Case Name: LUCIUS L. GILBERT, TRUSTEE IN BANKRUPTCY OF THE AMERICAN SHIPBUILDING CO., v. THE UNITED STATES
Court: United States Court of Claims
Jurisdiction: United States
Decision Date: 1925-06-22
Citations: 60 Ct. Cl. 1005
Docket Number: No. C-672
Parties: LUCIUS L. GILBERT, TRUSTEE IN BANKRUPTCY OF THE AMERICAN SHIPBUILDING CO., v. THE UNITED STATES
Judges: Graham, Judge, took no part in the decision of this case.
Reporter: United States Court of Claims Reports
Volume: 60
Pages: 1005–1018

Head Matter:
LUCIUS L. GILBERT, TRUSTEE IN BANKRUPTCY OF THE AMERICAN SHIPBUILDING CO., v. THE UNITED STATES
[No. C-672.
Decided June 22, 1925]
On the Proofs
Contract; settlement; cost-plus; cancellation. — Where a settlement contract made on a cost-plus basis is canceled under the act of June 15, 1917, 40 Stat. 182, the contractor is entitled only to compensation for that part of the contract which has been completed.
The Reporter’s statement of the.case:
Mr. Horace 8. Whitman, for the plaintiff. Messrs. Ghal-len B. Ellis and Alexander H. McCormick were on the brief.
Mr. Arthur Oobb, with whom was Mr. Assistant Attorney General Ira K. Wells, for the defendant. Messrs. George D. Brdbson and Geojfrey Goldsmith were on the brief.
The following are the facts as found by the court:
I. Three brothers, S. H. Brown, S. K. Brown, and M. Brown, had been engaged from 1905 to 1917 in the manufacture and export of cross-ties and lumber. In May, 1917, they incorporated, under the laws of the State of Georgia, the American Shipbuilding Company, which had its principal offices in Néw York City. On November 10, 1921, said American Shipbuilding Company, corporation, -was adjudged a bankrupt in the United States District Court for the Southern District of New York, and Lucius L. Gilbert, plaintiff herein, was appointed receiver in bankruptcy by that court, and later trustee in bankruptcy.
■ II. Pursuant to conference with Eads Johnson, a member of the United States Shipping Board, plaintiff company received a letter from said Johnson, dated April 23, 1917, purporting to authorize it to proceed with the construction of two shipways as a preliminary step toward the building of two 3,000-ton, standard design, wooden vessels, .said order to be confirmed by said Shipping Board and superseded by formal contract, and to keep careful account of goods and “ labor and material used that may be chargeable under the contract.”
On May 23, 1917, the district office of the United States Shipping Board, Savannah, Ga., sent to plaintiff company two form letters, as follows:
“ Gentlemen: As the duly accredited representative of the United States Emergency Fleet Corporation, and for that corporation, I hereby authorize you to commence the construction at Brunswick, Georgia, of two standardized type United States Gov; rnment wooden vessels, each of approximately three thousand tons dead weight, according to the United States Government specification.
“ Upon receipt of this letter you are authorized to furnish and equip a shipbuilding plant and yard with all necessary marine ways and machinery, tools, utensils, and material necessary for building said ships, for which the United States Emergency Fleet Corporation will reimburse you in accordance with a contract to be lat"r executed, but "which shall be in accord with’ the terms of this instrument or satisfactory to you.
“ We will reimburse you for all sums expended for labor, both .skilled and unskilled, incidental to the construction of the said ships.
“All reimbursements to be made within thirty days after expenditure, if not then paid to draw — per cent interest.”
“ GeNtlemeN : As the duly accredited representative of the U. S. Shipping Board Emergency Fleet Corporation, and acting for that corporation, I hereby authorize you to begin construction of the two s.ts of ways as the preliminary steps toward entering into a contract for the construction of she two standard three thousand ton cargo vessels for the Ship! ping Board.
“ It is desired that an account be kept of all expenditures of labor and material for the above-mentioned work from this date.”
All the matters set forth in said letters were subsequently covered by formal contracts entered into between the parties.
III. A site for a shipbuilding plant was purchased by plaintiff company at Brunswick, Ga., and work was commenced on the building of the plant. '
On June 26, 1917, a formal contract, No. 24, W. H., was entered into between plaintiff company and the United States Shipping Board Emergency Fleet Corporation, Avhereby the former contracted to build at Brunswick, Ga., four wood hulls for a price of $300,000 each, known as hulls Nos. 187, 188, 189, and 190, which included those mentioned in said letter of May 23, 1917. Said contract also protected the contractor against advance in the prices of materials and labor cost, by a provision for adding same to the contract price.
Said contract provided further:
“ The contractor agrees at its own expense to build for the owner at the works of the contractor aforesaid, under the direction and to the satisfaction of the owner, four ways for said four bulls, and the owner agrees upon completion and acceptance by the owner of each of said ways to pay to the contractor therefor the sum of eight thousand dollars ($8,000). Said ways shall continue to be the property of the owner after the termination of this contract, but may be purchased by the contractor at any time within sixty days after the termination of this contract, at a price to be agreed upon.”
Work on said four vessels and ways was commenced immediately thereafter and continued under said contract until canceled by mutual agreement on August 10, 1918.
Said contract No. 24 W. H. is plaintiff’s Exhibit A to the petition herein, and is by reference made a part of this finding.
IY. On December 19, 1917, a second contract, No. 150 W. H., was entered into whereby plaintiff company quit-claimed certain obligations, as follows:
“Whereas the contractor agrees to maintain, upon a suitable site, a complete shipbuilding plant, including office buildings, shops, building slips, plant equipment and appurtenances, including the arrangement for adequate fire protection, adequate to assure the construction, completion, and delivery of the hulls under the terms and at the times herein provided in this contract; and
“Whereas the contractor claims to have expended certain moneys under authority claimed to have been given by agents of the aforesaid United States Shipping Board Emergency Fleet Corporation; and
“ Whereas the greater part of the aforesaid claim is denied by the United States Shipping Board Emergency Fleet Corporation to be legally chargeable to them under the authority claimed to have been given; and
“ Whereas it is considered desirous for both parties hereto to avoid any and all litigation on account of any and all claims for any such sums which the contractor claims to be due him; and
“Whereas the aforesaid contractor has agreed and does hereby quitclaim the United States Shipping Board Emergency Fleet Corporation of any and all obligations .whatsoever arising or claimed to have arisen under the terms of the authority claimed to have been given by the aforesaid agents; and
“Whereas the United States Shipping Board Emergency Fleet Corporation is willing that the contractor construct four wooden cargo-carrying steamers, and, in consideration of the United States Shipping Board Emergency Fleet Corporation letting such a contract for four (4) wooden cargo-carrying steamers, the contractor is willing and does hereby accept such contract as an accord and satisfaction for any and all obligations of whatsoever nature arising or claimed to have arisen as aforesaid, and does hereby agree to release the corporation from any and all claims for expenditures or otherwise claimed to have been suffered under the supposed authority of the corporation’s agents.”
Under said contract plaintiff company contracted to build at its plant four additional wooden hulls of 3,500 tons, known as Nos. 1008, 1009, 1010, 1011, for a price of $360,000 each.
Said contract No. 150 W. H. is plaintiff’s Exhibit B to the petition herein, and is by reference made a part of this finding.
Y. Work continued under both of the last-named contracts and specifications covered thereby, subject to certain alterations and additions ordered by the Emergency Fleet Corporation. During the progress of the work the price of labor and materials increased, due to the unusual wartime conditions, and plaintiff company found that the cost of the hulls would exceed the contract price. A conference was called at Philadelphia, at which representatives of the Emergency Fleet Corporation and various wood-ship builders throughout the country ivere present, many of whom were in a similar position to that.of plaintiff company with regard to their contracts. M. Brown, representing plaintiff, attended these conferences from the middle of June, 1918, to August 10, 1918.
On August 10, 1918, a new contract was entered into between the Emergency Fleet Corporation and plaintiff company, by which the two former contracts, 24 W. H., of June 26, 1917, and 150 W. H., of December 19, 1917, were canceled, and all obligations mutually settled in the following language:
“Whereas the contractor, by a contract dated June 26th, 1917 (contract No. 24, hulls Nos. 187 to 190, inclusive), agreed to construct for the owner four (4) wooden cargo-carrying hulls, and by a contract dated December 19, 1917 (contract No. 150, W. C. hulls Nos. 1008-1011, inclusive), agreed to construct four (4) wooden cargo-carrying steamers according to the terms and conditions set forth in said contract; and
“Whereas the contractor under the said contracts of June 26, 1917, and December 19, 1917, and in the performance thereof was required by orders from the owner to make certain alterations, additions, and substitutions, for which and additional reasons the contractor alleges it has been damaged and it has suffered losses and has large claims against the owner,'the just and fair settlement of which, it is believed, will be impossible and will lead to dissatisfaction, dispute, and delays as to the said hulls; and
“Whereas it is the desire of both parties to cancel the said two contracts and to settle all claims thereunder, and -by a new contract to provide for completing the work to be done thereunder in order to complete the said hulls, and for separating, so far as possible, the work which is hereafter to be done at the contractor’s yard under this contract from any and all work that may, by a separate contract for installation or in any other manner, be done at the contractor’s yard, and to provide for doing additional work at the owner’s cost:
“Now, therefore, in consi deration, of the compromise settlement of the rights and obligations of tlie parties under said contracts of June 26, 1917, and December 19, 1917, as hereinafter defined, and of the mutual covenants herein contained, it is agreed as follows:
“ I
“ CANCELLATION OF OLD CONTRACT AND SETTLEMENT OE RTGIITS AND OBLIGATIONS THEREUNDER
“(1) The said contracts of June 26, 1917, and Dec. 19, 1917, are hereby canceled.
“(2) The contractor hereby acknowledges complete reimbursement for all expenditures made and full satisfaction of all payments due it under said contracts of June 26, 1917, and Dec. 19, 1917, and/or any order, authorization, agreement, or promise, either verbal or in writing, given or alleged to have been given by the owner or any of its agents or representatives in connection with the said contract or the performance thereof.
“(3) The contractor hereby expressly waives all damages and all claims of every kind and character due it or alleged to be due it under or because of said contracts of June 26, 1917, and Dec. 19, 1917, and/or any transactions which accrued in the performance thereof and hereby releases and discharges the owner from any and all obligations or liabilities under or by reason of said contracts.
“In full payment of contractor’s entire right, title, and interest in said original eight hulls, and for completing the same according to the plans and specifications and in full settlement of all claims, obligations, and liabilities under said contracts of June 26, 1911, and Dec. 19, 1917, and in full for all plant depreciation to date hereof, and in full payment for all profit under said contracts, the owner will pay to the contractor:
“(1) The sum of $15,000 per hull for each of the said original eight hulls, being built under contracts of June 26, 1917, and Dec. 19, 1917 (the installation covered under contract of Dec. 19, 1917, being hereby canceled and abandoned so far as the parties hereto are concerned under this contract) , to be paid by the owner to the contractor as to each hull if and when the same is completed, delivered to, and accepted by the owner.”
The parties further expressly provided in Article XXXIII of said contract:
“All conversations, correspondence, understandings, and agreements of every kind heretofore had or alleged to have been had between the parties or any of their representatives, whether verbal or in writing, it is agreed are embodied in this contract, which is now the one and only agreement between the parties with reference to the subject matter.”
Plaintiff company by said contract undertook to complete the eight hulls provided for by said two canceled contracts, for actual cost from the beginning of their construction and all subsequent costs, all such costs to be as defined in the contract, plus a fixed fee of $15,000 per hull; and further undertook to build two additional hulls, Nos. 2627 and 2628 (making a total of 10 hulls), upon the same basis. This cost-plus contract, known as W. H. 477, is plaintiff’s Exhibit C to the petition herein, and is by reference made a part of this finding. Said contract was denominated by both parties as a cancellation and settlement contract.
VI. On the same date, August 10, 1918, a second contract, known as machinery installation contract No. 32, was entered into, by which plaintiff company contracted to install all of the machinery in six of the wooden hulls then under construction by it, for which the Emergency Fleet Corporation agreed to pay the plaintiff company $12,500 plant ex tension charges upon each ship and $5,000 profit upon each ship, in addition to the actual cost of installing the machinery, which was to be furnished by the Emergency Fleet Corporation.
Said M. I. contract No. 32 is plaintiff’s Exhibit D to the petition herein and is by reference made a part of this finding.
VII. On September 16,1918, another contract was entered into, whereby plaintiff company contracted to install machinery in a concrete hull then being constructed at another shipyard in Brunswick, Ga., for which the Emergency Fleet Corporation agreed to pay plaintiff company $15,00.0 for overhead and plant extension and a profit of $7,500, in addition to the cost of installing machinery which was furnished by the Emergency Fleet Corporation. This contract was completed, and there is a balance due plaintiff company upon the same of $2,323.34.
Said contract is known as No. 38 M. H., is plaintiff’s Exhibit 12, and is by reference made a part of this finding.
VIII. On January 27, 1919, the Emergency Fleet Corporation issued an order suspending all machinery installation contracts, including said M. I. No. 32.
IX. Thereafter, on the 7th day of February, 1919, there being some dispute between the plaintiff company and the Emergency Fleet Corporation as to the state of their accounts, plaintiff company gave a mortgage to the Emergency Fleet Corporation upon its shipbuilding plant to secure two notes, totaling $300,000, for certain advances in the form of payments to be made by the Fleet Corporation, not to exceed $300,000, for the American Shipbuilding Company’s outstanding obligations. One of the aforesaid notes was for $125,000, dated February 7,1919, and the other for $175,000, dated March 25, 1919. Only $298,980.30 was actually advanced. Said mortgage is still in full force and effect, and no part of the moneys advanced has been repaid.
X. Plaintiff company completed and delivered to the Emergency Fleet Corporation five of the wooden hulls provided for by contract 477 W. H. Plaintiff received for each of said five hulls a credit of $15,000.
On March 3, 1919, the Emergency Fleet Corporation suspended work on three of the hulls, Nos. 1009,1010, and 1011, under contract 477 W. H., by sending the following telegram:
3-8-19.
AmericaN Shipbuilding Co.,
Brunswick, Ga.:
By direction of the board of trustees you are directed to suspend all work on hulls ten hundred nine, ten hundred ten, ten hundred eleven, contract four seventy-seven stop order all work stopped on commitments made by you as to these hulls and make no further commitments or expenditures as to them stop permission is hereby given you subject to our final approval to solicit and accept domestic work for private account for tonnage substantially equivalent to the tonnage covered by this suspense order stop details follow by letter stop. Piez.
W. M. Sanders,
Acting Manager Division
Cancellations, Adjustments, and Salvage.
On March 25,‘ 1919, contract 477 W. H. was canceled by sending the following telegram:
March 25, 1919.
American Shipbuilding. Co.,
Brunswick, Ga.:
By direction of the board of trustees your contract number four seven seven is hereby canceled as to hulls twenty-six twenty-seven and twenty-six twenty-eight and one naught naught nine, one naught ten, and one naught eleven.
W. M. Sanders,
Acting Manager Division
Cancellations, Adjustments, and Salvage.
Four of the undelivered hulls were in process of construction, one 58% complete, one 47% complete, one 28% complete, and one 3% complete. The fifth vessel was not commenced.
XI. Plaintiff filed its claims with the Emergency Fleet Corporation and later with the United States Shipping Board. Said claims were disallowed, and on March 27,1923, the department of claims, United States Shipping Board, approved said disallowance and sent plaintiff the following letter:
March 29,1923.
AMERICAN Shipbuilding Co.,
Brunswick. Ga.
Gentlemen: Your claims account contracts 24,150, 32 M. I., 38 M. I., and 477 W. H. — our serials 924, 2591, and 2592.
Please be advised that the Shipping Board, in meeting of March 27th, approved the disallowance of the above-mentioned claims in the sum of $1,605,012.31.
We are accordingly closing this case on our records.
Yery truly yours,
(Signed) A. L, Lansdale,
Office Manager, Department of Claims,
United States Shipping Board
Emergency Fleet Gorporation.
XII. On November 19, 1919, the American Shipbuilding Company entered into a contract with the United States Shipping Board Emergency Fleet Corporation whereby the Emergency Fleet Corporation agreed to sell and the American Shipbuilding Company agreed to purchase certain surplus material belonging to the Emergency Fleet Corporation, at the American Shipbuilding Company’s yard, at and for the sum of $100,000. Negotiations were pending between the parties for the settlement of the claims of the American Shipbuilding Company arising out of the cancellation of the contracts with the Emergency Fleet Corporation. Fifty thousand, dollars was made payable May 19, 1920, and $50,000, payable November 19, 1920, without interest. The goods were delivered to the American Shipbuilding Company. Plaintiff company gave the Emergency Fleet Corporation its two notes due on the above dates. Both of said notes are overdue and unpaid.
XIII. An account taken and stated between the parties, as of March 25, 1925, shows that plaintiff is entitled to the following credits:
Actual sliip construction costs_$4, 838, 85S. 41
Construction costs under M. X. contract No. 32_ 75,000.00
Lambright’s salary _ 383.33
Fence construction_ 739.47
Default by paymaster- 274.16
Losses in pay-roll department_ 407. 27
Maintenance and repairs_ 7,225. 50
Dorman compensation_ 1,250. 00
Dredging at plant_ 778.49
Badges- $87. 84
Credit for the amount charged twice against con-tractor_:- 1., 254. 56
Additional credit on machinery installation contract No. 38_ 2, 323.34
Dividend received by defendant from trustee in bankruptcy on mortgage indebtedness- 2,860.49
Interest_ 6, 581. 68
Contractor’s proportionate fees on incompleted ships_ 34,190.00
Total credits due plaintiff company_ 4,972,214. 54
CREDITS DUE DEFENDANT
Advancements under W. H. 477_ 5, 070, 055.36
Advancements under machinery installation contract No. 32 - 73,745.44
Mortgage account, sales of materials to plaintiff, and interest- 535,321.95
Total credits due defendant_ 5, 679,122.75
Deducting credits due plaintiff company_ 4, 972,214.54
Leaving a balance due and owing to defendant of_ 706, 908.21
The court decided that plaintiff was not entitled to recover. Counterclaim allowed.

Opinion:
MEMORANDUM BY THE COURT
The plaintiff's claims, as presented by items in argument, are not stated in itemized form in the petition or in the request for findings of fact.
The petition, as to the major part of the claim, asserts that for the purpose of carrying out the various contracts referred to the American Shipbuilding Company expended in the procurement and erection of plant and plant facilities $569,220.67, and the sum of $5,177,085.86 in the erection of the wooden hulls and other work under said contracts, and that the defendant has paid the American Shipbuilding Company the sum of $4,806,441.69, leaving the sum of $939,-864.84 now due. Two paragraphs follow, in one of which is a demand for $17,448.62, as compensation as purchasing agent for the purchase of materials for other yards, and in the second of which $3,600 is demanded as wharfage. The total demand is $960,913.46, the aggregate of these three amounts.
In his request for findings of fact the plaintiff asks a finding that " The amount expended by the American Shipbuilding Company for special' facilities for the performance of contracts WH-24, WH-150, WIT-477, and Machinery Installment No. 32, together with a lump-sum cancellation allowance to cover incidentals not specifically ascertainable or allowed elsewhere, is $6,176,289.35," as against which it acknowledges payment of $5,143,800.80, leaving a difference of $1,032,488.55. By another request the salvage value of lands and buildings is put at $30,000 and the court is then asked to find that just compensation for the cancellation of the contracts as set forth is $1,032,488.55 less $30,000, a total of $1,002,488.55, with interest from March 25,1919. Against this amount, by the next requested finding, plaintiff concedes an indebtedness to the defendant in the sum of $535,-321.95, leaving a net balance of $828,162.48, to which is added another item conceded to be due plaintiff of $2,323.34, making the total demand $830,485.82. By the items set out in the brief under the head of "Argument " the composition of the sum of $1,032,488.55 is shown.
The items set out by plaintiff as constituting its claim in the aggregate stated do not appear in the request for findings of fact and hence they are not separately treated in the findings as made, except as they enter into the statement of account as between the parties, set out in Finding XIII.
The theory upon which the claim is predicated as presented in oral argument by counsel and evidenced by the detailed discussion of the items in plaintiff's brief is evidently that, by reason of the cancellation of contract WH-477 referred to in Finding V, and being plaintiff's Exhibit C, attached to his petition, the preceding contracts WH-24 and WH-150 were revived as the basis of asserted claims. The averment of the petition above referred to is with reference to " the various contracts hereinbefore referred to," which includes contracts Exhibits A and B. The requested findings refer to expenditures in connection with the performance of the three contracts, Exhibits A, B, and C, and the requested finding on the subject of just compensation is ' predicated upon the cancellation of " contracts " above set forth.
In Finding V there appear liberal quotations from contract WH-477, Exhibit C, which in turn canceled the two preceding contracts, and in language as broad, apparently, as could be commanded, released the United States from all obligations under those contracts. It changed the form of the contractual relation from that of contracts for a lump compensation to a contract upon the cost-plus basis and incorporated therein provision with reference to all of the vessels provided for in the first two contracts.
Contract WH-477, in our opinion, closed the door upon any claims rising under the two preceding contracts, and its cancellation did not revive the earlier contracts as the basis for the assertion of any claims. The findings show the procedure in connection with the cancellation of contract WH-477. The first communication set out with reference thereto indicates a possible intention to suspend work under that contract under the provisions contained therein, but this was followed by a notice of cancellation. It has been settled that the provisions of the act of June 15, 1917, authorizing the cancellation of contracts of this character are to be read into the contract ,(Russell Motor Car Company, 57 C. Cls. 464, 261 U. S. 514), and the contract WH-477 is to be regarded as canceled under the authority of that act.
The rule of just compensation as laid down in the Russell Motor Car Company case, and also in the Meyer Scale & Hardware Company case (57 C. Cls. 26), is not applicable here since this contract was upon a cost-plus basis. The compensation to the plaintiff was a fixed sum for each vessel completed. Plaintiff received proper credit for the five completed vessels, and in the statement of account, set,out in Finding XIII, he has been allowed the proportionate part of the compensation f<3r the uncompleted vessels to which it is determined he is entitled.
There is a counterclaim upon which the defendant is con-cededly entitled to recover, the only question being as to the exact amount, and the only practicable way to reach a conclusion as to the state of the mutual accounts between the parties is to state them as set out in Finding XIII. Upon this statement, without reviewing it in detail, which seems wholly unnecessary, it is found that there is due the United States from the plaintiff the sum of $706,908.21, and judgment will accordingly be directed upon the counterclaim for that amount.
Graham, Judge, took no part in the decision of this case.