Branch Banking & Trust Co. v. United States

98 F. Supp. 757, 120 Ct. Cl. 72

• Court: United States Court of Claims
• Decided: July 9, 1951
• Docket: 47210, 47211
• Status: Published

Opinion

HOWELL, Judge.

Plaintiffs 1 sue to recover $292,170.85 withheld by defendant from payments which plaintiffs allege were due them under two contracts with defendant.

In December 1940, defendant entered into a cost-plus-a-fixed-fee contract (No. W-6826qm-2) with J. J. McDevitt Company, a corporation, E. W. Grannis, an individual, F. N. Thompson, an individual, and V. B. Higgins, an individual, trading as V. B. Higgins Company. Pursuant to the terms of the contract, the corporation and the three individuals were bound both jointly and severally as contractor.

Under the terms of the above contract, the contractor was to construct an antiaircraft firing center, including the necessary buildings, temporary structures, utilities and appurtenances, later known as Camp Davis, near Wilmington, North Carolina. •

The contract provided (article I, 1, (c)) that in addition to reimbursement of certain costs and rentals of the contractor’s equipment, the contractor should receive a fixed fee which would constitute complete compensation for the contractor’s services, including profit and all general overhead expenses.

The contract contained the usual undertakings by the contractor regarding the keeping of accurate records and accounts, the taking of cash and trade discounts and rebates, and the use of the contractor’s best efforts to protect and subserve the interests of the Government. The contract provided that all work would be performed in the shortest possible time in accordance with the drawings and specifications and “subject in every detail” to the supervision, direction and instructions of the contracting officer, 2 and further that the contractor would be reimbursed for actual expenditures in the performance of the work as approved by the contracting officer, including all subcontracts made in accordance with the provisions of the contract. Article V — 1 (d) and (e) provided:

1. The Contractor hereby agrees that he will:

« * * =i

“(d) Enter into no subcontract for any portion of the work, except in the form prescribed by the Secretary of War, nor without the written approval of the Contracting Officer. Subcontracts are defined as contracts entered into by the Contractor with others which involve the performance, wholly or in part at the site of the work, of some part of the work described in Article I hereof.

“(e) At all times during the progress of the work keep at the site thereof a duly appointed and qualified representative who shall receive and execute on the part of the Contractor such notices, directions, and instructions as the Contracting Officer may give.”

During contract negotiations in Washington, the members of the joint venture were informed that a Colonel Montgomery was to be the representative of the contracting officer in charge of the work and that if Colonel Montgomery required any advice concerning his work, he was to contact Mr. Harry A. Fish, Supervising Constructing Quartermaster in Washington who would secure the proper answers for him. The parties agreed that Mr. Clarence P. Street would serve as project manager for the contractor, as required by Article V-l(e), quoted above.

Early in the progress of work under the contract, it was discovered that the camp site was largely swampy and large quantities of sand and sand clay would be required as a stabilizer. Only a small quantity of such material was available on the site and it became apparent that most of it would have to be procured outside the site. As a result of discussions between the project manager and Colonel Montgomery, it was decided that the cheapest, quickest, and most efficient method of securing the material was to place purchase orders for its delivery to the site. Consideration was given to permitting the contractor to buy or rent trucks for the procurement of the necessary sand, but the contractor was informed by the defendant that the purchase of trucks had been forbidden by the War Department and that the rental of sufficient trucks was not feasible because of the unattractive recapture provisions required by the Government in rental agreements.

The project manager was accordingly directed to secure bids from persons who could supply the material, and to place purchase orders with the lowest bidder.

Bids for the sand and sand clay were solicited in December 1940, and the low bid received was from Edward W. Grannis who was one of the contracting parties. The project manager for the contractor questioned the propriety of the contractor entering into a subcontract with one of the contracting parties, and he asked Colonel Montgomery, the contracting officer, to secure a ruling on the matter from the appropriate source in Washington. Pursuant to his instructions, mentioned above, Colonel Montgomery telephoned to Mr. Fish in Washington and asked him to secure a ruling as to whether a subcontract for the purchase of sand and sand clay could properly be awarded to one of the four contracting parties. Mr. Fish contacted the Legal Department of the Construction Division of the War Department and was advised that there was no objection to securing the sand by purchase order from Mr. Grannis. Mr. Fish informed Colonel Montgomery of the ruling, who in turn advised the project manager to place the purchase order with Mr. Grannis.

On December 21, 1940, Purchase Order No. 197 was issued by the purchasing agent for the contractor to Mr. Grannis for 200.000 cubic yards of sand clay to be delivered on the site by truck from a local pit, involving a truck haul of approximately 7% miles, at $1 per cubic yard. This purchase order was approved in writing by Colonel Montgomery as representative of the Constructing Quartermaster and contracting officer. On March 25, 1941, the order was increased to 350,000 cubic yards at the same price, and the “Change of Purchase Order 197” was approved in writing by Captain K. M. Pattee, as the representative of the Constructing Quartermaster. On April 24, 1941, Purchase Order No. 903 was issued by the contractor’s purchasing agent to Mr. Grannis for 100.000 yards of sand clay at 75 cents per cubic yard. This purchase order was approved in writing by Lieutenant Alden E. Spees, for the Constructing Quartermaster. Subsequently, further purchase orders for sand were placed with Mr. Grannis and with Mr. F. N. Thompson, another member of the joint venture, all with the approval of the Constructing Quartermaster. Only the first purchase order was placed as a result of competitive bidding. On being asked at the trial why further bids were not solicited before placing further purchase orders, the representative of the contracting officer testified that it was believed sufficient to merely review the original bids, and that was done. It was the opinion of the representatives of the Government charged with the duty of approving these purchases, that the prices paid were reasonable.

After payment by the contractor to Gran-nis and Thompson for the materials delivered under the purchase orders, vouchers for reimbursement for the money so paid were submitted to and paid by the Government to the contractor. Prior to the payment of áll of the fixed fee and other reimbursement vouchers, the contracting agency discovered that Mr. Gran-nis had realized a large profit out of the transactions involving the purchase orders for sand and sand clay. By computing the cost to Grannis in accordance with the agency’s interpretation of the terms of the cost-plus-a-fixed-fee contract with the contractor, the contracting agency determined the profit to Grannis to be $283,245.14 and to Thompson for the asphalt sand to be $8,835.15. Mr. Grannis disputed the amount of profit and submitted his books and records to support his contention that his profits were $80,054.42 less than the figure arrived at by defendant. The various items which make up this difference are analyzed in our finding 20. With respect to the purchase orders to Mr. Thompson, the difference in the amount of profit as computed by defendant and as claimed by Mr. Thompson is only $348.12 (Finding 21). In view of our disposition of this case it will not be necessary for us to resolve these differences.

The profits so computed by defendant were withheld from the contractor from funds which were otherwise due to plaintiffs on the Camp Davis contract and on another contract known as the Goldsboro Contract described in findings 10, 11, and 12.

Defendant contends that plaintiffs are not entitled to recover in this action because, being severally as well as jointly bound, the action of two of them in realizing a profit on the subcontracts was a breach of their covenant not to take any profit on the work aside from the fixed fee.

It is clear that the action of the contractor in entering into the subcontracts and the actions of the two coventurers in accepting the subcontracts constituted a violation of the fixed-fee provision (Article I, 1(c)) of the contract. It is equally established that the transactions in question were fully approved in the manner required by the contract and by persons authorized to approve such matters unless such approval was beyond the authority of the contracting officer and his authorized representatives.

On the matter of approval, defendant suggests first that the contracting officer was not apprised of the fact that the two coventurers anticipated making a profit on the transaction and that therefore his approval was not binding on the Government. The record indicates clearly that the contracting officer was aware that a profit was to be realized. If Grannis and Thompson were going to supply the materials at cost, there would have been no question regarding the propriety of the contractor dealing with them and no basis for a request for a ruling from the legal section of the War Department. It is true that defendant’s representatives did not know how much profit the two men were to realize, but for that matter neither did the two men. The Government representatives who testified at the hearing insisted that the price quoted in the bid was a reasonable one and much lower than any other they were able to secure. They testified that in their opinion the amount of profit made by Grannis and Thompson was not their concern inasmuch as the price quoted by the two men was the lowest price obtainable.

Defendant’s main contention, and the principal issue in the controversy, is that the contracting officer did not have the authority to waive the provision in the contract limiting the individual coventur-ers to the fixed fee allowed by the contract. The plaintiffs, on the other hand, contend that the contracting officer had full authority to waive such a provision, particularly where such waiver resulted in a benefit to the Government, and that having waived such a provision, the defendant is now estopped to claim that the consummation of the transactions resulted in a breach of the contract by the contractor.

The Government is neither bound nor estopped by the acts of its officers or agents in entering into an arrangement or agreement to do or cause to be done what the law does not sanction or permit. Utah Power & Light Co. v. United States, 243 U.S. 389, 409, 37 S.Ct. 387, 61 L.Ed. 791. The instant contract was entered into pursuant to the Act of July 2, 1940, 54 Stat. 712, P.L. No. 703, 76th Cong., 3d Sess. We find nothing in that act expressly or by inference prohibiting the contracting officer from doing what he did in this case.

It is also well settled that estoppel cannot be set up against the Government on the basis of an unauthorized representation or act of an officer or employee who is without authority in his individual capacity to bind the Government. In bhip Construction and Trading Company, Inc., v. United States, 91 Ct.Cl., 419, the Government established as a fact that the Shipping Board did not authorize the contract in question and no contract resulted from the unauthorized act of one member of the Board. See also Walter C. Reediger, Inc., v. United States, 94 Ct.Cl. 120.

In general, an officer authorized to make a contract for the United States has the implied authority thereafter to modify the provisions of that contract particularly where it is clearly in the interest of the United States to do so. Goltra v. United States, Ct.Cl., 96 F.Supp. 618; 37 Op. Atty.Gen. 254 (1933); United States v. Corliss Steam-Engine Co., 91 U.S. 321, 23 L.Ed. 397; Satterlee v. United States, 30 Ct.Cl. 31; see also 28 Op.Atty.Gen. 121 in which the waiver proposed would have been prejudicial to the pecuniary interests of the United States.

In Corum v. United States, 81 F.Supp. 728, 112 Ct.Cl. 479, four companies as prime contractors contracted with the Government to do certain construction work on a cost-plus-a-fixed-fee basis. The contract obligated the Government to reimburse the prime contractors for expenses, including third-party rentals. The representative of the contracting officer approved a third-party lease which did not conform to the recapture requirements provided for in the prime contract. The Government later sought to avoid enforcement of the unorthodox recapture terms of the lease on the ground that such lease was invalid because it was beyond the power of the Government agents who purported to approve it and act pursuant to it, and because its terms were in clear violation of the prime contract and of the War Department’s express instructions to its agents. The court held first that the officer approving the lease was clearly the contracting officer within the meaning of the contract. Next, the court found that this officer had the necessary authority to approve a lease which did vary from the type of lease prescribed by the prime contract and that the lease so approved was valid. The court further indicated that the Government, having reimbursed the prime contractors for the rentals paid under the lease, had in effect recognized its validity.

When the Government is acting in its proprietary capacity, its representative has authority to waive or modify a provision in a Government contract, and the Government may be estopped by such act of waiver in the same manner as a private contractor. The Falcon, D.C., 19 F.2d 1009; 1 A.L.R.2d 338.

In Dayton Airplane Co. v. United States, 6 Cir., 21 F.2d 673, the Government and the Airplane company, contractor, entered into a series of cost-plus contracts for the building of airplanes in 1917. At the conclusion of the contracts, an adjustment of most matters involved was negotiated and agreed upon and the contractor was paid in full for all its allowed claims. With respect to a few small claims, the contractor continued to press its position before the proper departmental boards. Later, a departmental board concluded that the Government had made large overpay-ments to the contractor and for those amounts the Government brought suit in the District Court and recovered. The Circuit Court reversed and remanded the case and in so doing pointed out certain grounds for its action which seem pertinent in our consideration of the instant case. Speaking generally of cost-plus contracts with the Government and of the scope of the Government agents’ authority under such contracts, the court said, 21 F.2d at page 674: “It is first to be observed that this contract and the actions under it were not made or taken by officers who must find in a statute clear authority for their every act. In such contracts with such an officer the public is dealing with an agent of known and limited powers. Once beyond these powers, principles of estoppel or fair dealing have no application against his principal. Here the scope of the contract was not limited by any statute. The government was acting by the Secretary of War, in a national emergency of the first class. His discretion was unlimited; it must be exercised through subordinates; in the absence of fraud or bad faith, the exercise of such delegated authority is the Secretary’s exercise of it. Rules of estoppel and fair dealing apply in full force as with individuals. In this class of contracts, and for effect on future emergencies, if for no other reason, a sound public policy must require that the government keep its contracts and stand by its settlements as an individual must. In that atmosphere the questions of this case are to be approached.” [Citing cases.] With respect to the authority of the Assistant Director of Aircraft Production to approve the making of motion pictures of the contractor’s production work where the contract forbade the publication of such pictures, the court stated, in deciding that the contractor’s expenses were reimbursable items of cost: “The permission and approval given by the assistant director cannot be overlooked. The contractor producing war-time necessities for the government, and who comes for instructions to the officer apparently in charge of the subject-matter, can hardly demand from that officer a written letter of authority from his immediate or remote superior before the conference is undertaken. We may take judicial notice, that the Director of Aircraft Production, like the Secretary of War himself, must act through his authorized representatives, and that, especially in wartime, a contract must contemplate such representation.” 21 F.2d at page 681.

In the instant case the record is barren of proof that either Grannis or Thompson, or the group of coventures as contractor, sought to defraud the Government. The price contained in Grannis’ bid, whatever profit it might involve for Grannis, was considerably lower than any other price the Government would have had to pay unless the Government had been willing to permit the contractor to deal directly with the numerous truckers who would be required to deliver the sand, and the Government was not willing to follow this latter procedure. After the placing of the first purchase order, the Government approved an increase in that order and then approved a number of additional purchase orders without requiring further competitive bidding, in the conviction that whatever Grannis’ profit, the price was reasonable and the best one obtainable for the Government. We do not have the situation here which was present in the case of Lord Manufacturing Company v. United States, 84 F.Supp. 748, 114 Ct.Cl. 199, certiorari denied 339 U.S. 956, 70 S.Ct. 978, in which we held that the Government need not pay to the plaintiff the prevailing ceiling price for the goods in question where such price netted the plaintiff a huge profit. In that case the Government elected to proceed under a statute which empowered it to fix a price which from all points of view, including the reasonableness of the profit to be earned by the seller, was a reasonable one. The Government did not choose to so deal with Mr. Grannis or Mr. Thompson. On the contrary the Government elected to deal at arms length and continued to do so for many months during which it might have investigated the profits being made and called a halt to a course of action which it now seeks to avoid. In State ex rel. Washington Paving Co. v. Clausen, State Auditor, 90 Wash. 450, 156 P. 554, the court said at pages 554 and 555, L.R.A. 1917A, 436: “We have repeatedly held that in its business relations with individuals the state must not expect more favorable treatment than is fair between men. * * We have not to do here with the question of limitation of actions, nor with laches, but with estoppel in pais, and, even where the government may not be barred by mere laches, it may be estopped in pais by such actions with individuals as make it a ‘question of honest dealing.’ * * * This is not a case of estoppel claimed by mere inaction of public officers. It is a case of their acting. Daily did those officials not only permit the delivery of labor and material on the public property, but see to it that it was laid to suit them.” In the above case the court also held that the contractor was entitled to the contract price and need not be relegated to a recovery on the basis of quanhim meruit. The court pointed out that the contract was let as a result of competitive bidding; that the Board was competent to contract and no fraud was alleged against the Board; that the secret fraud of the bidder had not impaired the statutory machinery of the contract and the bidder’s fraud was one which could be waived; that the contract at most was merely voidable and that the state had elected not to void it. See also State v. Horr, 165 Minn. 1, 205 N.W. 444; W. H. Armstrong and Company v. United States, 98 Ct.Cl. 519.

In Knight, Adm’r v. United States, 35 Ct.CI. 129, the court pointed out that while the sovereign may not waive without the authority of a statute public rights, it can be estopped of its legal rights when it is acting in matters of executive administration. See also W. E. Callahan Construction Co. v. United States., 91 Ct.Cl. 538, where it was held that the contracting officer validly waived the time limitation provision contained in a Government contract when he considered and decided on their merits certain protests made by plaintiff outside the time limit fixed by the contract. The court held the Government bound by such act of its contracting officer.

Defendant suggests that in order that the doctrine of estoppel be invoked against the Government, there must be a representation made by the Government which is false and which was acted upon by the contractor to his detriment. We cannot agree with this theory. In Mahoning Investment Company v. United States, 3 F.Supp. 622, 78 Ct.Cl. 231, a parent company and its subsidiary were held estopped to question the legality of the collection of a tax where both had agreed to the assessment (a mistaken one), had acquiesced in the notice and demand for payment and had paid the tax, the time during which the Government might make a further assessment having expired. Among other things, the court said that it was not necessary that the person sought to be estopped must have intended to mislead the other party: “It is sufficient, as we think, that he pursued such a course as naturally would and did mislead them to the prejudice of the defendant. This prejudice is apparent, for the statute of limitations with reference to the making of the assessment had not then expired.” 3 F.Supp. at page 630, 78 Ct.Cl. at page 248. 3

On the matter of estoppel, the court said: “The doctrine of equitable estoppel, or more properly as we think quasi estoppel, is gradually being extended by the modern courts to prevent a wrong being done ‘wherever, in good conscience and honest dealings,’ a party ought not to be permitted to repudiate his previous statements and declarations.” 3 F.Supp. at page 630, 78 Ct.Cl. at page 248. See also Stevens Manufacturing Co. v. United States, 8 F.Supp. 720, 80 Ct.Cl. 183.

In summary, we are persuaded that the •subcontract in question was not induced by fraud or misrepresentation. The proposed transaction did constitute a violation of the fixed-fee provision of the contract inasmuch as the members of the joint venture were bound severally to the contract terms. The Government representatives were aware of this fact and for that reason sought a ruling as to their authority to waive the contract provision prohibiting such a transaction. There existed no statutory or other limitation on the government agent’s right to so modify the contract and to the extent that Grannis’ bid was lower than the others received, the Government received a benefit from such modification. The officers of the Government approving the first and subsequent purchase orders were fully authorized so to do. With the approval of the authorized agents of the Government, plaintiffs purchased the material at the approved price, used it for the benefit of the Government, paid the seller and were reimbursed by the Government. Also with the approval of the authorized agents of the Government, two individual members of the joint venture sold the material to the contractor and were paid the purchase price. The Government is now estopped to deny the binding effect of the actions of its duly authorized representatives in approving these transactions and plaintiffs are entitled to recover the balance of the fixed fees and unpaid items of reimbursements due and withheld by the Government. The plaintiffs (Branch Banking and Trust Company, et al.), in case No. 47210, may recover $242,170.85, 4 and the plaintiffs (Branch Banking and Trust Company, et al.) in case No. 47211 may recover $50,000. 5

It is so ordered.

JONES, Chief Judge, and MADDEN, WHITAKER and LITTLETON, Judges, concur.

1 . The two eases have been joined for purposes of trial and both will be disposed of in this one decision inasmuch as they arose out of one cause of action and but one basic controversy is involved.

2 . Article XIX of the contract provides in section 3: Except for the original signing of tbis contract, and except as otherwise stated herein, the term “Contracting Officer” as used herein shall include his duly appointed successor or his authorized representative.

3 . See also Marine Iron Works v. Wiess, 5 Cir., 148 F. 145.

4 . See findings 7, 8 and 9.

5 . See findings 10 and 1L The sum of $50,000.00 in case No. 47211 includes $90.56 which the Government was willing to pay plaintiffs and which was tendered to plaintiffs and refused by them.