Products Corp., 180 Misc. 1049, 40 N. Y. S. (2d) 448, the court, dealing with regulation 9001, said:

‘ ‘ The requirement of a warranty that the person who contracts with the Government has not employed anyone to procure» the contract upon an agreement for a commission perhaps may be regarded as a prohibition against such employment, but the penalties for violation of such assumed prohibition are specifically designated, and one of them is in effect a recognition of the validity of the contract, viz., the provision that the Government may deduct the amount of the commission from the contract price. The order does not expressly provide that a contractor’s agreement to pay commissions is void or voidable or unenforceable, and no such provision should be read into it. Sajor v. Ampol, Inc., 275 N. Y. 125, 130, 131, 9 N. E. 2d 803; Fosdick v. Investors’ Syndicate, 266 N. Y. 130, 194 N. E. 58; Dunlop v. Mercer, 8 Cir., 156 F. 545, 555; Frits v. Palmer, 132 U. S. 282, 289, 10 S. Ct. 93, 33 L. Ed. 317.”

To the same effect is Singer v. Bruner-Ritter, Inc., 180 Misc. 928, 42 N. Y. S. (2d) 881, affirmed 44 N. Y. S. (2d) 589. Likewise, Leahy v. Brooklyn Waterfront Terminal Corp. (N. Y.), 69 N. Y. S. (2d) 596.

We agree with the reasoning in the cases cited and agree with the master that the instant contract is not against public policy.

We are convinced by the evidence in this record that plaintiffs come within the exception contained in the regulation. The nature of their business; the extent of their efforts, not only on behalf of defendant but others as well; their ability developed in the field, which would qualify them upon merit to secure contracts for the defendant, not limited to one contract alone; and being free from the taint or suspicion of intent to employ improper influence in securing such contracts, as found by the master and approved by the chancellor, make it clear to us that the exception in the regulation applies to the plaintiffs and the contract in question. Reynolds v. Goodwin-Hill Corp., Ebeling v. Fred J. Swaine Mfg. Co., Bradford v. Durkee Marine Products Corp., Singer v. Bruner-Ritter, Inc., and Leahy v. Brooklyn Waterfront Terminal Corp., supra.

We are persuaded that the evidence sustains the master’s findings and conclusions, and the chancellor having heard no other evidence than that contained in the report of the master, the rule stated in Kosakowski v. Bagdon, 369 Ill. 252, 258, would govern. It was there said:

11 The chancellor, in this case, had no better opportunity to judge the credibility of witnesses than has this court on appeal, and all the facts are open for our consideration. ’ ’

The decree of the superior court is reversed and the cause remanded with directions to enter a decree for accounting in accordance with the findings and conclusions of the master.

Reversed and remanded with directions.

Tuohy, J., concurs.

Niemeyer, P. J., dissents.