Towar Cotton Mills, Inc. v. United States

Background

A contractor agreed on June 24, 1918 to supply cloth to the United States and on July 6, 1918 accepted a government advance for machinery and materials, secured by a demand note bearing 6% interest. The contract allowed cancellation if the war ended. The Government cancelled the cloth contract on November 15, 1918 after about 19.02% of deliveries were made. The contractor pursued administrative remedies before the Purchase Claims Board and the Board of Contract Adjustment and received an award of $14,054.59 described as “in full adjustment, payment and discharge” of the June 24 contract, which the contractor accepted on June 3, 1920. The contractor then sued in the Court of Claims; the Government counterclaimed on the unpaid note balance.

Reasoning

The Court addressed whether the award or the contractor’s acceptance stopped the Government from collecting the remaining note balance. The Court noted there were no findings that the contractor suffered loss from the contract cancellation that would support its suit. The Court found the award dealt only with the June 24 cloth contract and the items and computations related solely to that contract. The separate July 6 advance agreement and the promissory note were not affected by the award. Thus the Government’s counterclaim for the note balance, reduced by the award amount, was valid. The Court also held that if the award was valid, it was properly credited on the award’s date.

Real world impact

The ruling leaves the contractor responsible for the unpaid loan balance and accrued interest after crediting the administrative award. It confirms that an administrative award applies only to the contract it resolves and does not automatically cancel separate debts or change when interest accrues.