#### AMERICAN ROLLING MILL CO. v. THE UNITED STATES

[No. C-460.

Decided March. 15, 1926]

*On the Proofs*

*Informal contract; expense of increasing facilities.*— Where the plaintiff prepares to increase its facilities for manufacturing Government articles, relying on negotiations with officers of the Government without authority to contract, wherein it is contemplated that plaintiff shall be given additional orders and be reimbursed the expenses of increasing its facilities for filling them, and no agreements for such reimbursement or additional articles are thereafter entered into, plaintiff can not recover the expense of its preparations.

*Same; procedure under Dent Act.*— A claim based upon an informal contract under the Dent Act must be presented to the Secretary of War before recovery thereon can be had in the Court of Claims.

*Contract; knowledge of price to*Zie *paid.*— Where the plaintiff, a dispute having arisen as to allowance of an inspection charge not specified in its contract, is informed by the defendant that it will not be paid, and thereafter fulfills the contract, it can recover only the price named in the contract.

*The Reporter’s*statement of the case:

*Mr. Raymond M. Hudson*for the plaintiff.

*Mr. Percy M.*Cox, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant.

The court made special findings of fact, as follows:

I. The plaintiff is a corporation duly created under the laws of the State of Ohio for the purpose of manufacturing and selling steel products.

*883II. During the summer of 1918 and prior thereto the plaintiff had entered into certain contracts with the Ordnance Department of the United States Army for the production of shell forgings. Among them was one for 500,000 thick-wall shell body forgings, entered into prior to July, 1918, which was completed about the middle of October following. Negotiations were completed August 16, 1918, for another contract for the production of 750,000 thin-wall shell body forgings, deliveries at the rate of 80,000 per month to begin upon completion of the prior contract, about October 15, 1918. Preparations for production were begun before the contract was signed, and production ceased on or about December 31, 1918.

The fabrication of the forgings under the two contracts named was agreed to be performed by the plaintiff without the help of the Government in increasing its facilities.

III. Coincident with negotiations for the said contract for 750,000 thin-wall shell body forgings, the vice president of the plaintiff company, C. K. Hook, and its district manager, W. S. Stephenson, went to the offices of Maj. Eodney D. Day and Capt. Ward A. Miller in Washington, D. C., and discussed with them the extension of plaintiff’s plants in order to increase their production. The proposed increase in program was for an additional 25,000 forgings per month, to be applied on the contract for 750,000 forgings; and the plaintiff’s request for reimbursement of the cost of installing additional equipment was agreed to be handled as a proposition separate and distinct from said contract. In the discussions relative thereto, which took place in Washington in August and September, 1918, there were also present at various times plaintiff’s chief engineer, D. Eppelsheimer, its sales manager, G. F. Ahlbrandt, and various officers of the production and the procurement divisions, Ordnance Department. In these discussions, the subject was brought up and discussed, of giving the plaintiff an additional order of 1,000,000 thin-wall shell body forgings. Before such an order could be given it was necessary that the production division of the Ordnance Department investigate, pass upon, *884and approve the plaintiff’s facilities for filling such an order,, and its ability otherwise to perform. Numerous conferences were had between plaintiff’s representatives and officers of the said procurement and production divisions, at which the terms of the proposed contract were discussed, and the preparation of a contract was recommended by the production to the procurement division. No contract was ever prepared or executed by that division, or drawn or executed by anyone having authority on behalf of the United States, or between the parties.

Before a contract could be drawn and executed the defendant ascertained that there were not sufficient funds in the appropriation to meet the requirements of the situation, and so informed the plaintiff.

IY. Upon inquiry by the plaintiff October 15, 1918, as to whether it should proceed with the program proposed it was told by the defendant not to do so. Thereupon a representative of plaintiff wrote the following letter:

“Maj. R. D. Day,

*“Army Ordnance Department, Procurement Division, “Projectile Section, Washington, D. 0.*

“ Dear Major Day : Confirming our telephone conversation of this afternoon as regards your acceptance of our proposal to increase the capacity of our Forge Shop, we understand now that the whole question depends upon your ability to procure the necessary funds to meet the demands of this contract, and that you have no authority to proceed until the funds are in hand.

“ We also understand that you will advise us just as soon as you are in position to give us a definite reply.

“ In response to your suggestion we will request our Mr. Stephenson to hereafter deal entirely with you as regards this contract.

“ I sincerely trust that in taking this matter up with various parties connected with the Ordnance Department that we have not annoyed .and embarassed you in this matter, as that was the farthest from our thought. Our only interest was to get the matter acted on promptly in case the Government wanted us to go ahead with this extra work, and we were under the impression that we were going to be asked to *885do so. As our contract was predicated on the time it would take to make the necessary changes, a good many of which would be dependent upon the weather, we were much concerned that good weather would be gone before anything was done and that we would then be left in -an embarrassing position because of our inability to come anywhere near the promises made originally.

“ You can rest assured that if the Ordnance Department wishes us to do this extra work that we will do our very best under the conditions that exist the minute you give us authority to go ahead.

“ You can appreciate, of course, how interruptions of this kind make it very difficult for us to intelligently follow the trend of our business and the making of the necessary plans and commitments to enable us to give our maximum effort to the Government.

“ Thanking you for your interest in the matter, and awaiting your further commands, we remain,

“Yours very truly,

“ Geo. M. Verity, *President?''*

V. The situation was in this condition when warfare ended and the armistice was signed, in November, 1918, and immediately thereafter the necessity for additional shell body forgings ceased.

VI. On or about June 9, 1919, the plaintiff filed with the Ordnance Claims Board a claim for $621,801.65, which was forwarded by said board to the Board of Contract Adjustment for consideration. On October 23, 1919, the plaintiff filed with the Board of Contract Adjustment an amended ■claim, which reduced the original claim to $423,939.21, the amount claimed in this suit. On March 27, 1920, said board found there was no agreement which entitled the plaintiff to relief under the act of March 2, 1919. Decisions of the War Department, Board of Contract Adjustment, volume 4, page 716. No appeal from the decision of the Board of Contract Adjustment was taken to the Secretary of War, and there has been no further action in the War Department on the said claim. The said sum of $423,939.21 has not been paid.

*886VIL The particulars of plaintiff’s claim are set out in the petition as Exhibit B, as follows:

Exhibit B

Unworked direct material_$185, 353. 33

Indirect material_ 816, 483.44

Commitment for materials or service- 52, 500. 00

Claims for other compensation:

Horizontal draw bench- 5, 226. 55

Cost of preparing claim- 2, 200. 00

Interest on amount of claim- 8, 606. 92

Spare press parts_ 2, 696. 52

Total of contractor’s claim-$1, 073, 066. 76

DEDUCTIONS

• Allowance to the United States for fair value of property retained by the con-tractor_ $78, 236. 71

570, 890. 84

Total_ 649,127. 55

Balance due the contractor_ 423, 939. 21

There is no satisfactory proof of the items, details, or facts contained in the foregoing exhibit.

VIII. About the middle of January, 1918, in negotiations with plaintiff’s district manager, W. S. Stephenson, preliminary to giving the plaintiff an order for a certain quantity of sheet steel for the manufacture of trench mortar shells, Capt. E. K. Simon, Ordnance Reserve Corps, United States Army, stated his belief that plaintiff should receive 10 cents per hundred pounds for expenses of inspection. The process of inspection was slow, required the employment by the contractor of two laborers to turn over each sheet, and retarded production. Captain Simon was in the production division of the Ordnance Department, and it was his duty to prepare memoranda for agreements and to send the memoranda to the contract section of the procurement division, where the procurement orders were drawn up. Thereafter, however, he reached a different conclusion and recommended that the inspection charge be not included in the procurement order, and on or about the middle of February, 1918, the plaintiff received the following procurement order:

*887PROCUREMENT ORDER

War-Ord-G P2227-776 Tw.

January 18, 1918.

Firm: American Rolling Mill Company.

Address: Middletown, Ohio.

Order for: 7/64" thick x 37%" x 95" long.

QUANTITY 1,535 tons, more or less (2,000 lbs. ea.) PRICE $4.65 per 100 lbs. Total, $142,755.00.

Gentlemen :

1. I am directed by the Chief of Ordnance to hereby give you an order for 1,535 tons, more or less (2,000 lbs. each) of 7/64" thick x 37%" x 95" long, deep drawing sheet steel.

2. This steel is to be guaranteed by you for the purpose intended from a fabrication standpoint, and is to conform to the following physical properties.

Tensile strength, 55,000 to 64,000 lbs. per sq. in. Contraction in area, minimum.

Elongation in 2", minimum_

It is understood that any or all of the above special treatments may be waived and if so waived, a corresponding concession in price will be granted should they be found unnecessary in the fabrication of the steel.

3. The inspection of this steel will be conducted by the Inspection Division, Ordnance Office, Sixth and B Streets NW., Washington, I). C.

4. Delivery of the steel herein ordered f. o. b. cars your works is to begin within ten days from this date and to be made at the following rate:

275 tons-Jan. 1918

500 tons_Eeb. 1918

500 tons-Mar. 1918

260 tons_Apr. 1918

5. You will be paid at the rate of $4.65 per 100 lbs. for the steel herein ordered f. o. b. cars Pittsburgh, Pa., basis, which price is in accordance with that fixed by the Government authorities. The usual Government terms of payment will obtain. The above price of $4.65 per 100 lbs. is made upon the following basis:

Base-$4.60

Pickling-- . 25

Oiling- . 10

Total_$4.65

6.The material covered by the foregoing order should be charged to the Chief of Ordnance, U. S. Army. You are *888requested to forward the original and three copies each of shipping notices, bills of lading, and invoices to the Inspection Division, Ordnance Office, and one copy of each to the Procurement Division, Ordnance Office, both located at Sixth and B Streets N. W., Washington, D. C. This steel is to be shipped to the Metropolitan Engineering Co., Brooklyn, N. Y., for use in the manufacture of 149,500 9.45" Trench Mortar Shell, on War Ord.-G137l-502Tw.

' 7. Any communication in connection with this Procurement Order should make reference to P 2227-776 Tw; PR. You are requested to notify this office of your acceptance of the above order by wire, as well as your endorsement of the enclosed copy.

Respectfully,

Samuel McRoberts, *Golonel, Ordnance Deft. N. A.*By Chas. N. Blacii,

*Lieut. Gol., Ordnance Deft. N. A.*

WT: VJ: CMR 1 Enclosure

Instructions to bidders.

At or about the same time the plaintiff received the following memorandum:

War Department — Design Section — Gun Division Oeeice of the Chief of Ordnance,

*1800 Virginia Avenue, Washington, February 1, 1918.*No. ETW 400.114 1501

memorandum regarding change in specifications for body AND VANE STEEL FURNISHED BT THE AMERICAN ROLLING MILL COMPANY FOR 9.45" TRENCH MORTAR SHELL AS MANUFACTURED BY THE METROPOLITAN ENGINEERING COMPANY

The following changes are to be made in the specifications governing the contract with the American Rolling Mill Company for the above steel. These changes were agreed upon in conference between representatives of the Metropolitan Engineering Company, American Rolling Mill Company, and the writer, January 29, 1918. Body stock (9") (32")

*Specification requirements:*

48,000 lbs. square inch tensile — minimum; elongation in 2" — 30 per cent minimum.

*889*Chemical sfecvfication:*

Carbon not over 0.17.

Manganese not over 0.40.

*Extra as follows:*

Deep drawing analysis.

Pickled and annealed.

Oiled.

Inspected.

Tbe vane stock (7/64") to conform to the above chemical requirements and extras, but the phyiscal requirements are waived. The original contract to be unchanged except as above modified.

E. K. Simon, Oaptam, *Oré. R. 0.*

CC Captain Simon; CC Lt. Keating; CC Lt. McClure; CC Captain Caskey; CC Major Fairchild; CC Vm. S. Stephenson, Am. R. M. Co.; CC M & R ETW; CC Metropolitan Engineering Co.

The said procurement order, as amended by the memorandum, was accepted by the plaintiff February 14, 1918, and the first shipment thereunder was made by the plaintiff March 7, 1918.

IX. On February 21, 1918, the defendant sent to the plaintiff the following communication:

“AmeRioan Rolling Mill Co.,

*Middletown, Ohio.*

*“*Gentlemen : 1. Referring to the order placed with you dated Jan. 18, 1918 (Procurement Order, War-Ord-P2227-776 Tw) for 1,535 tons, more or less: *(2000#*each) of 7/64" thick X 37% X 95" long deep drawing sheet steel, I am directed by the Acting Chief of Ordnance to inform you that paragraphs 2 and 5 of said order are hereby amended to read as follows:

“ 2. This steel is to be guaranteed by you for the purpose intended from a fabrication standpoint, and is to conform to the following chemical properties:

“ Carbon not over 17%.

*“*Manganese not over 40%.

*890“It is understood that any or all of the above special treatments may be waived and a corresponding concession in price will be granted should they be found unnecessary in the fabrication of the steel.

*“ 5.*You will be paid at the rate of $4.90 per 100# for steel herein ordered f. o. b. cars Pittsburgh, Pa., basis, which price is in accordance with that fixed by the Government authorities. The usual Government terms of payment will prevail. The above price of $4.90 per 100# is made upon the following basis:

Base_$4.30 per 100#

Deep drawing_ .25 per 100#

Pickling and annealing- .25 per 100#

Oiling_ .10 per 100#

Total_ 4.90 per 100#

“ 2. Any communication in connection with this amendment should make reference to P2227-776 Tw; PR. If you accept this amendment, kindly wire this office to that effect, and endorse and return the enclosed copy in the manner indicated thereon.

“ Respectfully,

“ Samuel McRoberts,

“ *Gol. Ord. Dept., N. A.,*“By C. F. Cook,

“ *Major, Ordnance, R. OR*

The amendment of February 21,1918, was returned by the plaintiff in the early part of April, 1918, plaintiff stating as its reason therefor that it was entitled to an inspection charge of 10 cents per 100 pounds, and insisting upon its inclusion in the order. On March 7, 1918, and again on March 21, 1918, the plaintiff had requested the defendant to include in the order given it an allowance of 10 cents for inspection, and on April 1, 1918, the raw materials section of the procurement division, Ordnance Department, addressed the following communication to the plaintiff:

“American Rolling Mill Co.,

*“918 Woodward Building, Washington, D. O.*

“ Gentlemen : 1. Confirming verbal understanding your Mr. W. S. Stephenson had with Capt. W. M. MacCleary under date of March 29,1 am instructed by the Acting Chief *891of Ordnance to advise yon that on your War-Ord-P222T-776TW, this division can not allow an inspection extra of 10^ per hundred pounds to apply, except on any material shipped prior to the date of receipt of amendment *#1,*dated February 21, eliminating this inspection extra.

“ 2. Duplicate copies of this first amendment to the above procurement order are being returned under separate cover.

“ Respectfully,

*“*Raw Materials Section,

“ R. P. Lamont,

*“Lieutenant*Golonel, *Ord. N. A.,*

*“*By W. M. MacCleart,

“ *Captain, Ordnance B. C.*

*“*John A. Madigan,

“ Chief, *Communications*Branch.”

There followed the letter of April 1,1918, supra, other letters between plaintiff and defendant, in which the plaintiff asserted a right to an inspection charge of 10 cents per 100 pounds, which the defendant denied.

On November 19, 1918, by consent of the plaintiff, the amount to be delivered was reduced by the defendant to 1,160 tons. That amount of tonnage had been shipped to the defendant, on receipt was accepted, and was paid for in ■accordance with the procurement order of January 18, 1918, .as amended February 1, 1918, and February 21, 1918, no payment being made of the said inspection charge of 10 cents per 100 pounds. It is not shown that plaintiff accepted the settlement so made under protest.

X. The evidence does not establish that there was any oversight or mutual mistake in omitting from the said procurement orders a charge or allowance to the plaintiff of 10 cents per 100 pounds for inspection.

XI. For the sum claimed in the suit on said procurement orders, viz, $4,948.18, the plaintiff, on a date not shown, filed a claim with the Board of Contract Adjustment, War Department, which was denied March 5, 1920. Decisions of the War Department Board of Contract Adjustment, vol. 4, p. 252. No appeal from the decision of the board was taken to the Secretary of War, and there has been no further action in the War Department on the said claim.

*892XII. Particulars of plaintiff’s claim are set out in the petition as Exhibit C, as follows:

Exhibit C

Difference between correct price and that shown on 1st amendment — $5.10 minus $4.90 — $0.20 per 100.

First shipment made 3/7/18.

Last shipment made 9/9/18.

Total tonnage shipped and invoiced at prices of $4.90—

2,319,290 lbs.

Amount claimed — 2,319,290 lbs., @ $0.20 per 100 lbs_$4, 638. 58

Invoice 11396, dated 2/21/18, and invoice 11455, dated 3/9/18, for 93,375 lbs. and 113,030 lbs., respectively, were invoiced at $4.65 f. o. b. mill basis. This did not allow for deep drawing extra of $0.25 per 100 lbs. (Allowance to Government for adjustment of difference between f. o. b. Pittsburgh basis and f. o. b. mill basis is shown on sheets following.)

Total weight of these two shipments, 206,405 lbs.

Amount claimed, 206,405 lbs., @ $0.25_ 516.01

Total_ 5,154. 59

Invoice 11396, dated 2/21/18, and invoice 11455, dated 3/9/18, for 93,375 lbs. and 113,030 lbs., respectively, were invoiced on f. o. b. mill basis. This did not allow the Government the advantage of $0.10 per 100 lbs. difference in freight rate. (Middletown to Brooklyn, $0,295,

Pittsburgh to Brooklyn, $0,195.)

Total weight of these shipments, 206,405 lbs.

Allowance to Government to adjust difference, 206,495

lbs., *@*$0.10'_ 206.41

Balance due_ 4, 948.18

No satisfactory proof is furnished of the items set out in this exhibit.

The court decided that plaintiff was not entitled to recover.

Graham, Judge,

delivered the opinion of the court:

The plaintiff is seeking to recover on two causes of action growing out of separate transactions. The first cause of action is based upon an alleged informal contract. The plaintiff had two contracts with defendant — one for the manufacture of 500,000 thick-wall and the other for 750,000 thin-wall shell body forgings. These contracts were performed and plaintiff was paid the contract price in each case.

The matter in controversy is a claim to the effect that it was agreed to increase the order for 750,000 forgings to a *893million, and that, relying upon this agreement plaintiff purchased certain materials and made certain outlays. From the cost of these materials (which were retained by plaintiff and apparently used by it) and outlays was deducted a sum by way of an allowance based upon the estimated value of the material, and the difference between these two sums is the amount claimed by plaintiff to be due for damages growing out of the alleged breach by the Government of its contract. It is not shown that any forgings were ever manufactured or delivered.

The court has found that there was no written contract and that the negotiations relative to the alleged contract were with officers of the production division who had no authority to make contracts for the defendant, and were at no time with those who had such authority. Before the negotiations were completed it was found that the appropriation covering the proposed expenditure had been exhausted. The plaintiff was so informed early in October, 1918, with the suggestion that a contract might be forthcoming should an appropriation for the purpose be made, and plaintiff acquiesced in this arrangement. Before anything further was done in the mattér the armistice occurred and the need for the materials ceased. No further steps were taken toward completing the alleged contract.

There was no valid contract, either formal or informal. But aside from this it does not appear that the claim based upon an informal contract was ever presented to or passed upon by the Secretary of War, as required by the statute of March 2, 1919, known as the Dent Act, 40 Stat. 1272, sec. 2, before suit can be brought in this court. The plaintiff is not entitled to recover on its first cause of action, and as to this the petition should be dismissed.

The second cause of action is set out in Exhibit C of plaintiff’s petition (Finding XII). An order dated January 18, 1918, was sent to plaintiff by the Ordnance Department, United States Army, for 1,535 tons, “ more or less,” of steel. This order contained the following paragraph:

“ The inspection of the steel will be conducted by the inspection division of the Ordnance Office, Sixth and B Streets,. Washington, D. C.”

*894On January 29, 1918, this order was modified as to certain chemical requirements and extras, and on February 1 the order as modified was sent to plaintiff, received and accepted by it on February 13, 1918. Among other things it required inspection as shown by the word “ inspected.” On February 21 another order was forwarded to plaintiff apparently embodying the provisions of the prior orders, which plaintiff refused to accept on the ground that it failed to include an inspection charge of 10 cents per hundred pounds of the steel inspected by Government officials. On April 1, 1918, the Government offered to pay plaintiff inspection charges on shipments prior to February 21, 1918, but plaintiff refused to accept this offer. It thereafter proceeded with the manufacture and delivery of the material and was paid the sum fixed in the first order as amended by the Government. No inspection charges were paid. The plaintiff is suing for these charges, claiming • that it had an understanding and agreement with the officer who negotiated the original order and amendment thereto that it would be paid, and that the inspection necessitated the employment of two laborers and a slowing up of production.

The court has found that there was no such agreement. As stated, the original order and its amendment provided for inspection by Government officials, as a part of the extra work to be done for the contract price named.

There is no proof of any mutual mistake. The order was in writing. If plaintiff understood that it was to be paid for inspection, it should not have accepted the order until this was provided for. It was notified by the order of February 21 that inspection would be a part of the contract, and when it refused to accept this order without some provision for inspection charge, it was informed that the Government would pay it for inspection only up to the date of that order. Plaintiff refused to accept this offer of the defendant, and thereafter delivered the material. It therefore fulfilled the contract knowing what price the Government expected to and would pay, and that it did not cover compensation for inspection. Plaintiff can recover, therefore, only the contract price, which has been paid to it. See *895Willard, *Sutherland & Co.*v. *United*States, 56 C. Cls. 413, 262 U. S. 489; and *Nelson & Co.*v. *United*States, 56 C. Cls. 448, 261 U. S. 17.

The petition should be dismissed, and it is so ordered.

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