
    JOHN C. JONES, JR., TRUSTEE IN BANKRUPTCY OF THE METZ CO., v. THE UNITED STATES
    [No. E-291.
    Decided May 16, 1927]
    
      Settlement contract; transfer of surplus material to contractor; talcing of same l>y Government under claim of right. — In a settlement contract with the Government a clause is included, by mistake on the part of the contracting officer, providing that the material left over should “ remain the property of the contractor.” Under the terms of the prime contract the material was to become the property of tli<> Government upon payment therefor, and upon execution of the said settlement contract the Government paid for the material. Thereafter the Government, claiming ownership and in the belief that it was its property, removed the material from the contractor’s possession without objection. Held, that the taking raised no implication of a promise under which the contractor might recover.
    
      The Reporter's statement of the case:
    
      Mr. J olm O. J ones, jr., for the plaintiff.
    
      Mr. George II. Foster, with whom was Mr. Assistant Attorney General Ilerman J. Galloway, for the defendant.
    The court made special findings of fact, as follows :
    I. The plaintiff, John C. Jones, jr., a United States citizen, of Newton, Mass., is the duly appointed and qualified trustee in bankruptcy, case No. 30632, District Court of the United States for the District of Massachusetts, for the Metz Company, a Massachusetts corporation duly organized by law and having a usual place of business in Waltham, in said State.
    II. The Metz Company was organized under the laws of Massachusetts on August 3, 1909, and from that date to February 1,1918, it was actively engaged in the manufacture of automobiles in the said city of Waltham. The company occupied three plants, covering an area of 10 acres. It had machinery and equipment inventoried at $161,605.20, and was duly equipped for the business in which it was engaged. It employed an average of 600 persons, and made automobiles which had proved their worth.
    
      III. The Metz Company entered into negotiations with the Government in October, 1917, relative to the construction of airplane parts. Beginning the first week of January, 1918, Government accountants and representatives were at the plant. Negotiations continued and the facilities of the plant were improved. On March 15, 1918, the United States, represented by A. C. Downey, Signal Corps, United States Army, entered into a cost-plus contract, known as Contract No. 3005, Order No. 20418, with the said Metz Company, represented by Charles H. Metz, to make spare parts for DeHaviland-4 airplanes. A copy of this contract is attached to the petition as “ Exhibit A” and is made a part hereof by reference.
    IY. The Metz Company began work on airplane parts in January, 1918, under the authorization and direction of the Government representatives, accountants, and production engineers, and continued its active operation until December 28, 1918.
    V. Contract No. 3005 was supplemented on October 11, 1918, by Contract No. 3005-1, and on February 25, 1919, by Contract No. 3005-2. Under the terms of Contract No. 3005-2 the Metz 'Company was to receive a profit on the work already performed of 10 per cent instead of the 12% per cent, which was originally agreed upon. Copies of the said contracts are attached to the petition as Exhibits B and C, respectively, and are made a part of this finding by reference thereto.
    YI. On June 18,1919, a contract was duly executed by the Metz Company by its assistant treasurer, A. J. Loring, and by the defendant by its contracting officer, Capt. S. M. Wiley, A. S. A. P., numbered 3005-A, terminating the aforesaid contracts 3005, 3005-1, and 3005-2. A copy of said contract 3005-A is attached to the petition as “ Exhibit D ” and is made a part hereof by reference thereto.
    YII. At the time the aforesaid settlement of contracts 3005, 3005-1, and 3005-2 was under consideration, there were a number of vouchers yet unpaid covering costs under these contracts approved by the proper officers in Boston. The company contended that certain other items of cost should also be paid. The company was also claiming that it should be reimbursed for the interest which it had paid on the loan or advance made by the Government. Mr. Loring was sent to Washington to effect a settlement of the contract. While in Washington he secured payment on the approved vouchers and received approval and payment of additional vouchers not previously approved. He also secured favorable consideration of the claim 'for reimbursement of interest and that claim was excepted from the general release in the terminating contract and was subsequently allowed and paid as a separate settlement under the authority given the Secretary of War by the Dent Act.
    VIII. In .anticipation of securing the aforesaid contract of March 15, 1918, the Metz Company maintained a force of 160 idle men in January and February, 1918, who got into production work, a few at a time, as the Government furnished blue prints and working data. The Government officials refused to honor vouchers for approximately $45,000 for the wages of these men during the period of their inactivity. Mr. Loring discussed a claim for this item with the aforesaid Lieutenant Miller at Washington in June, 1919, presenting to him a carefully prepared detailed schedule showing this unapportioned nonproductive labor. The said contract provided for inclusion in the cost of production of “ the cost of all direct labor definitely ascertainable as having been used in the production of the spare parts herein contracted for.”
    IX. During the work under Contract No. 3005, at the demand and at the insistence of Government agents, the company purchased two high-speed special molding machines, one special high-speed wood-boring machine, four special humidity dry kilns with electric fans, one big rotary saw, one dope shed and boiler, and a shed for drying wings, large shipping platform, extension of the building, lumber conveyor, etc., at an alleged cost of $80,813.14. This machinery and equipment were useless to and not needed by the Metz Company in its business of manufacturing automobiles. The Metz Company attempted several ^times unsuccessfully to have this expense paid prior to the terminating contract.
    
      For the aforesaid increased facilities the Metz Company was allowed an amortization of $34,814.85. (Exhibit D to the petition.) The difference between the said cost and the said amortization was a claim discussed by Mr. Loring in June, 1919, with Lieutenant Miller at Washington.
    X. In June, 1919, Mr. Loring discussed with Lieutenant Miller, in Washington, a claim for profit, estimated at $6,000, on loss of production due to changes by the Government in its specifications, which took men away from direct production work and necessitated their working on special tools. Payment thereof was refused.
    XL Contract No. 3005, as an inducement to economy in the production of spare parts, provided for a schedule of the estimated cost and a 25 per cent bonus for savings effected in actual cost below this estimated cost. No such schedule was fully prepared and the Metz Company was never paid a bonus of 25 per cent under the terms of Contract No. 3005. The Metz Company unsuccessfully attempted to secure consideration of a claim for the said bonus and it was discussed by Mr. Loring with Lieutenant Miller in Washington in June, 1919. It was agreed between them that it was impossible to arrive at the correct amount. The said provision for a bonus for savings was eliminated February 25, 1919, by Contract No. 3005-2.
    XII. In June, 1919, Mr. Loring also discussed with Lieutenant Miller in Washington a claim for $36,999.64, representing an alleged difference between a profit of 12% per cent on estimated cost, as provided in Contract No. 3005, and a profit of 10 per cent on actual cost, as provided in Contract No. 3005-2. The basis for such a claim and the grounds for its assertion do not appear. Payment thereof was refused.
    XIII. The manufacture of parts under Contract No. 3005 ceased December 28, 1918. Thereafter the only work done was boxing and shipping the manufactured parts, which was completed in March or April, 1919. From February, 1919, to June 17, 1919, the Government continued to occupy 62 per cent, or 149,600 square feet, of the factory, and for this space and for this period the Government paid the Metz Company rental at the rate of 5 per cent depreciation of the building. The Government did not need this space and the parts could have been moved into a corner, or into approximately 8,000 square feet. The Metz Company during this period continually asked the Government officials in charge of the storage to move the material into a corner so that the company could use that space to manufacture or assemble automobiles. This lack of space decreased the facilities for the manufacture of automobiles. In June, 1919, Mr. Loring presented to the said Lieutenant Miller a claim for increased compensation, the amount whereof does not appear, for the use of this space.
    XIV. Upon the execution of the terminating contract dated June 18, 1919, the Government paid the Metz Company for the cost of the raw material and other property mentioned in Article Y thereof the sum of $313,533.03 inventory price and $31,353.30 profit thereon.
    Thereafter the Government took possession of and removed part of this raw material and other property belonging to it which was stored in and upon the premises of the Metz Company. Before and at the time of said removal there was no protest upon the part of anyone against the removal, nor did anyone question the ownership of the Government in the material removed. The Government claimed that the property so removed was only part of the property which had been scheduled or inventoried in the report mentioned in Article Y of said terminating contract, and which it had purchased and paid for, and during the negotiations to adjust the alleged shortage no question was raised as to whether the material listed in said schedule or inventory belonged to the Government. Removal of the material from the company’s premises was completed on or about November 6, 1919.
    Following its removal Ihe company presented to the War Department claims aggregating $4,152.73 for the storage of the said material in or upon its premises from June 25, 1919, to the date of removal at a price agreed upon between representatives of the Government and of the company. The said claims were stated by the company as storage charges on material “ becoming Government property upon settlement of claim contract 3005,” and were disallowed by the Auditor for the War Department June 11, 1921.
    XY. After the terminating contract of June 18, 1919, had been executed, and before the Government had completed the aforesaid removals from the company’s premises, the Government, upon request of the company, returned to it two truck loads of certain small tools and some tote boxes.
    XYI. It was understood by the contracting officer, Capt. S. M. Wiley, A. S. A. P., at the time he signed the terminating contract of June 18, 1919, that under the terms thereof surplus material was retained by the Government. He did' not know that the said contract provided that raw material and other property should “ remain the property of the contractor ” and would not have signed the contract if he had known the contract so provided. Such contracts usually provided that upon payment therefor by the Government unused or surplus material should become the property of the United States.
    XVII. The said Lieut. W. Leslie Miller had no authority to enter into a contract for or in behalf of the United States. He was merely authorized to negotiate respecting proposed contracts. In June, 1919, and at the time negotiations were in progress as to the terms of the terminating contract of June 18, 1919, ¡payment of the several claims mentioned in Findings VIII, IX, X, XI, and XII, supra, had been refused, and the said Miller knew that payment had been refused. He had before him the report of the accounting officer, upon which the said terminating contract was based, and knew its contents.
    No mention was made by the said Miller of any settlement of the said claims, upon which payment had been so refused, to the contracting officer, Capt. S. M. Wiley, or to anyone else, at the time of the execution of the terminating contract, and the said claims are not mentioned or alluded to therein. The disposition, or settlement as to the transfer, of the property mentioned in Article V thereof was not discussed by the said Miller or Loring with anyone except between themselves.
    The court decided that plaintiff was not entitled to recover.
   Gkaham, Judge,

delivered the opinion of the court:

The plaintiff as trustee in bankruptcy of the Metz Company seeks to recover the value of certain property which he claims was, prior to the bankruptcy of the company and while owned by it, illegally removed from its possession and appropriated by the defendant to its own use.

The Metz Company had a cost-plus contract with the defendant by which it was to purchase and manufacture certain material and be reimbursed by the defendant for the cost involved plus a profit of 10 per cent on the amount of the cost. This contract provided that the material purchased by the plaintiff and paid for by the defendant should become the property of the latter. The property here in dispute had been purchased under the original contract by the Metz Company, and at the time of the execution of the terminating contract hereinafter mentioned was in its possession and so continued for a short time thereafter.

The defendant had a right under the contract to terminate it at any time, and under a notice from it shortly after the armistice production ceased except the work of completing unfinished articles. Negotiations extended over some months involving the investigation of certain claims of the Metz Company, among which were claims for idle labor prior to the execution of the original contract, expenditures for increased facilities, loss of profits due to change in specifications, and the difference between a profit of 12% per cent on estimated cost and 10 per cent on actual cost, all of which prior to the execution of the terminating contract the defendant had rejected and refused to allow and pay. The court has found that none of the latter claims has been proved.

The negotiations ended in a terminating contract dated June 18, 1919, which was signed by the representative of the Metz Company and by Captain Wiley, a contracting officer for defendant. It was based primarily upon the report of an accounting officer, Air Service, which recommended the payment of $1,926,018.10 as the total amount due the Metz Company and included payment for the material on hand which had been purchased and was in possession of the said company, amounting to $313,533.03, the inventory price, and $81,353.30 profit thereon.

An examination of the contract will show that it covered vouchers numbered 1 to 333-B, inclusive, and the court has found that the aforesaid disputed claims were not included in these vouchers; no vouchers were ever issued for them, nor were they mentioned in the negotiations by Miller, the negotiating officer of the defendant, to any of his superiors, including Captain Wiley, who executed the contract. They were only discussed with Loring, the superintendent of the Metz Company. They are not mentioned in the contract.

The contract recited “ that the amount represented by said vouchers [i. e., 333-B] is the entire amount that has become due or can become due from the Government to the contractor under the original contract except such amounts as are hereinafter specifically provided for.” It recited also an indebtedness to the Torrington Company for $13,000 and agreed to indemnify the contractor against the claim. It then stated that the payment of the sum named, with the assumption of the Torrington claim, “ shall constitute full and final compensation for all articles of work delivered, services rendered, and expenditures incurred by the contractor under the original contract, except as herein otherwise expressly provided.” By Article IY of the contract the contractor agreed to assign, “ remise, release, and forever discharge the Government of and from all manner of debts, dues, sum or sums of money, accounts, reckonings, claims, and demands whatsoever due -or to become due in law or equity under or by reason of, or arising out of, said original contract,” except a claim for $9,689.04, interest payments, which the contractor was given the right to prosecute.

The Government therefore settled with the Metz Company on the basis of the 333-B vouchers; the sum fixed was in payment thereof, and these vouchers, with the Torrington claim, covered full and final compensation for all work done under the contract and all expenditures made. The contractor by signing the contract gave a complete acquittance to the Government, reserving only the right to prosecute the claim for interest, which was afterwards paid by defendant. This claim for interest was, therefore’, the only claim which, under the express terms of the contract, the contractor could assert against the Government. The sum paid by the Government covered specifically the 333-B claim; the acquittance covered all claims. As stated, in the sum paid by the Government was included $313,533.03, inventory price of the material on hand, and $31,353.30 for profits on the same, which material plaintiff claims the defendant after-wards removed from the premises of the Metz Company, and for the value of which this suit is brought. The contract contained the following provision: “All of the raw material and other property scheduled in said report shall remain the property of the contractor.” According to this provision the raw material on hand and other property were to remain the property of the contractor despite the fact that in receiving the sum paid by the defendant as full consideration under the contract it was being paid for this same material. In other words, while the defendant paid for the material with one hand, without any reason or consideration appearing on the face of the contract, with the other hand it gave back the same material to the contractor.

The contracting officer who signed the contract stated that he did so in the belief that it contained a clause providing that the material on hand should become the property of the Government, as it was customary to insert such a provision in all settlements of cost-plus contracts. No mention was made by the said Miller of any settlement of the said claims, upon which payment had been so refused, to the contracting officer, Capt. S. M. Wiley, or to anyone else, at the time of the execution of the terminating contract, and the said claims are not mentioned or alluded to therein. The disposition, or settlement, as to the transfer of the property mentioned in Article V thereof was not discussed by the said Miller or Loring with anyone except between themselves.

It is plain that the contracting officer did not examine or probably even read the contract before executing it, and the same may be said of the adjustment board which approved it. It is also clear that had this officer properly discharged his duty and examined the contract this clause would not have been in it when it was executed and this suit would

probably not be here. He states that he would not have signed the contract had he known that it contained this clause. The transfer of the property to the Metz Company by the said clause and its insertion in the contract were mistakes. The view is borne out by the circumstances which occurred after the execution of the contract. The Government took possession of and removed the material without protest from the Metz Company, and the latter thereafter presented a bill for storage charges for the material during the period from the execution of the contract to the date of removal. The Government also asserted claims against the Metz Company for shortage in the material, and at no time did the Metz Company assert title to the material under the aforesaid provision of the contract. After the company became insolvent, its trustee in bankruptcy for the first time asserted the claim upon which this suit is brought. Just when it was first asserted by the trustee does not appear, nor is it shown just when the Metz Company became bankrupt. It was apparently more than a year after the execution of the contract. The fact is, however, that the Metz Company and those conversant with the matters in dispute here never claimed title to the material removed, and even the lawyer who attempted to collect the claim for storage stated in a letter to the Government that the word “ contractor ” in the provision quoted was clearly a mistake and should have been “ Government.”

In view of the conclusion herein stated, that we have no jurisdiction, it becomes unnecessary to discuss and decide the question of the reformation of the settlement contract, though we would have no difficulty from the findings in reaching the conclusion that it could be reformed.

At the time of the removal of the property the defendant claimed title to and ownership of it, and, in the belief that it was its property, removed it from the possession of the Metz Company without objection by the latter. Under these circumstances, of course, there was no express contract obligating the defendant to pay for the property. The plaintiff’s claim, therefore, is based upon an implied contract on the assumption that the Metz Company was the owner of the property at the time of the removal thereof.

Inasmuch as the defendant took possession of and removed the property, claiming ownership thereof, no implication of a promise to pay arose. The very circumstance of the taking and removal of the property negatives an implication of a contract to pay. Tempel v. United States, 248 U. S. 121, 129; Ball Engineering Co. v. J. G. White & Co., 250 U. S. 46, 57; John Horstmann Co. v. United States, 257 U. S. 138, 146; and Klebe v. United States, 263 U. S. 188, 191. It is also to be observed that if this was not a taking it was a conversion and a tort for which the Government was clearly not liable. This disposes of the plaintiff’s right to recover in this court.

We are of opinion that plaintiff’s petition should be dismissed, and it is so ordered.

Moss, Judge; Hat, Judge; Booth, Judge; and Campbell, Chief Justice, concur.  