George Campbell Painting Corp. v. Reid

Background

During 1964 a closely held family painting company entered into three contracts with the New York City Housing Authority that included a standard clause based on New York’s Public Authorities Law, §2601. That law and the clause allow authorities to cancel contracts and bar any person and any firm he is an officer of for five years if the person refuses to testify before a grand jury or to waive immunity. The company’s president, who also owned stock and served as a director, resigned and said he divested his stock before he was called, but later refused a subpoena and did not sign a waiver.

Reasoning

The Court addressed whether the company could challenge the contractual penalty by invoking its president’s decision not to waive immunity. The majority said it would not decide whether §2601 itself is constitutional. Instead the Court relied on longstanding law that the right against self-incrimination is personal to natural people and cannot be used by a corporation. Because a corporation cannot claim that privilege, it cannot use that claim to avoid the contract clause. The Court also accepted the lower court’s finding that the president’s resignation had been made to evade the disqualification.

Real world impact

The ruling leaves in place the Housing Authority’s cancellation of the painting contracts and the five-year ban on the company doing business with public authorities. Closely held companies whose officers refuse to testify may face similar disqualification. The Court’s decision does not resolve whether §2601 is constitutional in other contexts and notes that state procedures for relief under §2603 exist but were not decided here.

Dissents or concurrances

Justice Douglas’s dissent argued that punishing the corporation for its president’s invocation of the right is an unconstitutional penalty, and that shareholders suffer the harm; he rejected the majority’s approach.