1. THE JURISDICTION OF THE SECRETARY OF WAR TO SETTLE CONTRACTS AND OVER CLAIMS, DOUBTS, AND DISPUTES ARISING OUT OF WAR DEPARTMENT CONTRACTS WHETHER DURING PERFORMANCE OR UPON SUSPENSION OR TERMINATION.

Under section 3744 of the United States Revised Statutes, contracts must be in writing and signed at the end by both parties. The provisions of this statute as to reducing the agreement to writing and both parties signing one instrument are in the nature of a statute of frauds and are for the protection of the United States only (New York & Porto Rico Steamship Co. v. United States, 239 U. S. 88; St. Louis Hay & Grain Company v. United States, 191 U. S. 159). Failure to comply with them will not, therefore, prevent the United States from enforcing the contract. The requirements of the statute as to the execution of an affidavit of disinterestedness and filing in the Returns Office are held not to effect the enforceability of the contract. (Clark v. United States, 95 U. S. 539.) The effect is, however, to immediately divide War Department contracts into two classes; those executed in compliance with the statute, sometimes called formal, and those not so executed, often called informal. With the former are to be classified those contracts which are made in accordance with the amendments to that act, namely, those made. under section 6853 of the Compiled Statutes, which provides that contracts involving an amount not in excess of $500 may be made in the manner common among business men, and those made under sections 6853a, 6853b, 6853c, and 6854 of the Compiled Statutes, which amend both the preceding acts, and provide generally that all contracts of the Quartermaster General, Chief of Ordnance, Surgeon General, and Chief Signal Officer to be performed in not more than 60 days or involving payment not exceeding $500, may be entered into under such regulations as may be prescribed by those bureau chiefs. The distinction is further emphasized by the principle that any agreement is invalid unless it be on sufficient consideration, or, as sometimes stated, to the interest of the United States to make it. The Secretary of War could not, therefore, by a supplemental agreement cure the informality of the contract, for the contract was already enforceable against the contractor and it would not be to the interest of the United States to give him rights to enforce it against the Government unless he gave something more in return. The only rights of the contractor on such an informal contract would seem to be on a quantum valebat or meruit for property or services actually (IX)

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delivered to and accepted by the United States. Such implied contracts are not shut off by Revised Statutes 3744 and the amendments. (Clark v. United States, 95 U. S. 539.) In order to remedy this disability, which applied to great numbers of war contracts, the act of March 2, 1919, hereafter discussed was passed.

(a) Formal contracts executed in the manner prescribed by section. 3744 of the Revised Statutes and amendments.

The power of the Secretary of War and heads of other departments to make contracts required for the exercise and performance of their duties arises by necessary implication and is confirmed by statute, and it is held that this power to contract necessarily carries with it the power to amend by supplemental contract and to terminate by agreement in like manner. (Corliss Steam Engine Co. v. United States, 91 U. S. 321.) Furthermore, this involves power in the Secretary of War to cover in such agreement of settlement a complete adjustment of all claims, including unliquidated damages that may have arisen during the performance of the contract or by reason of its termination. (W. O. Burton claim v. United States, 15 Comp. Dec. 439; and opinion of the Comptroller of Nov. 25, 1918, par. 9, 25 Comp. Dec. 399.) It will be noted, however, that this power of the Secretary of War to settle formal contracts by agreement with the contractor rests wholly upon the existence of the contract itself and can not be exercised where the contract has been fully executed by performance by the contractor, or terminated by breach, expiration of the time for performance, or otherwise. In such cases the powers and functions of the Secretary of War to amend the contract have ceased and the claims of the parties are merely for payment or for damages for some breach of the contract and can only be determined in the Department of the Treasury (section 368 U. S. Compiled Statutes) or by a court having jurisdiction. In order to preserve the power to amend and settle formal contracts and yet stop further production under them, the Secretary of War, through the bureaus, invited all contractors to suspend work shortly after the armistice and to negotiate settlements. This was successfully accomplished in almost every case.

The power of the Secretary of War to contract is necessarily delegated to the chiefs of the bureaus of the War Department, which delegation is recognized by statute, and by them in turn to certain officers and civilians selected by them. Without such delegation the functions of the War Department could not be performed. These delegations are usually by regulations or orders in writing, but may be by mere oral appointment. The power to amend and make supplemental contracts altering the terms of or terminating the original contract is also ordinarily delegated to the chiefs of bureaus and contracting officers acting under them.

In all such supplemental or settlement agreements, whether for the complete termination of the contract or for curtailment, the provisions of the original contract itself fix the maximum amount that may be paid to the contractor, which amount the contracting officer should not exceed unless by reason of unliquidated damages or of some valid modification of the contract itself. Otherwise the amendment or settlement would not be upon good consideration. So it is commonly said that the United States can not settle for more than what it would have had to pay to complete the contract, and only in rare cases can a settlement be justified where the amount paid to the contractor equals or exceeds the prospective cost to the United States for the additional completed articles less the additional prospective cost to the manufacturer in manufacturing the same.

Most War Department contracts have termination clauses permitting the Secretary of War to terminate the contract and setting forth the basis for computing the amount to be paid the contractor. The settlement would not be in the interest of the United States and the settlement contract would be void if the amount exceeded what might be fixed under the method agreed to in the termination clause of the original contract. This rule is also subject to the above exceptions as to changes pursuant to the terms of the contract, thus increasing the cost, and an additional amount to be paid by the United States as unliquidated damages, as for breach of warranty, or for failure to deliver raw material or components at the times specified, or some other cause. If the Secretary of War settles under the termination clause of the contract itself his act is merely in performance of one of its terms, and as there is no amendment, no supplemental or settlement contract is then required.

Many contracts have so-called change of specification clauses. These permit the War Department to change the specifications and provide that the compensation to the contractor will be modified accordingly. Under such circumstances the changes need not be made in writing under section 3744 Revised Statutes, or in the manner prescribed by the amendments thereto, but may be made informally, as they are acts done in the execution of the terms of a contract and are not the making of an amendment or of a new contract.

(b) Agreements not executed in the manner prescribed by law. As above stated, the Secretary of War had no jurisdiction to settle claims arising under such contracts, and the Treasury Department might only pay for property and services actually received and accepted at their fair value, which might, however, be the price fixed in the informal contract. (Clark v. United States, 95 U. S. 539, and United States v. Andrews, 207 U. S. 229.) The adjustments on a quantum valebat or meruit are generally made by the

Treasury Department on certificates submitted by the War Department showing receipt of the property or services and the fair value (matter of Savage Arms Co., 25 Comp. Dec. 528). The pressure and necessities of the war had caused the making of great numbers of informal contracts, and this number was swelled by the ruling of the Comptroller of the Treasury that proxy-signed contracts were not executed in accordance with the provisions of section 3744 of the Revised Statutes. (Opinion of Comptroller of Nov. 25, 1918, 25 Comp. Dec. 399.) These proxy-signed contracts had been drawn in the name of some contracting officer whose name also appeared in the signature for the United States, but the contract was in fact signed by another officer who added his own name to the signature. Great numbers of these contracts were suspended shortly after the armistice. And as the contractors learned that the United States could not reimburse them for their costs, unfinished work, materials, unabsorbed amortization of equipment and machinery, initial costs, etc., they brought the matter to the attention of Congress, which after consideration of a number of proposed bills, passed the act of March 2, 1919, sometimes called the Dent Act. This act authorizes the Secretary of War, under certain limitations, to "adjust, pay, or discharge" agreements, whether express or implied, "not executed in the manner prescribed by law" made by his authority or that of the President "upon a fair and equitable basis." Under this act the Secretary of War exercises, in some respects, a wider jurisdiction in the adjustment of contracts not properly executed than in the case of contracts which have been executed in accordance with the terms of the statutes. For example, he may make adjustments of such improperly executed contracts whether the same have been completed in whole or in part, and might therefore adjust a question of unliquidated damages on an informal contract which had been entirely completed. Under this act he is adjusting a claim and is not settling a contract by amending it as in case of formal contracts. Further, his jurisdiction is extended to the adjustment of contracts made by other persons or agencies of the Government acting under the authority of the President. This includes contracts for War Department purposes made by any person or department, specifically authorized to do so by the President, or by the general agencies constituted by him with functions sufficiently broad to include this power; for example, the War Industries Board. Clearly the act applies to all contracts "not executed in the manner prescribed by law." It therefore includes not only those contracts of the War Department not enforceable because not executed in accordance with Revised Statutes, 3744, and amendments, but also all the War Department implied contracts whether or not a remedy already exists, as in case of quantum meruit or valebat. As there is

no statute prescribing the manner of execution of contracts made by authority of the President, these contracts, if for War Department purposes, would be included no matter what degree of formality was used in their execution, and even though there already exists a remedy in the courts. On the other hand, claims must be filed on or before June 30, 1919. (Opinion of the Attorney General of Oct. 10, 1919.) The original agreement must have been made during the emergency (declared by the Secretary of War on Apr. 12, 1917), and on or before November 11, 1918, and some expenditures must have been made, or some obligations incurred on the faith of it before that date. This is a jurisdictional requirement and is not intended to prohibit the reimbursement of costs and expenses incurred for the performance of the contract whether before or after November 12, 1918, and which are not required to be upon the faith of an already existing contract. Prospective or anticipated profits may not be allowed, but "a reasonable remuneration for expenditures and obligations or liabilities necessarily incurred in performing or preparing to perform" may be given. The word "remuneration" is construed to have a wider meaning than reimbursement and to include compensation. There is also a clause charging the Secretary of War with especial responsibility with regard to claims of subcontractors under such settlements. None of these limitations, however, apply where the contract is one with a foreign government or a national thereof except that the contract must have been made before November 12 and during the emergency.

It would seem also that this act permits settlements on a wide basis under implied contract. It purports to cover "any agreement, express or implied * that has been entered into in good

faith

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and

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has not been executed in the manner prescribed by law." It would seem that under it the Secretary of War may adjust claims on implied contracts to which Revised Statutes, section 3744, or amendments would be a defense, and also on all other implied contracts of the War Department. Such contracts may be implied in fact or implied in law, and it is held that the compulsory and commandeering orders issued under section 120 of the national defense act of June 3, 1916, and sec tions 10, 11, and 12 of the food control act of August 10, 1917, raise implied contracts that may be adjusted under the act of March 2, 1919.

It is clear that the "authority, direction, or instruction" of the Secretary of War under which an agreement must have been made in order to permit of adjustment under the act of March 2, 1919, could not be merely authority to make contracts in the manner prescribed by the statutes. If the officer or agent had only that authority, then an attempt to make an agreement in any other way would