Case Name: COLLEGE POINT BOAT CORPORATION v. THE UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1923-05-21
Citations: 58 Ct. Cl. 380
Docket Number: No. 34220
Parties: COLLEGE POINT BOAT CORPORATION v. THE UNITED STATES.
Judges: Graham, Judge; Hay, Judge; Dowkey, Judge; and Campbell, Chief Justice, concur.
Reporter: United States Court of Claims Reports
Volume: 58
Pages: 380–392

Head Matter:
COLLEGE POINT BOAT CORPORATION v. THE UNITED STATES.
[No. 34220.
Decided May 21, 1923.]
On the Proofs.
Oontract; supplemental contract; cancellation; prospective pro-fits.— Where plaintiff enters into a contract with the Government to manufacture and deliver a specified number of articles and proceeds to place itself in a position to perform its contract, but before it has manufactured or delivered any of the contracted for articles, it suspends wort at the request of the Government and thereafter enters into a supplemental contract, by the terms of which the Government takes over and pays for all of the materials on hand and under commitment, it is a voluntary assent to the cancellation of the original contract by plaintiff, and plaintiff is entitled to recover the cost and expenses of its increased facilities for performing said contract and a reasonable amount for acquiring and handling the material on hand and purchasing the material under commitment. It is not entitled to prospective profits.
The Reporter's statement of the case:
Mr. Bynum E. Hinton for the plaintiff.
Mr. Alexander H. McOorrmck, with whom was Mr. Assistant Attorney General Robert H. Lovett, for the defendant.
The following are the facts of the case as found by the court:
I. The plaintiff, the College Point Boat Corporation, is a corporation duly incorporated and existing under the laws of the State of New York.
II. Under date of October 25, 1918, the plaintiff entered into a contract with the United States, represented by the Paymaster General of the Navy, to furnish the Navy Department, for a consideration of $641,200, two thousand collision mats, such mats being a part of the equipment for ships, and intended for use in stopping leaks in a ship’s hull resulting from collision or otherwise. A copy of said contract, including the specifications for the work, is made a part of these findings of fact as Exhibit A thereto.
III. Pursuant to said contract the plaintiff placed orders for about $153,056.60 worth of the materials needed in the manufacture of said mats, and proceeded with a rearrangement and enlargement of its plant, which was necessary to the performance of its contract. In placing said orders for materials the plaintiff, where it could do so, reserved a xight to cancel the orders in case its contract should be canceled by the Government.
IV. The canvas to be used in making the mats was to be furnished by the defendant. On or about December 3, 1918, the plaintiff verbally requested the defendant to furnish the canvas, and defendant’s officers thereupon promised to -expedite the furnishing of it, but at the same time requested and arranged for a conference with, the plaintiff, in the matter of the contract, to be held on December 6th following. At this conference the plaintiff was informed by defendant that on account of the signing of the armistice and the probable early termination of the war the mats called for by the contract would probably not be needed, and that the department therefore desired to negotiate for the cancellation •of the contract. Also it was suggested by said officers that plaintiff stop operations for the performance of the contract and submit a proposition as to the basis upon which a cancellation of the contract would be satisfactory to it.
The said canvas for the mats was never furnished by the ■defendant, nor did the plaintiff again request that it be furnished.
V. Following said conference of December 6, 1918, and pursuant to defendant’s said suggestion and request, the plaintiff stopped operations for the performance of said •contract, and, under date of December 30, 1918, wrote the Navy Department as follows:
“ Replying to your request as to on what basis we will ;accept cancellation or reduction in quantity of contract No. 42877 for 2,000 collision mats, aggregating $641,200 we submit the following proposition for your approval:
“ We appreciate that the desire of the Navy Department is to cancel the contract completely by mutual agreement, without expenditure for ai'ticles for which at the present time it has no need. We also wish it understood that the natural aim of the College Point Boat Corporation is to complete the entire contract which was entered into in good faith to supply a need of the Navy Department at the time. Particularly since it has not only allotted a considerable time of its plant and organization to this contract to the exclusion of other opportunities, but has also made all preparations and engagements for performance so that its expenditures and profits are not conjectural, but are practically liquidated. Between those two widely divergent views the settlement must be made upon the fairest and most equitable terms to both parties to the contract.
“ Two ways to come to an agreement present themselves, and have been particularly mentioned by you. (1) What reduction in number will permit the College Point Boat Corporation to reduce subcontracts accordingly, realize expenditures already made, keep their plant busy until it can be filled ,with other work and render possible making of a profit during the time' now under contract equal to the profit which would have been realized by completing the entire amount contracted for. (2) To cancel as much as possible of the subcontracts for material, the Navy to accept at cost plus a reasonable charge for handling all materials now on hand, and to indemnify the College Point Boat Corporation by payment of liquidated damages covering expenditures made on account of the contract; and overhead and other expenses which must necessarily be made during the time for which the plant was retained for this contract; and which can not be allotted to anything else or otherwise recovered; and net profits which would have resulted from completion of the contract.
“ Considering the first proposition, it can readily be seen that whatever reduction is made in the number of mats, the price remaining the same, the return per mat as well as the total return will be reduced since the overhead charges will be apportioned over a smaller number of mats. This would lead to the alternatives of either increasing the unit price with reduction in quantity, or increasing the separate damages with reduction in quantity at an unchanged unit price. We believe after our recent discussion of the subject that neither of these alternatives would be satisfactory to the Navy, since it feels that it does not require any mats, and would only accept a small number at an unchanged price,, in order to keep the employees from being thrown out of work suddenly. There is the further possibility of taking other remunerative work after a stated portion of the contract has run out, but a careful consideration shows m> probability of any important gain from this source. The present capacity, created expressly for this contract,, represents an increase of about six times over the former sail loft, which was of the proper size to care for normal business requirements. Our competitors all have shops of about that size, which seems to prove that normal commercial conditions will not produce enough work to fill large shops operating on a manufacturing basis. With this contract on hand we were enabled to prepare for it on a manufacturing basis, but it is evident that commercial business can not furnish the work to fill it. Further, although proposals were opened by the Government for materials prior to the armistice, they have since been canceled and apparently no new work is available from that source.
“This brings us to consideration of the second method, that of doing no further work and the obligations of the Navy being definitely evaluated and paid as liquidated damages for cancellation of contract.
“Assuming work to be stopped at the present time, no further shipments of raw materials made, subcontracts canceled, and materials now on hand taken over by the Navy at cost to us plus reasonable handling charges, there would still remain certain contract relations which if unfilled would represent a loss to the College Point Boat Corporation. The College Point Boat Corporation is in a position to fulfill the requirements of the contract, and certain overhead expenses would be borne by this contract and certain profits made as shown by Schedule A. The Navy has virtually contracted for or leased certain output, which is the total output of the College Point Boat Corporation in this class of work, capacity having been expanded to six times its previous normal size for the express purpose of executing this contract. A decision made by the Navy at the present time that it does not require the output contracted for or the lease that it holds does not release it from the obligations of a contract in which the other party has cared for its own obligations, stands ready to complete them, and its capacity being taken has been prevented from entering into contracts with other customers. Therefore the Navy has either one of the two proper courses open — to continue with all the provisions of the contract, accepting deliveries of materials in accordance with it and making payments therefor, or to make such payments to the College Point Boat Corporation as will equal the expenses the corporation would have to bear, and the profit which would have arisen from the fulfillment of the contract.
“ Since under the latter course it may be said that contingencies might have arisen which would have affected the anticipated profit, certain allowance should be made in the form of a reserve for contingencies, which will guarantee the net profit stated. This can perhaps be best done by tak ing the cost of having the profit insured as a definite sum, against all contingencies, and the amount of the premium to be paid for such insurance deducted from the gross expected profit, giving a net profit which could not but have been made.
“Under this same course it will also be seen that certain overhead expenses will not occur at all if no work is done on the contract, while others will go on whether or not production continues. In schedule (1) the various overhead charges have been classified into these two groups, and it will be apparent that if no work is done the Navy can not be asked to be responsible for the expenses which were not incurred.
“ With the above two paragraphs in mind we may take figures from Schedule A as follows:
9 by 9 mats:
Indirect overhead, 6.55X1,009_ $6,550.00
Profit, 69.830X1,000__ 69, 830. 00
12 by 12 mats:
Indirect overhead, 6.55X1,000_ 6, 550. 00
Profit, 85.480X1,000_ 85,480.00
Gross profit and incurred expense_168, 410. 00
Less quoted insurance premium_ 16, 633.29
Net liquidated damages. 151,776. 71
schedule a.
“ Complete synopsis of estimated costs; based on prices contracted for materials, hand labor task with full bonus, estimated average riggers time, and overhead as per Schedule 1. Overhead has been divided into direct costs, which would be eliminated if no work was done, and into indirect costs, which are unchanged by work not being done.
“ It will be seen by tbe schedule that profits are very carefully figured and are as nearly liquidated and known as anything in the future can be since the supplies of raw materials, the most uncertain item, are contracted for. The corporation feels that it is fully entitled to the entire profits stated, for the reason that it took the risk of making a less profit or none whatever when it made its bid and has since secured the profit by its own diligent and capable efforts. Attention is invited to the fact that the proposals on this contract were opened three several times and that this corporation was low at each opening, and at the final opening the next bidder was approximately $120,000 above us, and the highest bidder $400,000 above us, on the basis of the total quantity, so that by the foresight and courage of this corporation in taking the contract at a figure very much lower than any other bidder was willing to consider, a very great saving has already, and in any event, been made to the Navy Department. The department is respectfully invited to consider the situation on cancellation if the contract had been awarded elsewhere. Having voluntarily in the beginning accepted a much less profit than others might have had, we feel that we are entitled to retain that profit so far as it is a matter of certainty when the contract is liquidated or canceled.
“We submit therefore the only proposition which appears fair and equitable to both parties under the circumstances, namely, that the liquidated damages for cancellation of this contract be determined in the manner shown in the second preceding paragraph, and inasmuch as due to the short time available for making up these figures they are necessarily only approximate, we invite accurate confirmation by your representative of the exact cost figures from our records. We feel, however, that the figures given are substantially correct, and would be willing to fix the liquidated damages at the figure stated above of $151,776.71 in order to settle the question without further delay, subject, of course, to your approval.
“Attached to and forming part of the foregoing proposition is the following list of materials which have already been received from the subcontractors, and which we request the Navy Department to buy from us at cost to us plus reasonable handling charges to us of 2 per cent of their value. We are advised by the subcontractors that they will accept cancellation Of the undelivered balance of our orders, therefore we will not have to ask the Navy to accept any responsibility for undelivered materials. # *
# * * * ❖ * *
“From the foregoing list it will be seen that, owing to deliveries not having been made, we have a comparatively large amount of money to pay on this account in the immediate future, with no income from the contract to help us meet same, and request that if this meet with the favorable consideration of the Navy Department this amount be paid iis on account without awaiting decision in the matter of liquidated damages.”
' VI. On February 10, 1919, an agreement was entered into between the plaintiff and the defendant by which the defendant purchased and took over from plaintiff, at the cost thereof to plaintiff, $44,066.07 worth of materials which had been purchased by and delivered to plaintiff for use in the performance of its said contract, on orders for which the plaintiff could not procure cancellation. A copy of said agreement is annexed to the plaintiff’s petition as a part of Exhibit A, and is by this reference thereto made a part of these findings of fact.
VII. Under date of February 26, 1919, the Paymaster General of the Navy wrote the plaintiff as follows:
“Subject: Contract 42877; collision mats; regarding cancellation; adjustment.
“ Sirs : By reason of the changed conditions of the country due to the signing of the armistice, the public interests demanded that cancellation be effected with respect to the material as called for under contract 42877, for -.the reason that the same were no longer needed by the Navy.
“ Notice to discontinue all work under the contract and incur no further obligations was sent your company prior to any manufacturing work having been done on the collision mats as called for by the .contract. The only work done under the contract has been the purchasing of the necessary material with which to prosecute the contract to completion. Some of this material had already arrived at your works, while other quantities were under commitment orders.
“ The Navy has already agreed to take off your hands all material which could not be canceled from your subcontractors and to pay the invoice cost of this material to you; and, in fact, supplementary contract February 10,1919, provided for the reimbursement to you in the sum of $44,031.16, for the major part of the material; and the Navy also agrees to pay you the sum of $10,231.80, covering the steel wire and steel rope purchased by you from the Hazard Manufacturing Co., cancellation of which subcontract could not be effected.
“ From investigation at your plant it is also believed that the sum of $1,900 is properly allowable for plant rearrangement, which rearrangement was made.
“ In addition to the foregoing, be advised that the Navy does not feel that it can consider the item of your claim with respect to your estimated unearned profits, which is shown on your claim to be $182,420.
“ In the interests of an amicable adjustment of the whole matter, the Navy has proceeded with respect to this item on the basis of what would be considered a fair allowance of profit had the work proceeded.under a Navy order, and it has been found that a profit allowance of $32,120 would be a fair amount for the entire contract, as this sum would represent a return of 20 per cent on invested capital used over a production period of nine months.
“ Considering the matter from this angle, and considering that the value of the material purchased is a certain per cent of the total cost of completion, it is proposed to allow you that per cent of $32,120 as additional sum to the sums as previously mentioned.
“ The ratio is about 12.06 per cent, and therefore 12.06 per cent of the profit allowance of $32,120 would make $3,873.67 properly allowable.
“ By way of recapitulation, therefore, the Navy will allow the following:
Cost of materia] purchased_$54,262. i)6
Reasonable handling charges thereon at 2 per cent_ 1,085. 26
Allowance for plant rearrangement_ 1, 900.00
Profit allowance on 12.06 per cent of total contract_ 3, 873. 67
Total_ 61,121. 80
“The foregoing is submitted after careful consideration of all the circumstances in the case, and is forwarded for your consideration prior to submitting the same to the Secretary of the Navy for approval.
“You are advised that no settlement is effective until the Secretary has so approved, but it is believed by those handling this matter that such a suggested settlement can reasonably be expected to receive approval.”
Plaintiff refused this offer of settlement, claiming a right to prospective profits, but agreed to accept payment for the cost of the materials purchased for the work with the under standing that it would not impair its right to prosecute and recover its claim for profits.
VIII. Under an agreement between the plaintiff and the defendant, of date June 30, 1919, the defendant purchased from the plaintiff, and subsequently paid for at cost to plaintiff, $10,225.60 worth of additional material which had been purchased by plaintiff for the contract work on orders for which plaintiff could not procure cancellation. This material had not yet been shipped to plaintiff and was therefore subsequently deliyered by the manufacturer direct to the defendant without being handled by the plaintiff. A copy of said agreement of June 30, 1919, is annexed to the plaintiff’s petition as a part of Exhibit A, and is by this reference made a part of these findings of fact.
IX. A reasonable allowance for the work and expense of purchasing the $44,066.07 worth of materials purchased by and delivered to the plaintiff, as shown by Finding VI, is $881.32; and a reasonable allowance for the work and expense of contracting for the remaining $108,990.53 worth of the materials contracted for by the plaintiff but not delivered to plaintiff is $1,089.90.
X. The cost to the plaintiff of the manufacture and delivery of said- 2,000 collision mats to the Government in accordance with the requirements of the contract would have been approximately $475,890, and if plaintiff be entitled to prospective profits on the contract work the amount of such profits it would be entitled to recover, after allowing for its release from the care and responsibility which would have attended a full performance of the contract, would be $123,980.
XI. Prior to the negotiations for cancellation of said contract and the suspension by plaintiff of operation thereunder, the plaintiff incurred an expense of $1,900 in rearranging and enlarging its plant, exclusive of the cost of additional machinery, and also an expense of $641.20 as premium on its contract bond. These expenses were necessary for and in connection with a performance of the contract, and were not necessary for the plaintiff’s business outside of said contract.
A loss of $600 was sustained by the plaintiff through depreciation of machinery purchased by it for performance of said contract, and which, by reason of the nonperformance of the contract, was not needed by it.
XII. The plaintiff was ready, -willing, and able to go on with and complete the contract work. After the plaintiff’s request of December 3, 1918, for the canvas which was to be furnished by the Government, no demand or request, either by the plaintiff or by the defendant, appears to have been made for the performance of the contract work, and no protest or complaint appears to have been made by either party on account of the suspension and nonperformance of the work.
XIII. The plaintiff has received no payments from defendant on account of its said contract other than the payments to plaintiff for materials in accordance with the said agreements of February 10 and June 30, 1919, set forth in Findings VI and VIII.
The Navy Department never tendered, nor did plaintiff demand, 75 per cent of the amount offered by the department in settlement in its letter of Februray 26, 1919, to plaintiff.
Appealed.

Opinion:
Booth, Judge
delivered the opinion of the court.
This case has been before the court heretofore. On December 4, 1921, a judgment for $20,112.42 was awarded the plaintiff in an opinion on that date announced. On December 16, 1921, the court, of its own motion, set aside an order overuling a motion for a new trial. On January 16, 1922, the court filed an order allowing new trial, vacating and setting aside its former judgment, withdrawing the findings, and remanding the case to the calendar for further proceedings. The case is now here in pursuance of the last-mentioned order.
The plaintiff on October 25, 1918, entered into a written contract with the Navy Department to manufacture and deliver 2,000 collision mats. The defendant was to furnish all the canvas for their"manufacture and to pay for the total quantity when delivered the sum of $641,200. The plaintiff prepared for the execution of the contract, purchased and committed itself by contract to purchase the necessary materials, enlarged its plant, and did all it could be reasonably expected to do to proceed immediately to perform its agreement. It never did, however, make or deliver a single mat. On December 3, 1918, it requested the defendant to furnish the necessary quantity of canvas, as it had agreed to do, and the defendant did promise, to do so. Instead of furnishing the canvas, however, the defendant requested a conference with the plaintiff looking toward an amicable agreement for a cancellation of the contract, the armistice having intervened and the defendant not wanting the mats. The defendant at this time asked the plaintiff to cease operations under the contract, and the plaintiff acceded thereto. On December 6, 1918, the plaintiff submitted in writing its proposal of terms o f compromise. It is set forth in Finding Y.
On February 10, 1919, the parties to the original contract agreed upon a supplementary contract, by the terms of which the defendant took over and paid -for all materials which plaintiff had committed itself by subcontracts to purchase in order to perform the original contract and which the plaintiff had not been able to cancel. This was a mutual arrangement between the parties, and can have no other significance than a voluntary assent to the cancellation of the original contract. The plaintiff by this agreement put it beyond its power to comply with the original contract, disposed of all materials not on hand, and allowed the defendant to acquire in its stead and assume for it full responsibility for all outstanding obligations which it had been unable to escape by reason of the contractual commitments for materials. This agreement, taken in connection with the one of June 30,1919, of similar import, covered all outstanding obligations for contracted material and resulted in the payment by the defendant of the contract price for all of said material and the delivery of the same to the defendant.
On February 26, 1919, the defendant outlined in a written statement its final proposition with reference to the adjustment and settlement of all outstanding obligations not covered in previous agreements resulting from the cancellation of the original contract. This statement we set out in haeo verba in Finding VII. The plaintiff accepted the terms of this proposition in all its detail except the item of anticipated profits. This single item it declined to accept, con tending for a vastly greater allowance in this one respect. Therefore, we are in this case primarily concerned with this single issue. As to all others, with some rather minor exceptions, the parties have concluded their differences by contract.
The recent case of the Russell Motor Car Co. v. United States, 57 C. Cls. 464; 261 U. S. 514, we think disposes of this issue, and in our opinion disposes of it irrespective of mutual agreements following or preceding cancellation, wherein the item of anticipated profits is left open for decision. That they are not recoverable under the circumstances herein narrated seems obvious. The Supreme Court said, in disposing of the question:
" This contention confuses the measure of damages for breach of contract with the rule of just compensation for the lawful taking of property by the power of eminent domain. In fixing just compensation the court must consider the value of the contract at the time of its cancellation, not what it would have produced by way of profits for the car company if it had been fully performed. It is evident that no prudent person desiring to acquire this contract would have paid for it the full amount which could be realized upon completion, leaving no chance of return to himself upon the investment or for the risk and labor incident to its performance. The contract, we must assume, was entered into with the prospect of its cancellation in view, since the statute was binding and must be read into the contract. The possible loss of profits, therefore, must be regarded as within the contemplation of the parties. The lower court was right in refusing to allow anticipated profits, and there being nothing in the findings to justify the contrary, we must accept the amount fixed on the basis of just compensation as adequate."
As to the other items of expense which the plaintiff incurred, we, in a former opinion, gave judgment therefor. Judgment was awarded upon the only proof in the record then, as it is now, supporting an allowance predicated upon just compensation. We still believe they are allowable and adopt our former comments with respect to the same, as follows:
" The plaintiff rearranged and enlarged its plant for the exclusive purpose of performing this contract. The proof shows it to have cost $1,900, an amount clearly allowable.
An expense of $641.20 was incurred as premium paid for its contract bond. This, too, is allowable.
" The plaintiff purchased a quantity of new machinery to meet the emergencies of this particular contract. It did not otherwise require the machinery, and suffered a proven loss of $600 depreciation thereon. This item will be included in the damages awarded.
" The plaintiff purchased and had delivered to it $44,066.07 worth of materials. In acquiring and handling said materials it is entitled to a reasonable charge. This could not be done free of expense and the defendant conceded in its proffered offer of settlement two (2) per cent of the amount would be reasonable. This, amounting to $881.32, we think allowable. In addition to this, the plaintiff had outstanding subcontracts for material amounting to $108,990.53. All save one of these contracts were cancelled by the plaintiff and the material was not delivered, and hence not handled, but the expense incident to its purchase had been incurred and should be allowed. It was evidently not so expensive as the item above, and a reasonable allowance therefor would, in our opinion, be 1 per centum of the total amount, or $1,089.90."
We have amended the findings and given in Finding X our judgment of the full amount of anticipated profits the plaintiff would have earned if allowed to complete the contract.
The former opinion of the court is withdrawn, and new findings this day filed, awarding judgment to the plaintiff in the sum of $5,112.42.
It is so ordered.
Graham, Judge; Hay, Judge; Dowkey, Judge; and Campbell, Chief Justice, concur.