Case: THE DAVIS SEWING MACHINE CO. OF DELAWARE v. THE UNITED STATES
Abbreviation: Davis Sewing Machine Co. v. United States
Decision Date: 1925-01-26
Docket Number: No. B-17
Citation: 60 Ct. Cl. 201
Volume: 60
Reporter: United States Court of Claims Reports
Court: United States Court of Claims
Jurisdiction: United States
Parties: THE DAVIS SEWING MACHINE CO. OF DELAWARE v. THE UNITED STATES
Judges: Hat, Judge; DowNey, Judge; Booth, Judge; and Campbell, Ghief Justice, Concur.
Pages: 201–221

Head Matter:
THE DAVIS SEWING MACHINE CO. OF DELAWARE v. THE UNITED STATES
[No. B-17.
Decided January 26, 1925]
On the Proofs
Contract; termination clause; prospective profits. — Where a World War contract, after the signing of the armistice, is canceled under a termination clause, the contractor is not entitled to prospective profits.
Assignments and transfers; l>y operation of lato; section SJ/77, Revised Statutes. — Where the transfer or assignment of the assets of an insolvent corporation, including a claim against the United States, is made to another corporation, by order of court, it is by operation of law and not in violation of section 3477 of the Bevised Statutes.
The Re farter’s statement of the case:
Mr. Raymond M. Hudson for the plaintiff. Frumberg & Russell were on the briefs.
Mr. John, E: Hoover, with whom was Mr. Assistant Attorney General Robert H. Lovett, for the defendant.
Motion for new trial overruled March 2, 1925.
The following are the facts as found by the court:
I. The plaintiff is a corporation organized and existing' under the laws of the State of Delaware.
II. The National Tool and Manufacturing Co. is a corporation created and existing under the laws of the State of Delaware, with its principal place of business in St. Louis, Mo., where it was, during the latter part of the late World War, actively engaged in a general manufacturing business.
III. On or about July 29, 1918, properly authorized officers of the United States War Department placed a verbal order with the said National Tool and Manufacturing Co. for the manufacture of 15,000 Very signal pistols, which was followed on August 1 with a regular procurement order for said pistols; and under date of August 5,1918, a formal contract, No. P13030-2303 TW, was entered into by the company and the Government for the manufacture of said pistols according to certain specifications and drawings annexed to the contract.
The .contract provided, among other things, that delivery of the pistols by the company should commence September 1, 1918, and should proceed at the rate of 12,500 pistols per month, all deliveries to be completed before March 1, 1919; that the price for the pistols should be $5 each, mailing $315,000 in all; that changes in the specifications and drawings might, from time to time, be made by the contracting officer representing the Government, with corresponding increase ,or decrease in the contract price, as the change might increase or decrease the cost of manufacture; that the contract should not be assigned or otherwise disposed of by the contractor without the written consent of the Secretary of War; and that no moneys due or to become due under the contract should be assigned by the contractor. The contract further provided, Article XIV, for its termination in the event of the termination or limitation of the war, as follows:
“ Termination. — This contract being necessitated by a state of war now existing, it is desirable and expedient that provision be made for its cancellation upon fair and equitable terms in the event of the termination or limitation of the war, or if in anticipation thereof or because of changes in methods of warfare the Chief of Ordnance should be of the opinion that the completion of this contract has become unnecessary. It is therefore provided that any time, and from time to time, during the currency of this contract, the Chief of Ordnance may for any of the causes above stated notify the contractor that any part or parts of the articles then remaining undelivered shall not be manufactured or delivered.
“ In the event of such complete or partial termination the United States shall inspect all completed articles then on hand and such as may be completed within thirty (30) days after such notice, and shall pay to the contractor the price herein fixed for all articles accepted by and delivered to the United States. The United States shall also pay to the contractor the cost of the materials and component parts purchased by the contractor for the performance of this contract and then on hand in an amount not exceeding the requirements for the completion of this contract provided they comply with the specifications, and also all costs shown by the contractor to have been theretofore necessarily incurred in the performance of this contract and remaining unpaid; and the United States shall also protect the contractor on all obligations incurred necessarily and solely for the performance of this contract of which the contractor can not be otherwise relieved. To the above may be added such sums as the Chief of Ordnance may deem necessary to fairly and justly compensate the contractor for work, labor, and service rendered under this contract.”
A copy of said contract is annexed to the plaintiff’s petition as Exhibit A, which is by reference made a part of this finding.
IV. The contractor immediately entered upon the performance of the contract; but there were numerous discrepancies and errors in the specifications and drawings, and beginning almost immediately after the execution of the contract and continuing for more than two months thereafter, there were numerous changes ordered by the Government which held up and delayed the work of manufacture so that no pistols were completed nor deliveries made prior to the suspension and termination of the contract as hereinafter set forth.
V. On December 11, 1918, the armistice having in the meantime been declared, the Ordnance Department addressed a letter to the contractor at St. Louis, requesting suspension of the contract work, reading as follows:
“ Gentlemen: 1. By direction of the Chief of Ordnance you are requested in the public interest immediately to suspend further operations under your contract with the United States, War-Ord-No. P13030-2303TW, and to order no further materials or facilities, and except in cases of proved necessity, enter into no further subcontracts, make no further commitments, and incur no further expenses in connection with the performance of said contract.
“2. This request is made with a view to the negotiation of a supplemental contract providing for the cancellation, settlement, and adjustment of your existing contract in a manner which will permit of a more prompt settlement and payment than will be practicable under the terms of said existing contract.
“ 3. Please acknowledge receipt of this notice immediately, and indicate your decision as to compliance with or rejection of this request. Upon notice of your compliance a representative of the Ordnance Department will forthwith take up with you the proposed negotiation.”
This letter was forwarded to the contractor by Maj. E. S. Ready, of the Ordnance Department, with a letter of December 14, 1918, from Major Ready to the contractor, in which he said, referring to said letter and request for suspension :
“ Upon acceptance of this request the negotiation of a settlement in the formation of a supplemental contract, as referred to in the attached letter, will be initiated, by the St. Louis District Claims Board. You will appreciate that in this way a more prompt settlement and payment is practicable than under the terms of the existing contract. The department at Washington has advised that unless acknowledgment is received by that office within ten days after the date of suspension notice cancellation proceedings will be started.”
Upon receipt of said letters of December 11 and 14 the contractor, on December 18, 1918, wrote the Ordnance Department with reference to said contract, as follows:
“This is to acknowledge receipt of notice of suspension of the above contract. We accept this suspension effective December 18, 1918, without prejudicing our rights under said contract. We take it from your request that immediate steps will be taken toward the negotiation of a settlement in the formation of a supplemental contract, thereby affording a prompt adjustment, settlement, and payment arising from the suspension and eventual cancellation of the original contract, and accept this condition as a consideration in our acceptance of the request for suspension.”
Work under the contract was thereupon suspended by the contractor, and was not thereafter resumed.
On December 27, following, the secretary of the Ordnance Department District Claims Board at St. Louis wrote the contractor as follows:
“ Gentlemen: Acknowledgment is made of your favor of the 18th, advising that in pursuance of the request of the Ordnance Department you will suspend operations under War-Ord-No. P13030-2303 TW.
“ The Ordnance Department desires to do all in its power consistent with the interests of the United States to arrive at a settlement which will enable you to take up yokr regular line -of business with the least delay.
“ To this end there is enclosed an outline of method for presenting claims of contractors. You are urged to give same careful study and be prepared to act accordingly.
“ When received from the printer, you will be sent finance forms in sufficient number for the preparation of your claim, as provided under II-B, page 2, of the above-mentioned outline. Before making out the claim careful consideration should be given to the instructions as to the use of such forms (Part II of the above-named enclosure). You should fill out, execute as provided, and forward promptly to the undersigned such of the sheets as may be applicable to your claim. This statement will give this office the necessary information to enable it to proceed. Acknowledgment is requested.”
VI. Pursuant to the correspondence and action set forth in Finding V, the contractor, on or about January 16, 1919, filed a claim in the sum of $189,507.38, made up as follows:
1. Unworked direct materials-$14, 097. 75-
2. Worked direct materials_ 12, 741. 64
3. Direct labor and overhead expense_$14,120. 30
•*. Commitments for materials and service_ 19, 532. 80
5. Machinery and equipment_ 27,184.48
6. Small tools made and purchased, including labor and overhead_ 33, 833. 39
7. Miscellaneous_ 351. 29
8. Rent_ 800.00
9. Expenses of rearrangement of plant and equipment_ 5, 750. 00
10. Ten per cent profit on items 1, 2, 3, 4, 6, and 7- 9, 467. 72
11. Interest for three months at 6 per cent on the amount of items 1 to 7, inclusive- 1, 827. 92
12. A profit of $1.66 each on 30,000 pistols which could have been completed before the termination of the contract but for the delay caused by the Government’s changes in the specifications and drawings— 49, 800. 00
Against this claim of $189,507.38 a credit of $18,211.08 was given the Government on acco'unt of the retention by the plaintiff, at agreed prices, of the greater part of the materials purchased by it for the contract work, and which tinder the terms of the original and supplemental contracts were to become the property of the Government upon its termination of the contract and payment therefor, which credit left a net claim of $171,296.30 against the Government.
VII. Under date of May 21, 1919, a partial payment supplemental contract was entered into between the contractor and the Ordnance Department contracting officer represent-ting the Government for the termination of operations under the original contract, upon the basis of an immediate reimbursement of the contractor, by an advance payment of $103,650.66, for a portion of the expenditures made and obligations necessarily incurred in its operations under the contract, and a speedy determination and payment of the various items of such expenditures and obligations, as specifically provided for in said supplemental contract; and of a waiver by the contractor of a claim to prospective profits as therein specified, the then existing rights and obligations of the parties under the original contract to remain in full force and effect except as was otherwise expressly provided in the supplemental contract.
VIII. The said supplemental contract of May 21, 1919, was as follows:
PARTIAL PAYMENT SUPPLEMENTAL CONTRACT
Form 2E
This contract made this 21st day of May, 1919, between the United States of America, by E. S. Keady, major, Ordnance Department, United States Army (hereinafter called contracting officer), acting by direction of the Chief of Ordnance, United States Army, and under authority of the Secretary of War, party of the first part, and the National Tool & Manufacturing Co., a corporation organized and existing under and by virtue of the laws of the State of Delaware, and having an office at St. Louis, Mo. (hereinafter called contractor), party of the second part.
Witnesseth that
Whereas the United States and the contractor heretofore executed a certain contract, No. P 13030-2303TW, dated August 5,1918 (herein called original contract), which term also includes, wherever used herein, all agreements, if any, supplementary to said original contract except this agreement and any other supplemental agreements which may be dated subsequent to the date of this agreement; and
Whereas the original contract has not been completely performed, but in preparation for and as a part of complete performance the contractor has employed capital, performed services, expended money, and incurred liabilities and obligations for which he has not been paid; and
Whereas because of the suspension of hostilities it has become desirable and is to the best interests of the United States to reduce the amount of deliveries to be made under the original contract and to that end, on the 18th day of December, 1918, the contractor, at the request of the United States, has temporarily suspended operations under the original contract, and it is now the purpose of the parties hereto to provide for complete termination of operations under the original contract; and
Whereas the contractor has properly made expenditures and incurred obligations, including work, labor, and services necessarily rendered, in connection with the performance of said contract, and the contracting officer has made a preliminary examination of the items of said expenditures and obligations and finds that the total amount thereof properly and fairly apportionable to the uncompleted portion of said contract over and above any sums that may be due to the United States arising out of or incident to the said contract other than advances by the United States will be not less than the sum of one hundred forty thousand dollars ($140,-000), and the contractor represents that said amount is in excess of said sum of one hundred three thousand six hundred fifty dollars and sixty-six cents ($103,650.66); and
Whereas the contractor is willing to agree to a complete termination of operations under the original contract and to agree to waive all rights to prospective profits thereunder if he can secure forthwith reimbursement of a portion of the expenditures made and obligations necessarily incurred by him in performance of the uncompleted portion of said contract and provision for the speedy determination and payment of the various items of reimbursement and remuneration hereinafter set forth.
Now, therefore, the parties hereto agree as follows:
Article I. The existing rights and obligations of the parties hereto under the original contract shall remain in full force and effect except as herein expressly provided.
Article II. The total quantity of articles or work to be delivered or performed under the original contract and this supplemental agreement, including all deliveries heretofore made, shall be none.
Article III. The contractor agrees that it will not perform any further work or services, or incur any further expense or obligations in connection with the performance of the uncompleted portion of said original contract, and will use his best efforts in every proper way to reduce such liabilities or obligations as have already been incurred in connection with such performance; and the contractor hereby, and for all time, waives all claim to the prospective profits which he might have made from the performance of that portion of said original contract which under the terms of this supplemental agreement will not be performed.
Article IV. In consideration of the premises and the faithful performance by the contractor of the foregoing covenant, the United States shall forthwith pay to the contractor the sum of one hundred three thousand six hun dred fifty dollars and sixty-six cents ($103,650.66). No ad vanees have been made by the United States to the contractor under the original contract.
Article V. In further consideration of the premises, the United States agrees to pay to the contractor an additional sum or sums which, together with the sum of $103,650.66 provided for it. Article IV hereof, will reimburse and remunerate the contractor for such portion of his expenditures, obligations, and liabilities necessarily incurred, and for work, labor, and services rendered in connection with the performance of the original contract, as is properly and fairly apportionable to the uncompleted portion thereof, and for expenditures incurred and services properly rendered under this supplemental agreement, as follows:
Section A. For raw materials, direct and indirect, and component parts on hand, in an amount not exceeding the requirements for the completion of the contract; cost plus inward handling charges plus such portion of overhead as is directly applicable less such sums as may represent the fair agreed value of all or any portion thereof, if the title and possession of the same are retained by the contractor.
Section B. For articles in process, in an amount not exceeding the requirements for the completion of the contract; cost of raw material and labor plus such portion of overhead as is directly applicable, less such sums as may represent the fair agreed value of all or any portion thereof, if the title and possession of the same are retained by the contractor.
Section C. A fair and equitable remuneration (1) for expense and services of the contractor in connection with the items included in section A of this article, but not to exceed interest at 6 per cent per annum on the capital invested therein, or if the capital was borrowed, interest at the rate paid l¿y the contractor; and (2) for expenses and services of the* contractor in connection with the items included in section B of this article, but not to exceed 10 per cent of the cost thereof.
Section D. Such amounts as are properly paid by the contractor in the adjustment and termination of unperformed subcontracts and unperformed commitments for supplies which were properly entered into or made in connection with the performance of said original contract.
Section E. Pay rolls and expenses paid or incurred with the approval of the contracting officer, or properly paid or incurred without such approval, for the custody and protection of property since the date of suspension above recited and pending final settlement.
Section F. Where special facilities were properly provided in connection with the performance of the original contract, necessity of which was contemplated by the contractor and included in his estimate of cost at the time the original contract was made, such portion of the cost thereof as would reasonably have been recouped had the uncompleted portion of the original contract been performed. The amount so allowed shall not exceed a sum which shall be computed as follows: From the cost of such special facilities deduct their fair value at the date hereof and state such por tion of tbe remainder as is represented by the ratio of the uncompleted portion to the whole of the original contract.
Section G. Such additional sums, if any, as the Secretary of War may deem necessary fairly and justly to compensate to the contractor for expenditures, obligations, and liabilities necessarily incurred and for work, labor, and service necessarily rendered under the original contract or in preparation for the performance thereof, or under this supplemental agreement.
Article VI. Title to all property paid for by the United States made under the original contract or under this supplemental agreement shall vest in the United States immediately upon payment therefor.
Article VII. The United States shall proceed with the contractor to determine the. exact amount of the several items which make up the total amount payable to the contractor under the original contract and this supplemental agreement. When any sum is so found to be justly due the finding shall be evidenced by a certificate of the contra-, ting-officer, or other officer duly authorized by the Sécretary of War, which certificate shall state the amount found to be due and the item or items with respect to which the finding is made, and if any property is to be transferred in connection with or as a consideration for such payment, the said certificate shall list the property so to be transferred or delivered. Upon approval by the contractor of such certificate or certificates the amount thereof up to the sum of one hundred three thousand six hundred fifty dollars and sixty-six cents ($103,650.66), agreed to be paid under Article IV hereof, shall be offset against the said sum and the United States will pay to the contractor any additional sum or sums found and certified to be due; provided, however, that in no event shall the aggregate payments made or to be made under this supplementary agreement and under the original contract exceed the amounts which would have been payable under the original contract and if the said contract had been fully performed. The approval by the contractor of any such certificate up to the amount specified in Article IV hereof or the acceptance of payment under any certificate for any additional sum shall constitute a release of all the contractor’s rights then existing or which may thereafter exist growing out of or relating to the item or items covered by any such certificate.
Article VIII. In the event of the transfer or delivery to the United States of any property, the contractor shall expressly warrant all such property as free and clear of all encumbrances, either legal or equitable, and shall either deliver the same to the United States or, if requested, shall care for, mark for identification, and arrange for storage of same in a manner which shall be mutually agreeable.
Article IX. This agreement shall not become a valid or binding obligation of either party hereto unless and until the approval of the St. Louis District Claims Board has been noted at the end of this instrument.
In witness whereof the parties hereto have caused this agreement to be duly executed in five parts as of the date first hereinabove written.
Witnesses:
Josephine Burnes as to
E. S. B.EADT,
Major, Ord. Dept., U. S. A.,
Contracting Officer.
M. K. Lenny, as to
NatioNal Tool & Manufacturing Co.,
Contractor.
By W. S. Ieeland, President.
IX. Pursuant to the said supplemental contract the contractor was paid said sum of $103,650.66, as an advance payment on its claim, and subsequently was tendered, in full settlement of its claim under said contracts, original and supplemental, the further sum of $14,192.25, which the Ordnance Claims Board had, on or about February 4, 1920, found to be due the contractor under said contracts, making a total of $117,842.91 found due it under the contracts. In arriving at this amount, the claims board allowed the precise amounts of all the items claimed by the contractor except as to the following items: On the said item of $9,467.72 claimed as 10 per cent profit on the greater part of the contractor’s claim, as shown by Finding YI, the allowance- was $5,999.98; and on the said item of $1,827.92 claimed as interest, the allowance was $1,642.27. The item of $49,800 claimed as profits that would have been realized by the contractor on pistols that would have been completed and delivered before the suspension and termination of the contract but for the delay in the work caused by the Government, was wholly disallowed on the ground that it was prospective profits.
The contractor refused to accept this proposed final settlement, and .took-an appeal to the War Department Board of •Contract Adjustment, by which board the decision of the Ordnance Claims Board was affirmed, on or about May 11, 1920.
It does not appear that any other items of claim'than those shown by Findings VI and IX were ever formally filed by the contractor with, or were allowed by, either the Chief of Ordnance or the Secretary of War.
X.The total cost and expense to the contractor of its operations under the said contract of August 5, 1918, together with the remuneration provided for by section C of the said supplemental contract of May 21, 1919, amounted to $136,058.99. Of this amount the contractor has been paid by the Government the said advance payment of $103,650.66 provided for by the supplemental contract, and the said sum of $18,211.08 in materials retained by the contractor, leaving an unpaid balance of $14,192.25, consisting of the following items:
For rent_ $800. 00
For expenses of rearrangement of plant due to delay caused by Government changes in specifications and drawings— 5, 750. 00
For interest on capital invested, as provided for by section C of tbe supplemental contract- 1, 642. 27
For profit on certain costs and expenses under tbe contract, as provided for by section G of tbe supplemental contract- 5, 999.98
XI. If the profits the contractor would have realized upon a full performance of the contract work be apportioned between the performed and the unperformed portions of the work, the amount of such profits apportionable to the portion of the work that had been performed at the time of the suspension and termination of the contract would be $62,146.10. •
If the contract work had not been delayed by the said Government errors and changes in the specifications and drawings, the contractor would have completed and delivered such quantities of the said signal pistols prior to the suspension and termination of the contract as would have yielded a profit of $44,818.64 thereon, over and above their cost to the contractor.
XII. By amendment of its certificate of incorporation on or about April 21, 1919, the said National Tool & Manufacturing Co., the contractor, changed its name to the Blue Bird Manufacturing Co. Shortly thereafter the Blue Bird Manufacturing Co. became insolvent and went into the hands of receivers appointed by the Circuit Court of the city of St. Louis, Mo.
On or about June 30, 1920, the said Blue Bird Manufacturing Co. and the said receivers therefor entered into a ■contract with the Davis Sewing Machine Co. of Dayton, Ohio, subject to the approval of the said Circuit Court of the city of St. Louis, for the sale by the said Blue Bird Manufacturing Co. to the said Davis Sewing Machine Co. of all the Blue Bird Co.’s assets, rights, privileges, and good will, for which payment was to be made to the Blue Bird Co. in certain specified stock of a new Davis Sewing Machine Co. which the said Davis Sewing Machine Co. of Ohio was to cause to be incorporated under the laws of the State of Delaware, and to which new company the Davis Sewing Machine Co. of Ohio was to convey a great part of its assets and all of the assets of the Blue Bird Manufacturing Co. to be acquired by the said Davis Sewing Machine Co. of Ohio under said contract. On or about July 15, 1920, the said contract was approved by said Circuit Court of St. Louis, and the receivers were ordered and directed by the court to carry out the contract. Thereupon the said new company, the Davis Sewing Machine Co. of Delaware, the plaintiff in this suit, was organized and incorporated; the sale and transfer of the assets of the Blue Bird Manufacturing Co. to the Davis Sewing Machine Co. of Ohio and the transfer of said assets and of a great part of its own assets by said Davis Sewing Machine Co. of Ohio to the new company, the Davis Sewing Machine Co. of Delaware, was effected, all in accordance with the provisions of said contract and the order and direction of the said court.
At the time of the said sale and transfer of the assets of the Blue Bird Manufacturing Co. to the Davis Sewing Machine Co. of Ohio and of their transfer by said company to the said Davis Sewing Machine Co. of Delaware, the claim which is the subject matter of this suit was a part of said assets.
The court decided that plaintiff was entitled to recover, in part.
Appealed.

Opinion:
GRAi-iam, Judge,
delivered tbe opinion of the court:
The contract in this case was dated the 5th day of August, 1918, and was for the manufacture of Very pistols. These pistols were to be used for giving signals by firing a charge which exploded with certain lighting effects. Delivery was to be commenced on the 1st of September, 1918, and completed on the 1st of March, 1919. The number of pistols to be delivered was 75,000, for which the plaintiff was to receive payment in the sum of $375,000. The contract contained a clause giving the defendant the right to terminate the contract at any time under certain conditions. The armistice having been declared in November, on the 11th of December the defendant, through the Ordnance Department, addressed a communication to the plaintiff stating that "you are requested immediately to suspend further operations under your contract and to order no further materials or facilities," and further, "to enter into no further subcontracts " or make any " further commitments and incur no further expenses," and stated that the request was made with the view to the negotiation of a supplemental contract providing for cancellation, settlement, and adjustment of the existing contract in a manner that would permit a more prompt settlement and payment than would be practicable under the terms of the existing contract. It concluded by asking for immediate acknowledgment of receipt of the notice and an indication of plaintiff's decision to comply with or reject the request. On December 14 this letter was forwarded to the plaintiff with a letter from the representative of the Ordnance Department, stating that upon acceptance of the request the negotiation of a settlement in the form of a supplemental contract would be initiated by the St. Louis district claims board, and in this ivay plaintiff would get a more prompt settlement and payment than under the terms of the existing contract.
Replying to these several letters, on the 18th of December the plaintiff acknowledged the notice of " suspension of the above contract," stating " we accept this suspension, effective December 18, 1918, without prejudicing our rights under said contract," and further, " we take it from your request that immediate steps will be taken toward the negotiation of a settlement in the formation of a supplemental contract* thereby affording a prompt adjustment, settlement, and payment arising from the suspension and eventual cancellation of the contract, and accept this condition as a consideration of our acceptance of the request of suspension." On December 27 following, the secretary of the Ordnance Department claims board at St. Louis acknowledged this communication of the plaintiff, saying that it was the wish of the Ordnance Department to do all in its power consistent with the interests of the Government to arrive at a settlement which would enable the plaintiff to take up its regular line of business with the least delay, and to this end inclosed an outline of the method for presenting the claim. The plaintiff was requested to give this careful study and be prepared to act. Further instructions were also given as to preparation of the claim upon printed blanks that would be later furnished.
Pursuant to this correspondence the plaintiff on January 16, 1919, filed an itemized claim in the sum of $189,507.38, in which was a claim for profit of $1.66 each on 30,000 pistols which could have been completed before the termination of the contract but for the delay caused by the Government's changes in the specifications and drawings. Against this claim the plaintiff entered a credit of $18,211.08 for certain materials, the property of the Government, which had been turned back to the Government, and then sold to and retained by the contractor, leaving a net claim of $171,296.30. Thereafter a partial payment and supplemental contract was entered into. Under this supplemental contract the plaintiff was paid the sum of $103,650.66 as an advance payment, and it was stipulated that the United States agree to pay such additional sum which, together with this last-named sum, would cover such portion of his expenditures, obligations, and liabilities necessarily incurred and for work, labor, and services rendered in connection with the performance of the original contract as would be properly and fairly apportionable to the uncompleted part thereof, enumerating the particular classes of items for which payment was to be made. In this supplemental contract the plaintiff waived all claim to prospective profits which he might have made by the performance of that portion of said original contract which, "under the terms of this supplemental agreement, will not be performed." It was also provided that in addition to the sums to be paid, as just mentioned, there should be paid such sums as the Secretary of War may deem fair and just to compensate the contractor for expenditures, obligations, and liabilities necessarily incurred, and for work, labor, and services rendered under the original contract or in preparation for the performance thereof or under this supplemental contract. Thereafter, on further hearing, the War Claims Board awarded the plaintiff the additional sum of $14,192.25, which was tendered in full settlement of its claim under the original and supplemental contracts, making a total of $111,842.91 found due under the contract. In arriving at this sum a part of an item of $9,461.72, claimed by the plaintiff as 10 per cent profit on the greater part of the contractor's claim, as shown by Finding VI, amounting to $3,467.74, was disallowed.
The item of $49,800 claimed as profits by the plaintiff on the pistols which he claimed could have been completed and delivered before the suspension of the contract but for the delay in the work caused by the Government, was disallowed on the ground that it was prospective profits. The contractor refused to accept this proposed final settlement and took an appeal to the War Department Board of Contract Adjustment, which board affirmed the decision of the claims board. It does not appear that any final appeal was taken to the Secretary of War, as provided by the contract.
The plaintiff is here suing apparently, although his claim has assumed different forms and is in different amounts in his petition and proof, for profits which it claims it would have made on pistols that could have been completed and delivered before the suspension of the contract had not the Government delayed the performance of it.
The original contract contained a provision for its termination at the will of the Government, and, except as provided in the clause for termination, is in the same position as a contract made subject to the provisions of the act of June 15, 1917, which the courts have held must be taken to have been read into the contract. See Meyer Scale Co. v. United States, 57 C. Cls. 26, and Bussell Motor Car Co. v. United States, 261 U. S. 514-524. In the last quoted cases it was held that where there was a termination clause there could be no recovery for loss of profits. The right to terminate necessarily contemplates the possibility of not being allowed to complete the contract, with the attendant loss of profits, and the party's bid includes this risk. It also includes the possibility of a termination before any of the articles contracted for are completed. Thus, the right to recover prospective profits is negatived by the very insertion of á termination clause. Profits are a gain a p'-rty might have made had he been allowed to complete the contract. Until it is completed it can not be known whether there would be a gain or a loss. Profits are a gain which is considered in every contract to balance the risks of a loss. They are only recoverable as a part of the damages claimed for a breach of a contract by preventing its fulfilment according to its terms. Upon proof of a breach of a contract by Its illegal termination and proof that he was ready and willing to perform, the party would be entitled to nominal damages; and if he proceeds further to prove his damage by reason of the breach, and shows that he would have made a profit had he been allowed to carry the contract to completion, he will be allowed a recovery for profits as a part of his damages. United States v. Speed, 8 Wall. 77; Hinckley v. Pittsburgh Steel Co., 121 U. S. 264, 275, 276, and Yates v. United States, 15 C. Cls. 119, 125. If, then, there has been no breach, there can be no recovery of damages or of profits as a part thereof. The defendant had a right under this contract to terminate it at will, so its termination and abrogation did not constitute a breach. The plaintiff's rights under the original contract, in case of termination, were fixed by the termination clause in the contract. As to this clause, it is only necessary to say that a reading of it will show that it did not contemplate any payment of profits except as they might be allowed us a part of the award of some sum by the'Chief of Ordnance or the Secretary of War in addition to the items of payment therein provided for. As it does not appear that the Chief of Ordnance or the Secretary ever made any such award, it seems unnecessary to discuss the terms of this termination clause further. It also follows that any reservation of rights thereunder by the plaintiff in accepting and agreeing to the request for a cancellation and the making of a supplemental contract does not strengthen .its case as far as its rights under this termination clause are concerned.
The plaintiff suspended work at the request of the Government. It is true that it tried to reserve its rights 'under the original contract, but it nevertheless suspended and entered into negotiations for a settlement, which finally terminated in a supplemental and partial settlement contract under which it accepted payment, as stated, in the sum of $103,650.66. It thus practically put an end to the original contract and all claims under it. It in effect negotiated itself out of its rights under that contract. It accepted part payment under a settlement contract, and is estopped from claiming profits as a part of damages for a breach of the original contract. Having voluntarily terminated the original contract and accepted payment covering in part the outlays and risks under the original contract, it waived its right to any claim for profits thereunder, if it had any. It has no legal standing to sue for damages 'upon the theory of a breach of the original contract while retaining in its possession money paid on the basis of a settlement of it. Upon what theory can prospective profits be allowed to a party to a contract who has voluntarily participated in such a change in the situation of the parties that the contract can not be performed? The plaintiff could have stood upon such-rights as it had under the original contract and demanded a settlement under its provisions and the terms of the termination clause thereof, though, even under this clause, as stated, it could not, have received any payment in the nature of profits unless it had been allowed by the Chief of Ordnance, to whom no appeal was ever made. Its rights, such as it has, were transferred to the Supplemental contract, and are therefore to be determined by the terms of that contract.
If it has a right to recover profits under that contract, the right must be found within its circumference. Under the terms of that contract the contractor waived " all claim to prospective profits which he might have made by the performance of that part of the original contract which under the terms of this supplemental agreement will not be performed." If it be said that there is some uncertainty as to the meaning of this language, this uncertainty seems to disappear when the clause is read in connection with the preamble to this contract, in which it is recited that the contractor "is willing to agree to a complete termination of operations under the original contract, and to agree to waive all rights to prospective profits thereunder if he can secure forthwith reimbursements for a portion of the expenditures made and obligations necessarily incurred by him in the performance of the uncompleted portion of the said contract, and provision for the speedy determination and payment of the vario'us items of reimbursement and remuneration herein set forth." He did receive such reimbursement of the " expenditures made and obligations necessarily incurred by him " in the sum of $103,650.66 in cash, and an offer of an additional payment of $14,192.25. These two sums practically covered every item of claim asserted by the contractor in the claim which he presented under the supplemental contract except the? amount claimed for profits. In this view of the case the amount of $14,192.25 offered by the Government in settlement under the supplemental contract, being reasonable in amount and acknowledged by the Government to be due under that contract, should be paid to the contractor. He should be allowed a j'udgment for this amount, and it is so ordered.
The question has been raised in this case as to the application of section 3477 of the Revised Statutes, to the effect that assignments and transfers of any claim from the United States "shall be absolutely null and void unless they are freely made and executed, in the presence of two attesting witnesses, after the allowance of such a claim, the ascertainment of the amount due, and the issuing of a warrant for the payment thereof." The contract out of which the claim in this case arose was in the name of the National Tool & Manufacturing Co., and this company performed such work as was performed before the contract was cancelled. Subsequent to said cancellation the said company changed its name to the Blue Bird Manufacturing Co. The Blue Bird Manufacturing Co. afterwards became insolvent and went into the hands of receivers appointed by the Circuit Court of the city of St. Louis, Mo. Thereafter the Blue Bird Manufacturing Co. and the said receivers therefor entered into a contract with the Davis Sewing Machine Co., of Dayton, Ohio, subject to the approval of the said Circuit Court of the city of St. Louis, for the sale by the said Blue Bird Manufacturing Co. to the said Davis Sewing Machine Co. of all of the Blue Bird Manufacturing Co.'s assets, rights, privileges, and good will, for which payment was to be made to the Blue Bird Co. in certain specified stock of a new Davis Sewing Machine Co., which the said Davis Sewing Machine Co., a corporation of the State of Ohio, was to cause to be incorporated under the laws of the State of Delaware, and to which new company the Davis Sewing Machine Co. of Ohio was to convey a, great part of its assets and all of the assets of the Blue Bird Manufacturing Co. to be acquired by the said Davis Sewing Machine Co. of Ohio under said contract with said receivers and said Blue Bird Manufacturing Co. This contract was approved by the said court, and the receivers were ordered and directed by the court to carry it out. Thereupon the said new company, the Davis Sewing Machine Co. of Delaware, the plaintiff in this suit, was organized and incorporated, and the sale and transfer of the assets of the said Blue Bird Manufacturing Co. were made by said receivers and the said Blue Bird Manufacturing Co. to the Davis Sewing Machine Co. of Ohio, which in turn transferred said assets and a great part of its own assets to the plaintiff in this case, the Davis Sewing Machine Co. of Delaware, in accordance with the provisions of said contract and the order and direction of the court. At the time of said sale and transfer of assets of the Blue Bird Manufacturing Co. to the Davis Sewing Machine Co. of Ohio, and by that company to the Davis Sewing Machine Co. of Delaware, the claim which is the subject matter of this suit was a part of said assets.
The object of section 3477 was to protect the Government, not the claimant, and to prevent frauds on the Treasury. Hobbs v. McLean, 117 U. S. 567. The mischiefs designed to be remedied by act were first, the danger that the rights of the Government might be embarrassed by having to deal with several persons instead of one, and by the introduction of a party who was a stranger to the original transaction; second, by transfer of such claim against the Government to one or more persons not originally interested in it a way might be conveniently opened to such improper influences in prosecuting the claim before the departments, the courts or the Congress, as desperate cases, when the reward is contingent on success, so often suggest. Goodman v. Niblack, 102 U. S. 556, 560. The statute doe.- n<n apply to an assignment by an assignee in bankruptcy. Barke v. United States, 13 C. Cls. 231. A transfer of title to real property by virtue of the decree of a court carrying with it the right to rents accrued is not an assignment in violation of the statute. Mills v. United States, 19 C. Cls. 79. The transfer of a claim of an insolvent corporation against the United States to a receiver is by operation of law and not in violation of the statute. Redfield v. United States, 27 C. Cls. 393. The statute does not apply to claims title to which has been transferred by operation of law. Erwin v. United States, 97 U. S. 392, 397. The statute applies only to voluntary assignments -of demands against the Government. United States v. Gillis, 95 U. S. 407, 416; Price v. Forrest, 173 U. S. 410, 421.
In the instant case this transfer was made by order of the court which had appointed the receivers and having jurisdiction of the subject matter, and by the receivers, the representatives of the court, acting under its order. The claim clearly passed by action of law and the assignment was not in violation of the statute. The plaintiff received its title from the receivers as the result of a judicial proceeding and an order of the court authorizing and directing them so to do.
Hat, Judge; DowNey, Judge; Booth, Judge; and Campbell, Ghief Justice, Concur.