#### UNITED STATES CARTRIDGE CO. v. THE UNITED STATES

No. B-437.

Decided May 17, 1926]

*On the Proofs*

*Contract; consideration for increase in price; decrease in production.*— The plaintiff enters into a contract with the Government for the manufacture of certain articles, and after getting into quantity production is requested by the Government to decrease the agreed production in order to devote its forces thereby released to the production of other articles, and plaintiff complies with the request. The contracting officer and the plaintiff agree in writing to an increase in the unit price of the articles produced. The decrease in production was sufficient consideration to support the increase in unit price, and the plaintiff may recover at that rate for all such articles delivered and accepted.

*The Reporter’s*statement of the case:

*Mr. H. LeBaron Sampson*for the plaintiff.

*Messrs. Dwight E. Rorer*and *Charles F.*Kmoheloe, 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, the United States Cartridge Co., is a corporation organized under the laws of the Commonwealth of Massachusetts and having its principal place of business at Lowell in said Commonwealth.

II. During the World War the plaintiff entered into a contract with the United States, dated August 22, 1917, for the manufacture and delivery to the United States of 5,000,-000 110-grain percussion primers for use in artillery ammunition, at a price of 12 cents each, a copy of which contract is attached to plaintiff’s petition as Exhibit A, and is made a part hereof by reference.

III. Col. Jay E. Hoffer, who signed this contract on behalf of the United States, was an officer in the Ordnance Department authorized to execute such contracts on behalf of the United States.

*253This contract had been preceded by written orders also signed by Colonel Holler, dated May 31, 1917, and June 29,1917, copies of which are annexed to the petition marked Exhibits B and C, and made a part of these findings by reference. The articles referred to in the contract were the same articles which were referred to in these preceding written orders and the contract, as well as the orders, was designated in the War Department as “ War-Ord. GA 126.”

IY. These 110-grain primers were intended for the ammunition for the 3-inch field gun and other guns which, at the time of the written orders referred to, were used in the United States Army.

In the summer of 1917 the War Department decided to substitute the French 75-millimeter gun for the 3-inch field gun for use in expeditionary forces of the United States in Europe, retaining the 3-inch gun for training troops in the United States. It was consequently necessary for the War Department to procure a supply of ammunition for the 75-millimeter gun. The 110-grain primer was not suitable for use in this ammunition.

V. The plaintiff, upon receipt of the orders, Exhibits B and C, had made preparations to manufacture the 110-grain primers described, and had begun work under a program which would gire it a capacity of 100,000 primers a day.

In August, 1917, the plaintiff was notified by the Ordnance Department that on account of the change in the program of the department, it had been decided to reduce the amount of the orders placed for primers for the 3-inch gun, and the plaintiff was requested to discontinue the manufacture of all but 40 per cent of its contract until the department could lay out a new working schedule. In reply the plaintiff wrote that if the contract was cut down, the plaintiff would expect an increase in price.

In response to the request of the Ordnance Department, the plaintiff slowed up its production program for these 110-grain primers. During August, 1917, the Ordnance Department was uncertain as to the number of 110-grain primers which it would eventually require.

*254VI. The primer which had been developed by the French for the 75-millimeter ammunition was not suitable for use in the American Army, as it was not adapted to the firing mechanism on some of the American guns, which was different from that on the French guns. In addition, the method of manufacture of the French primer was by screw machine processes, a method which was slow as compared with production by drawing processes.

VII. In September and October, 1917, the plaintiff, at the ' request of the Ordnance Department, was at work developing a new primer for the 75-millimeter gun. The plaintiff’s officers and employees succeeded in inventing a new type of primer for use in the 75-millimeter ammunition which met the needs of the Ordnance Department, could be manufactured rapidly by drawing processes, instead of by screw machine processes, and cost less than the French primer. This new primer had been tested and approved by the Ordnance Department by the early part of November, 1917.

On November 8, 1917, the plaintiff was instructed by telegram from General Crozier, the Chief of Ordnance, to proceed at once with the manufacture of 500,000 of these new primers for the 75-millimeter ammunition.

VIII. The supply of ammunition for artillery was in November, 1917, under the direct charge of Col. Jay E. Hoffer, who was at that time an authorized contracting officer at the head of the gun division in the Ordnance Department. Acting under him and by his authority were, among others, Col. E. M. Shinkle, whose duty it was to design and get ammunition for artillery, and James G. Cowling, a civilian in the Ordnance Department who had had large manufacturing experience.

In the latter part of October or the first part of November, 1917, and not later than November 15, 1917, Capt. Thomas B. Doe, who was the manager of the business of the plaintiff and was authorized to make agreements on its behalf with the United States, had an interview with Colonel Shinkle and Mr. Cowling at Washington in which Colonel Shinkle and Mr. Cowling, acting for the gun division, requested the plaintiff to discontinue temporarily the *255manufacture of 110-grain primers in order to use all the available facilities of the plaintiff upon the production of the new primers for the 75-millimeter ammunition, which were stated to be urgently needed. At the same conference the question was discussed as to the amount of additional compensation which should be given to the plaintiff for such interruption of production -of the 110-grain primers. The plaintiff, by Captain Doe, requested an increase of 3 or 4 cents in the base price of 12 cents, which Colonel Shinkle and Mr. Cowling did not accede to. It was finally agreed between them at this conference that the increase should be 1.8 cents, and that it should apply to all primers delivered under the contract, whether delivered before or after the date of this conference.

IX. This change in price was approved by Colonel Shinkle and by Mr. Cowling. Colonel Shinkle was a man of experience in the manufacture of artillery ammunition, having had full charge of manufacturing such ammunition for the United States at the Frankford Arsenal, where he had about 3,000 men in his department under him and where his work had included matters of cost as well as the quality of the ammunition. The 110-grain primers had been made at the Frankford Arsenal. Mr. Cowling had had experience with the manufacture of metal articles as general manager of the motor works of the J. I. Case Threshing Machine Co. and had come to the Ordnance Department from civilian life in September, 1917. It was the judgment both of Colonel Shinkle and Mr. Cowling that the increase of 1.8 cents agreed upon was a reasonable one and to the advantage of the Government.

The increase of 1.8 cents was also approved by Col. E. P. O’Hern, of the gun division, who was an Army ordnance officer who had been in many arsenals, and by Maj. C. C. Jamieson, who had been for a number of years at Bock Island Arsenal, which produces munitions on a large scale. It was also approved by Maj. C. F. Cook, then attached to-the gun division, who had formerly been with the British commission in charge of the production and inspection of' all sorts of munitions in the Pittsburgh district, and was a *256competent and capable man. This change in price was also approved by Colonel Hoffer, an experienced officer, who had been in charge of the gun division of the Ordnance Department as far back at least as October 7, 1908.

X. Under date of November 15, 1917, Colonel Hoffer wrote to the plaintiff the letter, a copy of which is printed in the petition herein. This letter provided that the price to be paid for the 110-grain primers under War Ord. GA-126 should be 13.8 cents each, instead of 12 cents, and stated that this additional price was allowed in view of the expense incurred by the plaintiff due to the change from the 110-grain primer to the 75-millimeter primer and the consequent interruption in production.

The plaintiff accepted the modification of War Ord. GA-126 increasing the base price to 13.8 cents each by its letter dated November 28, 1917, a copy of which is printed in the petition herein.

On November 15, 1917, Colonel Hoffer applied to the finance division of the Ordnance Department for an additional allotment of $90,000 on War Ord. GA-126, which exactly covered the increased price of 1.8 cents each on 5,000,000 primers.

XI. In November, 1917, the plaintiff began the manufacture of the new primers for the 75-millimeter ammunition, which were then known as the 49-grain primers, under in- , structions from the Ordnance Department to give those primers the preference over the 110-grain primers. The plaintiff complied with those instructions, taking off its men and machinery from the 110-grain primers whenever they could be used on the 49-grain primers. This method of handling the production of the two primers necessarily increased the cost of the 110-grain primers to the plaintiff. The amount of increase in cost which would result is a matter of judgment and can only be estimated, and is not susceptible of accurate statement by purely accounting-methods.

XII. From November, 1917, to January, 1918, the plaintiff’s production of 110-grain primers gradually fell off, and, by the early part of 1918, the plaintiff had stopped produc*257ing 110-grain primers and had concentrated its efforts upon the 49-grain primers.

This discontinuance of production on 110-grain primers was at the request of the Ordnance Department and was for the purpose of concentrating the plaintiff’s facilities and efforts upon the 49-grain primers.

XIII. When the department had requested the plaintiff to suspend production upon the 110-grain primers, it was uncertain at what time production would be resumed. By-February 6, 1918, the Ordnance Department knew that it would require more of the 110-grain primers and desired to procure an additional quantity of those primers from the plaintiff. Less than one-half of the 5,000,000 110-grain primers had then been delivered. Accordingly, in February, 1918, at an interview between Captain Doe, the general manager of the plaintiff, and Lieut. Esmond P. O’Brien, who was then attached to the procurement division of the Ordnance Department, and was acting under Major Cowling, who had charge in the Ordnance Department of negotiations for procuring such articles as artillery primers, Captain Doe was asked to complete the deliveries of the whole quantity of 5,000,000 primers which had been called for under contract GA-126, at the base price of 13.8 cents-each. Captain Doe stated that he was reluctant to resume production of these primers, but would do so if the Government requested. He had previously written the Ordnance Department, in January, 1918, suggesting that when the plaintiff finished 2,600,000 primers which were in process, GA-126 should be considered completed and additional orders should be the subject of a new contract.

Subsequently to this interview, the plaintiff by its manager, Captain Doe, wrote to the procurement division of the office of the Chief of Ordnance the letter dated February 19, 1918, a copy of which is printed in the petition herein, and received the reply which is also printed in the petition. This reply stated that Captain Doe was correct in his understanding that the plaintiff should resume manufacturing the 110-grain primers under GA-126 at a price of 13.8 cents *258each. Lieut. Esmond P. O’Brien, who signed this reply, sent it with the approval of Major Cowling.

XIY. The plaintiff resumed the manufacture of 110-grain primers about May, 1918, and continued making deliveries of them and billing them under War Ord. GA-126 at 18.8 cents each, until its production was stopped as hereinafter stated. The War Department accepted these primers and paid for all of the primers delivered both before and after November 15, 1917, at the base price of 18.8 cents each, with the exception of 460,000 of such primers which were delivered in the period beginning November 15, 1917, and ending December 12, 1917, which were paid for at the base price of 12 cents each,. and for which the plaintiff made claim for the balance of 1.8 cents each and with the further exception that the United States retained 5 per cent of the price of the delivered primers pending the completion of the contract. The amount so retained was $24,377.70.

On or about December 16, 1918, the War Department sent to the plaintiff a letter requesting the plaintiff to suspend production under War Ord. GA-126, with a view to the negotiation of a supplemental contract providing for the cancellation of War Ord. GA-126. A copy of this letter is annexed to the petition as Exhibit D and is made a part hereof by reference. The plaintiff complied with this request.

XV. The total number of primers delivered by the plaintiff under War Ord. GA-126 was 4,594,705, of which 580,000 were delivered prior to November 15, 1917,1,240,000 between November 15,1917, and February 23,1918, 1,980,000 between February 23, 1918, and November 11, 1918, and 794,705 were delivered on or after November 12, 1918, and before the end of January, 1919.

XVI. No question was raised by the Ordnance Department as to the validity of the increase in the base price from 12 cents to 13.8 cents while the deliveries were going on, and it was not until some time in February, 1921, that the plaintiff first learned that it was contended on behalf of the United States that the agreement for this increase was invalid.

*259XVII. The Secretary of War by General Order No. 40, dated March 19, 1919, designated the War Department Claims Board as the agency through which should be exercised in the name of the Secretary of War and by his authority, all powers and duties conferred upon the Secretary of War by the act of Congress dated March 2, 1919, commonly known as the Dent Act, excepting certain powers and duties relating to contracts with foreign governments and the nationals thereof. The War Department Claims Board, in the exercise of such power, adopted on May 9, 1919, and published for the information of persons concerned on May 29, 1919, in finance circular No. 12, the following resolution:

*“ Resolved:*That in the opinion of this Board where performance has been made under contracts not executed in the manner prescribed by law and payments required by the terms of the contract have been made, it is unnecessary for formal claims to be presented or awards made under the act of March 2, 1919, with reference to such payments. In the event, however, that at any time it should be held that such payments were improperly made because of informality in the execution of said contracts, the vouchers presented for said payments shall be given the same force and effect as claims presented under the act of March 2, 1919.”

The War Department Claims Board at all times treated the rendering to the War Department of vouchers or invoices for goods delivered as a sufficient presentation of a claim under said act of March 2, 1919.

The plaintiff had rendered to the War Department prior to June 30, 1919, vouchers for all of the 110-grain primers delivered under “ War Ord. GA-126 ” at the base price of 13.8 cents each.

XVIII. The plaintiff prosecuted before the War Department Claims Board its claim under the act of March 2, 1919, for an increase in the base price of all primers delivered under the War Ord. GA-126 from 12 cents to 13.8 cents. The board heard this claim and offered and made tender of an award of $1,500 to the plaintiff on account of additional costs due to changes in the rearrangement of the plaintiff’s production schedule. This award the plaintiff refused to accept. The plaintiff appealed to the Secretary *260of War from the above-mentioned decision of the War Department Claims Board. On February 28, 1922, by order of the Secretary of War, the War Department Claims Board was abolished and all its powers and duties with reference to the settlement of claims like the claim of the plaintiff under said act of March 2, 1919, were transferred to the Assistant Secretary of War. The plaintiff’s appeal was heard by the Assistant Secretary of War, acting for the Secretary of War. A copy of his decision, which was rendered on June 7, 1922, is annexed to the petition as Exhibit F, and made a part hereof by reference.

XIX. On June 8,1922, the plaintiff and the United States entered into a settlement contract relating to War Ord. Ga-126, a copy of which (without the attached schedules) is annexed to the petition, marked Exhibit E, and made a part hereof by reference. The United States, against the protest and objection of the plaintiff, has retained from moneys due the plaintiff under said settlement contract and under another contract with the plaintiff made in settlement of a contract known as P12289-3034A, the sum of $50,046.99, being an alleged overpayment of 1.8 cents on each of the 4,134,705 primers paid for at the base price of 13.8 cents each, as above stated, and also the sum of $2,544.06 as interest on said amount, and has also retained and declined to pay to the plaintiff $24,377.70, being a balance of 5% retained by the United States on the primers furnished by the plaintiff under War Ord. Ga-126. The amounts so retained, together with the sum of $8,280, which represents the balance of 1.8 cents claimed by the plaintiff on each of the 460,000 primers which were paid for on the basis of 12 cents each, equals $85,248.75, of which $82,704.69 represents the difference of 1.8 cents on each of the 4,594,705 primers delivered, and $2,544.06 the interest above mentioned.

XX. Of the total amount ($50,046.99 plus $2,544.06, or $52,591.05) due the plaintiff under said two settlement contracts, $28,482.39 was retained from the amount due the plaintiff under the contract made in settlement of said contract P12289-3034A. The balance, $24,108.66, was retained from the amount due under the settlement contract made in connection with War Ord. Ga-126, before referred to. Said *261contract P12289-3034A was a duly executed contract, dated July 20, 1918, between the United States and the plaintiff for supplying 8,760,000 49-grain percussion primers. A copy of this contract is annexed to the amended petition marked “ Exhibit Gr,” and is made part hereof by reference. It was executed on behalf of the United States by Lieut. Robert P. Lamont, of the Ordnance Department, a duly authorized contracting officer acting under authority of the Secretary of War.' The plaintiff duly proceeded with the work under said contract, until such work was suspended at the request of the United States. Such request was contained in a letter sent to the plaintiff by direction of the Chief of Ordnance, a copy of which is annexed to the amended petition, marked “ Exhibit H,” and is made a part hereof by reference. By this letter the plaintiff was requested immediately to suspend further operations under said contract and was informed that the request was made with a view to the negotiation of a supplemental contract providing for the cancellation and settlement of said existing contract.

Thereafter the plaintiff and the United States entered into an agreement in writing, called a “ settlement contract,” which was duly executed on behalf of the United States by Maj. John G. Booton, a duly authorized contracting officer, acting under,, authority of the Secretary of War, and approved by the War Department Claims Board, a copy of which settlement contract is annexed to the amended petition marked “ Exhibit I,” and is made a part hereof by reference. By said settlement contract the plaintiff agreed to terminate said original contract P12289-3034A, and the defendant in consideration thereof agreed to pay to the plaintiff in addition to the price of 1,931,332 finished articles which had already been delivered and in addition to all payments previously made by way of partial settlement of the plaintiff’s claim under said contract P12289-3034A, the sum of $76,423.54 in full and final compensation for all items due the plaintiff under said original contract, with the exceptions stated in said contract.

On or about June 20, 1922, the defendant paid to the plaintiff on account of said sum of $76,423.54, payable under said settlement contract, the sum of $47,941.15, and retained *262the remainder of said sum, amounting to $28,482.39, withholding the same, which was due to the plaintiff under said settlement contract, by way of recoupment of alleged over-payments made to the plaintiff under said War Ord. GA-126. The only ground on which said claim of overpayment was based was that all of the 4,134,705 110-grain primers furnished under said War Ord. GA-126, which had been paid for on the basis of 13.8 cents each, should have been paid for on the basis of 12 cents each.

XXI. The settlement contract of June 8, 1922, above referred to specifically reserved the plaintiff’s claims to recover the whole or any part of said amount of $85,248.75.

If the plaintiff is entitled to be paid for the primers delivered under War Ord. GA-126 at the base price of 13.8 cents each, the plaintiff is entitled to recover judgment in this case for $85,248.75.

XXII. The increase from the base price of 12 cents to the base price of 13.8 cents on account of the interruption in plaintiff’s production under War Ord. GA-126 pursuant to the direction of the Ordnance Department was a reasonable increase.

The court decided that plaintiff was entitled to recover. Counterclaim dismissed.

Downet, Judge,

delivered the opinion of the court:

In August, 1917, the plaintiff entered into a contract with the United States for the manufacture and delivery of 5,000,000 110-grain percussion primers for use in artillery ammunition at the price of 12 cents each. After the plaintiff had begun performance of the contract and was getting into quantity production the War Department determined to use the French 75-millimeter gun instead of the 3-inch field piece of the United States, making it necessary to procure a supply of ammunition for the 75-millimeter gun, for which the primer contracted for was not suitable.

Another primer suitable for use in the 75-millimeter gun was developed, and the United States sought to arrange with the plaintiff company for the curtailing of the contract referred to and the transfer of plaintiff’s productive powers to the manufacture of the new primer. The proposal was to *263curtail manufacture under the existing contract to 40 per cent. The plaintiff company was willing to comply with the wishes of the War Department, but suggested that if production was to be curtailed under its contract and its production interrupted by the taking over of the manufacture of the new primer, it should be entitled to a larger price for the lesser number of primers manufactured under the existing contract. Production under the contract was suspended, and the necessary changes were made to take up in lieu thereof the manufacture of the new primer.

There were exchanges of views in much detail between representatives of the plaintiff company and of the United States with reference to the additional compensation that the plaintiff should- receive for the primers made under the existing contract, and it was finally agreed that the original contract should be so modified as to provide for a price of 13.8 cents per primer, in lieu of the price of 12 cents, originally provided for. The officer of the United States who had executed for the United States the original contract and who was duly authorized in such matters informed the plaintiff, in writing, of the change, which plaintiff, also in writing, duly accepted.

After the plaintiff had resumed production as hereinafter referred to and had produced a considerable number of the primers called for by the original contract and had been paid therefor at the increased price of 13.8 cents per primer, payment of such additional price was suspended upon the announced theory that the contract for the payment of the increased price was void for lack of consideration. Payments of the increase which had been made were deducted from other sums due the plaintiff, so that it has never received the increase of 1.8 cents per primer agreed upon.

The defendant counterclaims for the total amount of this increase in price, but why it should counterclaim is not apparent, since it is the increase in price for which the plaintiff is suing and apparently all that is necessary in the protection of the Government’s interest is a defense of plaintiff’s suit.

The findings are very full as to the details of the transaction and from them it is apparent that able and competent *264men were called upon to pass on the question as to the increase in price to which the plaintiff under the circumstances should be entitled, and it seems quite apparent that the Government’s interests were not only in competent hands but were carefully safeguarded. There was no question, so far as appears, about the fact that the plaintiff, under the circumstances, would be entitled to some increase in price, the only question being as to its amount. The plaintiff represented that it was entitled to considerable more than the price finally agreed upon and there is no room for any suggestion that the United States was in any way overreached or defrauded.

We can not agree with the conclusion reached by someone having to do with the matter that this supplemental agreement or modification of the original contract was void for lack of consideration. The plaintiff was in possession of a contract for the manufacture of 5,000,000 primers; it was just getting into quantity production, the value of which in the performance of such a contract is apparent; it was asked not only to agree to a curtailing of production in that contract, but also to such an interruption of its productive program as was necessary in the taking on of the manufacture of a different primer in lieu of that one then in process. There is no room, it seems to us, for the contention that there was no consideration for this modification of the original contract, and since the agreement was made on the part of the United States by the officer who had executed the original contract and who was charged with the duty of procuring such supplies for the United States, there can be no other infirmity in the transaction.

After the plaintiff had devoted its facilities for some time to the manufacture of the new primer the United States ascertained that it was going to need more of the primers called for by plaintiff’s original contract and asked the plaintiff to resume production of these primers, which it did and thereafter furnished a very considerable number, but not quite the entire number originally called for. It is suggested that this resumption of the manufacture of the primer called for by the original contract worked a failure of consideration as to the modification thereof providing for the increased *265price. We are not able to give this effect to this situation. When the United States asked resumption of production of the original primer it did it under a contract which as modified then provided for a price of 13.8 cents per primer. But aside from that, the fact that plaintiff resumed production of the original primer and thereafter produced a considerable number thereof could not obviate the effects upon the plaintiff of the interruption of quantity production when it was required to change from the original to the new primer.

Subsequent to this transaction the United States and the plaintiff company entered into a settlement contract from the operation of which there was a special reservation as to the amount claimed to be due to plaintiff on account of this increased cost per primer, and in said settlement contract it is stipulated that this reserved claim amounts to $85,248.75. We conclude that the plaintiff is entitled to recover this amount and have so ordered..

Graham, *Judge;*Hat, *Judge;*Booth, *Judge;*and Campbell, *Chief*Justice, concur.