Case: FRUHAUF SOUTHWEST GARMENT CO. v. THE UNITED STATES
Abbreviation: Fruhauf Southwest Garment Co. v. United States
Decision Date: 1953-05-05
Docket Number: No. 49239
Citation: 126 Ct. Cl. 51
Volume: 126
Reporter: United States Court of Claims Reports
Court: United States Court of Claims
Jurisdiction: United States
Parties: FRUHAUF SOUTHWEST GARMENT CO. v. THE UNITED STATES
Judges: Howell, Judge; MaddeN, Judge; Whitaker, Judge; and JoNes, Chief Judge, concur.
Pages: 51–76

Head Matter:
FRUHAUF SOUTHWEST GARMENT CO. v. THE UNITED STATES
No. 49239.
Decided May 5, 1953.
Plaintiff’s motion for rehearing and a new trial overruled October 6, 1953.
Mr. Mem H. Walls for the plaintiff.
Mr. Thomas H. MoGrail, with whom was Mr. Assistant Attorney General Holmes Baldridge, for the defendant.
Plaintiff’s motion for reconsideration of motion for rehearing, new trial or to alter or amend judgment overruled January 5, 1954.

Opinion:
Littleton, Judge,
delivered the opinion of the court:
The plaintiff, a Kansas corporation with its place of business at Wichita, Kansas, seeks to recover the sum of $48,560.00 alleged to be the difference between the amount paid by the defendant to the plaintiff and the amount due plaintiff under a contract whereby the plaintiff manufactured overcoats for the United States Army.
On June 28, 1946, the plaintiff and the defendant, acting through its Quartermaster Corps, War Department, entered .into this contract by which the plaintiff agreed to manufacture and deliver to the defendant 30,000 overcoats, with removable liners, at a unit price of $19.25 for a total sum of $577,500 with monthly deliveries scheduled from February through December 1947.
In so far as applicable here, the contract provided in part as follows:
14. KevisioN of peige: [Supplementary Contract Provisions].
(a) The prices fixed herein may be increased or decreased in accordance with this Article.
(b) Times f or negotiation. — (1) Upon completion of delivery of thirty percent (30%) of the items to be furnished under this contract, the parties shall negotiate to revise the prices of all items theretofore and thereafter to be delivered. Within 5 days after the completion of delivery of said thirty percent (30%) the Contractor shall furnish to the Contracting Officer the statements and data referred to in paragraph (c) of this Article. At any time and from time to time after the completion of delivery of said thirty percent (30%),.subject to the limitations specified in this Article, either the Government or the Contractor may deliver to the other a written demand that the parties negotiate to adjust the prices under this contract. No demand shall be made prior to 90 days after the completion of delivery of said thirty percent (30%) and thereafter neither party shall make a demand having an effective date within 90 days of the effective date of any prior demand, provided, however, that this limitation shall not be applicable ,in the event that during any 90-day period the War Labor Board or any similar Government agency shall authorize or order a change in wages, salaries or conditions of employment in the plants of the Contractor used in the performance of this contract. Each demand shall specify a date (identical with or subsequent to the date of the delivery of the demand) as of which the revised prices shall be effective as to the deliveries made thereon and thereafter. This date is hereinafter referred to as "the effective date of the price revision." For the purposes of the first negotiation contemplated by this paragraph, the date of execution of this contract shall be deemed to be the effective date of the price revision. Any demand under this Article, if made by the Contractor, shall state briefly the ground or grounds therefor and shall be accompanied by the statements and data referred to in paragraph (c) of this Article. If the demand is made by the Govern- . mént, such statements and data will be furnished by the Contractor within 30 days of the delivery of the demand.
(c) Submission of data. — At the time or each of the times specified or provided for in paragraph (b) of this Article the Contractor shall submit (i) a new estimate and breakdown of the unit cost and the proposed prices of the items remaining under this contract after the effective date of the price revision, itemized so far as is practicable in the manner prescribed by War Department Standard Procurement Form No. 3; . (ii) an explanation of the differences between the original (or last preceding) estimate and the new estimate; (iii) such relevant shop and engineering data, cost records, overhead absorption reports and accounting statements as may be of assistance in determining the accuracy and reliability of the new estimate; (iv) a statement of experienced costs of production hereunder to the extent that they are available at the time or times of the negotiation of the revision of prices hereunder; and (v) any other relevant data usually furnished in the case of negotiation of prices under a new contract. The Government may make such examination of the Contractor's accounts, records and books as the Contracting Officer may require and may make such audit thereof as the Contracting Officer may deem necessary.
(d) Negotiations. — (1) Upon the filing of the statements and data required by paragraph (c) of this Article, the Contractor and the Contracting Officer will negotiate promptly in good faith to agree upon prices for items, to be delivered on and after the effective, date of the price revision. Negotiations for price revisions under this Article shall be conducted on the same basis, employing the same types of data (including, without limitation, comparative prices, comparative costs, and trends thereof) as in the negotiation of prices under a new War Department contract.
(2) After each negotiation the agreement reached will be evidenced by a supplemental agreement stating the revised prices to be effective with respect to deliveries on and after the effective date of the price revision (or such other later date as the parties may fix in such supplemental agreement).
(e) Disagreements. — If within 30 days after the date on which the statements and data are required pursuant to paragraph (b) of this Article to be filed (or such further period as may be fixed by written agreement) the Contracting Officer and the Contractor fail to agree to revised prices, the failure to agree shall be deemed to be a disagreement as to a question of fact which shall be disposed of in accordance with Article entitled "Disputes," and the prices so fixed shall remain in effect for the balance of the contract notwithstanding any other provision of this Article.
(f) Payments. — Until new prices shall'become effective in accordance with this Article, the prices in force at the effective date of the price revision shall be paid upon all deliveries, subject to appropriate later revision made pursuant to paragraph (d) or (e) or (h) (2) (B) of this Article.
ARticle 16. Disputes. — Except as otherwise specifically provided in this contract, all disputes concerning questions of fact which may arise under this contract, and which are not disposed of by mutual agreement, shall be decided by the Contracting Officer, who shall mail to the Contractor a written notification of his determination. Within 30 days from said mailing the Contractor may appeal to the Secretary of War, whose decision shall be final and conclusive upon the parties. Pending decision of a dispute hereunder the Contractor shall diligently proceed with the performance of this contract.
On November 27,1946, at the request of defendant's contracting officer, the parties executed a supplementary agreement wherein the unit price was reduced to $18.50. This price revision was accomplished before any labor was commenced or work performed under the contract.
The plaintiff's entire operation under the contract was financed by the Union National Bank of Wichita, Kansas. '.As of late November and early" December 1946; the plaintiff had loans from this bank which'established a revolving line of credit in the total sum of $200,000 at 4 percent interest. Two separate loans were involved, each in the amount of $100,000 both of which were payable one year after date. To secure payment, the plaintiff gave its promissory notes and a chattel mortgage covering all of its machinery, equipment, furniture and fixtures, and assigned its accounts receivable and all money due and to become due the plaintiff under its contract with the defendant, and further secured the bank by assignment of-warehouse receipts on all of its raw materials and finished goods.
On June 4, 1947, the plaintiff was instructed by the defendant to submit to the contracting officer the cost data required to be furnished under paragraph (c) of the Revision of Price article, supra. On June 18,1947, after the plaintiff had delivered 30 percent of the overcoats, it submitted to the defendant its schedules of experienced costs to May 31,1947, a profit and loss statement and other pertinent data required as.a preliminary to a demand under paragraph (b); to negotiate a price revision. The plaintiff accompanied this information with a proposal that the unit price of $18.50 remain unchanged for the balance of the contract quantity. Requests for further information in relation to its costs were made on the plaintiff by the defendant on July 7, August 4, and September 9, in 1947. The plaintiff supplied the information requested on those dates.
By letter of September 18, 1947, the contracting officer wrote to the plaintiff, in part, as follows:
In connection with the revision of price clause in your contract, either the Government or the contractor may deliver to the other a written demand that the parties negotiate to adjust price under this contract, 90 days after the submission of the first demand.
It is requested that you furnish this office with a new post breakdown. The effective date of this new demand shall be 13 September 1947.'
Thé plaintiff supplied the information desired by this request on October 20, 1947, which included á schedule of its' experienced costs, through September 30, 1947. These figures contihued to Support the original contract-price, as modified, Of $18.50 per overcoat. ' .On Qcjtober 23, 1947, the plaintiff's secretary-treasurer, went to;New York to negotiate for a revision of .the unit price. The plaintiff's agent failed to see the contracting officer but met with three of his representatives. His efforts to discuss the plaintiff's cost figures with them were unsuccessful^ and they offered the price of $14 per-unit based entirely on the costs., of another manufacturer. The plaintiff refused to agree to this price. The Government representatives countered with the proposition that the price would go to $15 per unit' if the plaintiff would accept settlement immediately. The plaintiff again refused, and the Government representatives then stated that the unit price would be determined by unilateral action of the contracting officer. On October 28,1947, the contracting officer took such action setting' the price at $14 per unit. This figure was based upon the experienced costs of another manufacturer whose operations were not comparable to those of the plaintiff. On this same date the defendant stopped-making payments on the deliveries of overcoats by the plaintiff.-
The stoppage of payments and proposed price reduction to $14-alarmed the bank officials in Wichita since the plaintiff as of October 31 was still indebted to the bank in the amount of $90,12.5. ; At-the price off$14 per unit it became apparent that the'plaintiff would not receive sufficient proceeds front the contract to pay its operational expenses and repay the loans. At this point' the bank requested' additional security from the plaintiff, stating that further funds would not- be advanced and advised that legal -steps would be taken to collect on the- loan agreements if payment was not made on the due. dates -in late November and early December of that year.. The plaintiff within a few days requested and received permission from the contracting officer relative- to. a reconsideration of the price determination of $14 per garment.- -About.November 10, 1947,-the plaintiff's president and secretary-treasurer met with the Commanding Officer of the New York Quartermaster Purchasing Office, hereinafter referred to as the commanding officer. Several civilian employees of the defendant:were-present but the contracting officer was not present. No examination of the plaintiff's cost data was made at this conference and the defendant's representatives continued to assert that plaintiff's costs were higher than those of other manufacturers. No new price determination was made at that time although the Commanding Officer agreed to release the sum of $10,000 per week to enable the plaintiff to meet its payrolls.
On November 21, 1947, the contracting officer issued an amended unilateral finding setting the unit price at $15.
This price of $15 per unit did not placate the bank. Shortly after November 21, the bank officials notified the plaintiff that no more funds would be supplied and demanded payment of the loan obligation then due. Plaintiff replied that it would appeal the ruling of the contracting officer, but the bank officials stated that they would not wait for such a determination nor would the bank extend the date of payment of the obligations. Despite this notification, the bank did reconsider and allowed a one month extension on the notes.
On December 16,1947, the plaintiff filed its appeal with the Secretary of War from the determination of the contracting officer which fixed the unit price at $15.
On December 31, 1947, the plaintiff's president and vice-president, at their request, met with the commanding officer, several other employees of the defendant, and the contracting officer. The plaintiff explained its financial condition involving its problem with the bank, relating that its purpose in desiring the conference was to avoid bankruptcy. After the defendant's representatives had first met with the officers of the plaintiff, the latter were asked to withdraw from the conference room so that the defendant's representatives could talk the situation over among themselves. The defendant's cost accountants asserted that on the basis of plaintiff's cost data to May 31, 1947, the highest unit price that they could recommend was $16.31. The defendant's conferees then decided that a possible settlement range could be supported somewhere between $16.31 and $16.90 which after further discussion narrowed to $16.55 and $16.75. From that basis of agreement a final figure of $16.66% per unit, hereinafter referred to as $16.67, was decided upon and offered to the plaintiff. After first calling the bank in Wichita, the plaintiff's president accepted this figure. A supplemental agreement was then executed by the parties which contained the following clause:
The contractor hereby represents that it has withdrawn its appeal of 16 December 1947 to the Secretary of War and further agrees to accept the unit price of $16.66% as full and final settlement under the "Revision of Price" article of subject contract.
On January 5, 1948, the plaintiff by letter withdrew its appeal relative to the $15 per unit determination.
The plaintiff delivered to the defendant 30,000 overcoats under the contract, for which it received payment at the unit price of $16.67 for a total sum of $500,000.
The parties stipulated that plaintiff's statements of experienced costs to May 31, 1947, and to September 30,1947," are verified and supported by the plaintiff's books and records of account. Based on these figures (See finding 28) the adjusted unit cost as of September 30, 1947, would be $16.31. By applying a 10 percent profit to this figure the revised price would be $17.94.
The plaintiff maintains that it is entitled to the full contract price of $18.50 per overcoat for the 18,500 coats delivered by September 13,1947, and to the difference between $16.67 and $17.94 (approx. $1.27) on each of the remaining 11,500 garments delivered under the contract.
We will first consider the question as to the plaintiff's claim for $18.50 for each of the 18,500 overcoats delivered through September 13,1947.
The plaintiff bases its claim for the price of $18.50 for the first 18,500 overcoats on the premise that the $18.50 as the existing unit price was to remain in effect under paragraphs (b) and (d) (2) of Article 14, and the first supplementary price agreement of November 27, 1946, until the parties took action upon a demand thereafter to revise it. This the plaintiff contends began with the contracting officer's letter (revision of price demand) of September 18, 1947. The revised price then was not finally determined until the second supplemental agreement of December 31, 1947, was executed. This set the price at $16.67 which, in conformity with the contracting officer's letter of, September 18, was effective as of September 13, 1947. The- plaintiff insists that this September 18 demand of the contracting officer.was the second demand .and negotiation of a .price revision, and. while admitting, that the first such action occurred on June 4,1947, upon delivery of 30 percent of the overcoats- and request for cost data, etc., it is the plaintiff's position that this first effort was abandoned by the contracting officer. Plaintiff points to the language of the September 18-letter as indicating that this was so, since it refers to that part of the contract which gives a party the right to request a price adjustment 90 days after the first demand. Thus, the plaintiff asserts the price of $18.50 remained in effect by reason of the supplemental agreement of November- 27, 1946, until the effective date of second demand which was September 13,1947.
Defendant contends that the first demand and action of the contracting officer under Article 14 for a price revision negotiation occurred on June 4, 1947, and that the price revision negotiations were in reality a continuing operation from that date until the execution of the December 31,1947, supplemental agreement. ' Defendant,points to the requests given to the plaintiff for additional information of July 7, August 4, and September 9,1947, in support of its contention that the efforts toward a price revision, which began on Juné 4, had not come to an end at any time prior to the demand sef forth in the September 18 letter.-
We hold upon the facts that the efforts toward a price revision began on June 4, 1947, when the contracting officer first wrote to the plaintiff requesting its cost data and that the negotiations for revision of price pursuant to the demand of September 18j 1947, continued through to the December 31, 1947, agreement. All these requests for information and cost data were a part of a continuing effort on the part of the contracting officer to obtain from the plaintiff the needed information relative to a price revision. Although no evidence was introduced as to the defendant's requests of July 7, August 4, and September 9, the plaintiff in its petition stated that requests were made on those dates and complied with. The plaintiff is bound by such allegations. Scott v. Com missioner, 117 F. 2d 36, 40. We look upon tbe September 18 letter as nothing more than one more such request: By asking that a new cost breakdown be supplied as of a new date, the contracting officer was apparently seeking figures through another date in order that a comparison'with the figures of the earlier period could be made.
Paragraph (c) (2) of the Revision of Price article in the' contract supports this result. There it was stated that "after each negotiation the agreement reached will be evidenced by a supplemental agreement." Prior to September' 18, 1947, no agreement had been reached by the parties under Article 14, based upon 30 percent completion of the contract and cost data required by paragraph (c). We are of the opinion that there was no such agreement within the contemplation of Article 14, until December 31,1947.
The final question is whether the supplemental agreement of December 31,1947, which established a revised unit price of $16.67 is binding on the plaintiff. It is the plaintiff's position that this agreement is voidable on its part because it was forced under economic duress to accept it. The plaintiff contends that it was placed in the position of having to accept the $16.67 figure because of dire financial straits which it alleges were caused by what it terms the arbitrary and unreasonable acts of the contracting officer in establishing the unit prices of $14 and $15 on October 28, and November 21, 1947, respectively. Plaintiff further- asserts that it is not now estopped to question the validity or binding effect of the supplemental agreement of December 31, 1947, on the grounds that it did not first appeal to the Secretary of War. It points out that by the very terms of the Disputes clause of the contract (Article 16) no such appeal was provided for if the parties entered into a mutual agreement.
Defendant contends (1) that the plaintiff did not enter into the supplemental agreement under legal duress because the plaintiff's financial condition was of its own making after the original contract Was made, and created circumstances for which the defendant could not be held accountable in connection with the assertion of its contractual rights under Article 14, and (2) that even if the plaintiff did find itself to, a certain extent under-ecónomic'duress, it may not now attack the validity of the supplemental agreement since it failed to repudiate it and appeal to the Secretary of War, as provided in Article 16 of the contract.
The law of duress has broadened somewhat during recent years making it virtually impossible to arrive at. any clear-cut definition, and the courts have stated that its application must of necessity depend upon the circumstances of each individual case. Morrill v. Amoskeag Sav. Bank, 9 Atl. 2d (N. H.) 519, 524. An examination of the cases, however, makes it clear that three elements are common to all situations where duress has been found to exist. These are: (1) that one side involuntarily accepted the terms of another; (2) that circumstances permitted no other alternative; and (3) that said circumstances were the result of coercive acts of the opposite party. United States v. Bethlehem Steel Corp., 315 U. S. 289, 301; French v. Schoemaker, 14 Wall. (US) 314, 332. In order to substantiate the allegation of economic duress or business compulsion, the plaintiff must go beyond the mere showing of a reluctance to accept and of financial embarrassment. There must be a showing of acts on the part of the defendant which produced these two factors. The assertion of duress must be proven to have been the result of the defendant's conduct and not by the plaintiff's necessities. In Du Puy v. United States, 67 C. Cls. 348, 381, this court stated:
In order to successfully defend on the ground of force or duress, it must be shown that the party benefited thereby constrained or forced the action of the injured party, and even threatened financial disaster is not sufficient.
It has become settled law that the mere stress of business conditions will not constitute duress where the defendant was not responsible for those circumstances. Lawrence v. Muter Co., 171 F. 2d 380, 382, cert. den., 337 U. S. 907; Silliman v. United States, 101 U. S. 465, 471.
The plaintiff was operating under financial conditions which did not allow for the delay in payment inherent in negotiations for a price revision. The plaintiff's officials knew at the time the loans were obtained that a redetermination of the price would in all probability be made. Wide differences of opinion between the parties as to just what weight should be given certain factors in determining that new price was not to be unexpected. The contract provided, by appeal to the Secretary of War, a remedy for any dissatisfaction which the contractor might have. The plaintiff was unable to. avail itself of that procedure because of financial arrangements which were of its own creation.
While it appears that the plaintiff reluctantly and perhaps involuntarily accepted the $16.67 price because circumstances under which it was operating its business permitted no other alternative, we do not look upon the prior price determinations of the contracting officer of $14 and $15 per unit, even though they may have been arbitrary, as constituting coercive acts upon the part of the defendant. Following each of these determinations the plaintiff requested and was granted a rehearing and reconsideration, although the defendant's representatives could have denied' such requests and left the plaintiff to its remedy under the contract which was an appeal to a higher administrative authority. Such consideration on the part of the defendant's agents hardly lends itself to a finding of coercion.
The plaintiff in both its brief and oral argument laid great stress on Shewan & Sons v. United States, 73 C. Cls. 49, as controlling here on the question of duress. We find that case to be distinguishable on its facts from the instant case and a review of it is unnecessary here. We conclude that further discussion of plaintiff's claim of duress is unnecessary in view of the circumstances of .the case and the provisions of Article 16 of the contract.
If plaintiff did not act under such duress as would invalidate the agreement, and we believe that it did not, then the supplemental agreement with its unit price of $16.67 is valid, and the plaintiff is bound by its terms. If on the other hand, the plaintiff accepted the $16.67 figure under duress, as it contends, then no mutual agreement as contemplated by Article 16 of the contract ever existed.
Article 16 of the contract provided in part:
all disputes concerning questions of fact which may arise under this contract, and which are not (disposed of by mutual agreement, shall be decided by the Con- trading Officer-, who shall mail * . Within 30 days from said mailing the Contractor may appeal to the Secretary of War . (Italics ours.)
The plaintiff contends that under the italicized clause set out in Article 16-above, no appeal is provided for where the parties enter into a mutual agreement as distinguished from a unilateral decision of the contracting officer.' The plaintiff, in -order to avoid the effect- of Article 16, asserts that a mutual agreement was entered into here, and then proceeds in an attempt to avoid the binding effect of such agreement. •The-defendant, while not discussing directly the interpretation of Article 16, contends that the plaintiff should have appealed to the Secretary of War on the basis of the validity of the supplemental agreement and having failed to do so, it is now estopped to question the binding effect thereof.
The plaintiff is correct in its contention that the language of Article^ 16 excluded an appeal to' the Secretary of War if the parties entered into a mutual agreement. That is a logical result since the very purpose of such an'agreement would be to eliminate the need' or necessity for an appeal. However, if the plaintiff entered into this supplemental agreement under duress, as it contends, then we are unable to accept the plaintiff's further contention that.- a mutual agreement, as contemplated by Article 16, was executed.
Duress involves a step beyond mere illegality and -implies that a person has been unlawfully constrained or compelled by another to perform an act- under circumstances which prevent the exercise of free will. Bartlett v. Richardson, 161 N. E. 403, 405; 27 Ohio 263. It is because of the absence of this element of free will that the courts will refuse to enforce contracts where duress is' shown to exist. Mutual assent on the part of both parties is essential to the creation of any binding agreement. Monroe v. United States, 35 C. Cls. 199, 206; aff'd., 184 U. S. 524; Restatement of Contracts, Sec. 3. When assent is lacking on the part of one side, we have nothing more than the acceptance by one party of the views of another.' If -the plaintiff acted under duress in- executing the supplemental agreement then what resulted was no different than a unilateral decision of the: contracting officer. - What was incorporated into the agreement was not a compromise; but was merely the plaintiffs unwilling adherence to a decision of the defendant's authorized agent;
' From that decision the only avenue of relief was by an appeal to the -Secretary of War. That such an appeal is a prerequisite to seeking redress in the courts is made certain in United States v. Blair, 321 U. S. 730, 736. That case presented a situation wherein the contractor sought to by.pass the appeal provisions' of his contract, because the contracting officer, while agreeing with plaintiff, refused to take proper action or to make a written finding and decision. The Court in rejecting the contractor's contention and claim stated:
Even if the conduct of the Government superintendent or contracting officer, or their assistants, was so flagrantly unreasonable or so grossly erroneous as to imply bad faith, the appeal provisions of the contract must be exhausted before relief is sought in the courts.
The position of the Court in the Blair case, sufra, was reiterated in the later case of United States v. Holpuch Co., 328 U. S. 234, 240. As pointed out in both cases the only relief from this rule is a showing that the appeal procedure is inadequate or unavailable. There is no such showing here.'
Upon the facts and under the provisions of the contract in this case the plaintiff is not entitled to recover and its petition is dismissed. It is so ordered.
Howell, Judge; MaddeN, Judge; Whitaker, Judge; and JoNes, Chief Judge, concur.
FINDINGS OF FACT
The court makes findings of fact, based upon the evidence, the report of Commissioner Eoald A. Hogenson, and the briefs and argument of counsel, as follows:
1. The plaintiff is a Kansas corporation with its place of business at Wichita, Kansas.
2. On June 28,1946, the plaintiff and the defendant, acting through its Quartermaster Corps, War Department, entered into Contract No. W 30-280 qm-2755, by which the plaintiff agreed to manufacture and deliver to the defendant 30,000 overcoats, field, O. D.-7, with removable liners, at a unit price of $19.25 for the total sum of $577,500.00, with monthly deliveries scheduled from February through December 1947.
3. The contract provided in part as follows:
14. RevisioN of price: [Supplementary Contract Provisions.]
(a) The prices fixed herein may be increased or decreased in accordance with this Article.
(b) Times for negotiation. — (1) Upon completion of delivery of thirty percent (30%) of the items to be furnished under this contract, the parties shall negotiate to revise the prices of all items theretofore and thereafter to be delivered. Within 5 days after the completion of delivery of said thirty percent (30%) the Contractor shall furnish to the Contracting Officer the statements and data referred to in paragraph (c) of this Article. At any time and from time to time after the completion of delivery of said thirty percent (30%), subject to the limitations specified in this Article, either the Government or the Contractor may deliver to the other a written demand that the parties negotiate to adjust the prices under this contract. No demand shall be made prior to 90 days after the completion of delivery of said thirty percent (30%) and thereafter neither party shall make a demand having an effective date within 90 days of the •effective date of any prior demand, provided, however, that this limitation shall not be applicable in the event that during any 90-day period the War Labor Board or any similar Government agency shall authorize or order a change in wages, salaries or conditions of employment in the plants of the Contractor used in the performance of this contract. Each demand shall specify a date (identical with or subsequent to the date of the delivery •of the demand) as of which the revised prices shall be effective as to the deliveries made thereon and thereafter. This date is hereinafter referred to as "the effective date of the price revision." For the purposes of the first negotiation contemplated by this paragraph, the date of execution of this contract shall be deemed to be the effective date, of the price revision. Any demand under this Article, if made by the Contractor, shall state briefly the ground or grounds therefor and shall be accompanied by the statements and data referred to in paragraph (c) of this Article. If the demand is made by the Government, such statements and data will be furnished by the Contractor within 30 days of the delivery of the demand.
(c) Submission of data. — At the time or each of the times specified or provided for in paragraph (b) of this Article the Contractor shall submit (i) a new estimate and breakdown of the unit cost and the proposed prices of the items remaining under this contract after the effective date of the price revision, itemized so far as is practicable in the manner prescribed by War Department Standard Procurement Form No. 3; (ii) an explanation of the differences between the original (or last preceding) estimate and the new estimate; (iii) such relevant shop and engineering data, cost records, overhead absorption reports and accounting statements as may be of assistance in determining the accuracy and reliability of the new estimate; (iv) a statement of experienced costs of production hereunder to the extent that they are available at the time or times of the negotiation of the revision of prices hereunder; and (v) any other relevant data usually furnished in the case of negotiation of prices under a new contract. The Government may make such examination of the Contractor's accounts, records and books as the Contracting Officer may require and may make such audit thereof as the Contracting Officer may deem necessary.
(d) Negotiations. — (1) Upon the filing of the statements and data required by paragraph (c) of this Article, the Contractor and the Contracting Officer will negotiate promptly in good faith to agree upon prices for items to be delivered on and after the effective date of the price revision. Negotiations for price revisions under this Article shall be conducted on the same basis, employing the same types of data (including, without limitation, comparative prices, comparative costs, and trends thereof) as in the negotiation of prices under a new War Department contract.
(2) After each negotiation the agreement reached will be evidenced by a supplemental agreement stating the revised prices to be effective with respect to deliveries on and after the effective date of the price revision (or such other later date as the parties may fix in such supplemental agreement).
(e) Disagreements. — If within 30 days after the date on which the statements and data are required pursuant to paragraph (b) of this Article to be filed (or such further period as may be fixed by written agreement) the Contracting Officer and the Contractor fail to agree to revised prices, the failure to agree shall be deemed to be a disagreement as to a question of fact which shall be disposed of in accordance with Article entitled "Dis putes," and the prices so fixed shall remain in effect for the balance of the contract notwithstanding any other provision of this Article.
(f) Payments. — Until new prices shall' become effective in accordance with this Article, the prices' in force at the effective date of the price revision shall be paid upon all deliveries, subject to appropriate later revision made pursuant to paragraph (d) or (e) or (h) (2) (B) of this Article.
ARticle 16. Disputes. — Except as otherwise specifically provided in this contract, all disputes concerning questions of fact which may arise under this contract, and which are not disposed of by mutual agreement, shall be decided by the Contracting Officer, who shall mail to the Contractor a written notification of his determination. Within 80 days from said mailing the Contractor may appeal to the Secretary of War, whose decision shall be final and conclusive upon the parties. Pending decision of a dispute hereunder the Contractor shall diligently proceed with the performance of this contract.
4. On November 27, 1946, at the request of defendant's contracting officer and by supplementary written agreement designated as Modification C, the parties reduced the unit price of the overcoats to $18.50 and the total consideration to $555,000.00, with the Kevision of Price article remaining unaffected and continuing in full force and effect. This price revision was accomplished before any labor was commenced or performed under the contract.
5. In order to obtain the necessary funds to meet its manufacturing requirements under the contract, the plaintiff procured two loans from the Union National Bank of Wichita, Kansas, one for a revolving line of credit of $100,-000.00 covered by an agreement dated October 11, 1946, amended November 30, 1946, and another for an additional line of credit for $100,000.00 covered by an agreement dated November 29, 1946. These loans were payable on or before one year after date, with interest at 4 percent per annum; To secure payment, the plaintiff gave its promissory notes and a chattel mortgage covering all of its machinery, equipment, furniture and fixtures, and assigned its accounts receivable and all monies due and to become due the plaintiff under its contract with the defendant, and further secured the bank by assignment of warehouse receipts on all of its raw materials and finished goods.
6. On June 4, 1947, the plaintiff was instructed by the defendant to submit to. the contracting officer the cost data required to be furnished under paragraph (c) of the Revision of Price article.
On June 18,1947, after the plaintiff had delivered 30 percent of the overcoats, the plaintiff submitted its schedules of experienced costs to May 31,1947, a profit and loss statement, and other pertinent data and information required to negotiate a price revision, with a written proposal that the unit price of $18.50 remain unchanged for the balance of the contract quantity. Defendant made further requests for information on the plaintiff on July 7, August 4, and September 9, in 1947, with which the plaintiff complied.
7. In its schedule of experienced costs to May 31,1947, the plaintiff stated its unit cost per overcoat was $17.6287, leaving $0.8713 for operating profit to make up the existing unit price of $18.50.
8. By letter .dated September 18, 1947, the contracting officer wrote the plaintiff in part as follows:
In connection with the revision of price clause in your contract, either the Government or the contractor may deliver to the other a written demand that the parties negotiate to adjust price under this contract, 90 days after the submission of the first demand.
It is requested that you furnish this office with a new cost breakdown. The effective date of this new demand shall be 13 September 1947.
9. Prior to September 18, 1947, the existing unit price of $18.50 had not been revised either by negotiation between the parties or by unilateral action of the contracting officer.
By September 13, 1947, the plaintiff had delivered 18,500 overcoats to the defendant under the contract.
10. On October 20, 1947, the plaintiff submitted to the defendant its schedule of experienced costs to September 30, 1947, a profit and loss statement, and other pertinent cost data. On all of its contract operations to September 30,1947, the plaintiff stated its unit cost per overcoat was $16.73271, leaving $1.76729 for operating profit to make the unit price of $18.50.
11. The plaintiff complied with all requests of the contracting officer for cost data and for additional details in support thereof. The plaintiff fulfilled all of its obligations under the Revision of Price article.
12. On October 23, 1947, the plaintiff sent its secretary-treasurer to New York City to negotiate with the defendant's contracting officer for a revision of the unit price. The plaintiff's agent asked for the contracting officer, but met with three of his representatives, who advised that the contracting officer was busy and could not attend the conference. The plaintiff unsuccessfully attempted to discuss the experienced costs, but the defendant's representatives stated that another manufacturer had produced the overcoat for $14.00 and offered this sum as a unit price to the plaintiff. The plaintiff rejected the offer as being substantially below costs and requested the defendant to negotiate on the cost figures. This was refused, and the plaintiff stated that the $14.00 unit price was unacceptable. The defendant's representatives said that the unit price might go to $15.00 if the plaintiff made settlement right away and if the contracting officer would accept that figure. The plaintiff replied that there was no basis for such a settlement.. The representatives of the contracting officer then stated that the unit price would be determined unilaterally.
13. On October 28, 1947, the contracting officer issued his Finding of Fact and Determination, establishing the unit price at $14.00, effective the date of execution of the contract. This decision was arbitrary in that it was based upon the experienced costs of another manufacturer whose operations were not comparable to those of the plaintiff, and in that it had no reasonable relationship to the plaintiff's experienced costs.
On that date the defendant stopped making payments on deliveries of overcoats by the plaintiff.
14. The plaintiff's financing bank was soon thereafter advised of the reduction of the unit price to $14.00. By virtue of the plaintiff's assignment it had been receiving the payments for deliveries directly from the defendant, and receiving no more, it discovered through the plaintiff that further payments had been stopped.
As of October 31, 1947, tbe plaintiff was indebted to the bank on the revolving loan agreements in the sum of $90,-125.00. It was apparent that the plaintiff would not have sufficient proceéds from the contract at a unit price of $14.00 to pay its operational expenses and repay the loans. The bank proceeded to demand additional security from the plaintiff, stated that further funds could not be advanced, and advised that legal steps would be taken to collect on the loan agreements if payment was not made on the due dates in late November and early December 1947.
15. The plaintiff on November 3, 1947, requested the contracting officer to reconsider the determination made on October 28,1947, and this request was granted on November 4,1947.
16. About November 10,1947, the plaintiff's president and its secretary-treasurer met with Colonel Letcher O. Grice, the commanding officer of the New York Quartermaster Purchasing Office, under whose authority the contracting officer was assigned to the contract between the parties. Several civilian employees of the defendant were present, but the contracting officer was not in attendance. The plaintiff advised that it was without funds to complete the contract or even to meet its next payroll. The plaintiff stated that its books and records were open for inspection and that the accuracy of the cost figures could be established. The defendant's representatives did not then question or examine the cost data previously submitted by the plaintiff, but asserted that plaintiff's costs were higher than those of other manufacturers.
There was no new price determination at that time, although Colonel Grice agreed to release $10,000.00 per week to meet the payrolls until the contract could be finished.
17. On November 21, 1947, the contracting officer issued his Amended Finding of Fact and Determination, establishing the unit price of $15.00, effective the date of the execution of the contract. This decision was arbitrary in that it was based upon the experienced costs of other manufacturers whose operations were not comparable to those of the plaintiff, and in that it had no reasonable relationship to the plaintiff's experienced costs.
18. By November 14, 1947, the defendant had paid to the bank, nnder the plaintiff's assignment, $385,000.00 of the total of $450,000:00 to be paid at the unit price of $15.00, leaving a balance payable of $65,000.00. At that time, the plaintiff was indebted to the bank in the principal sum of $84,500.00, with the plaintiff's operations under the contract scheduled to continue through December 1947.
When the bank was advised of the redetermination of the unit price at $15.00, shortly after November 21, 1947, it promptly communicated with the plaintiff and advised that no more funds would be supplied and demanded payment of the loan obligations. The plaintiff was without funds to complete the contract and attempted to placate the bank and asserted that it would appeal from the ruling of the contracting officer. The bank replied that it could not wait for such a determination and that it would not extend the date of payment of the obligations. However,- a one month extension was granted on each of the notes.
Thereafter, the plaintiff's president went to New -York City and met with the contracting officer, who stated that the price was settled and that the matter was out of his hands.
The plaintiff thereafter requested and Colonel Grice agreed to arrange a conference to discuss the matter further.
19. On December 16, 1947, the plaintiff filed an appeal with the Secretary of War from the determination of the. contracting officer, which fixed the unit price at $15.00.
20. Between November 3,1947, and December 15,1947, the defendant tentatively, withheld, pending price revision, a total sum of $46,933.55 from monies admittedly due, the plaintiff on deliveries of overcoats.
21. On December 31,1947, the plaintiff's president and its vice-president met with Colonel Grice, several other employees of the defendant, and the contracting officer at New York City.- The plaintiff related its financial situation and its problems with the bank,' stated that it was without funds to complete the operations, and that the plaintiff's purpose in the conference was to stave off bankruptcy. There was no examination or consideration of the plaintiff's cost data during the conference between the parties. The defendant again asserted that plaintiff's costs were higher than those of other manufacturers and that settlement had been made with other contractors at a unit price of about $14.00.
Colonel Grice requested the plaintiff's representatives to withdraw from the conference room so that the defendant's representatives could talk the case over among themselves. In the absence of the plaintiff, the defendant's cost accountants asserted that on the basis of plaintiff's cost data to May-Si, 1947, the highest unit price they could recommend was $16.31. The consensus of opinion among the defendant's conferees was that there was a possible settlement range that could be supported between $16.31 and $16.90, narrowed to $16.55 and $16.75 after further discussion. It was then proposed and agreed among the defendant's conferees that the plaintiff be offered $50,000.00 in addition to the $450,000.00 allowed under the unit price of $15.00, which- would fix the Unit price at about $16.67.
Colonel Grice thereupon recalled the plaintiff's representatives and then took plaintiff's president outside the conference room and offered him an additional $50,000.00 on condition that the appeal be withdrawn and the deal closed right then and there. The Colonel insisted upon an immediate decision, but the plaintiff's president requested and was granted time to call the bank and his secretary-treasurer at Wichita. Thereupon, the plaintiff's president returned to Colonel Grice and accepted the $50,000.00 proposal.
22. Under date of December 31, 1947, the contracting officer issued and the plaintiff accepted Modification E of the contract. This provided in part as follows:
The contractor hereby represents that it has withdrawn its appeal of 16 December 1947 to the Secretary of War and further agrees to accept the unit price of $16.66% as full and final settlement under the "Revision of Price" article of subject contract.
By letter dated January 5, 1948, the plaintiff wrote the Board of Contract Appeals, Office of the Undersecretary of the Army, stated that it had reached an agreement with the contracting officer, and withdrew its pending appeal.
23. The plaintiff delivered to the defendant 30,000 overcoats under the contract, for which it received payment from the defendant at a unit price of $16.66%, or a total of $500,000.00.
24. The defendant's analysis of the plaintiff's cost data was not completed by the cost accountant of the New York Quartermaster Purchasing Office until December 29,1947.
At the request of that office, the Army audit agency undertook an audit of the plaintiff's books and records commencing December 15, 1947, which was discontinued when partially complete on December 31, 1947, upon the execution by the parties of Modification E fixing the unit price of $16.66%.
After commencement of this action, the defendant by its Federal Bureau of Investigation audited the plaintiff's books and records and found that the plaintiff had understated its experienced costs to May 31,1947, by about two cents, and to September 30, 1947, by about three cents per overcoat.
The parties stipulated that plaintiff's statements of experienced costs to May 31, 1947, and to September 30, 1947, are verified and supported by the plaintiff's books and records of account.
25. As stated in its cost data submitted to the defendant, the plaintiff had delivered to the defendant 7,930 overcoats by May 31, and 19,500 by September 30,1947. In addition, work had been performed on unfinished garments. The extent of the partially completed work was measured in terms of finished garments. The plaintiff's experienced costs represented production of 9,543.78 overcoats up to May 31, and 20,542.85 up to September 30,1947.
As adjusted by the defendant's audit, the plaintiff's unit cost to May 31,1947, for,the first 9,543.78 overcoats was $17.65, and its unit cost to September 30,1947, on 20,542.85 overcoats was $16.76.
In its estimate submitted to the contracting officer, on which the contract price was revised to $18.50 by Modification C, the plaintiff included a profit allowance of $1.74, slightly in excess of ten percent of the estimated unit cost of $16.76. In his Amended Finding of Fact and Determination, fixing the unit price at $15.00, the contracting officer allowed a unit cost of $13.26, to which he added profit at $1.74, or 13.12 percent of cost.
26. Early ixx the performance of the plaintiff's contract operations, in February 1947, the defendant sent an expediter to the plaintiff's plant for the purpose of obtaining deliveries in accordance with the contract schedule. There were not sufficient skilled needle operators in the area to meet the scheduled production on regular time employment, and the plaintiff advised the expediter that it was necessary to employ its operators overtime. The expediter insisted that deliveries he made according to the contract schedule, and the plaintiff expended $2,863.28 to May 31, 1947, for premimum pay for overtime work, averaging 30 cents per unit upon the 9,543.78 overcoats manufactured. This would represent an average of approximately 9.5 cents per unit for deliveries on the entire contract.
27. The plaintiff paid interest on bank loans in the sum of $1,951.23 to May 31, 1947, or an average of 20 cents per unit.
By September 30, 1947, the plaintiff's interest expenses totaled $2,739.40, or 13 cents per unit on all production to that time.
28. By separation of the plaintiff's costs after May 31 from the total costs to September 30,1947, and also by elimination of all premium pay and interest expenses, the following comparative table results:
The excess of the total unit cost to May 31 over the total unit cost from June 1 to September 30, 1947, amounts to $1.229017. This difference reasonably represents the pre liminary or starting-load cost per unit, and applied to the 9,543.78 overcoats produced to May 31, the total starting load costs are $11,729.47. This sum, prorated to the '30,000 overcoats delivered under the contract, averages $0.39098233 per unit. The resulting adjusted unit cost to September 30,1947, is $16.31.
The contract operations constituted about 93 percent of the plaintiff's total business, and the factory and general overhead expenses, of which the executive salaries were a part, were apportioned on that basis. Plaintiff's executive salaries were reasonable in view of the plaintiff's volume and type of business.
• By applying a 10 percent profit to the adjusted unit cost of $16.31 to September 30,1947, the revised unit price would be $17.94.
CONCLUSION OF LAW
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is not entitled to recover, and its petition is therefore dismissed.
. Judgment is rendered against the plaintiff for the cost of printing the record herein, the amount thereof to be entered by the clerk and collected by him according to law.