Court Opinion

ID: 8590764
Source: CourtListenerOpinion
Date Created: 2022-11-23 15:47:57.856488+00
Date Added: 2024-06-11T16:54:26.839412
License: Public Domain

JoNes, Chief Judge,
delivered tbe opinion of the court:
This is a Congressional reference case.
The plaintiffs are all of the former common and preferred stockholders and debenture holders of the Goshen Yeneer Company, hereinafter referred to as Goshen.
The petition alleges that the United States is responsible for the loss of the entire assets of the company. Plaintiffs claim $509,434.92, plus interest, which they allege represents the value of the stock and debentures on July 31, 1942.
The Goshen Yeneer Company was established in 1892 by Myron C. Dow and Charles E. Gorham and was operated as a partnership until it was incorporated in 1900. The ownership of the firm and all its stock remained in the hands of the organizers or their families up to April 1944. Since its inception Goshen has engaged in the manufacture of hardwood veneer and plywood. It was a pioneer in the production of hardwood plywood, had a most complete plywood manufacturing plant, and was one of the first to develop the hotpress technique for cementing veneer with thermo-setting resins. The average net sales for the years 1936 to 1941 was $558,200, with average net profits of $26,300, or 5 percent of sales.
A number of grounds are asserted as a basis for the claim. There is little agreement between the parties as to the facts of this case. The accounting records are badly mixed and are incomplete. Numerous items are involved, and it has been difficult to properly analyze the somewhat jumbled facts.
This case arises from transactions between Goshen, The First Bank and Trust Company of South Bend, Indiana (hereinafter called the Bank), The Federal Reserve Bank of Chicago (hereinafter the Federal Reserve), and the War Department during the period from the spring of 1942 through the summer of 1944.
Six of the main actors in the relationship among these institutions died prior to the trial. These included the officers of the Bank who had most to do with the negotiations of the loans; Mr. D. C. Folger, of the firm of Stevenson, Jordan and Harrison, Inc., Management Engineers, (hereinafter SJH) and Mr. R. B. Agler, to whom plaintiffs at*754tributed mismanagement; and the company’s accountant and attorney. The absence of the testimony of these men is especially unfortunate since assertions of oral representations and undocumented activities are prominent in plaintiffs’ evidence. To get a clear picture of the company’s situation from 1942 to 1944 when its contracts with the Government were in operation would require extensive analysis of the company’s management and financial position during that period. The accounting and other records in evidence are entirely inadequate for such an undertaking.1
We are primarily concerned here with the period mid-1942 to mid-1944. During this time Goshen entered into Y-loan arrangements with the First Bank and Trust Company of South Bend, which were guaranteed by the Federal Reserve Bank of Chicago, as fiscal agent for the War Department, as follows: May 22, 1942, $100,000; August 22, 1942, $600,000 (consolidating the prior loan); March 25, 1943, $1,000,000, incorporating the two prior loans. It is on the dealings of the parties in connection with these loans that plaintiffs base their claims.
It is the gist of plaintiffs’ claim that at the special urging and request by procurement officers of the armed forces Goshen was required by law to convert to war production of military aircraft plywood in the summer of 1942; that as a result of these demands and of such conversion Goshen borrowed money from the Bank under the V-loan2 program; that these loans were made upon the alleged representation by government officials that under this method of financing the company would be free to operate without any restric*755tion; that the loan arrangements were in fact unduly restrictive and that in the administration of the loan the Bank exercised such an unwarranted degree of control of Goshen that in January 1943 a constructive trust arose in favor of the plaintiffs. There are also allegations of mismanagement which plaintiffs contend are the responsibility of the defendant. The contention is also made that when, in April 1944, at which time the outstanding notes totaled over $960,-000, the plaintiffs conveyed all their stock and interest in Goshen to the Federal Reserve and the Federal Reserve released two members of the families from personal guarantees on loans, they did so upon the oral representation of defendant’s agents that the Corporation would be returned to them at the end of the war. It is plaintiffs’ position that the action of the Federal Reserve, as agent of the War Department, with regard to Goshen amounted to a taking of their property for which they are entitled to compensation under the Fifth Amendment to the Constitution. For reasons which appear below we think plaintiffs have considerably overstated their case.
The first claim that Goshen had no alternative but to convert to war production, and that it was in reliance upon the representations of the procurement officers that financing-programs would be arranged under which the company could operate without any restriction, and that these representations caused Goshen to enter into the loan agreement which proved to be its undoing, is not entirely supported by the record before us.
On March 10, 1942, Mr. J. J. Snoke, general manager of Goshen, advised the Army Air Force procurement officers by letter of Goshen’s availability for plywood manufacturing and offered its services in that regard. The evidence does not establish that agents of the War Department solicited the services of Goshen directly prior to the first Y-loan of May 22, 1942. It also appears that on May 6, 1942, the company had prime or subcontracts with various agencies of the Government totaling $354,5003 and a subcontract estimated at $600,000 was in the process of nego*756tiation with, the Bell Aircraft Company, who had a contract with the United States Army Air Forces. Goshen was contacted by representatives of the War Department during the summer of 1942 and the necessity of peak production for the war effort was stressed. It is significant, however, that the “puffing” by procurement officers which plaintiffs contend misled the management of Goshen as to the lack of restrictions included in V-loan financing occurred after the company had entered into the V-loan agreement for $100,000 revolving credit on May 22, 1942. Plaintiffs place great stress on a letter received from a Major Lyon with reference to V-loans. However, this letter which is before us only as quoted in the Report of the House Judiciary Connnittee, is dated July 29, 19424 Admittedly, this letter contains some rather broad assertions and reflects the need for stepped-up production which was urgent at that time. It must, however, be considered in the light of the fact that Goshen had then been operating for two months trader the same type loan arrangement as the two subsequently en*757tered into. The loan agreements of August 22, 1942, and March 25, 1943, differed from the former one only in that additional security provisions were added commensurate with the additional credit extended. Plaintiffs point out that the conditions attached to subsequent agreements were progressively more restrictive. This is true but the credit extended was 5 and 9 times as great, respectively. In this connection it might be noted that the May 22,1942, loan for a revolving fund of $100,000 provided for a mortgage of all real estate, equipment, tools, machinery and personal property except inventory; the assignment of the proceeds of all contracts with the United States or various departments thereof; the subordination of outstanding debentures of $26,064.70 to the loan; prohibition of the payment of any dividends during the period of the loan; quarterly (or if required by the Bank, monthly) balance sheets and accounting records certified by a certified public accountant; the personal guarantees of J. J. Snoke and Dow Gorham for the repayment of funds advanced; and an acceleration clause to be effective in case of a breach of any of the terms of the agreement.
In view of the above we cannot say that at the time the August 22,1942, loan was made the management of Goshen could have reasonably concluded that financing under the [Regulation Y-loan program involved no restrictions.
Following the first V-loan, Goshen received further subcontracts and about the first of August 1942, 2d Lt. George E. Dilley, Assistant to the District Financial Officer, contacted the company for the purpose of assisting in obtaining an increased loan which Goshen had contemplated making as early as July 6,1942. On August 7,1942, the Bank applied to the Federal Reserve for a guarantee for a loan of $600,000, being an increase of the $100,000 credit by $500,000. Neither the Bank nor the Federal Reserve thought it desirable from a banking standpoint to make the increased loan, but inasmuch as War Department officials stated that production of items under subcontract to Goshen was vital to the Government they agreed, and the loan was made August 22, 1942, in the amount of $600,000. In addition to the provisions securing repayment under the former agreement, *758which were incorporated in the August 22 instrument, the latter provided, inter alia, that the Bank, at its election, could require separate accounts for funds advanced and the countersigning of checks; inspect the books and records of Goshen; and make advances in its sole discretion; also, monthly balance sheets certified by Certified Public Accountants ; approval by the Bank of all contracts for over $25,000 and the acquisition of any fixed assets over $2,000 was required.
As will be alluded to later, the overextension of the Goshen Veneer Company which seems to have been the original source of its difficulties stemmed from the commitment included in this loan. This would seem an appropriate point to recapitulate our conclusions concerning plaintiffs’ first contention.
While plaintiffs cite the Selective Service Act of 19405 as authority for the argument that they were required to convert to war production, there is no assertion that a threatened seizure was an element in the shift of Goshen to war production, nor that apprehension of its invocation in any way influenced its management. We, therefore, feel that discussion of this point is not required. There is little doubt that Goshen could have been required to participate in war production but the real question here is whether it was forced to overexpand its operations.
For reasons indicated above we conclude that Goshen’s conversion to war production was not induced by misrepresentations of officials of the War Department that financing under the V-loan program would leave it free to operate without any restrictions. In doing so, however, we are cognizant of the fact that the pressure to go into such production was considerable, both for patriotic and economic motives. Our enumeration of the facts on which the conclusion is based is indulged in merely to indicate that the evidence presented does not warrant a finding that Goshen was subjected to such extraordinary pressure as to relieve its management of all responsibility for the difficulties which ensued. *759On the other hand, it is clear that the urgency with which War Department officials viewed the loan of $600,000 was an important element in Goshen’s participation in it and must he a major consideration in the final disposition of this case.
We turn now to plaintiffs’ contention that the banks assumed such unauthorized control of Goshen’s management after December 1942 that a constructive trust arose in favor of the corporation and its shareholders. Further, that the decline in the value of the company was caused by alleged mismanagement for which defendant is responsible. Plaintiffs’ argument on this point is based on factual assumptions at variance with our finding, making a brief summary of the facts necessary.
Much of Goshen’s work after conversion to war production was in the production of wooden aircraft parts, some of which were experimental in nature, under cost-plus-fixed-fee subcontracts with prime contractors of the various military services. The extent of expansion which occurred in the course of conversion is indicated by the fact that in early 1943 it had 575 employees as compared with 175 prior to the war. During the fall of 1942 Goshen experienced difficulty in furnishing the Bank with accounting and financial data, as required under the loan agreement, which would adequately inform the Bank of the company’s financial position. Mr. Van Antwerp expressed his concern about this to the management and in October was advised by Mr. J. J. Snoke that C. W. Snoke had been hired as office manager and such reports would be expedited. By November 10, 1942, outstanding notes under the V-loan totaled $597,964.28, leaving an available credit of $2,035.75. Some of the difficulty encountered by Goshen in presenting a reliable fiscal picture of its operations seems to have stemmed from the lack of a cost-accounting system adequate for the proper handling of the cost-plus-fixed-fee contractual arrangements. Then on December 31,1942, the company’s accountant, Mr. Croop, advised the Bank that his failure to submit the required statements for October and November was due to the necessity of building an entirely new financial system beginning with the fiscal year October 1941, in order to have proper cost accounts for the new air parts contracts.
*760In view of these difficulties Mr. Van Antwerp of the Bank strongly advised that some action be taken to strengthen the management of the company, particularly with regard to its financial affairs. When Mr. J. J. Snoke advised the Bank in late December 1942 of a proposed subcontract -with Bell Aircraft Corporation for a minimum estimated value of $2,500,000, which would require additional operating capital, Mr. Van Antwerp seriously questioned such an arrangement since the company was then using a full line of credit and accounting records were not being furnished which informed the Bank of the company’s fiscal position and hence the propriety of extending further credit. Mr. Van Antwerp stated that unless the Bank was furnished with adequate financial data it would have to install its own accountants. There was the additional complication at about this time that a subcontract which Goshen had with G. & A. Aircraft Inc., under which Goshen claimed $250,000, was cancelled for the convenience of the Government. This was a cost-plus-fixed-fee arrangement which required cost records before settlement could be effected between Goshen and the prime contractor.
Sometime in January 1943 Goshen hired the firm of Stevenson, Jordan and Harrison, management engineers, to conduct a survey of Goshen’s problems, furnish guidance on questions of cost determinations, review the facilities and furnish studies and briefs on the major contracts then in process. While it appears that this action was taken in response to Mr. Van Antwerp’s insistence that some action be taken to strengthen management, S JH was Mr. Snoke’s selection and though this and other problems of the company were discussed from time to time in conferences which included officials of the Federal Reserve, a finding that the Federal Reserve directed the hiring of S JH is not warranted. 5 JH, on behalf of Goshen, retained the services of Haskins 6 Sells, certified public accountants, to make an audit of the accounts of Goshen.
Following a conference in mid-February between Mr. Olson of the Federal Reserve, Major Keehn, liaison officer of the War Department and two members of SJH, it was Mr. Olson’s view that although Goshen was producing material *761urgently needed for tbe war effort, the best interests of the war program would be served by keeping the company’s operations within a latitude more consistent with its management and financial capacity, and that additional credit should not be extended.
On February 22, 1943, the Bank notified Mr. J. J. Snoke that pursuant to the loan agreement it was electing to require that all future advances made to Goshen be deposited in a separate account from which withdrawals could be effected only when countersigned by Mr. H. P. Bausch, an employee of the Bank, who would spend his full time at Goshen’s office in connection with the revolving credit. Mr. Snoke replied that the matter of countersigning would have to be presented to the Board of Directors for its approval, but pending such action checks would be presented to Mr. Bausch so that he could supervise the distribution of funds.
SJH submitted its report on February 25, 1943, which indicated that production, engineering and quality of product were entirely satisfactory, but that Goshen was deficient in certain aspects of business management. It was stated that inadequacy of cost control and accounts was a major factor in the company’s weak financial position; operations had expanded to such an extent that maintenance of control was beyond the scope of one person; management was overburdened with a mass of details; and the situation was aggravated by the loss of key production men to the draft. Bemedial measures were suggested and it was recommended that an additional credit of $380,000 be obtained, which it was believed could be retired by July 1943.
On March 8,1943, the Bank filed a new application for a 97 percent guarantee of a $1,000,000 revolving fund. A loan agreement for this amount was executed March 25,1943, with maturity set for August 15, 1943, which incorporated the prior loans. In addition to provisions to secure payment of the amounts advanced under prior loans, the agreement provided, inter alia, that 51 percent of the outstanding voting shares of Goshen would be pledged to the Bank; Goshen would maintain management satisfactory to the Bank; and after the date of the agreement Goshen would retain the services of SJH.
*762At the time of this agreement Mr. J. J. Snoke and Mr. C. P. Olds, attorney for Goshen, demurred to giving a pledge of 51 percent of the voting stock because of a fear that the Bank might be in a position to obtain control of the business. It was explained by Mr. Olson that collateral could not be foreclosed without the consent of the War Department and the War Department under no circumstances would be interested in depriving the owners of the business as long as the terms of the guarantee agreement were being fully complied with. It was pointed out that the company’s application for one million dollars of credit presented the necessity of developing the most feasible basis for such a loan and under the precarious condition of Goshen at that time, the terms of the agreement as authorized by the War Department and demanded by the Bank offered the only practical plan.
The record justifies the conclusion that up to the March 25, 1943, loan agreement, Mr. J. J. Snoke was both in name and in fact the general manager of Goshen. He remained general manager after that time until the reorganization of the company about July 1943, with SJH acting in an advisory capacity. However, as indicated in finding 20, their influence on operations was considerable.
Goshen continued to experience difficulties and following the developments set out in finding 19, a corporate reorganization was effected sometime in June 1943. Under this reorganization, the board of directors consisted of Dow M. Gorham, Charles E. Gorham, John J. Snoke, H. P. Bausch, and D. C. Folger. Mr. Bausch was the nominee of the Bank and Mr. Folger was the representative of SJH who under the terms of the loan agreement was to be in control of the management. The pledge of 51 percent of the voting shares of the corporation, previously made to the Bank, was transferred to the Federal Beserve as fiscal agent for the War Department with the provision that it might be voted at the direction of the financial contracting officer attached to Headquarters Army Service Forces. The new bylaws provided for the removal of officers by a vote of the shareholders and made the office of general manager-secretary-treasurer the *763principal executive office of the company. Mr. Folger was elected to the office of general manager and Dow Gorham to the presidency. While the Dow and Gorham families retained a majority of directorships who uniformly voted for all resolutions passed by the Board up to April 17,1944, and the Federal Reserve did not exercise the right to vote the shares held as collateral, considerable de facto control of the management passed to the Banks with this reorganization.6 However, Mr. Snoke remained prominent in the operation of the business.
We cannot conclude from these facts, and others to which we presently allude, that the degree of control exercised by the Banks over the affairs of this company was such an unwarranted usurpation of authority or unauthorized exercise of control as to give rise to a constructive trust. The influence exercised on management was in line with that authorized in the loan agreement of March 1943. This is not to say, of course, that plaintiffs were responsible for all the difficulties which ensued nor that the fact that management satisfactory to the Bank was authorized by the loan agreement gives unlimited license to impose mismanagement resulting in the loss of a business.
We turn now to the question of whether it is established that the losses sustained resulted from mismanagement for which defendant is responsible.
In attempting to determine this question the circumstances under which the new management operated is a primary consideration. It is clear that management under the reorganized corporation did not meet the expectations of either the Bank or the Federal Reserve. It appears that the difficulties in producing prompt accounts continued and a satisfactory system was not established prior to Mr. Folger’s resignation in December 1943. The financial statements for July and August were not forwarded until October. In November 1943 both the Federal Reserve and the Bank were expressing dissatisfaction with the slowness of accounts.
These developments must be put in context, however, before the decline of Goshen is attributed to them. Accord*764ing to accounting records before us, the company was seriously overextended by the spring of 1943. The large G. & A. Aircraft cost-plus-fixed-fee subcontract had been cancelled for the convenience of the Government, and cost records were inadequate to support Goshen’s claim for settlement. On June 28 a subcontract with Bell Aircraft Corporation, under which some $150,000 was claimed, was cancelled for the alleged default of Goshen. Much of the accountants’ time was consumed in trying to develop past records to support these claims. In July 1943 the outstanding notes under the loan totaled $942,193.27.
Most important perhaps is the fact that during the summer of 1943 the entire wooden aircraft program, in anticipation of which Goshen had expanded, was decelerated sharply and its impact on the company is indicated by the fact that by November 1943 operations were only slightly larger than prewar. The curtailment of this program seems to be the really crucial fact underlying the company’s decline. When statements for July and August were submitted they reflected a profit of $2,700 and a loss of $5,800, respectively, and the tentative balance sheet for September 30 indicated a loss of $60,000. With the curtailment of the aircraft program it became necessary to reconvert for commercial type production which entailed different facilities and a contraction of operations in spite of high overhead geared to war production. The rapid curtailment of the aircraft program generally had a depressive effect on prices and the acquisition of other business became more difficult.
In August 1943 credit under the Y-loan was extended for one year and in January 1944 the rate of interest was reduced from 5 to 3 percent.
In November 1943 Mr. Van Antwerp of the Bank was urging that the contracts in process be completed promptly and the company placed in bankruptcy in order to preserve assets. At this time Goshen was not regarded as essential to the war effort.
Mr. Folger resigned as general manager in November and in doing so suggested that since operations were at approximately prewar levels Mr. J. J. Snoke could handle the operations. The Bank demurred to such an arrangement, *765and in considering a replacement for Mr. Folger a Mr. McCurdy was suggested. Mr. Snoke objected to the employment of McCurdy as chief executive with the result that Mr. R. B. Agler was employed as manager to be responsible for the financial and accounting aspects of the business, with Mr. Snoke in charge of operations. The Bank disapproved of this arrangement and on January 24, 1944, demanded and the Federal Beserve purchased, pursuant to the Guarantee Agreement, all but $10,000 of the principal amount of the loan. After this date the Bank was out of the picture except for the servicing of the loan for which it was paid a fee by the Federal Reserve.
The operation of Goshen from January to April 17, 1944, is not clearly reflected by the evidence presented, but on the basis of this record the situation appears to have been approximately as follows:
The net worth of the company on J anuary 1,1944, is stated to have been $17,626.63. Efforts were made to develop civilian business but this was not particularly successful in terms of operating results. Plaintiffs have placed much emphasis on the contract signed by Mr. Snoke and the Mil-crest Company on J anuary 31, 1944, as set out in finding 24. As pointed out there, while Mr. Snoke stated that financing would be handled by advances from that company, there was no provision in the contract to that effect and in April the necessary permission from the War Production Board had not been obtained, rendering successful operation in Goshen’s existing condition somewhat doubtful. Advances for operations were continued under the loan arrangement and according to Federal Reserve correspondence in evidence the balance sheet as of February 29, 1944, showed a deficit in net worth as against debts of $1,116,000, and the operations for the five months prior to that date resulted in losses of $23,763. From the same source it appears that by April 8, 1944, Mr. Olson reported to Federal Reserve officials in Washington that the assets had deteriorated to the point that $100,000 would have to be injected into the company to provide an adequate working fund. At about the same time a $147,051 contract with the Glenn L. Martin Company was cancelled for the convenience of the Government. By April 12 Mr. *766Olson was of the opinion that the company should be “placed under the jurisdiction of a proper court, to the end that the Government’s interest be fully protected” and the preference of unsecured creditors might be avoided. It was at a conference on this date (see finding 31) that the Federal Reserve was first advised verbally by Mr. Snoke that he had entered into the Milcrest contract (see findings 24 and 31). Another conference was held April 14, 1944, at which time the lack of a formal agreement for financing by Milcrest and a WPB permit to manufacture the furniture under the contract was discussed. A decision was reached to make no further advances under the loan except to meet the payroll and other commitments of the company to its employees. Major Grant Keehn, liaison officer of the War Department, notified Mr. J. J. Snoke of this decision by telephone, which was later confirmed by letter. Mr. Snoke then contacted Mr. Jacob Geffs of Hubbard, Baker and Rice, attorneys then retained by Goshen in connection with the G. & A. and Bell Aircraft claims. Mr. Geffs thereupon requested a conference with officials of the Federal Reserve and the War Department, which was held on April 15, 1944. At this conference Mr. Geffs made certain proposals with reference to the signing over of the company to the War Department and the release of Dow Gorham and J. J. Snoke from their personal guarantee of the Y-loan.
On April 18, 1944, plaintiffs executed the following instrument:
WheReas, the Goshen Yeneer Company, an Indiana Corporation, is largely indebted to the Federal Reserve Bank of Chicago, Illinois, as Fiscal Agent of the War Department of the United States, and Whereas, the assets of said Company are wholly insufficient to pay the secured claims of the said Bank, and
Whereas, the shares of common stock, shares of preferred stock and debentures of said Company are for all practical purposes without value,
Now, therefore, in consideration of One Dollar ($1.00), paid to each of the undersigned, receipt of which is hereby severally acknowledged, and other good and valuable considerations, the undersigned, being the *767owners of all of the shares of common stock, shares of preferred stock and debentures in and of the said Goshen Veneer Company, do individually and severally make over, assign and transfer each for himself or herself, his or her entire right, title and interest in and to any and all such shares of common stock, shares of preferred stock and debentures to the said Federal Reserve Bank of Chicago, Illinois, as Fiscal Agent of the War Department of the United States absolutely.
A release was given by the Federal Reserve of the personal guarantees of J. J. Snoke and Dow Gorham. The company was subsequently liquidated as set out in our findings 35 through 45, and, according to the records in evidence, the War Department lost $129,845.31 on this transaction.
Unfortunately the complex of factors which probably contributed to the decline of this company are not comprehensively documented in this record and we are cognizant of the danger inherent in concluding from isolated instances and figures quoted from unverified accounting records that certain actions did or did not result in the deterioration of a business enterprise. However, considering the entire record before us we are of the opinion that while there were deficiencies in management after June 1943, those deficiencies cannot be said to have been the cause of the company’s decline in value and ultimate extinction. The basic cause of the difficulties appears rather to have been an overextension of operations, encouraged and urged by the War Department, to meet the urgent requirements of the projected wooden aircraft program and its subsequent abandonment before the expansion could be amortized. The situation was further aggravated by the necessity of reconverting to commercial production, which required different facilities, and the restrictions then existing on civilian production.
Plaintiffs urge that their ownership was unaffected by the execution of the above instrument, on the theory that they were induced to do so by misrepresentations of the War Department “that the company was insolvent, that the assignment of the stock would avoid the expense of foreclosure and that in this way they could hope to get their plant back later.” We find that the War Department made no representations *768to plaintiffs that tbe assignment of tbe stock would result in tbe return of the company to them.
As we understand plaintiffs’ position, it is not contended that Goshen was not in fact insolvent nor, in so far as we can ascertain, that foreclosure was not in fact imminent. It is rather that the War Department was responsible for the existence of these conditions. This aspect of the case centers around a controversy concerning the Guarantee Agreements between the Bank and the Federal Reserve, which were involved in each of the four Y-loans to Goshen.
Each of these four Guarantee Agreements contained a section entitled “Protection of Borrower Against Cancellations” (see finding 7) which provided for the waiver of interest and suspension of maturity of the loan under conditions summarized below.
The Borrower was entitled to request an adjustment under this section. Whereupon the Bank in agreement with the Reserve Bank and the Borrower was to determine the ratio of (a) total dollar volume of Borrower’s cancelled contracts (not by reason of fault of the Borrower) which had been cancelled between the date of the Agreement and date of request by Borrower to (b) aggregate dollar volume of original face amount of all war production on hand at the time of or accepted subsequent to the date of the Agreement, less the total dollar volume of all payments made on such war contracts prior to Borrower’s written request. After agreement was reached as to the ratio of (a) to (b), the unpaid principal amount of the loan was then to be multiplied by the agreed-upon ratio of (a) to (b), and the product of this computation represented the portion of the loan on which interest would be waived and maturity suspended until a certain time subsequent to the settlement of the cancelled contracts. There was the further proviso that no waiver or suspension was to be made if the ratio of (a) to (b) was less than one-fourth.
After a thorough appraisal of the evidence we conclude that the management of Goshen received a copy of at least one Guarantee Agreement, if not copies of all four such Agreements. In each of the four loan agreements, signed by J. J. Snoke and Dow Gorham, it is set out that the Borrower *769understands that such an agreement had been entered into between the Bank and the Federal Beserve; that a copy of such agreement had been delivered to the Borrower; and that the Borrower promised to do all acts necessary by the terms of the Guarantee Agreement for the Bank to comply therewith. On January 16,1943, Mr. Van Antwerp of the Bank specifically called to the attention of Mr. C. W. Snoke the necessity for compliance with the Guarantee Agreement. Whether delivery of an instrument has been made is a question of fact, inferable from the circumstances. Massachusetts Trust Co. v. Loon Lake Coffer Co., 4 F. 2d 847 (CCA Wash.). It is not established that there was an attempt by anyone to invoke this section of the Guarantee Agreement but plaintiffs contend that it should have been invoked; that the defendant is responsible for not doing so and that the insolvency of the company resulted. In the absence of sufficient competent evidence to determine with any degree of accuracy the status of Goshen’s contracts at any particular time, we feel that speculation as to when the section could or should have been invoked and whether such action would have prevented insolvency is not justified. Our conclusion is that any misconceptions which plaintiffs may have had as to the possibility of the return of the company to them were not the responsibility of the defendant. It appears that the assignment was made to avoid the expense of some other form of liquidation and to obtain the release from liability of two members of the family, Dow Gorham and John Junior Snoke.
In so far as is ascertainable from the entire record presented to us, we conclude that the management of Goshen was sufficiently responsible for the difficulties of that company to preclude recovery from defendant in a court of equity. Our report to the Congress is that no amount is legally or equitably due plaintiffs from the United States.
This is not to say, however, that plaintiffs do not have an appealing case which the Congress, in its discretion, may wish to rectify. We therefore make the following summary of our findings.
We conclude that the loss of plaintiffs’ business was caused, fundamentally, by an overexpansion of its facilities in antici*770pation of the requirements of the projected wartime wooden aircraft program and the subsequent abandonment of this program before amortization could be effected. While not guilty of coercion or misrepresentation, it is established that the War Department urged and encouraged the Goshen management in this overexpansion. The company’s more immediate difficulty resulted from the inability of its management to establish effectively, at the expanded level of operations, sufficient cost control and accounting records to meet the requirements of experimental cost-plus-fixed-fee subcontracts on which it was engaged.
We would suggest that the Goshen Veneer Company was a casualty of the necessities of the wartime wooden aircraft program. Though not without some responsibility for its predicament, the fact remains that Goshen was a well-established and excellent small manufacturer which expanded too rapidly in an effort to meet what could have been a crucial need for military aircraft and in the process lost control of its operations.
The propriety of compensation under such circumstances being within the discretion of the Congress, we set forth below the net value of the Goshen Veneer Company at various times as shown by the accounting records in evidence1 as a possible guide should such action seem desirable.
September SO, 1841-$207, 854.16
September SO, 1942_ 227,358.00
June 30, 1943_ 78,223.07
January 1, 1944- 17,626. 63
Sacrifices in wartime are usual rather than the exception. It appears, however, that the losses of plaintiffs were above the ordinary even for wartime. While some of these losses were due to the inexperience of plaintiffs ip wartime production, at least a portion of the loss was due to the Government’s abandonment of the wooden aircraft program on the basis of which Goshen had been encouraged to expand.
While there is no obligation that can be enforced against the Government, we recommend a payment of $75,000. This would be in the nature of a gratuity, but in the light of all *771the facts of record it seems to us the payment of this sum would be a fair adjustment.
Madden-, Judge; Whitaker, Judge; and Littleton-, Judge, concur.
FINDINGS OE FACT
The court, having considered the evidence, the report of Commissioner George H. Foster, and the briefs and argument of counsel, makes the following findings of fact:
1. On August 25, 1950, the House of Representatives, 81st Congress, Second Session, passed the following resolution (H. Res. 814):
jResolved, That the bill (S. 410) entitled “a bill for the relief of the former shareholders and debenture note-holders of the Goshen Veneer Company, an Indiana corporation”, now pending in the House of Representatives, together with all accompanying papers, is hereby referred to the United States Court of Claims pursuant to sections 1492 and 2509 of title 28, United States Code; and said court shall proceed expeditiously with the same in accordance with the provisions of said sections and report to the House, at the earliest practicable date, giving such findings of fact and conclusions thereon as shall be sufficient to inform the Congress of the nature and character of the demand, as a claim legal or equitable, against the United States, and the amount, if any, legally or equitably due from the United States to the claimant.
2. Senate 410 as pending in the House read as follows:
For the relief of the former shareholders of the Goshen Veneer Company, an Indiana corporation.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That the Secretary of the Treasury is authorized and directed to pay, out of any money in the Treasury not otherwise appropriated, to Charles E. Gorham the sum of $87,283.93; to Nellie A. Gorham the sum of $15,403.05; to the estate of Ethel B. Dow the sum of $143,761.78; to Elizabeth Dow Snoke the sum of $56,477.84; to Barbara H. Dow the sum of $56,477.84; and to Dow M. Gorham the sum of $150,030.48, in full settlement of their claims against the United States, as sole shareholders, and debenture note holders of the *772Goshen Veneer Co., an Indiana corporation having its principal place of business at Goshen, Indiana, through (a) their surrender of de facto control of such corporation to representatives of the United States in reliance in good faith upon unfulfilled representations made by representatives of the Air Forces of the United States Army; (b) the furnishing of materials, and the fabrication and manufacture of plywood and other wood parts, by such corporation during such period for the United States and for other Government contractors engaged in the manufacture of fighting, training, and transport airplanes for use by the Army Air Forces in the prosecution of the war; and (c) the eventual loss by such shareholders of their several equities in such corporation by reason of losses sustained by it in the course of its operation during such period: Provided, That no part of the amount appropriated in this Act in excess of 10 per centum thereof shall be paid or delivered to or received by any agent or attorney on account of services rendered in connection with this claim, and the same shall be unlawful, any contract to the contrary notwithstanding. Any person violating the provisions of this Act shall be deemed guilty of a misdemeanor and upon conviction thereof shall be fined in any sum not exceeding $1,000.
3. The petitioners are all of the former common and preferred stockholders and debenture holders or representatives of such former stockholders or debenture holders of Goshen Veneer Company, an Indiana corporation hereinafter referred to as Goshen.
4. The company was established in 1892 by Myron C. Dow and Charles E. Gorham and operated as a partnership until it was incorporated in 1900, and has engaged since its inception primarily in the manufacture of hardwood veneer and plywood. The ownership of the firm and all its stock up to 1944 had remained in the hands of the organizers and their families. About 90 percent of the keymen in the organization, ranging from operators to management had, prior to 1942, spent their entire working lives with the company, which resulted in a satisfactory relationship existing in the plant, and the product turned out was of an unusually fine quality. The company was a pioneer in the production of hardwood plywood, had a most complete plywood manu-*773factoring plant and was one of the first to develop and use the hotpross technique for cementing veneer with thermo-setting plastic resins. The company was in possession of manufacturing facilities which were of aid to the war effort.
The company’s plant consisted of 15 buildings, one being a two-story building having approximately 75,000 square feet of floor space on each floor and one being a three-story brick building having approximately 85,000 square feet of floor space in the two main buildings, a railroad switch track, machine shops, a saw mill, a press room, boiler and engine room, warehouse, a dry kiln, lumber shed, storage building, glue and machine building, hose house, garage and storage building, underground properties and outside properties. Coates and Burchard Company, a firm of appraisers, who had been engaged in that business since 1894, made an appraisal for Goshen Veneer Company in October 1942 and found the reproductive value to be $570,888.84, and sound value $338,085.99. This did not include land and landscaping, spare parts, materials and supplies, manufactured products, intangible assets, dies, etc. Between September 30 and December 31,1942, the company made additions to the plant at a cost of $29,960.65 and disposed of property which had cost approximately $35,480.
Accounting records in evidence reflect inventories of raw materials, goods in process, etc., as of December 31, 1942, in the amount of $290,006.43. While this valuation is not firmly established, due to inconsistencies in the methods of computation used in the various categories, there is evidence that it is a reasonable approximation of actual value. The company also owned a tract of timber land in Kalamazoo County, Michigan, on which there was a stand of hard maple timber, suitable for plywood. The company had United States War Savings Defense Bonds, Series “E,” having a maturity value of $5,300. The company carried insurance on the life of Mr. Snoke in the amount of $102,877. It owned 1,170 shares of Majestic Radio and Television preferred stock, having a book value of $7,245, and was entitled to a refund for income tax payment for the years 1940 and 1941 (later recovered) in the amount of $7,156.
*774Tlie average net sales of the company for the years 1936 through 1941 were $558,200, with average net profits of $26,300, or 5 percent of sales.
5. In 1941 and 1942 under the general management of J. J. Snoke, Goshen was interested in obtaining business from the United States or from contractors who had defense contracts with the Government. On March 10, 1942, Goshen advised the Army Air Forces at Wright Field of its availability for plywood manufacture and offered its services in that regard. Goshen secured purchase orders from G. & A. Aircraft Inc., of Willow Grove, Pennsylvania, hereinafter called G. & A., early in 1942. These purchase orders were actually subcontracts in which G. & A. was the prime contractor under a contract to supply gliders to the Government.
In order to finance its operations in connection with its glider subcontract and some cost in conversion to expanded aeronautical plywood production, Goshen sought to borrow money and made application in May 1942, to its regular bank, the Salem Bank and Trust Company, for a loan. Pursuant to the Government program for financing Government contractors known as Y-loans, the loan was to be guaranteed by the Federal Eeserve Bank of Chicago, Fiscal Agent for the War Department, hereinafter called the Eeserve Bank. The War Department gave approval to the loan but on May 20, 1942, Salem Bank and Trust Company notified the Eeserve Bank in Chicago that it wanted the loan transferred to the First Bank and Trust Company of South Bend, Indiana, hereinafter called the Bank, but that the Salem Bank and Trust Company would retain 25 percent interest in the loan.
On May 20,1942, the First Bank and Trust Co. made application for a guarantee of 90 percent of a proposed loan to Goshen. The loan was made under date of May 22,1942, and the guarantee agreement was dated the same day.
At the time of making the first loan, Goshen had a prime contract with the United States Army Air Forces; three subcontracts with G. & A., which held two prime contracts with the United States Army Air Forces and one with the Navy Department; another subcontract with Wilcox-Gay Company which held a prime contract from the Signal Corps; and Goshen also had a subcontract with Caswell-Eunyan *775Company of Huntington, Indiana, which had a subcontract from General Fireproofing Company of Youngstown, Ohio, a prime contractor under a contract with the Treasury Department. The total value of Goshen’s prime and sub-subcontracts on May 6,1942, was $354,500. Goshen was also in the process of negotiating a subcontract, estimated in the amount of $600,000, with Bell Aircraft of Buffalo, New York, which had a contract with the United States Army Air Forces.
It is not established that agents of the War Department directly solicited the services of Goshen prior to this first Y-loan of May 22,1942.
6. The loan agreement of May 22, 1942, provided for a revolving credit of $100,000 payable May 22, 1943. It also provided that Dow Gorham, Vice President, and J. Snoke, Secretary, guarantee payment of each of the notes which would be issued under the credit. As further security, Goshen assigned to the Bank all payments which would fall due under the contracts that Goshen had or would enter into “with United States Army and Navy Departments and/or subcontract between [Goshen] and contractor under a prime contract with either of the said Departments, in an aggregate face amount of not less than double the amount of such loans from time to time oustanding * * during the period of the loan. It subordinated outstanding debenture notes to any borrowings Goshen might make under the agreement and Goshen agreed not to mortgage or otherwise encumber any of its buildings, land or machinery. Goshen mortgaged to the Bank its real estate, equipment and personal property other than inventory as further collateral. It agreed not to pay dividends during the time of the loan. Paragraph 7 of the agreement reads as follows:
It is understood that the Bank has entered into a Guarantee Agreement with the War Department of the United States in accordance with the provisions of Executive Order No. 9112, of March 26, 1942, a copy of which said Guarantee Agreement has been delivered to the Borrower, and that the Borrower will do and perform all acts necessary upon its part to assure the Bank’s compliance with the terms of such Guarantee Agreement.
*776Paragraph 11 of the Agreement reads as follows:
The Borrower agrees to furnish the Bank quarterly, or more often (as of the close of any calendar month) if required by the bank, a detailed balance sheet, earnings statement and statement of the net quick assets. Such balance sheet and statements to be certified by the president or treasurer of the Borrower. And the Borrower shall, if required by the bank, furnish quarterly or at the end of any calendar month, similar balance sheets and statements a«d a complete audit report, all certified by Certified Public Accountants satisfactory to the bank.
7. On May 22, 1942, the Reserve Bank, acting as Fiscal Agent for the War Department, entered into a Guarantee Agreement with the Bank, pursuant to which the Reserve Bank if so requested by the Bank, agreed to purchase 90 percent of the unpaid principal amount of the loan which the Bank was making to Goshen. The Guarantee Agreement contained the following sections:
Sec. 5. Protection of Financing Institutions Against Cancellations
For the purposes of this section and section 6: A “war production contract” shall mean any contract made or order accepted by the Borrower for the sale or furnishing by the Borrower of materials, equipment, supplies or services or for the processing or treatment by the Borrower of materials, which constitutes a prime contract with the War Department, Navy Department, or Maritime Commission, or which constitutes a contract made or order accepted by the Borrower to aid directly or indirectly in the performance of any prime contract with any of the said Government agencies; a “canceled contract” means a war production contract (constituting such a prime contract) or part thereof, which contract or part thereof is canceled or terminated by the Government not by reason of fault of the Borrower, or any other war production contract or part thereof, which contract or part thereof is canceled, terminated or violated not by reason of fault of the Borrower but because of the cancellation or termination, in whole or in part, without fault of the prime contractor of any prime contract by the Government; and the dollar volume of a “canceled contract” means the original face amount of such canceled contract less all progress, advance and *777other payments thereon, except that, in case the cancellation applies to only a part of a war production contract, any progress, advance and other payments shall be considered to have been applied first upon that part of such war production contract which is not affected by such cancellation.
The Financing Institution may at any time make written request to the Reserve Bank for an adjustment under this section, and thereupon the following computation shall be made by the Financing Institution in agreement with the Reserve Bank: The total dollar volume of the Borrower’s canceled contracts which have been canceled between the date of this agreement and the date the written request above mentioned is received by the Reserve Bank shall be called (a). The aggregate dollar volume of the original face amount of all war production contracts of the Borrower on hand on the date of this agreement and of all such contracts made or accepted by it within the period specified in the preceding sentence less the total dollar volume of all payments heretofore and hereafter made on any or all such war production contracts of the Borrower prior to the date such written request is received by the Reserve Bank shall be called (b). The ratio of (a) to (b) shall be multiplied by the percentage of the unpaid principal amount of the loan which the Guarantor is under no obligation to purchase under section 1 hereof. The product of such multiplication shall constitute an additional percentage of the loan which shall be added to the percentage specified in section 1 and such additional percentage shall then be subject to the provisions of section 1 like the percentage originally specified therein (including the limitation on the time within which written demand therein specified may be made). After such additional percentage has been added to the percentage specified in section 1 pursuant to a written request for an adjustment by the Financing Institution, the Financing Institution shall have no further rights under this section. The provisions of this section shall not be effective in any case unless the ratio of (a) to (b) is at least as great as one-fourth.
Seo. 6. Protection of Borrower Agamst Cancellations
The Borrower, from time to time but not more frequently than once every sixty (60) days, may notify the Financing Institution in writing that it desires an adjustment under this section, and the Financing Institution shall within five (5) days after receiving such *778notice, advise the Reserve Bank in writing of the receipt thereof. In each such case, the ratio of (a), as defined in section 5, to (b), as defined therein, shall be determined by the Financing Institution in agreement with the Reserve Bank and the Borrower as of the date of the receipt by the Financing Institution of such notice from the Borrower, and effective thirty (30) days after such receipt of such notice the Financing Institution will waive interest and suspend maturity upon such portion of the then unpaid principal amount of the loan as is determined by multiplying such unpaid amount thereof by such ratio and by deducting from such product any portion of the loan upon which the Financing Institution is already waiving interest and has suspended maturity pursuant to any previous notice from the Borrower; but whenever the ratio of (a) to (b), as determined pursuant to any such notice from the Borrower, is less than one-fourth, no such waiver of interest or suspension of maturity shall be made. Such waiver of interest and suspension of maturity shall continue for the period ending ten (10) days after the Borrower shall have received full payment of or credit for such amounts as may be payable to it as a result of a final determination, by mutual agreement or by decision of any court of competent jurisdiction or otherwise, of the amounts, if any, so payable to it with respect to any canceled contract, but shall in no event continue for more than one year after such final determination, except that the Guarantor in its sole discretion may permit such waiver of interest and suspension of maturity to continue for such additional period as it may consider fair and equitable in the circumstances. Upon the termination of the period of waiver of interest and suspension of maturity as provided in the preceding sentence, the dollar amount of each contract or part thereof of the Borrower with respect to which said final determination shall have been made and theretofore included in (a), in the computation of the ratio above provided, shall be eliminated from (a) for such computation and the appropriate proportion of such loan with respect to which interest has been waived and maturity suspended on account of such canceled contract shall become immediately due and payable and shall again bear interest at the specified loan rate until paid. So long as any portion of the loan on which interest has been waived and maturity suspended as provided in this section continues to be held by the Financing Institution, it shall be under no obligation to pay any fee to the Guarantor under section 11 hereof on *779such portion of the loan and the Guarantor will pay to the Financing Institution, on the dates on which interest would have been payable by the Borrower, interest upon such portion of the loan in an amount (i) equal to the difference between the amount which would have been payable by the Borrower and the amount which would have been payable by the Financing Institution to the Reserve Bank under section 11 hereof, or (ii) equal to 2y2 percent per annum, whichever is less. If the Guarantor shall have purchased a percentage of the unpaid principal amount of the loan under any provision of this agreement, then to the extent made possible by such purchase the Guarantor shall comply with the provisions of this section with relation to the waiver of interest and suspension of maturity and the Financing Institution shall to such extent be relieved from compliance with such provisions. If the Guarantor shall purchase a percentage of the unpaid principal amount of the loan under any provision of this agreement after the Financing Institution has waived interest and suspended maturity as to a portion'of the loan, pursuant to this section, then the Guarantor shall include such portion in the percentage so purchased by it. Nothing contained in this section shall impair any of the rights of the Financing Institution under any other provisions of this agreement.
❖ ❖ * % Hs ^
Sec. 12. General
* * * * *
In consideration of the acceptance by the Borrower of the loan to which this agreement relates, the Guarantor and the Financing Institution agree that the provisions of section 6 of this agreement shall inure directly to the benefit of and shall be enforceable directly by the Borrower.
H» H* H» H*
8. Goshen also received further subcontracts and on or about August 1,1942, one 2d Lt. George E. Dilley, Assistant to the District Financial Officer, contacted Goshen for the purpose of assisting the company in obtaining an increased loan which Goshen had as early as July 6,1942, contemplated making. On August 7, 1942, the Bank applied for a guarantee for a loan of $600,000 which it contemplated making to Goshen, being an increase of the $100,000 credit by $500,000.
Neither the Reserve Bank nor the Bank thought that it was *780desirable to make the increased loan but as the War Department stated that the production of the products covered by the subcontracts of Goshen was vital to the Government, they agreed to the increased Y-loan, and it was made August 22, 1942.
9. The agreement entered into August 22, 1942, between Goshen and the Bank of South Bend, Indiana, provided for a $600,000 credit terminating August 14, 1943, at the rate of 5 percent per annum. As security for the loan, Goshen mortgaged all of its real estate to the Bank; it mortgaged all of its machinery, tools, equipment, furniture and fixtures, then owned or to be acquired, and gave a lien covering inventory; Dow Gorham and J. J. Snoke executed a continuing guarantee of the loan; and Goshen assigned three policies of life insurance upon the life of J. J. Snoke as further collateral. The agreement also provided for the assignment of all accounts receivable and included an undertaking not to pay any dividends or bonuses without the consent of the Bank. All of the safeguards to the Bank which were contained in the initial loan of May 22,1942, were also incorporated in the loan agreement. The agreement also provided in paragraph 11 as follows:
* * * The Bank may at any time it elects require that sums loaned by it pursuant hereto shall be deposited by the Borrower in a separate bank account and may also require at any time it elects that no withdrawals shall be made from such bank account excepting by check countersigned by a person designated by the Bank.
And in paragraph 14:
* * * the Bank may through its duly authorized representative * * * from time to time examine all the books and records of [Goshen] and make any abstracts therefrom.
Advances under this agreement were to be made in the sole discretion of the Bank.
Goshen also agreed not to enter into any contract with any one including the Government to furnish labor or material or to deliver any merchandise in excess of $25,000, nor acquire any fixed assets in excess of $2,000 without approval in writing by the Bank.
*781The agreement also recited tbat Goshen was aware of and had been furnished a copy of a guarantee agreement with the terms of which Goshen agreed to comply. The guarantee agreement in connection with this loan agreement was executed August 17, 1942, and was substantially similar to the guarantee of May 22,1942, except that the percentage which the Reserve Bank could be called upon to purchase was increased to 95 percent, and the variation in the description of the loan agreements involved as indicated above.
Dow Gorham and J. J. Snoke executed the continuing guarantee provided by the loan.
By November 80, 1942, there were outstanding notes on account of the loan to Goshen of $597,964.28, leaving a balance of credit available of $2,035.72.
10. Much of Goshen’s work was in the production of aircraft plywood, some of which was experimental in nature and under cost-plus-fixed-fee arrangements with firms holding prime contracts with various agencies of the Government. The extent of expansion during the war period is indicated by the fact that in early 1943 it had 575 employees as compared with 175 prior to the war.
In the fall of 1942, the Bank became concerned with Goshen’s affairs especially in connection with obtaining financial statements, and so advised Goshen. Goshen was experiencing difficulties in producing balance sheets and operating statements which it had agreed to do in the Loan Agreement. The Bank also advised the Federal Reserve Bank of failure to receive from Goshen timely and satisfactory accounting reports. In October Goshen, through its then general manager, J. J. Snoke, stated that it had employed an office manager who would see that financial statements were produced on time. This office manager was C. W. Snoke, the brother of J. J. Snoke. On November 24, 1942, Mr. A. L. Olson, vice president of the Reserve Bank, wrote to Mr. Snoke complaining about the failure to promptly furnish balance sheets and operating figures to the Bank. At that time the Reserve Bank had been informed that the year-end audit as of September 30 would not be available before December 1 and the October balance sheet would not be available before December 10. The letter *782pointed out the necessity of having the balance sheets and operating figures made available more promptly and not later than the last day of the following month and to that end suggested the augmentation of the accounting force of Goshen. The Bank received a balance sheet for September 30, 1942, about December 5, 1942, on which date the Bank forwarded it to the Reserve Bank.
When C. W. Snoke was first employed by Goshen Yeneer the Bank notified the Reserve Bank that it was hopeful that C. W. Snoke would have the ability to amass the necessary accounting and provide the necessary data. When the balance sheet as of September 30, 1942, was delivered, it was unsigned. It showed, among other things, that Goshen had reduced the outstanding debenture notes by $4,247. However, this was apparently a preliminary statement and when the year-end audit, which was certified by the accountant, Mr. Croop,8 was submitted under date of December 31,1942, no reduction in debentures was shown.
11. In early May 1942 Goshen’s cost department was placed in the charge of a public accountant who had done accounting and auditing work for the company for several years. On December 31, 1942, Goshen’s accountant wrote to the Bank that he was sorry he had not been able to send October and November statements but that it was necessary in order to have proper cost accounts for the new air parts contracts to build an entire new financial system beginning with the fiscal year October 1,1942, and that it was impossible to accomplish this before having conferences with, and the approval of, J. J. Snoke. He also stated in the letter that Mr. Snoke had finally been able to give him the time and he hoped to be able to get out the October statement within a few days and the one for November a few days later and from then on each month’s report within 30 days.
Under date of December 31, 1942, Goshen’s accountant submitted a year-end audit, as of September 30, 1942, of the Goshen Veneer Co.
12. In view of the difficulty which Goshen continued to experience the Bank officials advised that some action to strengthen the management of the company should be taken.
*783Sometime in January 1943, Goshen employed the firm of Stevenson, Jordan and Harrison, Inc. (hereinafter called S JH), management engineers, to make a survey and to assist the company on management problems in connection with its expanded operations. SJH, on behalf of Goshen, retained the services of Haskins & Sells, certified public accountants, to make an audit of the accounts of Goshen. While recognizing that there were deficiencies in the financial management of the company and that steps toward improvement were desirable, neither the War Department nor the Reserve Bank directed either the accounting firm or the firm of management engineers to undertake the work with Goshen and Goshen’s employment of them was its own act. In a letter to J. J. Snoke, dated January 27, 1943, the firm of management engineers stated its understanding of the work it was to do for Goshen to be a study of Goshen’s management problems ; guidance on questions of cost determination; a review of facilities; and the laying out and furnishing of studies and briefs on the present major contracts.
At about this time Goshen was facing difficulties with regard to the acquisition of additional operating capital because of the inadequacy of its financial data. It proposed to enter into a contract with Bell Aircraft for $2,500,000. On January 8,1943, Mr. Van Antwerp 9 of the Bank wrote to Goshen and called that company’s attention to the fact that it was using its full line of credit of $600,000 and the Bank did not understand how Goshen could finance this additional business without additional credit. The Bank also seriously questioned whether Goshen should take on such an order until it had proper accounting, cost and inventory departments staffed with proper personnel. The Bank informed Goshen that unless it could immediately satisfy the Bank with financial information which had been requested and which was past due, and assure the Bank that Goshen’s accounting office was functioning properly, it would be necessary for the Bank to install its own accounting firm so that the Bank could decide whether or not it should continue with the credit.
*78413. On February 22, 1943, the Bank notified Goshen that pursuant to paragraph 11 of the Bank Loan Agreement of August 22, 1942, it elected to require all future sums lent to Goshen to be deposited in a new account from which no withdrawals could be made except by checks countersigned by a person designated by the Bank. On the same day the Bank advised Goshen that Mr. H. P. Kausch,10 an employee of the Bank, had been authorized to countersign checks and that until further notice he would spend his full time at Goshen’s office in connection with the servicing of the revolving credit. Mr. J. J. Snoke stated that the matter of a separate account and countersigning of checks would be presented to the Board of Directors of Goshen for its approval, pending which an arrangement would be made for presentation of checks to Mr. Rausch so that he could supervise the distribution of the funds.
14. On February 16, 1943, a meeting was held by the vice president of the Bank, two members of the engineering firm of SJH, Major Grant Keehn, the liaison officer for the War Department at the Federal Reserve Bank, and A. L. Olson, assistant vice president of the Reserve Bank. The attitude of persons attending this conference with regard to the situation at Goshen is indicated by the following digest of a memorandum prepared by Mr. Olson, of the Federal Reserve, at the time:
It was explained that SJH was conducting a survey of Goshen’s operations and that the firm would undertake to render management service for Goshen. The management engineers also were putting on another full-time engineer at Goshen’s plant and Haskins & Sells were conducting an audit of Goshen’s books. It was indicated that as a result of the large volume of contracts undertaken by Goshen, an unwieldy situation had developed which was far beyond the ability of Mr. J. J. Snoke to handle and that there was an urgent need for permanent management advice and assistance. The situation was further involved by the cancellation of a G. & A. contract by the Navy for its convenience. In connection with that contract, Goshen, as a subcontractor, was *785claiming approximately $250,000, but there was considerable doubt that the claim would be allowed as Goshen’s accounting records were such that Goshen had not been able to properly support invoices. Haskins & Sells were then trying to develop records to support Goshen’s claim.
The memorandum concludes:
Under all of the circumstances in this case, it appears inadvisable that the amount of credit available to the company be increased, but rather that the operation be confined to the level permitted by funds now available. While this borrower is producing material urgently needed in connection with the war effort, it would appear that the best interests of the war program will be served by Goshen keeping its operations within a latitude more, consistent with the company’s management and financial capacity.
15. On March 8, 1943, the Bank filed application for a 97 percent guarantee of a $1,000,000 revolving fund being contemplated which would supersede the outstanding $600,000 loan with maturity set for August 15, 1943. Under the loan agreement which was executed March 25, 1943, at least 51 percent of the outstanding voting shares of capital stock of Goshen was to be pledged to the Bank by separate written assignments. Also Goshen agreed that as long as the loan remained unpaid, it would furnish the Bank on the last day of each calendar month, a balance sheet and a profit and loss statement as of the close of the preceding month prepared by Haskins & Sells. The loan agreement further provided that Goshen would at all times maintain its management in a manner satisfactory to the Bank and that at any time thereafter the Bank demanded a change in the management, Goshen would forthwith make such change and that from and after the date of the agreement Goshen would retain the services of S JH.
16. At that time Goshen was represented by a private attorney, Mr. C. P. Olds,11 who had been employed to handle the claim against G. & A. Mr. J. J. Snoke and Goshen’s attorney demurred to giving a pledge of 51 percent of the company’s voting stock because of a fear that the Bank might be *786in a position to obtain control of tbe business. It was explained by Mr. Olson that the Bank could not foreclose on any collateral without consent of the War Department and the War Department under no circumstances would be interested in depriving the owners of the business of any of their rights as long as the terms of the guarantee agreement were being fully complied with. It was pointed out that the company’s application for one million dollars of credit presented the necessity of developing the most feasible basis for such a loan and under the precarious condition in which Goshen was at the time, the terms of the increased loan as authorized by the War Department and demanded by the Bank offered the only practical plan.
17. SJH submitted a report under date of February 25, 1943, which indicated that while the production engineering and the quality of production were entirely satisfactory, Goshen was deficient in certain aspects of business management. The survey indicated that the situation was one where there had been an expansion in operations to the extent that the task of maintaining control of all of the functions was beyond the scope of one person. The management was overburdened with a mass of detail, and the situation was aggravated by the loss of a key production man to the draft. It was stated that inadequacy of cost control and accounts was a major factor in the company’s weak financial position, but because of available engineering talent, the production activities were in excellent shape. SJH suggested remedial measures and recommended an additional credit of $380,000 which it was believed could be retired by July of 1943.
18. On March 25, 1943, Goshen entered into a loan agreement with the Bank which agreement supplemented and incorporated the loan agreement dated August 22, 1942, of $600,000. The new agreement provided for a revolving credit of $1,000,000 at 5 percent interest. This loan was also guaranteed by the Beserve Bank under an agreement substantially the same as the first guarantee agreement, executed May 22, 1942. Provisions of the agreements included the pledge of 51 percent of the capital stock of the company; waiver of redemption rights by preferred stockholders; undertaking to *787maintain management in a manner satisfactory to the financing institution; and an undertaking to acquire no additional fixed assets. The loan agreement recited Goshen’s understanding of the entering into the guarantee agreement and the delivery of a copy of it to Goshen.
SJH, in accordance with their managerial functions as provided by the loan agreement, requested Mr. Snoke to make arrangements so that their representative might review the company’s correspondence, orders and memoranda pertaining to the business and receive advice by memorandum of any verbal arrangements made by Mr. Snoke or any other officials on his staff or, in the alternative, that their representative have a desk in Mr. Snoke’s office in order that SJH would be more fully informed of the company’s operation. Up to the making of the loan agreement on March 25, 1943, Mr. Snoke was both in name and in fact the general manager of Goshen.
19. On May 4,1943, representatives of SJH, the Bank, the Reserve Bank, and the liaison officer of the War Department held a meeting at which SJH reviewed the problems they had encountered at Goshen and then suggested that one of three courses of action should be undertaken.
These were stated as:
(1) That Stevenson, Jordan & Harrison withdraw from the situation immediately; or
(2) That the board of directors and the executive officers of the Goshen Veneer Company agree with the First Bank and Trust Company of South Bend, the Federal Reserve Bank, the War Department and ourselves to promptly adopt and aggressively put into effect all of our recommendations on policies, personnel, and procedures even though the present management does not approve of our recommendations; or
(3) That executive authority be transferred to Stevenson, Jordan & Harrison through a member or members of our staff.
SJH reported on May 19 to the Reserve Bank that Mr. Snoke was agreeable to the idea that one of S JH’s staff members participate in the management of the company in an official executive capacity, but that the exact status of such a man would have to be defined and clarified.
*788On May 27, 1943, J. J. Snoke informed Mr. Olson that it was agreeable that be resign bis position of general manager-secretary and treasurer of Gosben. It bad been suggested that tbe stock that was pledged be transferred on tbe books to the Bank and Snoke stated that tbe stockholders objected to the transfer of the stock to the Bank but transfer to tbe Federal Eeserve as fiscal agent of the War Department was agreeable to them.
On May 28, a conference was held at the Eeserve Bank at which were J. J. Snoke; A. G. Hubbard of the firm of Hubbard, Baker & Eice, attorneys representing Goshen; F. W. Van Antwerp, president of the Bank; George W. Omacht, counsel for the Bank; E. H. Smedley of SJH; Grant Keehn, the liaison officer of the War Department; K. L. Karr, the litigation officer of the War Department; C. B. Dunn, vice-president and general manager of the Eeserve Bank, and A. L. Olson of the Eeserve Bank. At the meeting, consideration was given to a plan of reorganization pursuant to which Goshen would be reorganized under the Indiana laws so that the number of directors would be increased from three to five and so that only the shareholders could make or amend the by-laws. New pledges of stock agreements would be taken from Elizabeth Dow Snoke, Ethel B. Dow, Dow M. Gorham and Barbara Dow pursuant to which the stock would be pledged to the Eeserve Bank as fiscal agent of the War Department with a provision, however, that the stock might be voted at the direction of the financial contracting officer attached to Headquarters Army Service Forces. It was understood that as soon as Goshen was reorganized, the present Board of Directors would elect Mr. Smedley of SJH and H. B. Eausch of the Bank as directors. It was further understood that the shareholders would call a special meeting to adopt the by-laws providing, among other things, the removal of officers at any time by vote of the shareholders. Mr. Folger of SJH would be appointed in place of Mr. Snoke as general manager-secretary-treasurer. The by-laws were to be amended so that the office of general manager-secretary-treasurer was to be the principal executive office of Goshen.
20. The reorganization of Goshen along the lines set out in the discussion was effected some time in June 1943 and *789the Board of Directors as elected, consisted of Dow M. Gorham, Charles E. Gorham, John Junior Snoke, H. P. Rausch and D. C. Folger.12 Mr. Rausch was the nominee of the Bank and Mr. Folger represented SJH which under the terms of the Loan Agreement was to be in control of the management of Goshen. The pledge of the stock which had been previously pledged to the Bank as collateral for the loan and which represented 51 percent of the voting shares was transferred to the name of the Reserve Bank as fiscal agent for the War Department. Charles Gorham was elected Chairman of the Board of Directors, Dow Gorham was president and D. C. Folger was general manager.
At no time prior to April 17, 1944, did the Reserve Bank exercise a right to vote the 51 percent of Goshen’s shares it held as collateral. The majority of the Board of Directors was controlled by the Gorham and Dow families and they uniformly voted for all of the resolutions which were passed during the year 1943 and up to April 17,1944. As indicated above, however, officers could be removed only by the stockholders.
Until Mr. Folger was made a general manager under the reorganized company, he had occupied an advisory position with Goshen. However, following the loan agreement of March 25,1943, the influence of SJH seems to have been considerable. The following letter of May 3, 1943, from Mr. Smedley of SJH to Junior Snoke, General Manager of Goshen Veneer, is indicative of the relationship:
In accordance with our agreement during the conference in your office on May 1st, we understand that you will arrange, effective Monday morning, May 3, for our Mr. Fitzgerald to review promptly and initial all incoming and outgoing correspondence, telegrams, orders or memorandums of any nature pertaining to the business of Goshen Veneer Co.
While no specific arrangements have been worked out, we are also relying on you to keep Mr. Fitzgerald or Mr. Folger informed of important phone or other verbal arrangements that might be made by yourself or members of your staff. A brief memo of such verbal arrangements should be retained in your files at all times for *790your own reference; a copy of the memo would serve to keep Mr. Fitzgerald or Mr. Folger informed.
Perhaps the best way to work this out would be for Mr. Fitzgerald or Mr. Folger to have a desk in your office — you can work it out some way, I am sure.
These arrangements will keep us more fully informed and in better position to advise you adequately. In event you decide, however, to deviate from our recommendations on important matters, we will feel obligated to inform the Federal Eeserve of the divergent positions, but not, of course, until after discussion with you. This seems reasonable as our status does not permit us to countermand any of your decisions.
On June 15, 1943, the Bank advised the Federal Eeserve that due to the fact that there was a question as to the true value of the purchase orders, which value was required to be certified by an officer of Goshen as a condition to advances of funds, the requirement as to such certification was to be waived and advances were to be made without such certification.
Under date of June 25, 1943, pursuant to the guarantee agreement, the Bank demanded that the Eeserve Bank purchase 97 percent of the principal amount of the unpaid loan.
It amended this demand on June 28 that the purchase be made as of that date and certified that the unpaid balance on the loan was $942,193.27 and the interest from June 1 to June 27,1943, was $3,335.92.
21. Prior to August 15,1943, the maturity date of the loan, Goshen requested a one-year extension on substantially the same terms as the existing one. By that time it was no longer important from the point of view of war production that Goshen be maintained as a source of supply. Late in the spring of 1943, there had been a great deceleration of the wooden aircraft program and there was no longer the urgent need for plywood. Many contracts for plywood planes were being cancelled by the War Department and many projects in which plywood was used were cancelled completely. Goshen had been working on a wing structure as a subcontractor to Bell Aircraft and had delivered one wing but the balance of the contract for seven additional wings had been cancelled by Bell Aircraft for alleged default of Goshen. *791The truth or falsity of this allegation was never determined since the matter was eventually settled (see finding 25). At that time it was doubtful as to whether the Air Corps would authorize further work by Bell Aircraft and in any event it was doubtful even if Bell Aircraft were authorized, that it would renew its contracts with Goshen. The balance of the work Goshen was doing for Bell Aircraft was small in relation to its operating capacity. Many of Goshen’s other contracts had been terminated. Although Goshen was not necessary at that time (early August 1943) as a war producer, the War Department was of the opinion that viewing the situation as a creditor and in order to obtain the greatest recovery on the loan, it would not be good judgment to permit Goshen to go into bankruptcy.
SJH indicated to the War Department that in their opinion Goshen could operate profitably and although its present orders were running out, additional business would be available. The War Department tried to persuade the Bank to continue for at least a thirty- or sixty-day period but the Bank stated its unwillingness to proceed further. The War Department felt that it could not allow Goshen to go into bankruptcy and, therefore, considered three courses of action, namely, extension of the loan with a 99 percent guarantee; extension of the loan with a 97 percent guarantee but limiting the Bank’s loss to a maximum of $10,000; or a program under which the War Department would put up 100 percent of all additional advances taking as security therefor assets and the proceeds thereof purchased with the new funds including labor applied to old inventories. Under this last method, the old loan would be liquidated through collections on receivables and disposition of other old assets presently pledged under the old loan. The War Department recommended that the second suggested course, namely, renewal with a 97 percent guarantee but limiting the Bank’s loss to $10,000, was the preferable choice of evils.
22. By reason of the foregoing, Goshen and the Bank on August 16, 1943, entered into a supplement to the Loan Agreement of March 25, 1943, which recited that Goshen was then indebted to the Bank in the principal sum of $983,-*792282.30. The supplemental agreement provided in part as follows:
1. That paragraph numbered “2” of said Loan Agreement shall be and is hereby amended to read as follows:
“2. That subject to all the terms and conditions herein contained, the Bank shall lend to the Borrower from time to time hereafter such sums of money as the Bank in its sole discretion may from time to time elect but in no event shall any sum be loaned by the Bank pursuant hereto after August 1,1944.”
Such loans were to bear interest at the rate of 5 percent per annum. Certain other minor changes were made in the Loan Agreement of March 25,1943, but the effect of the agreement was to extend the use of the credit for an additional year.
23. At that time, the Bank and the Beserve Bank entered into a new guarantee agreement executed August 12, 1943, pursuant to which the Bank was to have a 3 percent participation and the Federal Beserve Bank a 97 percent participation but notwithstanding this, it was agreed that the Bank would not bear any loss or expense with respect to the loan in excess of $10,000. It was also provided that the Bank would continue to finance the loans guaranteed at a fixed monthly compensation plus out-of-pocket expenses. The supplemental loan agreement made no reference to a guarantee agreement.
It is reasonably certain that at least a copy of one guarantee agreement was furnished to Goshen, if not copies of each of the four guarantee agreements involved. The basic terms of the guarantees of the War Department were published in pamphlets and the terms were generally available to all who were interested in participation in the V-loans authorized by Executive Order 9112 of March 26,1942.- On September 16, 1943, Mr. Van Antwerp of the Bank wrote Goshen calling attention to the provisions of the Guarantee Agreement relating to the sale of an asset mortgaged to the Bank. Goshen had access to a copy of the Guarantee Agreement at that time.
It is not established that either section 5 (Protection of Financing Institution Against Cancellations) or section 6 (Protection of Borrower Against Cancellations) of the *793Guarantee Agreements, was invoked during the period of the loan.
The applicability, or effect of the invocation, of these sections at any particular time during the period of the V-loans cannot be accurately determined from the evidence.
In June, July, and August and up to November 1943, Goshen was working on its backlog of uncompleted orders but these showed a steady shrinkage due to cancellations.
24. Goshen attempted, through SJTI and J. J. Snoke to develop commercial business but this was not particuarly successful. However, on January 31, 1944, Junior Snoke signed an agreement with one D. Davies and C. Cole, doing business as the Milcrest Company, in Illinois, for the manufacture of a considerable amount of furniture over a period of two years. The agreement was in the nature of a cost-plus-fixed-fee arrangement. The total price contemplated by this contract was considerably above $25,000. This contract was not brought to the attention of the Federal Reserve until early April 1944. It also appears that while Mr. Snoke had represented that the manufacture of the furniture would be financed by advances from Milcrest, the contract did not so provide and if such an agreement existed, it was entirely verbal. The evidence does not establish whether or not, as Mr. J. J. Snoke alleged, the required authorization from the War Production Board had been obtained for the production of this furniture.
Under the loan agreement then in effect, Goshen was obligated to get written approval from the Bank prior to entering into any contract in excess of $25,000.
Reasonably diligent efforts were made by the War Department to settle the Bell Aircraft and G. & A. claims. On October 27,1943, Goshen retained the law firm of Hubbard, Baker & Rice to bring suit against G. & A. and Bell Aircraft Corporation.
25. Much of Goshen’s difficulty in collecting and settling its claims against G. & A. and Bell Aircraft was due to the fact that Goshen was unable to satisfactorily support the costs for which it sought reimbursement under its contracts with these firms. Also the contractual arrangements with these companies were somewhat ambiguous.
*794Goshen did not maintain a system of cost-accounting tied into its general records of accounting, and in the absence of adequate cost-accounting records, the true costs which it had incurred in the performance of these contracts, or in its operations as a whole, were not secured or ever determined. Because of the lack of proper cost records the true value of finished goods and work-in-process on hand at a given time could not be accurately determined.
Haskins & Sells, C. P: A., made an examination of Goshen’s books and records for the three months ended December 31, 1942, and prepared a Balance Sheet as of that date and an Operating Statement for the three-month period, but because of the general lack of supporting evidence necessary as a basis for expressing an opinion, the statements cannot be considered as fairly presenting the financial condition of the company as of December 31,1942, or the results of operations for the three months ended on that date. Although Haskins & Sells, after going to Goshen, inaugurated a voucher system and attempted to see that all journal entries had verifiable support, they still could not certify to the accuracy of the statements they prepared, because of the absence of a cost system. Haskins & Sells did not certify the statements which they prepared, and the uncertified statements were insufficient to advise the Bank or the Federal Reserve of the true fiscal picture.
In establishing a value for inventories, a partial physical count was made by company employees, part of the finished goods and work-in-process was evaluated by a representative of Stevenson, Jordan and Harrison at the cost of materials only, the other part was priced at selling prices without any reduction for profit margin or allowance for uncompleted panels; raw materials and supplies were priced, generally, at the lower of cost or market. Haskins & Sells reviewed the records and procedures, and made tests of footings, computations, and prices, but did not make physical tests of quantities, and on the basis of this examination arrived at an inventory value of $290,006.43, and included that amount in the balance sheet prepared by them.
In checking plaintiffs’ accounts receivable, Haskins & Sells requested 34 customers to confirm their accounts. Sixteen *795of these customers confirmed the accounts as correct, but eight of them, representing 45 percent of the dollar value of the billings, indicated exceptions. Neither G. & A. Aircraft nor Bell Aircraft was requested to confirm their accounts as Haskins & Sells knew they were disputed.
On September 8,1943, Haskins & Sells submitted a report on their examination of the company’s books and records for the six months ended June 30, 1943, which included a Balance Sheets as of June 30,1943, and an Operating Statement for the six months ended on that date. These statements were presented without certification and with the advice that Haskins & Sells were unable to express an opinion as to whether or not they fairly presented the financial condition at June 30,1943, and the results of operations for the six months ended that date.
This report indicated that Goshen was in a seriously overextended condition. The Balance Sheet shows a total of assets of $1,236,853.69 with a total of current liabilities of $1,137,420.89. In addition to these liabilities, there were approximately $21,000 of deferred liabilities, so that it was necessary to enter on the Balance Sheet a deficit to the capital stock of $91,276.03. Included in the assets were accounts receivable from G. & A. Aircraft in the amount of $230,968.92 and from Bell Aircraft in the amount of $175,720.79. (As a result of suit against G. & A. Aircraft Goshen first collected $52,000 and the Government later collected $40,000 by settlement. The Government later settled the claim against Bell Aircraft for $150,000.)
26. Goshen did not send financial statements for July and August 1943, to the Bank or the Reserve Bank until after October 14,1943, and these showed that Goshen had a profit of $2,700 in July and losses of about $5,800 in August. On October 29, 1943, a tentative balance sheet of September 30, 1943, was submitted showing an indicated loss of more than $57,000 on net sales of approximately $87,000 and a loss for the three-month period ending September 30, 1943, of approximately $60,000 on approximate sales of $372,000. Mr. Eolger advised the Reserve Bank that due to Goshen’s method of accounting, charges for materials and direct supplies were overstated and that a corrected balance sheet *796would be submitted as soon as a physical inventory had been completed.
27. On November 4,1943, SJH advised the Eeserve Bank that they were mistaken in assuming that the accounting procedure would be straightened out between Haskins & Sells and a Mr. Steward whom SJH had employed to work on Goshen’s books. They advised that they had sent a specialist to review the difficulties and the specialist had reported that Goshen’s inventory valuation method was unsound and resulted in inflated inventory values.
On November 9, 1943, Goshen had not yet submitted an adjusted balance sheet and operating figures as of September 30, 1943.
On November 9, 1943, Mr. Olson of the Federal Eeserve in Chicago reported to Mr. Smead, Acting Administrator, War Loans Committee of the Federal Eeserve System, as follows:
Notwithstanding the fact that Haskins & Sells set up an appropriate accounting system as of June 30, 1943, the present management has deemed it advisable to make certain _ adjustments with respect to the inventory accounting.
$ »N $ $ $
We have expressed to Stevenson, Jordan and Harrison and to the borrower’s management our dissatisfaction over the fact that the company’s accounting records have not been put in such shape to enable them to provide us with authentic balance sheets and operating figures within a reasonable time after the close of each month, and have requested that such information be expedited.
A completely satisfactory production of accounting records was not established prior to the resignation of Mr. Folger in December 1943.
28. On October 29,1943, a conference at which Mr. Folger, General Manager of Goshen, Mr. Smedley of SJH, Mr. Van Antwerp of the Bank and representatives of the War Department and the Federal Eeserve Bank of Chicago were present, was held and the general situation of Goshen was discussed. Mr. Folger indicated that he and SJH regarded Goshen’s financial statements as unsatisfactory. The Bank *797expressed the view that the influence of J. J. Snoke on the management of the company was considerable. In a letter to Mr. Olson dated November 2, 1943, Mr. Van Antwerp recommended that extra shifts be employed to complete the performance of two of the Bell contracts so as to realize on Goshen’s investments in them, and upon completion that the company be placed in bankruptcy in order further to preserve the assets.
This letter stated further that—
This conclusion is reached primarily because the Company is no longer needed in the war effort; and with the additional fixed overhead created by going into war production, the Company will not be able to make a profit sufficient to continue its operation in civilian production, especially during the war period and early post-war period.
The Bank took the position that SJH had failed to manage the business properly and that after ten months they had been unable to set up a proper accounting system even after placing their own man in Goshen as an accountant.
29. On November 27, 1943, Mr. Folger of SJH sent in his resignation to Goshen. Advice of this resignation was given to the Beserve Bank on November 30, 1943. In this letter to Mr. Olson Mr. Folger reviewed some of the problems of the company and indicated that inasmuch as the size of Goshen’s operations was not much greater than prewar, Mr. J. J. Snoke was, in his opinion, capable of operating the company profitably.
Upon Mr. Folger’s resignation the names of two men were suggested to take his place, Mr. Allan A. McCurdy and Mr. B. B. Agler. As to the employment of Mr. McCurdy as a manager, Mr. Snoke stated he must first discuss it with the stockholders of the company.
Mr. Snoke reported to the Beserve Bank that the employment of Mr. McCurdy or any other individual in the capacity of chief executive was not acceptable. He stated, however, that he had discussed the problem of employing Mr. Agler, who had been interviewed by Mr. Olson, and had worked out an arrangement acceptable to himself and the stockholders, *798under which Mr. Agler13 would join the company in an executive capacity, with control and responsibility over the company’s accounting, financial and general business functions, with Mr. Snoke left with primary responsibility with respect to manufacturing operations.
The Bank stated it was not agreeable to permitting the management to rest in Mr. Snoke and stated that unless acceptable management was made available, they would request that demand for payment be made on the outstanding loan as provided in the guarantee agreement. On demands of the Bank, the War Department agreed to, and as of January 24, 1944, did purchase the full unguaranteed portion of the loan and the Bank then took its loss of $10,000. At the same time, Mr. Agler was elected to the Board of Directors and Mr. Rausch, the Bank representative, resigned as a director.
30. Goshen wished to have the interest rate on the loan reduced from 5 to 3 percent per annum in order that it would have a chance of getting out of its difficulties. The rate of interest on the loan was reduced to 3 percent.
During the period January to April 1944 the operation of Goshen was handled by Mr. J. J. Snoke and Mr. R. B. Agler. The evidence does not present a clear picture of Goshen’s operating results during this period. However, according to Federal Reserve correspondence, the balance sheet as of February 29, 1944, showed a deficit in net worth as against debts of $1,116,000 and the operations of the five months prior to that date resulted in losses of $23,763. On April 8, 1944, the Federal Reserve reported to Washington that $100,-000 would have to be injected into the company to provide an adequate working fund. At about this time a $147,051 contract with the Glenn L. Martin Co. was cancelled for the convenience of the Government.
31. On April 12, 1944, a meeting to consider Goshen’s situation was held and was attended by J. J. Snoke, R. B. Agler and J. Geffs representing Goshen, and representatives of the War Department and the Federal Reserve Bank of Chicago. On this occasion Mr. J. J. Snoke first brought to the attention of the War Department and the Federal Re*799serve the Milcrest contract which he had entered into on January 31,1944 (see finding 24).
On the same day, in summarizing this meeting in a letter to Mr. Smead of the War Loans Committee, Federal Reserve, Washington, Mr. Olson stated:
Because of the company’s precarious condition, as will be noted from the balance sheet dated February 29,1944, previously forwarded to you, it would appear desirable that the company be placed under the jurisdiction of a proper court, to the end that the Government’s interest be fully protected and that preference of unsecured trade creditors might be avoided.
On April 14, 1944 a conference of representatives of the War Department and Federal Reserve was held during which consideration was given to the Milcrest contract, a copy of which had then been received. In a report of that date to Mr. Smead Mr. Olson stated:
* * * The contract bears date of January 31,1944, and was entered into without consulting with us. While it had previously been represented that the purchaser was going to make an advance payment of $19,500 to finance the initial operations, no such provision was contained in the formal contract. We have been informed by Junior Snoke, vice president of subject company, that the arrangement for an advance payment was entirely verbal. Because of question as to whether or not the company is authorized to manufacture civilian furniture by the W. P. B., it appears that difficulties might ensue, particularly inasmuch as some raw materials have already been purchased and other commitments made.
32. It was decided at the April 14 conference to make no further advances under the guarantee loan except to meet the payroll and other commitments of the company to its employees. Col. Keehn notified J. J. Snoke of this decision by telephone. Thereupon, Mr. Snoke contacted Mr. Jacob Geffs of the firm Hubbard, Baker & Rice, who had been retained by Goshen. Later on the same day Mr. Geffs contacted Col. Keehn and representatives of the Federal Reserve with reference to the situation presented.
Pursuant to this request a conference was held on April 15, 1944, in which Mr. Geffs, counsel for Goshen, and representa*800tives of the War Department and the Federal Reserve participated. Mr. Olson’s memorandum of that conference, made at the time, and verified at the time of the trial of this case indicates that
Consideration was given to a proposal made by Mr. Jacob Jeffs [sic], Counsel for the Goshen Yeneer Company, Incorporated, which proposal is subject to being confirmed by his client. The entire discussion, while in good faith, was made without prejudice to the rights of the parties concerned. Mr. Jeffs [sic] indicated that in his opinion it would be advisable for the company to surrender possession of all of its assets which are covered by lien to the War Department. He indicated that in his opinion there would not be any equity which would warrant the company in placing the business in bankruptcy. One consideration which he brought up, however, was that the personal guarantees of Junior Snoke and Dow Gorham be waived.
Representative of neither the Federal Reserve nor the War Department demanded that plaintiffs sign over their stock to the War Department. The activity of Mr. Geffs in this connection was not as representative of the Federal Reserve or the War Department. Mr. Geffs advised plaintiffs to assign their stock to the War Department.
33. On April 18,1944, the owners of all the common stock, preferred stock and debentures of Goshen signed an instrument as follows:
Whereas, the Goshen Veneer Company, an Indiana Corporation, is largely indebted to the Federal Reserve Bank of Chicago, Illinois, as Fiscal Agent of the War Department of the United States, and
Whereas, the assets of said Company are wholly insufficient to pay the secured claims of the said Bank, and
Whereas, the shares of common stock, shares of preferred stock and debentures of said Company are for all practical purposes without value,
Now, therefore, in consideration of One Dollar ($1.00), paid to each of the undersigned, receipt of which is hereby severally acknowledged, and other good and valuable considerations, the undersigned, being the owners of all of the shares of common stock, shares of preferred stock and debentures in and of the said Goshen Yeneer Company, do individually and severally make *801over, assign and transfer each for himself or herself, his or her entire right, title and interest in and to any and all such shares of common stock, shares of preferred stock and debentures to the said Federal Eeserve Bank of Chicago, Illinois, as Fiscal Agent of the War Department of the United States absolutely.
A release of the personal guarantees of J. J. Snoke and Dow Gorham was given.
The evidence does not establish that either the War Department or the Federal Eeserve Bank of Chicago represented to plaintiffs that if the above instrument was executed the factory would be returned to them.
34. The financial condition of the company or its net worth between September 30,1942, and April 1944 cannot accurately be determined. There is evidence, however, that the company’s position, on the dates shown hereunder, was as follows:
September 30, 1941
(1) the company’s current assets exceeded its current liabilities by $66,883.82, which indicates that it had working capital of $66,883.82 with which to finance its current operations.
(2) its total fund of assets exceeded its total liabilities by $207,854.16.
(3) its net worth on September 30, 1941, was $207,854.16.
September 30, 1942
(1) the company’s current assets exceeded its current liabilities by $56,564.34, which indicates that it had working capital of $56,564.34 with which to finance its current operations.
(2) its total fund of assets exceeded its total liabilities by $227,358.
(3) its net worth on September 30, 1942, was $227,358.
June 30, 1943
(1) the company’s current liabilities exceeded its current assets by $305,467.35, which indicates that it had no working capital with which to finance its current operations.
*802(2) its total fund of assets was insufficient to liquidate its liabilities without impairment of capital investment.
(3) its net worth on June 30,1943, was $78,223.07.
January 1,1944
(1) the company’s current liabilities exceeded its current assets by $218,374.47, which indicates that it had no working capital with which to finance its current operations.
(2) its total fund of assets was insufficient to liquidate its liabilities without impairment of invested capital.
(3) its net worth on January 1, 1944, was $17,626.63.
The figures given for September 30, 1941 and 1942, are based on accounting records certified by the accountants who prepared them. The records from which the June 30,1943, and January 1944 figures are derived were not so certified. See finding 25 for qualification of accounting records in evidence.
35. After Federal Eeserve became the owner of the entire stock of Goshen Yeneer Co., it employed one Allan A. McCurdy as manager for the purpose of liquidating the company. It was decided that an effort should be made to continue operations for a while as probably more could be thus realized than could be realized by immediate disposition of the assets. The Federal Eeserve advanced the necessary funds to be used by McCurdy for his operations, and notes in the name of Goshen Yeneer were given for such funds. At this time J. J. Snoke, who had been actively in charge of the plant operations of Goshen was hired by McCurdy at $500 per month to be available for advice in the operations. Mr. Dow Gorham was continued as president.
McCurdy took steps to collect outstanding accounts due Goshen and also continued manufacture of products under the unperformed contracts which Goshen held.
36. By the purchase of the loan, Federal Eeserve became the holder of the mortgage in the assets of Goshen which had been given by Goshen as security for the loans made by the Bank. In order to free the assets for subsequent disposition, Federal Eeserve in June 1944, foreclosed the mortgage.
*803A foreclosure sale of property covered by the chattel mortgage and trust receipts was held and the Federal Reserve purchased the assets. At the sale McCurdy announced his intention to bid for the property. The property was sold to McCurdy, $110,000 for machinery and equipment, and $68,000 for the inventory.
After the sale these amounts were credited to Goshen on its outstanding unpaid notes. Also $42,900 was credited on the notes in consideration of the prior deeding of the real estate to the Bank.
37. McCurdy also effected collection on accounts and all amounts collected were credited against the unpaid notes. At the time the Federal Reserve purchased the loan on January 24,1944, the outstanding notes amounted to $964,756.04. As the Federal Reserve had guaranteed the Bank up to 97 percent, the financial interest of the Bank was 3 percent of this amount, or $28,942.68 with interest of $91.70 or a total of $29,034.38. By previous agreement, the loss to the Bank was to be limited to $10,000 so the Federal Reserve on January 24, 1944, credited the Bank with $19,034.38. Because of the charge of $10,000 against the Bank, the Federal Reserve in effect acquired the notes for $954,756.04.
38. A detailed accounting of each item credited to the outstanding V-loan notes in the course of liquidation and closing out cannot be made on the evidence presented. However, the records of the Federal Reserve Bank of Chicago, as reflected in correspondence in evidence, show the following net result to the War Department.
After the proceeds from the foreclosure sale (see finding 36) and other credits had been made, and the account charged with advances made by Federal Reserve for operation after acquisition of the stock (the details of which are not shown), the unpaid amount on the notes was $190,625.06.
Upon the ultimate disposition of the assets acquired by McCurdy and credited to the outstanding notes (see finding 36), a loss of $21,732.68 was sustained, and the expenses of McCurdy as liquidating agent were $9,061.87, totaling $30,-794.55. A total of $91,574.30 was realized on the plant’s operation after acquisition of the stock by the War Depart*804ment, but was not credited to the notes. In correspondence of the Federal Reserve this is referred to as “net profit,” but the exact manner of its computation is not shown.
The above may be summarized as follows:
Net balance, or loss on purchase of Y-loan notes_$190, 625. 06
Less: Net income from operations after acquisition of stock (not credited)_$91,574.30
Less:
Loss on liquidation of assets-$21,732.68
Expenses of liquidating agent- 9,061.87 30,794.55
Net additional income not credited on notes- 60,779. 75
Net loss to War Department on purchase of notes and acquisition of Goshen Yeneer Company- 129,845.31
39. The plant and equipment was sold to Caswell-Runyan Co., on October 31,1944. In April 1944, with a view to establishing a valuation for ultimate disposition, the War Department had the properties owned by Goshen appraised. The appraisal was made by competent and experienced appraisers who found the fair cash market value of the properties to have been:
Land_ $6,910. 00
Improvements_ 21,090.00
Machinery and equipment_ 109, 253.00
137,253.00
40. In September 1944, the War Department directed that the properties be sold. Bids were solicited from some 14 or 15 possibly interested parties. Four parties were interested and submitted bids. The bids ranged from $100,000 to $127,500. The bid of Caswell-Runyan was $125,000 cash, which was finally accepted. The only higher bid was made by a representative of the former stockholders. That bid was for $127,500. The bid was a request for an option to buy at that price for which the offeror was to pay $5,000 down and $5,000 on November 30, and $5,000 on December 30,1944, *805with the option to be exercised before January 1,1945. The balance of the purchase price was to be paid over a three-year period with interest at 2% percent. The offer also included a provision to take over the inventory with an assignment of existing orders, for $10,000 additional.
41. The War Department after consideration of all the bids decided to accept that of Caswell-Kunyan Co. which was recommended to it by McCurdy and the liaison officer on duty with the Federal Eeserve Bank in Chicago, as well as the vice president of the Federal Beserve Bank.
On October 4, 1944, legislation was enacted (Surplus Property Act of 1944, 58 Stat. 765) which cast doubt as to whether the War Department was authorized to sell the property or whether the property should be declared surplus and turned over to the Beconstruction Finance Corporation as a designated agency for the disposal of surplus property.
The War Department submitted the matter to the Becon-struction Finance Corporation and the Chairman of the Board of that Corporation consented to the sale to the Caswell-Bunyan Co. by the War Department. The sale was consummated on November 6,1944.
42. Among the assets acquired at the foreclosure was a tract of timber land in Michigan. The War Department authorized its sale by auction on February 11, 1946.
In December 1944 the Federal Beserve had had this tract appraised by a competent timber appraiser who placed a realizable value of $5,000 upon it. On May 14 the auction was held and six actual bidders made a total of 31 bids, after which the final bid of $9,800 was accepted and the property was sold.
The disposition of the inventory to the extent that it was not used in the operations after the foreclosure is not shown.
43. Goshen’s participation in the Eegulation Y-loan arrangements with the Bank as referred to above was voluntary and was not the result of coercion or misrepresentations by agents of the War Department. The influence exerted on the management of the company by the Bank was pursuant to authorization given in the loan agreements and insistence *806upon the production of satisfactory financial statements, as required by the loan agreements, was not unreasonable. The transfer of the stock ownership was the result of a proposal by Goshen’s attorney and no coercion was exercised in that regard by the Federal Reserve.
44. It is not established that the Federal Reserve failed to exercise proper care in the operation and liquidation of the company after acquisition of the stock, nor that collections on accounts due Goshen were not at their fair value and credited to Goshen. The large claims of Goshen against G. & A. Aircraft and Bell Aircraft were collected at their fair value and credited to Goshen.
45. According to records in evidence (see finding 38) the net overall loss to the War Department on the guaranteed loans to Goshen was $129,845.31.
46. The financial difficulty of Goshen, which resulted in the depreciation of the value of the assets to the point indicated in the above findings, was the result of an overextension of operations and inadequate management of the financial affairs of the company. While the engineering and production aspect of the company was excellent, cost control and accounting methods were inadequate to meet the requirements of large cost-plus-fixed-fee contractual arrangements under which much of the expanded operation was carried on. These contracts necessitated detailed cost accounts to support charges for work done under them. When cancellations occurred, the lack of proper accounting records made collection of cancellation fees and contract prices for performance impossible without a reexamination and rebuilding of accounts. Another important factor was the deceleration of the wartime wooden aircraft program, in anticipation of which much of the overexpansion was undertaken, before amortization could be effected.

 This in indicated in the qualified nature of our findings in this respect. In the interest of perspective in this matter the following items from the record are noted: On September 4, 1951, plaintiffs filed a rather extensive motion for call on the Department of the Army with reference to the records of Goshen Veneer Company, which was subsequently denied by the court on September 21. .Government counsel stated that the records of Goshen, in defendant’s possession consisted of some 15,000' pounds of documents located in Kansas City, and on September 1®, 1951, prior to the denial of plaintiffs’ motion, in the hearing before the Commissioner, made an offer that plaintiffs could inspect all records of Goshen in Kansas City, Chicago or Washington.

 The “Regulation V-loan Program” was an arrangement whereby a producer of war materials could obtain money on a revolving credit basis from his local bank, and the Federal Reserve Bank, acting as fiscal agent for the War Department, guaranteed the loan. The actual servicing of the loan was done by the local bank.

 These are set oat in detail in finding 5.

 As quoted in H. Rept. 2946, 81st Cong. 2d session, the letter of July 29, 1942, stated:
“This letter will verify the conversation you had with Mr. Martin P. Levin, a representative of this Office concerning the availability of guaranteed commercial bank loans for working capital.
“Por the purposes of record, the points discussed by Mr. Levin are recapitulated.
“1. No contractor, regardless of size, need be hampered by lack of working capital.
“2. The process of obtaining a loan is quick and easy for qualified borrowers.
“3. Loans are made and paid at the borrower’s regular bank. The Government guarantees the loan.
“4. Normal credit requirements are not involved. Capitalization, present cash position, plant worth are secondary to the size and importance of the war contract, the capacity and ability of the borrower to perform under the contract.
“5. Loans are made for 2 to 5 years with a top interest rate of 5 percent.
“6. Such loans are quickly and easily obtained, sometimes within 72 hours.
“Peak production is essential now. Only by every producer, large and small, operating without any restriction of any kind, can the flow of production rise to meet the present urgent need.
“If you should desire to take advantage of this plan sometime in the future, a letter to the undersigned will be sufficient to have a fully qualified Army Air Force officer dispatched to your plant to assist in the operation of this financing plan.”
Plaintiffs contended that the conversation with Mr. Levin which this letter confirmed took place prior to the negotiation of the May 22, 1942, loan. This was based on the testimony of Mr. J. J. Snoke who also stated that the visit of 2d Lt. Dilley was prior to the first loan agreement. This error was later corrected as the hearing of the case proceeded.

 50 U. S. C. § 309 (1946 eel.)-. ¡This statute empowered the President to seize industries vital to war production under certain circumstances and also provided for penalizing officers of such an industry if cooperation with the Government was refused.

 According to the records in evidence, the net worth of the company on June 30. 1943, was $78,223.07.

 See finding 34 for qualifications of accounting records.

 Mr. L. P. J. Croop, who died prior to the trial of the case.

 Mr. Van Antwerp, who represented the Bank in connection with the V-loans to Goshen, died prior to the trial of this case.

 Mr. Rausch died prior to the trial of this case.

 Mr. Olds died prior to the trial of this case.

 Mr. Folger was a member of SJH. He died prior to tbe trial of this case.

 Mr. R. B. Agler, who died before the trial of this ease.