Case: PENN-OHIO STEEL CORPORATION v. THE UNITED STATES
Abbreviation: Penn-Ohio Steel Corp. v. United States
Decision Date: 1965-12-17
Docket Number: No. 396-59
Citation: 173 Ct. Cl. 1064
Volume: 173
Reporter: United States Court of Claims Reports
Court: United States Court of Claims
Jurisdiction: United States
Parties: PENN-OHIO STEEL CORPORATION v. THE UNITED STATES
Judges: Before Cowen, Chief Judge, Laramore, Durfee, Davis and ColliNS, Judges.
Pages: 1064–1169

Head Matter:
354 F. 2d 254
PENN-OHIO STEEL CORPORATION v. THE UNITED STATES
[No. 396-59.
Decided December 17, 1965]
David Brady, attorney of record for plaintiff. Olendon H. Lee and O' Connor & Farber of counsel.
Howard 0. Sigmond, with whom was Assistant Attorney General Bdwim, L. Weisl, Jr., for defendant.
Before Cowen, Chief Judge, Laramore, Durfee, Davis and ColliNS, Judges.
The Military Leasing Act of 1947 (61 Stat. 774, 34 U.S.C. (1946 ed. Supp. I § 522a) authorized the Secretary of the Navy to lease real property. Other statutory provisions required the instant lease of real property to be submitted to the Armed Services Committees of Congress for approval. 58 Stat. 189, 65 Stat. 365, 40 U.S.C. (1952 ed.) §§ 551-54. However, it was the Navy’s position and accepted practice that an amendment to an existing lease (as distinguished from an initial lease) did not have to be thus submitted for approval. By regulation the Secretary delegated his authority to approve real property leases to the Office of the Assistant Secretary, Material Division; he also (1) vested in the technical Bureau having cognizance of the facility and BuDocks joint responsibility for negotiating leases, subject to Secretarial approval; and (2) vested in BuDocks responsibility for the preparation, execution and administration of leases. See Navy Department Property Redistribution and Disposal Regulation No. 2, November 1, 1946, as amended April 9, 1948. This regulation was reissued on June 3, 1953, and vested in the Secretary initial approval authority and approval authority with respect to substantial lease amendments and renewals, including lessee options to renew.

Opinion:
Per Curiam:
This case was referred pursuant to Rule 45(a) (now Rule 57(a)) to Trial Commissioner Herbert N. Maletz, with directions to make findings of fact and recommendation for conclusions of law. The commissioner has done so in an opinion and report filed on September 28, 1964. Exceptions to the opinion, the recommendation for conclusion of law and certain of the findings of fact were made by the parties and, upon the filing of their briefs, the case has been submitted to the court upon oral argument of counsel. The court agrees with the commissioner's findings, his opinion, and his recommended conclusion of law, as hereinafter set forth, and hereby adopts the same as the basis for its judgment in this case. Plaintiff is therefore entitled to recover for the period November 15,1953, to October 19,1954, with the amount of recovery to be determined pursuant to Rule 47 (c) (2) and judgment is entered accordingly.
OPINION OF COMMISSIONER
Plaintiff, Penn-Ohio Steel Corporation (Penn-Ohio), was the lessee of a Naval Industrial Reserve Plant at Birdsboro, Pennsylvania, where it engaged in the production of steel ingots and various steel products. It alleges, in essence, that in January 1952 it entered into a special or so-called "reverter agreement" of compromise and settlement with the Navy under which, among other things, (1) it was to vacate the plant within a specified time so as to permit the plant's use in connection with the Army tank program; (2) its lease was to be suspended during this period of special use; and (3) the Navy was to afford it the right to re-occupy the plant upon completion of such special use. Penn-Ohio says that it performed all its undertakings but that the Navy breached the agreement by failing and refusing to permit it to re-enter the plant when the period of special use for the tank program came to an end. It also says that the action of the Secretary of the Navy in terminating the lease some months later was not bona fide but was arbitrary and capricious. Damages of "upwards of $3,500,000" are sought for the alleged contract breaches. Defendant contends'that no such agreement as claimed by plaintiff was ever made by the parties. It further alleges that Penn-Ohio's tenancy expired because it failed to give notice of exercise of its renewal option. Finally, defendant argues that, in any event, the Secretary of the Navy canceled the lease pursuant to lawful authority reserved to him by statute and by the lease; that he did so in good faith and that his action was not arbitrary or capricious; and that his action, in any case, is not open to judicial review.
I
The facts underlying the present controversy are, as follows: During World War II the Navy's Bureau of Ships (BuShips) constructed at a cost of about $7,500,000 a plant at Birdsboro, Pennsylvania (hereafter referred to as "the Birdsboro plant") for producing steel ship castings. The plant was operated in the wartime period by the Birdsboro Steel Foundry & Machine Company (hereafter referred to as "the Birdsboro company") under a lease in the form of a facilities contract which provided it an option to purchase the plant and required it to maintain the facilities at Government expense for 20 years. After the end of the war, the Navy was unsuccessful in selling or leasing the plant at adequate rental to the Birdsboro company and, therefore, terminated the latter's right to use the plant and advertised it for lease. Penn-Ohio was the successful bidder and entered into a lease in the form of a letter of intent with the Navy's Bureau of Yards and Docks (BuDocks) under terms and conditions approved by the Acting Secretary of the Navy. The letter of intent provided for a five-year term from June 30, 1948 to June 29, 1953, with. Penn-Ohio having the option to extend the term of the lease for two additional successive terms of five years each under the same terms and conditions, by giving notice of election to extend 120 days prior to the expiration of the then existing term. The letter of intent further provided that the lease could be terminated without prior notice during a national emergency or upon 120 days notice if the Secretary determined that the interests of national defense so required. Penn-Ohio was required to pay a cash rental of $126,600 per year, and also to expend not to exceed $150,000 a year for maintenance as directed by the Navy, with the difference between the actual expenditure for directed maintenance and $150,000 per year to be carried forward from year to year. In the event of termination or expiration of the lease, the Navy had the right to direct fulfillment of the amount reserved for accrued maintenance either by performance of maintenance or by payment of cash. In addition, the Navy had the right to re-determine at any time the allocation of the amount to be paid in cash rent and the amount to be expended for obligated maintenance, not to exceed Penn-Ohio's obligation to pay $276,600 per year, plus accrued maintenance for previous years. The letter of intent also contained a provision that the parties understood it would be superseded by a formal lease.
During the first several years of its occupancy of the plant, Penn-Ohio had difficulty in meeting its rental obligations, a situation which did not, however, continue after 1950. The company was regarded by the Navy as a satisfactory tenant with a good record of producing steel ingots at the plant. Withal, BuShips planned in the event of mobilization to terminate Penn-Ohio's occupancy and place the Birdsboro company in possession of the plant though it purposely refrained from telling Penn-Ohio of these plans so as to prevent the possibility of losing it as a tenant during normal peace-time operations.
After the start of the Korean war, foundry capacity for producing armor cast hulls and turrets for tanks was in seriously short supply. Army Ordnance determined that the Birdsboro plant was necessary for this production; it also determined that the plant should be operated by the Birdsboro company which would manufacture the hulls and turrets under a subcontract with the Chrysler Corporation and ship these components into the geographically close Newark, Delaware tank assembly plant where Chrysler was to make medium tanks for the Army. In June 1951 the Assistant Secretary of the Navy, pursuant to Army requests, authorized (i) termination of the Penn-Ohio lease and (ii) negotiations looking toward a lease of the facilities to the Birdsboro company.
Penn-Ohio was not made aware of this decision by the Navy but in late October 1951 was told by Army Ordnance that a determination had been made that it was to be evicted from the plant to make way for the Birdsboro company. Penn-Ohio strongly protested this proposed action to a number of Government officials and agencies. Eventually, it met with Army officials in mid-November and reached agreement (1) that it would be given two weeks to submit three alternative proposals to Chrysler whereby it rather than the Birdsboro company would manufacture the armor castings at the plant, and (2) that if its proposals were not acceptable, a phasing-out schedule of its activities at the Birdsboro plant would be concluded to the parties' mutual satisfaction.
In. early December 1951, the Under Secretary of the Army, after reviewing a proposal submitted by Penn-Ohio, advised it that the contract for the operation of the Birdsboro plant must be awarded to the Birdsboro company in view of the latter's trained supervisory personnel and experience and know-how in the steel casting field. Penn-Ohio then requested and was granted additional time to submit a second proposal for manufacturing tank castings at the Birdsboro plant in conjunction with another company which was an established producer in the steel foundry field. Penn-Ohio's second proposal, as well as supplementary information submitted by the Birdsboro company, were evaluated by a civilian advisory committee of foundry experts and by Chrysler, both of whom recommended that the Army select the Birds-boro company to operate the plant. Army Ordnance and the Under Secretary of the Army concurred and on December 21,1951 the latter wrote the Assistant Secretary of the Navy advising that he had determined that the Birdsboro plant should be operated by the Birdsboro company to manufacture armor castings and requesting the Navy to terminate the Penn-Ohio lease and execute a new .lease with the Birdsboro company. The Army (he said) was agreeable to termination of the lease on 120 days notice provided Penn-Ohio allowed limited entry rights during this period to the Army and the Birdsboro company; if it did not, he recommended that its lease be terminated under the national emergency clause (which did not require prior notice).
A few days later Penn-Ohio submitted a proposal to the -Navy under which it would sublease the plant to the Birds-boro company for the duration of the Army tank program, following which it would resume occupancy. Penn-Ohio and Navy representatives met on December 29, 1951 to discuss the proposal, with the latter indicating that while they would give it further consideration, they thought it preferable to suspend Penn-Ohio's rights under the lease during the period of special use by the Birdsboro company. They also pointed out that phasing out of Penn-Ohio's right to use was a matter to be determined among the Army, Penn-Ohio and the Birds-boro company.
After this meeting the Assistant Secretary of the Navy informed the Under Secretary of the Army about Penn-Ohio's proposal to sublease the plant to the Birdsboro company and indicated that he had instructed BuShips to pursue this suggestion on the basis that he was reluctant to terminate the Penn-Ohio lease if there were some other way of achieving the Army objective, since such termination might force Penn-Ohio out of business. The time spent in negotiating such sublease (he wrote) would be well spent for if successfully concluded, the Birdsboro company might get possession of the plant much sooner than if Penn-Ohio's lease were terminated, in which case (he stated) it would be entitled to four months' notice.
In this setting, a meeting of BuDocks, BuShips and Penn-Ohio was scheduled for January 8,1952. Immediately prior thereto, BuDocks and BuShips representatives conferred preliminarily and concluded that- in lieu of termination, Penn-Ohio should have a right to continue the lease. They then met with Penn-Ohio representatives and reached agreement that the following tentative steps would be taken: (1) BuDocks would take the necessary steps to convert the Penn-Ohio letter of intent into a formal lease; (2) Penn-Ohio would submit in writing, for transmittal to the Army, a plan for making space available as soon as possible; (3) BuDocks would prepare a supplemental agreement giving Penn-Ohio the right to "re-lease" the Birdsboro plant a reasonable time after expiration or termination of the Birdsboro company lease, provided such event occurred within the full term of the original lease agreement, which supplemental agreement would provide for a renegotiation of the rental terms at such time as the plant could be made available to Penn-Ohio if there were then any changes in circumstances justifying a renegotiation (i.e., Penn-Ohio's occupying more or less space than it occupied under the original lease); (4) BuDocks would take steps to adjust the rent payable as space was given up. It was also agreed at the meeting that Penn-Ohio would give up its right to "re-lease" the plant if another suitable plant was made available; and submit to BuDocks a schedule indicating the method by which it would pay for accrued maintenance.
On January 9, 1952, the counsel of BuShips, acting pursuant to specific oral authorization by the Assistant Secretary, discussed the matter telephonically with Penn-Ohio's counsel and reached the following agreement: (1) In lieu of terminating the Penn-Ohio lease, the right of Penn-Ohio to occupy the plant would be suspended for the period that the plant was required by the Birdsboro company for the manufacture of armor' castings for the Army tank program; (2) upon completion of the Birdsboro company's use of the plant for that purpose, Penn-Ohio would have an option to return to the plant for the then remaining period of the original Penn-Ohio lease; (3) Penn-Ohio would give the Birdsboro company immediate access to part of the plant and make the balance of the plant progressively available; (4) Penn-Ohio would be allowed to use the steel-making facilities of the plant as long as possible without interfering with the Army's program; (5) Penn-Ohio would vacate the plant not later than April 28, 1952, unless the Army consented otherwise; (6) BuDocks would draft a detailed modification of the lease to give effect to the foregoing.
On January 11,1952, counsel for BuShips sent a letter (the substance of which had been approved orally by the Assistant Secretary) to Penn-Ohio's counsel confirming the agreement the two had reached telephonically. (The letter is set forth in finding 44.)
At this juncture, as a result of the January 9 conversation between counsel for the parties, coupled with the meeting of January 8, the Navy and Penn-Ohio reached the following agreement (hereafter referred to as "the January 11, 1952 agreement"): (1) the Penn-Ohio letter of intent would be converted into a formal lease agreement; (2) in lieu of termination of its lease, Penn-Ohio's right to occupy the plant would be suspended for the period that the plant was required for the manufacture of armor castings for the Army tank program; (3) upon completion of the Birdsboro company's use of the plant for that purpose, the Navy would make the plant available to Penn-Ohio and Penn-Ohio would have the option to resume its lease and return to the plant for the then remaining term of the lease; (4) should there, however, at the time the plant was made available to Penn-Ohio, be a change in circumstances justifying renegotiation (i.e., Penn-Ohio's occupying more or less space than it originally occupied) the rental would be then renegotiated accordingly; (5) except for the foregoing modifications, the terns and conditions in the event Penn-Ohio exercised its option to resume the lease would be those specified in the original lease; (6) Penn-Ohio would waive its option to resume the lease of the plant if another plant suitable and acceptable to it was made available; (7) Penn-Ohio would give the Birdsboro company immediate access to part of the plant and progressively make the balance of the plant available; (8) Penn-Ohio would be permitted to use the steel-making facilities of the plant as long as possible without interfering with the Army's program; (9) Penn-Ohio would vacate the entire Birdsboro plant not later than April 28, 1952, unless the Army consented to further use; (10) BuDocks would adjust the rent payable by Penn-Ohio as the latter gave up space in the plant to make way for the Birdsboro company; (11) Penn-Ohio would send BuDocks a schedule for payment of accrued maintenance; (12) BuDocks was currently drafting a detailed modification of the original Penn-Ohio lease to give effect to the foregoing and was to forward it to Penn-Ohio at an early date.
This agreement of January 11,1952 was made with the full knowledge, oral approval and concurrence of the Assistant Secretary of the Navy and the Under Secretary of the Army. Furthermore, although the BuShips counsel, who had concluded the agreement, contemplated that its formal terms and conditions would be submitted to the Assistant Secretary for formal approval, the latter had, in effect, assured the BuShips counsel that he would approve such terms when submitted to him if they were in accordance with the agree ment, and that such approval would be merely fro forma.
On January 16, 1952, Penn-Ohio's counsel wrote the contracting officer for BuDocks enclosing a sketch of some 100,000 square feet of the plant which he indicated Penn-Ohio was prepared to release immediately; also, he requested a copy of the memorandum of the January 8,1952 meeting. On January 17, 1952 BuShips wrote Penn-Ohio's counsel a letter (which is reproduced in finding 50) incorporating the concluding parts of a memorandum prepared by a BuShips representative setting forth the latter's version of the January 8 conference.
In reply to this communication, counsel for Penn-Ohio, on January 23,1952, sent a letter to the contracting officer of BuDocks setting forth his version of agreements reached between the parties at the January 8 conference. With respect to the terms of the suspension agreement, this letter (which is quoted in finding 51) constituted, in effect, a modification of the J anuary 11,1952 agreement in three respects: first, according to the J anuary 23 letter the facilities were to be transferred to the Birdsboro company for the manufacture of armor castings required by the tank program "and for no other purpose", while the J anuary 11 agreement did not include such restriction; second, the letter specified that the transfer contemplated a lease to the Birdsboro company for a period of two years with an option to renew for two years, which restriction was not included in the January 11 agreement; third, the letter stated that the period of occupancy by the Birdsboro company was to be added on to the term of the Penn-Ohio lease, whereas under the January 11 agreement, Penn-Ohio was given an option to return to the plant for the then remaining term of its original lease.
Penn-Ohio's letter of January 23 did not, however, represent a unilateral effort on its part to modify the agreement of January 11. For the day before sending the letter, Penn-Ohio's counsel read it over the telephone to the contracting officer of BuDocks (who had been present at the January 8 conference); the latter said he agreed with its contents but suggested it be sent to BuShips. Thereupon Penn-Ohio's counsel telephoned BuShips, was referred to an assistant counsel of that Bureau (who had also attended the January 8 conference), and read the proposed letter to him. The BuShips attorney likewise stated he agreed with it and that it was correct, .but that since BuDocks was in charge of the lease, the letter should be sent to that Bureau, with a copy to BuShips. But despite the fact that the BuDocks contracting officer had thus orally agreed to the modification contained in this letter (hereafter referred to as "the January 23,1952 modification"), he did not at any time thereafter submit such modification to the Secretary or Assistant Secretary for approval. Nor was Secretarial approval therefor ever granted as would seem required by Navy regulations.
In this context, the contracting officer of BuDocks wrote Penn-Ohio on January 28, 1952 requesting immediate surrender of 100,000 square feet of space at the plant and surrender of the remaining space by April 28. His letter (which before sending he had read over the telephone to Penn-Ohio's counsel and received no objection) further stated that "In consideration of the surrender of this space at these times, the Department will negotiate a special agreement with you, in accordance with the terms agreed upon at the conference of January 8,1952, which will suspend the operation of the lease during the period of special use." The letter concluded with the statement that "The final terms of the special agreement are, of course, subject to the approval of the Secretary."
Penn-Ohio performed its commitments to the Navy in good faith and in conformity with both the January 11,1952 agreement and the January 23, 1952 modification. Thus it granted immediate access to the plant; surrendered some 100,000 square feet of space; and on April 28, 1952 surrendered the remainder of the premises. In May 1952 it executed a formal lease with the Navy which superseded the letter of intent and contained the same terms and conditions except that the term under the formal lease began on July 8, 1948, while the term under the letter of intent ran from June 80,1948.
Meanwhile, on April 29, 1952, BuShips (after having obtained approval therefor from the Assistant Secretary) entered into a lease-contract with the Birdsboro company superseding the old lease with that company. • The lease recited in its preamble that "it has been determined that the use of the facilities by Penn-Ohio under the lease with the Department be suspended during the period of use [by the Birdsboro company] ." Among other things, the lease required an annual rental of $474,000 and afforded the Secretary the right to terminate on 60 days notice in the event he determined the plant was not required for production in connection with the tank program. The -term under the lease was for two years with three options of renewal for two years each; also the Birdsboro company had the right to use the facilities in the performance of work not only for the Government but for others as well.
As of May 1952 there remained for completion as between Penn-Ohio and the Navy (1) formal execution of the "reverter agreement", and (2) payment of accrued maintenance. In May 1952 Penn-Ohio submitted a schedule proposing an immediate payment of $50,000, with the balance to be paid in three yearly installments. BuDocks replied in August 1952 that this proposal for maintenance was unacceptable. Penn-Ohio representatives then met with Bu-Docks and BuShips representatives in the latter part of that month to discuss the two outstanding matters and protested the delay in formal execution of the "reverter agreement". At this point the assistant to the contracting officer of BuDocks commented that it could well be that the Navy would not be in a position to go through with the "reverter agreement" because it had put it beyond its power to keep it. He said that Penn-Ohio would find out what he was talking about when it got a copy of the Birdsboro company lease.
In the following month (September 1952), the BuDocks contracting officer demanded that Penn-Ohio pay $292,000 for maintenance — which Penn-Ohio claimed was substantially in excess of its obligation. Another meeting was then held on December 4, 1952 between Penn-Ohio, BuShips and BuDocks representatives, at which Penn-Ohio contended it owed some $210,000 which it proposed to satisfy by paying $50,000 immediately and the balance in three annual installments. BuDocks asked that this proposal be put in writing and indicated it would be given further consideration. As to the "reverter agreement", Penn-Ohio's counsel said (1) the company should have re-entry rights at the end of the two-year lease to the Birdsboro company or an extension of an additional two years, or at any time prior to the termination of the Birdsboro company's lease if that company was not using the plant to make castings for the tank program, and (2) that the period of time Penn-Ohio was out of the plant should be added on to the term of Penn-Ohio. He contended this was his understanding of the January 8 conference and that the BuDocks contracting officer and a BuShips representative had agreed with his interpretation which he then put in his letter of January 23. BuShips representatives said that this interpretation was not in accordance with their understanding and was contrary to the minutes of the January 8 conference; the letter of January 11 from the BuShips counsel to Penn-Ohio; the BuShips letter of January 17 to Penn-Ohio; and the contracting officer's letter of January 28 to Penn-Ohio. In conclusion, the Navy representatives told Penn-Ohio they would study the matter further and advise Penn-Ohio of their decision. Some three months later, Penn-Ohio's counsel wrote BuDocks on March 18, 1952 complaining that it had heard nothing from the Navy since December about formal execution of the "reverter agreement" or about Penn-Ohio's proposal concerning payment of accrued maintenance; and that if BuDocks thought a further conference was desirable, he was prepared to meet on short notice.
In the meantime, the Navy had been informed by .the Army (in April 1952) that the latter might expend some $32,000,000 in rehabilitating and expanding the Birdsboro plant, rather than $10,000,000 as originally estimated. Also, beginning in the first part of March 1953 the Army began to evidence renewed interest in having the plant transferred to its jurisdiction mainly to obviate the rental of $474,000 a year paid by the Birdsboro company to the Navy, which was an increased cost to the Army in its procurement of castings.
With this as background, BuDocks wrote BuShips on May 1, 1953 recommending termination of the Penn-Ohio lease in the interests of national defense (rather than amending it to grant re-entry rights) on the ground that the Army was in the process of expending an additional $32,000,000 on the Birdsboro plant, which (BuDocks wrote) was not known at the time approvals were obtained [in January 1952] to amend the Penn-Ohio lease. This recommendation of Bu-Docks met with strong protests by several BuShips repre sentatives, particularly on the part of the BuShips counsel who had concluded the January 11, 1952 agreement with Penn-Ohio. Thus he wrote in an inter-office memorandum that "We made this complicated arrangement with our eyes wide open — and with the full knowledge and approval of the Asst. Sec. Nav. and Under Sec. Army"; that "we should not repudiate it now in the absence of compelling reasons to do so"; that he couldn't "conceive of any good reason why the Navy should go out of its way — as this appears to do — on its own motion to defeat our deal." A meeting between representatives of the two Bureaus was then held in which the participants concluded that BuDocks should offer Penn-Ohio a right of entry "as originally agreed" (which the latter Burean did not feel Penn-Ohio would accept) , '
Following this, the contracting officer of BuDocks wrote Penn-Ohio in the latter part of July 1958 stating the Bureau was prepared to request the Secretary- to approve an amendment to the Penn-Ohio lease (1) requiring payment by it of $209,000 for accrued maintenance, and (2) providing Penn-Ohio with what was in effect an option to negotiate with the Navy for the then remaining term of its lease after expiration or termination of the Birdsboro company lease. In this last respect the BuDocks proposal was a variance from the January 11,1952 agreement which gave Penn-Ohio, upon completion of the Birdsboro company's use of the plant for the manufacture of armor castings for the Army tank program, not an option to negotiate but rather an option to resume and re-occupy the plant for the then remaining period of its lease on the terms and conditions specified in the lease, subject to the proviso that should there be, at the time the plant was made available to Penn-Ohio, a change in circumstances justifying renegotiation (i.e., Penn-Ohio's occupying more or less space than it originally occupied) the rental would then be renegotiated accordingly. The BuDocks proposal was also at variance with the January 23, 1952 modification which specified that the period of occupancy by the Birdsboro company was to be added on to the end of the term of Penn-Ohio.
Penn-Ohio replied to the BuDocks proposal in August 1953, stating it was assured in January 1952 that the formal reverter agreement would be promptly prepared and executed; that as yet, almost two years later, such agreement had not been prepared for execution; that the BuDocks amendment proposed a new and different agreement from that originally agreed to almost two years ago; and that in light of the record the proposal seemed almost incredible since it was not even a modification or variation of the original agreement, but proposed an entirely new and different agreement. In the circumstances, Penn-Ohio suggested a conference with all parties to conclude a definitive and overall agreement. This letter of Penn-Ohio to BuDocks was never acknowledged or answered.
In September 1953 the Birdsboro company's contract for the manufacture of armor castings for the tank program was terminated and the production thereof was completed on November 15, 1953. At no time thereafter did the Navy make the Birdsboro plant or any other suitable plant available to Penn-Ohio; nor did it allow Penn-Ohio to resume occupancy of the Birdsboro plant which it would have done had it been permitted to exercise its option.
During the phasing out of the Birdsboro plant for manufacture of tank castings, the Army and Navy discussed at length what disposition should be made of the plant and of Penn-Ohio's re-entry rights therein. In September 1958 the Assistant Secretary of the Army repeated his request that the Navy transfer the plant to the Army because of the Army's expenditure thereon and because of its desire to eliminate the annual rental obligation of $474,000. In the following months BuDocks again requested BuShips to ask for Secretarial approval to terminate Penn-Ohio's lease for the reasons it had previously indicated. In November 1953 the Assistant Secretary of the Army notified the Navy that the last hull at the Birdsboro plant would be shipped out about November 15 and requested that the Birdsboro company lease be amended to terminate payment of rental at that date so that a substantial saving could be effected in the remaining time required for transferring the plant to Army. The Assistant Secretary of the Navy replied in December that termination of the Birdsboro company's right of occupancy would raise a question as to Penn-Ohio's re-entry rights and that termination of the Birdsboro company's rights should be held in abeyance until the latter matter was clarified. He said he understood the Army had initiated a memorandum to the Navy requesting Penn-Ohio's rights be terminated and indicated that when that request was received, the matter would be processed for final determination. A meeting was then held in early January 1954 to discuss such proposed letter from the Army to the Navy. At that meeting a BuShips representative said the Navy was quite willing to terminate Penn-Ohio's rights; he also emphasized that the Navy would not entertain a solution suggested by an Army representative that the plant be transferred with Penn-Ohio's rights still in effect, on the basis that the Navy should resolve its own problems. At the conclusion of the meeting, a BuShips attorney suggested that the Army's letter to the Navy should specifically state that termination of Penn-Ohio's rights was in the interests of national defense, and that this would make it easier for the Navy to terminate the lease agreement. On January 11,1954 the Assistant Secretary of the Army wrote the Secretary of the Navy asking that action be taken to void any existing agreements so that the Army might assume custody of the Birdsboro plant without encumbrances.
The reason for the Army request in this regard was related to Army mobilization planning with respect to armoi castings for medium tanks. After the Korean war and continuing until 1956 facilities capable of producing such castings in the event of mobilization were in seriously short supply. To meet such needs, Army Ordnance had developed in 1952 and 1953 a "layaway" plan under which Government-owned plants and equipment would be placed on a "standby status" available for reactivation on short notice, and contractors who had last operated the plants would be engaged and given major responsibility for maintaining the plant facilities and reactivating production therein within specified time limits. In this context, Army Ordnance determined in the latter part of 1953 (1) to place the Birdsboro plant on a stand-by basis available for reactivation on 120 days notice to supply armor castings to the Chrysler tank assembly plant at Newark, Delaware; (2) to store at the Birds-boro plant the Government-owned equipment that had been furnished to Chrysler subcontractors (after having concluded that such storage would not interfere with the layaway and reactivation of the Birdsboro plant); and (3) to select the Birdsboro company as the mobilization producer. In March 1954, the Birdsboro company, pursuant to Army authorization, started the layaway of the Birdsboro plant and completed it in September 1954 under a contract entered into with the Army in May 1954 requiring it to maintain the facilities in such condition that they would be reactivated for production within 120 days after notification.
In the interim, the Navy in April 1954 terminated the Birdsboro company right to use the plant, indicating it would not object to the company's making appropriate arrangements with the Army regarding use, maintenance and protection of the facilities. Also in the same month, the Navy transferred the plant to the Army. On June 21, 1954, the Secretary of the Navy wrote Penn-Ohio that he considered that its lease had expired because of its failure to give notice of its election, to renew for an additional five-year term and that to the extent that Penn-Ohio might be considered to have any right to re-enter the Birdsboro plant, the lease was "hereby" terminated in the interests of national defense effective 120 days from the receipt of the letter, i.e., on October 19, 1954.
II
The first task in this factual setting is to determine whether there was a meeting of the minds, and if so, whether it was objectively manifested and sufficiently definite so that the major terms and conditions are reasonably capable of ascertainment. For "[a] court cannot enforce a contract unless it can determine what it is. It is not enough that the parties think that they have made a contract; they must have expressed their intention in a manner that is capable of understanding." 1 Corbin, Contracts (1951) § 107. With regard to these questions, which are essentially factual, the record shows that the January 8 conference — considered in isolation — may not have resulted in mutual assent with respect to-the. terms of the "reverter" amendment to the Penn-Ohio lease and to the time for the company's surrender of the plant to the Army. But it is unnecessary to reach that question since the record establishes that as a result of the conversation the next day between counsel for the parties, coupled with the previous day's understandings, the parties reached the so-called agreement of January 11 covering the major matters in issue. That agreement, it seems apparent, specified with ample certainty the consensual elements necessary to constitute a contract. Thus it contained mutual assent to such things as: the time for surrender of the plant by Penn-Ohio; suspension of its lease in lieu of termination; the period during which the suspension would be in effect; when Penn-Ohio would have the option to re-occupy the plant; the duration of the remaining term of Penn-Ohio in the event of re-occupancy; and the terms and conditions for re-occupancy, including the rent payable should it occupy the same space as heretofore (which terms and conditions were to be those specified in the original lease).
Nor did the parties contemplate when the January 11 agreement was effected that they would undertake further negotiations before a binding agreement was effected; to the contrary, they intended to be bound by the commitments they had then made. As the BuShips counsel who had effected the arrangement on behalf of the Navy pointed out, "the department had cut a deal in this particular instance It is quite true that the parties contemplated, in addition,- execution of a formal instrument embodying the agreement'that had been made. But the fact that such an instrument was never executed was not essential to .the consummation of the agreement. United States v. Purcell Envelope Co., 249 U.S. 313, 319 (1919). See also e.g., Ship Construction Co. v. United States, 91 Ct. Cl. 419, 456 (1940), cert. den. 312 U.S. 699 (1941); Escote Mfg. Co. v. United States, 144 Ct. Cl. 452, 459, 169 F. Supp. 483, 489 (1959); North American Iron & Steel Co. v. United States, 130 F. Supp. 723, 724 (E.D.N.Y., 1955), and cases there cited.
A basic additional question is whether the January 11 agreement was approved on behalf of the Government by a duly-authorized officer, since to bind the Government, the officer purporting to act on its behalf must have actual authority to do so. See e.g., Federal Crop Ins. Co. v. Merrill, 332 U.S. 380, 384 (1947); The Floyd Acceptances, 74 U.S. (7 Wall.) 666 (1868). As to this, the record demonstrates that the Assistant Secretary of the Navy, who was authorized to approve the January 11 agreement, had been apprised of all its essential elements and granted his oral approval thereto, subject only to his later pro forma approval of its formal terms and conditions. See Carrier Corp. v. United States, 164 Ct. Cl. 666, 682-83, 328 F. 2d 328, 337 (1964). To say that no binding agreement came into existence until he granted such pro forma approval and a formal document was executed "would exalt form over substance and make a nullity of the Purcell Envelope doctrine." Barclay and Barclay v. United States, 166 Ct. Cl. 421, 333 F. 2d 847, 857 (1964).
While the January 11 agreement was thus authorized at the Secretarial level, the same was not true of the January 23 modification. It is quite correct that the contracting officer approved the modification, but not only did he lack authority to enter into a binding commitment on behalf of the Navy, he had made it clear to Penn-Ohio that Secretarial approval was essential. Nor can the contracting officer's failure thereafter to submit the modification to the Secretary serve to commit the Navy. The crucial factor is that Secretarial approval was not in fact granted, and this necessarily constitutes a fatal bar to enforcement of the modification. See Kilmer Village Corp. v. United States, 139 Ct. Cl. 231, 235, 153 F. Supp. 393, 396 (1957); Congress Construction Corp. v. United States, 161 Ct. Cl. 50, 53-4, 314 F. 2d 527, 529-30 (1963), cert. den. 375 U.S. 817.
A further question is whether there was consideration for the agreement of January 11, 1952. Penn-Ohio says that the agreement was a settlement and compromise between the parties. It argues, too, that it surrendered and delivered immediate possession of a large part of the plant and that the Army and the Birdsboro company got possession much sooner than if the Navy terminated Penn-Ohio's lease. Defendant argues, on the other hand, that under the national emergency clause of the lease, Penn-Ohio was a tenant at will, legally obligated immediately to give up its possession of the plant and its leasehold interest on a moment's notice, and that it was neither giving up anything of value nor benefitting the Government by granting access, since the Navy had the right to immediate possession.
Relevant in this connection is the state of affairs prior to the January 11 agreement. At that juncture the Army had an urgent need to obtain possession of the plant at the earliest possible time so as to make necessary adaptations therein for the manufacture of tank castings. It was in this setting that Penn-Ohio — in the course of its efforts to be selected by the Army as the operator of the plant for this purpose — gave the Army clear indication that it might sue to enjoin its eviction of the plant by the Navy to make way for the Birds-boro company. Eventually Penn-Ohio agreed with the Army that in case its proposals to operate the plant were not found acceptable, it would conclude a phasing-out schedule of its activities at the plant to the parties' mutual satisfaction. Nevertheless, the Chief of the Army Procurement Division regarded possible litigation by Penn-Ohio to enjoin its ouster as potentially dangerous from the Army's standpoint since it might freeze the use of the plant during an extended period. As he noted, not only was a.subcbntractor other than a Government prime contractor to be placed in possession of the plant, there had yet to be a test case of a national emergency clause eviction in the "gray area of Korean crisis." While the Army Judge Advocate General was of the opinion that Penn-Ohio would be unable to enjoin the Navy's termination of its lease, it would be overlooking reality to assume from this that the operating Army officials were not concerned thereafter about the effect such litigation might have on the Army's need for expeditious possession of the plant. Nor is there anything in the record to indicate, or is it reasonable to conclude, that Penn-Ohio had abandoned the possibility of litigation to enjoin its eviction from the plant so as to make way for the Birdsboro company, particularly if it were unable to reach agreement with the Army on a satisfactory schedule for the phasing out of its activities at the plant. Viewed from this standpoint, the reasonable inference is that the January 11 agreement represented, in effect, a com promise between the parties, thus obviating litigation and insuring the Army's obtaining early possession of the plant. Such litigation, it appears, could have delayed for some time Penn-Ohio.'s ouster from the plant since the action might well have involved' novel legal issues and possibly required judicial evaluation of the comparative merits of the Penn-Ohio and Birdsboro company proposals in order to determine whether the Army's selection of the latter as the operator of the plant was justified. The compromise, however, effectively extinguished Penn-Ohio's basis for suit (which obviously would have been bona fide given the circumstances present here), and thus constituted adequate consideration for the Navy promise to suspend rather than terminate its lease. For it is settled law that a compromise "is supported by sufficient consideration when there is a bona fide claim which is disputed or doubtful, the real consideration to each party being not the sacrifice of the right but the settlement of the dispute." 1 Williston, Contracts (3d Ed.) § 128, fn. 18, and cases there cited. See also Satterlee v. United States, 30 Ct. Cl. 31, 53 (1895); The Aviation Co. v. United States, 97 Ct. Cl. 550, 574, 46 F. Supp. 491 (1942), cert. den. 318 U.S. 771 (1943). See also Goltra v. United States, 119 Ct. Cl. 217, 255, 96 F. Supp. 618, 625-26 (1951).
Also bearing on the question of legal consideration is the national emergency clause of the lease which specified that the lease could be terminated without prior notice during a national emergency. The clause did not, however, provide, in addition, that the lessee could be required to' vacate immediately. In the absence of such provision, it would seem that while termination of the lease would become effective on notice, the lessee would have a reasonable time thereafter to move out, especially when it is considered that Government-plant lessees (such as the one here) ordinarily have moved a substantial amount of heavy equipment into the plant at the outset of the lease. To impose on such lessees the obligation to remove such equipment from the plant and vacate the premises immediately on notice would seem an unduly harsh result, neither required by the language of the lease or by modern property law. For in analogous situations the courts have held that a tenant at will is not required to vacate immediately on notice but is entitled to a reasonable time thereafter to enable him to remove his property and equipment from the premises. See Jones v. Temple, 87 Va. 210, 12 SE 404 (1890); Rutledge v. White, 206 Ala. 829, 89 So. 599 (1921); Najewitz v. Seattle, 21 Wash. (2d) 656, 152 P. (2d) 722 (1944); 32 Am. Jr., Landlord and Tenant § 68. Since Penn-Ohio's immediate ouster by the Navy would appear to have been foreclosed, there obviously existed'a bona fide dispute as to when it would vacate. Constituting adequate legal consideration in these circumstances was Penn-Ohio's promise (a) to give immediate access to part of the plant and make the balance progressively available; and (b) to surrender the entire plant within some 108 days. Furthermore, by agreeing to surrender possession of the plant within these specified periods, Penn-Ohio manifestly relinquished its apparent legal right under the national emergency clause to remain in the plant for a reasonable time after termination of its lease.
Defendant also maintains that were there in fact any agreement between the parties amending the Penn-Ohio lease, it is not contained in "an integrated writing" and thus runs afoul of the Pennsylvania statute of frauds. However, Federal not local law governs the validity and con struction of Federal contracts, and under Federal law there is no requirement that contracts be in writing. The reason Federal contracts are controlled by Federal law was pointed out in United States v. Allegheny County, 322 U.S. 174, 183 (1944), as follows: "The purpose of the supremacy clause was to avoid the introduction of disparities, confusions and conflicts which would follow if the Government's general authority were subject to local controls. The validity and construction of contracts through which the United States is exercising its constitutional functions, their consequences on the rights and obligations of the parties, the titles or liens which they create or permit, all present questions of federal law not controlled by the law of any State " See also Baggett Transportation v. United States, 162 Ct. Cl. 570, 577, 319 F. 2d 864, 868 (1963); The Padbloc Company v. United States, 161 Ct. Cl. 369, 377 (1963), and cases there cited; Fansteel Metallurgical Corp. v. United States, 145 Ct. Cl. 496, 500, 172 F. Supp. 268, 270-71 (1959).
But even assuming that the State statute of frauds was applicable to the transaction in question, the January 11 agreement was in compliance with its requirements. For its essential terms and conditions were contained in the letter of January 11 from the BuShips counsel to Penn-Ohio, while other aspects of the agreement were reflected in the minutes of the January 8 conference, the relevant parts of which were set forth in the BuShips letter of January 17 to Penn-Ohio.
Defendant next says that no binding agreement with respect to modification of the Penn-Ohio lease was effected because the approval of the Armed Services Committees of Congress was never obtained as required by Navy regulations which provided that when a lease of real property has been approved at the Secretarial level, "the Chief of the Bureau of Yards and Docks shall make and execute the necessary agreements to consummate the same, after obtaining clearance from the Armed Services Committees of Con gress ." But the thrust of this argument is defeated abinitio for the record indicates (i) that the Navy interpreted the statute and its own regulations as requiring Congressional Committee approval only of initial lease agreements and not of subsequent amendments or modifications; and (ii) that such interpretation was accepted practice. This is illustrated by the Navy's considered choice to amend the old Birdsboro company lease rather than enter into a new lease on the ground that an amendment (as contrasted with a new lease) would not require Congressional Committee approval and thus could be accomplished much quicker. See findings 18, 65. Under these circumstances it would seem inappropriate for the court, at this late date, to upset the interpretation placed on the statute and the regulations by the parties concerned; what is more, a contrary interpretation would raise serious constitutional questions. Apart from this, the record is barren of any indication that there existed any understanding between Penn-Ohio and the Navy that "an indispensable pre-condition to the consummation [of the reverter amendment] was the approval by the Senate and House Armed Services Committees " Congress Construction Corp. v. United States, 161 Ct. Cl. 50, 53, 314 F. 2d 527, 529 (1963), cert. den. 375 U.S. 817.
Defendant further contends that Penn-Ohio's rights under any reverter amendment to its lease lapsed because of its failure to give notice of lease renewal 120 days before expiration of the original term of the lease (i.e., by March 9, 1953). This argument must be rejected for two reasons: (a) Notice of renewal was not required under the agreement of January 11, 1952; and (b) even if such notice was required, the requirement was. waived.
It will be recalled that the January 11 agreement called for suspension of the Penn-Ohio lease during the period the plant was used by the Birdsboro company for the manufacture of tank castings for the Army, and provided Penn-Ohio an option again to lease the plant at the end of such use for the balance of its term' under its original lease. In light of the fact that Penn-Ohio thus had an option wherein it could elect to "re-lease" the plant at some future date, but had no obligation to do so, it would make little sense to interpret the agreement as requiring notice of renewal of the suspended lease as an indispensable condition for continuing in effect the unexercised but extant option For the filing of such notice would not give rise to any obligation on Penn-Ohio's part: rather, it would be a mere formality signifying that Penn-Ohio wanted to maintain its option to decide at some future time whether or not it would elect to resume its lease of the plant. Further, Penn-Ohio's failure to file notice of renewal is in itself an indication that this requirement was not part of the January 11 agreement. Throughout the period in question, Penn-Ohio had made it clear to the Navy that it was entitled to formal execution of the reverter agreement; also, it had maintained a nucleus of supervisors in anticipation of re-entry into the plant. It stands to reason in these circumstances that were a notice requirement considered applicable, Penn-Ohio would scarcely have defaulted on such requirement with attendant forfeiture of its "re-lease" option, especially since such notice would not have subjected it to obligation of any kind. From all this, the conclusion seems clear that the reasonable construction of the January 11 agreement is that during the period the Penn-Ohio lease was suspended, all Penn-Ohio's rights and obligations thereunder (including the filing of notice of election to renew such lease) were likewise suspended.
But even if notice of renewal of the suspended lease were required, it is apparent that such requirement had been waived by the Bureau of Yards and Docks — the duly authorized agent of the Secretary in this respect. For here authorized representatives of that Bureau negotiated with Penn-Ohio's representatives on a continuing basis for at least one year before, and for some four months after, March 9, 1953 (the final date for the exercise of the renewal option) as though Penn-Ohio had in fact filed notice of renewal and on the premise that its rights under the reverter agreement were in full force and effect. "When a party with knowledge or the means of knowledge of his rights and of the material facts does what amounts to a recognition of the transaction as existing, or acts in a manner inconsistent with its repudiation, or permits the other party to deal with the subject matter under the belief that the transaction has been recognized, or abstains for a considerable length of time from impeaching it, so that the other is reasonably induced to suppose that it is recognized, there is acquiescence, and the transaction, though it be originally impeachable, becomes unimpeachable ." Harvey Radio Laboratories v. United States, 126 Ct. Cl. 383, 391, 115 F. Supp. 444, 448-49 (1953), cert. den. 346 U.S. 937. See also Arundel Corp. v. United States, 96 Ct. Cl. 77, 110 (1942); Thompson v. United States, 91 Ct. Cl. 166, 179 (1940); Callahan Construction Co. v. United States, 91 Ct. Cl. 538, 610 (1940). It must be borne in mind also that for a period of over a year after expiration of the renewal date in March 1953, BuShips, BuDocks and the Assistant Secretary of the Navy consistently considered that Penn-Ohio's reverter rights had not lapsed despite its failure to file timely notice of renewal. "It would be unreasonable [for this court] to hold otherwise at this late stage." G. L. Christian and Associates v. United States, 160 Ct. Cl. 1, 10, 312 F. 2d 418, 423 (1963), cert. den. 375 U.S. 954. See also Centex Construction Co. v. United States, 162 Ct. Cl. 211 (1963).
In sum, it is concluded that the Navy breached its agreement of January 11 (i) by not making the Birdsboro plant available to Penn-Ohio on November 15, 1953 (when the Birdsboro company's production of armor castings for the Army tank program was completed); and (ii) by not allowing Penn-Ohio then to exercise its option of re-entry which it would have done had it been so permitted by the Navy.
I turn now to the question of whether or not the Secretary's termination of the lease under the national defense clause was arbitrary or capricious. Plaintiff insists that the record shows that national defense was not considered and played no part in the ultimate determination, but was invoked merely as a device or subterfuge to repudiate and abrogate an obligation which the Navy recognized but no longer wanted to keep because unanticipated expenditures indicated that it might become burdensome. Defendant, on the other hand, maintains that the needs for military preparedness then existing overwhelmingly support the Secretary's determination.
In this posture, the record shows that the Bureau of Yards and Docks had for over a year consistently pressed within the Naval establishment for a defense clause termination of the Penn-Ohio lease on the ground that the Army's expenditures in rehabilitating and making additions to the plant were some three times in excess of the amount contemplated when the agreement with Penn-Ohio was made, thus making it impracticable (in Budocks view) to allow Penn-Ohio to resume occupancy of the plant. The record also shows that to obtain added support for terminating Penn-Ohio's rights, Navy representatives actively encouraged the Army to make a specific termination request to the Secretary of the Navy. While the Assistant Secretary of the Army ultimately made such request, it is clear that he did so not primarily because of the Navy's suggestions in this regard, but rather because his own independent inquiry established to his satisfaction that the Army's mobilization needs required that the plant be maintained on a .stand-by basis, available for reactivation on short notice in the event of war to supply armor castings for tanks, and that occupancy of the plant by Penn-Ohio would be incompatible with these obj ectives. Indeed, even before Navy representatives suggested that the Army request the Secretary of the Navy to terminate Penn-Ohio's rights under the lease, Army Ordnance had already made the decision (a) to place the Birdsboro plant on a stand-by basis, capable of reactivation within 120 days, to supply the Chrysler tank assembly plant with armor castings in the event of mobilization; (b) to store at the plant the Government-owned equipment that had been furnished to Chrysler subcontractors; and (c) to select the Birdsboro company as the mobilization producer. Nor can this decision, considered in light of events as they were in 1953 and 1954, be regarded as unjustified. At that period the national policy was to maintain munition production plants in a high degree of readiness capable of rapid reactivation in the event of war; heavy armor tank castings for mobilization requirements were then in seriously short supply; and the Birdsboro plant was a vital source of such components for the Chrysler Tank complex. Then too, the Army's selection of the Birdsboro company as the mobilization producer was fully consistent with the Army Ordnance policies in this respect. For the evidence establishes that it was an experienced producer of armor castings; that the quality of its production at the Birdsboro plant was above average; and that its production record seemed to have compared favorably with other sources. It. would seem evident, therefore, that the Assistant Secretary of the Army's recommendation for termination of Penn-Ohio's right to re-occupy the plant was based fully on national defense considerations. Also, the record warrants the conclusion that this recommendation was a major factor for the Secretary of the Navy's termination action, and that his action in this regard was taken for the specific benefit of the Army. It is true that the Navy Secretariat was not unmindful of the Bureaus' recommendation to terminate the Penn-Ohio lease on the basis of unanticipated expenditures incurred at the plant after the bargain with Penn-Ohio was struck. But even assuming arguendo that termination for this reason would be unjustified under the national defense clause, it is not believed that "the possible 'taint' of [this] lower-level purpose should invalidate the [Secretary's] otherwise lawful decision. This secondary consideration was the sauce which spiced the roast but added little to its nourishment." Keener v. United States, 165 Ct. Cl. 334, 341 (1964).
Since the Secretary's termination action is supported by the record, it follows that while Penn-Ohio is entitled to recover damages because of the Navy's breach of the agreement, its recovery must be limited to the period from November 15, 1953 to October 19, 1954, the date when termination of its rights became effective.
FINDINGS os' Fact
1. Plaintiff, Penn-Ohio Steel Corporation (Penn-Ohio), is a Delaware .corporation with an office and place of business at 70 Wall Street, New York, New York. It was organized in 1948 and until April 28, 1952 was engaged in the production of steel ingots and steel products such as automobile accessories.
2. By agreement the trial was limited to the issues of law and fact relating to the right of plaintiff to recover, reserving the determination of the amount of recovery, if any, for further proceedings.
.3. (a) During World War II the Navy's Bureau of Ships (BuShips) had constructed at a cost of about $7,500,000 a complete plant at Birdsboro, Pennsylvania (hereafter referred to as the "Birdsboro plant") for producing steel castings to meet Navy requirements. The Birdsboro plant was located adjacent to the plant of the Birdsboro Steel Foundry & Machine Company (hereafter referred to as "the Birdsboro -company") and was built and maintained as an integral part of Navy mobilization planning for heavy ship castings, constituting part of the Navy Industrial Reserve.
(b) During World War II, the Birdsboro plant was operated by the Birdsboro company under a lease in the form of a facilities contract with BnShips (Contract NObs-420) which, among other things, provided the company an option to purchase the plant and required it to maintain the facilities at Government expense for 20 years.
(c)After cessation of World War II requirements for the Navy, efforts were made to dispose of the plant by sale to the Birdsboro company, or to enter into a lease agreement with it requiring payment of adequate rent. These efforts failing, the Birdsboro company's right to use was terminated in July 1946 and the plant was subsequently fumed over to the Navy's Bureau of Yards and Docks (BuDocks) for leasing. The availability of the plant for leasing was advertised; both the Birdsboro company and Penn-Ohio submitted bids; and the bid of Penn-Ohio was determined to be the most advantageous to the Government.
STATUTES AND NAVY REGULATIONS DEALING WITH LEASING OP GOVERNMENT REAL PROPERTY
4. (a) The Military Leasing Act of 1947, Public Law 80-364, 61 Stat. 774, 34 U.S.C. (1946 Ed. Supp. I § 522a), authorizes the Secretary of the Navy to lease non-excess real property controlled by the Navy.
(b) Public Law 78-289, 58 Stat. 189 (1944) and its successor, Title VI, Public Law 82-156, 65 Stat. 365 (1951), 40 U.S.C. (1952 Ed.) § 551-54, required the lease of real property to be submitted by the Secretary of the Navy to the Armed Services Committees of the Congress for approval.
(c) The Navy interpreted the statute and regulations as not requiring an amendment to an existing lease (as distinguished from an initial lease) to be submitted to the Aimed Services Committees of Congress for approval. Such interpretation was accepted practice.
(d) A letter-directive, signed by the Secretary of the Navy, dated December 13, 1942, subject: '^Reorganization of Procurement Procedures and Coordination of Procurement Legal Services", delegated general contractural authority to the Chief of each Naval Bureau, with powers of redelegation.
(e) Navy Department Property Bedistribution and Disposal Begulation No. 2, dated November 1, 1946, and amended April 9, 1948, required (1) approval of all leases of real property by the Office of the Assistant Secretary of the Navy, Material Division, and (2) after such approval had been obtained, the securing of clearances by BuDocks from the Armed Services Committees of Congress prior to the execution of the lease. Under this regulation, the technical Bureau having cognizance of the facility to be leased and BuDocks had joint responsibility for determining the facility to be leased; for conducting negotiations; and for requesting Secretarial authority to enter into a lease. After Secretarial approval was obtained, BuDocks had responsibility for preparing, executing, delivering and administering the lease.
(f) The regulations required that there be submitted for Secretarial approval only a summary of the principal terms and conditions of the proposed lease. If the proposed lease was for a term in excess of five years (including rights on the part of the lessee to renew), the reasons and justification for such longer term were to be given the Secretary.
(g) The Navy regulations were silent on the form of Secretarial approval. The practice was to obtain through intradepartmental memorandum Secretarial approval to the major terms and conditions of a proposed lease. The evidence shows that such Secretarial approval was not reauired to be in writing but could be given orally.
(h) Pursuant to statute, the regulations contained a provision that leases "shall reserve a right on the part of the Department to revoke the lease during any national emergency declared by the President or Congress and, unless otherwise specifically authorized by the Secretary, shall provide for termination on reasonable notice whenever deemed necessary by the Secretary in the interests of national defense."
(i) Navy Department Property Redistribution and Disposal Regulation No. 2 was reissued on June 3,1953. It contained the following pertinent provisions which did not appear in the earlier regulation:
(1) Secretarial approval was required "of any proposal to renew an outstanding lease, whether or not such lease grants either party an option to renew";
Findings of Fact
(2) Secretarial approval was required of any "substantial amendment of an outstanding lease which, .is not fairiy within the scope of the original approval by the Secretary thereof."
(j) The Secretary of the Navy considered the execution of á lease of real property to be a very important matter involving highly sensitive questions. For that reason, while he delegated to the technical Bureaus authority to execute a lease, at no pertinent time did he delegate beyond the Assistant Secretary the authority to approve the terms and conditions of a lease.
LEASE OF BIRDSBORO PLANT TO PENN-OHIO
5. (a) By letter of intent dated June 29, 1948, executed pursuant to the Military Leasing Act of 1947, the Navy, acting through BuDocks, leased to Penn-Ohio the entire Birds-boro plant with the exception of (1) the pattern storage building, which was occupied by the Birdsboro company, and (2) the connecting carpenter shop. The letter of intent was signed by Jack E. Cochrane, the BuDocks contracting officer, on behalf of the Navy, and by Samuel E. Magid, on behalf of Penn-Ohio.
(b) Magid was an officer, director and stockholder of Penn-Ohio from 1948-60. During the years. 1941-51, he was also a director and stockholder of the Birdsboro company. Clemont Cartwright was a director of Penn-Ohio and the Birdsboro company during the years 1949-51.
(c) Prior to execution of the letter of intent, BuDocks, on June 8, 1948, submitted to the Secretary of the Navy for approval an unexecuted copy of the Penn-Ohio letter of intent, with a favorable recommendation by BuShips. The Acting Secretary of the Navy approved the recommendation by memorandum to BuDocks dated June 9, 1948.
6. (a) The letter of intent provided for a five-year term from June 30,1948 to June 29,1953, with Penn-Ohio having "the option to extend the term of the lease for two (2) additional successive terms of five (5) years each under the same terms and conditions, by giving notice of election to extend one hundred and twenty (120) days prior to the expiration of the then existing term."
(b) Under Article 9 the Navy had the right to terminate the lease on the following bases, among others:
(i) during the present or any future national emergency declared by the President or the Congress, in. which case no prior notice of intent to terminate will be required to be given to Penn-Ohio.
(ii) if the Secretary determines that the interest of national defense so require[s], in which event one hundred and twenty (120) days notice of intent to terminate shall be given to Penn-Ohio.
. (c) Penn-Ohio was required to pay cash rental of $126,600 per annum.
(d) Penn-Ohio was required to perform, at its expense, preservation, protection, maintenance and repair as directed by the Navy not to exceed $150,000 per annum. The difference between the actual expenditures for directed maintenance and $150,000 per annum was to be carried forward from year to year. In the event of termination or expiration of the term of the lease, the Navy had the right to direct fulfillment of the amount reserved either by performance of maintenance or by payment of cash to the Treasury.
(e) The Navy had the right to re-determine at any time the allocation of the amount to be paid in cash rent and the amount to be expended for directed maintenance not to exceed the obligation on the part of Penn-Ohio of $276,600 per annum, with the proviso, however, that this amount could be augmented from time to time in accordance with sub-paragraph (d).
(f) Penn-Ohio was required to post and maintain a performance bond in the amount of $50,000 for the term of the lease, and furnished bond in this amount covering the period June 30,1948 to June 30,1953.
(g) The letter of intent- also contained a provision that the- parties understood that it would be superseded by a formal lease.
(h) The record does not show that the Navy submitted the letter of intent to the Armed Services Committees of Congress for clearance. -
7. The rights and obligations of the Birdsboro company under Contract NObs-420 (see finding 3 (b)) were suspended for the duration of the occupancy of the plant by Penn-Ohio.
Penn-Ohio's Occupancy of Plant
8.. (a) Penn-Ohio was a marginal producer in the sense that it did not operate a fully integrated plant for manufacture of forms, shapes, sheet steel or rolled steel, but rather produced only ingots and a limited number of steel products. In 1949 its resources were limited.
(b) In August 1949 Penn-Ohio indicated to Navy personnel that it would like to get out from under the lease and purchase the plant for as much as $1,000,000. The next month Penn-Ohio wrote the Navy proposing that the letter of intent be modified to provide for a term of 18 years and a reduction in the rental so that it could develop the plant into a semi-integrated unit. It pointed out that the demand for steel had slackened perceptibly; that the company was in the unfortunate position of being able to produce only ingots for sale; and that the plant should ultimately be developed into an integrated unit. The Navy advised Penn-Ohio that its proposal for a longer term lease with a lower rent was not acceptable.
9. On various occasions in 1949 and 1950, Penn-Ohio was late in making rental payments. There is no evidence that this situation continued after 1950. Also for a time in 1949, no steel ingots were produced at the plant because of absence of demand. The company was regarded by the Navy as a "satisfactory tenant"; as a "young outfit on the ball in every way except for capital"; as having "very capable supervision" and management which had demonstrated a thorough and complete knowledge of steel making at a high production rate. The Government considered it had a good production record of steel ingots at the plant.
10. (a) BuShips planned in the event of mobilization to terminate Penn-Ohio's rights and to have the Birdsboro company placed in possession of the Birdsboro plant. BuShips representatives informally advised the Birdsboro company of these plans but purposely refrained from giving similar advice to Penn-Ohio in order to prevent any possibility of losing Penn-Ohio as a tenant during normal peace-time operations; they also felt "that a little competition in the area created a healthy economic situation."
(b) The Naval officer-ih-charge of the Penn-Ohio lease, while not having any firm view as to whether the plant should revert to the Birdsboro company or be retained, by Penn-Ohio during an emergency, believed that during an emergency Penn-Ohio would produce at a lower cost' and more expeditiously than the Birdsboro company because of its small overhead and the progressiveness of its supervisors. He supposed, however, that "such a move would cause considerable ill-feeling on the part of the Birdsboro company" and that "possibly the deal has gone too far to make a change."
(c) A mobilization shipbuilding program, would have utilized the full capacity of the Birdsboro plant.
ARMY request THAT NAVY TERMINATE PENN-OHIO LEASE AND LEASE PLANT TO BIRDSBORO COMPANY
11. (a) After the start of Korean hostilities, the Army had an urgent need for armor cast tank hulls and turrets. A hull is the lower portion of a tank that encloses the crew and the engines, and weighs about 30,000 pounds. The turret is the upper part of the tank which rotates and carries the guns, and weighs approximately 15,000 pounds. The outer shell of each is an armor casting, i.e., a steel casting that is specially fabricated, rolled and heat-treated so that it becomes very resistant to penetration.
(b). Army Ordnance determined that the Birdsboro plant was necessary for armor cast tank hulls and turrets and that the plant should be operated by the Birdsboro company. The basis for this determination was, in the words of Army Ordnance, as follows:
(I)t is a Government-owned plant in being. It is owned by the Navy. It is a well equipped plant for ordinary steel castings but will require the changes and additions herein indicated for the production of tank armor castings. The plant building covers approximately sixteen (16) acres and is surrounded by virtually that much additional area, all of which is adequately fenced. The equipment there now includes open hearth furnaces, heavy cranes and other similar equipment immediately usable but whose acquisition would involve dangerous delay. The alternative to the course here proposed is the construction of a foundry with sufficient capacity to produce the castings required by this tank program. The cost of constructing such a facility would approximate at least $15,000,000; furthermore, the delay in getting a new facility into production would extend over a period of at least 12 to 18 months from the time construction would be commenced. The Ordnance. Corps has awarded a contract to the Chrysler Corporation for the T43 and T48 tanks and subcontracts will be received from Chrysler Corporation by Birdsboro Steel Foundry and Machine Co. for the production of hull and turret castings. Chrysler Tank Plant is situated in Newark, Delaware which is geographically close to the Birdsboro Plant. The present tenant, Penn-Ohio Steel Company, was eliminated as a potential operator since it has no experience whatsoever in the production of castings and presently uses only a small portion of the plant for pouring a limited amount of ingots. On the other hand, Birdsboro Steel Foundry and Machine Co. operated the plant during World War II after having assisted in its design. The Birdsboro Company's own plant and office are located in Birdsboro, Pa., immediately adjacent to this plant.
(c) The Chrysler Corporation had informed Army Ordnance that it was necessary that the Birdsboro plant be used for manufacture of hull and turrent castings for tank production at Newark, Delaware. In addition, Chrysler and the Chief of the Castings Section, Iron and Steel Division of the Department of Commerce's National Production Authority (NPA) had separately recommended to Army Ordnance that the Birdsboro company rather than Penn-Ohio should operate the Birdsboro plant on the ground, among others, that Penn-Ohio had experience only in the manufacture of steel and not in castings, whereas the Birdsboro company was by reason of experience and location "ideally equipped" for this purpose.
12. On January 29, 1951, Army Gr-4 wrote the Chief of Naval Material requesting that consideration be given to making the Birdsboro plant available to the Army for operation by the Birdsboro company for the production of heavy hull and turret castings. The Chief of Naval Material replied on February 15,1951 declining to transfer the plant to the Army on the ground that it was a Navy Industrial Be- serve plant and that production requirements of the Navy should be dominant. He advised the Army that the Navy would not object to placement of an Army contract with Penn-Ohio and that if the.latter were unwilling or unable satisfactorily to produce the required items, the Navy would consider replacing Penn-Ohio with the Birdsboro company, in which event the Birdsboro company should be required to enter into a lease for a fixed term and accept substantially the same terms as were in effect with Penn-Ohio, including a substantial rental except on cost-plus-fixed-fee Government work.
,13. On April 27,1951, Army G-4 wrote the Chief of Naval Material reiterating the Army's immediate requirements for armor casting capacity. The opinion was expressed that operation of the plant by the Birdsboro company rather than Penn-Ohio would be in the best interest of the Navy as well as the Army, on the basis that such an arrangement would permit immediate production of armor castings and would make the plant available to meet Navy requirements for castings as they might develop. In these circumstances the Army requested that the Navy terminate its existing lease with Penn-Ohio and lease the plant to the Birdsboro company.
• 14. On June 1,1951, BuShips advised the Secretary of the Navy "that the interests of national defense would be best served by utilization of the plant for its intended purpose by the planned wartime operator (the Birdsboro company)" and that the "Navy's present shipbuilding program does not require current utilization of the plant, but an extensive shipbuilding program as contemplated in the event of full mobilization would require its use." BuShips recommended that the Secretary approve the termination of the Penn-Ohio lease to permit operation of the plant by the Birdsboro company on the following conditions: (1) in advance of termination notice to Penn-Ohio, the Birdsboro company should make a firm commitment to the Navy to lease the plant for a minimum period of five years on such terms and conditions as would be acceptable to the Secretary of the Navy and the Armed Services Committees of the Congress; (2) that after the required approvals and the commitment by the Birdsboro company were received, Penn-Ohio should be given 120 days notice of termination in order for it to remove its operations elsewhere; (3) that BuShips should enter into a lease agreement with the Birdsboro company under the authority of the Military Leasing Act of 1947. The Chief of Naval Material concurred in this recommendation.
15. (a) On June 12, 1951, the Under Secretary of the Army wrote the Assistant Secretary of the Navy that the Army had an urgent need for the use of a facility capable of producing heavy castings for tank hulls and turrents; that it was essential that the facility be located as near as possible to the tank plant being constructed by Chrysler at Newark, Delaware; and that in view of the critical shortage of capacity for production of heavy castings for its tank program, the Army would appreciate having the Birdsboro plant made available for Army use if such action would not be detrimental to Navy programs.
(b) On June 18, 1951, Chrysler wrote Army Ordnance stating that it was its "most urgent recommendation that a transferral of the facilities be made in such a fashion that the Birdsboro (company) will be able to produce tank hull and turret armor steel castings for the Chrysler Tank Plant at Newark, Delaware."
16. On June 30,1951, the Assistant Secretary of the Navy approved the BuShips recommendation of June 1,1951, and the conditions there proposed for terminating the Penn-Ohio lease and making a'new lease with the Birdsboro .company. See finding 14. Also, he advised the Army of his action in this respect.
NEGOTIATIONS IN 1951 BETWEEN NAVY AND THE BIRDSBORO COMPANY POR LEASE OP THE BIRDSBORO PLANT
17. In July 1951, BuShips sent the Birdsboro company proposed terms and conditions for a new lease advising that "the effective date of any lease agreement would be at least 120 days after the required demands and approvals are received in order for the Secretary of the Navy to give required notice to Penn-Ohio."
18. Initially the Navy planned that the new lease with the Birdsboro company would supersede the then existing but suspended lease contract with, that company and would be subject to the approval, among others, of the Secretary of the Navy and the Armed Services Committees of the Congress. In November 1951, the Navy advised the Birdsboro company that an amendment to the then existing lease contract with the Birdsboro company would not require approval of these Congressional Committees and thus could be accomplished much quicker.
.19. The Army program as contemplated in July 1951 was to be for a period of two years, the Army being unwilling to commit itself beyond that period. The Birdsboro company in the course of negotiations with BuShips indicated that it was unwilling to assume any business risk under the proposed lease and, therefore, would not accept an initial term of lease beyond June 30, 1953 — the maximum time that the Army could commit itself under a supply contract. Bu-Ships, although desiring a five-year term, was willing to accede to a lesser term but insisted on a rental charge of $474,-000 per annum. The Birdsboro company was agreeable to such rental provided the Army assumed the obligation under the procurement contract. Army Ordnance, however, considered the proposed rental excessive; BuShips, on the other hand, believed it justified on the basis of the following considerations: (1) the original BuShips contract with the Birdsboro company required payment of the same rental; (2) Penn-Ohio was paying a substantial rental of $276,000 per year either in rent or maintenance of the unused portion; (3) the rental to be paid by the Birdsboro company should be in excess of what Penn-Ohio (whose lease was to be terminated) was paying since the Birdsboro company intended to use the entire facility, whereas Penn-Ohio was using only a portion of the plant; (4) under the proposed lease agreement, the use of the plant would not be restricted to Government work and it was probable that the Birdsboro company would use the facilities for other than Army work, so that payment by the Birdsboro company of little or no rental would place it in an unfair competitive position.
20. As of August 1951 the Army planned "to add various facilities to the plant, most of which are items of equipment which can readily be removed" and estimated the total cost of rehabilitating, converting and/or expanding the plant at $4,689,300.
NEGOTIATIONS BETWEEN ARMY AND PENN-OHIO IN NOVEMBER AND DECEMBER 1951 FOR OPERATION OF PLANT; FINAL ARMY DECISION THAT THE BIRDSBORO COMPANY OPERATE PLANT AND RENEWED REQUEST IN DECEMBER 1951 THAT NAVY TERMINATE. PENN-OHIO LEASE
' 21. In the early part of November 1951, the Army's definitive prime contract with Chrysler was finalized.
22. Meanwhile, about July or August 1951, Penn-Ohio-•heard rumors to the effect that the Navy was planning to terminates its lease and evict it from the plant. It initiated inquiries into the matter but Navy authorities denied any knowledge of such plan. As late as November 7,1951 Penn-Ohio was told by Navy representatives that no dispossession action was contemplated and was, in fact, orally assured of continued occupancy. However, in the latter part of October 1951, Penn-Ohio was advised unofficially by Army Ordnance representatives that it was planned to evict it from the plant in order to make way for the Birdsboro company.
23. Penn-Ohio complained about the proposed eviction to the Army, other Government agencies, several Senatorial staff members, and the Senate Small Business Committee.
24. (a) On November 13, 1951, Penn-Ohio representatives met with the Chief of the Army Procurement Division and other Army representatives and stated that the failure of any responsible Government representative to give it definite early information as to the plan to evict it from the plant to make way for the Birdsboro company was most unfair since the Birdsboro plant was Penn-Ohio's only plant and eviction would put it out of business. Penn-Ohio took the position that as a small business concern with an excellent production record and as a good tenant, it should in all fairness be given an opportunity to show it could make the required heavy steel castings as a subcontractor for Chrysler and thus Stay in business.
(b) During the meeting, Pemi-Ohio's president indicated that Penn-Ohio had not been given opportunity to have its production capacity evaluated vis-a-vis the Birdsboro company and that pricing proposals were received only from the latter company. However, on March 15, 1951, representatives of Chrysler had surveyed the plant and left blueprints of the required hull and turret castings with Penn-Ohio's president with a request that he study them and submit a proposal to Chrysler: further, it appears that apart from a telephone call to Chrysler, Penn-Ohio did not submit a proposal. An added factor, though, is that on or about February 1, 1951 — some six weeks before it surveyed the plant and requested Penn-Ohio to submit a proposal — Chrysler had written Army Ordnance stating it desired the Birdsboro company to be the operator of the plant.
(c) At the meeting of November 13, 1951, Penn-Ohio and the Army made the following agreement: Penn-Ohio would be afforded two weeks from the date of the meeting to submit a proposal to Chrysler for the manufacture of steel castings in connection with the medium tank program. The proposal was to contain the following three alternatives:
1. Penn-Ohio to manufacture steel castings for the tank program as a subcontractor to Chrysler in the presently occupied plant ;
2. Joint occupancy of the plant by Penn-Ohio and the Birdsboro company so that Penn-Ohio could continue to manufacture steel needed for the castings and also for other commercial products;
3. Penn-Ohio to occupy the open hearth facilities to manufacture steel exclusively for the tank program.
It was also agreed that in the event Penn-Ohio's proposals were not acceptable after due consideration, a phasing-out schedule of Penn-Ohio's activities would be initiated and concluded to the mutual satisfaction of Penn-Ohio and the Government in accordance with the termination regulation.
(d) In the course of the meeting, Penn-Ohio's representatives indicated that the company had possible legal rights to enjoin termination by the Navy of the letter of intent for various reasons, involving for the most part equitable consideration. The Chief of the Army Procurement Division advised the Under Secretary of the Army that there were "potential points of danger" in the event Penn-Ohio was not successful in its effort to stay in the plant. These "potential points of danger" he set forth as follows:
1. Penn-Ohio Steel Corporation can obtain an injunction to prevent dispossession based on the following points:
a. Time element of phasing.
b. A Government prime contractor is not being placed in a Government owned facility as an operator thereof.
c. Demand court evaluation of production capacity* price, etc.
d. Dispossession of small business.
2. Plea to Congressional representatives and the attendant delays and difficult explanations. This is particularly true if full, fair and reasonable consideration is not given to all potential operators.
3. There has yet to be a test case on the dispossession of a tenant in possession of a Government-owned facility through the medium of Public Law 364 lease under the "National Emergency Clause" during this gray period of Korean crisis. A test in this case particularly in view of the intended subcontractor's use thereof might freeze the use of the facility during an extended period.
(e) The question was submitted to the Judge Advocate General of the Army who in a memorandum to the Under Secretary expressed the opinion that Penn-Ohio would be unable to obtain an injunction enjoining the Navy's termination of the letter of intent under Article 9(i) or (ii). See finding 6 (b).
25. On November 15, 1951, the Birdsboro company told BuShips that it was ready to accept the terms of the lease for the plant except for the initial term which was to be two years instead of five years. The company stated that while it had previously indicated that it would not accept an initial term beyond June 30, 1953 (the maximum time that Army Ordnance could then commit itself under a supply contract (see finding 19)), conditions had changed and the initial two-year period would start at the time of the transfer of the plant to the Birdsboro company. BuShips advised the Birdsboro company that it would delay negotiations until the end of the period given Penn-Ohio by the Army to justify that it could do the work intended in the plant.
26. In tlie latter part of November 1951, Penn-Ohio submitted a proposal to Army Ordnance which, after reviewing it, as well as a proposal submitted by the Birdsboro company in August 1951, reaffirmed its recommendation that the-Birdsboro company be selected as the operator of the plant. Chrysler, in commenting on the Penn-Ohio proposal, also-re-affirmed its earlier recommendation that the Birdsboro-company should be selected as the plant operator.
27. On December 4,1951 a meeting was held between representatives of the Army, Chrysler and NPA at which the-•following unanimous recommendations were reached: (1) based on the relative experience of the firms, the Birdsboro-company was to be preferred; (2) split operation of the plant, whereby Penn-Ohio would operate the furnaces and supply the metal to the Birdsboro company was not feasible; (3) Penn-Ohio should be given 120 days in which to vacate the-plant, provided the Birdsboro company were given immediate rights of entry; (4) if Penn-Ohio objected to such right of entry, the Government should proceed to repossess the-plant immediately under the national security clause.
28. Also on December 4,1951 the Under Secretary of the-Army met with representatives of Penn-Ohio, the Birdsboro-company and Chrysler and advised Penn-Ohio that after careful review of its proposal and after considering the-recommendations of Ordnance, Chrysler and foundry experts, it was felt the contract for the operation of the Birds-boro plant must be awarded to the Birdsboro company in. view of its trained supervisory personnel and experience and. know-how in the steel casting field. Penn-Ohio's representatives then stated that their company had made arrangements to obtain experienced foundry supervisory personnel for the job and that the Erie Forge Company (Erie), which, was an established company in the steel foundry field, would' assist Penn-Ohio in this connection. Penn-Ohio requested', more time to submit additional information bearing on. Erie's participation in the project and the Under Secretary-agreed to postpone final decision for at least 24 hours.
29. On December 5, 1951 Penn-Ohio representatives met with Army and Chrysler representatives: also present was, the assistant to the president of Erie. At this meeting Penn- Ohio stated that Erie had agreed to join with Penn-Ohio in its proposal to manufacture tank castings under an arrangement which had not yet been formalized but would be in the nature of a joint venture. Erie's representative said he had been authorized by his company to commit it to such an arrangement, and that Erie would assume responsibility for the necessary castings production and stand behind it. Army Ordnance then requested that Penn-Ohio submit to it by the next morning: (1) a statement of the exact arrangement between Erie and Penn-Ohio, outlining the extent to which Erie agreed to join in and assume responsibility for the Penn-Ohio proposals; (2) a statement of the experienced castings personnel who would be made available by Erie for the castings job, with names and background; (3) a detailed financial statement of both concerns; and (4) a statement of what Government financing, if any, would be needed by Erie and Penn-Ohio. Penn-Ohio representatives indicated it was obviously impossible to submit a detailed proposal covering these matters by the next morning; that such requirement amounted to an attempt to foreclose them from submitting a proposal; and that a detailed proposal would be submitted if the company were granted an additional ten days. Eventually the parties agreed that Penn-Ohio would submit on the next morning as much information as could be developed.
30. On December 6,1951 the Under Secretary of the Army again met with Penn-Ohio representatives and informed them he was allowing a five-day extension to permit the company to submit further information regarding its proposal to operate the plant in conjunction with Erie. The Under Secretary stated that a joint proposal probably would not be considered competitive with the Birdsboro company's proposal unless Erie accepted full responsibility for doing the casting job as prime contractor. The Under Secretary requested that the Penn-Ohio proposal provide specified information of the nature set forth in finding 29, subdivisions (1) to (4); he further indicated that as to the latter three items, supplementary information would also be requested from the Birdsboro company.
31. (a) On December 11, 1951, proposals were received from the Penn-Ohio-Erie combination and the Birdsboro company. Under the Penn-Ohio-Erie proposal (which was submitted subject to later approval by Erie's board of directors), a new company with paid-in capital of not less than $500,000 would be formed; the president of Erie would be president of the new company; the board of directors would comprise 10 members, 7 of whom would be the entire •directorate of Erie, while 3 would be designated by Penn-Ohio; Erie would make available to the new company, as deemed necessary, 6 additional key personnel. Also included in the proposal were financial statements showing the net worth of Penn-Ohio and Erie as approximately $750,000 and $6,000,000, respectively; biographical sketches of 8 supervisory personnel of Penn-Ohio; a statement that the cost of activating and equipping the plant would probably be in excess of $3,000,000; and a statement that Government financing of not less than $2,000,000 for working capital would probably be required.
(b) Under the Birdsboro company proposal the plant would be operated by a wholly-owned subsidiary with a capitalization of $100,000; 7 of the key operating personnel would operate in a dual capacity for the parent and subsidiary, while 27 supervisory personnel would be assigned to the subsidiary on a full-time basis.' Included in the proposal were biographical sketches of all 33 individuals; a statement showing the company's net worth to be approximately $4,000,000; a statement that the Birdsboro company would assume responsibility as prime contractor to the Government and direct subcontractor to Chrysler if required to do so; and a statement that the amount of direct Government financing could not be determined at the time.
32. The proposals of the Penn-Ohio-Erie combination and the Birdsboro company were reviewed by a 3-member advisory committee of foundry experts and by Chrysler. The advisory committee on December 12, 1951, recommended to the Chief of Army Ordnance that on- the basis of technical and operating considerations, the Birdsboro company should be selected as the operator of the plant. Chrysler made a similar recommendation.
33. On December 17,1951, Penn-Ohio's counsel telephoned the Army and advised that Erie was unwilling to assume responsibility for operation of the Birdsboro plant as prime contractor. He stated, however, that Penn-Ohio stood firm on the proposals submitted prior to December 12, 1951, and! that in its opinion, there was no valid reason for the destruction of Penn-Ohio, a small but reputable business. About this time the president of Erie, in the course of a telephone conversation with an Army representative, said that Erie had all the casting work it could handle and, in his opinion,, should "bow out" of the matter entirely.
34. On December 19, 1951, Army Ordnance recommended to Army G-4 that the facility contract for the operation of the Birdsboro plant should be awarded to the Birdsboro company and that the Navy should be requested to initiate action immediately on the cancellation of Penn-Ohio's lease and the consummation of a new lease with the Birdsboro> company. By memorandum to the Under Secretary of the Army, dated December 20, 1951, Army G-4 said it was in complete agreement with Ordnance's recommendation. On December 21, 1951, the Under Secretary concurred in the recommendation of Ordnance and G-4.
35. On December 21, 1951, the Under Secretary of the Army sent a memorandum to the Assistant Secretary of the Navy reading in part:
1. This is to notify you that the Department of the Army, after exhaustive consideration of all factors including the proposals made by Penn-Ohio Steel Corporation, present tenant of the above plant, has determined that in the interest of national defense the above plant should be equipped and operated by Birdsboro Steel Foundry and Machine Company, Birdsboro, Pennsylvania, to manufacture armor castings in connection with the Army's contracts for tanks placed with Chrysler Corporation and other producers. The Chrysler Corporation concurs in this decision and has placed an order for castings with Birdsboro Steel Foundry and Machine Company as its subcontractor. The Army has issued a letter order to Birdsboro Steel Foundry and Machine Company to acquire and install the additional facilities required at the plant..
2. In accordance with the terms of Assistant Secretary Koehler's memorandum to me dated 3 July 1951, it is therefore requested that action be initiated to terminate the present lease agreement covering the plant between the Navy and Penn-Ohio Steel Corporation and that a new lease agreement with Birdsboro Steel Foundry and Machine Company be prepared and entered into as soon as the necessary approvals can be obtained from the Armed Services Committees of Congress.
3. This Department is agreeable to termination of the lease agreement with Penn-Ohio Steel Corporation under paragraph 9(ii) of the agreement which entitles the lessee to 120-days notice of intent to terminate, provided such notice of intent to terminate can be given promptly and provided further that the Penn-Ohio Steel Corporation consents during the 120-day period to reasonable entry rights by employees and contractors of Birdsboro Steel Foundry and Machiné Company and of the Army in order to commence the necessary re-equipping, rehabilitation and expansion work on the plant. It is understood that Penn-Ohio Steel Corporation is at present only using and occupying a portion of the plant and it should be practicable for the re-equipping and rehabilitation work to commence and continue concurrently with the phasing out of Penn-Ohio's operations.
4. However, if Penn-Ohio Steel Corporation will not agree to grant entry rights to employees and contractors of Birdsboro Steel Foundry and Machine Company and of the Army during the 120-day period, then this Department strongly urges that the Penn-Ohio lease agreement be terminated under paragraph 9(i), which does not require any prior notice of intent to terminate. This Department is entirely willing, and believes it to be fair, that Penn-Ohio have a proper and reasonable period of time to phase out and complete its operations at the plant, but does not believe that the present tenant should be permitted to adopt a position which prevents the necessary re-equipping and rehabilitation work going forward promptly.
5. In view of the extremely urgent nature of the Army's and the Marine Corps' requirements for medium tanks your earliest possible action on the above matters is requested.
NEGOTIATION'S BETWEEN PENN-OHIO AND NAVY IN DECEMBER; 1951 AND JANUARY 1952; APPROVED AGREEMENT OP JANUARY 11, 1952 POR SUSPENSION OP PENN-OHIO LEASE; UNAPPROVED MODIFICATION OP JANUARY 23, 1952
36. (a) On December 29, 1951, BuShips representatives had an exploratory conference with representatives of Penn-Ohio and Army Ordnance to consider a proposal which Mortimer S. Gordon, one of Penn-Ohio's counsel, had made to A. H. Stein, then counsellor BuShips (and presently Deputy General Counsel of the Navy), under which Penn-Ohio would make the plant available to the Birdsboro company by sublease. BuShips representatives advised that dual occupancy was considered impossible and that it was considered preferable to suspend Penn-Ohio's rights under its lease rather than have Penn-Ohio sublease to the Birdsboro company.
(b) In the course of the conference a Penn-Ohio representative stated that he would not comment on the correctness-of the Government's decision to award the plant to the Birds-boro company; that Penn-Ohio was interested in the length of time the plant would be needed for the production of armor castings; that he assumed the urgency was a present one and, therefore, there would be no need to sacrifice a good tenant beyond the point of the Government's need for production from the plant; and that when the tank program was finished, Penn-Ohio would like to pick up and operate the plant again. The Army Ordnance representative stated that the use of the plant was not intended to be a temporary one since production was scheduled through June 1954; he also stated that the Army was willing to work out a tapering-off program for Penn-Ohio's use of the plant. A BuShips representative commented that it was the intent of the Navy to give Penn-Ohio 120 days notice in order to alleviate as much as possible the blow to it. Penn-Ohio's representatives said that the company was willing to let the Government in the plant immediately to make surveys, etc. and that since the die was cast, Penn-Ohio would cooperate to the fullest in making the plant available for defense purposes. BuShips representatives then indicated (1) that the phasing of termination of Penn-Ohio's right to use was a matter to be determined among Army Ordnance, Penn-Ohio and the Birdsboro company, and (2) that further consideration would be given as to whether the plant could be made available to the Birdsboro company by sublease.
37. By memorandum of January 2, 1952, the Assistant Secretary of the Navy replied to the Under Secretary of the Army's memorandum of December 21, 1951, in which the latter had requested the Navy to terminate the Penn-Ohio lease and then lease the plant to the Birdsboro company. See finding 35. The Assistant Secretary of the Navy advised the Under Secretary that he had been informed by BuShips that Penn-Ohio desired to enter into a sublease with the Birds-boro company under which the latter would have the use of the plant for the Army tank program and Penn-Ohio would' retain its right to use the plant at the end of the program. He stated that he had instructed BuShips to pursue this suggestion because he was reluctant to terminate the Penn-Ohio-lease if there were some other way of achieving the goal desired by the Army, inasmuch as he had been told that such termination might well force Penn-Ohio out of business. The Assistant Secretary said that while he realized the Army's need for the plant was urgent, the time spent in negotiating a sublease from Penn-Ohio to the Birdsboro company would be well spent "since, if successfully concluded,. Birdsboro may get possession of the plant much sooner than if we terminate Pemi-Ohio's lease, in which case they would' be entitled to four (4) months' notice." The Assistant Secretary added that negotiations looking toward this arrangement were already under way but that if no agreement could be reached on the basis suggested by Penn-Ohio, the Navy would take appropriate steps to turn the plant over to-the Birdsboro company.
38. BuShips scheduled a meeting with BuDocks and Penn-Ohio on January 8,1952. Preliminarily on that day, BuShips-representatives met with BuDocks representatives and discussed the best method of getting Penn-Ohio out of the plant and putting the Birdsboro company in; whether the lease-should be terminated; and whether the Birdsboro company should be allowed to take over, giving Penn-Ohio the right to pick up the lease at the termination of the Army's need for tbe plant for the manufacture of tanks. The representatives •of the two Bureaus felt that while a bit more complicated to work out, Penn-Ohio should have the right to continue the lease.
39. (a) Following this preliminary meeting, BuShips and BuDocks representatives met with Penn-Ohio's president and Mortimer S. Gordon and his partner, David Brady, both of whom were counsel for the company.
(b) A BuShips representative and a BuDocks representative each prepared several days later a memorandum setting forth his version of events that transpired at this meeting. These memoranda are not in entire accord with each other as to material events that occurred at the meeting. Brady, Penn-Ohio's counsel, started taking notes at the meeting but was told by the Navy representatives that he needn't bother; that it was their practice to make notes; and that they would send Penn-Ohio a complete memorandum of the conference. Despite repeated requests, Penn-Ohio was not furnished such memorandum prior to the start of litigation.
40. At the time of the January 8, 1952 meeting, it was contemplated that the Birdsboro company lease would be for a term of two years, subject to extension for two years or such longer period as would be necessary to complete the Army tank program.
41. (a) At the January 8, 1952 meeting, Penn-Ohio reached agreement with the Navy representatives there present that the following tentative steps would be taken:
1. BuDocks would take the necessary steps to convert the Penn-Ohio letter of intent into a formal lease.
2. Penn-Ohio would submit in writing, for transmission to the Army, a plan for making space avilable as soon , as possible.
8. BuDocks would prepare a supplemental agreement giving Penn-Ohio the right to "re-lease" the plant a reasonable time after expiration or termination of the Birdsboro company lease, provided such event occurred within the full tezm of the original lease agreement. This supplemental agreement would provide for a renegotiation of the rental terms at such time as the plant could be made available to Penn-Ohio if there were then any changes in circumstances justifying a renegotiation (i.e., Penn-Ohio's occupying more or less space than it occupied under the original lease).
4. BuDocks would take steps to adjust the rent payable as space was given up by Penn-Ohio.
(b) In addition, it was agreed at the January 8 meeting that Penn-Ohio would:
1. Give up its right to "re-lease" the Birdsboro plant if another plant suitable to it was made available.
2. Submit to BuDocks a schedule indicating the method by which it would like to pay to the Government the funds accrued for obligated maintenance.
42. As set forth in finding 6(a), the Penn-Ohio letter of intent provided for a 5-year term from June 30,1948 to June 29, 1953, with Penn-Ohio having the option to extend the term of the lease for two additional terms of 5 years each by giving notice of election to extend 120 days prior to the expiration of the then existing term. According to the memorandum of the January 8, 1952 conference prepared by the BuShips representative (a copy of which the Navy had failed to send to Penn-Ohio prior to the start of litigation) , a member of BuShips stated in the course of the meeting that if the Penn-Ohio lease was to continue in a dormant, stage, Penn-Ohio should give notice of its desire to renew at the appropriate time. The memorandum prepared by the BuDocks representative does not mention this renewal requirement. There is no evidence that the above statement made by the BuShips member at the meeting was agreed to by the parties or that it represented the parties' understanding.
43. On January 9,1952, Stein, counsel for BuShips, acting pursuant to specific oral authorization by the Assistant Secretary of the Navy, conferred over the telephone with Gordon, counsel for Penn-Ohio, and reached the following agreement:
1. In lieu of "terminating" the Penn-Ohio lease, the "right" of Penn-Ohio to occupy the plant would be "sus pended" for the period that the plant was required by the Birdsboro company for the manufacture of armor castings for the Army tank program.
2. Upon completion of the Birdsboro company's use of the plant for that purpose, Penn-Ohio would have the "right" to return to the plant for the then remaining period of the original Penn-Ohio lease.
3. Penn-Ohio agreed to give the Birdsboro company immediate access to part of the plant and progressively to make the balance of the plant available.
4. Penn-Ohio would be permitted to use the steel-making facilities of the plant as long as possible without interfering with the Army's program.
5. Penn-Ohio agreed that, unless the Army otherwise consented, it would vacate the entire plant not later than 12:00 A.M., April 28,1952.
6. BuDocks would draft a detailed modification of the lease to give effect to the foregoing.
44. On January 11,1952, Stein sent the following letter to 'Gordon, the substance of which had been previously approved orally by the Assistant Secretary:
This will confirm our telephone conversation of January 9, 1952, regarding the Penn-Ohio lease. As you know, it was agreed at our last conference that, in lieu of terminating this lease in order to make the capacity of this plant available for the Army's tank program, the lease with Penn-Ohio would be modified to provide in substance for the occupancy of this plant by Birdsboro during the period that such occupancy is required by 'the Army, following which Penn-Ohio may resume its occupancy for the then remaining term of the lease.
You have, stated that your client is willing to give Birdsboro immediate access to part of the plant and progressively to make the balance of the plant available. You have requested that your client be permitted to use the steel making facilities as long as possible without interfering with the Army's program but have -agreed that, unless the Army otherwise consents, Penn-Ohio will vacate the entire plant not later, than 12:00 A.M., April 28,1952.
The Bureau of Yards and Docks is currently drafting -a detailed modification of the lease to give effect to the foregoing, which will be forwarded to you at an early date. Your cooperation in working out this difficult problem is much appreciated.
45. As a result of the Stein-Gordon conversation, coupled with the January 8,1952 meeting, it is found that the following agreement (hereafter referred to as the "January 11,1952 agreement") was reached between Navy representatives and Penn-Ohio:
1. The Penn-Ohio letter of intent would be converted into a formal lease agreement.
2. In lieu of "terminating" the Penn-Ohio lease, the "right" of Penn-Ohio to occupy the plant would be "suspended" for the period that the plant was required by the Birdsboro company for the manufacture of armor castings for the Army tank program.
3. Upon completion of the Birdsboro company's use of the plant for that purpose, the Navy would make the plant available to Penn-Ohio and Penn-Ohio would then have the option to resume .its lease and return to the plant for the then remaining term of the lease.
4. Should there, however, at the time the plant was made available to Penn-Ohio for re-occupancy, be a -change in circumstances justifying renegotiation (i.e., Penn-Ohio's occupying more or less space than it originally occupied), the rental would be then renegotiated accordingly.
5. Except for the specific modifications set forth in paragraphs 2 through 4, the terms and conditions in the event Penn-Ohio exercised its option to resume the lease would be those specified in the suspended lease.
6. Penn-Ohio would waive its option to resume the lease of the Birdsboro plant if another plant suitable and accéptable to it were made available.
7. Penn-Ohio would give the Birdsboro company immediate access to part of the plant and progressively make the balance of the plant available.
8. Penn-Ohio would be permitted to use the steel-making facilities of the plant as long as possible without interfering with the Army's program.
9. Penn-Ohio would vacate the entire plant not later than April 28,1952, unless the Army consented to further use.
10. BuDocks would adjust the rent payable by Penn-Ohio as the latter gave up space in the plant to make way for the Birdsboro company.
11. Penn-Ohio would furnish to BuDocks a schedule for payment to the Government of funds accrued for obligated maintenance.
12. BuDocks was currently drafting a detailed modification of the lease to give effect to the foregoing which was to be forwarded to Penn-Ohio at an early date.
46. The January 11, 1952 agreement was made with the full knowledge, oral approval and concurrence of the Assistant Secretary of the Navy and the Under Secretary of the Army.
47. Stein, who concluded the agreement with Penn-Ohio, contemplated that the formal terms and conditions of the lease modification, being prepared by BuDocks, would be submitted to the Assistant Secretary for formal approval. However, the Assistant Secretary, in effect, assured Stein that he would approve such terms when submitted to him if they were in accordance with the agreement, and that such approval would be merely pro forma.
48. A copy of Stein's letter of January 11,1952, to Gordon was forwarded to an assistant to the Under Secretary of the Army who sent it to the Under Secretary with the following comment:
Gordon, one of the attorneys for Penn-Ohio, has orally agreed to all of the contents of this letter. Consequently, as of now, Penn-Ohio is bound to vacate the entire Birdsboro plant, including furnaces, by April 28, 1952 (104 days from today), unless the Army otherwise agrees. Although the Penn-Ohio agreement to the terms of this letter is only oral as of now, I hardly think they will renege on the commitment.
49. On January 16,1952, Brady, one of Penn-Ohio's counsel, wrote Cochrane, the contracting officer for BuDocks, enclosing a sketch prepared by Penn-Ohio showing the area, comprising 108,250 square feet, which it was prepared to release immediately. Brady stated he understood BuDocks •was going ahead with the preparation of papers in accordance with the understanding reached at the January 8th conference. He said that he had not yet received a copy of the memorandum of the conference and requested that he be sent such a copy at the Bureau's earliest convenience.
50. By letter dated January 17, 1952, BuShips sent Gordon, Brady's partner, the following letter which incorporated the concluding parts of the memorandum prepared by a BuShips representative setting forth the latter's version of the January 8th conference:
At a conference held in the Bureau of Ships on 8 January 1952, a tentative program of steps to be taken in connection with the adjustment of the rights and obligations under Letter of Intent NOy(R)-60049 (Penn-Ohio Steel Corporation) was outlined as follows:
a. The Bureau of Yards and Docks would take the necessary steps to make the Letter of Intent into a firm lease.
b. Penn-Ohio would submit in writing for transmission to the Army a plan for making space available as soon as possible.
c. The Bureau of Yards and Docks would prepare a supplemental agreement giving Penn-Ohio the right to "re-lease" the plant after completion of the tank program within a reasonable time after expiration or termination of the Birdsboro lease as determined by the Secretary of the Navy, providing such event occurred within the full teim of the original Penn-Ohio lease agreement. This supplemental agreement would provide for a renegotiation of the terms at such time as the plant could be made available to Penn-Ohio if there have been any changes in circumstances justifying a renegotiation.
d. The Bureau of Yards and-Docks would take steps to adjust the rent payable as space is given up by Penn-Ohio.
e. Penn-Ohio agreed to give up its right to "re-lease" the subject plant if another suitable plant was made available to it.
f. Penn-Ohio agreed to. submit to the Bureau of Yards and Docks a schedule indicating the method by which it would like to pay to the Government the funds accrued for obligated maintenance.
ADDENDUM:
Following the conference, Mr. Gordon and Mr. Stein, Counsel for the Bureau of Ships, had a telephone conversation, which was confirmed by letter of 11 J anuary 1952, to the effect that Penn-Ohio would vacate the plant on 28 April 1952 (120 days from 29 December 1951) unless the Army consents to further use.
51. Brady, in reply to this communication from BuShips,. sent the following letter on January 23, 1952, to Cochrane, the contracting officer of BuDocks:
At the suggestion of Cdr. Simmons, I am writing you in reference to the subject matter of his letter to Mr. Gordon, dated January 17, 1952, regarding our conference of J anuary 8,1952. I called you yesterday morning to make sure that we understood each other, particularly with regard to several of the items referred to in that letter.
With respect to items a and b, we are in complete, agreement. In fact, you have already received a sketch. indicating the space which has already been made available for occupancy by Birdsboro Steel & Foundry-Company.
With respect to item c, you agreed with me that it was; understood that these facilities are being transferred to» Birdsboro for the manufacture of armor castings required by the Tank Program and for no other purpose;; and that this transfer contemplated a lease to Birdsboro-for a period of two years with an option to renew for two years, subject to termination at any time if the facilities are no longer required for the manufacture of armor castings for the Tank Program. The period of' such occupancy by Birdsboro is to be added on to the end. of the term of Penn-Ohio, provided that such additional period does not extend Penn-Ohio's lease, including options for renewal, beyond June 30,1967.
With respect to item e, it was understood and agreed' that surrender by Penn-Ohio of its right to "re-lease"' in case another suitable plant is made available means, another plant suitable and acceptable to Penn-Ohio.
The only thing left somewhat vague was how long-Penn-Ohio will be permitted to occupy the steel making-facilities after April 28, 1952 — not as a matter of right but on the basis of good faith, continued maximum production, preservation and maintenance of a complete labor force efficient in the operation of these furnaces,, and the avoidance of needless injury to an excellent and. cooperative small business.
After my conversation with you yesterday morning, I talked with Col. Silvey, Mr. Snow and with you a second time. Col. Silvey called me again yesterday afternoon.. I talked with him a second time and at his request called. Col. G-hormley, the Philadelphia Ordnance Officer, and discussed the matter with him. The substance of these-conversations confirmed the understanding that while-we may be required to surrender-the balance of the facilities on April 28,1952, it was further understood that, the Army will consent to and permit the continued use-by Penn-Ohio of the steel making facilities until they are required for- the manufacture of armor castings for-the Tank Program.
Col. Ghormley and Col. Silvey both stated that they were in agreement and that they were appreciative of the cooperation they had received from Penn-Ohio.
52. The day before he sent the January 23 letter, Brady-called Cochrane and read the letter to him in draft form. Cochrane agreed with its contents but suggested that it be-sent to Commander P. J. Simmons, Head of BuShips Commercial Facilities Branch. Brady then called Simmons;, was connected with Paul Snow, Assistant Counsel of Bu-Ships (who was present at the January 8 conference), and. read the letter to him. Snow said BuShips was in agreement with it and that it was correct but that since BuDocks. was in charge of the lease, the letter should be addressed to* Cochrane of BuDocks with a copy to BuShips.
53. (a) Navy route sheets are a system for conveying information within the organization. Customarily a route-sheet would be attached to an incoming letter by the mail' room, which would then route it to offices through which the-correspondence passed.
(b) When BuShips received a copy of Brady's letter of' January 23, L. M. Bhoads, an employee in the BuShips Commercial Facilities Branch and a participant in the January-8, 1952 conference, noted on the margin of the letter, opposite the words in the third paragraph "and for no other purpose"' (referring to the restriction on the Birdsboro company's-right to use), the word "No" with his initials. He again wrote "No" with his initials opposite the statement in the: same paragraph that the period of occupancy by the Birds-boro company was to be added to the term of the Penn-Ohio lease. Snow wrote on a route sheet attached to Brady's letter of January 23: "As far as I know, we don't intend to restrict Birdsboro's right to use exclusively for the tank program." H. R. Benson, an assistant to the Head of BuShips Commercial Facilities Branch, who also participated in the January 8 conference, wrote on the same route sheet: "Jack Cochrane apparently held the door open to Penn-Ohio as to whether the period of occupancy by Birdsboro should be added to the Penn-Ohio lease if and when resumed. These matters should be resolved with Cochrane." Stein wrote the following comment on the route sheet-: "This is certainly a case of too many cooks. This (para. 3) [of Brady's letter] is not my understanding of our deal."
(c) Prior to the start of litigation, Penn-Ohio had no knowledege of the foregoing comments.
54. Paragraph 3 of Brady's letter of January 23, 1952, constituted, in effect, a modification of the January 11,1952 agreement in the following respects: '
1. Paragraph 3 of Brady's letter of January 23 stated that the facilities were to be transferred to the Birds-boro company for the manufacture of armor castings required by the tank program, "and for no other purpose." The January 11 agreement did not include that restriction.
2. Paragraph 3 of the letter stated that the transfer contemplated a lease to the Birdsboro company for a period of two years, with an option to renew for two years. The January 11 agreement did not include this restriction.
3. Paragraph 3 of the letter stated that the period of occupancy by the Birdsboro company was to be added on to the end of the term of the Penn-Ohio lease. The January 11 agreement was that Penn-Ohio would have a right to return to the plant for the then remaining term of the Penn-Ohio lease.
55. (a) Navy representatives, including Simmons, the Head of BuShips Commercial Facilities Branch, and Snow, the Assistant Counsel of BuShips, held a conference with Army and Birdsboro company representatives on April 23, 1952, and indicated, in effect, that under the agreement with Penn-Ohio the period of occupancy by the Birdsboro company was to be added on to the end of the term of Penn-Ohio. Thus these Navy representatives pointed out that after the Birdsboro company "ceases to use the plant for the purpose of the armor castings program, the present Penn-Ohio lease is 'revived' — i.e., Penn-Ohio has a right to go back into possession of the Navy-owned portion of the foundry for the balance of its lease (a year and a half, plus options to renew for two additional five-year terms)
(b) There was discussion at the April 23,1952 conference as to whether it would be possible or practicable for Penn-Ohio to exercise this right, since the Navy plant would by then have been drastically altered and improved and be largely surrounded by new Army construction — which Penn-Ohio would not have any right to use under its lease. No solution of this problem was reached. However, the Navy representatives said that they believed they could bargain out a satisfactory solution with Penn-Ohio when the time came, even assuming that at such time Penn-Ohio was still interested in enforcing its lease. They also pointed out that the Penn-Ohio lease gave the Government an absolute termination right where required in the interest of national defense.
56. The record establishes that although the modification to the J anuary 11 agreement contained in the third paragraph of Brady's letter of January 23 was agreed to orally by Cochrane, the contracting officer of BuDocks, he at no time thereafter submitted such modification (hereafter referred to as the "January 23, 1952 modification") to the Secretary or Assistant Secretary of the Navy for approval. Nor was there Secretarial approval or knowledge of such modification.
57. On January 24, 1952, the Chief of BuShips wrote to the Chief of BuDocks requesting the latter Bureau to take steps toward modifying the existing contract with Penn-Ohio as "agreed" in an enclosed copy of Stein's letter to Gordon dated January 11,1952. The memorandum stated that that letter "of which the Assistant Secretary's office was advised and copy of which was furnished that office, outlines the agreement worked out with. Penn-Ohio wherein Penn-Ohio agrees to vacating the plant in favor of Birdsboro for a period of time."
58. On January 28, 1952, Cochrane wrote Penn-Ohio in part:
It is requested that you surrender immediately to Mr. H. F. Cox, the Resident Officer in Charge of this Contract, 108,250 square feet of space as delineated on the photostat attached hereto entitled "Location of 12 Watch Clock Stations"; it is also requested that you surrender the remainder of the facility to the Resident Officer in Charge not later than 12 A.M. April 28, 1952, unless the Chief, Philadelphia Ordnance District (Department of the Army) otherwise consents.
In consideration of the surrender of this space at these times, the Department will negotiate a special agreement with you, in accordance with the terms agreed upon at the conference of January 8, 1952, which will suspend the operation of the lease during this period of special use. The final terms of the special agreement are, of course, subject to the approval of the Secretary.
59. Before sending the letter, Cochrane read it over the telephone to Brady who raised no question about it.
PERFORMANCE BX PENN-OHIO,' SURRENDER OF PLANT,' EXECUTION OF FORMAL LEASE BETWEEN PENN-OHIO AND NAVY
60. Penn-Ohio performed its commitments to the Navy in good faith and in conformity with both the January 11,1952 agreement and the January 23 modification. Thus it granted immediate access to the plant and surrendered 108,250 square feet of plant space. On April 28, 1952 it surrendered the remaining plant space comprising about 300,000 square feet. On May 20,1952 Penn-Ohio submitted to the Navy a schedule for payment of accumulated maintenance.
61. Penn-Ohio continued to make steel ingots until April 28, 1952,' when it vacated the plant.
62. Effective April 28, 1952, Pemi-Ohio, with the consent of the Navy, canceled various insurance policies covering the plant. Further, it did not renew its performance bond in the amount of $50,000 which covered the period June 30, 1948 to June 30, 1953. See finding 6(f).
63. After vacating tbe Birdsboro plant, Penn-Obio did not engage in tbe production of steel ingots because it lacked a plant facility. It expected to resume occupancy when tbe period of special use of tbe plant by tbe Birdsboro company ended and in anticipation of re-entry, maintained a nucleus of supervisors for this purpose. Tbe company also continued its ownership and operation of three subsidiaries, two of which manufactured bumpers and grill guards for automobiles, as well as other accessories, while tbe third was engaged in warehousing steel and steel products.
64. (a) On May 19,1952, Penn-Ohio signed a formal lease prepared by the Navy which was signed on June 2, 1952, by Cochrane of BuDocks, on behalf of the Government. The terms and conditions of the formal lease were the same as the terms and conditions of the letter of intent except that the lease was effective as of July 8, 1948, while the letter of intent was effective as of June 30, 1948. Since Secretarial approval of the terms and conditions had been obtained in 1948, no additional Secretarial approval of the lease was obtained.
(b) The formal lease to Penn-Ohio was approved by the Armed Service Committees of Congress.
(c) The January 11,1952 agreement amending the Penn-Ohio lease was not approved by the Armed Services Committees of Congress.
LEASE BETWEEN NAW AND BIRDSBORO COMPANY
65. On February 25, 1952, the Chief of BuShips sent a memorandum to the Secretary of the Navy requesting approval of the proposed terms and conditions for modifying the Navy's old lease with the Birdsboro company. BuShips stated in the memorandum that the Birdsboro company had indicated that it would not accept an initial term longer than 2 years; that the company had further requested the options for renewal be three two-year periods rather than three five-year periods; that in the proposed lease there had been added the right of the Government to terminate upon 60 days written notice whenever the Secretary determined the facilities were no longer required for the tank program; and that the foregoing modifications were acceptable to BuShips. In its memorandum BuShips advised the Secretary that by letter of January 28, 1952 (see finding 58), notice was sent Penn-Ohio terminating its right to use the plant and that it was stated in that communication that the Navy "will negotiate a special agreement with Penn-Ohio suspending the operation of its lease during the period of special use by Birdsboro" and that "The final terms of such special agreement will be subject to the approval of the Secretary of the Navy." BuShips further stated that the Army had advised that time was a very vital factor and that to avoid the delay entailed in securing Congressional approval, the Bureau proposed to amend the old lease contract with the Birdsboro company rather than enter into a new agreement under the Military Leasing Act. Attached to the BuShips memorandum was a document setting forth the general provisions for the proposed lease to the Birds-boro company modifying and superseding the old lease contract.
66. The Chief of Naval Material recommended that the Secretary approve the BuShips request.
67. On March 6, 1952, the Assistant Secretary by memorandum approved the request and authorized BuShips to amend and reinstate the old lease contract with the Birds-boro company on the terms and conditions set forth in the BuShips memorandum.
68. (a) On April 29, 1952, Buships entered into a lease contract with the Birdsboro company superseding the old lease with that company. This new lease, which covered use only of the Navy-owned facilities (i.e., the existing plant), contained the following provisions:

WHEREAS, pursuant to the provisions of Article 13 of Contract NObs-420 as amended, the Department leased to the Penn-Ohio Steel Corporation of New York certain of the facilities subject to such prior rights of the Contractor as the Contractor may enjoy by virtue of Contract NObs-420 as amended; and
WHEREAS, it has been determined that it is necessary in the interests of national defense, to make the facilities subject to said Contract NObs-420, as amended, including the aforesaid pattern storage area, available to the Contractor for the purposes of performing work for the Government in connection with the production of tank hulls and turrets and other work; and
WHEREAS, it has been determined that the use of the facilities by Penn-Ohio Steel Corporation under the aforementioned lease with the Department, be suspended during the period of such use; and
WHEREAS, the Government and the Contractor desire to supersede their respective rights and obligations under Contract NObs-420 as amended and supplemented, by the respective rights and obligations hereinafter in this contract set forth;
*
(b) Among other things, the new lease contract with the Birdsboro company required an annual rental of $474,189.56, viz. 61/2% of $7,295,224 (which was established as the acquisition cost of the facilities for purpose of the contract). The contract provided for termination:
(b) Upon not less than sixty (60) days written notice to the Contractor whenever the Secretary shall determine that the Facilities are no longer required for production in connection with the tank program for which the Plant is being activated;
The contract also gave the Navy the right to terminate on the following additional bases, among others: (1) at any time during any national emergency declared by the President or Congress; (2) upon not less than 60 days notice to the company whenever the Secretary determined that the interests of national defense required such termination.
69. (a) Article 3 of the Birdsboro company lease contract entitled "Term" read as follows:
The Contractor's right to use the Facilities shall be for a period of two (2) years commencing on the date first above written unless sooner terminated as herein provided. The Contractor shall have the. right to. extend such right to use for three (3) additional periods of two (2) years each upon ninety (90) days written notice delivered to the Department prior to the expiration of the then current term and upon such terms and conditions as may be agreed upon by the Department and the Contractor.
(b) Article 4 of the lease contract entitled "Use" provided as follows:
Tbe Contractor shall have the right to use any or all of the Facilities in the performance of work for the Government and others but shall, with respect to any such use, give such priority to work for the Government as the Department may from time to time reasonably require. The Contractor shall not be entitled to use the Facilities for any purposes which will impair the immediate utilization of the Plant for the production of heavy castings. The Contractor shall notibe entitled to use any of the Facilities at locations other than at the Plant without the prior written approval of the Department.
(c) The Birdsboro company lease in the official files of BuDocks contained the following handwritten marginal notations of W. W. Brunson, who was the assistant to the contracting officer of BuDocks:
In the margin opposite Article 3, Brunson wrote "Departing from agreement with Penn-Ohio."
In the margin opposite Article 4, Brunson wrote "Departure from agreement with Penn-Ohio."
(d) An undated and unsigned memorandum from the files of BuDocks, in the handwriting of Brunson, summarized various terms and conditions of the Birdsboro company lease. The memorandum contained notations that the term of the lease to the Birdsboro company for two years from April 29, 1952, with the right to extend for three additional periods of two years each was "different from P.O. [Penn-Ohio] agreement." The memorandum also stated that the "Use" was "different from P.O. [Penn-Ohio] agreement."
(e) Brunson was not present at the January 8, 1952 conference, nor does the record show that he participated personally in the prior negotiations with Penn-Ohio.
70. The Navy's new lease contract with the Birdsboro company did not contravene the January 11,1952 agreement between the Navy and Penn-Ohio. The new lease was, however, contrary to the January 23,1952 modification in the following respects: first, the January 23 modification contemplated a lease to the Birdsboro company for two years, with an option to renew for two years, whereas the actual lease to the Birdsboro company, while for a two-year period, gave the company renewal options for three periods of two years each; second, under the January 23 modification the facilities were to be transferred to the Birdsboro company for the manufacture of armor castings required by the tank program "and for no other purpose", whereas the lease gave the Birdsboro company the right to use the facilities in the performance of work not only for the Government but for others as well.
71. During the period from May 1952 to October 1952, the Birdsboro company was permitted to manufacture at the Birdsboro plant steel ingots for commercial use. It started production of tank castings in late October 1952.
DISCUSSIONS AND EXCHANGE OE CORRESPONDENCE BETWEEN PENN-OHIO AND NAVY DURING PERIOD MAY 1952 TO AUGUST 1953 REGARDING OBLIGATED MAINTENANCE AND "REVERTER AGREEMENT"; navy's RECEIPT OE INFORMATION EROM ARMY CONCERNING SUBSTANTIAL INCREASE IN CONTEMPLATED EXPENDITURES FOR PLANT; BUDOCKS PROPOSAL TO TERMINATE PENN-OHIO LEASE AND BUSHIPS OBJECTIONS THERETO; RESOLUTION OE BUREAU DIFFERENCES J SUBMISSION BY BUDOCKS TO PENN-OHIO OE PROPOSED "REVERTER AGREEMENT" DIFFERING EROM JANUARY 11, 1952 AGREEMENT AND JANUARY 23, 1952 MODIFICATION
72. On April 11, 1952, the Under Secretary of the Army wrote the Assistant Secretary of the Navy pointing out that during the original Army-Navy negotiations it was estimated that the Birdsboro plant could be placed in production at an expenditure of less than $10,000,000, but that it had subsequently developed that the Army's cost for rehabilitation and expansion of facilities might approach $32,000,000, or more than four times the $7,500,000 original cost of the facility.
73. At a meeting with Army and Birdsboro company representatives on April 23, 1952 (see finding 55 (a)), the Navy •legal representatives stated that the Birdsboro problem was becoming so complicated they felt that Navy should reconsider, its initial decision to retain control of the plant; they also stated they would recommend to higher authority that the entire plant be turned over to Army jurisdiction, even though such a request by the Army had been rejected by the Navy the previous year.
74. (a) On May 20,1952, Brady wrote Cochrane advising that Penn-Ohio had executed the definitive lease, and that there remained for completion "in accordance with our understanding, provision for the payment of the balance of the maintenance fund and the execution of the reverter or 're-lease' agreement." Brady stated that Penn-Ohio, in accordance with its understanding and at Cochrane's request, surrendered more than one-half of the plant's premises in January 1952 and continued progressively with the surrender of the space until April 28,1952, at which time it surrendered and turned over the balance of the premises. He also stated that although the premises were surrendered on April 28, full rent was paid through May 9 so that Penn-Ohio was entitled to a substantial credit on account of overpayment of rent. Brady proposed the payment of accumulated maintenance as follows: (1) the payment of $50,000 upon the release of the bond, and in addition, the application of all credits Penn-Ohio was entitled to receive on account of rent paid; (2) payment of the balance in three equal installments on July 9, 1953, July 9, 1954 and July 9,1955.
To expedite completion of the matter, Brady suggested a conference at Cochrane's early convenience.
(b) On June 4, 1952 BuDocks wrote the Fourth Naval District enclosing a copy of Brady's letter and requested advice as to the accrued maintenance remaining unobligated as of April 28, 1952. On June 24,1952 BuDocks received a report of audit stating that the unobligated maintenance on April 28,1952 amounted to $307,611.42, and that this amount accrued from the inception date of the (formal) lease, which was July 8, 1948.
(c) On August 4, 1952, Cochrane wrote Brady that in view of the information contained in a final audit report recently received, Penn-Ohio's proposal for deferred payment of accumulated maintenance obligation was not acceptable. He requested that Penn-Ohio representatives be present at a conference with Navy representatives to discuss this obligation and an amendment to the lease. Thereafter a conference was scheduled for August 21, 1952.
(d) Meanwhile, on August 12, 1952, Cochrane wrote Brady enclosing an estimate of the unliquidated obligations of Penn-Ohio to the Government as of April 28, 1952, in the tentative amount of $292,064.28, which amount he indicated included rent credits for space released prior to April 28, 1952.
75. On August 21, 1952, Brady and a Penn-Ohio official met with Brunson, Cochrane's assistant (see finding 69(c)), and another BuDocks representative. During the conference there was a discussion regarding the amount of obligated maintenance in the course of which a number of items were reviewed. Following this, the Penn-Ohio representatives brought up the question of the "reverter agreement". Brun-son said that BuDocks wanted to do one thing at a time, to which Brady responded that the meeting had been called specifically for the purpose of dealing with both accrued maintenance and the reverter agreement, and that the latter matter had already been long delayed. Brunson then said that it could well be that the Navy would not be in a position to go through with the reverter agreement because it had put it beyond its power to keep the agreement. He added that Penn-Ohio would find out what he was talking about when it got a copy of the Birdsboro company lease. Brady then requested a copy of that lease but Brunson indicated that he ought to ask BuShips for it.
76. On August 26,1952, BuShips sent Brady, pursuant to the latter's request, a copy of the Birdsboro company lease.
77. (a) On September 26,1952, Cochrane wrote Brady demanding that Penn-Ohio pay the United States the amount of $292,064.28.
(b) Brady replied on October 1 that in view of the parties' understanding, Cochrane's letter demanding payment of $292,064.28 was quite unexpected. He said that at the August 21 conference there was an extended discussion regarding the amount and method of payment; that it was understood that the correct amount of obligated maintenance, after allowance for proper credits, would be substantially less than the above figure, and would be paid in installments over a period of time; and that it was also understood that the final amount and method of payment would be determined and agreed upon after recheck and further conference in the light of additional information. Brady said it was also understood that such a conference would be arranged by Cochrane's office to consider not only the amount of obligated maintenance but the final form of the reverter agreement; and that, in fact, it was suggested by Cochrane's office that such a conference would be arranged with BuShips representatives present so that both matters could be disposed of at the same time. Brady concluded by saying that he had been waiting to hear from Cochrane, and that he was prepared to sit down and confer with him with respect to the amount of obligated maintenance and the final form of the reverter agreement.
(c) On October 22, 1952, the Director of BuDocks Property Administration Division acknowledged Brady's letter of October 1 and said that "at the time of the last conference with you (August 21, 1952) it was understood that the amount due the Government out of the accumulated maintenance and the negotiation of a form of 'reverter agreement' would be handled as separate matters." Pie indicated that it was believed preferable to handle the matters separately, and accordingly requested Penn-Ohio to submit an itemized statement of the balance due for maintenance so that it' might be compared with figures prepared by the Navy. He also asked Brady to suggest a date for a conference to discuss the' form of the reverter agreement.
¡78. A meeting was held on December 4,1952, between representatives of Penn-Ohio, BuShips, BuDocks and the Fourth Naval District to discuss the amount of money due the Government by Penn-Ohio and Penn-Ohio's right of reentry into the plant. Brady stated that Penn-Ohio should not be responsible for rent or maintenance amounting to $92,000 between December 29, 1951 and April 28, 1952 on the basis of his understanding that Penn-Ohio would be allowed to continue its operation of the plant, but with a gradual phasing out of its operations. On this basis, Brady contended that Penn-Ohio owed $210,249.79 which it proposed to pay by making a payment of $50,000 on release of its bond and the balance in three equal installments each year. Brunson requested that Penn-Ohio submit in writing its "proposal of settlement" and indicated it would be given further consideration.
As to the "reverter agreement", Brady said (1) that Penn-Ohio should have re-entry rights at the end of the two-year lease to the Birdsboro company or an extension of two additional years, or at any time prior to the termination of the Birdsboro company's lease if that company was not using the plant to make forgings for the tank program; and (2) that the period of time Penn-Ohio was out of the plant should be added on to its term. He contended that this was his understanding of the January 8, 1952 conference, pointing out that he had called Simmons of BuShips and Cochrane of BuDocks on January 22, 1952, and that they had agreed with his interpretation which he then put into writing in the letter sent to BuDocks on January 23, 1952. See findings 50-52; BuShips representatives said this was not in accordance with their understanding and that such interpretation was contrary to the minutes of the January 8 meeting and to the statements made: (1) in Stein's letter of January 11, 1952 to Gordon (see finding 44); (2) in.the BuShips letter of January 17 to Gordon (see finding 50); and (3) in Cochrane's letter of January 28 (sée finding 58). Brady indicated he was willing to go to court to sustain Penn-Ohio's rights as he understood them. It was agreed that the matter would be studied further and that Penn-Ohio would be informed.
79. (a) The.BuShips memorandum of the December 4, 1952 meeting was circulated among BuShips personnel. L. M. Rhoads of the BuShips Commercial Facilities Branch wrote on the attached route slip:
In view of the extent of modification being done to the plant by the Army, the extent of the Government investment at the plant through the Army's program, and the reported intent of the Army to purchase the Birdsboro land, I believe that any agreement with Penn-Ohio which so vitally affects the future of this plant should be weighed very carefully and should be taken only with the full knowledge or the Army. In fact, considering all the aspects, I believe termination of all of Penn-Ohio's rights would be in the best interests of the Government. In the event that plant should again become available for general leasing, Penn-Ohio's bid (if made) should be given preferential treatment.
(b) Simmons, the Head of the BuShips Commercial Facilities Branch, wrote on the route slip:
It was made very clear to Penn-Ohio that the Army's use of Birdsboro was for the duration of the tank program 4-10-15 or any required no. of years. It is pure nonsense for Penn-Ohio, knowing that the Army was going to spend up to $30,000,000 for adaptation and new f acihties at the plant, to assert that the Army had to get out in four (4) years. This is what we get for attempting to be a good Samaritan, and I sincerely hope we are not manouvered into such a position again. I strongly recommend termination of all of Penn-Ohio's rights, in view of this interjection of, what I cannot help but suspect, bad faith.
(c) Snow, the Assistant Counsel of BuShips, made the following comment on the route slip:
Even if Brady is guilty of bad faith, which I question, I don't think we should repay bad faith with bad faith.
(d) At the time of the January 11, 1952 agreement and the January 23, 1952 modification, Penn-Ohio did not know that the Army was going to spend some $80,000,000 on the Birdsboro plant. Nor was the Navy advised until April 11, 1952 that the Army contemplated an expenditure of this amount. See finding 72.
80. Pursuant to the request made by Brunson at the December 4, 1952 meeting (see finding 78), Brady wrote him on December 12,1952 stating that the amount owed the Government by Penn-Ohio was $209,249.79 and that the figure of $210,249.79 given at the last conference contained a typographical error. Attached to this communication was a schedule showing how this amount was reached. Brady further indicated that "it would seem that in view of the expenditures by Penn-Ohio of approximately $50,000 for insurance and protection services during the period December 28, 1951 to April 28, 1952, some additional adjustment or allowance should be made." He also indicated that at the previous conference there had been a discussion of the re-verter agreement and pointed out that he had then stated that Penn-Ohio "expected a Reverter in accordance with the terms agreed upon and set forth in writing."
81. (a) On December 23,1952, Simmons, on behalf of the Chief of BuShips, wrote BuDocks that there was some difference of opinion between Penn-Ohio and the Navy as to the circumstances under which the Navy would permit Penn-Ohio to again lease the Navy's facilities. Simmons stated that in keeping with the conference of January 8, 1952 BuDocks should, subject to approval by the Secretary of the Navy, prepare an agreement between the Navy and Penn-Ohio providing as follows:

a. Within a reasonable time after expiration or termination of contract NObs 3116 with Birdsboro Steel Foundry and Machine Company and Birdsboro Armor-cast, Inc. (it being understood that the Secretary of the Navy may terminate NObs 3116 when the Navy facilities are no longer required in connection with the tank program), and providing such termination or expiration occurs within the full term of the original Penn-Ohio lease agreement, Penn-Ohio and the Navy shall negotiate for the use by Penn-Ohio of the Navy facilities for the then remaining term of the Penn-Ohio lease agreement ; [emphasis in original]
b. The terms and conditions of such use by Penn-Ohio shall be negotiated at the time Navy facilities can be made available in light of circumstances and conditions then existing;
c. Pemi-Ohio shall give up any right it might have to again lease the Navy facilities in the event another suitable plant is available for use by Penn-Ohio.
‡ íi* ^ $
(b) As set forth in findings 93 and 94, infra, the formal agreement thus proposed by BuShips was at variance with the January 11, 1952 agreement and the January 23, 1952 modification.
82. On January 12, 1953, a representative of the Army Engineers met with BuShips representatives to discuss the status of the Government's rights under the Birdsboro company's and the Penn-Ohio's leases. The BuShips representa- lives advised him that the Bureau bad made an informal commitment to give Penn-Ohio the opportunity to again lease the Navy facilities after the Birdsboro lease expired or was terminated; that an agreement to such effect was being prepared by BuDocks; that Penn-Ohio's lease was not tolled but continued to run, even though suspended (otherwise the Birdsboro company's purchase option would be wiped out); and that the Navy did not contemplate releasing its interest in the plant as such production was required especially in the event of mobilization. After the conference a BuShips representative called Brunson of BuDocks and asked (1) that the Penn-Ohio agreement be expedited; and (2) that the Penn-Ohio agreement make clear that the Birdsboro company's prior rights were continuing and that Penn-Ohio's .time was continuing to run.'
S3, (a) Under the formal lease Penn-Ohio had the option to extend the term of the lease beyond July 7,1953, for two additional terms of five years each by giving notice of election to extend 120 days prior to the expiration of the then existing term; i.e., by March 9,1953 and March 9,1958.
(b) Penn-Ohio did not give notice of election to extend the term of its lease.
(c) There is no evidence that the Navy and Penn-Ohio agreed or understood that this requirement would continue in effect' during the period the Penn-Ohio lease was suspended. See finding 42.
84. Brady wrote Brunson of BuDocks on March 18, 1953, saying that he had had a number of conferences with him regarding obligated maintenance and the execution of the reverter agreement; that both matters were discussed in detail at the last conference on December 4, 1952; and that in accordance with Brunson's request he had written him on December 12,1952 summarizing the conference of December 4 and had received no reply to that letter nor heard from him regarding the matter. Brady added that there were disquieting rumors concerning the Penn-Ohio lease; that these rumors have "disturbed and upset some of our employees necessary to the operation of the plant when we resume possession"; and that to obviate the damage that rumors could cause, there was "need for re-assurance which can be accomplished by the formal execution of the reverter agreement." He again indicated that Penn-Ohio was prepared to arrange for the payment of obligated maintenance and to execute the formal reverter agreement "in accordance with the terms heretofore agreed upon and set forth in writing", stating that if Brunson thought a further conference was desirable, he was prepared to meet with him on short notice.
.85. (a) By memorandum dated March 3,1953, Army Engineers recommended to Army G-4 that "to avoid a scrambled facility" jurisdiction of the Birdsboro plant should be transferred from the Navy to the Army. Previously Brun-son has advised Army Engineers that the Navy had a "claim" against Penn-Ohio and, in turn, Penn-Ohio had a "counterclaim" against the Navy.
(b) On April 13, 1953 Simmons and other BuShips personnel met with an Army representative who advised that the Army wanted (1) to acquire the land under the Birds-boro plant, and (2) to have jurisdiction over the plant transferred from the Navy to the Army. One reason given for the latter request was that rent paid by the Birdsboro company to the Navy amounting to about $450,000 a year was an increased cost to the Army in its procurement of castings. Simmons indicated he could see no objection to the Army's acquiring the land; he also said "he could not state definitely what position the Navy would take regarding transfer of its interest to the Army but the matter would be considered favorably." He added that the first thing from the standpoint of the Navy would be to settle its relations with Penn-Ohio and that after that was settled, further consideration could be given to the Army's proposal to have jurisdiction transferred.
86. On the same day — April 13,1953 — Simmons and other members of BuShips met with Cochrane and Brunson of BuDocks. Simmons stated that the Army was proceeding to acquire the land underlying the plant from the Birdsboro company and intended to request the Navy to transfer its interest in the plant to the Army. After extended discussion, the BuDocks representatives "proposed to address a letter to the Bureau of Ships questioning the validity of Penn-Ohio's reentry rights in light of conditions that have developed since this matter was first proposed." "It was proposed that the Bureau of Ships, upon receipt of this letter, would address a request to the Secretary of the Navy requesting authority to terminate Penn-Ohio's rights" and that "[s]uch letter would mention the Army's proposal to purchase the land and their intent to request transfer of the facilities to the Army."
The Bureaus' representatives also agreed that if termination were approved, BuDocks would endeavor to secure payment of the remaining indebtedness of Penn-Ohio and if not successful, refer the matter to the GAO for collection.
87. As agreed at the April 18 meeting, the Chief of BuDocks addressed a memorandum on May 1, 1953 to the Chief of BuShips proposing to terminate the Penn-Ohio lease and make a new lease with the Birdsboro .company. Referring to the BuShips letter of January 24, 1952, requesting BuDocks to take steps toward modifying the existing contract with Penn-Ohio as agreed in the Stein letter of January 11, 1952 (see finding 57), BuDocks stated that at the time approvals were obtained to modify the contract with Penn-Ohio, the nature and extent of improvements the Army intended adding were not generally known by Navy representatives. BuDocks then pointed out that the Army was in the process of expending an additional $32,000,000 on the Birdsboro facilities and that in view of these recent developments, it was the BuDocks recommendation that the request contained in the BuShips letter of January 24,1952 to BuDocks should be reexamined and the Penn-Ohio lease be terminated in the interests of national defense, "instead of amending it to grant rights of reentry and reuse which may well be adverse to the interests of the Government as a whole."
88. The BuDocks recommendation to terminate the Penn-Ohio lease met with strong protests by several BuShips representatives. Thus Stem wrote the following comments on a Navy route sheet:
I strongly dissent from this proposed action. We made this "complicated" arrangement with our eyes wide open — and with the full knowledge, approval and concurrence of the Asst. Sec. Nav and Under Sec Army. We should not repudiate it now in the absence of compelling reasons to do so. In any event, if it is proposed to turn the cognizance of the plant over to the Army the decision should be left to the Army. I cannot conceive of any good reason why the Navy should go out of its way — as this appears to do — on its own motion to defeat our deal. No matter how we gloss over it in retrospect the Penn-Ohio eviction was a very tough action which could not reasonably have been anticipated at the time of entering into the lease.
Benson of BuShips commented:
I agree with 150 [Stein] that we made the deal with our eyes open and realized the difficulties that would ensue. Adm. Klein [Chief of BuShips] at the time was very adamant in his desire to retain the Navy facility. However, Perm Ohio has, at least verbally, refused to go along with the Dept's interpretation of the understanding reached. It is my opinion that Penn Ohio should have been offered a written agreement of suspension in accordance with the Dept's understanding and then if they refuse to accept, the Navy should terminate. We could not then be accused of a breach of faith. Recommend meeting with 700 [Admiral Klein] to resolve this problem.
Lt. Commander Underhill, successor to Commander Simmons as Head of BuShips Commercial Facilities Branch, made the following comments:
Apparently no actual "right of re-entry" agreement exists, but the government has obligated itself through verbal agreements which have been reducted to writing in minutes. Regardless of the legal validity of such verbal arrangements, they were apparently accepted in good faith by Penn-Ohio, and hence should be pursued in good faith by the government. _ I therefore feel that the gov't should offer such a clause in writing to Penn-Ohio. If rejected, I see no further obligation on our part. If accepted, such a clause would necessarily be binding on either the Navy or the Army, and would be a necessary encumbrance on any future dealings. Recommend we request BuDocks to make such an offer to Penn-Ohio, and crystalize the whole situation in writing. Will prepare if 700 [Admiral Idem] concurs.
89, On June 10, 1953, Underhill discussed the matter tele-phonically with Cochrane who said that BuDocks was "Strong in opinion" that the Navy "should not offer Penn-Ohio a right of re-entry." Underhill did not concur and instructed a subordinate to arrange a conference between BuDocks and BuShips.
90. On June 26, 1953, a conference was held between BuShips and BuDocks representatives to discuss a proposed reply by BuShips to the BuDocks memorandum of May 1, 1953 (see finding 87) in which BuShips proposed to request BuDocks to offer Penn-Ohio an agreement in accordance with the January 8,1952 conference and as set forth in various letters and memoranda. (Previously this proposed reply of BuShips had been discussed informally with Coch-rane of BuDocks who had indicated his disapproval of that approach.)
In the course of the conference, Stein said that "the Department had cut a deal in this particular instance and although some of the terms might not be as we would have liked them, it was done on a high echelon between the Assistant Secretary of the Navy and the Assistant Secretary of the Army and that we had a moral, if not a legal obligation to offer Penn-Ohio a supplemental agreement in accordance with our discussions." Brunson of BuDocks said, however, that in his estimation the situation had changed "since it would appear to be impracticable to lease to Penn-Ohio the Navy facilities after the plant is no longer needed by the Army for tank castings, since the Army is adding facilities in the amount of approximately thirty-two million dollars." Brunson further commented that Brady was trying "to whittle down what the Bureau considers the amount due the Government prior to the time the Army took over",- and that "Brady does not agree with the Navy's understanding of the conditions agreed upon relative to Penn-Ohio's reentry." BuShips representatives responded that BuShips, BuDocks and the Army were aware of the problems and difficulties that would be encountered and emphasized that the Navy should carry out its promises so that it could not be accused of bad faith. They indicated that BuDocks should send out the agreement to Penn-Ohio in accordance with the Navy's understanding and that if Penn-Ohio did not accept the agreement substantially as offered within a reasonable time, then a recommendation could be made to the Secretary for termination of Penn-Ohio's rights.
It was then agreed at the meeting that BuShips would forward the proposed letter to BuDocks and that BuDocks would prepare the necessary agreement to submit to Penn-Ohio. Following this meeting Underhill advised the Chief of BuShips that BuDocks agreed, after considerable discussion, to act on BuShips proposed letter and "offer Penn-Ohio the right of entry as originally agreed." Underhill further advised the Chief of BuShips that "They [BuDocks] do not feel Penn-Ohio would accept, and at that time, having fulfilled our moral obligation, a request for termination of Penn-Ohio lease will be submitted."
91. Following this conference with BuDocks on June 26, BuShips, on the same date, replied to the BuDocks memorandum of May 1, 1953, stating that in light of the January 8, 1952 conference and the BuDocks letter of January 28, 1952 to Penn-Ohio, it considered the Navy had a "moral, if not legal, obligation to offer Penn-Ohio a supplementary agreement in accordance with the 8 January 1952 conference."
BuShips further stated in this communication that the lease agreement with Penn-Ohio executed in May 1952 after the January 8 conference provided for a term of five years commencing July 8,1948 and ending July 7, 1953, and "allows for extension providing the lessee gives notice of its desire to renew at least 120 days prior to the expiration of the then current lease." BuShips said that "[i]n the conference of 8 January 1952 the attention of Penn-Ohio was invited to the necessity of giving timely notice of extension," adding: "Whether Penn-Ohio's right to extend its lease has modified, or is modified by reference (c) [BuDocks letter of January 28,1952] or other happenings is considered to be a subject for determination by the Bureau of Yards and Docks." BuShips then stated: "If the Bureau of Yards and Docks determines that Penn-Ohio's rights have not lapsed due to failure to give timely notice, the Bureau of Ships recommends that the Department fulfill its obligation by offering to Penn-Ohio an agreement in accordance with the 8 January 1952 conference . . .; further, that the period for acceptance be limited to a reasonable period to be specified." BuShips then said that if Penn-Ohio did not accept the agreement substantially as offered within the specified time, it would "concur in a recommendation to the Secretary for termination of Penn-Ohio's rights, the Department having fulfilled its obligations."
92. (a) On July 21,1953, Cochrane, on behalf of BuDocks, wrote Brady referring to the conference of December 4,1952 at which Penn-Ohio proposed to settle the amount due for maintenance obligation accrued and unpaid on the date of final vacation of the plant for the sum of $209,249.79, this figure being the balance remaining after applying against the gross amount due, the total amount of cash rent paid and accrued maintenance for the period from December 28,1951 until April 29,1952. See findings 78 and 80. Cochrane indicated that at the December 4, 1952 conference Penn-Ohio had proposed paying $50,000 immediately upon release of the performance bond and the balance in three equal annual installments thereafter. He recalled that Penn-Ohio in its letter of December 12,1952 (see finding 80) had qualified its offer by requesting an additional credit for fire insurance and protection service from December 28,1951 to April 28,1952— which offer, Cochrane pointed out, was not agreed upon at the December 4 conference.
Cochrane stated that on the basis of agreements reached at the December 4 conference, BuDocks was prepared to request the Secretary to approve an amendment to the Penn-Ohio lease which would provide that Penn-Ohio would pay to the Government a total of $209,249.79, with $103,083.26 to be paid on the date of execution of the amendment and the remainder to be paid in two equal installments on July 9, 1954 and July 9,1955. Cochrane stated (in accordance with the BuShips memorandum of December 23,1952, see finding 81(a)) that the amendment to the lease would further provide as follows:
Within a reasonable time after expiration or termination of the [Birdsboro company lease] (it being understood that the Secretary of the Navy may terminate [that lease] when the facilities are no longer required in connection with the tank program), and providing such termination or expiration occurs within the full term of the [Birdsboro] Lease Contract , Penn-Ohio and the Department shall negotiate for the then remaining term of the Penn-Ohio lease agreement. The terms and conditions of such use by Penn-Ohio shall be negotiated at the time the Navy facilities can be made available in the light of circumstances and conditions then existing.
Cochrane concluded by saying that if the above terms and conditions were satisfactory to Penn-Ohio, the Navy should be advised within 30 days so that action might be taken to submit the proposal to the Secretary for approval.
(b) The BuDocks letter of July 21,1953 contained nothing to the effect that action would be taken to terminate the Penn-Ohio lease unless the BuDocks proposal was accepted as submitted.
93. The "reverter" amendment proposed by BuDocks in its letter of July 21, 1953 was at variance with the January 11, 1952 agreement (see finding 45) in the following respects : First, the proposed BuDocks amendment would provide Penn-Ohio, in effect, an option to negotiate with the Navy for re-occupancy of the plant for the remaining term of the original Penn-Ohio lease, whereas the January 11, 1952 agreement gave Penn-Ohio the "right" to return to the plant for the then remaining period of the lease. Second, under the BuDocks proposed amendment, the option to negotiate would become effective only after expiration or termina tion of the Birdsboro company lease, while under the January 11,1952 agreement Penn-Ohio was given the "right" to return to the plant upon completion of the Birdsboro company's use of the plant for the manufacture of tank castings. Third, the proposed BuDocks amendment would leave the terms and conditions of Penn-Ohio's use indefinite and subject to negotiation at the time the Navy facilities could be made available, whereas under the January 11, 1952 agreement the terms and conditions for any renewed occupancy by Penn-Ohio for the then remaining period of the original lease would be those specified in that lease, subject to the proviso that when the plant was made available to Penn-Ohio for re-occupancy, should there be a change in circumstances justifying renegotiation (i.e., Penn-Ohio's occupying more or less space than it occupied under the original lease), the rental would be re-negotiated accordingly.
,94. The amendment proposed by Cochrane on behalf of BuDocks was at variance with the January 23, 1952 modification which Cochrane of BuDocks and Snow of BuShips had agreed to. See findings 50-56. As an example, while the BuDocks . amendment would provide Penn-Ohio an option to negotiate for use of the plant for the then remaining term of its original lease, the January 23,1952 modification specified that the period of occupancy of the plant by the. Birdsboro company was to be added on to the end of the term of Penn-Ohio, provided such additional, period did not extend Penn-Ohio's lease, including options for renewal, beyond June.30,1967. See finding 51. '
95. Brady replied on August. 19, 1953, to BuDocks letter of July 21, 1953 stating that as a result of conferences in. December 1951 and January 1952, a definite agreement was reached with respect to the delivery of the plant and the execution of the reverter agreement, the essential terms and conditions of which, he said, were in writing. He pointed out that at that time'it was understood, and Penn-Ohio was assured, that the definitive lease and reverter agreement would be promptly prepared and executed. Penn-Ohio, he said, had executed the formal lease submitted by the Navy,; but as yet, "almost two years after our. agreement, the formal. Beverter Agreement has not been prepared for execution."
Brady stated that when the Navy raised the matter of obligated maintenance, Penn-Ohio had advised that it was prepared to discuss and agree upon the proper amount and payment thereof; that it was prepared at the same time to execute the reverter agreement; and that after other conferences and a further lapse of time a conference was held on December 4, 1952 to agree on the amount of obligated maintenance and to conclude the reverter agreement. Brady pointed out that during the December 4,1952 conference the matter of obligated maintenance was discussed at length; that little time was devoted to the reverter agreement; and that the company's position was clear — it expected the formal reverter agreement to be in accordance with the terms previously agreed upon and set forth in writing. He said that as required in the December 4 conference, Penn-Ohio had submitted on December 12, 1952 a proposal in writing expecting that the matter would be concluded fairly and without undue delay, adding that the BuDocks letter of July 21, 1953, which (he said) came almost 8 months after the conference on December 4, 1952 "simply ignores the fact that the Plant was turned over to the representatives of the Army and its contractors in January 1952 and that in reality a substantial part of the expenditures for insurance and protection service were actually incurred in the interest and for the benefit of the Army and its contractors."
"With respect to the Keverter Agreement" (Brady continued) , "your letter of July 21, 1953, proposes a new and different agreement from that originally agreed to almost two years ago." He said that in light of the record, the proposal seemed "almost incredible"; that it was "not even a modification nor a variation of [the] original agreement; it proposes an entirely new and different agreement." He stated that the "record shows that, without fault on our part, we have suffered grievous injury and sustained great loss"; that the BuDocks "new proposal, made almost two years later, ignores, our original agreements and asks that we consent to conditions never before considered or discussed"; and that "we are at a loss to understand the change in your position."
In these circumstances, Brady said "it would seem advisable to arrange for a conference of all interested parties to consider and conclude a definitive and over-all agreement, with due regard for the rights of all the parties." He requested that the matter be given prompt attention and that Penn-Ohio be advised with respect to such a conference as soon as possible.
96. Brady's letter of August 19, 1953 to BuDocks was never acknowledged or answered.
PHASING OUT SEPTEMBER TO NOVEMBER 1953 OP USE OP BIRDS-BORO PLANT POR MANUFACTURE OP TANK CASTINGS J EXCHANGE OP CORRESPONDENCE AND DISCUSSIONS BETWEEN ARMY AND NAVY DURING PERIOD SEPTEMBER 19 5 3 TO MARCH 1954 REGARDING TRANSPER OP BIRDSBORO PLANT TO ARMY AND TERMINATION OP PENN-OHIO'S RIGHTS; TRANSPER OP PLANT TO ARMY IN APRIL 1954; TERMINATION BY SECRETARY OP NAVY ON JUNE 21, 1954, EPFECTIVE OCTOBER 19, 1954, OP ANY RIGHTS OP PENN-OHIO
97. (a) On September 16, 1953, the contract with the Birdsboro company for the manufacture of hull and turret castings for the tank program was terminated; the last heat was produced on September 18, 1953; and the production of castings for the Army tank program was completed on November 15, 1953.
(b) At no time thereafter did the Navy make the Birdsboro plant or any other suitable plant available to Penn-Ohio, nor at any time thereafter did the Navy permit Penn-Ohio to resume occupancy of the Birdsboro plant.
(c) As set forth in finding 63, Penn-Ohio, in anticipation of re-entry into the Birdsboro plant, maintained a nucleus of supervisors.
(d) Penn-Ohio would have resumed occupancy of the Birdsboro plant had the Navy made the plant available to it.
98. On September 24,1953, the Assistant Secretary of the Army wrote the Secretary of the Navy requesting that jurisdiction over the entire Birdsboro facility be transferred to the Army for two reasons: first, because the Army had expended about $28 million thereon, which was more than three times the cost to the Navy of establishing the facility in World War II; second, the Army desired to eliminate the recurring annual rental of $474,000 which the Army was required to pay through its contractor for use of the plant.
99. By memorandum dated October 6, 1953, BuDocks advised BuShips that in view of Brady's letter of August 19, 1953, it was again requested that the Secretary be asked to approve the termination of Penn-Ohio's lease for the reasons set out in its prior letter to BuShips of May 1, 1953. See finding 87.
100. (a) On October 29,1953, Army Ordnance representatives met with BuShips and BuDocks representatives to discuss termination of Penn-Ohio's rights and the transfer of the plant to the Army. The Army representatives desired to know the extent of the Penn-Ohio complications; also what steps and how much time would be required to complete transfer to the Army. The Penn-Ohio situation was reviewed ; drafts of separate letters regarding termination and transfer were read and discussed; Army representatives agreed as to the need to terminate Penn-Ohio's rights; and it was estimated that three to six weeks would be necessary to complete the transfer.
The Army representatives indicated that the plant was then non-productive; that the Army had spent about $32 million at the plant and would probably spend more; and that the Birdsboro company's right to use should be terminated to relieve the Army of the burden of paying rent. Army representatives also suggested that the Army take over the maintenance and protection of the entire plant. It was then agreed that the Navy would proceed as planned to seek approval of termination of Penn-Ohio's rights and transfer of the plant to the Army.
(b) After the conference Army Ordnance called BuShips to report that production at the plant would cease on November 15, 1953; that it was urgent to make stand-by arrangements as soon as possible; and that with funds already allocated the Army's planned expenditures at the plant would cometo $32,092,150.
101. On November 6,1953, a BuShips representative called a representative of Army Ordnance and advised him that the Penn-Ohio lease could be proposed for termination on two bases. The first course suggested was that termination be effected on the ground that the Government was unable to reach a satisfactory agreement with Penn-Ohio. However, it was indicated that this course would mean continued delay for further negotiations with Penn-Ohio and, in the end, the result would still be unsatisfactory since the plant would be in an encumbered status. The second course was for the Army to specifically request termination of the Penn-Ohio lease so that the Army would obtain an unencumbered plant for operation or disposition. The BuShips representative suggested that this be a supplement to previous requests by the Secretary of the Navy for transfer of the plant. The Army representative agreed to check the possibility of sending such a letter.
The Army representative also stated that the Army was sending the Navy a letter requesting termination of the Birds-boro company's right to use as of November 15, 1953. The BuShips representative suggested, however, it might be well to terminate Penn-Ohio's lease before November 15, 1953, otherwise it might demand occupancy of the plant upon termination of the Birdsboro company's right thereto. After the conversation, it was agreed that the two terminations should be as simultaneous as possible.
102. (a) By memorandum dated November 17, 1953, the Assistant Secretary of the Army notified the Secretary of the Navy that production at the Birdsboro plant was being phased out, and that the last hull would be shipped about November 15, 1953. He therefore requested that the Birds-boro company lease be amended to terminate payment of rental as of November 15,1953, so that a substantial saving could be effected in the remaining time required for transfer of jurisdiction from the Navy to the Army.
(b) The Chief of Naval Material advised the Secretary of the Navy on December 18,1953, that the Army's request for such interim modification of the Birdsboro company lease so as to terminate the rental obligation "could possibly permit right of entry by Penn-Ohio which would be objectionable." He recommended that approval of the Army's request be held in abeyance pending receipt of "the Army's request that the right of & third party be terminated."
(c) The Assistant Secretary of the Navy replied on December 22, 1953, to the Assistant Secretary of the Army's memorandum of November IT, 1953 and stated that "Termination of Birdsboro's right to use would immediately raise a question as to the existence and effect of Penn-Ohio Steel Corporation's right to re-enter the plant" and it should, therefore, be held in abeyance until clarification and disposition were made of the rights of any third parties which might arise as a result of such disposition. The Navy Assistant Secretary said he understood the Army had initiated a memorandum to the Navy requesting that the rights of a third party be terminated and indicated that as soon as that request was received, the matter would be processed for final determination.
103. (a) Meanwhile, on December 9, 1953, Brig. General J. B. Medaris, Assistant Chief of Army Ordnance, wrote the Assistant Secretary of the Army that Penn-Ohio had certain rights of re-entry to the Birdsboro plant by virtue of its lease with the Navy; and that in order for the Army to assume the facility without encumbrances, it was requested that the Navy be asked to void any existing agreements with Penn-Ohio prior to the conveyance of title to the Army. Army G — 4 made a similar recommendation.
(b) Thereafter, on December 29, the Office of the Assistant Secretary of the Army made verbal query of Army Ordnance as to why it was to the Army's interest to have Penn-Ohio's re-entry rights to the Birdsboro plant terminated prior to its transfer from the Navy to the Army. In response Army Ordnance, by memorandum on the next day, informed the Assistant Secretary's Office, in part, as follows:
2. Check made with Bureau of Ships (Mr. Rhodes (sic)) confirms the fact that Penn-Ohio's rights to entry and use were merely suspended for the period that Army would need the facility for use in the tank program. Bureau of Yards and Docks letter of 28 January 1952 to Penn Ohio demanding surrender of the property to the Philadelphia Ordnance District embodied this idea of suspension of Penn Ohio's rights which it was believed at the time would last for a period of from 1 to 3 years. (Emphasis in original.) BuShips. stated that Penn Ohio definitely exepected' to resume occupancy at the end of production of tank components and at Penn Ohio's request the Birdsboro Armorcast-Navy lease embodies a clause to the effect that the Secretary of the Navy can cancel the Birdsboro lease when he determines Army no longer needs the facility to support the current tank program.
3. It is believed that clear and unencumbered title to this facility should be obtained to permit Army to have full control of all Government space thereat for layaway storage or to permit leasing to a third party of our selection if such should be desirable in the future. (In this connection it is pointed out that we felt Penn Ohio unqualified to operate the plant when the tank hull program was initiated.)
4. Present plans are for Birdsoboro to be used as a storage point for production equipment of other nearby facilities as well as of its own equipment. Such use could be, and it is believed probably would be, challenged by Penn Ohio if their existing agreement with Navy were allowed to continue in force.
5. BuShips states that the Secretary of the Navy may terminate Navy's agreement with Penn Ohio during any period of national emergency. Accordingly no appreciable difficulties are foreseen in effecting that termination.
104. By memorandum of January 8, 1954, Underhill of BuShips recommended to the Chief of BuShips that the Birdsboro plant be transferred to the Army. He set forth that there was a change in circumstances since the original agreement by reason of the Army's having expended about $32 million on the facilities, or more than four times the original cost of the Navy facilities. An additional reason indicated was that the Army had a predominant interest in the plant and that mixed ownership would add "tremendously" to the problems of retaining the plant in stand-by or making it available for lease.
105. A meeting was held by BuShips on January 8,1954, with BuDocks and Army representatives to discuss the Army's request for transfer of the plant to it, and a "proposed request by Army for termination of rights of Penn-Ohio." The Navy representatives, after reviewing the background events, indicated they would be quite willing to terminate the rights of Penn-Ohio; they also stated that no document was in existence regarding tbe suspension of Penn-Ohio's rights; that no special agreement was ever finalized; and that the Penn-Ohio lease as originally drawn was still in effect. Army representatives inquired as to the possibility of transferring the Birdsboro facilities to the Army with the rights of Penn-Ohio still in effect. A BuShips representative stated the Navy would not entertain such a solution; that the Navy should resolve its own problems; and that the rights of Penn-Ohio should be terminated by the Navy prior to the transfer of the facility. A Corps of Engineers representative agreed with this position.
The conference concluded with the suggestion by a BuShips attorney that the proposed letter from the Army "to the Assistant Secretary of the Navy should specifically state that the requested termination is in the interest of national defense along with reasons therefor." "This," he said, "would make it much easier for the Secretary of the Navy to terminate the lease agreement if the request is this specific."
106. By memorandum dated January 8,1951, Underhill of BuShips recommended that the Chief of that Bureau transfer the Birdsboro plant to the Army. The Acting Chief of BuShips orally approved this recommendation with the following provisos: (1) "In any transfer the Navy should not renege any of its commitments to Penn-Ohio," and (2) if the Army requested termination of the Penn-Ohio lease, it should assume any liability resulting from such termination.
,107. About this time BuShips, by an undated endorsement to the BuDocks memorandum of October 6, 1953 (see finding 99), informed the Assistant Secretary of the Navy that it concurred in the BuDocks recommendation to terminate the Penn-Ohio lease. BuShips also advised the Assistant Secretary that it considered transfer of the plant "necessary at this time because (i) the Army desires to make immediate arrangements for placing this plant in standby; (ii) the transfer will be a step toward the elimination of the divided ownership situation wherein portions of this facility are owned by the Army, by the Navy, and by Birdsboro Steel Foundry and Machine Co.; (iii) the transfer will greatly reduce problems of administration, maintenance, and security of the Government's interest in tbe plant; and (iv) the Navy will still be able to retain its rights to a portion of the output of the plant."
With respect to Penn-Ohio, BuShips noted that "The Navy in January 1952, with the tacit approval of the Army and in order to expedite the commencement of the Army's operations at the plant, did agree to make an arrangement with Penn-Ohio Steel Corporation whereby that company, which was then the lessee of the plant, would be permitted to reoccupy the Navy's portion of the plant again after the Army's need for the plant ceased." "Such an arrangement", BuShips stated, "was offered to Penn-Ohio but was not acceptable to them."
BuShips said "the only logical solution is to consolidate the Government ownership of the plant under the control of one Government agency, unencumbered by whatever rights Penn-Ohio Steel Corporation may have." The Bureau further said that it had been "informally ascertained that the Department of the Army concurs in this view." Recommending that the rights of Penn-Ohio be terminated forthwith, BuShips added that "As the circumstances now exist, the Bureau would make this recommendation even if Penn-Ohio's re-entry rights had been incorporated in a firm agreement."
•108. The Assistant Secretary of the Army wrote the Secretary of the Navy on January 11, 1954, asking that action be taken to "void any existing agreements with Penn-Ohio." He referred to his previous communication of September 24, 1953, requesting that jurisdiction of the Birdsboro facility be transferred from the Navy to the Army and stated he understood the Navy was agreeable to the proposed transfer. He then continued:
In. order that the Army may assume custody of this facility without encumbrances, it is requested that action be taken to void any existing agreements with the Penn-Ohio Steel Corporation prior to the effective date of transfer. In voiding such agreements it is understood that payment of settlement charges will be the responsibility of the Navy.
109. Several months later, on March 4, 1954, the Chief of BuShips by memorandum to the Assistant Secretary of the Navy recommended (1) tbat tlie Birdsboro plant be transferred to the Army, (2) that the obligation of the Birdsboro company to pay rent to the Navy be terminated, and (3) that any rights of Penn-Ohio be terminated in order that the Army might assume custody of the entire facility without any encumbrances. The memorandum reviewed the history of the plant; it stated that Penn-Ohio's right to use the plant was suspended at the request of the Army; that "[i]t was agreed that Penn-Ohio would have a right to reenter the plant after the required use for the Army Tank Program ceased;" that "[a] lease was made by the Bureau of Ships to permit Birdsboro to use the Navy facilities to produce tank castings for the Army;" and that the "Army expanded the Navy facilities by adding facilities costing approximately $32,000,000."
The memorandum continued with the statement that efforts to reach a mutually satisfactory agreement between BuDocks and Penn-Ohio had not been successful and that "[a]s a result, the Bureau of Yards and Docks has recommended that the rights of Penn-Ohio be terminated."
The memorandum also stated that "since the removal of Penn-Ohio from the plant in April 1952, and the proposed termination of Penn-Ohio's re-entry rights are specifically for the benefit of the Army and done at the request of the Army, any unusual obligations or damages arising as a result of these actions should be the responsibility of the Army."
110. On March 9,1954, the Deputy Under Secretary of the Army informed the Secretary of the Navy that the transfer of the Birdsboro plant from the Navy to the Army had been approved by the appropriate Committees of Congress.
111. On March 30, 1954, the Assistant Secretary of the Navy approved the transfer of the Birdsboro plant to the Army and the termination of the Penn-Ohio lease and directed BuDocks to take the necessary continuing action.
-112. Also on March 30, 1954, the Assistant Secretary of the Navy wrote to the Assistant Secretary of the Army advising that in accordance with the Army's communications of September 24,1953, November 17,1953 and January 11,1954, action was being taken (1) to transfer jurisdiction of the Birdsboro plant to the Army; (2) to terminate the Birdsboro company's right to use the facility, thereby ending that company's obligation to pay rent; and (3) to terminate existing agreements with Penn-Ohio. He indicated that since "the termination of Penn-Ohio's re-entry rights are specifically for the benefit of the Army and done at the request of the Army, any unusual obligations or damages arising out of these actions should be the responsibility of the Army."
113. BuDocks wrote to Army Ordnance on April 9, 1954, advising it that custody and control over the Birdsboro plant were hereby being transferred to the Army effective upon termination by the Navy of the Birdsboro company's right of use. The Army accepted transfer of custody and control on the same day.
114. On April 12,1954, BuShips wrote the Birdsboro company that its right to use the Birdsboro plant was terminated, effective upon receipt of the communication, but that the Navy would interpose no objection to the company's making appropriate arrangements with the Army regarding use, maintenance and protection of the facilities.
115. On April 20, 1954, Cochrane of BuDocks wrote to Penn-Ohio's surety on the performance bond, stating that Penn-Ohio did not send any notice of the exercise of its option to extend the term of the lease for an additional five-year term beginning July 8,1953 and that when Penn-Ohio vacated the plant on April 29, 1952, the Government had a claim against it that had been reduced by negotiation to $209,249.79, which amount, he said, was due and unpaid.
116. On April 23,1954, the Chief of BuDocks sent a memorandum to the Secretary of the Navy enclosing a letter for the Secretary's signature to terminate the Penn-Ohio lease in the interests of national defense "to the extent that it may still be considered in force." The Chief of BuDocks stated that "Although Penn-Ohio failed to send notice of extension for a five year term beginning 8 July 1953, negotiations were being conducted at that time for a satisfactory amendment of the lease to establish Penn-Ohio's rights of re-entry." "For this reason", he continued, "it is believed the Government would be estopped from asserting the lease had expired."
The Chief of BuDocks also indicated that the letter for the Secretary's signature included a final demand on Penn-Ohio for payment of $209,249.79.
As background, the Chief of BuDocks pointed out in the memorandum that BuShips on March 4,1954 had requested the Secretary to approve thé transfer.of the facility to the Army and the termination of any rights of Penn-Ohio under the lease (see finding 109); that the Assistant Secretary of the Navy had approved the transfer and termination of the lease (see finding 111) ; and that neither the request nor the approval had specified whether the lease was to be terminated under the national emergency or the national defense provision. The Chief of BuDocks further informed the Secretary that the Bureau had made several unsuccessful attempts to negotiate a settlement with Penñ-Ohio for maintenance; that a "tentative agreement was at one time reached wherein Penn-Ohio agreed to pay the sum of $209,249.79 but this since has been modified by additional counterclaims of Penn-Ohio in an apparent attempt to offset the entire amount of the claim."
117. The BuDocks draft of the letter was reviewed by an Assistant General Counsel of the Navy who in á memorandum to the Assistant Secretary suggested that the matter of making the demand on Penn-Ohio to pay any sums which might be due should be made the matter of a separate letter from BuDocks to the lessee.
118. On June 21,1954, the Secretary of the Navy sent the following letter to Penn-Ohio:
^Reference is made to Agreement of Lease, identified as Contract NOy (B)-60049, made as of July 8, 1948, between you and the United States of America, under the terms of which certain Government-owned facilities at the Naval Industrial Beserve Foundry, Birdsboro, Pennsylvania, were leased to you.
Said Agreement of Lease provided in Article 2 in pertinent part thereof for an initial term of five (5) years ending July 7, 1953, subject to extension for two additional terms of five (5) years each upon notice given by you to the Department at least one hundred and twenty (120) days prior to the expiration of the then current term. No notice was received from you as required by Article 2 to extend the initial term of Contract NOy (R)-60049. I therefore consider such agreement as having expired by its terms.
Without prejudice to the position of this Department that the lease expired without the exercise of your option to renew for an additional five-year term and to the extent you might be considered as having any right to re-enter the premises originally leased to you, I hereby terminate Agreement of Lease NOy (R)-60049 in accordance with the provisions of Article 11(b) thereof, such termination to be effective one hundred and twenty (120) days from the date of receipt by you of this letter. I have determined that such termination is in the interests of national defense.
This termination notice shall not be construed to prejudice any rights the Government may have with regard to any default on your part in the performance and discharge of your obligations under said Agreement of . Lease.
119. The parties stipulated that if the then Secretary of the Navy were called as a witness at the trial of this case, he would testify that he had no recollection whatsoever of the transaction in question and that he did not believe that his recollection could be refreshed.
120. Penn-Ohio protested the action of the Secretary of the Navy by letter dated July 12, 1954. Thereafter there were exchanges of letters and discussions between the Assistant Secretary of the Navy, Navy counsel and Brady, in respect of the latter's protest, which protest was unsuccessful.
EVENTS UNDERLYING ARMY REQUEST FOR TRANSFER TO IT OF JURISDICTION OVER BIRDSBORO PLANT AND VOIDING ANY PENN-OHIO AGREEMENT: THE LAYAWAY PROGRAM
>121. As set forth in findings 98 and 108, the Army on September 24, 1953 had requested the Navy to transfer to it jurisdiction over the Birdsboro plant, and on January 11, 1954 had requested the Navy to void any existing agreements with Penn-Ohio. The considerations that follow are pertinent in respect thereto.
122. After World War I and World War II, facilities capable of producing war goods were disposed of or allowed to deteriorate with resulting military shortages at the beginning of World War II and Korea. Against this background, Army Ordnance developed a "layaway" plan during 1952 and the first part of 1953 under which Government-owned plants and equipment would be put in "stand-by status" available for reactivation on short notice, and contractors would be engaged and given the major responsibility for maintaining the facilities and reactivating production within specified time limits.
123. It was the policy of Army Ordnance to layaway Government-owned production equipment on or near the site of the plant in which the equipment would be used in the event of an emergency.
124. Under Army Ordnance policy for layaway, the plants were kept in the hands of those who had last operated them as producers of military equipment, unless there was strong reason why they should be removed.
125. During the period from 1953 to 1956, the limiting factor in the planned production of tanks to meet mobilization requirements were armor cast hull and turret facilities. Hulls and turrets were in short supply during this period and it was, therefore, considered necessary to build up the capabilities for producing such items in the event of mobilization by entering into stand-by arrangements, the alternative being to manufacture a large number of tanks and keep them stored in a state of readiness.
126. On December 13, 1952, the Secretary of the Army wrote the Secretary of Defense that a total of $33,585,410 had been allocated to Ordnance for rehabilitation and expansion of the Birdsboro plant to produce castings required in the tank program. He said that because of cutbacks to be made in that program, the Birdsboro plant (and one other) would not be required for current production but would be needed promptly upon any substantial increase in tank production, and would be urgently required in the event of a general mobilization. For that reason, he declared that the Army considered it essential that the rehabilitation and expansion programs then in progress be continued at the most economical rate and that upon completion the facilities be placed in stand-by as part of the Industrial Plant Beserve.
127. (a) As of this time Chrysler was one of four or five prime producers making medium tanks. Each prime producer was the center of a producing system or complex to which was fed up from various suppliers the various components needed for final assembly. The Birdsboro plant was part of the Chrysler complex feeding armor cast hulls and turrets into the Chrysler tank assembly plant at Newark, Delaware. The tank assembly plant was not Government-owned and Chrysler was desirous of using it for commercial production. Near the assembly plant was a Government-owned modification building which had been constructed for purpose of making final modification of tanks to meet the latest standards. This building and the Birdsboro plant were the only two plants in the Chrysler complex owned by the Government.
(b) When medium tank production at Chrysler was cut back and then halted, Army Ordnance was faced with the problem of tying the Chrysler complex production package together on a stand-by basis for reactivation in the event of mobilization. To this end, Ordnance made the following decisions: (1) to place the Birdsboro plant in layaway available for reactivation on 120 days' notice; (2) to store in the modification building the Government-owned equipment from the Chrysler assembly plant; and (3) to store at the Birdsboro plant the Government-owned production equipment that had been furnished to Chrysler subcontractors, having determined that such storage would not interfere with the layaway and reactivation of the Birdsboro plant. The basis for this last determination was that in the event of mobilization, the first group reactivated would be the subcontractors, who in order to commence operations would have to clear the production equipment at the Birdsboro plant, following which production of hulls and turrets could be started.
128. On October 29,1953, Army Ordnance asked the Birds-boro company to submit a proposal for layaway of the Birds-boro plant on the understanding "that Government facilities should be placed in standby in such manner that production can be started 120 days from M-day." (This was about a month after the Assistant Secretary of the Army had requested the Navy to transfer jurisdiction of the plant to the Army. See finding 98.)
129. On November 20, 1953, the Philadelphia Ordnance District notified the Ordnance Tank Automotive Center, Detroit, that it had allocated approximately 200,000 square feet of storage space at the Birdsboro plant "for the use of the Chrysler Lay-Away Program." "This space," the Ordnance District advised, "will be used to store tools and tooling coming from sub-contractors and/or vendors in those cases where such equipment will not be stored on site." Ordnance stated that the "action has been taken because of an urgent immediate need for such storage space."
Also on the same day, the Ordnance District advised the Birdsboro company that it was authorized to enter into negotiations with Chrysler for the use of approximately 200,000 square feet under conditions to be specified by Chrysler; that it was the intention of Chrysler-to negotiate an agreement with the Birdsboro company for the maintenance and care of the tools stored at the plant; and that "such agreement would in no way conflict with the Contract presently in process of negotiation with yoúr Company for the maintenance' and care of the foundry itself and foundry equipment." • •
130. As set forth in finding 108, the Assistant Secretary of the Army wrote the Secretary of the Navy on January li, 1954 requesting that action be taken by the latter to-void any existing agreements with Penn-Ohio. This request was in conformity with suggestions made- by- Navy representatives that the Army request the.Secretary of the NaVy to terminate Penn-Ohio's rights. See findings 101, 102(c), 105. It -was also in conformity with réeommendations.'of Army Ordnance which had advised the Assistant Secretary (1) that clear' arid unencumbered title to the Birdsboro plant should be obtained to' permit the Army to have full control of all Government space therein for layaway storage or to permit leasing to a third party of the Army's selection; and (2) that Ordnance plafmed'to have the Birdsboro plant used as a storage point for production equipment of other nearby facilities, as well as of its own facilities, which use (Ordnance indicated) could probably be challenged by Penn-Ohio if its existing agreement with the Navy were allowed to continue in effect See finding 103 (b).
131. Following the Assistant Secretary of the Army's request on January 11, 1954 to the Secretary of the Navy for voiding of any Penn-Ohio rights, Army Ordnance on January 28, 1954 wrote Army G-4 requesting immediate action to expedite transfer of the Birdsboro plant from the Navy to the Army on the ground that Ordnance desired to protect an Army investment in the plant of approximately $28,000,000 and to retain it as a vital element of the heavy armor casting mobilization base. Ordnance stated that it desired to maintain the present Army contractor-operator, the Birdsboro company, as mobilization producer; to charge that company with responsibility for layaway and annual maintenance of the plant; and to stop the rental payments to the Navy of $39,515 per month since the plant ended production on November 15, 1953. According to Ordnance, accomplishment of these aims was being blocked because the facility was not Army-controlled and was subject to re-entry privileges of Penn-Ohio. In a background summary, Ordnance stated it was planning layaway of the facility as an essential part of the armor casting mobilization base and was also planning "to utilize approximately 200,000 square feet of space at the plant for storage of other subcontract elements of the Chrysler M48 production package."
132. As of February 1954, the established tank hull producers (which included the Birdsboro plant) had a capability of producing 1415 tank hulls per month, while Ordnance's planned mobilization requirements were 3085 hulls per month.
133. On February 4,1954, the Philadelphia Ordnance District submitted to the Ordnance Tank Automotive Center, Detroit, a recommendation for accepting a proposal negotiated by the District and Chrysler for laying away and storing the Government-owned equipment package at the Birdsboro plant and the modification building. Under this proposal, the cost for the first year for equipment dismantling, preparation for storing, moving and placing in storage at' the modification building and the Birdsboro plant would, together with maintenance for that year, come to $5,027,767, while the cost for four additional years would amount to $1,798,500, or a five-year cost of $6,826*267. Ord nance indicated that this equipment layaway plan represented a monthly capacity of 500 medium tanks and 25 heavy tanks which could be readily reactivated within the 120-day target date; it also indicated that movement of the production equipment package — whose total acquisition cost was $88,000,000 — to another Government location would probably delay reactivation and start of tank production considerably beyond the 120-day target time. The Ordnance District indicated there were several alternatives to this proposal: one was to store the production equipment package in nearby commercial buildings which would entail an additional five-year expense of $2,100,000 for rental. A second alternative was to build an addition to the modification building which, according to the Ordnance District, "would present no advantage to the Government over storage of a portion of the equipment at Birdsboro Armor Plant as proposed and would cost a probable $600,000 over and above the cost set forth in the recommended proposal." The Ordnance District considered this "an unnecessary expense to pay without any compensating advantage to the Government other than the physical location of the complete Package in one spot." It stated, in summary, that "the out-of-pocket economics, of the recommended proposal represents an actual saving to the Government of $2,100,000 over storage in commercial space and a saving of approximately $600,000 over the erection of an additional building."
134. On February 17, 1954, the Philadelphia Ordnance District sent to the Ordnance Tank Automotive Center, Detroit, a recommendation for acceptance of the Birdsboro company's proposal as negotiated by that District for the layaway and maintenance of the Birdsboro plant. Under this proposal the cost for the first year was $577,600, while the cost for four additional years was $1,576,000, making a total cost for five years of $2,153,000. The Ordnance District stated that the package proposed to be laid away and maintained consisted of the Government-owned foundry and various supported buildings; that the buildings were valued at $17,500,000 and thé equipment therein at $18,000,000, or a total of $35,500,000; and that the production represented a potential capacity of 150. hulls and 150 turrets per month for the T-48 tank. The Ordnance District further stated that because of the nature of the production package, no alternate plan was considered practicable; that the plant was Government-owned and the greater part of the equipment installed therein was in the nature of nonseverable facilities, such as melting furnaces, heat-treating furnaces, loading ramp and system, etc.; and that the specialized nature of the foundry equipment required the services of foundry experts properly to process the same for layaway and maintain the package so that it could be reactivated in the shortest possible time. According to the Ordnance District, the layaway plan submitted by the Birdsboro company and approved by the District, was designed to- permit the production of hulls in 120 days from M-day.
135. The Ordnance District notified the Birdsboro company on March 10, 1954, that pending the execution of a layaway contract, it was authorized to prepare for storage and to store the facilities listed in its proposal. The company commenced the layaway in March 1954 and completed it in September 1954. In the interim the Army entered into a layaway contract with the Birdsboro- company on May 25, 1954, which, among other things, required that' company to "endeavor to maintain the facilities in such condition as will permit such facilities to be placed in operating condition in the production line within 120 days after notification by the Contracting Officer that such facilities are required for production." The company further agreed that "upon notification by the Contracting Officer that any or all of the facilities are required for such production, it will immediately commence the work of placing such facilities in operating condition and shall have placed such facilities in -operating condition in the production line within 120 days aftér such notice."
136. (a) Army Ordnance considered that the Birdsboro company was a qualified planned mobilization producer. Chrysler reported to the Army that under its subcontract the company had delivered to the tank assembly plant 150 hulls and 32 turrets; and that while its delivery schedules were not as good as Chrysler would have liked; this was not entirely the fault of the company, but in many instances was due to lack of Government-furnished facilities. It further-reported that due to the size of the castings, a considerable degree of skill was réquired; that the manufacturing techniques were complex; that the quality of materials shipped was above average; and that while it was difficult to give a fair and complete appraisal of the Birdsboro company's performance due to early termination of the program, it thought that had thé company been able to complete the contract, it would compare favorably with other sources on a full production basis.
(b) During the period the Birdsboro company was in production, it produced 188 hulls and 33 turrets. Chrysler had taken 150 of the hulls up to the time its contract was terminated in September 1953, while 4 hulls had been scrapped during production. The remaining 34 hulls had been partially completed at the time of termination in September 1953 and would normally have been included in the termination inventory. However, in order to reduce the Chrysler termination claim, the Fisher Body Division of General Motors agreed to purchase the hulls from the Birds-boro company. Pending such agreement, the hulls were kept at the plant; thereafter they were completed and shipped to Fisher Body in September 1954.
137. On June 30, 1954, the Army entered into a contract with Chrysler for maintenance, protection and preservation of Government-owned facilities which provided, among other things, that Chrysler was to "provide for the storage of Government-owned machinery, equipment, special and per-: ishable tooling, and final inspection gages, furnished to the Contractor by the Government" in the Birdsboro plant or at such other suitable location as the parties agreed upon. The contract also specified that the Government "hereby makes [the] Government-owned building at Birdsboro, Pennsylvania, available to the Contractor for storage hereunder."
138. In the meantime, as set forth in finding 118, the Secretary of the Navy wrote Penn-Ohio oñ June 21,1954, stating that its lease had expired and'that in any event was being terminated effective in 120 days; i.e., on October 19,1954.
139. The Congress in 1958 declined to renew the implementing statutes with respect to layaway. In these circum stances, various Government-owned plants (including the Birdsboro plant) were advertised for léase and in or about that year the Birdsboro plant was leased by the Army to the Unex Machine and Tool Company.
JUDICIAL PROCEEDINGS
140. On July 16, 1959, the United States filed an action in the United States District Court for the Southern District of New York against Penn-Ohio seeking to recover $209,249.79 for maintenance at the Birdsboro plant. On August 18, 1959 Penn-Ohio filed an answer denying that there was anything due and owing. to plaintiff. Also in its answer, Pénn-Ohio, undér the caption "For a separate and complete defense and as á setoff and. counterclaim", alleged that the Navy had failed and refused to perform the terms of the agreement respecting the Birdsboro plant and that as a result thereof Penn-Ohio had suffered damages of upwards of $209,249.79. In its prayer for relief, Penn-Ohio demanded judgment (a) dismissing the complaint, and (b) "for upwards of $209,249.79 in its favor."
141. On September 22,1959, Penn-Ohio filed a petition in this court alleging that the Navy had failed and refused to perform the terms of its agreement respecting the Birds-boro plant and that the action of the Secretary of the Navy purporting to terminate the Penn-Ohio lease was arbitrary, capricious, and so grossly erroneous as to imply bad faith. Its petition here seeks damages against the Government for "upwards of $3,500,000." The defendant filed its answer on December 23, 1959, including a third defense in which it stated that the subject matter of the action in this court was the subject of á setoff and counterclaim by Penn-Ohio in the action brought by the Government-in the Southern District of New York and that this court, therefore, lacked jurisdiction. '
142. On August 23,1960, the Government filed in this court a motion for summary judgment of dismissal against Penn-Ohio on the basis that Penn-Ohio had a counterclaim pending in the District Court at the time that company brought its action here. On September 14, 1960 Penn-Ohio filed a motion in the District Court seeking an order "correcting the mistaken designation in the caption of the affirmative defense following paragraph 5 of its answer by striking the words 'and as a setoff and counter-claim' and correcting the prayer for relief by striking subparagraph (b) containing the words 'for upwards of $209,249.79 in its favor.' " The motion further sought that the "answer as corrected and clarified shall he deemed to be the answer of the defendant Penn-Ohio ." The district Judge, after oral argument, issued an order on September 30, 1960 granting Penn-Ohio's motion in all respects. He further ordered that "the corrected or amended answer, hereto annexed, dated September 14,1960, shall relate back to August 18,1959, and shall be deemed to be the answer of defendant Penn-Ohio Steel Corporation as of August 18,1959."
143. On April 14, 1961, this court, upon consideration of the briefs of the parties and after oral argument, denied (without opinion) the Government's motion for summary judgment of dismissal.
144. On July 6,1962, Penn-Ohio filed an amended petition in this court and an answer to this .amended petition was filed, on September 5, 1962.
145. The Government's suit against Penn-Ohio is pending in the United States District Court and has not come to trial.
CONCLUSION OF LAW
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover for the period November 15, 1953 to October 19, 1954, with the amount of. recovery to be determined pursuant to Rule 47 (c) (2). Judgment is entered accordingly.
There is no indication in the record that the Navy submitted the letter of intent to the Armed Services Committees of Congress for approval.
The rights and obligations of the Birdsboro company were suspended by the Navy for the duration of Penn-Ohio's occupancy of the plant.
During the meeting Penn-Ohio indicated it had possible legal rights to enjoin termination by the Navy of its lease for various reasons involving for the most part equitable considerations. The Chief of the Army Procurement Division wrote the under Secretary of the Army after the meeting that there were "potential points of danger" in the event Penn-Ohio was not successful in staying in the plant. Thus he said that Penn-Ohio might obtain an injunction to prevent dispossession based on the following points: "(a) Time element of phasing," (b) "a Government prime contractor is not being placed in a Government-owned facility as an operator thereof," (c) "Demand court evaluation of production, price, etc.," (d) "Dispossession of small business." He indicated that Penn-Ohio could make a plea to Congressional representatives which would cause "attendant delays and difficult explanations." He also pointed out that there had yet to be a test case on the dispossession of a tenant in possession of a Government-owned facility under the "National Emergency Clause" during "this gray period of Korean crisis," and that "A test in this case particularly in view of the intended subcontractor's use thereof might freeze the use of the facility during an extended period." The question was submitted to the Judge Advocate General of the Army who expressed the opinion that Penn-Ohio would be unable to enjoin the Navy's termination of the lease under the national emergency or national defense clauses.
At the time of this meeting it was contemplated that the Birdsboro company lease would be for a term of two years, subject to extension for two years or such longer time as would be necessary to complete the Army tank program.
During the meeting a BuShips representative stated that if the Penn-Ohio lease vías to continue in a dormant stage, Penn-Ohio should give notice of its desire to renew at the appropriate time. There is no evidence that this statement was agreed to by the parties or that it represented their understanding.
Two memoranda of this conference were prepared by Navy representatives, one by a BuDocks representative, the other by a BuShips representative, which memoranda are not in entire accord as to materiel events that occurred. Penn-Ohio was advised during the meeting that it would be furnished-a complete memorandum of the conference which it was not, despite its repeated requests therefor.
up to this juncture, Penn-Ohio was represented in negotiations with the Navy by two attorneys, Mortimer S. Gordon and his partner David Brady. Gordon acted on behalf of Penn-Ohio in effecting the January 11, 1952 agreement while the letter of January 23 was sent by Brady on behalf of Penn-Ohio. Brady represented Penn-Ohio in all subsequent dealings with the Navy.
The Navy regulations that were in effect prior to June 3, 1953 contained no provision requiring Secretarial approval of lease amendments. However, since the Secretary did not specifically delegate such authority to the technical Bureaus, it would appear that authority therefor remained at the Secretarial level.
After vacating the Birdsboro plant, Penn-Ohio did not engage in steel ingot production because it lacked a plant facility. It did, however, maintain a nucleus of supervisors in anticipation of re-entry into the Birdsboro plant. Also, it continued its ownership and operation of three subsidiary companies which were engaged in producing auto accessories and the warehousing of steel.
Since Secretarial approval of the terms and conditions had been obtained' in 1948, no additional Secretarial approval of the lease was obtained. The formal lease to Penn-Ohio was approved by the Armed Services Committees of Congress.
These latter provisions, while not at variance with the January 11, 1952 agreement, were, it is apparent, contrary to the January 23, 1952 modification which contemplated a lease to the Birdsboro company for two years with one option to renew for an additional two-year period, and also specified that the company's use of the plant would be restricted to castings required for the tank program.
Several days later Penn-Ohio requested and obtained a copy of that lease from BuShips.
In accordance with this request, Penn-Ohio wrote BuDocks about a week later that the amount for maintenance was some $209,000 rather than $210,000. It also , indicated that an additional adjustment of $50,000 should be made for insurance and protection services Penn-Ohio had paid during the period December 28, 1951 to April 28,1952, when its operations were being phased out.
Under tie formal lease Penn-Ohio had the option to. extend the term of the lease beyond July 7, 1953 for two additional terms of five years each by giving notice of election to extend 120 days prior to the expiration of the then existing term; i.e., by March 9, 1953 and March 9, 1958. Penn-Ohio did not give notice of election by March 9, 1953. As of this time the Navy regulations (which were subsequently amended on June 3, 1953) did not require Secretarial approval for lease renewals under a lessee option to renew.
The specific purpose of the meeting was to discuss a proposed reply by BuShips to the BuDocks recommendation for terminating the Penn-Ohio lease. At the meeting the BuShips counsel stated that "the Department had cut a deal in this particular instance and although some of the terms might not be as we would have liked them, it was done on a high echelon between the Assistant Secretary of the Navy and the Assistant [sic] Secretary of the Army and that we had a moral, if not a legal obligation, to offer Penn-Ohio a supplemental agreement in accordance with our discussions." The assistant to the BuDocks contracting officer disagreed on the following grounds: (1) that it was impracticable again to lease the Birdsboro plant to Penn-Ohio after the Army need therefor for tank castings had ended since the Army was adding facilities in the amount of $32,000,000; (2) that Penn-Ohio was trying to "whittle down" what BuDocks considered due; and (3) that Penn-Ohio did not "agree with the Navy's understanding of the conditions agreed' upon relative to Penn-Ohio's re-entry." As indicated above, the outcome of the meeting was that BuDocks would offer Penn-Ohio a right of entry as "originally agreed" which BuDocks did not feel Penn-Ohio would accept. BuShips position was that when this occurred "having fulfilled our moral obligation, a request for-termination of Penn-Ohio lease will be submitted." Immediately after the meeting, BuShips wrote BuDocks that in light of the January 8, 1952 conference and the BuDocks letter of January 28, 1952 to Penn-Ohio, it considered the Navy had a "moral, if not legal, obligation to offer Penn-Ohio a supplementary agreement in accordance with the 8 January 1952 conference"; that BuDocks should determine whether Penn-Ohio's rights under the lease lapsed due to failure to give timely notice of renewal; that if its rights had not lapsed BuDocks should fulfil its obligation by offering Penn-Ohio an agree- • ment in accordance with the January 8, 1952 conference, with the period of acceptance limited to a reasonable period.
Army Ordnance was of the view that it should, in view of such mobilization planning, have clear and unencumbered title to the plant.
The draft of this letter was prepared under the direction of the Chief of BuDocks who in an accompanying memorandum to the Secretary stated that "Although Penn-Ohio failed to send notice of extension for a five-year term beginning 8 July 1953, negotiations were being conducted at that time for a satisfactory amendment of the lease to establish Penn-Ohio's rights of re-entry." "For that reason," he continued, "it is believed the Government would be estopped from asserting the lease had expired."
"For a contract to exist there does not have to be, and rarely is, a subjective 'meeting of the minds' all along the line." WPC Enterprises, Inc. v. United States, 163 Ct. Cl. 1, 323 F. 2d 874, 879 (1963). See also Restatement, Contracts (1932) § 20, 32, 58.
Byrne Organization, Inc. v. United States, 152 Ct. Cl. 578, 585, 287 F. 2d 582, 586 (1961) ; Morse Dry Dock Co. v. United States, 77 Ct. Cl. 57, 74-6 (1933), cert. den. 291 U.S. 672 (1934); Guss & Mowry v. United States, 61 Ct. Cl. 301, 304 (1925).
The Assistant Secretary later formally approved the new lease to the Birds-boro company which recited in Its preamble that "it has been determined that the use of the facilities by Penn-Ohio under [its] lease with the Department, be suspended during the period of [the plant's] use [by the Birds-boro company in connection with the Army tank program]Assuming that the January 11 agreement lacked the requisite Secretarial approval and consensual elements, it could be argued, in view of the above provision and the course of dealings herein involved, that there was an agreement implied in fact between the Navy and Penn-Ohio covering suspension of its lease during the period of special use of the plant by the Birdsboro company. But since the January 11 agreement was approved at the Secretarial level and contained with sufficient certainty the requisite elements of mutual assent, it is not necessary to reach that question.
As Navy representatives made clear to Penn-Ohio, the phasing out of its rights to use the plant was a matter to he determined between it, the Army and the Birdsboro company, rather than between the Navy and Penn-Ohio.
It may be that this factor -was a reason (1) for the Army's willingness to conclude a mutually satisfactory phasing-out schedule with Penn-Ohio in the event its proposal to operate the plant was not acceptable, and (2) for the Navy Secretary's statement to the Army that successful negotiations with Penn-Ohio would expedite obtaining possession of the plant.
At early common-law a tenancy at will could be terminated immediately by giving a notice to that effect. In a number of States, however, by statute or by judicial decision, the tenancy may not be terminated without notice of some length of time. See 1 Tiffany, Beal Property (3d Ed.) § 161.
33 Purdon's Pa. Stat. Anno. (1949) § 1. This statute requires that leases for periods in excess of three years be in writing and signed by the person to be charged. If a lease fails to comply with the statute a tenancy at will is created. To comply with the statute all the essential terms and conditions of the lease must be in writing; however, such terms and conditions may appear in several writings, viz., letters. Shaw v. Carnman, 271 Pa. 260, 114 Atl., 632 (1921) ; Llewellyn v. The Sunnyside Coal Co., 242 Pa. 517, 89 Atl., 575 (1914); Witman v. Reading, 191 Pa. 134, 43 Atl., 140 (1899); Williams v. Stewart, 194 Pa. Super. Ct. 601, 168 Atl., 2d 769 (1961). See also 2 Corbin, Contracts (1951) § 498-99.
A statute enacted in 1862 (R.S. § 8744, 41 U.S.C. § 16) required that all contracts made by the Secretaries of War, Navy and Interior be in writing, but this statute was repealed in 1941. See 55 Stat. 743. An earlier enactment of similar import was construed by this court as a statute of frauds. Jones v. United States, 11 Ct. Cl. 733, 740-43 (1875), aff'd 96 U.S. 24 (1877).
40 U.S.C. § 551 (1952) provided in part that "the Secretary of the Navy or his designee, shall come into agreement with the Committee on Armed Services of the Senate and of the House of Representatives with respect to (1) eases of Government-owned real property where the estimated annual rental is in excess of $25,000."
It will be recalled that the formal lease with Penn-Ohio was approved by the Armed Services Committees of Congress.
In 1957 the Attorney General issued an opinion to the effect that this statute was unconstitutional. 41 Ops. Atty. Gen. 47 (1957). See also 41 Ops. Atty. Gen. 32 (1955); Ginnane, The Control of Federal Administration by Congressional Resolution, 66 Harv. L. Rev. 569, 599 (1953). In 1960 Congress amended the statute to eliminate the approval requirement and substitute a reporting and 30-day waiting period provision. P.L. 86-500, 74 Stat. 186, 10 U.S.C. § 2662. The Senate and Conference Committee reports indicated that this action was taken because of the constitutional questions and the President's advice that he would instruct the Secretary of Defense to ignore the approval requirement. See Senate Report 1338, U.S. Code Cong. & Adm. News (1960), p. 2308; Conference Report No. 1673, id. p. 2333.
Of course, if the statute were judicially determined to be unconstitutional (a question which is unnecessary to decide), it might be that the departmental regulation predicated on its validity could be open to possible challenge as an unconstitutional condition. See e.g., South Puerto Rioo Sugar Co. v. United States, 167 Ct. Cl. 236, and particularly fn. 5, 334 F. 2d 622, 627 (1964). But since the regulation is not applicable here, no opinion on this issue is intimated.
It may be noted tbat tbe Navy earlier had suspended the Birdsboro company's rights and obligations under its wartime lease during the period of Penn-Ohio's occupancy of the plant.
It is elementary that to constitute a waiver, the Government agent whose action is in issue must have authority to waive the requirement. Fansteel Metallurgical Corp. v. United States, 145 Ct. Cl. 496, 500-01, 172 F. Supp. 268, 270 (1959); Branch Banking & Trust Co. v. United States, 120 Ct. Cl. 72, 87-93, 98 F. Supp. 757, 766-69, cert. den. 342 U.S. 893 (1951); United States v. Certain Parcels of Land, 141 F. Supp. 300, 309 (D. Wyo., 1956). See also, Anno. 1 ALR 2d 338. As of March 9, 1953—the effective date of the renewal requirement — BuDocks had the responsibility under regulation for administration of the lease; no regulation then in effect required the processing of lease renewal options through the Secretarial level. It was not until June 3, 1953, that the applicable regulation was reissued to require, among other things, Secretarial approval "of any proposal to renew an outstanding lease, whether or not such lease grants either party an option to renew." An interesting problem presented by the reissued regulation is its legal effect in a situation where prior to its reissuance, Secretarial approval was granted for a lease containing a lessee option for renewal and the Secretary, pursuant to the reissued regulation, subsequently refuses to approve the lessee's exercise of such option. Be that as it may, disposition of the present case does not require resolution of this issue.
In that case the contractor was required by the contract to provide the contracting officer within 60 days after completion of the contract with a written statement of costs. If the contracting officer wished to renegotiate the contract price under an appropriate contract provision, he was required to give formal written notice to the contractor within 30 days after receipt of the contractor's cost schedule. In accordance with the contract requirement, the contractor, after completing the work, submitted a cost schedule to the contracting officer. The contracting officer, however, failed to give formal written notice of his intent to renegotiate the contract price. Nevertheless the parties conducted negotiations over the cost schedule submitted which were unsuccessful, whereupon the contracting officer withheld an amount from the contract price that he determined to be excess compensation. The contractor sued for this amount, claiming that the contracting officer's failure to give the formal written notice required by the contract prohibited any renegotiation. This court held that the plaintiff by participating in the negotiations acquiesced in the transaction and was barred from challenging the failure to give formal written notice.
See findings 91, 92(a), 99, 100, 101, 102(b), 103, 105, 107, 109, 111, 112, 116.
Since the contract with the Birdsboro company for the manufacture of tank castings was terminated in September 1953, the Navy could, under the express provision of the Birdsboro company lease, have terminated that company's occupancy of the plant on 60 days notice; i.e., in November 1953. See finding 68(b)* Since Penn-Ohio's cause of action under the January 11 agreement first accrued on November 15, 1953, and its petition was filed on September 22, 1959, its claim manifestly is not barred by the six-year limitation period. See 28 U.S.C. § 2501. Of course, had there been Secretarial approval of the January 23, 1952 modification, the Navy would have committed an anticipatory breach in April 1952 when It entered into a lease with the Birdsboro company containing provisions at variance with snch modification. Defendant points out that Penn-Ohio knew of this breach in August 1952 and that its claim is, therefore, time-barred. But since there was no anticipatory breach of the January 11 agreement, it is unnecessary to consider this question. Nevertheless, it may be observed in passing that the majority of courts in this country hold that the statute of limitations begins to run on the date specified in the contract for performance unless the injured party elects to sue prior to that date for the anticipatory breach. See e.g., Foss-Schneider Brewing Co. v. Bullock, 59 Fed. 83 (6th Cir., 1893); Restatement, Contracts (1932) § 322; 4 Corbin, Contracts (1951) § 989. But see 6 Williston, Contracts (Rev. Ed.) § 2027 for some dissatisfaction with the rule.
Almost a year before any discussions bad taken place between Navy and Army representatives concerning termination of Penn-Ohio's rights, the Secretary of the Army had informed the Secretary of Defense that the Birdsboro-plant would be urgently required in the event of mobilization; and that the Army considered it essential that upon completion of the rehabilitation and expansion programs, the plant be placed on a stand-by basis.
In or about April 1963, the Chief of BuDocks had proposed to the Chief of BuShlps that an "offer of settlement" be submitted to Penn-Ohio providing (1) for payment of $209,249.79 in accrued maintenance, with $50,000 to be paid immediately on execution of an amendment to the lease and the balance In three equal annual installments, with interest at $%; and (2)' an amendment to the lease providing that "Within a reasonable time after expiration or termination of the [Birdsboro company lease] Penn-Ohio and this Department will negotiate the terms and conditions of the use of the facilities by Penn-Ohio, with the period of nse by [the] Birdsboro [company] to be added to the end of the term of Penn-Ohio,. provided that such additional period does not extend Penn-Ohio's lease, including options for renewal, beyond June 30, 1967." The BuDocks memorandum in which this proposal was set forth commented that "Since Mr. Brady's understanding of the agreements reached, although somewhat at variance with [the BuShlps letter of December 23, 1952 (see finding 81(a))], would not appear to burden the Government's interests in the facilities, this Bureau recommends that [the above] offer of settlement be submitted to Penn-Ohio expressly conditioned on final approval thereof by the Secretary of the Navy." The record makes it clear that this proposal of BuDocks was not acceptable to BuShlps.