Page images
PDF
EPUB

The issue now presented is the measure of the Wallace firm's entitlement for work performed on the 60 units uncompleted and undelivered at the time of cancellation. As to the other 18 units, which were accepted by the Government, the rule followed by our Office and the Federal Courts is that payment is authorized on a quantum meruit or quantum valebat basis for benefits received prior to the determination of contract invalidity. Clark v. United States (1877), 95 U.S. 539; South Boston Iron Co. v. United States (1886), 118 U.S. 37; Salomon v. United States (1873), 86 U.S. 17; 154 ALR 356; 110 ALR 154; 84 ALR 937; 38 Comp. Gen. 368; 37 Comp. Gen. 330; 17 Comp. Gen. 312.

It should be noted, however, that there exists strong precedent for holding that a contract within the authority of the public body, which is invalid because entered into without following the required procedures, gives rise to no entitlement to payment other than that already received prior to the determination of invalidity, notwithstanding the good faith of the parties. 43 AM. Jur. Public Works and Contracts, sec. 88; Roemheld v. City of Chicago (111. 1907), 83 N.E. 291; Shules v. City of Mayville (Wisc. 1937), 271 N.W. 643; Federal Paving Corp. v. City of Wauwatosa (Wisc. 1939), 286 N.W. 546; Tobing v. Town Council (Wyo. 1933), 17 P. 2d 666; Johnson County Savings Bank v. City of Creston (Iowa 1930), 231 N.W. 705; 10 McQuillin on Municipal Corporations, 3d ed. secs. 29.02, 29.41; LayneWestern Co. v. Buchanan County, Mo. (8th Cir. 1936), 85 F. 2d 343; see, also, Miller v. McKinnon (Calif. 1942), 124 P. 2d 34. In 10 McQuillin on Municipal Corporations, sec. 29.02, it is stated:

[ocr errors]

The doctrine which seems to harmonize with our
Governmental and legal system, which appears to be
supported by reason and which, therefore, should
prevail may be thus stated briefly: If the charter
or the statute applicable requires certain steps to
be taken before making a contract, and it is mandatory
in terms, a contract not made in conformity therewith
is invalid * * * and usually there is no implied lia-
bility for the reasonable value of the property or
services of which the municipality has had the benefit.

[ocr errors]

Where the right to payment on a quantum valebat or quantum meruit basis is recognized, it is predicated on the theory that it would be unfair for one party to have the benefit of the labor of another without recompense, and recovery is limited "to such sums as will reasonably compensate the party whose services or property have been devoted to the advantage of the other." Gee v. City of Sutton (Nebr. 1948), 31 N.W. 2d 747. See also Hudson City Contract Co. v. Jersey City Incinerator Authority, supra, in which the measure of recovery was held to be the value of the services actually rendered not to exceed costs, without profit on the basis that the community would otherwise be unjustly enriched. See also Gamewell co. v. City of Phoenix (1955), 216 F. 2d 928, where it was held that the City should not be allowed to retain the benefits received under the invalid contract without paying a reasonable value for them. And in Salomon v. United States, supra, it was held that the Government is liable on quantum valebat for goods received and accepted under an invalid contract.

It will be noted that payment on quantum meruit or quantum valebat is authorized on the basis of the value received by the Government agency. The weight of judicial authority provides no precedent for payment of costs incurred by the contractor which did not result in a benefit to or in the receipt of valuable goods or services by the governmental unit involved. In New York Mail and Newspaper Trans. Co. v. United States (1957), 139 Ct. cl. 751, the majority opinion stated that, rather than providing for payment on a strictly quantum meruit basis, the parties should be placed substantially in the position they would have been in had there been no attempted contract. While the matter is not entirely clear, it may be that the judgment awarded exceeded the amount which would have been paid under quantum meruit. However, even accepting the rule in that case (overlooking the precedents to the contrary and the dictum in the strong dissent under which no payment would have been awarded the contractor had there been no valid contract) it does not appear that the pre-award position of the parties could any more be restored if the United States were to pay the claim than if the parties were left in status quo.

In any case, we think the matter has been specifically decided by the Supreme Court in the recent case of United States v. Mississippi Valley Generating Co., U.S. Sup. Ct., 9 January 1961, where it was stated (footnote No. 22):

The respondent also contends that even if the con-
tract is not enforceable, a recovery quantum valebat
should be decreed. However, such a remedy is appropri-
ate only where one party to a transaction has received
and retained tangible benefits from the other party.
See Crocker v. United States, 240 U.S. 74, 81-82.
Since the Government has received nothing from the
respondent, no recovery quantum valebat is in order.

In accordance with the foregoing we must conclude that there is no legal basis upon which we may give favorable consideration to your claim. It may appear unduly harsh to require the contractor who acted in good faith to absorb the costs applicable to those items undelivered at the time of cancellation. In this connection, it may be noted that Wallace's claim of $49,956.82 on account of the 60 saws cancelled amounts to about $832.60 per saw.

This is $6,287.62 more than Wallace would have received for these 60 saws if the contract had not been cancelled, since the contract price therefor was only $728.12 per saw. In any event, however, the United States has power to act only through its agents whose authority and the manner of exercise thereof is prescribed and limited by statute, regulation and administrative and judicial determination. To make the Government liable for more than benefits received would, in effect, permit agents of the Government to obligate the United States in direct contravention of those limitations and prescriptions. In effect, the basic purposes of the statutes, regulations and determinations would be nullified. Such result is opposed to the public interest.

Accordingly, we would have no authority to allow any part of your claim irrespective of the outcome of your reported efforts to salvage the materials and supplies which were on hand for performance of the contract at the time of its cancellation.

Section 3. Legal Effect of Regulations

G.L. CHRISTIAN AND ASSOCIATES v. UNITED STATES

320 F. 2d 345 (1963)

On Plaintiff's Motion for Rehearing and Reargument.

DAVIS, Judge, delivered the opinion of the Court: Plaintiff's motion for rehearing and reargument raises, for the most part, issues which were not previously presented and were therefore not discussed in the court's opinion handed down on 11 January 1963, 312 F. 2d 418. The additional arguments all concern our refusal to award anticipated but unearned profits to the contractor and its subcontractors. We have considered these new contentions and have concluded that they require no change in our judgment or in the reasoning on which it is based. This supplementary opinion treats mainly with the points which have not hitherto been explicitly considered.

STATUTORY AUTHORITY

1. We held in our original opinion that Section 8.703 of the Armed Services Procurement Regulation (ASPR) required, as a matter of law, the inclusion in plaintiff's housing contract of the standard-form military article providing for the termination of construction contracts for the convenience of the Government. The Supreme Court has made it plain that validly issued military procurement regulations have the full force and effect of federal law, even to the extent of overriding inconsistent state legislation. Paul v. United States, 371 U.S. 245, 255 (1963); Public Utilities Comm'n of California v. United States, 355 U.S. 534, 542-43 (1958); Leslie Miller, Inc. v. Arkansas, 352 U.S. 187 (1956). But plaintiff now says, for the first fime, that this particular section of the ASPR was promulgated without statutory authority and accordingly is bereft of the force of law. The chief reason advanced is that the Armed Services Procurement Act of 1947, 62 Stat. 21--the general military procurement statute--which was a principal legislative basis for Section 8.703, did not expressly refer to termination of military contracts. On this ground it is said that the Procurement Act wholly failed to cover the subject of contract-termination in any way, and that a new statute dealing specifically with such terminations would be necessary before the Defense Department (or its constituents) could issue binding regulations in that area. In support of this proposition, plaintiff cites the unsuccessful efforts which have been made to obtain such express legislation, as well as general statements by Defense Department officials and others which are interpreted as recognizing that the termination regulations set forth in ASPR are without statutory authority.

.

[ocr errors]

The basic defect in this argument is its failure to recognize that general legislation empowering, in broad terms, a Government agency to procure and to make contracts normally covers all phases of that process-from the solicitation of bids or proposals, to the making of the contract, through its administration and performance, to its completion or termination.

[ocr errors][ocr errors][ocr errors]
[ocr errors]

"The power to purchase on appropriate terms and conditions is, of course, inferred from every power to purchase". Priebe & Sons v. United States, 332 U.S. 407, 413 (1947). Unless the Congress has prohibited the agency from entering same phase of the contractual process (or using some otherwise lawful method of contracting), a grant of wide and general authority to contract and procure will extend to all reasonable phases and methods. See Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110, 114 ff. (1954); Public Utilities Comm'n of California v. United States, 355 U.S. 534, 540-43 (1958); Paul v. United States, 371 U.S. 245, 25-1955, 261-263 (1963); United States v. Penn Foundry & Mfg. Co., Inc., 337 U.S. 198, 214-216 (1949) (opinion of Mr. Justice Douglas). There is a cardinal illustration in the history of contract-termination-for-convenience itself. It was not until i July 1944 that Congress enacted the Contract Settlement Act of 1944, 58 Stat. 649, establishing legislative standards and procedures for the termination of World War II contracts for the Government's convenience, But for over two years before that time the War and Navy Departments had been using termination-for-convenience clauses in many of their contracts and had also been issuing regulations dealing with such provisions. This was done principally under the generous umbrella of Title II of the First War Powers Act of 18 December 1941, 55 Stat. 838-39, authorizing the President to empower war agencies "to enter into contracts and into amendments or modi fications of contracts heretofore or hereafter made * * *, without regard to the provisions of law relating to the making, performance, amendment, or modification of contracts whenever he deems such action would facilitate the prosecution of the war * * *." (Executive Order No. 9001, 3 C.F.R., 1943 Cum. Supp., pp. 1054-1056, delegated this authority to the war agencies, cf. 40 Op. Atty. Gen. 225 (1942]). See also ch. 508, 54 Stat. 712; ch, 340, 56 Stat. 314, 316-317. Though the First War Powers Act did not refer specifically to contract-termination, its general terms authorized those departments procuring for war ends to employ such contract articles - as well as many other provisions and forms not mentioned in the statute. The Contract Settlement Act was passed in 1944, not because the war agencies were then powerless to issue termination regulations or to insist on termination-for-convenience clauses, but because it was considered appropriate to establish uniform CONGRESSIONAL standards enforced by a central civilian agency, and thus to confine and supervise the broad discretion hitherto exercised by the separate departments and agencies under the First War Powers Act (as well as the authority which the Comptroller General threatened to exercise). In short, the Settlement Act was felt to be wise and desirable, but it was not needed to confer POWER in the area of contract-termination.

[ocr errors]

.

[ocr errors]
[ocr errors]

With respect to this subject of contract-termination, the situation is the same under the Armed Services Procurement Act of 1947 (and its supplementing legislation) as it was under the First War Powers Act. The Procurement Act (now 10 U.S.C. $ $ 2301 Et. Seq.) is a broad charter conveying general authority to the service departments to enter into contracts by advertising and in many circumstances into negotiated agreements. See H. Rep. No. 109, 80th Cong., 1st Sess., p. 6; S. Rep. No. 571, 80th Cong., 1st Sess., p. 2. It clearly covers contracts for buildings, facilities, and public works. Sec. 10 U.S.C. § 2303(b). Aside from specified requirements and prohibitions (not now pertinent), the Act leaves to the procuring agency the terms and conditions of both negotiated and advertised contracts. Many different types of agreements and contractual provisions can be, and have been, adopted under the sweeping authority accorded by the Act. In

[ocr errors]

.

particular, the Act does not in any way prohibit or limit, expressly or by implication, the use of clauses providing for termination of a contract for the convenience of the Government. As in the period prior to the Contract Settlement Act of 1944, that subject is left to the discretion of the procuring agencies. Just as the comprehensive provisions of the First War Powers Act sanctioned the promulgation and use of termination clauses although termination was not mentioned in that statute, so the comprehensive terms of the Procurement Act authorized the promulgation of Section 8.703 of the ASPR. Buttressing the Procurement Act as the source of this provision are the general statutory sections authorizing the Defense and Service Secretaries to adopt directives and regulations in their fields of competence, including procurement. See Congress Construction Corp. v. United States, Ct. C1. No. 535-59, decided 6 March 1963, slip op., p. 6, 314 F. 2d 527, 531 (Secretary of Defense); 10 U.S.C. § 3012 (Secretary of the Army); 10 U.S.C. § 8012 (secretary of the Air Force); 5 U.S.C. § 22 (general authority to issue departmental regulations). The basic administrative authority of the military departments to adjust claims of the termination kind has, of course, long been established. Cannon Construction Company v. United States, Ct. C1. No. 89-57, decided 7 June 1963.

[ocr errors]

.

.

[ocr errors]

When Section VIII of the ASPR (dealing with contract termination) was issued in 1952, the Defense Department declared that, while the Procurement Act does not specifically mention terminations, the new termination regulation was being issued "under the general authority of the Secretaries of the Military Departments, based on the Procurement Act and other statutes, to issue detailed regulations to carry out their authority and responsibilities." The authority thus invoked was adequate to sustain termination regulations of this type though no doubt the legislative foundation could be strengthened and supplemented by more explicit Congressional action.

Plaintiff stesses the lack of detailed legislative policies on termination, but the absence of such Congressional spelling-out is very different from the absence of any authority in the administrators under their general procurement powers. The experience under the First War Powers Act, among others, shows that procurement administrators can properly act under broad and general authority until Congress sees fit to channel and guide their conduct more precisely. We do not read the Army and Navy textbooks on procurement or contract law, cited by plaintiff, as denying this general authority. As we understand them, they say only that since no statute (like the contract settlement Act of 1944) specifically covers the field of termination, requires the inclusion of a termination-for-convenience article, and prescribes termination procedures the ASPR termination procedures must find their basis in a contractual termination article, which can be incorporated in the contract "by reference or otherwise". Under Section 8.703, such an article was required to be included in plaintiff's contract and therefore it was incorporated by reference or otherwise". In addition, as we point out below (see also our original opinion, slip op., p. 14, 312 F. 2d at 427), there are four explicit references in the housing contract and accompanying agreements to a "termination of the Housing Contract for the convenience of the Government". This, too, can be deemed an incorporation of the standard article by reference".

.

.

« PreviousContinue »