United States v. Wunderlich/Opinion of the Court

This Court is again called upon to determine the meaning of the 'finality clause' of a standard form government contract. Respondents agreed to build a dam for the United States under a contract containing the usual 'Article 15.' That Article provides that all disputes involving questions of fact shall be decided by the contracting officer, with the right of appeal to the head of the department 'whose decision shall be final and conclusive upon the parties thereto.' Dissatisfied with the resolution of various disputes by the department head, in this instance the Secretary of the Interior, respondents brought suit in the Court of Claims. That court reviewed their contentions, and in the one claim involved in this proceeding set aside the decision of the department head. 117 Ct.Cl. 92. Although there was some dispute below, the parties now agree that the question decided by the department head was a question of fact. We granted certiorari, 341 U.S. 924, 71 S.Ct. 795, 95 L.Ed. 1356 to clarify the rule of this Court which created an exception to the conclusiveness of such administrative decision.

The same Article 15 of a government contract was before this Court recently, and we held, after a review of the authorities, that such Article was valid. United States v. Moorman, 338 U.S. 457, 70 S.Ct. 288, 94 L.Ed. 256. Nor was the Moorman case one of first impression. Contracts, both governmental and private, have been before this Court in several cases in which provisions equivalent to Article 15 have been approved and enforced 'in the absence of fraud or such gross mistake as would necessarily imply bad faith, or a failure to exercise an honest judgment * *  * .' Kihlberg v. United States, 97 U.S. 398, 402, 24 L.Ed. 1106; Sweeney v. United States, 109 U.S. 618, 620, 3 S.Ct. 344, 27 L.Ed. 1053; Martinsburg & P.R. Co. v. March, 114 U.S. 549, 553, 5 S.Ct. 1035, 1037, 29 L.Ed. 255; Chicago, S.F. & C.R. Co. v. Price, 138 U.S. 185, 195, 11 S.Ct. 290, 292, 34 L.Ed. 917.

In Ripley v. United States, 223 U.S. 695, 704, 750, 32 S.Ct. 352, 356, 56 L.Ed. 614, gross mistake implying bad faith is equated to 'fraud.' Despite the fact that other words such as 'negligence,' 'incompetence,' 'capriciousness,' and 'arbitrary' have been used in the course of the opinions, this Court has consistently upheld the finality of the department head's decision unless it was founded on fraud, alleged and proved. So fraud is in essence the exception. By fraud we mean conscious wrongdoing, an intention to cheat or be dishonest. The decision of the department head, absent fraudulent conduct, must stand under the plain meaning of the contract.

If the decision of the department head under Article 15 is to be set aside for fraud, fraud should be alleged and proved, as it is never presumed. United States v. Colorado Anthracite Co., 225 U.S. 219, 226, 32 S.Ct. 617, 620, 56 L.Ed. 1063. In the case at bar, there was no allegation of fraud. There was no finding of fraud nor request for such a finding. The finding of the Court of Claims was that the decision of the department head was 'arbitrary,' 'capricious,' and 'grossly erroneous.' But these words are not the equivalent of fraud, the exception which this Court has heretofore laid down and to which it now adheres without qualification.

Respondents were not compelled or coerced into making the contract. It was a voluntary undertaking on their part. As competent parties they have contracted for the settlement of disputes in an arbitral manner. This, we have said in Moorman, Congress has left them free to do. United States v. Moorman, supra, 338 U.S. at page 462, 70 S.Ct. 291. The limitation upon this arbitral process is fraud, placed there by this Court. If the standard of fraud that we adhere to is too limited, that is a matter for Congress.

Since there was no pleading of fraud, and no finding of fraud, and no request for such a finding, we are not disposed to remand the case for any further findings, as respondents urge. We assume that if the evidence had been sufficient to constitute fraud, the Court of Claims would have so found. In the absence of such finding, the decision of the department head must stand as conclusive, and the judgment is reversed.

Reversed.

Mr. Justice DOUGLAS, with whom Mr. Justice REED concurs, dissenting.