United States v. Newport News Shipbuilding & Dry Dock Co.

178 F. 194, 101 C.C.A. 514, 1910 U.S. App. LEXIS 4490

• Court: Court of Appeals for the Fourth Circuit
• Decided: February 12, 1910
• Docket: No. 837
• Status: Published

Opinion

PRITCHARD, Circuit Judge

(after stating the facts as above). The findings of fact and conclusions of law by the learned judge who tried this case below clearly present the points involved in this controversy. The findings of fact are supported by the evidence, and we are therefore not inclined to interfere with the same. The rule that a contract is to be construed most strongly against the party preparing it is well settled, and applies to the government in a case like this as well as to an individual. In the case of Garrison v. United States, 7 Wall. 688, 19 L. Ed. 277, the court, among other things, said:

“Tlie supiik'Hieniary agreement is signed by Gen. Butler and not by the plaintiff. Its doubtful expression should, therefore, according to the well-settled rule, be construed against the party who uses the language.”

The facts in this case show that the contract was prepared in the Navy Department, and we are justified in assuming that it was drafted by a law officer of that department. The parties to it, as appears from the findings of fact, had, prior to the date of this contract, entered into similar contracts, and under those contracts the speed trial was not under the standardization method, and the.plaintiff below, in making its estimates, at the time it entered into this contract, did not include the same. It is true that between 1890 and the date, of the trial of the Charleston it had been customary to run such trials, but the court below found that in every instance such trials were run by the government at its own expense and after the government had accepted the vessel.

To construe this contract in conformity with the contention of counsel for plaintiff in error would be to hold that it contemplates that contractors, under its provisions, shall make two trials. The contract, which is plain and explicit, provides that only one trial shall be made. It says:

“When the vessel is completed as required by the drawings, plans and specifications and ready for delivery to the party of the second part, she shall be subjected to a trial trip in tbe open sea under such conditions prescribed or approved by the Secretary of the Navy to test the hull and fittings * ® * and the speed of the vessel.”

Thus it will be seen that the contract provides for “a trial trip/' which necessarily means only one trip, and which clearly shows that it was in the minds of the contracting parties at the time that only one trial trip should be made.

It dearly appears that the government, as well as the contractor, understood that the ancient method of trial was to be the one by which the Charleston was to be tested. Thus it was to he a trial of speed and endurance which was to be obtained during the four consecutive hours of its duration. The minds of the parties met in the construction of the contract in this respect. That the government understood that standardization was not contemplated by the contract is apparent from all the facts and circumstances surrounding the transaction. It had uniformly adhered to its policy of requiring trials by the ancient method, until the Charleston’s trial. Until that time, no ship constructed for the government of more than 3,250 tons displacement had been tried by the standardization method, nor until that period had any such trial been required of any contractor, in the absence of a request for such trial or an assent thereto. It is significant that on the 7th day of November, 1903, bids on two .13,000-ton battleships were accepted, and in those instances the contractual provisions were similar to the Charleston, no provision for standardization being made. However, on the 8th day of September, 1901-, bids were called for on two 14,500-ton armored cruisers (the North Carolina and Montana), and special provision was made for a speed trial of four hours’ duration on a measured course “under conditions prescribed or approved by the Secretary of the Navy, and also a standardization trial,” thus clearly showing that it 'was the intention of the Secretary of the Navy that, in order to exact the standardization test in addition to the speed trial, it was necessary specifically to provide for the same.

Notwithstanding the facts as we have stated them, when the Charleston was completed and ready for trial, the Secretary of the Navy informed the contractor that he desired the trial to be by standardization. The contractor, instead of complying with the request made by the Secretary of the 'Navy, immediately informed him that he understood that the Charleston contract only contemplated a trial by the ancient method, and that to require an additional trial, such as standardization, would result in additional expense, and insisted that the department should not deviate from its previous practice. However, the contractor stated that, “if the Department insists upon the change, we will accept the Provincetown course, and will submit estimates of the increased cost.” To this communication it appears that no reply was made by the Secretary of the Navy until the 15th day of June, 1905, at which time the contractor was ordered to proceed with the standardization trial, and the contractor thereupon complied with the request, incurring the additional expense, for which the judgment was rendered by the court below. Thus it will be seen that at the time the contractor was requested to make the additional trial the Secretary of the Navy was informed that if this trial was made it would be regarded as a change for which estimates had not been made, and that increased costs for the same would be submitted. By the terms of the statement made by the contractor at that time, the Secretary of the Navy knew that it was the purpose of the contractor to proceed under the interpretation which he had placed upon the contract,, and his order to proceed with the standardization trial, under such circumstances, •was in the nature of an acceptance of such interpretation. In the case of Central Pacific Railway Company v. United States, 28 Ct. Cl. 427, in referring to thi,s question, it is said:

■“A construction given to a contract by tlie express declaration of one party, and the silent acquiescence of the other prior to or during the service of the performance, cannot be repudiated after the party has acted upon the faith of it.”

Assuming that the changed clause of the contract does not apply to an alteration of the duties of the contractor thereunder, nevertheless, if the Secretary of the Navy, in the exercise of the inherent power vested in him by virtue of his office, and the statutes relating to the same, actually exercised such power by modifying, extending, or enlarging the contract, such action on his part necessarily involves an obligation to pay any sums that may have been expended in making such modification. In the case of United States v. Corliss S. E. Co., 91 U. S. 322, 323 (23 L. Ed. 397), the court said:

“The duty of the Secretary of the Navy, by the act of April 30, 1798, creating the Navy Department, extends, under the orders of the President, to ‘the procurement of naval stores and materials, and the construction, armament, equipment, and employment of vessels of war, as well as all other matters-connected with the naval establishment of the United States.’ 1 Stat. 553 [c. 35]. The power of the President in such eases is, of course, limited by the leg-islaiion of Congress. The legislation existing, the discharge of the duty devolving upon the Secretary necessarily requires him to enter into numerous contracts for the public service: and the power to suspend work contracted for, whether in the construction, armament, or equipment of vessels of war, when from any cause the public interest requires such suspension, must necessarily rest with him. As, in making the original contracts, lie must agree upon the compensation to be made for their entire performance, it would seem that, when those contracts are suspended by him, he must ho equally authorized to agree upon the compensation for their partial performance. 'Contracts for the armament and equipment of vessels of war may, and generally do, require numerous modifications in the progress of the work, where that work requires years for its completion. With the improvements constantly made in. shipbuilding and steam machinery and in arms, some parts originally contracted for may have to be abandoned, and other parts substituted; and it would be of serious detriment to the public service if the power of the head of the Navy Department did not extend to providing for all such possible contingencies by modifications or suspension of the contracts, and settlement with the contractors.”

It would be manifestly unjust to It old that the Secretary of the Navy could exercise the power to make modifications in the provisions of the contract and suspend the same if needs be, and yet not have the power to obligate the government for the paj-ment of any additional cost that might he incurred in making such alterations and modifications. This would be contrary to all rules of construction and not at all in harmony with the well-settled law of the land.

In construing this contract we should treat it just the same as though it were a contract between individuals rather than an individual and the government as in this instance. The Supreme Court of the United States, in referring to this question in Smoot’s Case, 15 Wall., at page 47 (21 L. Ed. 107). said:

“In approaching the inquiry into the effect which the action of the burean of cavalry, in adopting these new rules for inspection, had upon the rights of’ the parties to this contract, let us endeavor to free ourselves from the consideration that the government was one party to the contract, and that it was fox-si large number of horses: for we hold it to be clear that the principles which, must govern the inquiry are the same as if the contract were between Individ-dais, and the number of horses one or a dozen instead of four thousand.”

It is insisted that the previous practice of the government cannot influence the construction of this contract. In the case of United States v. McDaniel, 7 Pet. 14 (8 L. Ed. 587), the court said:

“ ⅛ * * A practical knowledge of the action of any one of the great departments of the government must convince every person that the head of k department, in the distribution of its duties and responsibilities, is often compelled to exercise his discretion. He is limited in the exercise of his powers by the law; but it does not follow, that he must show statutory authority for everything he does. No government could be administered on such principles. To attempt to regulate, by law. the minute movements of every part of the complicated machinery of government, would evince a most unpardonable ignorance on the subject. Whilst the great outlines of its movements may be marked out, and limitations imposed on the exercise of its powers, there art-numberless things which must be done that can neither bo anticipated nor defined, and which are essential io the proper action of the government. Hence., of necessity, usages have been established in every department of the government, which have become a kind of common law, and regulate the rights and duties of those who act within their respective limits. And no change of such usages can have a retrospective effect, but must be limited to the future. Usages cannot alter the law. but ir is evidence of the construction given to it; and must be considered binding on past transactions.”

In this case it appears, as we have already said, that prior to the trial of the Charleston, the universal custom had been only to require “a trial,” and that the trial by standardization had not, prior to that time, been required of- any contractor in the absence of an agreement on his part to make such trial. Therefore, we have what might be termed a long series of transactions between the government and its contractors in which contracts similar to the one involved in this controversy were construed to mean that the vessels constructed were to be subjected to only one trial. The case of United States v. Alabama Railroad Company, 142 U. S. 621, 12 Sup. Ct. 306 (35 L. Ed. 1134), is very much in point. The court in that case, among other things, said:

“We think the contemporaneous construction thus given by the executive department of the government, and continued for nine years -through six different administrations of that department — a construction which, though inconsistent with the literalism of the act, certainly consorts with the equities of the case —should be considered as decisive in this suit. It is settled doctrine of this court that, in case of ambiguity, the judicial department will lean in favor of a construction given to a statute by the department charged with the execution of such statute, and, if such construction be acted upon for a number of years, will look with disfavor upon any sudden change, whereby parties who have contracted with the government upon the faith of such construction may be prejudiced. It is especially objectionable that a construction of a. statute favorable to the individual citizen should be changed in such manner as to become retroactive, and to require from him the repayment of moneys to which he had supposed himself entitled, and upon the expectation of which he had made Bis contracts with the government. These principles were announced as early as 1827 in Edwards’ Lessee v. Darby, 12 Wheat. 206, 210 [6 L. Ed. 603], and have been steadily adhered to in subsequent decisions. United States v. Bank of North Carolina, 6 Pet. 29, 39 [8 L. Ed. 308]; United States v. McDaniel, 7 Pet. 1 [8 L. Ed. 587]; Brown v. United States, 113 U. S. 568 [5 Sup. Ct. 648, 28 L. Ed. 1079]; United States v. Moore, 95 U. S. 760, 763 [24 L. Ed. 588].”

It is insisted by counsel for the government that the meaning of this contract is to be determined solely by the language of the contract itself, and that it provides no specific method of trial. We cannot give our assent to this proposition in view of the facts and circumstances surrounding the transaction. Here the contractor had, for a number of years, been engaged in constructing vessels for the government, and during that period had been required to make only one test. Therefore, in preparing estimates with a view of bidding for the contract to construct the Charleston, he only based such estimates upon the requirements that had been exacted by the government prior thereto. Thus, in order to properly construe a contract of this character, it becomes highly important to ascertain the nature of the requirements for the construction of similar vessels prior to the time this contract was entered into. In the case of Merriam v. United States, 107 U. S. 441 [2 Sup. Ct. 536, 27 L. Ed. 531], the court said:

“It is a fundamental rule tbat in tbe construction of contracts the courts may look not only to tbe language employed, but to'tbe subject-matter and tbe surrounding circumstances, and may avail themselves of tbe light which tbe parties possessed when the contract was made. Nash v. Towne, 5 Wall. 689 [18 L. Ed. 527]; Barreda v. Silsbee, 21 How. 146, 161 [16 L. Ed. 86]; Shore v. Wilson, 9 Cl. & Fin. 355, 555; McDonald v. Longbottom, 1 El. & El. 977; Mun-ford v. Gething. 29 L. J. C. P. 110: Carr v. Monteflore, 5 B. & S. 407; Brawley v. U. S., 96 U. S. 168 [24 L. Ed. 622].”

In this instance the contract was entered into in the light of the circumstances attending the execution of contracts of this character, in view of which the contractor had every reason to believe that it would not be required to do more than had been required of it by former contracts between it and the, government, as well as respects contracts of similar character that had been entered into between the government and other contractors for like service.

We have carefully considered the cases relied upon by counsel for the government, and the contention with respect to the same, but we do not think the principles announced therein apply to the case at bar.

The fact that this contract provides that the vessel shall be subjected to “a trial trip upon the open sea,” considered in connection with the further fact that only one trial trip had been required prior theretofore, impels us to the conclusion that the construction placed upon the same by the learned judge who heard the case below is correct. Therefore the judgment of the lower court is affirmed.