Case Name: MEYER SCALE & HARDWARE COMPANY v. THE UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1922-01-09
Citations: 57 Ct. Cl. 26
Docket Number: No. 34678
Parties: MEYER SCALE & HARDWARE COMPANY v. THE UNITED STATES.
Judges: Hat, Judge; Booth, Judge, and Campbell, Chief Justice, concur in the foregoing opinion.
Reporter: United States Court of Claims Reports
Volume: 57
Pages: 26–60

Head Matter:
MEYER SCALE & HARDWARE COMPANY v. THE UNITED STATES.
[No. 34678.
Decided January 9, 1922.]
On the Proofs.
Contract; modifications; prospective profits. — Where a Government contract has been modified under the act of June 15, 1917, 40 Stat. 182, 183, by an order issued by competent authority reducing the number of articles to be furnished thereunder, the contractor is entitled to recover actual damages sustained by reason of the procurement of materials, special tools on hand necessary to manufacture the articles eliminated by said order, less the salvage value of the same, but is not enttiled to recover prospective profits on the articles so eliminated.
The Reporter’s statement of the case:
Mr. William B. King for the plaintiff. Mr. George R. Shields and King <& King were on the briefs.
Nothing in the contract contemplated or authorized any change or reduction in the number of scales to be furnished thereunder. In arbitrarily ordering and enforcing a reduction in the number to be made and delivered thereunder, the Government evidently intended, and at any rate its action had that necessary effect, to subject itself to liability for such damages as the law imposes for such unwarranted act. The contractor claims the profits it would have made on 688 scales as the measure of damages occasioned it by the defendant’s failure and refusal to take the full contract number of scales.
The rule that the difference between what it would have cost the plaintiff to make the scales and the contract price therefor constitute the true measure of the damages caused the plaintiff by the defendant’s breach of agreement has been stated and applied by the Supreme Court in many cases.
In United States v. Speed, 8 Wall. 17, the contract was for the slaughtering of a large number of hogs, and the contractor made all needful preparations to do the work agreed. He was permitted to slaughter only about a third of the number agreed to be slaughtered and sued for the profits he would have made had entire performance been accepted. This court (7 C. Cls. 94) allowed the claim, and on appeal the Supreme Court affirmed the judgment, saying of the rule of damages applied:
“We do not believe that any safer rule, or one nearer to that supported by the general current of authorities, can be found than that adopted by the court, to wit, the difference between the cost of doing the work and what claimants were to receive for it.”
In United States v. Behan, 110 U. S. B88, 344, the rule was stated in the following oft-quoted language:
“ The prima fade measure of' damages for the breach of a contract is the amount of the loss which the injured party has sustained thereby. If the breach consists in preventing the performance of the contract without the fault of the other party, who is willing to perform it, the loss of the latter will consist of two distinct items or ground of damage, namely: first, what he has already expended toward performance (less the value of materials on hand); secondly, the profits that he would realize by performing the whole contract.”
This rule is stated and applied in Hinckley v. Pittsburgh Steel Company, 121 U. S. 264.
In Boehm v. Horst, 178 U. S. 1, 21, it was said:
“ If a vendor is to manufacture goods, and during the process of manufacture the contract is repudiated, he is not bound to complete the manufacture, and estimate his damages by the difference between the market price and the contract price, but the measure of damage is the difference between the contract price and the cost of performance.”
In United States v. Spearin, 248 U. S. 132, the Supreme Court affirmed the judgment of this court (51 C. Cls. 155) awarding, among other items, the profits the contractor would have earned had he been permitted to complete.
The latest Supreme Court case on the subject is that of United States v. Purcell Envelope Company, 249 U. S. 313, in which was affirmed the judgment of this court (51 C. Cls. 211) awarding as the measure of damage for breach of contract the profits that would otherwise have been earned.
The rule has consistently been applied by this court.
In Yates v. United States, 15 C. Cls. 119, 125, it was said:
“ The renunciation of a contract by a defendant, where the other party has a right to perform, stops performance and precludes the plaintiff from making damages by proceeding with his work. On proof of the fact that he was ready and willing to perform, a plaintiff will be entitled to recover nominal damages. If he proceeds further with his proof, and shows that he had expended money in performing or preparing to perform before notice of the renunciation, he will be entitled to recover back his expenses incurred. If, after establishing his positive losses or without having established them, he proceeds with his proof and shows that if he had been allowed to perform he would have made a profit, he would be entitled to recover his gains prevented. The general purpose of the law is to make the rightful party whole; to place him in the same resulting position that he would have been in if the other party had not interfered.”
In Myerle v. United States, 33 C. Cls. 1, 26, the court quotes with approval from another case as follows:
“ If the profits are such as would have accrued and grown out of the contract itself, as the direct and immediate results of its fulfillment, then they would form a just and proper item of damages, to be recovered against the delinquent party upon a breach of the agreement. These are part and parcel of the contract itself, and must have been in the contemplation of the parties when the agreement was entered into.”
In Anderson v. United States, 51 C. Cls. 228, 232, it is said:
“ In a case like this the plaintiff is entitled to recover the difference between what it would have cost him to perform and the contract price, if the latter exceeds the former.”
That the profits that would have been earned, based on the costs involved, were relatively quite large is beside the question and is not a matter properly for the court’s consideration. It is for the court to weigh the evidence before it, but it may not make a new contract for the parties or add to or subtract from the terms of the contract as made. TIawldns v. United States, 96 U. S. 689. It may well be that there were circumstances, such as great personal or technical skill, which would show that the seemingly large profits involved were really quite nominal and not at all dispropor tionate to the service involved. At any rate this contract was awarded the complainant as a result of competitive bidding. It was for the defendant to oifer such defense ' as it had to the claim as presented. That no such evidence was offered or any defense whatever made as to this claim adds weight to the evidence offered by plaintiff in this behalf. Griffiths v. State, 163 Ind. 555; Whitlock v. Wynn, 15 Ga. App. 38; McNamara v. Georgia Cotton Co., 10 Ga. App. 669; Harper v. Fay Livery Co., Ill Ill. App. 138; Century Parlor Furniture Co. v. Hasty, 141 Ill. 17; Pullman Palace Car Co. v. Nelson, 22 Texas Civ. App. 232; Peter v. Wright, 6 Ind. 183; Cruett v. Dibble, 126 Mich. 623; Burnha/m v. Norton, 100 Wis. 8; Kappes v. New York City By. Co., 99 N. Y. 322; Brady v. Oliver, 125 Tenn. 595.
The foregoing cases are but typical of many in stating the weight that is to be given to uncontradicted testimony. In this court the court takes the place of a jury and with respect to questions of fact performs the functions of a jury. This court, therefore, any more than a jury, can not disregard uncontradicted testimony and substitute its opinion for the only evidence in the case. As stated by this court in Wylie v. United, States, 6 C. Cls. 295, 302 :
“ It is not to be supposed that a great government comes into a court of justice craving favors which would not be allowed to any citizen. On the contrary, the government, by consenting to be sued, consents to stand upon the common ground of all suitors. It must rebut testimony by testimony and proof by proof, and if it neglects to do this where its opponent has made out a good case, and seeks to deny or defeat a recovery by other means, its defense will be frivolous or unconscionable.”
Mr. Alexander H. McCormick, with whom was Mr. Assistant Attorney Generad Robert H. Lovett, for the defendant.
The following are the facts of the case as found by the court :
I. On January 31, 1919, the plaintiff, a corporation with its principal office and place of business in Newark, in the State of New Jersey, entered into a contract with the United States represented by the Paymaster General of the Navy, whereby it undertook to make and deliver 1,185 suspension crane scales to various navy yards and stations at a price of $155 per scale, delivery to begin within 60 days and to be completed within 100 days from the date of said contract. Said scales were intended for use on ships of the Navy.
II. The scales to be made were of a special design and different from any type of scale customarily made by the contractor. They consisted of about 95 separate parts, most of which the contractor had to procure from outside sources, its plant being equipped only for doing the finer machine work, engineering, adjusting and fitting of parts.
Prior to making the contract, the contractor had made tentative arrangements for the procurement of all necessary special machinery, parts, forgings, and materials required fully to perform the contract, and immediately after the contract was made it placed orders with subcontractors for all such machinery, parts, forgings, and materials and made every necessary preparation to perform the contract fully in strict accordance with its terms.
III. On February 14, 1919, the Navy Department wrote the contractor as follows:
“ Subject: Contract 45981, crane suspension scales.
“ Sirs : Due to a change which has recently been made in the equipment of ships of the Navy, the BOO crane suspension scales for delivery at the navy yard, Boston, as called for by above-mentioned contract, are not needed. Investigation is being made to ascertain whether or not the scales for the other points noted are still desired.
“ As this contract is of recent date it is presumed that you will be willing to cancel item 1 for the 800 crane suspension scales for delivery at the navy yard, Boston, without claim for damages. As soon as reply is received from the other points you will be advised whether it is desired to cancel the entire contract.”
Personal interviews developed that the scale as designed was considered too large for use on destroyers and that the question of decrease in quantity raised in letter of February 14,1919, was occasioned by this fact. The contractor thereupon agreed to reduce the size of the scale, which could be done in its own plant without additional cost, so as to accommodate the same to the requirements for use on destroyers, and having thus obviated the difficulty it proceeded with the work as before. •
By letter dated February 25,1919, the Bureau of Supplies and Accounts again wrote the contractor as follows:
“ Subject: Contract 45987, crane suspension scales. “Reference: (a) S. and A. letter 45987-PQ, dated 14 February, 1919.
(b) Your letter dated 19 February, 1919.
“ Sirs : It is regretted that due to changes which have recently been made in equipment of ships for the Navy, most of the crane suspension scales called for by the above-mentioned contract are not desired. Investigation is being made to ascertain the exact quantity that will be required, but in the meantime it is requested that you do not proceed with the manufacture of these scales, and that you notify subcontractors accordingly.
“ It is requested that you advise this office whether or not you could make a reduction in quantity without incurring any damages.”
The contractor understood this letter to be occasioned by the same circumstances that had prompted the previous letter of February 14, 1919, and as the question of size had already been adjusted by negotiations with the supply officer at Boston, no further attention was paid to the letter of February 25.
By a'further letter dated March 21, 1919, the Bureau of Supplies and Accounts wrote the contractor as follows:
“Subject: Contract 45987, crane suspension scales.
“ Reference: S. and A. letter dated 25 February.
“ Sirs : As stated in above reference, due to changes which have recently been made in the equipment of ships for the Navy, many of the crane suspension scales called for by contract 45987 are not now desired. The quantities called for by the various navy yards are as follows:
“ Item 1: Boston, 60 now required.
“Item 2: Appraisers’ stores bldg., Boston,-25 now required.
“ Item 3: Fleet supply base, So. Brooklyn, 200 now required.
“Item 4: Philadelphia, 125 now required.
“Item 5: Norfolk, 75 still required.
“ Item 6: Charleston, 12 now required.
“ In addition to the above 25 crane suspension scales will be required for the navy yard, Mare Island, California, and it is requested that you advise promptly the price for these scales delivered, as the prices noted in the contract are based on east coast delivery.
“ Your cooperation with the Navy in making these redue-tions will be appreciated; and it is requested that information be furnished with regard to the status of this contract and whether or not the reductions noted can be made without incurring any damages. Upon receipt of your reply supplementary agreement will be prepared.”
This was followed by telegram of April 3, 1919, as follows:
“ Navy letters, twenty-five Feby. and twenty-six March, requested you not to proceed with manufacture of scales under contract forty-five nine eighty-seven, and to notify subcontractors accordingly. If not agreeable to reduce quantities without claim for damages, request you forward, immediately suggestions for adjustment and detailed statement of condition of contract covering material and labor incurred prior twenty-five Feby.”
On receipt of these communications the contractor suspended all operations and work on the contract and made every effort to induce its subcontractors to accept cancellation of the contract with them for parts and materials.
On March 28, 1919, the contractor advised the Bureau of Supplies and Accounts as follows:
“ Replying to your favor of March 21, relative to our contract. 45987, we regret that it will be impossible for us to accept any reduction on our contract owing to the' present status of material, as well as to other conditions of same.
We would be pleased to take this matter up in person with you, if you will advise when you will be able to see our representative.”
The work remained suspended until June 7,1919, on which day the plaintiff wrote the Bureau of Supplies and Accounts stating that they had since May 12 endeavored to obtain some definite statement allowing them to proceed with the shipment of the scales mentioned in the Bureau’s letter of March 21, 1919, without prejudice to them on the total number of scales called for in the original contract, that the scales were in their factory occupying considerable room, that they were being incornmnienced and suffering considerable damage through this congestion, that it would be to mutual advantage to have the 497 scales mentioned in the letter shipped out, that they would ship them in accordance with directions provided by so doing they did not in any way prejudice themselves on the balance of the original order, which would come up on final adjustment, and requesting that authority to make the shipment be given.
Under the same date, but without any showing as to whether it was before or after the receipt of plaintiff’s letter to the bureau, last above referred to, the bureau wrote the plaintiff as follows:
“ Subject: Contract 45987-
“References: S. and A. letter having subject ‘Contract
45987, crane suspension scales,’ dated 21 March, 1919.
“ Síes : Instructions are hereby given for shipment of scales required under contract 45987 in quantities stated in above reference under items 1 to 6, inclusive. No shipment, however, will be made to the navy yard, Mare Island, pending further instructions.”
On August 18,1919, the Bureau of Supplies and Accounts wrote the plaintiff stating that “ no further addition will be made to the reduced quantity as now called for under contract 45987.”
IV. The contractor thereafter completed and delivered as required by the Navy Department the reduced quantity of scales indicated in the bureau’s letter of March 21, 1919, totaling 497 suspension crane scales and was paid therefor the contract price.
The contractor could and would have completed the number of scales required at the rate and within the time prescribed by the contract, or by May 5,1919.
The total suspension of the work from March 21,1919, to June 8,1919, resulted in delaying the completion of the scales until October 1,1919.
The general administration and overhead expenses, applicable to Navy crane-scale work, incurred after May 5, 1919, amounted to $4,966.65, and would not have been incurred had the scale work been allowed to proceed without interruption, or, if occurred, could have been absorbed by commercial work.
V. The materials, machinery, jigs, etc., obtained by the contractor for necessary use on the contract which were almost entirely of special design had all been procured or contracted for prior to receipt of definite instructions as to the quantity of scales required and were of no value for use in the regular business of the contractor. Those on hand for use in making 1,185 suspension crane scales, excluding those used in making the 4-97 scales that were made and delivered, are still in the contractor’s plant. The contractor tried to cancel its orders with subcontractors, but was unable to do so.
The contractor was ready, willing, and fully prepared to make the full number of crane scales contracted to be made and delivered and to deliver same as specified and required, and could and would have done so had the Navy Department permitted it. At the time the letter of March 21, 1919, was received, the contractor had completed all engineering, designing, and drafting work; had on hand or in course of delivery all materials necessary to perform the contract in its entirety, and had all necessary tools, dies, jigs, fixtures, and machinery required for the complete performance of the contract.
VI. The number of scales required by the Navy Department and accepted under the contract was 497. The contractor had another order for 72 of the same type and design of scale and it actually made and delivered to the Government a total of 575 suspension crane scales.
The actual cost to the contractor of producing and delivering 575 suspension crane scales, including all labor, material, and overhead, was $24,264.28, or $40,087 per scale, exclusive of freight charges for delivering same. The actual cost of producing and delivering the 497 scales that were made and delivered under the contract was $20,496.58, including delivery charges. The remaining 688 scales which the Government failed and refused to accept could and would have been made and delivered at the same or a lesser unit cost, or for $28,231.54, including freight costs of delivery. Had the contractor been permitted to make and deliver the full quantity of scales called for by its contract, it could and would have earned and received a profit of $78,408.46 over and above the profits earned on the scales that were made and delivered.
VII. The actual cost of the materials which the contractor had on hand for making the full number of scales contracted to be made but not used because of the reduction in quantity by the Navy Department was $11,774.40 and the reasonable value of same at the time of reduction of the order was not exceeding $886.34. The contractor’s actual loss on this account was $10,888.06.
The actual cost of the special machine tools, etc., required for making the 1,185 crane scales was $2,024.62 and their value after the contract was terminated was $104. The part of this loss applicable to the 688 crane scales not made and delivered amounts to $998.88.
VIII. On April 6, 1920, a claim having been theretofore filed with the Bureau of Supplies and Accounts for damages on account of the partial cancellation of the contract, the bureau wrote the plaintiff as follows:
“ Subject: Contract 45987, relative to partial cancellation.
“ Beference: Letter from King and King, attorneys, to Supplies and Accounts, 20 March, 1920.
“ Síes : By letter above referenced it was requested that the claim for damages based on the partial cancellation of the above contract be considered and that your company be advised as to the decision of the department in connection with same. Careful consideration has been given to the statements contained in said letter and all the facts and circumstances connected with the cancellation of the above contract.
“ It is not the policy of the Navy to allow anticipated profits, as anticipated profits are too vague, uncertain, indefinite, and problematical. The completion of the contract might have resulted in loss instead of profit to your company.
“ Under the war powers of the President, which were delegated to the Secretary of the Navy by appropriate executive orders, the right was given £’to 'modify, suspend, cancel, or requisition any existing or future contract for the building, production, or purchase of ships or material,’ with the proviso that in case of such cancellation just compensation should be made. All war-time contracts were made subject to this provision.
“A long line of decisions is to the effect that, where the right of cancellation is 'reserved, either by the contract or by statute, ‘ just compensation ’ does not include anticipated profits, just compensation for actual loss is, however, allowed, but in order to determine the amount of actual loss, the Navy has in each and every instance where partial cancellations of contracts have been made detailed cost inspector to make an examination of the accounts and records kept by the contractor. Inasmuch as your company refused to permit the inspector to make an examination at your plant, it has so far been impossible for the Navy to intelligently make a proper cancellation settlement.
“ It is noted from the letter above referenced that statement is made to the effect that the completion of the remaining 688 scales canceled would cost a total of $106,640.00. For your information it might be stated that the Navy has 40 of these scales at the navy yard, Mare Island; 38 at the navy yard, Boston; and 150 at the Fleet Supply Base, which are now offered for sale as surplus stock.
“ The highest offer made for the above excess scales so far has been approximately $45.00 per scale. Unless the Navy is able to obtain a better price than the above offer, it will be seen that the loss on each scale will be $110.00. To accept the above-mentioned 688 scales at the price of $155.00 per scale, and to dispose of same in accordance with the above offer, it will be seen that the Navy’s loss would exceed $75,000.00.
“After careful consideration of the claim submitted with letter above referenced, it has been decided to submit the following offer, which it is believed is fair and just to all parties concerned:
Labor cost-$1,138.66
Freight_ 191.06
Materials-13, 717. 655
Total_ 15, 047.275
10 per cent on material_ 1, 371.765
Total_16, 419. 04
“ In case the above proposition is accepted, all materials for which payment is made will become the property of the Navy.
“ If, however, your company will submit an acceptable salvage offer for said materials, same will be deducted from the amount to be paid.
“An early reply will be appreciated.”
The record does not disclose the claim referred to in the above letter, the reply thereto, if any, or that any further-procedure was had in the matter until the commencement of this action on August 17, 1920.

Opinion:
DowNey, Judge,
delivered the opinion of the court.
The plaintiff seeks to recover for certain alleged losses occasioned by the suspension, modification, and partial cancellation of a contract which it had on January 31, 1919, entered into with the "United States for the furnishing of 1,185 suspension crane scales at $155 per scale and includes in its claim anticipated profits of $78,408.46 on 688 of the scales as to which the contract was canceled. As presented to us this last-mentioned part of the claim constitutes the chief, practically the only, subject of material controversy.
These scales were intended for use on vessels of the Navy, particularly on destroyers, and on February 14, 1919, plaintiff was notified that due to a change recently made in the equipment of ships the 300 scales scheduled for delivery at the Boston Navy Yard would not be needed and that investigation was being made to ascertain whether those scheduled for delivery at other points were still desired, but at a conference had it was ascertained that this action was taken because the scales were unsuitable by reason of size of platform for use on destroyers and the difficulty was overcome by agreement as to reduction of size.
On February 25, 1919, plaintiff was notified that most of the scales called for by the contract would not bej needed, that investigation was being made to ascertain the exact quantity that would be needed, and was requested not to proceed with the manufacture of scales, and to notify its subcontractors accordingly, and also to advise whether it could make a reduction in the quantity without incurring damage, but plaintiff, assuming that this action; like that of February 14, was because of the size of the scales, a matter which had been adjusted, made no reply to this letter and on March 21, 1919, the plaintiff was further advised by the Bureau of Supplies and Accounts, Navy Department, that due to changes in the equipment of ships of the Navy many of the scales called for by the contract would not be needed and was informed of the respective numbers which would be needed at stated yards and stations, a total of 497.
Deliveries having been in the meantime suspended, the plaintiff on June 7, 1919, requested, for reasons stated,, authority to make shipment of the 497 scales mentioned in the Bureau's letter of March 21, 1919, stipulating that "by so doing we do not in any way prejudice ourselves on the balance of the original order which will come up on final adjustment," and, under the same date, whether before or after the receipt of plaintiff's letter does 'not appear, the Bureau of Supplies and Accounts issued to the plaintiff instructions for the shipment of the scales required under the contract in question stated in the letter of March 21, under items 1 to 6, but excluding any shipment to Mare Island, and the plaintiff at subsequent times delivered the 497 scales as directed and was paid therefor the contract price.
On August 18, 1919, the plaintiff was informed by letter that the requirements for scales had been taken up with all yards and stations and that "no further additions will be made to the reduced quantities as now called for under contract 45987."
It is conceded by the defendant that there is a right of recovery on the part of the plaintiff, and the conceded amount is but comparatively little less than that claimed, $15,582.70 conceded as against $16,853.59 claimed, aside, of course, from the wholly disputed claim for anticipated profits. Upon plaintiff's showing as to a damage in the sum of $4,966.65 by reason of directed suspension of the work and a loss of $11,886.94 on materials, etc., provided for the filling of the contract as originally made, coupled with the fact that the defendant lias not made any real attempt to controvert these figures, we have considered the claim of the plaintiff in these respects as established, and there remains for solution only the question as to the right of the plaintiff to recover its prospective profits on 688 scales which it was not permitted to deliver, alleged by it to be $78,408.46, or $113.96-f- per scale, contract price of which was $155.00.
The plaintiff's contention is that there was a partial cancellation of the contract without right, a refusal to perform in full, and therefore a breach, and that the profits that it would have earned are recoverable as a part of its damage. The defendant predicates its defense on the proposition that even though there was in terms no cancellation clause in the contract, the defendant, under the law, had a right to cancel, and, having such a right, anticipated profits are no part of the just compensation provided for in the law. The acts of March 4, 1917, 39 Stat. 1168-1192, June 15, 1917, 40 Stat. 182, and July 1, 1918, 40 Stat. 704-719 and 720, are relied upon.
The plaintiff suggests the inapplicability of the acts of March 4, 1917, and July 1, 1918, because both refer to " existing contracts " and because further the act of March 4, 1917, was limited in its authority to March 1, 1918, and discusses in detail the construction of the act of June 15, 1917, while the defendant, relying on the act of June 15, 1917, maintains that the other acts are properly for consideration because in pari materia and enlightening as to the legislative intent.
The act of June 15, 1917, was an act making appropriations to supply deficiencies in appropriations for the Military and Naval Establishments on account of war expenses. The provisions invoked by the defendant are found under the subhead " Emergency shipping fund " wherein, within the limits of the amounts authorized, the President is given certain powers with reference to placing orders for ships or material, requiring owners of plants to place their output at the disposal of the United States, requisitioning plants and ships, etc., among which is the power "(J) To modify, suspend, cancel, or requisition any existing or future contract for the building, production, or purchase of ships or material."
Provision follows, in case of the exercise of any of these powers by the President, for the making of just compensation to be determined by the President with a right, if the compensation fixed is unsatisfactory, to receive 75 per centum thereof and to sue under section 24, paragraph 20, and section 145 of the Judicial Code for such sum as added to said 75 per centum will make up such amount as will be just compensation, followed by a further provision that—
" The President may exercise the power and authority hereby vested in him, and expend the money herein and here after appropriated through such agency or agencies as he shall determine from time to time,"
with a proviso not here material.
Following are provisions as to what shall be deemed to be included in certain words used in the act, among which it is provided that—
" The word material ' shall include stores, supplies, and equipment for ships, and everything required for or in connection with the production thereof,"
and it is then, provided that the authority granted to the President in the act or by him delegated shall cease six months after the final treaty of peace is proclaimed between this Government and the German Empire.
On July 11, 1917, the President, by Executive order, directed that the United States Shipping Board Emergency Fleet Corporation should exercise the powers vested in him by this act in so far as applicable to the construction of vessels, the purchase or requisitioning of vessels or of contracts for their construction, and all powers applicable to the production, purchasing, and requisitioning of materials., and that the United States Shipping Board directly or in its discretion through the Emergency Fleet Corporation should exercise the powers delegated to him in so far as applicable to taking over by purchase or requisition of constructed vessels or parts thereof or charters therein and the operation, management, and disposition of such vessels and other vessels acquired by the United States.
On August 21, 1917, the President by a further Executive order directed that the Secretary of the Navy should exercise all the powers vested in him by said act " in so far as applicable to and in furtherance of the construction of vessels for the use of the Navy and of contracts for the construction of such vessels, and the completion thereof, and all powers and authority applicable to and in furtherance of the production, purchase, and requisitioning, of materials for construction of vessels for the Navy and for war materials, equipment, and munitions required for the use of the Navy, and the more economical and expeditious delivery thereof."
The primary question for. our consideration involves a construction of the paragraph of the act quoted above au thorizing the President, through delegated agency, " to modify, suspend, cancel, or requisition any existing or future contract for the building, production, or purchase of ships, or material " in respect to its application, whether to private contracts alone or to Government contracts as well.
It will be readily apparent that the construction of this act in this particular respect is of far-reaching importance since it may readily be assumed that by reason of unusual governmental activities of recent years involving the making, the modifying, and the cancellation of contracts the construction here determined will be for frequent application.
There are collateral matters, other acts, debates in Congress, etc., which throw some light - on the purpose and meaning of the provision in question, and we will find it necessary to refer to them, not because it is deemed necessary to predicate a construction thereon, for in our view the language is not ambiguous; and, if not so, extraneous aids to interpretation are neither a necessary nor proper resort, but because they are cited in part in support of plaintiff's construction of the act, whereas we regard them in their entirety as strengthening the construction we shall put upon it.
The words " modify," " suspend," " cancel," and " requisition " are each of plain, well-understood meaning and each has its proper function in the accomplishment of the intended purpose. Combined, they covered the whole field of necessary operations so far as contracts were concerned, to the end that they might be so treated as should be found necessary to the accomplishment of governmental purposes. It is required that they be given their usual accepted meaning unless it satisfactorily appears that they w.ere used in some other sense.
It is suggested that the use of the word " requisition " is decisive of the meaning of the provision since this word could only apply to private contracts and not to contracts with the United States, but we may not properly resort to one word as determinative of the question when four are for consideration. No doubt " requisition " must find its application only to private contracts, since a conception of the Government attempting to requisition its own contract must be founded upon absurdity, but with equal assurance majr it not be said that Congress never intended to do such an uncalled for and wholly unjustified thing as to authorize the " modification " of private contracts. The power and the purpose are equally beyond conception. Contracts must possess certain elements to give them life, and arbitrary modification without consent of parties would be impairment to the extent of destruction. The essential of mutual agreement to the same thing in the same sense would be destroyed and no valid contract binding upon the parties would remain. A private contract might first be requisitioned and then modified to suit the purposes of the Government, but when thus modified it would, by virtue of the requisitioning, be the Government's contract.
It seems appropriate in connection with these observations as to the apparently necessary application of the word "modify" to revert briefly to the facts of the case for the purpose of suggesting that although both parties refer to what was done as a " partial cancellation " of the contract, what was in fact done was to " modify " the contract by reducing the number of scales to be furnished thereunder. Counsel treat this transaction as a cancellation of the contract as to all scales called for in excess of 497, and that may, in a sense, have been the general effect, but the actual transaction, first definitely evidenced by the letter of March 21, 1919, was to inform the plaintiff that many of the scales called for by the contract would not be needed and to restate in six items the needs at various yards and stations, totaling 497, referring to the action taken as " reductions," and iii replying to this letter the plaintiff declined to accept any "reductions" on the contract. Finally, at a later date, the Bureau of Supplies and Accounts informed the plaintiff that no further additions would be made to the reduced quantity as now called for under contract JfS987. As thus modified by a reduction in quantity the contract was performed, and while the Government did in fact refuse to accept more than this reduced number of scales, there was, speaking strictly, no cancellation.
If under some circumstances the words " suspend " or " cancel " might imply a power which the Government was authorized to exercise in respect to private contracts, it is plain that their natural application is to contracts to which the Government is a party and such application could scai'cely be excluded from the scope of the legislation in the absence of any basis for the conclusion that such exclusion was intended.
The purpose and scope of the act in its entirety are for consideration and if, in the accomplishment of its purpose it is to be conceded that the powers conferred had application in part at least to private contracts, it is significant that the limitation put upon the exercise of the powers conferred extended over a period during which there could be no possible occasion for their exercise except in connection with Government contracts.
It was provided that the authority granted should cease " six months after a final treaty of peace is proclaimed between this Government and the German Empire." Actual hostilities always cease some time before peace by treaty follows. The interim is usually covered by an armistice following the cessation of hostilities. Actual warfare having ceased under the terms of an armistice probably to be followed by a treaty of peace there could seem to be no reason for the further exercise of any of the granted powers so far as private contracts were concerned, since further subordination of private rights to the necessity of preparation for war was presumably unnecessary, but the very circumstance which rendered unnecessary the exercise of any of these powers as to private contracts presented reasons for their exercise as to Government contracts. Hostilities having ceased, with every prospect that the war was over, the natural thing to do would be to first " suspend " contracts for war supplies and later, when circumstances justified it, to " cancel " contracts for unneeded supplies, and if, perchance, cancellation were not justified before the final accomplishment of peace six months thereafter were provided for the exercise of that power, and it seems impossible to conceive of any use to be made of any of the granted powers during this extended period except the power of cancellation and that necessarily as to Government contracts.'
Indeed, the fact that the operation of the statute is extended to a period of six months beyond the proclamation of peace shows a recognition by Congress of the fact that the conditions we have mentioned could and probably would arise and an intention to provide for them. Contracts, whether " existing or future," were brought within the scope of the legislation, and the power was given to modify or cancel them when there was no further need for a part or all of the things that furnished their consideration. If a party's contract, made after the act was passed and after the war had actually ended, does not fall within the general purposes of the legislation as we have referred to it, it is still true that such a contract is within its language and terms, and we have no. right to say that the act does not apply to it.
We are cited, by reference to another case, to extracts from debates in the Senate and House during the pendency of the bill which finally became the act in question from which it is sought to draw the conclusion that the powers conferred with reference to contracts were regarded and intended by Congress as applying only to private contracts. We can not go into a detailed consideration of the lengthy debates on this and kindred legislation. Much of it is but the expression of individual opinions, widely divergent, seldom indicative of careful consideration and binding, as a theory, upon no one, but it seems to us that the history and purposes and scope of this class of legislation with such expressions as to its purpose as are proper for consideration, found not alone in the parts of the record cited but in the entire record, not only do not sustain plaintiff's deduction but to the contrary. They evidence a purpose to grant every power to which there might be any possible occasion to resort and to err, if at all, by granting too largely rather than to take the responsibility of withholding any desired or possibly needed power.
Two of the words used in expressing the powers granted with reference to contracts are found also in the Naval Appropriation Act of March 4, 1911, subhead " Naval emergency fund," 89 Stat. 1192. While this legislation was pending question arose as to progress being made under the then authorized ship building program and the Secretary of the Navy sent to the chairman of the House Committee on Naval Affairs a lengthy letter (Cong. Record, vol. 54, part 3, p. 2584), in which he reported fully on the status of the ship building program and the difficulties encountered in expediting it, and, apparently, to assist in meeting existing conditions and, as provided, to enable the securing of more economical and expeditious delivery of materials, etc., and construction of ships, power was given the President in that bill, among other things, to " modify " or " cancel " any existing contract with power further to take possession of the factory of any contractor if he should refuse to comply with a contract as so modified, provisions which clearly, as in that act used, applied to Government contracts. The provision, however, was limited to "existing" contracts and the power granted was limited to March 1, 1918.
A comparison of the two acts renders it plainly apparent that the act of June 15, 1917, subhead " Emergency shipping-fund," in so far as powers conferred upon the President is concerned, was modeled after the act of March 4, 1917. There is rearrangement with some modifications, but the inclusion of the same subject matter with so much of the same phraseology could have resulted only from the use of one as a model for the other. Changes or additions therefore become significant. As passed in the Senate, the clause in the act of June 15, 1917, conferring power as to contracts contained the additional word " requisition " and it was made applicable to " future " as well as " existing " contracts. To words, therefore, plainly applicable in the naval bill to Government contracts only, and repeated in the act of June 15,1917, was added a word having particular application to private contracts. In conference there was rearrangement of Senate provisions and, as to the contract clause, the word " suspend " was injected, the manager on the part of the House stating during consideration of the conference report that " It gives power to suspend contract's as well as to cancel, modify, or requisition. In the Senate provision there was no authority to suspend a contract between private parties which might interfere with the Government requisitioning or requiring work to be done." It is true that the discussion on the floor of the Plouse as to the effect of the addition of this word was addressed largely to its application to private contracts as to which there were widely divergent views both as to the purpose and effect of and the power to enact such legislation, but there is nothing in the whole course of the legislation, even including the debates, justifying the conclusion that all the powers granted as to contracts were deemed applicable alone to private contracts. Bather, beginning with the original provision, used as a basis for the formulation of that in question, and considering the additions with the apparent purposes intended to be accomplished thereby, would it seem to have been the purpose to broaden powers already applicable to Government contracts and to so broaden them as to permit the exercise of any necessary power in relation to contracts of the character in question, either public or private.
It is further contended that the subject matter of this contract, viz, " suspension crane scales," was not within the purview of the act and that it does not appear that the President delegated his powers as to contracts to the Secretary of the Navy or that the Secretary of the Navy acted in the matter of the modification or cancellation of this contract. The act under discussion defines several words used and in that connection provides that the word " material " shall include " stores, supplies, and equipment for ships." It is found as a fact that these scales were intended for use on ships of the Navy, and it must be concluded from other facts found that the plaintiff fully understood that they were so intended. The act authorized the President to exercise the powers granted through such agency or agencies as he might determine. In so far as the provisions in question referred to the construction of vessels for the use of the Navy he delegated his powers to the Secretary of the Navy. It is entirely too narrow a construction to conclude, as contended, from a technical consideration of language used that he delegated none of his granted powers as to contracts. By the two Executive orders he delegated his powers to the Shipping Board, the Shipping Board Emergency Fleet Corporation, and the Secretary of the Navy, assigning, respectively, the functions falling naturally within their usual scope of operations, and it is not a reasonable construction to conclude that powers granted him because possibly necessary to be exercised in the furtherance of the purposes to be accomplished were with held from his delegation to his selected agencies. The Executive orders were no doubt intended to cover the whole field of operation under the act, and their language justifies that construction.
It can not now be tenably contended that powers granted to the head of an executive department must be personally exercised by him. The impossibility in practice of the application of such a rule has been frequently suggested by highest authority. The bureau of the Navy Department, well known to have jurisdiction of such matters under the general direction of the Secretary, acted in this matter. It is perhaps to be observed that the act of April 22, 1918, 40 Stat. 535, amending the act of June 15, 1917, authorized the President to exercise his powers "through the several departments of the Government " as well as through " such agency or agencies as he shall determine from time to time."
It is scarcely of value to discuss the question as to whether this contract in its subject matter was of the type of contract in contemplation when this legislation was enacted or whether these scales at the time the contract was made were in any sense to be regarded as war material. If the provision of this act with reference to the modification,' •cancellation, etc., of contracts, applied to Government contracts, as we believe and hold that it did, it was a provision of existing law which must be read into the contract and the contract is to be treated, in determining the rights of the parties thereunder, as if modification and cancellation clauses were written therein. To so consider it is not to depart from frequent practice, for it is common in Government contracts to find provisions for changes, additions, or subtractions, usually upon terms provided as to compensation, increased or diminished, and it is not unusual to find provision for cancellation.
The act in question provided for compensation in case the Government should exercise powers conferred as to canceling, modifying, suspending, or requisitioning contracts, taking over plants, etc., and the measure is "just" compensation. Having the right, as we conclude, to modify the contract by reducing the number of scales called for or to cancel it as to all over a given number, however the procedure may be regarded, though treated by the parties in their briefs as a partial cancellation, what is required by "just compensation " ? The 497 scales made and delivered under this contract were paid for at the contract price. Five hundred and seventy-five were actually delivered and paid for at this price, but a part were on another order. By our conclusion of law based on Finding VII we allow the plaintiff $10,888.06 on account of materials procured for and necessary to the full performance of this contract, which is all that is claimed on this account. This amount represents $11,774.40 worth of materials, with a salvage value of $886.34 deducted. It is difficult to comprehend how materials of this class, costing $11,774.40, could have a salvage value of only $886.34, even on falling prices, but such is the showing made by plaintiff, the defendant submitting no testimony on the question. We have also, based on the same finding, allowed $998.88 on account of special tools alleged to have been required for the making of these scales. This is upon plaintiff's showing made that, tools costing $2,024.62 were worth but $104 after this contract was terminated and $998.88 of the depreciation is apportioned to the unperformed part of this contract. We have by our conclusion of law based on Finding IV allowed the plaintiff $4,966.65, covering its own estimate as to the proportion of " general administration and overhead expenses " chargeable to this contract by reason of suspension of the work for a period of approximately two and a half months. It is safe, therefore, to say that every element of actual damage sustained by the plaintiff by reason of the modification, or, as it is called, cancellation, of this contract is covered by these awards and to the full amount claimed. It appears further that, having by these awards been fully compensated for every dollar of actual damage claimed, the plaintiff received a profit of $114.91+ on every one of these scales on a production cost, including labor, material, and overhead, of $40.08+ per scale, a profit of more' than 286 per cent. Plaintiff, on the basis of this showing as to the cost of production and resultant profits, asks judgment for the additional sum of $78,408.46 as anticipated profits on the 688 scales which it was not permitted to deliver under the contract. It is interesting to note the percentage of profit accruing to plaintiff on the whole number of scales called for by the contract, assuming an apportionment thereto of the profit actually received on 497.
Before coming to the strictly legal phase of the question we may perhaps be justified in considering briefly the suggestion made that the fact that the profit was quite large is beside the question, in connection with which it is suggested that the contract was awarded after competitive bidding and that " It may well be that there were circumstances, such as great personal or technical skill, which would show that the seemingly large profits involved were really quite nominal and not at all disproportionate to the service involved."
It is to be noted that there is no contention that such a startling proposition as that these " seemingly large profits " were really " quite nominal " is demonstrated or even attempted to be demonstrated by the record. It in fact appears from the record that practically all parts entering into the construction of these scales were procured on the outside and that plaintiff's plant was but little more, if anything, than an assembling plant, and the fact that these scales were different from any customarily made by the plaintiff and required the purchasing of special tools with which its plant was not then equipped is inconsistent with the idea that the Government in consideration of such abnormal profits acquired anything out of the ordinary by way of plant facilities or technical skill.
That this contract, demonstrating such an abnormal profit, was the result of competitive bidding, could but give rise to question as to the methods and motives of all bidders were there no other possible explanation. We may only surmise, since nothing appears of record on the subject, but, desiring to avoid the impugning of any bad motives, the only reasonable justification otherwise that we can find for the submission of bids upon such an extravagent profit basis is to be found in the assumption that bidders knew that they were assuming the hazard of a cancellation or curtailment of the contract at any time.
The compensation required by the act is " just " compensation. And if the law, read into the contract, gave the Government a right to modify or cancel, requiring only just compensation, the compensation required must necessarily have reference to conditions resultant from the exercise of a right and not involving a breach of contract.
The plaintiff was paid for all scales it was permitted to furnish and has its profit thereon and we have awarded it judgment to the full amount of its claim for all actual damages alleged to have been suffered by the cancellation of the contract. Is it required that anticipated profit on the unperformed part of the contract should be added? Are they a necessary part of " just compensation " for the exercise of a right to cancel? We think not.
Considering the existent situation if the right-to modify or cancel, as expressed in the statute, had been actually written into the. contract, and it was for construction, it is doubtful if such a contention would ever be seriously made. If it should be said that the contract gave the contractor the right to perform the entire contract with resultant profit the answer would be that the contract, necessarily with the consent of the contractor, gave the Government the right to terminate it at any desired stage during its performance, as a result of which any further rights thereunder, with resultant advantage to the contractor by way of profits, ceased. At that point, as by a distinct line of demarcation, the future is separated from the past and adjustment of rights on the basis of just compensation to the contractor has its proper field of operation behind and not beyond that line.
The particular act under discussion does not attempt to define the scope of "just compensation," but in one important act we find an expression of the legislative mind as to the basis of compensation under circumstances some of which are analogous to those with which we are dealing. The Dent Act, 40 Stat. 1272, contemplates adjustment of contracts not formally executed on a " fair and equitable basis," not materially different from a basis of "just compensation," when there has been performance " in whole or in part " or " expenditures have been made or obligations incurred upon the faith of the same," and it is provided—
" That in no case shall any award, either by the Secretary of War or the Court of Claims, include prospective or possible profits on any part of the contract beyond the goods and supplies delivered to and accepted by the United States and a reasonable remuneration for expenditures and obligations or liabilities incurred in performing or preparing to perform said contract or order."
This is, of course, not a Dent Act case, and we are not unmindful of the difference in the status of parties with or without properly executed contracts, but the purpose of that act was to relieve those complying or having prepared to comply with Government orders or informal contracts from the disabilities growing out of the fact that they were not then in possession of formally executed contracts and it authorized adjustment with them on a designated basis which to Congress seemed " fair and equitable."
The question here decided was presented in College Point Boat Corporation v. United States, decided April 4, 1921,1 and it is now said that, although there presented by the defendant, we rendered judgment for the plaintiff "without dignifying the point by discussing it." Under the facts of that case vre found it possible to determine the rights of the parties as we saw them without considering or deciding this question, and as to it we can not consent to be committed by that case.
We are of the opinion that our judgment awards the plaintiff just compensation and that it is not entitled to have included therein the prospective profits claimed.
Judgment for plaintiff under Findings IV and YII in the sum of $16,853.59, and the petition is otherwise dismissed.
Hat, Judge; Booth, Judge, and Campbell, Chief Justice, concur in the foregoing opinion.
In tile College Point Boat Corporation case the court on Jan. 16, 1922, filed an order setting aside its former judgment, withdrawing the findings of fact, and remanding the case to the calendar for further proceedings.