2CoX Class. Book. DEPARTMENT OF JUSTICE WASHINGTON, D. C. COMPILATION OF AUTHORITIES ON AND DISCUSSION OF WAR CONTRACTS AND THE RELATION OF THE CITIZEN TO THE GOVERNMENT By RALPH E. MOODY Special Assistant to the Attorney General WASHINGTON GOVERNMENT PRINTING OFFICE 1922 J AN COMPILATION OF AUTHORITIES ON AND DISCUSSION OF WAR CONTRACTS AND THE RELATION OF THE CITIZEN TO THE GOVERNMENT. Department of Justice, War Transaction Section, Washington, D. C, November 27, 1922. To the Honorahle the Attorney General and the Advisory Council, War Transaction Section, Department of Justice: 111 compliance with your request, I have the honor to herewith submit some ideas and thoughts to be taken into consideration in the construction of con- tracts made during the war on behalf of the Gov- ernment. In order to determine the rights of the Govern- ment growing out of these contractual transactions it is necessary to consider questions fundamental in their nature and character. The consideration of these questions are essential in order to acquire a true and right conception of the meaning and pur- pose of a government, the rights and duties of citi- zenship, and the relation one bears to the other. A true understanding of these fundamental prin- ciples makes easy of solution all questions arising under, by, or through any of the war contracts. Complexity finds its simple solvent and confusion its order in the light of the knowledge of right fundamentals. All difficulty has as its only basis 23189—22 1 (1) 2 ignorance or forgetfulness of the true principle ap- plicaljle to the discordant condition. The situation becomes immediately clear when the true principle fe found and applied. ''Follow principle and the knot unties itself," said Thomas Jefferson. Inherent in man is the desire to actually experience a government that always presently protects and pro- motes the happiness and prosperity of all mankind. The Ignited States Government has nearest reached the ideal, and enjoys the admiration of the world's best thought. Our governmental tree is rooted in the hearts of its people; the heart has its true desire planted and embedded in spiritual soil, nurtured and maintained alone by the omnipresent spring of brotherly lo\^e. We must not forget that the seeking of governmental life-giving sustenance from any other source impairs and retards the tree's perfect de\'elop- ment, and if mistaken seeking is long pursued and much indulged, the wrong will be made manifest in the tree's decadence. Our Government, the immortal Lincoln said, is a ''government of the people, by the people, and for the people." Chief Justice Marshall in McCidloch v. Maryland, 4 Wheat. 316, pages 404-405, says: The Government of the union is emphatic- ally and truly a government of the people; in form and in substance it eminates from them. Its powers are granted by them and are to be exercised directly on them, and for their benefit. "Its 'great powers/ the profound jurist in this case observed, on page 406, were ' to lay and collect taxes; to borrow money; to regulate commerce; to declare and conduct a war; and to raise and support armies and navies, the sword and the purse, all the external relations and no inconsiderable portion of the industry of the Nation, are intrusted to its Government'"; and again, on page 113, he says: It must have been the intention of those • who gave these powers to insure, so far as human prudence could insure, their henejlcial execution. Chief Justice Waite, in Minor v. Happersetl, 21 Wall. 162, at page 165, said: The very idea of a political community such as a nation is, implies an association of persons for the promotion of their general welfare. Each one of these persons associated becomes a member of the nation formed by the association. The Constitution of the United States is not merely a league of sovereign States for their common defense against external and internal violence, but a supreme Federal Government, acting not only upon sovereign members of the Union, but directly upon all its citizens in their individual and corporate capacities. It was established, the Constitu- tion expressly declares, by '' the people of the . United States, in order to form a more peifect union, establish justice, insure domestic tran- quill ity, provide for the common defense, pro- mote the general welfare, and secure the blessings of liberty to them and their posterity.''^ This Constitution, and the laws made in pur- suance thereof, and the treaties made under the authority of the United States, are de- clared to be the supreme law of the land. Thomas v. Kahler, 42 Miss. 651. A State is a body politic, or society of men united together to promote their safety and advantage by means of their union; who are guided and directed by the public political authority — the Government. Government is the ligament that holds the political society together, and when that is destroyed the society as a political body is dissolved. Vattell, 59. The Government is a social compact by which the whole people covenant with each citizen and each citizen with the whole people that they shall be governed by certain laws to be enacted for their public good. The terms of this compact are defined by the Constitution. Kansas City v. Holmes, 274 Mo. 159. The people are sovereign, and speak through their Constitution, and when they thus speak its mandates are binding upon all of the people; the Government is a fictitious entity created by the people; a corporate entity, and through which the people act; all departments of government and officers are only instrumentali- ties through which the Government acts. They are in a sense the agents through which the Government acts, and all the power and authority to act, and the manner of acting are controlled bv the fundamental law found in the Constitution. Taft v. Auburn, 185 Iowa. 1069, 1073. And further, the last-mentioned court, in the course of its opinion in the above case, said : That the provisions of the Constitution an mandatory, and their mandates bind as closely and as firmly the different branches and departments of government as they do the citizens of the Government. Chief Justice Taney, in Charles River Bridge v. Warren Bridge, 11 Pet. 409, at pages 547 and 548 said : The object and end of all government is to promote the happiness and prosperity of tht community by which it is established; and it can never be assumed that the Government intended to diminish its power of accomplish- ing the end for which it was created, h^ ^^ ^ While the rights of private property are sacredly guarded, we must not forget that the community also have rights, and that the happiness and well-being of their citizens depends upon their faithful preservation. A government does not exist in a personal sense or as an entity in any primary sense for the purpose of acquiring, protecting, and en- joying property. It exists primarily for the protection of the people in their individual rights, and holds property not primarily for the enjoyment of property but as an incident to the purpose for which it exists — that of serving the people and protecting them in their rights. Curiey v. U. S., 130 Fed. 1, 8. The Government was not organized for the purpose of taxation, but taxation may be necessary for the purposes of the Government. Stone V. Mississippi, 101 U. S. 814, 820. The Government of the United States was erected by the free voice and joint will of the people of America for their common defense and general welfare. Its powers apply to those great interests which relate to this coimtry in its national capacity, and which depend for their stability and protection on the consolidation of the Union. It is clothed with the principal attributes of political sover- eignty, and it has justly been the guardian of our best rights, the source of our highest civil and political duties, and the sure means of national greatness. 1 Kent Comm. 201. The Constitution must be looked at in the light of the end it was designed to accomplish, having in view the evils it was intended to remed}^ and the benefit it was to exert. We must examine it in the light of the fact that we were an absolving people which it was designed anew to bind together in a relation which should continue forever. * ^h ^i^ The time has come when the Constitution and the laws of the United States are not the mere theoretical objects of the thought of the states- man, the law3^er, or man of affairs, for the operation of its Government, but now reach to the recesses of every human business and force themselves upon ever}^ man of thought. Justice Miller, in his lecture on the Constitu- tion. The Secretary of State, Mr. Hughes, in an address before the American Bar Association, Volume XLII, 1917, at page 239, said: In equipping the National Government with the need of authority in war, they (the framers of the Constitution) tolerated no Hmitations inconsistent with that object, as they reahzed that the very existence of the Nation might be at stake, and that every resource of the people must be at command. In the famous case of Dred Scott v, Sandforcl, 19 How\ 393, it was said that the words ''people of the United States'' and ''citizens" are synonymous terms; that they "describe the political body which, according to our republican institutions, forms the sovereignty which holds the power and conducts the Government through its representatives.'' It necessarily follows, in view of the foregoing considerations, that we have a Government created by the people for the impartial, individual, and col- lective benefit and protection of all the people, and the people have granted unto this Government so formed the necessary powers to properly execute its high purpose. The question then arises what is the duty to such Government by its people whether acting only in the capacity of a citizen or with the added duties of an official? The question answers itself in the honesty of thought; it is the duty of allegiance, faithfulness and fidelity to the trust thus created and imposed. Allegiance antedates any written law; allegiance is a duty by the law of nature. The legeance or faith of the subject is due unto the King, by the law of nature; secondly. 8 that the law of nature is a part of the law of England; thirdly, that the law of nature was before any judicial or municipal law; fourthly, that the law of nature is immutable. The law of nature is that which God at the time of creation of the nature of man infused into his heart, for his preservation and direc- tion; and this is lex aeterna, the moral law, called also the law of nature. And by this law, written with the finger of God in the heart of man, were the people of God a long time go^'erned, before the law was written b}' Moses, who was the first reporter or writer of the law in the world. Lord Coke in Calvin's case, 2 E. R. C. 575. x\llegiance is defined in no imcertain terms by writers on constitutional subjects and in judicial opinions. Justice ]\riller in his lectures on the Constitution (Miller, Constitution of the United States), at pages 276, 293, 294, and 297, says: There are certain rights, privileges, and duties belonging to a citizen of a State, which do not belong to a foreigner resident within the State. Among these it is said that allegiance and protection are correlative ol)ligations. If you are a citizen ^ ^' ^ then, ^ ^' "^^ there are the correlati\'e obligations l)etween yourself on the one side, and the Government "^ * "^ on the other. The citizen or subject owes allegiance, which signifies a loyal devotion and support due from him to the government under which he lives; and, in return, that goxernment owes him protection in a great many ways, too numerous for me to undertake to detail at this time (p. 276). The court (the Supreme Court, in the Slaugh- terhouse cases), ^ * ^' in an opinion which I had the honor to deliver, ^' * -^ held * * "^ that the State in its relation to its citizens, and the citizens in their relation to the State, were interchangeably bound with regard to those laws which go to make up the rights which are protected by law; the right of marriage; the right of the descent of property; the right to the control of children ; the right to sue for property, and to have it protected ; and, in general, the protection of life, liberty, and the pursuit of happiness — these were all founded in the relation between the State and its citizens. He has a right to look to that Government * * * for protection in all foreign countries wherever he might travel, on the high seas or the sands of Africa, in Europe, or in Australia, wherever a ship floats or a traveller can go. He has a right to call on the United States for protection wherever he may be outside of its lines or territory. He has also the right to travel all over this country free from any tax, assessment, or interruption in his passage from one part of the country to another. He has the right of petition granted to him by the Constitution of the United States. He has the right to use the mails of the United States; he has, in short, a right to everything which that great Government gives or concedes to anybody, and these are his rights as a citizen of the United States. They are numerous; they are great; they are valuable. So it may 231S9-22 2 10 also l)e said of his rights as a citizen of a State; they are numerous; they are great; they are important. The one affects one class of rela- tions, and the other affects another class. The citizen owes an allegiance to the United States, and he owes an allegiance to his State. He is bound to obey the laws of his State, and he is bound to refrain from all criminal practices denounced by those laws. He is bound to pay his taxes to support the government of the State, and he is bound as well to pay the taxes due from him to the United States; to fight for that Goverrnnent, if called upon, or to fight for his State, and even to gi\'e his life, if need be, for his citizenship of the United States. He is l)0und to be governed by the United States in all of his relations with foreign States. If he wishes to travel in a foreign State, and desires protection, the United States will gi\'e him a passport, which a State is not permitted to do. If he icants to take part in the admin- istration of the Govermnent of the United States, either as an officer, Member of Congress, con- tractor or builder; if he wants his river im- proved, if he wants the postal railway ex- tended, if he wants a new post office, or any one of a thousand such things, he must go to the Federal Government. It is the business of a lifetime to define the relations of a man to that Government, or his relations to the State in which he belongs; but they all grow out of and constitute this doctrine of allegiance and protection. He owes his allegiance, first, to the Gorernment of the United States, be- cause he is first of all a citizen of that Gov- 11 ernment; second, to his State, because he be- comes a citizen of that State, after being a citizen of the United States, by his residence (p. 295). Allegiance is a debt due from the subject upon an implied contract with the Prince, that so long as the one affords protection so long will the other demean himself faithfully. Jackson v. Goodell, 20 Johns (N. Y.) 188. Allegiance is indeed due from every citizen to the State, but it is a political obligation and is binding on him who enjoys the protection of the Commonwealth. The truth is that this obligation which is reciprocal to the right of protection, results out of the political relations between the Government and the citizen. Wallace v. Hormstadt, 44 Pa. St. 492-501. Allegiance is the duty which is due from every citizen to the State, a political duty bind- ing on him who enjoys the protection of the' Commonwealth to render service and fealty to the Federal Government the obligation of fidelity and obedience which the individual owes to the Government or to the Sovereign, under which he lives in return for the protec- tion he received — that duty which is recip- rocal to the right of protection, arising from the political relations between the Government and the citizen. 2 C. J. 1149-1150. The spirit in the citizen that, originating in love of country, results in obedience to its laws, the support of its defense and existence, rights, and 'institutions, and the promotion of its welfare, is called patriotism. Wise on Citizenship, p. 73. 12 This author, at page 68 of his work, says: The word allegiance is employed to express the obligation of fidelity and ol^edience due by the individual, as a citizen to his Government in return for the protection he receives from it. And, again: Fidelity is evidenced not only by obedience to the law^ of one's country, and lip-service, but by ^ H^' * calls lawfully made by the Government to bear arms or render other per- sonal service for the common defense and for the security of the lil^erties and the general welfare of his State. Obedience consists of respect for, observance of, and aid in maintaining the laws of the Gov- ernment . In the case of Miner v. Happersett, supra, the Chief Justice, on pages 165 and 166, says: The very idea of a political community such as a nation is, implies an association of persons for the promotion of their general welfare. Each one of these persons associated becomes a member of the nation formed by the associ- ation. He owes it allegiance and is entitled to its protection. Allegiance and protection, in this connection, are reciprocal obligations. The one is a compensation for the other; allegiance for protection and protection for allegiance. In Carlisle v. U. S., 16 Wall. 147, Mr. Justice Field, on page 154, said: By allegiance is meant the obligation of fidelity and ohedience which the individual owes 13 to the Government under which he Uves, or to his Sovereign, in return for the protection he receives. * * * The citizen or subject oit'^s an absolute and permanent allegiance to his Gov- ernment or Sovereign, or at least until by some open and distinct act he renounces it and becomes a citizen or subject of another Gov- ernment or another Sovereign. I close my reference to this phase of the subject in a quotation taken from one of Mr. Justice Miller's lectures on Constitutional law (Miller, Constitution of the United States, supra), at page 70: So, that it is evident that something more than a written constitution is essential to the safety and perpetuity of any government, and that is, a due reverence by the people for it and for their laws. All the instruments in the world, though they were written in letters of gold upon the most imperishable tablets, will be as ropes of sand if the people themselves have no respect for law or for those who administer it. A constitution, in the American sense of the word, is a written instrument by which the fundamental powers of the Government are estabhshed, limited, and defined, and by which these powers are distributed among several departments, for their more safe and useful exercise, /or the benefit of the body politic. It is thus made apparent that the relation between the citizen in his sole capacity as such, or in his dual capacity as citizen and officer with his Government, or in his capacity as a citizen and contractor with his 14 Go\^rnment is a trust relation, and a trust relation of the highest and most sacred character. The Government itself is a trust. A government ought to contain in itself every power requisite to the full accomplish- ment of the object committed to its care, and the complete execution of the trusts for which it is responsible; free from every other control but a regard to the public good and the service of the people. The Federalist, No. 31. Mr. Justice Baldwin, in his concurring opinion in the Charles River Bridge v. Warren Bridge, supra, at page 583g, said: The prerogative of the King is vested in him as necessary for the purpose of societ}^; it extends to all things not injurious to his subjects, but ''stretcheth not to the doing of any wrong'' (1 Bl. Com. 237-239); the ob- jects for which it is held and exercised are for the good of the subject, and the benefit of the Commonwealth, and not his private emolu- ment. It is a part of the common law (2 Inst. 63, 496) ; confined to what the law allows, and is for the public good (Hob. 261) ; and the increase of the public treasure (Hard, 27; 2 Vent. 268). The King is the universal oc- cupant of the public domain, which he may grant at pleasure (11 Co. 86 b; 9 Pet. 748; Cowp. 210); but his grants are voidable, if the}' are against the good of the people, their usual and settled liberties, or tend to their grievance (2) Pac. Abr. 149; Show. P. C. 75) ; holding if for the eommon benefit as a trust 15 his prerogative is the guardiaiishi]) of public property, for the general interest of his sul) jects. Grover Cleveland tersely gave voice to a fundii mental truth when he observed — A public office is a public trust. The citizen, either as an ofhcer, Member of Congress, contractor, or builder, takes part in the administration of the Government of the United States. Justice ]\liller. All persons administering any of the affairs of Government, and all persons dealing with the Govern- ment, are trustees solely acting for the benefit and welfare of the people as a whole. Trusts are various, and defies a definite defini- tion that would apply to all trusts that arise. Such is the character of human language, that no word or sentence can convey to mind all situations, in one single definite idea. It would be impossible to completely define the trust that arises in the circum- stances under discussion, for this trust has an infinite origin and nothing infinite can be fully described by a finite definition. I make some references, however, to some defini- tions of a trust that in general a sense encompass the trust relation that here arises: The word ''trust" in its broadest sense embraces a multitude of relations, duties, and responsibilities. Thus an executor and admin- istrators, guardian of infants and lunatics, assignees in insolvency and bankruptcy. 16 bailees, factors, and agents, commission mer- chants, and conmion carriers, as well as the officers of private and public corporations, all exercise a kind of trust. Perry on Trusts and Trustees, 6th ed., vol. 1, sec. 1. A trust, in common parlance, may be said to be a confidence reposed by some one in some one, and for some public or private pur- pose. Ex parte Falk, 1 W. Va. 269, 298. Trusts are various ; a debtor may be said to be a trustee for his creditor, a bailee is cer- tainly one for his bailor and agent for his principal. Pickings v. Dwight, 4 S. C. 13, 4 Rich. 360. A trust may exist without being expressed; it is deducible from the nature of the trans- action, as matters of interest, or superinduced upon the transaction by operation of law, as matters of equity independently of the par- ticular intention of the party. Russell v. Pey- ton, 4 111. Ap. 478. In McCreary v. Geinrmer, 103 Ga. 528, 534, a trust was thus defined : An equitable obligation, either expressed or implied, resting upon a person by reason of a confidence reposed in him, to apply or deal with property for the benefit of some other person, or for the benefit of himself and an- other or others, according to such confidence. So, it can hardly be regarded as at all doubtful that the Government itself, its officers, and all citizens dealing with it are in the performance of a trust. Congress in making an appropriation of public money for a governmental purpose is performing a trust. 17 The people having intrusted them with the appro- priation and expenditure of public money solely for the purpose of the benefit of the whole people, and all departments of Government, and all its officers, and all those dealing with the Government are held in conscience to strictest accountability for the faith- ful performance of this trust. Shealey, on the Law of Contracts, says, on page 6 : In substance, when one is dealing with the Government, he must consider himself the trustee and the Government the beneficiary under the trust. Mr. Chief Justice Fuller, in Hume v. U. S., 132 U. S. 406, at page 414, says: In order to guard the public against losses and injuries arising from the fraud or mistake or rashness or indiscretion of their agents, the rule requires of all persons dealing with public officers, the duty of inquiry as to their power and authority to bind the Government; and persons so dealing must necessarily be held to a recognition of the fact that Government agents are bound to fairness and good faith as between themselves and their principal. Whiteside V. U. S., 93 U. S. 247, 257; U. S. V. Barloiv, 132 U. S. 271. All contracts for supplies should be made with those and with those only who ivill exe- cute them most faithfully and at the least ex- pense to the Government. Consideration as to the most efficient and economical mode of meet- ing the public's wants should alone control^ in this respect, the action of every department 23189-22 3 18 of the Government. No other coiisideration can lawfully enter into the transaction, so far as the Government is concerned. Such is the • rule of pubUc poHcy, and whatever tends to introduce any other element in the transaction is against public policy. Tool Company v. Norris, 2 Wall. 45, 54, 55. This court has always regarded the Govern- ment as somewhat in the character of a ward, and its officers in the character of its guard- ians. * * * Whoever has business dealings with the trustee, a guardian, an executive, or officer of the Government, can sway them by no influence which will be prejudiced in the interest of the cestui que trust. Garman v. U. aS., 34 Ct. CL, 237, 242. The Supreme Court decided the cases of U. S. v. Carter, 217 U. S. 286, and Crocker v. U. S., 240 U. S. 74, in favor of the Government upon the theory of a trust relation existing in transactions of govern- mental nature. A citizen when dealing with the Government can deal with it only through the officers of the Govern- ment, and, as hereinbefore asserted, the officer and citizen in so dealing are each acting in the capacity of trustees, the Government being the cestui que trust. The citizen deals with the officer with the knowl- edge of the officer's powers and limitations, and each knows that both are under obligation to deal justly, frankly, fully, and reasonably for the benefit of the cestui que trust. 19 The Constitution and laws define, to the knowl- edge of the contracting citizen, the extent and the limits of the officer's authority. The contracting citizen owes a duty and fidelity to the cestui que trust — his Government — by virtue of his allegiance. In addi- tion to the knowledge he in law possesses, of the limitations of the officer or officers with whom he is dealing. In U. S. V. Tingey. 5 Pet. 114, Mr. Justice Story, on page 127, said: Upon full consideration of this subject we are of the opinion that the United States have such a capacity to enter into contracts. It is, in our opinion, an incident to the general right of sovereignty; and the United States being a body politic, may, within the sphere of the constitutional powers confided to it and through the instrumentality of the proper department to which those powers are con- fided, enter into contracts not prohibited by law and appropriate to the just exercise of those powers. We have stated the general prin- ciple only without attempting to enumerate the limitation and exceptions which may arise from the distribution of powers in our Government or through operation of other provisions in our Constitution and law. The Supreme Court in the case of the Floyds Acceptance, 7 Wall. 667, 676, holds that the Gov- ernment speaks and acts ^^only through agents, more properly officers." It is further stated in this opinion that ^'we have no officers in this Govern- ment, from the President down to the most subor- 20 dinate agent, who does not hold office under the law, with prescribed duties and limited authority." All oflScers of the Government from the highest * to the lowest are but agents with delegated powers U. S. V. Maxwell Land Grant Co., 21 Fed. 19; Houser V. [/. S., 39 Ct. CI. 508; Cutler v. Kouns, 110 U. S. 720. Officers of the Government must act within legally prescribed limitations. All dealing with Government agents charged with notice of limitations of officers^ Thompson v. U, S., 10 Ct. CI. 187. If in violation of his duty, an officer shall knowingly, or even corruptly, do an act inju- rious to the public, can it be considered obligatory f He can only bind the Govern- ment by acts which come within the just exercise of his official power. Hunter v. U. S.y 5 Pet. 173, 188. Unauthorized acts of officers can not estop the Government for insisting upon their invalidity, however beneficial they ma}^ have proved to the United States. Filor v. U. S., 9 Wall. 45. The Government does not guarantee the integrity of its officers or the validity of their acts; they are but the servants of the law and if they depart from its requirements the Government is not bound. Mojitt V. U. aS., 112 U. S. 24, 31. Persons dealing with the officers of the Government are supposed to have a legal knowledge of the extent of their powers, and are bound by the legal effect of such knowledge. Sprague v. U. S,, 37 Ct. CI. 447. 21 It has long been settled that the action of executive officers in matters of accounting and payment can not be regarded as conclusive determination when brought in question in a court of justice. Wisconsin Cent. R. v. U. S., 164 U. S' 190, 205; Steele v. C7. S., 113 U.S. 128, 134. An officer's account with the United States Treasury is never in the legal or mercantile sense '^finally adjusted." Smith v. U. S., 14 Ct. CI. 114. ^ The United States can bring action to recover back property obtained through its officers illegally or by mistake, or the value thereof. Where the transaction is illegal the defendant is chargeable with knowledge of the fact. Steele v. U. S., 113 U. S. 128, 134. The pertinent question which now presents itself for consideration is the validity of these contracts and many of their respective terms, and the acid test to apply, do these contracts and their provisions ''come within a just exercise of official power f The first item to consider being do these contracts agree to pay more than ''a just compensation,'' as the Government is limited both by the Constitution and law to only pay for property and service a ''just compensation"; and this compensation must be a '^just compensation" not only to the contracting citizen, but to the public which pays the bill; and any contract or contractual provision that provides for any payment in excess of a ''just compensation" is void on two grounds: First, being violative of the duty of the officer to the knowledge of the contractor; 09 and, second, violative of the duty that the contract- ing citizen owes the Government by virtue of his allegiance. The fifth amendment to the Constitution of the United States provides that no ''private property shall be taken for public use without just compensa- tion." So, it does not make an}^ difference whether the Government acquires property by contract or by the exercise of its arbitrary power, in either in- stance all that it would be required to pay is a ''just compensation." The Government is but exercising its power — its governmental function — whether prop- erty is transferred and conveyed to it voluntarily or involuntarily by its citizens. The only limitation placed upon the Government is that it shall not ac- quire private property without paying "just com- pensation." This is a limitation both upon the Government and the citizen and each are regulated by it and confined to its limits. In Atlantic, etc., R. Co. v. Southern R. Co., 131 Fed. 657, Judge Lurton, then a member of the Circuit Court of Appeals of the Sixth Circuit, on page 666 said, in a proceeding to compel an appro- priation: ''Nevertheless the proceeding to compel an appropriation is at least but a substitute for acquisition by contract." A proceeding by a city to acquire the property of a public utility is in the nature of a condemnation proceeding although de- nominated a purchase. Connor v. Kanawana, 104 Wis. 471. 23 A proceeding to condemn is only to compel to sell. Atlantic, etc., R, Co. v. Southern R. Co., supra. The owner may become and is in fact made the involuntary vendor of his land under the exercise of the sovereign power. Marion v. Louisville R. Co., 90 Ky. 491. Condemnation proceedings are, until com- pensation is fixed and paid, or tendered, only in the nature of an executory contract to buy the land. Gosiner v. Southern R. Co., 7 S. C. 173. The provisions of the Constitution are equally operative and binding in the ordinary and normal transaction of the Government as they are when the Government is compelled to resort to coercive means to accomplish its purpose. Turn to civil governments. Trace with me the simple march of circumstances. Society exists. Something is to be done, n( matter what, in its name and for its interest, a law has to be executed, some measure to b( adopted, a judgment to be pronounced. Now. certainly, there is a proper method of supply- ing these social wants; there is a proper lav to make, a proper measure to adopt, a propei judgment to pronounce. Whatever may be the matter in hand, whatever may be the interest in question, there is, upon ever}' occasion, a truth which must be discovered, and which ought to decide the matter, and govern the conduct to be adopted. 24 The first business of Government is to seek this truth, is to discover what is just, rea- sonable, and suitable to society. When this is found, it is proclaimed; the next business is to introduce it to the public mind; to get it ap- proved by the men upon whom it is to act ; to persuade them that it is reasonable. In all this is there anything coercive? Not at all. Suppose now that the truth which ought to decide upon the affair, no matter what; sup- pose, I say, that the truth being found and proclaimed, all understanding should be at once convinced; all wills at once determined; that all should acknowledge that the Government was right, and obey it spontaneously. There is nothing yet of compulsion, no occasion for the employment of force. Does it follow then that a government does not exist ? Is there nothing of government in all this ? To be sure there is, and it has accomplished its task. Compulsion appears not till the resistance of individuals calls for it — till the idea, the decision which authority has adopted, fails to obtain the ap- probation or the voluntary submission of all. Then the government employs force to make itself obeyed. This is a necessary consequence of human imperfection ; an imperfection which resides as well in power as in society. There is no way of entirely avoiding this; civil govern- ments will always be obliged to have recourse, to a certain degree, to compulsion. Still it is evident they are not made up of compulsion, because, whenever they can, they are glad to do without it, to the oreat blessing of all; and 25 their highest point of perfection is to be able to discard it, and to trust the means purely moral to their influence upon the understanding; so that, in proportion as government can dispense with compulsion and force, the more faithful it is to its true nature and the better it fulfills the purpose for which it is sent. This is not to shrink, this is not to give way, as people com- monly cry out; it is merely acting in a dif- ferent manner, in a manner much more general and powerful. Those Governments which em- ploy the most compulsion perform much less than those which scarcely ever have recourse to it. Government, by addressing itself to the understanding, by engaging the free will of its subjects, by acting by means purely intellec- tual, instead of contracting, expands and ele- vates itself; it is then that it accomplishes most, and attains to the grandest objects. On the contrary, it is when government is obliged to be constantly employing its physical arm that it becomes weak and restrained— that it does little, and does that little badly. The essence of government then by no means resides in compulsion, in the exercise of brute force; it consists more especially of a system of means and powers conceived for the purpose of discovering upon all occasions what is best to be done ; for the purpose of discover- ing the truth which by right ought to govern society, for the purpose of persuading all men to acknowledge this truth, to adopt and respect it willingly and freely. Guizot, His- tory of Civilization, vol. 1, p. 109 et seq. 26 The Supreme Court in referring to this ''just com- pensation^' in the constitutional provision, in Bmiman V. Ross, 167 U. S., at page 548, said: The "just compensation" fixed must be just not merely to the individual whose property is taken but to the pubHc who is to pay for it. And in Searle v. School District, 133 U. S. 533, at page 562, Mr. Chief Justice Fuller said: It is the duty of the State in the conduct of inquest by which the compensation is ascer- tained, to see that it is just, not merely to the individual whose property is taken, but to the public which is to pay for it. Harrison v. X Y., 21 Wall. 196, 204: Kohl v. U. S., 91 U. S. 367, 371. Congress recognized this limitation when it gave authority to the Executive to purchase the necessar}^ instrumentalities, materials, and supphes for the recent war: (c) Whenever the United States shall cancel or modify any contract, make use of, assume, occup}' , requisition, or taken over any factoiy or part thereof, or any ships or war material, in accordance with the provisions of para- graph (b), it shall make just compensatio7i therefor, to l^e determined by the President, and if the amount thereof so determined by the President is unsatisfactory- to the person entitled to same, such person shall be paid seventy-five per centum of the amount so determined by the President and shall be enti- tled to sue the United States to recover such further sum as added to said seventv-five 27 per centum shall make up such amount as will be just compensation therefor, in the manner provided for by section twenty-four, para- graph twenty, and section one hundred and forty-five of the Judicial Code. (x\cts March 4, 1917, c. 180, 39 Stat. 1192; July 1, 1918, c. 114, 40 Stat.) Therefore it is plain that the officer acting for the Government ''can only bind the Government by acts which come within a just exercise of his official power,'' and he is limited in making payment for material and supplies to a ''just compensation." Under the decisions of the Supreme Court in Hume V. U. S., 132 U. S. 406; U. S. v. Barloiu, 132 U. S. 271; U. S. V. Carter, 217 U. S. 286; Crocker v. U. S., 240 U. S. 74; and Tool Company v. Norris, 2 Wall. 45, the compensation must be reasonable and fair, not only to the contractor furnishing the supplies, but to the public; compensation fixed in any such con- tracts in excess of that would be unjust and unrea- sonable to the public, and under the decisions above mentioned would be void and not binding on the Government, and this would be so, knowingly, in the law^, to the contractor, for the contractor would know that an officer of the Government could not bind his principal to any such excessive compensation ; and, further, it would be the duty in law arid in morals of the contractor to see that no officer of the Govermnent attempted to bind the Government to any agreement providing for the payment of unreasonable and unjust compensation; any contractor consenting to 28 receive any such unreasonable and unjust compen- sation would be acting dishonestly. A contract with the Government providing for more than a •''just compensation" to furnish it supplies would, under the circumstances, be a contract as charac- terized by Lord Hardwicke ''such as no man in his senses and not under delusion would make on the one hand, and as no honest and fair man would accept on the other. ^^ The duty of a citizen or an officer to the Govern- ment is measured only by the necessity of the occa- sion, and this necessity is the necessity of the Govern- ment. Advantage of the necessities of the Govern- ment can not be taken b}^ either officer or citizen; it is the duty of each to provide for and to supply the Government's needs, to the full extent of their ability, and if compensation is recjuired for such serv- ice or the furnishing of the necessary supply, it must be at its lowest possible price, and any agreement providing for the paying of anything in excess thereof is violative of the duty and ol)ligation of each, and is not binding on the Government. These contracts provide that the contractor shall manufacture the article contracted for "at the best price obtainable." This is the obligation of the con- tractor, imposed by law, and it was not necessary to affirmatively recite that fact in the contract, but by reciting it it simpJ^j emphasizes the contractor's duty. The contracts further provide that in addition to the "fixed profits" there shall be paid an amount 29 ^'in consideration of .savings." This consideration is a fixed percentage of the savings made by the contractor between the estimated cost and the actual cost. When the Government gives to one of its citi- zens a contract to furnish material and supplies at its actual cost and for which the Government agrees to pay in addition to the cost a percentage thereof, as profit, then this contract itself, irrespective of the duty of the contractor as a citizen to the Government creates a trust relation. It reposes confidence in the contractor that he will perform the service so contracted for, at the lowest possible price, and it trusts him to do so. The contractor under such cost-plus contract, accepting this trust, is not entitled to any consider- ation for its faithful performance, therefore when he accepted the obligation to produce an article at cost^ with a percentage thereof as a ''fixed profit,'' he can not insist upon any additional payment for the per- formance of that duty, and any agreement to pa\ any additional sum for the faithful performance lacks consideration to support it, and is therefore void. The reason given and the contentions made to support the validity of the bonus provision in the contracts, when reduced to their last analysis, demonstrate an intent and purpose of paying a bribe to be honest. While it is not necessary to make any legal refer- ence to show that any such intent and purpose is fundamentally wrong, the case of Weave?' v. Whitney, decided by the chancellor in 1823, 1 Hopkins Ch. Rp. (N. Y.) 11, is pertinent, interesting, and instructive. ,The chancellor held that an officer of the Navy could not bargain to discharge a public duty for a private reward any more than to omit such duty, nor by artifice create a surface appearance of the per- formance of a public duty and receive a private reward therefor. I take from the chancellor's opinion the following quotations, pages 21 and 22: The idea that an officer employed by the public for the performance of a public trust, and paid by his country for his services, may take additional and private compensation for the discharge of his official duties is wholly inadmissible. A distinction between bribes for doing a duty and bribes for violating a duty may exist in casuistry; and a bribe which has produced a violation of dut}^ iTiay, when viewed in connection with its effect, be more criminal than a bril)e not followed l^y such a result. But the idea now suggested, that bribes for doing a duty are lawful, is a conception which never yet found a place in any code of law or in any system of morals. Vain is the sugges- tion that private rewards like these are inno- cent incentives to duty. That he who must be corruptly bought to do his duty will per- form any duty with fidelit}^ is an idle supposi- tion. The necessary tendency of such re- wards is to debauch; and the faithful discharge of a public trust can not be expected from him who will accept a bribe to do his duty. The distinction between bribes to obtain the dis- 31 charge of a duty and bribes for other objects is far too subtle and fallacious for practice; a restraint too feeble, either for the suborner or for the officer accepting a bribe; a barrier too slight to secure fidelity and integrity in the discharge of public trusts. If these different cases of bribery involve different degrees of moral guilt, both are still crimes; and the sophistical pretense now advanced that an act criminal in itself becomes lawful when the intention of the parties committing the offense is to promote the due performance of the public service must be rejected. The argu- ment that private compensation might be justifiably received for the protection and the services stipulated by this contract, b'ecause these objects were matters of public duty, is in itself unsound, subversive of the clearest principles of law and morals, and inconsistent with the pure administration of public trusts. If the services engaged by this contract were within the scope of public dut}^, the}^ were to be performed as a public duty, which could not be bought or sold for private gain. In principle, there is no distinction in bribing an officer to do his duty and bribing a citizen to be honest in his dealings with his Government. It is contended that the provision providing for this bonus, or extra payment, can not be separated from the payment providing for the ^^ fixed profits^'; but an examination of the contracts w^ill show that it can be separated and is divisible from the ^^ fixed profits.^' 32 The contracts themselves provide that this pay- ment is made solely and only ^^in consideration of ^vings/^ If the part of the contract to be performed by one party consists of several distinct and separate items, and the price to be paid by the other is apportioned to each item to be per- formed, or is left to be implied by law, such a contract is in general severable and the same rule holds where the price to be paid is clearly and distinctly apportioned to different parts of what is to be performed, though the latter is in its nature single and entire. Amsler v. Brunner et al, 173 111. App. 337; State ex rel. Dolman v. Dickey (Mo.), 231 S. W. 582, 13 C. J. 563. But if there is any merit in the contention that the '^bonus" — the ^^amount for savings" — can not be separated from the ''fixed profit," then it follows that the two amounts must l^e added together as the compensation to be paid to the contractor for the construction and manufacture of the articles con- tracted for; and if such is the interpretation and construction of the contract, then the contract price is not only in excess of a "just compensation," but is unreasonable, inequitable, and unconscionable under the decisions of the Supreme Court above referred to, and is therefore void. And any officer 3f the Government entering into any such engage- ment did not make a "just exercise" of his "official power," and therefore his act does not bind the Government. That the contractor under these cost- 33 plus contracts with their bonus provision did receive excessive profits the files and records plainly estab- lish ; and such being the facts, under the principle of law hereinbefore referred to, the Government may successfully institute a proceeding for the recovery of the excessive payments made. All of these contracts contain provisions attempt- ing to authorize the appointment of appraisers for the purpose of determining the values in certain instances on properties of the Government. These provisions of the contracts provide that the appraisers are to be appointed in the following manner: one to be selected by the Government, one by the con- tractor, and one by the two appraisers selected. There is no provision in the contract either author- izing or prohibiting a majority decision of the apprais- ers to control. Ordinarily speaking, a board of appraisers so constituted w^ould require unanimity of action, but there is an exception to this rule, and that exception applies to a matter in which the public is interested. The Supreme Court in Omaha V. Qmaha Water Co., 218 U. S. 180, 192-193, held where a board of appraisers was appointed in which the public was interested in their action and there was no provision that a majority w^ould control, a majority would control. I question whether this provision of the contract is good; first, because I know of no statute authoriz- ing an officer to appoint an appraiser to determine a matter that the law vests in his discretion. No officer of the Government has authority to enter 34 into a submission unless by statute so authorized and empowered (U. S. v. Aimes, 24 Fed. Cas. No. 14,441; 1 Woodb. & M. 76). Second, under the provision for the appraisements a majority of the appraisers would control, therefore it would permit the fixing of a value on Government property by persons who might l)e interested adversely to the Government. It is apparent that this provision of the contracts is not to the interests of the Government, conse- quently I doubt its legal efhcacy. In concluding this memorandum, permit me to say that the narrow and selfish interests which control individuals and private corporations in their com- mercial transactions and intercourse is not the view- point from which, or the standard by which, trans- actions governmental in their nature are to be viewed or measured. It is in the degree that thought rises above the world's commercialism and its baneful influence that the aspirations and rights of a Govern- ment are realized, and the obligations and fidelity due it from its citizens and officers understood; and none of these rights are impaired or surrendered and no obligation is cancelled or made less binding when the Sovereign appears in the courts of the land to assert and enforce them. Respectfully suljmitted. Ralph E. Moody, Special Assistant to the Attorney General. O mm ilii: lllip liiiiii iiii liill LIBRARY OF CONGRESS 011 523 843 7 ^