Contra Bonos Mores

Almost 18 months after the first startling disclosures made in the Senate investigation of Naval reserve oil leases, the Government got its first material satisfaction. Last week, the first of the suits instituted because of those disclosures was decided--decided not finally, but at least in the Government's favor. Judge McCormick of the Federal District Court in Los Angeles, who heard the argument in the case last October and November, read the decision.

The Circumstances. Briefly, Edward L. Doheny made a "loan" of $100,000 to Secretary of Interior Albert B. Fall in November, 1921. Between April and December of the following year, Mr. Fall, acting on behalf of the Navy Department, granted to two of Mr. Doheny's companies leases to exploit on a royalty basis Naval Oil Reserve No. 1 (at Elk Hills, California), and contracts whereby the Doheny companies were to construct oil-storage tanks at the naval base at Pearl Harbor, Hawaii, which were to be paid for by the Government in oil.

The Contentions. The Government declared that the $100,000 "loan" was a bribe, that Secretary Fall had fraudulently induced President Harding to give him authority to make the leases and contracts, that Fall and Doheny had conspired to defraud the Government. It demanded 1) cancellation of the leases and contracts, 2) repayment for all oil taken by the Doheny companies, or received by them for constructing oil tanks at Hawaii.

The defense declared that the $100,000 loan was bona fide and did not bear on the case, that there was legal authority to make the leases and contracts, that the transactions were undertaken in good faith, were legal, were in the interest of the Government. It demanded that the leases and contracts be declared legal and binding.

The Decision. Judge McCormick, after more than six months deliberation, declared:

1) That the payment of $100,000 (made without security, carried in a black satchel instead of conveyed in the usual channels, concerning which no records were kept and having for receipt a note with its signature torn off) was "contra bonos mores," "a fraud upon the United States," "a colossal infamy regardless of whether it was a bribe, a gift or a loan."

2) That the executive order whereby President Harding gave Secretary Fall control over the Naval oil reserves was "ineffectual and in excess of the executive power of the President."

3) That on these two counts, the contracts and leases obtained by the Doheny companies were void.

4) That the Doheny companies had constructed oil tanks at Hawaii, which, it was clearly established, were "of benefit and value" to the U. S. and constructed "without waste or extravagance."

5) That the Government must pay or credit the Doheny companies with the cost price of these oil tanks, with the cost of the oil placed by the Doheny companies in those tanks and for all actual expenditures in drilling wells under the leases.

6) That a receiver shall continue in charge of the properties, and, later, a Master in Chancery shall be appointed to carry out the Court's decision.

In addition, the Court found:

1) That Secretary Fall had not used fraud to induce President Harding to place the Naval oil reserves under his control.

2) That ex-Secretary of the Navy Denby took no part in negotiating the leases and contracts and signed them "under misapprehension and without full knowledge of the contents of said documents."

3) That the secrecy which surrounded the transactions was not for military reasons but to prevent Congress and the public from knowing what was being done.

4) That Secretary Fall and Admiral John K. Robison were the "real active and efficient agents of the Government in the negotiations."

5) That Admiral Robison had "no ulterior motive or mercenary purpose" in furthering the transactions.

The Future. The Doheny interests will appeal the case this month. Next fall, it will be argued before the Circuit Court of Appeals in San Francisco. Later, the U. S. Supreme Court will hear it.

For the time being, however, the Government has the advantage. The Government suit to recover Teapot Dome from Harry F. Sinclair's companies is now waiting decision. In the Teapot Dome case, the evidence of fraud was far less impressive--in fact, very fragmentary because so many witnesses were out of the country. But, if the Cheyenne judge follows the same reasoning as the Los Angeles judge, he will void the Teapot Dome lease--on the ground that President Harding had no authority to give Secretary Fall control of the Naval oil reserves.

The decision of the Los Angeles court may make it possible immediately to run enough oil into the storage tanks at Hawaii to prevent them from completely rusting to pieces.