United States v. Butterworth-Judson Corporation, 134.

• Decision Date: 18 February 1924
• Docket Number: 134.
• Citation: 297 F. 971
• Parties: UNITED STATES v. BUTTERWORTH-JUDSON CORPORATION et al.
• Court: U.S. Court of Appeals — Second Circuit

297 F. 971

UNITED STATES v. BUTTERWORTH-JUDSON CORPORATION et al.

No. 134.

United States Court of Appeals, Second Circuit.

February 18, 1924

[Copyrighted Material Omitted]

William Hayward, U.S. Atty., of New York City (Victor House, Sp Asst. U.S. Atty., of New York City, of counsel), for the United States.

Henry C. Willcox, of New York City (Allan C. Rowe, of New York City, of counsel), for appellants surety companies.

Breed Abbott & Morgan, of New York City (William C. Breed and Edward J. Redington, both of New York City, of counsel), for appellee National Newark & Essex Bkg. Co.

White & Case, of New York City (David Paine, of New York City, of counsel), for appellees Chase Nat. Bank and New York Trust Co.

Cardozo & Nathan, of New York City (Michael H. Cardozo, Jr., of New York City, of counsel), for appellee American Exchange Nat. Bank.

Before ROGERS, MANTON, and MAYER, Circuit Judges.

MAYER Circuit Judge (after stating the facts as above).

The contractual relations between the United States and Butterworth Co. were due to war emergency, and the principal and supplementary agreements were possible only because of and under statutory enactment.

The Secretary of War had only the power which the statute conferred upon him. That statute quoted supra used simple words of well-defined meaning in the law and, for that matter, in everyday commercial relations. It seems almost elementary to state that 'advance payments' means payments in advance for things purchased and thereafter to be delivered. 'Advance payments' to contractors for supplies can mean nothing else than that the Secretary of War or the Secretary of the Navy, as the case might be, was authorized to arrange with contractors for supplies and within the statutory limit to pay these contractors in advance for these supplies. But we need not rely upon our general knowledge of these very simple words. It early became the policy of the United States to prohibit 'advance payments.'

By the statute of January 31, 1823 (3 Stat. at Large, 723, U.S. Comp. Stat. Sec. 6647), it was provided, in part, that 'No advance of public money shall be made in any case whatever. ' From time to time the practical necessities or requirements of administration required some advances of public moneys, and to meet such necessities or requirements statutes were enacted to deal with the particular subject-matter involved. Thus, in this early act of 1823, the President was authorized to make certain advances to the disbursing officers of the government and also advances to persons in the military and naval service employed on distant stations. The Department of Agriculture, the Forest Service, the Immigration Service, and the Quartermaster Corps, and various executive departments are permitted to 'pay in advance' in certain circumstances for certain limited purposes. U.S. Comp. Stats. 6649, 6650, 6651, 6652a, and 6652c.

In these statutes, the words used are 'pay in advance' or 'paid in advance,' or words of import similar to the words 'advance payments' used in the statute here under consideration.

The reason for the enactment of the statute now under discussion was plain. It was vital to the United States that many kinds of supplies be manufactured and/or furnished as speedily as possible. The United States was not itself a manufacturer of or dealer in the necessary supplies, and it was obvious that it must arrange with many persons to furnish these supplies. Munitions and ingredients therefor were among the most important supplies needed in large amounts and needed quickly. Evidently, it was clear to the Congress that many contractors would not have the means for building appropriate plants and producing supplies in the required quantities unless they received direct financial aid from the United States. This situation familiar to all was the occasion and necessity for the enactment of the Act of October 6, 1917, chapter 79. The case of The Floyd Acceptances, 7 Wall. 666, 19 L.Ed. 169, had held the statute of 1823 to rigid adherence. The Supreme Court had said, at pages 676 and 677 of 7 Wall. (19 L.Ed. 169):

'We have no officers in this government, from the President down to the most subordinate agent, who does not hold office under the law, with prescribed duties and limited authority. And while some of these, as the President, the Legislature, and the judiciary, exercise powers in some sense left to the more general definitions necessarily incident to fundamental law found in the Constitution, the larger portion of them are the creation of statutory law, with duties and powers prescribed and limited by that law.'

Thus it became essential 'during the period of the existing emergency' that the statute of 1823 should be superseded by definite enactment which would permit what that statute prevented.

The Secretary of War and the Secretary of the Navy were charged under the statute of 1917 with requiring 'adequate security for the protection of the government for the payments so made. ' This language is also simple and familiar. It usually refers to bonds or undertakings or to some property lodged as security for due performance with him who advances the payments.

The statute also required that the advances should be made 'upon such terms as the Secretary of War and the Secretary of the Navy, respectively, shall prescribe.'

It will be noted that the authorization to make advance payments was with this proviso. In other words, the statute first created the authority and then required, as a condition of its exercise, the two provisions, (1) as to terms and (2) as to security.

It is clear that it was not the legislative intent to create between the United States, acting through the proper Secretary, and the contractor, the relation of principal and agent. Such a relation primarily would have possibly opened the way for claims against the United States, either under some existing statutes (Judicial Code, Sec. 24, par. 20, and section 145 (Comp. St. Sec. 991, par. 20, 1136)) or, if there were no applicable statutes, then under all the possibility of subsequent enabling legislation by which claims against the United States could be made and trials had either in the United States District Courts or in the Court of Claims.

The very use in the statute of the word 'contractors' indicates at once a contractual relation and not a relation of principal and agent.

We may also assume that the Congress was familiar with the ordinary affairs of business in respect of which, within proper limits, courts may take judicial notice.

When dealing with large affairs, where contractors must make prompt payments for labor and supplies, they usually borrow money in order to carry on the enterprise in hand and, obviously, the contractor, who entered into an agreement with the United States for the furnishing of supplies and to whom the United States made advance payments under these statutes, would gain the credit and the increased ability to borrow money which it might otherwise not possess. The Congress in dealing with the war emergency was more concerned with the practical purpose of obtaining necessary supplies than it was with considering fine legal distinctions which, while the emergency existed, would have arrested production by failing to put contractors in the very funds which were necessary to carry out the purposes of the United States.

To assist him, inter alia, in dealing with the extensive and difficult task of determining to whom to make advance payments and in what amounts and under what terms and security, the Secretary of War had the aid of a War Credits Board created pursuant to duly authorized executive authority. ^[2] The principal agreement was executed by the United States by Col. McRoberts, acting for the United States, under the authority of the Chief of Ordnance, United States Army, and under the direction of the Secretary of War.

This document, executed May 9, 1918, was entitled 'Contract for 72,000,000 Pounds of Picric Acid. ' It recited the state of war which existed between the United States of America and the German and Austro-Hungarian governments and that 'the United States requires performance of the work and delivery of the supplies hereinafter described within the shortest possible time. ' The United States through its officers realized, of course, that picric acid could not be manufactured without an appropriate plant, and it was therefore provided that 'the contractor shall promptly select a site * * * for the construction and operation thereon of a plant of the character hereinafter described for the production of picric acid.'

After this site was approved in writing by the contracting officer with reference to location, title, and price, it was to be conveyed to the United States, and the United States was to pay the price of the site. The contractor within the shortest possible time was to submit to the contracting officer, i.e., McRoberts, for approval the necessary plans and specifications for a fully equipped plant.

There are other details not necessary to recite, but all of which were in aid of accomplishing a result whereby picric acid to the amount of 72,000,000 pounds should be manufactured.

The contracting officer upon the delivery of this contract of May 9, 1918, was to recommend to the War Credits Board that it approve an advance payment to the contractor for the supplies 'herein contracted for' in the sum of $1,500,000 'upon such terms and conditions and secured in such manner as said Board shall prescribe.'

The supplementary agreement between Butterworth Co. and the United States, dated May 22, 1918, is entitled 'Covering Advance Payment to Contractor.' It states that it is supplemental to the contract of May 9,...