#### McKIERNAN-TERRY DRILL CO. *v.*THE UNITED STATES

[No. B-354.

Decided December 7, 1925]

*On the Proofs*

*Settlement contracts; storage.*— Where at the time settlement contracts are entered into terminating all liabilities thereafter under the original contracts, the defendant is using space in plaintiff’s factory for storing material manufactured by the *284plaintiff in accordance with said original contracts and owned by the Government, and the rent due for said space is, at the time of execution of said settlement contracts, indeterminable, the defendant is liable for the reasonable worth of said space from the date the manufacturing is completed and until the material is removed.

*The Reporteras*statement of the case:

*Mr. Benjamin Carter*for the plaintiff.

*Mr. Dan M.*Jackson, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant. *Mr. Dwight E. Rorer*was on the brief.

The court made special findings of fact, as follows:

I. The plaintiff is, and was during the transactions hereinafter set forth in these findings of fact, a corporation duly incorporated under the laws of the State of New Jersey.

II. On the 28th day of August and the 10th day of September, both in the year 1918, respectively, plaintiff entered into contracts with the United States, acting through authorized officers of the Ordnance Department of the Army, for the manufacture by plaintiff of certain projectiles, described in the contracts and specifications thereof. Such parts of said contract of August 28, 1918, as are pertinent hereto are set out in Paragraph II of the petition herein, and are made part of this finding by reference thereto. The contract of September 10, 1918, contained identically the same provisions except.that the articles to be manufactured were drop bombs, in number 161,769, instead of proof projectiles, and the price per bomb was 53 cents, making for the entire quantity specified, $85,737.57, and the stipulation as to delivery contained in Article II was as follows:

“ Delivery of the articles shall commence during the month of September, 1918, and shall proceed as follows:

“Forty thousand (40,000) during the month of September, 1918.

“ Forty thousand (40,000) during the month of October, 1918.

“Forty thousand (40,000) during the month of November, 1918.

“Forty-one thousand, seven hundred sixty-nine (41,769) during the month of December, 1918.

*285“ All deliveries shall be completed on or before January 1, 1919.”

Other articles in each of said contracts provided for the furnishing by the United States of some component parts of the products, for priority to be given by plaintiff, in performance of the contracts, over any other work it might have in hand except for the United States, and for inspection and approval by Ordnance officers of materials used and articles manufactured.

III. While the work was in progresss under both contracts the contracting officer notified the plaintiff on December 11 and December 13, 1918, to suspend operations on each contract, except so far as was necessary to complete material in progress in its plant, and in no case to continue work beyond January 31, 1919, stating as to each:

“ This request is made with a view to the negotiation of a supplemental contract providing for the cancellation, settlement, and adjustment of your existing contract in a manner which will permit of a more prompt settlement and payment than will be practicable under the terms of said existing contract.”

On March 18 and 19, 1919, the plaintiff and defendant entered into settlement contracts in lieu of the two contracts, respectively, above referred to: the first contract was approved by the claims board of the Ordnance Department on May 1, 1919, and the second contract on June 11, 1919. Each of said settlement contracts contained the following clauses:

“ 1. This contract supersedes and takes the place of said original contract which is hereby terminated, and the contractor hereby releases the United States from any and all claims of every nature whatsoever arising out of said original contract, except that all articles or work delivered and accepted on or before the date of this contract under and in pursuance of said original contract and not yet paid for, shall be paid for in accordance with the provisions of said original contract as if it had not been terminated. •

“ 2. The contractor shall furnish and deliver and the United States shall accept, and pay for no more articles or work agreed to be delivered under said original contract except to the extent provided for in paragraph 1 hereof.

*286“ 8. The United States shall forthwith pay to the con-. tractor the sum of-in full and final compensation for articles or work delivered, services rendered and expenditures incurred by the contractor under the original contract and in full satisfaction of any and all claims or demands in law or in equity, which the contractor, its successors, representatives, agents, or assigns, may have growing out of or incident to said original contract; and said contractor hereby expressly agrees that such settlement, when made, shall constitute a complete determination of every question or claim, legal or equitable, liquidated or unliquidated, by or on behalf of the contractor, pertaining to or growing out of said original contract, except to the extent provided for in paraigraph 1 hereof.

“ 4. The property specified on Schedule C hereto annexed and made a part hereof, is to be retained by the contractor in consideration of thé allowance to the United States under item four of ‘ Deductions in the award in this settlement. Until execution and approval of this agreement by the ordnance claims board are accomplished, all such property shall, in so far as practicable, be kept by the contractor separate and apart from property belonging to the contractor and shall be properly cared for by the contractor and shall be marked by the contractor in such manner as the contracting officer may direct.

“ 5. The United States reserves all its rights under the original contract to recover any payments improperly made and to enforce the liability of the contractor and surety for defects in articles or work done which may hereafter appear.

“ 6. This agreement shall not become a valid and binding obligation of the United States unless and until the approval of the claims board of the Ordnance , Department has been noted at the end of this instrument.”

The blank space in paragraph 8 of the contract of March 18, 1919, carried the words and figures “ seven hundred dollars ($700) ” and the blank space in paragraph 3 of the contract of May 19, 1919, “ nine thousand two hundred and nineteen and 60/100 dollars ($9,219.60).” These amounts were promptly paid to plaintiff by the Government.

IY. The manufacture of the material authorized by the two orders of December 11 and 13, 1918, suspending work on the two contracts was completed before February 1, 1919. On January 31, 1919, the Government inspector at plaintiff’s shops, in response to a request therefor, furnished *287the following information to the Army inspector of ordnance relative to storage space for finished and unfinished Government material at plaintiff’s plant: Floor space for temporary storage, 2,000 feet; walls of building, brick; floors, concrete; roof, steel frame, wood-sheathing, gravel; safe floor loads allowed, 600 pounds per square foot; height of floors, 21 feet; one story; length of time available, six months; rental price, 2Ó cents per square foot per month; floor space required for unshipped Government material, 2,000 feet. This space of 2,000 square feet consisted of a bonding room in the center of one of plaintiff’s main buildings, with 1,000 square feet of floor space, and was constructed by plaintiff at its own expense for storing Government material required by said contracts. This room was stored with Government material manufactured under the first contract, and the Government inspector had the key to it, and it was inaccessible to plaintiff until the material was removed. Outside of the bonding room in the plaintiff’s open shop fragmentation drop bombs were stored, manufactured under the second contract, occupying 1,000 square feet of floor space. The Government held possession of the floor space in bonding room and open shop from the time all work stopped January 31, 1919, until all the material was finally removed September 30, 1919.

On March 18, 1919, plaintiff wrote to the inspection division of the Ordnance Department in New York stating that “ some days ago we sent a summary of the floor space occupied by ordnance material in our plant with a request that arrangements be made to compensate us for room occupied, or that the material be removed.”

On July 8, 1919, plaintiff wrote to the district ordnance board calling attention to a letter from it dated January 31, 1919, and its letter of March 18, 1919, and stating among other things: “ It is earnestly requested that you give this matter your earliest consideration and arrange that we receive compensation for this floor space occupied which is of considerable value to us and which is urgently needed at the present time for our own use.”

On August 27, 1919, the plaintiff wrote to the ordnance district salvage board calling attention, among other things, *288to the fact that it had quoted its rate of 20 cents per square foot to the ordnance inspector at its plant, and gave him the information as to space and rate of rent sent by him to the Army inspector of ordnance, concluding as follows:

“ We have repeatedly requested the department, both verbally and in writing, to give us possession of this space, as we are seriously congested in our plant due to this space being occupied by the Government. As they have not seen fit to do this, we believe that we are entitled to compensation on the rate quoted, and were advised by Major Grinden’s chief clerk to draw the vouchers which have been submitted to you.”

On September 16, 1919, the plaintiff again wrote to the New York district ordnance board in part as follows:

“Referring to our letter of July 8th in reference to the storage-of material at our plant, also the bill rendered covering the storage to June 30th, based on a charge of 20^ per square foot per month for the space which the Government is occupying and has occupied for six months past in our machine shop at Dover, N. J.

“We understand that you were unable to approve our bill for payment on account of the rate which we have charged for storage. We feel that our bill should be approved for the following reasons, and ask that in case you do not feel that you can authorize the payment, that you refer the whole matter to Washington to arrange so that we can have a hearing in the matter.

“ The space occupied is not in a separate storage building, but is in our main machine shop under our crane runway as shown in the accompanying sketch, and this fact has prevented and still prevents our utilizing our shop for our own purposes. The rate named by us was not intended for the continued use of this space, but with the idea that the Government would remove the material promptly and let us have the use of our shop for our own purposes. In spite of our continued protest, the material has not been removed and is still blocking our shop.

“ Half of this space as shown in the sketch as bonding room is occupied by a few copper bands which do not in all constitute a truck load, yet we are not permitted to move this material, as it is under Government lock, the key of which is in the possession of the inspection department. If we had understood that you required storage for a period of months, we would have built a special storage room to contain this material which would have occupied much less *289space and allowed ns to carry on onr regular business without interference.

*“*The rate which we charged was quoted by us to your assistant inspector at the time we were instructed to store this material for the account of the Government, and quoted by your inspector in his report to his superiors under date of January 31st, 1919. Over two months ago we billed you for the cost up to July 15th, so this was, therefore, an additional notice to you of what this storage was costing. If the rate quoted by us was unsatisfactory, you should have notified us at the time we first quoted it. At that time we could have made a proposition for building a special temporary storehouse for you on ground adjacent to our shop. We doubt, however, if this would have been any cheaper in the end, but at least would have settled definitely the matter of the storage rate which was to be charged.”

. On September 25, 1919, the plaintiff wrote to the same office in part as follows:

“ We think you will agree that we have been put to a great deal of inconvenience by the storage of this material and we feel that we are entitled, therefore, to every possible consideration. Furthermore, the material is now being moved from our shop and if it is your desire to have us assist the Government in collecting storage from the purchaser of the shells for the period since the date of the sale, we must have your authority to suspend shipments until this storage is paid. We know only the Government in this transaction and have no authority to hold up shipments unless you tell us to do so.”

. There was considerable controversy during the period of storage — January 31, 1919, to September 30,1919, and after-wards — between plaintiff and the salvage board as to the proper rate of rent for the space held, the plaintiff insisting on 20 cents per square foot per month and the salvage board insisting on 30 cents per square foot per annum.

At a meeting of the New York district ordnance salvage board held on May 3, 1920, “ It was moved by Mr. Luthy and seconded by Mr. Wolle that the payment of storage to McKiernan-Terry Drill Company from the date of their settlement contract to the date on which the material was cleared from the plant at a rate of 30 cents per square foot *290per year be authorized. It has been found by investigation that the McKiernan-Terry Drill Company are not using this space for any active part of their manufacturing.. It is also found that similar storage space can be had in Dover, N. J., at the rate of 25 cents per square foot per annum. It is felt, therefore, that their claim for 20 cents per square foot per month is excessive and can not be allowed by this board. Motion passed. Motion made and passed to adjourn.”

Y. (1) The reasonable rental value of the floor space in plaintiff’s buildings occupied by the Government from January 31, 1919, to September 30, 1919, inclusive, was at the rate of 40 cents per square foot per annum.

(2) The rent of the floor space in plaintiff’s buildings occupied by the Government from January 31, 1919, to September 30, 1919, inclusive, at the rate of 40 cents per square foot per annum, amounted to $533.33. On January 31, 1919, all the work had been completed.

(3) The rent of 1,000 square feet of floor space in plaintiff’s buildings occupied by the Government from May 1, 1919, to September 30, 1919, at 40 cents per square foot per annum would amount to $166.67, and the rent of 1,000 square feet of floor space so occupied from June 11, 1919, to September 30, 1919, would amount to $121.10, a total of $287.77. May 1, 1919, and June 11, 1919, were the dates when the two settlement contracts became effective.

The court decided that plaintiff was entitled to recover, in part.

Booth, Judge,

delivered the opinion of the court:

The record in this case affords no room for difference as to essential facts. The plaintiff company sues to recover for storage space used and occupied by the defendant for a period of time subsequent to the cancellation of two munition contracts. The first contract between the parties was executed August 28, 1918, and obligated the plaintiff company to manufacture a certain type of projectiles. The second, executed September 10, 1918, embraced the doing of certain finishing work on bombs, the Government as to each *291contract being required to furnish some of the component parts of the products. Both contracts contained a similar provision respecting the storage of finished articles, it being provided that the plaintiff company, at its own expense, but at the risk of the defendant, should provide storage space of sufficient capacity to store two months’ deliveries of finished articles at the rate of delivery provided in the contracts. In other words, the storage space to be provide! must be sufficient to care for at least 80,000 bombs and 28,800 projectiles. Each contract further provided that upon written notice the Chief of Ordnance might require, at the expense and risk of the defendant, additional storage space, either in or outside the plaintiff’s plant. These two provisions covering storage of finished articles clearly evince an intent to reimburse the plaintiff for additional storage exacted under the contract and constitute an express understanding and notice that storage of the munitions to be delivered was in the contemplation of the defendant an essential factor, one to be anticipated, and for which the contractor was to be paid upon agreement as to price.

It is true that additional outside storage facilities were not exacted. The plaintiff amply provided for the situation within its plant; but it is apparent that the defendant cautiously anticipated the exact situation which did come about, utilized the storage space provided until it needed the same no longer and acknowledged indebtedness therefor, contesting only the price asked. The plaintiff company erected in its plant what the parties designate as a bonding room— a frame structure of quite large dimensions, i. e., 1,000 square feet — into which the completed munitions were stored and there kept under lock and key until such time as needed. The Government inspector was in exclusive control of this room, kept personal possession of the keys and allowed no one to enter unaccompanied by him. The property in the room was Government property; it had been inspected and accepted as such by the inspector, and the Government officers remained in exclusive possession and control of the same until September 30, 1919, the day on which the munitions were removed therefrom. Outside the bonding room, occupying 1,000 square feet of floor space, the material for *292the bomb contract was compactly piled. This material was the property of the Government. No part of it ever belonged to the plaintiff company.

On December 11 and 13, respectively, following the armistice, both contracts were canceled. The defendant, however, continued in possession of the 2,000 square feet of storage, over the protest and in the face of repeated demands to remove the materials or pay storage therefor, until the same were sold to a third party on September 30, 1919. The Government inspector who remained at the plant for some considerable time after the contracts were canceled on January 31, 1919, the date fixed in the cancellation notices for the absolute and final termination of all work under the contracts, furnished, evidently at the solicitation of the Army inspector of ordnance, a detailed survey of the storage facilities of the plaintiff company, and stated that they were available for a period of six months. As previously observed, the plaintiff company repeatedly notified the defendant of its claim for storage, stated the price, and up to the very last moment, viz, as late as May, 1920, insisted upon and demanded payment for the, use of the space occupied. On May 3, 1920, plaintiff company’s claim was finally disallowed by the New York district ordnance salvage board because of the refusal of the plaintiff company to accept 30 cents per square foot per annum instead of 20 cents per square foot per month for the service rendered.

The single defense available to the defendant is one predicated upon the settlement contracts entered into on March 18 and 19, 1919, effective May 1, 1919, and June 11, 1919 (Finding III), by the comprehensive terms of which it is now insisted the plaintiff company is precluded from recovery. We say this advisedly, for the defendant apparently concedes the right to compensation subsequent to this event. As usual, in cases where contracts were suddenly canceled, the contractor was invited to negotiate a settlement of loss and damage growing out of the contracts. This was done and a settlement effected, and doubtless this transaction, if standing alone and unattached to what occurred with reference to storage facilities, both before and after its execution, might furnish sufficient grounds to con-*293elude that this claim, like all other contractual obligations, was included therein. A contract is to be construed according to its terms and the subject matter with which the parties were dealing. The situation of the parties, when the settlement contracts were entered into with respect to storage, was not the same as obtained during the contractual relationship. The plaintiff company’s present suit is not rested upon any obligation growing out of the express terms of its contracts with the defendant. On the contrary, the contention advanced is grounded upon a transaction which occurred and came into being after the termination of its express contracts, a relationship the result of, but foreign to, the reciprocal undertakings under the munitions contracts.

The plaintiff company furnished without complaint all the storage space required under the munitions contracts and about which there was no dispute. It. is indeed quite singular to contend- that this claim was included in the settlement contracts when at the moment they were executed the defendant was in possession of the storage space, and desired, intended- to, and did retain possession for an indefinite period thereafter. The very ambulatory character of defendant’s possession rendered settlement of the claim at the time the settlement contracts were made impossible of determination. The settlement contracts covered, and were intended to cover, the final conclusion of all disputes over responsibilities under the munitions contracts, such as payment for materials on hand, commitments made for materials, and a variety of details incident to the undertaking. The release executed was intended and did foreclose the plaintiff from asserting any claim, legal or equitable, liquidated or unliquidated, which attached as a contractual liability under the terms of the express contracts. To hold that the furnishing of 2,000 square feet of storage space for a period of about eight months after the contract relation had wholly ceased, and for several months after the execution of the settlement contracts, was a contractual obligation under the express contracts, and an incident of that relationship is, we think, untenable. The officers of the de*294fendant in direct charge of the matter at no time attached such significance to the settlement contracts; on the contrary, continued negotiations for the final settlement' and payment of the claim for storage until as late as May, 1920.

The most difficult situation presented by the record is the harmonizing of conflicting claims as to the reasonable value of the facilities furnished. The plaintiff company quite ingeniously erects an insistence that it should be allowed approximately what the space was worth to it. With this contention we are unable to agree. It seems hardly possible for the claim to attain the proportions of a sum in excess of four hundred dollars a month. On the other hand, the defendant seems prone to minimize the value of the same. From the record we are able to arrive at what the proof establishes as the reasonable market value of storage space of the kind and character here involved. The materials stored required no extraordinary attention; they simply took up room not especially needed by the company. In no way did the space occupied seriously retard the plaintiff company’s activities and cause it serious loss. Being under no legal obligation to set aside certain portions of its plant to store the property of the defendant, it may recover what the space was reasonably worth, and no more. This we have fixed at forty cents per square foot per annum. Judgment will be awarded for $533.33. It is so ordered.

Graham, *Judge;*Hay, *Judge;*Downey, *Judge;*and Campbell, *Chief*Justice, concur.