Source: http://www.chanrobles.com/usa/us_supremecourt/273/227/case.php
Timestamp: 2019-04-24 20:23:39+00:00

Document:
1. After cancellation of a contract under which supplies were to be manufactured for the government in a plant to be built with government funds and to belong to the government, the making of a supplemental agreement by which the contractor bought the plant for a price stated did not affect the contractor's claims growing out of the termination of the original contract when the later agreement was expressly without prejudice to them. P. 273 U. S. 232.
3. In this case, where the obligation of the contractor was to manufacture and furnish to the government a definite quantity of xylol monthly, up to a specified amount, in a plant which was to be erected by the contractor with government funds and belong to the government, just compensation, upon cancellation of the contract, must include what the contractor expended on the plant in excess of the cost as estimated and adopted in the contract and paid by the government, insofar as such additional expenditure was required to fit the plant for production of the xylol as the contract contemplated. P. 273 U. S. 234.
Appeal from a judgment of the Court of Claims in an action to recover under an agreement with the government for the manufacture of xylol.
This is an appeal from the Court of Claims, under §§ 242 and 243 of the Judicial Code, from a judgment of February 16, 1925, before the effective date of the Act of February 13, 1925, § 14, c. 229, 43 Stat. 936.
by the government, and was at all times to belong to the Navy. The byproducts, except what the Navy wished to retain, were to belong to the Barrett Company as part of its profit, but not to be sold without the Navy's written consent. Ninety percent of the byproducts sold by the company was to be credited to the account of the Navy, less one cent a gallon for rental of containers used for shipment.
The price to be paid by the Navy to the company was to be determined monthly for the preceding month by the actual deliveries, first by a charge per gallon of xylol, prorating the total approved estimated cost of the new plant against the 2,700,000 gallons to be made under the contract. At the same time, the account of the Navy was to be credited with this charge as the total approved estimated cost would have been advanced by the United States to the company before the production of the xylol would begin. To cover operating cost, there was to be a charge of 3 cents per gallon of naptha distilled, and an additional charge for redistillation of fractions. These charges were to be multiplied by the gallons of naptha distilled, and the resulting aggregate was to be divided by the number of gallons produced monthly, to which 6.6 cents per gallon was to be added to cover overhead, profit, and use of patents.
plant and equipment of the company. One-half of the sum to be advanced for construction was to be paid by the government at the time of the execution of the contract, and the balance in two months. Plant and equipment were to be ready for operation within five months from the date of the contract, and to be continued in operation until the company had delivered the full amount of 2,700,000 gallons of xylol to E. I. Du Pont de Nemours & Co. The xylol provided for in the contract was to be employed in the manufacture of trinitroxylol for use in mine barrage in the North Sea, and was a new product requiring knowledge and skill in its manufacture. The plant, when completed, was to belong to the government. The company agreed to offer and to pay 25 percent of the approved estimated cost for it, if accepted after the contract was performed, but the government could dispose of it as it chose.
It was stipulated in the contract that the Barrett Company should furnish a bond for the faithful performance of the contract equal to the approved estimate of the cost of construction; that time was an essential element in the contract; that, by failure to make delivery, in conformity with the requirements of the contract and within the times prescribed, the United States would be damaged; that the damage should be liquidated for each day's delay at the rate of a certain percent of the contract price, and legal excuse for delays was to be determined by the United States.
On May 18th, 1918, the Navy Department gave notice to the company that it might proceed immediately upon the construction of the plant. It did so, and completed the separate plant at a cost of $284,882.66. The electric, steam, water, and light plant had been at the time of the Armistice, about half constructed at a cost of $52,897.53. The total expenditure on plant and equipment by the company was thus $337,780.19, or $84,459 more than the estimates submitted by the plaintiff. The increased cost of construction was due to the increases in the cost of labor and materials and a change in construction from steel and brick to reinforced concrete and brick, due to inability to secure steel, and to certain changes in the tanks as originally proposed in order to increase their capacity. None of these changes was either directly authorized or approved by the Navy Department, but it does appear that the department had knowledge of the changes and made no objection thereto.
"It is further agreed that this supplementary contract does not prejudice the right of the contractor to secure payment of claims in settlement for the termination of the original contract No. 38925 by the government. "
From the xylol produced and delivered for three months, the company made a profit of $7, 195.59. It was testified by accountants that the profits to the company on the undelivered part would have been $73,792.66, and that its profits from the future byproducts would have been $8,237, but these results were uncertain and problematical.
"whenever the United States shall cancel, . . . suspend or requisition any contract, . . . it shall make just compensation therefor, to be determined by the President,"
and, if the amount determined by him is unsatisfactory to the claimant, he may sue the government to recover such sum as added to that which he may have already received, will be just compensation therefor. Act June 15, 1917, c. 29, 40 Stat. 183.
1. That the court held that the supplemental contract of December 1, 1920, was a bar to reimbursement of claimant for expenditures in connection with the erection of the plant.
2. That it failed to allow claimant as just compensation for cancellation $84,459.07 expended for construction of plant over and above the approved estimate.
3. That it did not allow interest on the sum included in the judgment.
loss. It was a final adjustment of losses with respect to this particular controversy."
Second. The Solicitor General tenders to the Court the opinion of the Court of Claims and an extract from the brief of the United States in that court, to show the argument there made against including in the recovery of the plaintiff as part of just compensation the amount expended by it in excess of the estimate it made for the cost of the plants to be erected. The Solicitor General, however, finds himself obliged to assist the Court (and in this we think he is to be commended) in presenting a view adverse to the conclusion of the Court of Claims and to the contention of the United States in that court.
and assumed the hazards of recouping the same out of its final profits, in the event the contract proceeded to conclusion. It is not asserted that the contract supports the plaintiff's contention. The contention is predicated entirely upon the theory of just compensation. We have been unable to resolve the issue in plaintiff's favor. The just compensation to which the plaintiff is entitled, under the cases heretofore considered by the court, is limited to the stipulations of the contract, which, by its terms, imposed obligations and reciprocal rights and privileges upon the parties to the contract. . . . The contract fixed the status of the parties thereunder. If one goes beyond its terms, it is difficult to perceive how financial obligations to pay more than is agreed to be paid can be inferred on the single theory that the defendant, in the exercise of a lawful right, terminated all further proceedings under the same, and is held thereafter to account for no more than just compensation. In view of the cases cited, the just compensation to be awarded must be a loss lawfully resulting from a performance of the contract according to its terms, and may not embrace one occasioned by the contractor's departure from the contract, although considered by the contractor at the time as expedient and in promotion of the rapid completion of the whole contract."
the government was doubtless an indispensable aid to the company's fulfillment of its contract. The estimates limiting the amount were in the interest of the government. But the possibility that the estimates might not furnish a plant of sufficient capacity to do the work within the time mentioned did not relieve the company, and, if it thought a larger expenditure necessary for this, it must make it. Just compensation for cancelling the contract requires that the contractor shall be made whole and recover the expenditures necessary to perform the contract. It would have been no defense, had the company failed to perform and the government had sued for a breach, that the plant erected upon the estimate was not sufficient to do what was agreed. That was the contractor's risk.
The contract, in fixing the elements of the price per gallon of xylol, speaks of adding 6.6 cents to cover overhead, profit, and use of patents; but we are not concerned with profits in this case. Russell Motor Car Co. v. United States, 261 U. S. 514; College Point Boat Corp. v. United States, 267 U. S. 12.
What the company is entitled to is just compensation for the contract which was taken from it, and, under the cases just cited, it should certainly be credited with the outlay which it can show there was reasonable ground for making in order to fulfill its engagements. On the other hand, the government may show, without regard to the estimates, that the actual additional expenditures were really not required for the fulfillment of the contract, or, if less than what was spent was needed, then how much less. The case must be remanded for new evidence and new findings on this issue.
cannot be calculated as part of the recovery in a cancellation case, and as just compensation under the decision in the Seaboard Air Line case, 261 U. S. 299, must include interest on the amount due from the time of cancellation, interest must be allowed here. The government argues that, as this contract was made after the power of cancellation was given by the statute, its provision for the cancellation must be regarded as written into the contract, Russell Motor Car Co. v. United States, 261 U. S. 514; College Point Boat Corp. v. United States, 267 U. S. 12; that, when so written in, cancellation is part of the risk run under the contract, and therefore that interest on the amount due under the contract cannot be collected because of lack of specific agreement for it under § 177 of the Judicial Code. This exact point has never been decided by the Court. Several especially set cases are now pending in which this is the sole issue raised. As the case must go back for further consideration, we prefer to leave the point undecided and to await the argument in those cases, which will probably be disposed of before the issue here will be ready for further consideration by the Court of Claims in this case.

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 § 177