Petitioners Brief — Standard Accident Insurance v. United States

Page

i PC ententicnnscetescnctuncanctpsbocsesceceteces 1

il EE A Sy bu pohebGhNeSheKeseeeuegns 1

nga tckncknndeatabicuddinds netathbahentaa 2

PE Reciastenescecuse SESS Ld gnecsecceesanececsnaesse 2

PT Ktacncheckosacs ea ceeececccccance 4

Conclusion. ._ -_____. Sse a wibdin tn besnmnktitliaeenerin 10

CITATIONS

Cases:

Carnegie Steel Co. v. United States, 240 U. 8.156... 5

Columbus Ry. & Power Co. v. 3 pie 249 U.8.300.... 5,8

Day v. United States, 245 U. 8) 158... . 5

Deming v. United States, 1 C. “Cle. Piscine ian 8

In I, 5

Horowitz v. United States, 267 U.S. 458.......... 7,8

Jones v. United States, 96 U.S. 24.........- 5

Jones v. Uniled States, * C. Cle. 888_........-- 8

LeVeque v. United States, 96 C. Cis. 250....... 5

Maxwell v. United States, 3 F.2d 906, affirmed per curiam,

271 U. 8. 647

ee)

United States v. Joseph H. Beutias, No. 431, October Term,

1044, decided April 23, 1045.__......................

United States v. Warren Transp. Co., 7 F. 2d 161_.

Wells Brothers v. United States, 254 U. 8. eee

Wilson v. United States, 11 C. Cis. 513_.....

Statutes:

Act of September 9, 1940, 54 Stat. 872

Miscellaneous:

Restatement of Contracts

it MENON « tcnduntatbaronamipaiibwién sessnasi eae 6

5

aaa > SOS AA RL LE NE. Sea I ah a RES .

Authe Supreme Gourt of the Wnited States

Ocroser TeRM, 1945

No. 179

STANDARD AccipENT INSURANCE COMPANY AND

Avpert E. McKenzin, as TRUSTEE IN BanK-

RUPTCY OF THE GRaves-QUINN CORPORATION,

PETITIONERS

v.

THe Untrep Statss

ON PETITION FOR A WRIT OF CERTIORARI TO THE COURT

OF OLAIMS

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinion of the Court of Claims (R. 38-42)

is not yet officially reported.

JURISDICTION

The judgment of the Court of Claims was en-

tered on April 2, 1945 (R. 43). The petition for

a writ of certiorari was filed on June 26, 1945,

The jurisdiction of this Court is invoked under

Section 3 (b) of the Act of February 13, 1925,

as amended by the Act of May 22, 1939.

(1)

a a)

2

Whether, in entering into a lump sum construc-

tion contract, the Government impliedly under-

takes not to enter into cost-plus-fixed-fee con-

struction contracts in the same locality while

the lump sum contract is in the course of

performance.

STATEMENT

Petitioners, a surety on a performance bond,

and a trustee in bankruptcy, of the Graves-Quinn

Corporation (hereinafter referred to as the con-

tractor) (R. 1, 13-15, 38), filed a petition in the

Court of Claims seeking to recover moneys on

claims arising out of a contract between the Con-

tractor and the United States (R. 1-13). The

petition alleged three causes of action (R. 1-6, 6,

6-13), the third of which was the only one com-

mon to both petitioners (R. 6). Since the judg-

ment dismissed the third cause of action alone

(R. 43), only the facts alleged in the petition with

respect to that cause of action are here pertinent.

They are as follows:

On September 14, 1940, the contractor entered

into a contract with the United States, through

the War Department, for the construction of tem-

porary houses at Harbor Defenses, Boston, Nar-

ragansett Bay, Massachusetts, at Portland, Maine,

and at Newport, Rhode Island. The contract

called for lump sum payment of $1,008,800. (R. 2,

16.) The petition alleged that although the con-

3

tractor ‘‘contemplated and understood that the

Government would do nothing which would inter-

fere or prevent the orderly and contemplated

method of performing” its contract, ‘‘immediately

after the awarding of the contract [the United

States], through its duly authorized agencies

made independent contracts’’ with other contrac-

tors ‘for the construction of various Government

facilities in the immediate vicinity’’; and that

these “other contracts were for the most part let

upon a cost plus a fixed fee basis.’’ Petitioners

then alleged that ‘‘the effect of the Government’s

action was that the Contractor was unable to

employ laborers and mechanics in the normal

course”’ since they were ‘‘being drawn to the cost

plus fixed fees jobs’’; that ‘‘unless the Contractor

permitted laborers to be employed for longer

hours resulting in the payment of overtime wages,

practically no laborers would be available’’; that

“‘the Contractor was left with inefficient sources

from which to draw his laborers’’; and that “the

effect of the award of the cost plus fixed fee con-

tracts was to raise the price of the materials in

the immediate vicinity, thereby forcing the Con-

tractor to pay higher prices for materials neces-

sary to the performance”’ of its contract. Peti-

tioners further alleged that the United States

‘knew at or about the time of the advertising for

bids resulting in the award’’ of the contract in

question ‘‘that it intended to enter into very

substantial construction contracts [in the same

PEALE ETT ELLY EE NT PIPE LLIN SS ERIE FY

EA PRL RP Se

4

vicinity] on a cost plus a fixed fee basis”’ and that

“any Contractor having a lump sum contract in

the immediate vicinity would be compelled to

meet abnormal circumstances not contemplated or

agreed to by the bidder.” (R. 7.) On the basis

of these allegations, petitioners averred that ‘‘the

Contractor was damaged in the sum of $397,200”

(R. 12) which sum ‘‘is now due and owing from

the [United States] to the claimants’ (R. 13).

The petition further alleged the Contractor’s

claim had previously been presented to and re-

jected by the contracting quartermaster of the

War Department (R. 8-10) and the Comptroller

General (R. 10-12.)

On March 31, 1944, the United States filed a

demurrer to this cause of action (R. 37-38).

The court below sustained the demurrer and dis-

missed the petition as to this cause of action (R.

43)* on the ground that petitioners’ allegations

were ‘‘not sufficient to show that there was a

breach of the contract in suit by the [United

States] which would entitle the contractor or

[petitioners] to recover the alleged increased per-

formance costs as damages’’ (R. 41).

ARGUMENT

The court below properly ruled that petitioners’

allegations failed to establish a right to recover,

as damages, the contractor’s alleged increased

performance costs.

1 The court below remanded the first and second causes of

action to its General Docket (R. 43).

5

‘It is settled law that in the absence of fraud,

accident, or mistake, supervening conditions or

circumstances which may render a contractor’s

performance of a contract more difficult and ex-

pensive do not excuse the contractor from per-

formance in accordance with the contract terms,

or entitle it to relief after performance. Jones

v. United States, 96 U. S. 24, 29; Carnegie Steel

Co. v. United States, 240 U. S. 156, 164-165; Day

v. United States, 245 U. S. 159, 161; Columbus

Ry. & Power Co. v. Columbus, 249 U. 8. 399,

412-414; LeVeque v. United States, 96 C. Cls.

250; Williston on Contracts (Rev. Ed., 1937)

§ 1963; Restatement of Contracts, § 467. ‘‘The

answer to the objection of hardship in all such

cases is that it might have been guarded against

by a proper stipulation.’”’ The Harriman, 9 Wall.

161, 172-173. In an effort to circumvent this

well established principle, petitioners invoke the

rule that ‘‘it is an implied condition of every

contract that neither party will hinder the other

in his discharge of the obligations imposed upon

him’”’ (Pet. 11), and contend that the “‘acts of the

Government”? in letting cost-plus-fixed-fee con-

tracts in the vicinity of the lump sum contractor

so increased the latter’s cost of performance as

to constitute a “breach”’ of its contract with the

Government (Pet. 7). Although the correctness

of this rule is beyond challenge (Restatement of

Contracts, § 315), petitioners disregard the ob-

vious limitation upon it, 7. e., that it has no

6

application where, under the terms of the con-

tract, surrounding circumstances, or customs of

business, the hindrance was permitted or might

have been anticipated by the parties. Restate-

ment of Contracts, § 315 (1) (b) and illustration

3; Williston, supra, §1293 A. The facts of this

ease and the applicable rules of law make it clear

that the governmental action of which petitioners

complain was not only permissible, but a risk

naturally and properly to be anticipated by the

contractor.

The contract in question was executed on Sep-

tember 14, 1940 (R. 2). Prior thereto, Congress

had, on July 2, 1940, authorized the Secretary of

War to “expedite the strengthening of the na-

tional defense”’ for the fiscal year ending June 30,

1941 by providing ‘‘for the necessary construc-

tion * * * at military posts, depots, stations,

or other localities, of plants, buildings, facilities,

utilities, and appurtenances thereto”’ (sec. 1 (a),

54 Stat. 712)* and specifically authorized the use

of the ‘‘cost-plus-a-fixed-fee form of contract when

such use is deemed necessary by the Secretary of

War” (id. at 713). The contracts about which

petitioners complain were concededly authorized

by this Act (Pet. &). Parties to a contract are

presumed to know of existing statutes which may

affect its operation or performance, and the con-

2 The appropriation Act providing moneys for the carry-

ing out of this enactment was approved on September 9, 1940,

54 Stat. 872, 873.

ES Br ins SEI BOE OLE, PONS LOO aES, Pay

7

tract in suit contains no express stipulation or

warranty that the Government would not let con-

tracts on a cost-plus-fixed-fee basis in the same

vicinity. It is thus clear that the contractor in

the instant suit had, in the words of the court

below, ‘‘assumed the risk of meeting the changed

conditions of which complaint is now made’’

(R. 41). This factor alone precludes petition-

ers’ recovery against the United States. Restate-

ment of Contracts, § 315 (1) (b).

Moreover, the United States when sued as a

contractor cannot be held liable for an obstruction

to the performance of a particular contract result-

ing from its general acts as a sovereign. Horowitz

v. United States 267 U. S. 458, 461. It is clear

that the action of the Government in letting the

cost-plus contracts not only was permissible but, it

must be assumed, was the most appropriate method

“to expedite the strengthening of the national

defense’’ (54 Stat. 712). Contrary to petitioners’

contention, such action may not be made a basis

* Indeed, as the court below pointed out, the contract in

question “expressly recognized the existence and effect of the

National Defense and Appropriation acts above mentioned

by deleting from the standard contract form art. 11 prohib-

iting the working of any laborer or mechanic more than eight

hours in any calendar day” (R. 42). See Section 4 (b) of

the Act of July 2, 1940, 54 Stat. 712, 714, and R. 9.

*Cf. Wells Brothers v. United States, 254 U. S. 83, 87,

where Mr. Justice Clarke observed that “Men who take mil-

lion-dollar contracts for Government buildings are neither

unsophisticated nor careless.”

RG IRINA FOO LOI BOLLE OL LEG BS PE EAE IE LEN ST Ea LI POD PL EAVEN

8

for imputing inequitable conduct to the Govern-

ment such as would sustain an action for an im-

plied breach of contract. Horowitz v. United

States, 267 U. 8. 458; Deming v. United States,

1 C. Cls, 190; Jones v. United States, 1 C. Cls. 383;

Wilson v. United States, 11 C. Cls. 513; Mazxwell v.

United States, 3 F. 2d 906 (C. C. A. 4), affirmed

per curiam, 271 U. 8. 647; United States v. War-

ren Transp. Co., 7 F. 2d 161 (D. Mass.); ef.

Columbus Ry. & Power Co. v. Columbus, 249 U. 8.

399; Megan v. Updike Grain Corp., 94 F. 2d 551

(C. OC. A. 8).

Petitioners’ assertion that their ‘“‘complaint is

not directed against any Governmental enact-

ment’’ but against ‘“‘the action of the War De-

partment in its capacity as a contracting party”’

(Pet. 8) is not persuasive. This Court has rec-

ognized that the ‘‘‘two characters which the

government possesses as a contractor and as a

sovereign cannot be thus fused’ ’’ and that “‘ ‘the

United States while sued in the one character

[cannot] be made liable in damages for their acts

done in the other * * * be they legislative or

executive, so long as they be public and general.’ ”’

Horowitz v. United States, 267 U. S. at p. 461,

quoting from Jones v. United States, 1 ©. Ols. 383,

384. If petitioners mean to suggest that the War

Department had agreed or undertook not to let

in petitioners’ vicinity such other.contracts as

might be deemed necessary to carry out and ‘fulfill

oo (ie pee: ee ee a tea

9

the requirements of existing Acts of Congress

(Pet. 8-9), such an agreement, or undertaking

would, as the court below observed, ‘“‘have been in

violation of the acts of Congress and, therefore,

beyond the authority conferred upon the contract-

ing officer’? (R. 41).

Contrary to petitioners’ contention, the decision

of this Court in United States v. Joseph H. Beut-

tas, No. 431, October Term, 1944, decided April

23, 1945, directly supports the decision below. In

that case, this Court rejected the contention that

the Government, by inviting bids for the con-

struction of a superstructure at minimum wage

rates higher than those specified in a contract for

the construction of the foundation, had so in-

creased the foundation contractors’ costs of per-

formance as to constitute an implied breach of

their contract. The Court stated, in light of the

findings of the Court of Claims, that there was

‘no basis for a holding that the Government

knowingly hindered [the foundation contractors]

in the performance of the contract or culpably

increased their costs’? (pamphlet p. 4). In the

instant case, the Government’s action in letting

cost-plus-fixed-fee contracts pursuant to an Act

of Congress would likewise not afford a sufficient

“basis for a holding that the Government know-

ingly hindered * * * the performance,” or

“‘culpably increased’’ the costs of the contract in

question.

10

CONCLUSION

The decision below is correct and no conflict

exists. It is, therefore, respectfully submitted

that the petition for a writ of certiorari should

be denied.

HaRoLp JUDSON,

Acting Solicitor General.

RawLines RaGLanD,

Acting Head, Claims Division.

Pau. A. SWEENEY,

JEROME H. SIMONDs,

Attorneys.

‘Aveaust 1945. -

©. 8, GOVERNMENT PRINTING OFFICE: 1848

m

nero Sa TNL MENA DE REC REE RETREAT MEME.

ATCT AINA PUD RIAL INET AP ERS, NPS, AN