B-59792, JULY 8, 1947, 27 COMP. GEN. 5

B-59792, JULY 8, 1947, 27 COMP. GEN. 5

CONTRACTS - MODIFICATION - APPLICABILITY OF WAR POWERS AUTHORITY SUBSEQUENT TO CESSATION OF HOSTILITIES THE AMENDMENT OF A PETROLEUM PRODUCTS SUPPLY CONTRACT BY A TREASURY DEPARTMENT CONTRACTING OFFICER MORE THAN A YEAR AFTER ACTUAL HOSTILITIES IN WORLD WAR II HAD CEASED, IN ORDER TO COMPENSATE THE CONTRACTOR FOR INCREASED COSTS OCCASIONED BY THE SUSPENSION OR REMOVAL OF GOVERNMENT PRICE CONTROLS, IS NOT WITHIN THE AUTHORITY OF SECTION 201 OF THE FIRST WAR POWERS ACT, 1941, AND EXECUTIVE ORDERS ISSUED PURSUANT THERETO, TO AMEND CONTRACTS TO "FACILITATE THE PROSECUTION OF THE WAR," EVEN THOUGH A STATE OF WAR STILL EXISTS.

COMPTROLLER GENERAL WARREN TO THE SECRETARY OF THE TREASURY, JULY 8, 1947:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 22, 1947, RELATIVE TO DECISION DATED MARCH 28, 1947, B-59792, WHEREIN YOU WERE ADVISED THAT, ON THE BASIS OF THE RECORD THEN BEFORE THIS OFFICE, THERE WAS NO AUTHORITY FOR THE AMENDMENT OF CONTRACT NO. TPS-76458, DATED JULY 10, 1946, WITH THE MONMOUTH PETROLEUM COMPANY, SO AS TO PROVIDE FOR AN INCREASE IN THE PRICES SPECIFIED THEREIN.

THE PERTINENT PROVISIONS OF THE AMENDMENT AND THE CIRCUMSTANCES UNDER WHICH IT WAS EXECUTED ARE SET FORTH IN THE DECISION OF MARCH 28, 1947, AND NEED NOT BE REPEATED HERE. HOWEVER, IN YOUR LETTER, REFERRED TO ABOVE, YOU STATE THAT THE CONTRACT WAS AMENDED UNDER THE AUTHORITY OF TITLE II OF THE FIRST WAR POWERS ACT OF 1941, 55 STAT. 839, UPON A DETERMINATION BY THE CONTRACTING OFFICER THAT "SUCH ACTION WOULD FACILITATE THE PROSECUTION OF THE WAR.' HENCE, IT IS STATED AS YOUR OPINION THAT SINCE, FROM A LEGAL STANDPOINT, THE WAR IS NOT AT AN END AND NOTHING HAS OCCURRED TO IMPAIR THE AUTHORITY OF THE CONTRACTING OFFICER TO ENTER INTO AMENDMENTS OR MODIFICATIONS OF CONTRACTS, HIS "DETERMINATION INVOLVES AN EXERCISE OF ADMINISTRATIVE JUDGMENT WHICH IF MADE IN GOOD FAITH IS CONCLUSIVE AND NOT SUBJECT TO REVIEW BY ANYONE.'

BY EXECUTIVE ORDER NO. 9023, ISSUED JANUARY 14, 1942, THE PROVISIONS OF THE FIRST WAR POWERS ACT AND OF EXECUTIVE ORDER NO. 9001, ISSUED PURSUANT THERETO, WERE EXTENDED TO THE TREASURY DEPARTMENT, AND IT IS UNDERSTOOD FROM YOUR LETTER THAT "A PROPER DELEGATION EXISTED FROM THE SECRETARY OF THE TREASURY TO THE CONTRACTING OFFICER IN THIS CASE.' HOWEVER, IT CLEARLY IS WITHIN THE JURISDICTION OF THE GENERAL ACCOUNTING OFFICE TO DETERMINE WHETHER THE FACTS OF A PARTICULAR CASE ARE SUCH AS TO BRING IT WITHIN THE SCOPE AND OPERATION OF THE FIRST WAR POWERS ACT AND THE EXECUTIVE ORDERS ISSUED PURSUANT THERETO. 24 COMP. GEN. 723.

AS A BASIS FOR THE CONTRACTING OFFICER'S DETERMINATION, AND IN SUPPORT OF HIS GOOD FAITH IN THE MATTER, YOU INVITE ATTENTION TO THE FACT THAT NUMEROUS MILITARY INSTALLATIONS ARE INCLUDED AMONG THE AGENCIES SERVED UNDER THE CONTRACTS HERE INVOLVED, AND YOU POINT OUT THAT APPROXIMATELY 150 ADDITIONAL CONTRACTS "WERE AMENDED IN THE SAME WAY AT APPROXIMATELY THE SAME TIME AND FOR THE SAME REASON.' AND YOU STATE:

THE CONTRACTING OFFICER CONCLUDED THAT FAILURE TO AMEND THESE CONTRACTS WOULD HAVE RESULTED, IN MANY INSTANCES, IN INSOLVENCY ON THE PART OF THE CONTRACTOR LEADING TO INABILITY ON ITS PART TO DELIVER THE SPECIFIED MATERIALS AND TO A SERIOUS SHORTAGE IN GOVERNMENT STOCKS. IT WAS BELIEVED THAT EFFORTS TO SUPPLY THE DEFICIENCIES BY BUYING AGAINST THE CONTRACTS WOULD HAVE BEEN COSTLY AND PROBABLY INEFFECTIVE TO SUPPLY THE SHORTAGE SINCE THE REFINERIES WOULD HAVE ALREADY ALLOCATED THEIR LIMITED STOCK. ALSO, THE GOVERNMENT IN ALMOST EVERY INSTANCE WOULD HAVE BEEN IN THE POSITION OF ATTEMPTING TO PURCHASE GASOLINE AND FUEL OIL FROM THE SUPPLIERS THAT HAD BEEN DECLARED IN DEFAULT. THE CONTRACTING OFFICER IN MAKING THE DETERMINATION IN THIS CASE ALSO HAD IN MIND THE FACT THAT THERE WAS AN IMPENDING COAL STRIKE WHICH WOULD HAVE LEFT THE GOVERNMENT ACTIVITIES WITHOUT ANY SOURCE OF FUEL SUPPLY.

UNDER THESE CIRCUMSTANCES, IT WAS THOUGHT THAT A FAILURE TO RELIEVE THE SITUATION BY AMENDMENTS ALLOWING PRICE INCREASES WOULD HAVE IMPAIRED THE ABILITY OF THE ARMED FORCES OF THE UNITED STATES TO FUNCTION EFFECTIVELY.

IT IS CONCEDED THAT WHILE ACTUAL HOSTILITIES HAVE CEASED, A STATE OF WAR STILL EXISTS WHICH PERMITS THE EXERCISE OF CONSTITUTIONAL POWERS AND WILL CONTINUE UNTIL THE RATIFICATION OF A TREATY OF PEACE OR AN OFFICIAL PROCLAMATION OF PEACE. FLEMING V. MOHAWK CO., S. CT. NOS. 583 AND 512, DECIDED APRIL 12, 1947; IN RE YAMASHITA, 327 U.S. 1; KAHN V. ANDERSON, 255 U.S. 1; HAMILTON V. KENTUCKY DISTILLERIES CO., 251 U.S. 146; HIJO V. UNITED STATES, 194 U.S. 315; BOWLES V. SOVERINSKY, 65 F.1SUPP. 808; HOUSTON AND NO. TEXAS MOTOR FRT. LINES V. ELLIOTT, 63 F.1SUPP. 577; C. A. WEED AND CO. V. LOCKWOOD, 266 F. 705; COMMERCIAL CABLE CO. V. BURLESON, 225 F. 99. AND THERE CAN BE NO QUESTION AS TO THE AUTHORITY OF THE PRESIDENT AND THE CONGRESS, DURING A STATE OF WAR, TO EXERCISE THEIR CONSTITUTIONAL WAR POWERS TO PROVIDE FOR ANY EMERGENCY OR NECESSITY ARISING OUT OF THE WAR OR INCIDENT TO IT, AS, FOR EXAMPLE, MEASURES DESIGNED TO PREVENT A RECURRENCE OF HOSTILITIES, TO FACILITATE THE DEMOBILIZATION OF THE ARMED FORCES, OR TO ASSIST IN THE CONCLUDING OF A TREATY OF PEACE. IN RE YAMASHITA, SUPRA; HAMILTON V. KENTUCKY DISTILLERIES CO., SUPRA; HOUSTON AND NO. TEXAS FRT. LINES V. ELLIOTT, SUPRA; BOWLES V. SOVERINSKY, SUPRA; COMMERCIAL CABLE CO. V. BURLESON, SUPRA. MOREOVER, THE CONGRESS, IN PASSING A WAR MEASURE, HAS POWER, WITHIN REASONABLE LIMITATIONS, TO PROVIDE WHEN THE ACT SHALL CEASE TO BE IN FORCE. UNITED STATES V. ARMSTRONG, 265 F. 683. IN GENERAL, HOWEVER, THE WAR POWERS OF THE FEDERAL GOVERNMENT END WITH THE NECESSITY WHICH BROUGHT THEM INTO OPERATION. 67 C.J. 367. HENCE, REGULATORY STATUTES FOUNDED UPON THE WAR POWER CEASE TO BE EFFECTIVE WITH THE CESSATION OF WAR. HOOD RUBBER CO. V. DAVIS, 255 MASS. 200, 151 N.E. 119; GEORGE B. NEWTON COAL CO. V. DAVIS, 281 PA. 74, 126 A. 192. IN THIS CONNECTION, SEE THE CASE OF MICHAEL TUCK FOUNDATION V. HAZELCORN, 65 N.Y.S.2D 387, WHEREIN THE COURT STATED:

* * * THE TECHNICAL DEFINITIONS CONTINUING THE STATE OF WAR UNTIL THE PEACE TREATY IS RATIFIED, HOWEVER, USUALLY DO NOT PURPORT AND ARE NOT INTERPRETED TO REFER TO RIGHTS OF INDIVIDUALS ARISING OUT OF CONTRACTS. THE ORDINARY OR LAY CONCEPT OF THE MEANING OF THE TERMINATION OF WAR IS THE SIGNING OF AN ARMISTICE OR THE CESSATION OF ACTUAL HOSTILITIES. HAS BEEN SO CONSTRUED IN A DETERMINATION BY THE APPELLATE DIVISION IN THIS DEPARTMENT IN MATTER OF JONES V. SCHNEER, 270 APP. DIV. 1027, 63 N.Y.S.2D 627.

WHILE IT IS RECOGNIZED THAT EMERGENCY LEGISLATION ENACTED BY THE CONGRESS TO FACILITATE THE PROSECUTION OR CONDUCT OF THE WAR SHOULD BE BROADLY AND LIBERALLY CONSTRUED SO AS TO COVER EVERY EMERGENCY AND NECESSITY ARISING OUT OF OR INCIDENT TO THE INCEPTION OR PROGRESS OF THE WAR, THE AUTHORITY CONFERRED BY SUCH A STATUTE SHOULD NOT BE EXTENDED TO ACTIVITIES WHICH ARE NOT IN ANY WAY CONNECTED THEREWITH. THE CASE OF GEORGE B. NEWTON COAL CO. V. DAVIS, SUPRA, INVOLVED THE VALIDITY OF AN EXECUTIVE ORDER PURPORTING TO HAVE BEEN ISSUED PURSUANT TO THE FUEL AND FOOD ACT, APPROVED AUGUST 10, 1917 (40 STAT. 276, 284), AFTER THE CESSATION OF HOSTILITIES IN THE FIRST WORLD WAR, FOR THE PURPOSE OF RESTORING RULES AFFECTING DISTRIBUTION OF COMMODITIES AND PRICES IN EFFECT DURING THE WAR. SECTION 25 OF THE ACT THERE INVOLVED PROVIDED IN PERTINENT PART AS FOLLOWS:

THAT THE PRESIDENT OF THE UNITED STATES * * * IS HEREBY, AUTHORIZED AND EMPOWERED, WHENEVER AND WHEREVER IN HIS JUDGMENT NECESSARY FOR THE EFFICIENT PROSECUTION OF THE WAR, TO FIX THE PRICE OF COAL AND COKE * * * TO REGULATE THE METHOD OF * * * DISTRIBUTION, APPORTIONMENT, (ETC.); * * * SAID AUTHORITY AND POWER MAY BE EXERCISED BY HIM * * * DURING THE WAR OR FOR SUCH PART OF SAID TIME AS IN HIS JUDGMENT MAY BE NECESSARY. (ITALICS SUPPLIED.)

IN HOLDING THAT THE EXECUTIVE ORDER INVOLVED WAS INVALID FOR THE REASON THAT THE "EMERGENCY" ON WHICH IT WAS BASED--- AN ANTICIPATED COAL STRIKE-- - COULD NOT BE CONSIDERED AS BEING RELATED TO THE "EFFICIENT PROSECUTION OF THE WAR," THE COURT STATED:

DURING THE WAR THE AUTHORITY TO FIX RATES AND PROVIDE EXCLUSIVE REGULATION WAS EXTENDED TO ALL COMMODITIES.

THE RIGHT WAS BASED ON WHAT HAS BEEN GENERALLY TERMED IMPLIED "WAR POWER.' THE EXERCISE OF THIS RIGHT OR POWER HAS AS ITS FOUNDATION THE NATIONAL SECURITY AND DEFENSE; IT IS OF SUCH PARAMOUNT IMPORTANCE ALIKE TO THE COUNTRY AND ITS CITIZENS, AND OF SUCH DRASTIC CONSEQUENCE, IT SEEMS IMPERATIVE IT MUST NOT BE CARRIED BEYOND WHAT IS GENERALLY COMPREHENDED BY THE TERM, OR INTO CONDITIONS OF LIFE NOT JUSTIFYING ITS EXISTENCE. WHEN LAWFULLY BROUGHT INTO ACTION BY CONGRESS, IT MUST BE KEPT WITHIN ITS OWN LIMITATIONS. IT SHOULD NOT EXIST AFTER THE CIRCUMSTANCES ARE ENDED THROUGH WHICH IT WAS BROUGHT INTO LIFE, NAMELY, WAR OR PUBLIC INSURRECTION ACTUALLY EXISTING. UNTIL THE SUPREME COURT OF THE UNITED STATES DETERMINES OTHERWISE, THE ACT IN QUESTION MUST BE HELD INEFFECTIVE, AFTER THE CESSATION OF HOSTILITIES IN ITS BROADEST SENSE, FREED FROM TECHNICAL CONSTRUCTION BY ACTS OF CONGRESS, HAVING A TENDENCY TO CONTINUE ON PAPER ONLY HOSTILE CONDITIONS INTO A TIME OF PEACE. * * * (ITALICS SUPPLIED.) SEE, ALSO, 267 U.S. 292, WHERE THE CONCLUSION REACHED BY THE SUPREME COURT OF PENNSYLVANIA IN THE ABOVE CASE WAS AFFIRMED. IN LIKE MANNER, THE COURT OF CLAIMS OF THE UNITED STATES, IN THE CASE OF CENTAUR CONSTRUCTION COMPANY, INC. V. UNITED STATES, C.1CLS. NO. 46242, DECIDED JANUARY 6, 1947--- WHICH INVOLVED THE CONSTRUCTION OF THE FIRST WAR POWERS ACT--- STATED:

* * * BY ITS VERY TERMS IT WAS A WAR POWERS ACT, ITS PROVISIONS HAD TO DO WITH THE PROSECUTION OF THE WAR, ITS MANIFEST PURPOSE WAS TO FACILITATE THE PREPARATION AND CARRYING OUT OF THE WAR PURPOSES. THIS CONSTRUCTION IS BORNE OUT BY THE LEGISLATIVE HISTORY OF THE PROVISION.

WHILE THE AMENDMENT IN THE PRESENT CASE PURPORTS TO HAVE BEEN BASED UPON A DETERMINATION BY THE CONTRACTING OFFICER THAT THE PROSECUTION OF THE WAR WOULD BE FACILITATED THEREBY, IT IS APPARENT FROM THE RECITALS CONTAINED IN THE AMENDMENT ITSELF THAT THE PRIMARY PURPOSE FOR WHICH IT WAS EXECUTED WAS TO PREVENT "SUBSTANTIAL FINANCIAL LOSS TO THE CONTRACTOR," AND YOU CONCEDE THAT "THE CONTRACT WAS AMENDED BECAUSE OF THE REMOVAL OF PETROLEUM PRODUCTS FROM PRICE CONTROL TO PROVIDE FOR INCREASED PRICES CORRESPONDING TO THE RISE IN MARKET PRICES WHICH WAS OCCURRING.' IN VIEW THEREOF, AND SINCE THE AMENDMENT WAS ENTERED INTO IN SEPTEMBER, 1946, MORE THAN A YEAR AFTER ACTUAL HOSTILITIES HAD CEASED, IT WOULD SEEM INCONCEIVABLE THAT IT COULD BE SAID IN GOOD FAITH THAT THE AMENDMENT WOULD FACILITATE THE PROSECUTION OF THE WAR.

MOREOVER, IT WOULD APPEAR THAT THE CONGRESS, BY THE ENACTMENT OF PUBLIC LAW NO. 657, APPROVED AUGUST 7, 1946 (BEFORE THE EXECUTION OF THE AMENDMENT HERE INVOLVED), RECOGNIZED THAT AFTER THE CESSATION OF HOSTILITIES THE DEPARTMENTS AND AGENCIES OF THE GOVERNMENT WERE NOT AUTHORIZED TO MODIFY OR AMEND CONTRACTS UNDER TITLE II, SECTION 201, OF THE FIRST WAR POWERS ACT. THE ACT OF AUGUST 7, 1946, 60 STAT. 902, PROVIDES IN PART AS FOLLOWS:

THAT WHERE WORK, SUPPLIES, OR SERVICES HAVE BEEN FURNISHED BETWEEN SEPTEMBER 16, 1940, AND AUGUST 14, 1945, UNDER A CONTRACT OR SUBCONTRACT, FOR ANY DEPARTMENT OR AGENCY OF THE GOVERNMENT WHICH PRIOR TO THE LATTER DATE WAS AUTHORIZED TO ENTER INTO CONTRACTS AND AMENDMENTS OR MODIFICATIONS OF CONTRACTS UNDER SECTION 201 OF THE FIRST WAR POWERS ACT, 1941 (50 U.S.C., SUPP. IV, APP., SEC. 611), SUCH DEPARTMENTS AND AGENCIES ARE HEREBY AUTHORIZED, IN ACCORDANCE WITH REGULATIONS TO BE PRESCRIBED BY THE PRESIDENT WITHIN SIXTY DAYS AFTER THE DATE OF APPROVAL OF THIS ACT, TO CONSIDER, ADJUST, AND SETTLE EQUITABLE CLAIMS OF CONTRACTORS, INCLUDING SUBCONTRACTORS, AND MATERIALMEN PERFORMING WORK OR FURNISHING SUPPLIES OR SERVICES TO THE CONTRACTOR OR ANOTHER SUBCONTRACTOR, FOR LOSSES (NOT INCLUDING DIMINUTION OF ANTICIPATED PROFITS) INCURRED BETWEEN SEPTEMBER 16, 1940, AND AUGUST 14, 1945, WITHOUT FAULT OR NEGLIGENCE ON THEIR PART IN THE PERFORMANCE OF SUCH CONTRACTS OR SUBCONTRACTS. SETTLEMENT OF SUCH CLAIMS SHALL BE MADE OR APPROVED IN EACH CASE BY THE HEAD OF THE DEPARTMENT OR AGENCY CONCERNED OR BY A CENTRAL AUTHORITY THEREIN DESIGNATED BY SUCH HEAD. THE EXTENT AND SCOPE OF THE RELIEF TO BE GRANTED WAR CONTRACTORS UNDER PUBLIC LAW NO. 657 WAS GIVEN COMPREHENSIVE STUDY BY THE CONGRESS, AS IS SIGNIFIED BY THE FACT THAT THE LAW WAS NOT ENACTED UNTIL NEARLY A YEAR AFTER VJ-DAY, AND THE PRIMARY, IF NOT THE SOLE, PURPOSE OF THE ACT, IS TO AFFORD RELIEF TO THOSE WAR CONTRACTORS WHO WOULD HAVE RECEIVED RELIEF UNDER THE FIRST WAR POWERS ACT BUT FOR THE CAPITULATION OF THE JAPANESE GOVERNMENT ON THAT DAY.

FINALLY, IT MAY BE OBSERVED THAT THE EMERGENCY PRICE CONTROL ACT OF 1942, 56 STAT. 23, DID NOT PROVIDE FOR THE MODIFICATION OR AMENDMENT OF CONTRACTS IN THE EVENT OF THE SUSPENSION OR REMOVAL OF PRICE CONTROLS, AND WHILE IT MAY BE, AS RECITED IN THE AMENDMENT INVOLVED, THAT THE PARTIES TO THE CONTRACT, AT THE TIME OF THE EXECUTION THEREOF, CONTEMPLATED THE CONTINUANCE OF PRICE CONTROL, THE FACT REMAINS THAT THE SAID ACT, AS AMENDED, PLAINLY PROVIDES THAT ALL REGULATIONS, ORDERS, PRICE SCHEDULES AND REQUIREMENTS THEREUNDER SHOULD TERMINATE ON JUNE 30, 1946. THE RECORD SHOWS THAT THE CONTRACTOR SUBMITTED ITS BID DURING THE MONTH OF JUNE 1946, AND ALTHOUGH IT IS PRESUMED TO HAVE HAD KNOWLEDGE OF THE PROVISIONS OF THE EMERGENCY PRICE CONTROL ACT, THERE IS NOTHING IN THE CONTRACT WHICH PROVIDES EXPRESSLY, OR BY NECESSARY INFERENCE, FOR AN INCREASE IN THE PRICES STIPULATED THEREIN IN THE EVENT OF THE SUSPENSION OR REMOVAL OF PRICE CONTROL BY THE OFFICE OF PRICE ADMINISTRATION, OR THE DISCONTINUANCE OF SUCH CONTROL AS THE RESULT OF THE EXPIRATION OF SAID ACT. FOR THE FOREGOING REASONS, AND UPON THE AUTHORITIES CITED, THE DECISION OF MARCH 28, 1947, IS AFFIRMED.