B-122520, AUG. 29, 1955

B-122520, AUG. 29, 1955

TO MR. WALTER A. LYNCH, RECEIVER OF RUBBELL AND MILLER COMPANY, DEBTOR:

FURTHER REFERENCE IS MADE TO A LETTER DATED DECEMBER 24, 1954, FROM YOUR ATTORNEYS, REQUESTING RECONSIDERATION OF THE ACTION TAKEN IN CLAIMS DIVISION SETTLEMENT DATED DECEMBER 17, 1954, WHICH DISALLOWED YOUR CLAIM FOR INTEREST IN THE AMOUNT OF $52,665.06, ALLEGED TO BE DUE UNDER CERTAIN TERMINATION AGREEMENTS. ALSO, THERE HAS BEEN RECEIVED FROM YOUR ATTORNEYS A LETTER DATED APRIL 6, 1955, TRANSMITTING A MEMORANDUM IN SUPPORT OF YOUR CLAIM.

IT IS THE CONTENTION OF YOUR ATTORNEYS THAT, ALTHOUGH THE FOUR CONTRACTS INVOLVED WERE AWARDED UNDER THE ARMED SERVICES PROCUREMENT ACT OF 1947, NEITHER THAT ACT NOR THE ARMED SERVICES PROCUREMENT REGULATIONS CONTAINED ANYTHING PERTAINING TO TERMINATION AS OF THE DATE OF THEIR TERMINATION BY THE SIGNAL CORPS; THAT UNTIL THE ADOPTION OF SECTION VIII OF THE ARMED SERVICES PROCUREMENT REGULATIONS ON MARCH 1, 1952--- WHICH WAS SUBSEQUENT TO THE TERMINATION DATES OF THE CONTRACTS HERE INVOLVED--- THE ONLY REGULATIONS PERTAINING TO TERMINATION FOR THE CONVENIENCE OF THE GOVERNMENT WERE THE JOINT TERMINATION REGULATIONS AUTHORIZED BY THE CONTRACT SETTLEMENT ACT OF 1944. YOUR ATTORNEYS THEN STATED THAT---

"THE AUTHORITY TO BREACH THE CONTRACT, AS WELL AS THE AUTHORITY TO AWARD THE CONTRACT, MUST BE FOUND IN SOME ENABLING REGULATION OR STATUTE, AND THE CONTRACTING OFFICER COULD NOT ANY MORE AWARD A CONTRACT TO ANY PERSON OF HIS OWN CHOOSING, WITHOUT REGARD TO APPLICABLE REGULATIONS AND LAWS, THAN HE COULD TERMINATE A CONTRACT WITHOUT REGARD TO SIMILAR REGULATIONS AND LAWS. THE AUTHORITY FOR THE CONTRACTING OFFICER'S POWER TO TERMINATE A CONTRACT MUST COME FROM A REGULATION.'

THESE CONTENTIONS ADVANCED BY YOUR ATTORNEYS ARE WITHOUT MERIT. EACH OF THE CONTRACTS INVOLVED RECITES THAT IT WAS AUTHORIZED BY THE ARMED SERVICES PROCUREMENT ACT OF 1947, 62 STAT. 21, AND EACH CONTAINS PROVISIONS GIVING THE GOVERNMENT THE RIGHT TO TERMINATE THE CONTRACT AT ITS OPTION. IN DEALING WITH THE MATTER OF YOUR CLAIM, THE OFFICE OF THE CHIEF SIGNAL OFFICER, DEPARTMENT OF THE ARMY, STATED IN LETTER OF DECEMBER 2, 1954, IN PART, AS FOLLOWS:

"* * * THE TERMINATIONS WERE NOT EFFECTED UNDER THE CONTRACT SETTLEMENT ACT OF 1944, WHICH MAY HAVE PERMITTED INTEREST PAYMENTS ON WAR CONTRACTS, BUT RATHER, UNDER THE TERMS OF THE TERMINATION ARTICLES CONTAINED IN THE CONTRACTS PURSUANT TO THE ARMED SERVICES PROCUREMENT ACT OF 1947.'

IT IS OUR VIEW THAT THE RIGHT TO INCLUDE IN CONTRACTS PROVISIONS FOR TERMINATION AT THE OPTION OF THE GOVERNMENT IS INHERENT IN THE POWER OF THE GOVERNMENT TO CONTRACT, AND THIS IS TRUE WITHOUT REGARD TO WHETHER REGULATIONS HAD BEEN PROMULGATED TO SO AUTHORIZE. IN THIS CONNECTION, ATTENTION IS INVITED TO PARAGRAPH 15-104 OF WAR DEPARTMENT REGULATION 15, EFFECTIVE SEPTEMBER 1, 1943, IN PART, AS FOLLOWS:

"LEGAL BASIS FOR TERMINATIONS.--- THE AUTHORITY TO TERMINATE CONTRACTS FOR THE CONVENIENCE OF THE GOVERNMENT IS BASED UPON THE GENERAL AUTHORITY AND POWER OF THE WAR DEPARTMENT TO MAKE CONTRACTS AND TO AMEND THEM IN THE INTEREST OF THE GOVERNMENT. THE RIGHT TO TERMINATE A CONTRACT FOR THE CONVENIENCE OF THE GOVERNMENT BY UNILATERAL ACTION OF THE GOVERNMENT ORDINARILY IS RESERVED IN THE ORIGINAL CONTRACT OR INSERTED THEREIN BY SUPPLEMENTAL AGREEMENT * * *. HOWEVER, EVEN IN THE ABSENCE OF A TERMINATION ARTICLE, A CONTRACT MAY BE TERMINATED FOR THE BENEFIT OF THE GOVERNMENT * * *.'

IN THE CASE OF UNITED STATES V. CORLISS STEAM-ENGINE COMPANY, 91U.S. 321, THE COURT HELD, IN SUBSTANCE, THAT BY VIRTUE OF EXISTING LEGISLATION, THE SECRETARY OF THE NAVY WAS EMPOWERED TO ENTER INTO CONTRACTS FOR THE PUBLIC SERVICE, AND THAT HE HAD THE POWER TO SUSPEND WORK CONTRACTED FOR, WHETHER IN THE CONSTRUCTION, ARMAMENT, OR EQUIPMENT OF VESSELS OF WAR, WHEN FROM ANY CAUSE THE PUBLIC INTEREST REQUIRES SUCH SUSPENSION.

IT HAS BEEN HELD GENERALLY THAT IN THE ABSENCE OF DIRECT STATUTORY AUTHORITY OR CONTRACTUAL UNDERSTANDING, THERE CAN BE NO RECOVERY OF INTEREST AGAINST THE UNITED STATES ON ACCOUNT OF NONPAYMENT OF CLAIMS OR ACCOUNTS. CONSOLIDATED ENGINEERING COMPANY, INC. V. UNITED STATES, 35 F.SUPP. 980, AND CASES CITED THEREIN. IN THE CASE OF SMYTH V. UNITED STATES, 302 U.S. 329, 353, THE COURT SAID:

"THE RULE IS ESTABLISHED THAT IN THE ABSENCE OF CONTRACT OR STATUTE EVINCING A CONTRARY INTENTION, INTEREST DOES NOT RUN UPON CLAIMS AGAINST THE GOVERNMENT EVEN THOUGH THERE HAS BEEN DEFAULT IN THE PAYMENT OF THE PRINCIPAL.'

SINCE THE TERMINATIONS WERE NOT EFFECTED UNDER THE CONTRACT SETTLEMENT ACT OF 1944, BUT RATHER UNDER THE TERMINATION ARTICLES CONTAINED IN THE CONTRACTS WHICH DO NOT AUTHORIZE THE PAYMENT OF INTEREST, AND IN THE LIGHT OF WHAT HAS BEEN SAID RESPECTING THE RIGHT OF THE UNITED STAES TO TERMINATE CONTRACTS IN THE INTEREST OF THE GOVERNMENT, THERE IS NO LEGAL BASIS FOR THE ALLOWANCE OF YOUR CLAIM FOR INTEREST IN THIS CASE. ACCORDINGLY, THE ACTION TAKEN IN THE SETTLEMENT OF DECEMBER 17, 1954, WAS CORRECT AND IS SUSTAINED.