#### EXCELSIOR MOTOR MANUFACTURING & SUPPLY COMPANY v. THE UNITED STATES

[No. A-256.

Decided January 18, 1926]

*On the Proofs*

*Contract; ‘preliminary directions; authority*— The Government is not bound by preliminary directions contrary to the terms of the contract afterwards lawfully executed, given by an officer without authority to contract.

*The Reporter’s*statement of the case:

*Mr. John E. Hughes*for the plaintiff;

*Mr. Dwight E.*Rorer, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant.

The following are the facts as found by the court:

I. Excelsior Motor Manufacturing & Supply Co., the plaintiff, is a corporation of Illinois. In 1918 and 1919 it was engaged in the manufacturing business at Chicago, Ill.

II. Under date of October 15,1917, the plaintiff addressed to Gen. Geo. O. Squier, Chief of the Signal Corps, U. S. A., a quotation on 1,000 sets of parts for Handley-Page airplanes, the quotation being on the basis of a unit price for each part, without specifying the number of each part.

A conference with reference thereto followed between an authorized representative of the plaintiff and Thomas J. Kehoe, who was then a captain in the Signal Corps, subordinate to Major Shepler, who was then in charge of airplane production. Captain Kehoe’s duties were in connection with the procuring of contractors for aircraft work, investigating and reporting on their equipment, their availability for the proposed work, etc., but he was not a contracting officer or authorized to contract. He assumed the exercise of authority in the matters hereinafter to be recited, and it does not appear that the plaintiff knew that he did not have the authority he assumed to exercise, but in fact he did not have it.

In the conference referred to Captain Kehoe called attention to the fact that the quotation submitted was for *4671,000 sets of parts, whereas, while the number of sets of spare parts which would be needed was as yet undetermined, the then program called for 1,000 sets of parts and 25 per cent of spare parts, and the quotation was then accordingly changed to embrace 1,250 sets of parts.

Captain Kehoe then promised plaintiff’s representative an order for 1,000 sets of parts plus 25 per cent, 1,250 sets of parts in all, and directed that the cost of dies and tools necessary for the manufacture of the parts should be absorbed by apportioning it to the 1,250 sets of parts.

On October 30, 1917, Captain Kehoe wrote the plaintiff as follows:

WAR DEPARTMENT,

Oeeice op the Chief Signal Officer,

Washington, *Oct. S0th\ 1917.*

From: Office of the Chief Signal Officer.

To: Excelsior Motor Mfg. *&*Supply Company, Chicago, Ill. Subject: Quotations on Handley-Page.

1. Referring to your letter and quotation of October 15th, this will authorize you to proceed with the dies for the parts as per numbers given in your letter and also the set of handmade parts. The order for the quantity of parts will be sent to you as soon as our order department can make out the order, which will require considerable index cards, etc., for the various parts.

By direction of the Chief Signal Officer.

Thomas J. Kehoe,

*Captain Signal Corps.*

III. On November 17, 1917, Captain Kehoe wrote the plaintiff, saying:

“ Stop work on Handley-Page drawings that you have, as new drawings just received from England show changes as to dimensions, etc. Will furnish new drawings at once. Please return to Washington all Handley-Page drawings that you have.”

To which the plaintiff, on November 19, 1917, replied, saying:

“ Handmade samples nearly completed. All dies in work. Think advisable to hold original drawings until we receive new drawings, so can check changes. Shall we lay off our Avorkmen or will you stand expense? Answer.”

*468To which Captain Kehoe, on the same day, replied as follows:

“You may go ahead on all the parts on order, as per prints you now have. After checking over all prints, we find changes are so slight that they will not interfere.”

On November 80, 1917, the plaintiff confirmed telegram to Captain Kehoe, as follows:

“As our dies are well under way and we will soon be ready to produce in quantities, we must have formal order specifying exact number of all parts required. Your letter twenty-fourth states twelve hundred fifty each parts required. Our understanding and quotation based on sets as specified on prints. See our letter twenty-second. Also wire information covering welding.”

To which Captain Kehoe, on December 5, 1917, replied as follows:

“ 1. Your telegram asking for formal order and quantity of parts, will say that the quantity is 1,250 sets, but you must not proceed with quantity production until we give you the O. K. on the handmade samples. It will be some time after they are received at McCook’s Field, Dayton, Ohio, and assembled into the first sample plane.

“ 2. However, it is very important that you have all the dies and tools ready to- produce the parts on very short notice. When we get the O. K. on these parts, we will require a quantity at once.”

IV. On January 25, 1918, plaintiff was furnished a list of parts said to have been omitted from former list, with reference to print and part numbers, and on February 19, 1918, plaintiff wrote, “We are pleased to quote you as follows on 1,250 sets or more of parts for Handley-Page airplanes, as per drawings now in our possession,” followed by quotation of prices on parts, referred to by drawings and part numbers, at a price per part; “Terms: Net cash, f. o. b. Chicago, deliveries to commence 60 days after receipt of signed contract by us.”

Y. In November of 1917 the plaintiff had commenced the preparation of the necessary dies and special tools for the prosecution of the contemplated work, but in February, 1918, due to lack of definite instructions, blue prints, material specifications, and a formal contract, it ceased all' work.

*469VI. A conference was called and was held in Washington on March 27, 1918, between representatives of the War Department, Signal Corps, in charge of the aircraft program, and representatives of manufacturers with whom negotiations were pending for the manufacture of airplane parts, at which conference the plaintiff was represented.

Captain McKenzie had been in Europe as a member of a commission sent there to study the situation and procure information as to this particular type of airplane, and he had returned and reported just a few days before this conference. At a conference held theretofore by officers of the United States having to do with the aircraft program, then headed by Mr. W. C. Potter, Captain McKenzie recommended that the Government proceed with the construction of but 500 Handley-Page planes because of the fact that the British Government was then working on a type of larger plane which might prove more desirable, and Captain McKenzie’s recommendation was concurred in.

At the conference the contractors were informed by Mr. Potter that Captain McKenzie would be in charge of the Handley-Page work, and by Captain McKenzie that they, for the present, would only get orders for 500 sets of parts, and plaintiff’s representative objected to that program, stating, among other things, that they could not make 500 sets, under changed specifications as to materials, at the prices they had quoted on 1,250 sets. At a subsequent conversation it was said to plaintiff’s representative that the ultimate requirement would very probably exceed the 1,250 sets first contemplated.

On April 18, 1918, plaintiff received a telegram stating that—

“ Entire responsibility for Handley-Page contract has been placed upon the Standard Aircraft Corporation, Elizabeth, New Jersey. Recognize all their instructions exactly the same as if received from the Signal Corps on this particular work. This is done to expedite matters.”

. A contract had been entered into between the United States and the Standard Aircraft Corporation, of which Mr. H. B. Mingle was the president, for the assembling of Handley-Page airplanes, and on April 25, 1918, the plain*470tiff wrote Mr. Mingle a lengthy letter reviewing the situation, in one paragraph of which it said:

“ In taking these changes in specification and reduction in quantities from 1,250 sets to 500 sets into consideration, you can readily realize that we should not, in fact, can not, agree to furnish parts named in the new specifications at the price originally quoted. We feel that we should have an increase of at} least 33% per cent in price on the total order.”

VII. Another conference was called, which was held at Washington on May 7, 1918, between .officers of the Signal Corps, Mr. Mingle, and the authorized representative of the plaintiff. There was some controversy as to the state of the preliminary, work being done by the plaintiff company, it being contended by the Government officials that! it had progressed only to the extent of 25 per cent, whereas plaintiff’s representative contended that approximately 80 per cent thereof had been done. At this conference plaintiff’s representative insisted to Major McKenzie (formerly Captain McKenzie), who was in charge of the conference, that it should have an increase of 33% per cent over its formerly quoted prices on account of changes in specifications and reduction in numbers, which Major McKenzie refused to grant, but did grant an increase of 15 per cent, and on May 10, 1918, plaintiff submitted revised quotations of prices, concluding with the statement: “ We hope that you will find this correct and favor us with a contract' at your convenience.”

On May 15, 1918, order No. 20958-A, for 500 sets of parts for Handley-Page planes, was issued to the plaintiff, based on its quotations of May 10, 1918, and this order was after-wards covered by a formal contract, known as contract No: 3641-A. On July 26, 1918, order No. 20958-A was amended to include certain stated additional parts.

On October 7, 1918, order No. 720645, for 500 sets of spare parts for Handley-Page planes, was issued to the plaintiff, and thereafter this order was covered by a formal contract, known as No. 4925, which was signed October 24, 1918. On October 18, 1918, order No. 720645 was amended. There was thereafter a contract for hinge forgings not involved herein.

*471Plaintiff contends that the 15 per cent increase in prices which Major McKenzie granted at the conference of May 7, 1918, was to cover cost of changes in specifications only and did not cover or provide for the absorption of the proportion of the cost of dies and tools herein sued for. It was the understanding of Major McKenzie that all additional costs to the plaintiff were covered by said allowed increase of 15 per cent.

VIII. On December 5, 1918, plaintiff was directed to suspend production under the contracts referred to, and thereafter plaintiff’s claim arising out of such suspension was considered and adjusted in all respects except as to the sum of $20,635.35, being the sum herein sued for, as to which plaintiff reserved the right to further prosecute. Thereafter a claim for said sum was duly filed with the Board of Contract Adjustment, War Department, and on April 13, 1920, was disallowed by said board. On appeal to the Secretary of War, the decision of the Board of Contract Adjustment was affirmed on August 24, 1920.

IX. In determining the amount due the plaintiff on account of the proportionate part of the cost of dies and tools properly to be allotted to the completed portions of the orders, the parties, by mutual mistake, allotted $510.21 of said cost to the contract for hinged forgings and by reason thereof the plaintiff was paid $510.21 less than it was entitled to receive.

The court decided that plaintiff was entitled to recover $510.21 under Finding IX, but that otherwise it was not entitled to recover.

MEMORANDUM BY THE COURT

The plaintiff’s claim is for a part of the cost of dies and special tools provided by it to be used in the manufacture of parts for Handley-Page airplanes. It contends that it entered into an oral contract under which it was to manufacture 1,250 sets of parts, which it says meant also spare parts in the ratio of one to one, and that it was directed to absorb the cost of dies and tools in its. price for parts, which it did on the basis stated, but that it was only given orders for 500 *472sets of parts and 500 sets of spare parts; that an increase of 15 per cent on the price of parts when it was asking *33i/3*per cent was to cover only changes in specifications, particularly as to materials, and did not cover reduction in numbers, and that by reason of not being given orders to the extent promised the amount of costs of dies and tools herein sued for was not absorbed.

The Board of Contract Adjustment rejected the claim on the ground, apparently, that the increase of 15 per cent allowed plaintiff covered reduction in number as well as changes in specifications, and on appeal the Secretary of War affirmed the decision of the board.

We agree with the conclusion reached by the board, in addition to which we conclude that the arrangement made with Captain Kehoe contemplated 1,000 sets of parts with 25 per cent of spares, or 1,250 sets of parts in all, and not 1,250 sets each of parts and spares. In addition, it must be concluded that Captain Kehoe’s directions could not bind the Government, because he was without authority to contract, and further, that the subsequent quotations by plaintiff, the orders placed in writing and accepted, and the formal contracts thereafter entered into represent the real and only contract relations between the parties.