Page images

II. The scales to be made were of a special design and different from any type of scale customarily made by the contractor. They consisted of about 95 separate parts, most of which the contractor had to procure from outside sources, its plant being equipped only for doing the finer machine work, engineering, adjusting and fitting of parts.

Prior to making the contract, the contractor had made tentative arrangements for the procurement of all necessary special machinery, parts, forg. ings, and materials required fully to perform the contract, and immediately after the contract was made, it placed orders with subcontractors for all such machinery, parts, forgings, and materials and made every necessary preparation to perform the contract fully in strict accordance with its terms.

III. On February 14, 1919, the Navy Department wrote the contractor as follows: “Subject: Contract 45987, crane suspension scales.

“SIRS: Due to a change which has recently been made in the equipment of ships of the Navy, the 300 crane suspension scales for delivery at the navy yard, Boston, as called for by above-mentioned contract, are not needed. Investigation is being made to ascertain whether or not the scales for the other points noted are still desired.

As this contract is of recent date it is presumed that you will be willing to cancel item 1 for the 300 crane suspension scales for delivery at the navy yard, Boston, without claim for damages. As soon as reply is received from the other points you will be advised whether it is desired to cancel the entire contract."

Personal interviews developed that the scale as designed was considered too large for use on destroyers and that the question of decrease in quantity raised in letter of February 14, 1919, was occasioned by this fact. The contractor thereupon agreed to reduce the size of the scale, which could be done in its own plant without additional cost, so as to accommodate the same to the requirements for use on destroyers, and having thus obviated the difficulty it proceeded with the work as before.

By letter dated February 25, 1919, the Bureau of Supplies and Accounts again wrote the contractor as follows: “Subject: Contract 45987, crane suspension scales. “Reference: (a) S. and A. letter 45987-PQ, dated 14 February, 1919.

(b) Your letter dated 19 February, 1919. "Sirs:

It is regretted that due to changes which have recently been made in equipment of ships for the Navy, most of the crane suspension scales called for by the above-mentioned contract are not desired. Investigation is being made to ascertain the exact quantity that will be required, but in the meantime it is requested that you do not proceed with the manufacture of these scales, and that you notify subcontractors accordingly.

“It is requested that you advise this office whether or not you could make a reduction in quantity without incurring any damages.

The contractor understood this letter to be occasioned by the same cir. oumstances that had prompted the previous letter of February 14, 1919, and as the question of size had already been adjusted by negotiations with the supply officer at Boston, no further attention was paid to the letter of February 25.

By, a further letter dated March 21, 1919, the Bureau of Supplies and Accounts wrote the contractor as follows: “Subject: Contract 45987, crane suspension scales. "Reference: S. and A. letter dated 25 February.

"Sirs: As stated in above reference, due to changes which have recently been made in the equipment of ships for the Navy, many of the crane suspension scales called for by contract 45987 are not now desired. The quantities called for by the various navy yards are as follows:

"Item 1: Boston, 60 now required. Item 2: Appraisers' stores bldg., Boston, 25 now required. Item 3: Fleet supply base, So. Brooklyn, 200 now required. Item 4: Philadelphia, 125 now required. Item 5: Norfolk, 75 still required. Item 6: Charleston, 12 now required.

“In addition to the above 25 crane suspension scales will be required for the navy yard, Mare Island, California, and it is requested that you advise promptly the price for these scales delivered, as the prices noted in the contract are based on east coast delivery. Your cooperation with the Navy in making these reductions will be appreciated; and it is requested that information be furnished with regard to the status of this contract and whether or not the reductions noted can be made without incurring any damages. Upon receipt of your reply supplementary agreement will be prepared."

This was followed by telegram of April 3, 1919, as follows: “Navy letters, twenty-five Feby. and twenty-six March, requested you not to proceed with manufacture of scales under contract forty-five nine eighty-seven, and to notify subcontractors accordingly. If not agreeable to reduce quantities without claim for damages, request you forward immediately suggestions for adjustment and detailed statement of condition of contract covering material and labor incurred prior twenty-five Feby.”

On receipt of these communications the contractor suspended all operations and work on the contract and made every effort to induce its subcontractors to accept cancellation of the contract with them for parts and materials. On March 28, 1919, the contractor advised the Bureau of Supplies and Accounts as follows: “Replying to your favor of March 21, relative to our contract 45987, we regret that it will be impossible for us to accept any reduction on our contract owing to the present status of material, as well as to other conditions of same. We would be pleased to take this matter up in person with you, if you will advise when you will be able to see our representative.”

The work remained suspended until June 7, 1919, on which day the plaintiff wrote the Bureau of Supplies and Accounts stating that they had since May 12 endeavored to obtain some definite statement allowing them to proceed with the shipment of the scales mentioned in the Bureau's letter of March 21, 1919, without prejudice to them on the total number of scales called for in the original contract, that the scales were in their factory occupying considerable room, that they were being inconvenienced and suffering considerable damage through this congestion, that it would be to mutual advantage to have the 497 scales mentioned in the letter shipped out, that they would ship them in accordance with directions provided by so doing they did not in any way prejudice themselves on the balance of the original order, which would come up on final adjustment, and requesting that authority to make the shipment be given.

Under the same date, but without any showing as to whether it was before or after the receipt of plaintiff's letter to the Bureau, last above referred to, the Bureau wrote the plaintiff as follows: “Subject: Contract 45987. "References: S. and A. letter having subject ‘Contract 45987, crane

suspension scales,' dated 21 March, 1919.

"SIRS: Instructions are hereby given for shipment of scales required under contract 45987 in quantities stated in above reference under items 1 to 6, inclusive. No shipment, however, will be made to the navy yard, Mare Island, pending further instructions."

On August 18, 1919, the Bureau of Supplies and Accounts wrote the plaintiff stating that “no further addition will be made to the reduced quantity as now called for under contract 45987.''

IV. The contractor thereafter completed and delivered as required by the Navy Department the reduced quantity of scales indicated in the bureau's letter of March 21, 1919, totaling 497 suspension crane scales and was paid therefor the contract price. The contractor could and would have completed the number of scales required at the rate and within the time prescribed by the contract, or by May 5, 1919. The total suspension of the work from March 21, 1919, to June 8, 1919, resulted in delaying The completion of the scales until October 1, 1919. The general administration and overhead expenses, applicable to Navy crane-scale work, incurred after May 5, 1919, amounted to $4,966.65 and would not have been incurred had the scale work been allowed to proceed without interruption, or, if incurred, could have been absorbed by commercial work.

V. The materials, machinery, jigs., etc., obtained by the contractor for necessary use on the contract which were almost entirely of special design had all been procured or contracted for prior to receipt of definite instructions as to the quantity of scales required and were of no value for use in the regular business of the contractor. Those on hand for use in making 1,185 suspension crane scales, excluding those used in making the 497 scales that were made and delivered, are still in the contractor's plant. The contractor tried to cancel its orders with subcontractors, but was unable to do so. The contractor was ready, willing and fully prepared to make the full number of crane scales contracted to be made and delivered and to deliver same as specified and required, and could and would have done so had the Navy Department permitted it. At the time the letter of March 21, 1919, was received, the contractor had completed all engineering, designing, and drafting work; had on hand or in course of delivery all materials necessary to perform the contract in its entirety,


and had all necessary tools, dies, jigs, fixtures, and machinery required for the complete performance of the contract.

VI. The number of scales required by the Navy Department and accepted under the contract was 497. The contractor had another order for 72 of the same type and design of scale and it actually made and delivered to the Government a total of 575 suspension crane scales.

The actual cost to the contractor of producing and delivering 575 suspension crane scales including all labor, material and overhead was $24,264 28, or $40,087 per scale, exclusive of freight charges for delivering

The actual cost of producing and delivering the 497 scales that were made and delivered under the contract was $20,496 58, including delivery charges. The remaining 688 scales which the Government failed and refused to accept could and would have been made and delivered at the same

or a lesser unit cost, or for $28.231.54, including freight costs of delivery. Had the contractor been permitted to make and deliver the full quantity of scales called for by its contract, it could and would have earned and received a profit of $78,408.46 over and above the profits earned on the scales that were made and delivered.

VII. The actual cost of the materials which the contractor had on hand for making the full number of scales contracted to be made but not used because of the reduction in quantity by the Navy Department was $11,774.40 and the reasonable value of same at the time of reduction of the order was not exceeding $886 34. The contractor's actual loss on this account was $10,888 06. The actual cost of the special machine tools, etc., required for making the 1,185 crane scales was $2,024 62 and their value after the contract was terminated was $104. The part of this loss applicable to the 688 crane scales not made and delivered amounts to $998.88.

VIII. On April 6, 1920, a claim having been theretofore filed with the Bureau of Supplies and Accounts for damages on account of the partial cancellation of the contract, the Bureau wrote the plaintiff as follows: “Subject: Contract 45987, relative to partial cancellation. “Reference: Letter from King and King, attorneys, to Supplies and

Accounts, 20 March, 1920. “Sirs: By letter above referenced it was requested that the claim for damages based on the partial cancellation of the above contract be considered and that your company be advised as to the decision of the department in connection with same. Careful consideration has been given to the statements contained in said letter and all the facts and circumstances connected with the cancellation of the above contract. It is not the policy of the Navy to allow anticipated profits, as anticipated profits are too vague, uncertain, indefinite, and problematical. The completion of the contract might have resulted in loss instead of profit to your company. Under the war powers of the President, which were delegated to the Secretary of the Navy by appropriate executive orders, the right was given to modify, suspend, cancel, or requisition any existing or future contract for the building, production, or purchase of ships or material,' with the proviso

that in case of such cancellation just compensation should be made. All war-time contracts were made subject to this provision. A long line of decisions is to the effect that, where the right of cancellation is reserved, either by the contract or by statute, 'just compensation does not include anticipated profits. Just compensation for actual loss is, however, allowed, but in order to determine the amount of actual loss, the Nary has in each and every instance where partial cancellations of contracts have been made detailed cost inspector to make an examination of the accounts and records kept by the contractor. Inasmuch as your company refused to permit the inspector to make in examination at your plant, it has so far been impossible for the Navy to intelligently make a proper cancellation settlement.

It is noted from the letter above referenced that statement is made to the effect that the completion of the remaining 688 scales canceled would cost a total of $106,640.00. For your information it might be stated that the Navy has 40 of these scales at the navy yard, Mare Island; 33 at the navy yard, Boston; and 150 at the Fleet Supply Base, which are now offered for sale as surplus stock. The highest offer made for the above excess scales so far has been approximately $45.00 per scale. Un less the Navy is able to obtain a better price than the above offer, it will be seen that the loss on each scale will be $110.00. To accept the above-mentioned 688 scales at the price of $155.00 per scale, and to dispose of same in accordance with the above offer, it will be seen that the Navy's loss would exceed $75,000.00. After careful consideration of the elaim submitted with letter above referenced, it has been decided to submit the following offer, which it is believed is fair and just to all parties concerned : Labor cost

$ 1,138.56 Freight

191.06 Materials


Total 10 per cent on material.




. $16,419.04 In case the above proposition is accepted, all materials for which payment is made will become the property of the Navy. If, however, your company will submit an acceptable salvage offer for said materials, same will be deducted from the amount to be paid. An early reply will be appreciated."

The record does not disclose the claim referred to in the above letter, the reply thereto, if any, or that any further procedure was had in the matter until the commencement of this action on August 17, 1920.


Upon the facts found the court concludes that the plaintiff is entitled to recover the sum of four tbousand vive hundred sixty-six dollars

« PreviousContinue »