#### ATLANTIC CONTRACTING COMPANY v. THE UNITED STATES.1

[No. 21693.

Decided April 3. 1922.]

*On the Proofs.*

*Contract; fraud; work -performed; quantum Meruit.*— Where a corporation enters into a contract with the United States to perform certain work for the improvement of a river, and all of the stock in said corporation is owned by two men, who, through a conspiracy with a United States engineer officer in charge of such work, defraud the Government out of a *186large sum of money in the performance thereof, and are afterwards tried, convicted, and sentenced to the penitentiary and each fined a sum equal to the amount out of which they have defrauded the United States, and the work performed has never been accepted by the Government, such corporation can not maintain an action in the Court of Claims for the-value of the, work performed as upon a *quantum meruit.*

*The Reporter’s*statement of the case:

*Messrs. Benjamin Carter*and *Abram J. Rose*for the-plaintiff.

*Messrs. George M. Foster*and *W. 3. Rycm,*with whom was *Mr. Assistcmt Attorney General Robert H.*Lovett, for the defendant.

The following are the facts of the case as found by the-court:

I. The plaintiff is a corporation organized under the laws of the State of West Virginia. It has at all times borne true allegiance to the Government of the United States. At the time of the execution of the contract hereinafter referred to John F. Gaynor and Benjamin D. Greene owned all the stock of the corporation with the exception of 15 shares thereof, and were officers of the corporation. The number of shares owned by Gaynor and Greene were 5,985. The 15 shares of stock referred to were owned by relatives and friends of Gaynor and Greene, and were issued to them for oganization purposes. The incorporation and organization of the plaintiff company was in the year 1892.

II. The Congress of the United States by the act of June 3, 1896, authorized the improvement of Cumberland Sound,. Ga., and provided for contracts for said work up to the amount of $2,345,000, which was to complete the project on. hand, and to be paid for as appropriations may from time to time be made by law. It was futher provided by said act that the Secretary of War should not obligate the Government to pay in any one fiscal year beginning July 1,1897, more than $400,000 upon the contract therein placed under-the contract suspension.

III. After due advertisement by. Oberlin M. Carter, a captain of the Cox-ps of Engineers, United States Army, and who had been in charge of work for the Government in what *187was known as the Savannah district since the year 1888, proposals were submitted by the plaintiff for the work authorized to be done by the act aforesaid. These proposals were accepted by said Carter, and on October 8, 1896, a contact in writing (No. 6517) was entered into with the plaintiff and signed by said Carter as captain of the Corps of Engineers, United States Army, acting for the United States, and by John F. Gaynor, president of the Atlantic Contracting Company, and on October 20, 1896, said contract was approved by the acting chief of the Corps of Engi-nees, United States Army. A copy of said contract is annexed to the petition of the plaintiff, marked Exhibit A, and made a part hereof by reference. On the same day the same parties entered into a contract (No. 6515) for improvements of Savannah Harbor. The plaintiff entered upon the performance of said contract, and proceeded with the Avork until about the 9th day of October, 1897.

IV. The contracts Nos. 6517 and 6515 were for the benefit of John F. Gaynor and Benjamin D. Greene, the owners, as stated alxwe, of the capital stock of the Atlantic Contracting Company, the plaintiff. Suit has been brought to recover on contract 6517 the sum of $259,743.21 and on contract 6515 the sum of $249,342.67. On April 12, 1906, in the United States District Court for the Eastern Division of the Southern District of Georgia, John F. Gaynor and Benjamin D. Greene were convicted of conspiracy, for conspiring in presenting false claims against the Government and for embezzlement from the Government of the sum of $575,-749.90, the amount received by the Atlantic Contracting Company from the United States under said contracts, that amount haAdng been paid to the plaintiff through the agency of Oberlin M. Carter, captain of Engineers, in charge of the work; an.d John F. Gaynor and Benjamin D. Greene in pursuance of the verdict aforesaid were sentenced each to a term of imprisonment of four years in the United States penitentiary at Atlanta, Ga., and fined each in the stun of $575,-749.90. Oberlin M. Carter, captain of Engineers, was tried by a court-martial for his participation with Gaynor and Greene in the conspiracy to defraud the Government, and for his participation avith said Gaynor and Greene in the em*188bezzlement of the money of the Government, which was paid to said Gaynor and Greene under the contracts • aforesaid, said Carter was convicted and sentenced by said court-martial to be dismissed from the Army of the United States and to be imprisoned in the United States penitentiary.

V. The plaintiff proceeded with the performance of the work under contract 6517 until October 9, 1897. The total amount of work performed up to and including said date amounted, according to contract prices, as estimated, to the sum of $604,685.21; upon which was paid the sum of $845,000. On July 1, 1898, Congress appropriated on account of said improvement under said contract the sum of $450,000, but the defendant’s officers, though payment was demanded, have refused to pay the plaintiff on account of any of the monthly estimates. On June 30,1897, according to the false estimates made by Capt. Oberlin M. Carter, the engineer in charge, there was due under the terms of the contract, after the retention of 10 per cent, the sum of $403,923.12. On this amount there was paid the sum of $845,000, leaving a balance of $58,923.12. The amount of work done from July 1, 1897, to October 9, 1897, would amount to the sum of $200,-820.09, according to the estimates and upon the basis of contract prices. *From*July 13 to October 9, 1897, the plaintiff did the work set out as above.

VI. Before the award of said contract, the plaintiff, under contracts entered into with Capt. Oberlin M. Carter, Corps of Engineers, United States Army, prior to the year 1896, had done much construction of the character provided for in the contract of October 8,1896, upon said Cumberland Sound improvement. The specifications under which said first work was done provided for a mattress to consist of a bottom grillage of poles of live saplings, to be straight, of slight taper, and of an average of from 4 to 5 inches, and not less than 3 inches at the small end, and to be placed from 4 to 8 feet apart between curves, both longitudinally and transversely, and to be spliced together with long scarf points; upon which grillage was to be placed a layer of closely compacted fascines surmounted by a top grillage similar in design to the one at the bottom; the poles of each grillage to be securely fastened together by suitable wire or rope *189lashings, and the upper and lower grillings also to be securely fastened together in a manner approved by the engineer officer in charge. Before performing the work provided for in said contract of 1892 William T. Gaynor, a stockholder and officer of claimant, had devised, and applied for a patent upon, a multiple mattress, so designated by him and by the engineers of said corps, having the purposes of reducing the expense of construction and making the structure more efficient and more durable. Such multiple mattress was designed to be constructed to the full height which the several mattresses laid separately would have in the aggregate. It was to be constructed by laying first a full grillage of poles, then a layer of brush fascine, then a half grillage of poles running at right angles to the fascines and ivired to the bottom grillage, then another layer of brush fascines, and another layer of poles and so on to the desired height; the top to be surmounted by a full grillage of poles wired to the bottom grillage. The specifications required that the fascines used in constructing the mattresses should be of live brush, of wood approved by the engineer in charge, should bé from 30 to 100 feet long, should be compressed tightly to a diameter of 9 inches at intervals of 2 feet, and there should be bound with wire or tarred rope of approAred strength, the brush to be as straight and as well trimmed as could be obtained.

VII. Said Capt. Oberlin M. Carter, of said Corps of Engineers, was in charge of the work done under the 1892 contract, and in that work he authorized plaintiff to use and it did use multiple mattresses. The fascines used in such construction contained the live twigs and leaves as they came from the tree. When the work was advertised for contracting in 1896 intending bidders observed that the specifications in regard to the mattresses were practically identical with those of the 1892 contract. They conferred with said Capt Carter and were informed by him that multiple mattresses of the same character would be considered in the work then proposed, as included in the third design of mattress described in paragraph 38 of the specifications, and bids were made on that understanding; and in the work done by plaintiff under the contract of October 8, 1896, multiple mattresses of the *190same description, with, fascines containing live twigs and leaves, were in fact used.

VIII. The work done by plaintiff under said contract of October 8, 1896, up to July 20, 1897, was examined and approved by said Capt. Oberlin M. Carter as it progressed, and monthly estimates were furnished by him to plaintiff, stating the amounts due therefor at the contract prices, which were accompanied by itemized statements of the work done. After said $345,000 had been paid to plaintiff said Capt. Carter made note in said estimates that payment of the amount shown therein would be made as soon as there should be an appropriation available. Following is a copy of the last of said estimates so furnished by said Capt. Carter:

U. S. Engfneer Office,

*Savannah, Ga., Juk¡ 1897.*Subject: Jetty work at Cumberland Sound, Ga.

The AtlaNtic Contracting Company,

*Savannah, Ga.*

Dear Sirs : Under your contract of October 8, 1896, for jetty work at Cumberland Sound, Ga., there was due you on July 1, 1897, for work done up to and including June 30,1897, and for board of employees, the sum of $103,797.02. Deductions and retained percentages amounting to $44,973.90 there remained due you on July 1, 1897, a net amount of $58,923.12.

No money for the payment of this sum is yet available, but as soon as it is a check to the amount of $58,823.12 will be issued to your order.

I transmit herewith a statement of the amount of work done by you during the month of June, 1897, also a statement of your account on July 1, 1897.

Very respectfully, your obedient servant,

O. M. Carter,

*Gwpt., Oorfs of Engrs., TJ. S. A.*

Said Oberlin M. Carter, as engineer in charge of such work, was succeeded in July, 1897, by Capt. Cassius M. Gillette. The work was continued by plaintiff under direction of said Capt. Gillette until October 9, 1897, and for such work as was done in July, after the twentieth day, and in August and September and in October, 1897, to and including said ninth day, estimates were similarly given to claimant by him. The amounts of material shown by said *191estimates to have been placed during the several periods are:

Mattresses. *Square yds.*99.814,69 1 8.274.23 2 2,087,90 1,691.93 Third-class si one. *Cubic yds.*375.63 Fourth-class stone. *Cubic yds.*3,124.55 4,478.36 619.06 756.77 July. August. Do. September.. October_ 1 Eight and four course. One course.

The estimate for July contained a notation that the amounts to be paid would be less than those stated, “as none of the material was in accordance with the specifications.” The estimates for August and September contained like notations as to “some” of the materials.

A final report upon said work was made in 1898 by Lieut. Col. W. TI. Benyaurd, the district engineer then in charge, as follows:

“Work upon the jetties under the contract of October 8, 1896, with the Atlantic Contracting Co. which was in progress at the beginning of the fiscal year continued until October 9, 1897, on which date the contractor suspended work. Altogether there was used during the fiscal year 111,868.75 square yards brush mattresses, 375.68 cubic yards third-class stone, 8,978.74 cubic yards fourth-class stone.

“ These quantities are not given as absolute, but are subject to deductions on account of some of the material not coming up to the requirements of the specifications forming part of the contract. At the end of the fiscal year the contractor had earned $604,685.21, subject to deductions, and had been paid $345,000, leaving due him $259,685.21, subject to deductions.”

It is not proved what the value of the work done was from July 20, 1897, to October 9, 1897, apart from the estimates based upon contract prices.

IX. Plaintiff was ready and willing on and after October 3,1897, to proceed Avith performance of said Avork. During the year 1898 proceedings Avere instituted in the United States Circuit Court for the Southern District of Georgia against Benjamin E. Greene and John F. Gaynor (who were -the main stockholders and were officers of plaintiff), with *192said Oberlin M. Carter, charging them with conspiring in and about the performance of said work, to violate penal laws of the United States relating to such contract work. On account of the pendency of said proceedings plaintiff did not insist upon proceeding to complete the contract work. It did continue to apply to said Capt. Cassius M. Gillette and other proper officers of the Government for payment of the moneys claimed to be duo it, as hereinbefore recited, but such payment ivas always refused. Said Capt. Gillette did not direct or request plaintiff to proceed with the work, but on October 8, 1899, he wrote plaintiff, and plaintiff duly received, a letter stating that under instructions from the Chief of Engineers said contract was annulled “ on account of plaintiff’s failure to prosecute faithfully the work in accordance with the specifications and requirements of the contract.” Plaintiff upon receiving said letter made reply thereto protesting against the action therein stated and pointed out that the Government was in default to it for the payments due under the contract and expressing its willingness to perform the work to completion in accordance with the true intent, purpose, and requirements of the contract and specifications.

X. All the mattresses put in at Cumberland Sound by the plaintiff under this contract were multiple mattresses. The multiple mattress inspected by Capt. Gillette on July 28, 1897, was illustrative of the character of the multiple mattress placed in this work. This mattress did not meet the specifications of the contract. The mattress furnished by the plaintiff was worth not more than $400. Under the estimates made by the plaintiff and Capt. Carter the Government paid $3,600 for this mattress.

1

 Appealofl.

Hat, Judge,

delivered the opinion of the court:

This is a suit brought by the Atlantic Contracting Company against the United States for the sum of $709,797.02, which sum includes the sum of $450,000, anticipated profits on that part of the contract unperformed. The plaintiff,, however, in the course of these proceedings abandoned its claim for anticipated profits and only asserts its claim to the sum of $259,743.21, which it claims is the amount due it for work done and material furnished to the Government.

*193On tbe 8th day of October, 1896, the plaintiff entered into a contract in writing with Capt. Oberlin M. Carter, Corps of Engineers, United States Army, representing the United States, whereby it agreed to do certain work for the Government at Cumberland Sound which was being carried under certain aets of Congress. The plaintiff proceeded with the performance of the work until October 9, 189T. On that day with the consent of the plaintiff the work was suspended, and no work was done thereafter by reason of the fact that proceedings were instituted in the United States District Court for the Southern District of Georgia against John F. Gaynor, Benjamin D. Greene, and Oberlin M. Carter, charging them with conspiracy to defraud and embezzlement. These charges related to the work done by the plaintiff under the contract, Gaynor and Greene being the owners of all the stock of the plaintiff except a few shares held by others for purposes of organization only. The total amount of work performed by the plaintiff up to and including October 9, 1897, amounted, according to contract prices as estimated, to the sum of $604,685.21, upon which was paid the sum of $345,000. The amount of work done under the contract up to June 30,1897, estimated by Capt. Carter was $403,865.12. On this amount was paid the sum of $345,000, leaving a balance of $58,023.12. The amount of work done from July 1, 1897, to October 9, 1897, amounted to the sum of $200,820.09, according to estimates and upon the basis of contract prices, although Capt. Gillette, the engineer officer then in charge, refused to pay the plaintiff and asserted that the work did not come up to the specifications set out in the contract. The plaintiff now sues for the amount which it claims it has earned and insists that the Government has received the benefit of its work and material, and that if by reason of fraud in the procurement or carrying out of the contract it is not entitled to recover under the contract, yet it is entitled to recover for the work done and materials furnished, of which the Government has received the benefit; that it can not be bound by acts of bad faith or breaches of duty by its officer or officers in which it took no part and of which it was ignorant.

*194In order to arrive at a just conclusion with reference to these claims of the plaintiff it is necessary to detail at some length the history of the contract and the connection therewith of the affairs of the plaintiff.

The plaintiff is a corporation. At the time the contract in suit was entered into John F. Gaynor and Benjamin D. Greene owned all the stock of the corporation. The number of shares of stock held by Gaynor and Greene was 5,985. The 15 shares of stock were issued to relatives and friends of Gaynor and Greene for organization purposes. It then appears that Gaynor and Greene were the owners of the corporation — were in effect the corporation.

The contract in suit was for the benefit of and was in fact procured by John F. Gaynor, the president of the plaintiff corporation, and Benjamin D. Greene, the owner of about one-half of the capital stock of the corporation. On April 12, 1906, in the United States District Court of the Eastern Division of'the Eastern District of Georgia, John F. Gaynor and Benjamin D. Greene were convicted for conspiracy to defraud; for conspiracy in presenting false claims against the Government, and for embezzling from the Government the sum of $575,749.90, $845,000 of which sum was the amount paid to the plaintiff under the contract in suit, this sum having been paid to plaintiff through the agency of Capt. Oberlin M. Carter, the engineer in charge of the work under this contract. The said Gaynor and Greene, in pursuance of the verdict against them, were sentenced each to a term of four years in the United States penitentiary at Atlanta and fined each in the sum of $575,749.90. Oberlin M. Carter, captain in the Corps of Engineers, United States Army, was tried by a court-martial for his participation with Gaynor and Greene in the conspiracy to defraud the Government, and for his participation with Gaynor and Greene in the embezzlement of the money of the Government which was paid to Gaynor and Greene by virtue of and under the contract in suit. Said Carter was convicted of the charges and sentenced to be dismissed from the Army of the United States and to be imprisoned in the United States penitentiary. From the recital of the above facts it appears that Gaynor, Greene, and Carter have been con-*195victecl of embezzling the money of the Government, of conspiracy to defraud the Government, and of presenting fraudulent claims to the Government; that the money so embezzled was paid by an officer of the Government to the plaintiff through its president, John F. Gaynor, and by virtue of the contract which the plaintiff had with the United States. ■ It is a significant fact that the plaintiff corporation was organized in the year 1892, when Oberlin M. Carter was in charge of the river and harbor work in the territory in which Greene and Gaynor were then operating as contractors, and that in that year it obtained its first contract from Carter.

It seems to be admitted that no recovery can he had upon. the contract because it is tainted with fraud. But the plaintiff insists that this is not an obstacle to its recovery upon a *quantum*meruit, and it proceeded to prove the value of the work done by it and for which it seeks to recover. The plaintiff relies upon the case of *Crocker*v. *United.States,*240 U. S. 74, and cases therein cited. But in this case the corporation was in fact owned by Gaynor and Greene; they were its organizers and incorporators; they were parties to the fraud; they embezzled the money; they with their partner in crime, Carter, conceived the crime; and they are the owners of the plaintiff corporation, and their acts are its acts. It was in substance a name only under which its owners operated. This being so, and it -can not be disputed, can this plaintiff be allowed to maintain an action in this court for money which when recovered will be paid over, through -this plaintiff, to the very persons who are guilty of the fraud? It would be a dangerous precedent to lay down as law that the perpetrators of a fraud against the Government can benefit by that fraud through the instrumentality of a corporation of which they are the owners, and under the guise of an innocent third party recover money from the United States when it has been shown that they are embezzlers from the Government to the amount of nearly $600,000.

The United States has recovered from Carter a part of the money embezzled by him. *United States*v. Carter, 217 U. S. 286. In this case it is proposed that not only shall the *196United States not recover the money embezzled by Gaynor and Greene, who acted in conjunction with Carter, but that the United States shall pay to these convicted embezzlers a large sum of money. The reason given to bolster up this preposterous proposition is that the money is due by the Government to a corporation which is admittedly owned by these embezzlers. Public decency and morality forbid the court to entertain this attempt on the part of Gaynor and Greene to recover from the Government money which is in excess of and in addition to money which they have already embezzled from the United States.

While the plaintiff seeks to recover upon a *quantum*meruit, yet it is apparent from the evidence that its alleged rights spring directly from the contract, which is illegal and fraudulent. No court will lend its assistance in any way to carry out the terms of an illegal contract, nor will the court enforce any alleged rights directly springing from such contract. *McMullen*v. Hoffman, 174 U. S. 639, 654. The rights which the plaintiff seeks to enforce in this case spring directly from an illegal and fraudulent contract. The work done by it before and subsequent to July 1, 1897, was done under such a contract; the prices fixed in the contract are relied upon, the plaintiff claiming that the work done is worth the price fixed by the contract; the fact that the defendant got the benefit of the work done does not relieve the plaintiff from the consequences of the fraud. The court will not countenance the attempt made here in the name of the corporation to recover this money, when it appears from the evidence that Gaynor and Greene are, in effect, the owners of the corporation and will be the beneficiaries of any recovery which may be made.

It appears from the facts found that the defendant never accepted the work of the plaintiff. On the contrary, the defendant insisted that the work did not meet the requirements of the specifications, and payment was refused on that ground. The fact that the work performed by the plaintiff and the materials furnished by it were used by the defendant does not of itself create a liability. The acceptance of such work and materials must have been voluntary. In this case the defendant, from the very nature of the work done, was *197forced to accept it, and therefore the acceptance was not voluntary and no liability was created. Besides, the contract under which the work was done was fraudulent, and such being the case the plaintiff can not recover. In *Dermott v. Jones,*2 Wall. 1, 9, the Supreme Court says: “ When he has been guilty of fraud, or has willfully abandoned the work, leaving it unfinished, he can not recover in any form of action.”

For the reasons above given the petition of the plaintiff must be dismissed. It is so ordered.

Graham, *Judge;*Downey, *Judge;*Booth, *Judge;*and Campbell, *Chief*Justice, concur.