CASES DECIDED

IN

THE COURT OF CLAIMS

FEBRUARY 1, 1930, TO MAY 31, 1930

AMERICAN CAN CO. v. THE UNITED STATES

[No. E-394. Decided May 6, 1929. Motion for new trial overruled April 30, 1930]

On the Proofs

Contracts; changes; extra costs; proof.-Where a Government contractor is suing for extra costs of alleged changes in a contract, and having kept no record of the same offers as the only evidence the testimony of an accountant as to the comparative cost of performance under a contract for a different article, at a different period, such evidence is not proof of such extra costs.

The Reporter's statement of the case:

Mr. George R. Shields for the plaintiff. Mr. L. A. Welles and King & King were on the briefs.

Mr. William W. Scott, with whom was Mr. Assistant Attorney General Herman J. Galloway, for the defendant.

The court made special findings of fact, as follows:

I. The plaintiff, American Can Company, is now and was during all of the times hereinafter mentioned a corporation organized under the laws of the State of New Jersey, with its principal office in the city of New York, State of New York, and with plants in other places in the United States. II. As a result of negotiations had during the late summer and the fall of 1917, the American Can Company entered

120931-30-c C-VOL. 69- 1

1

Reporter's Statement of the Case

into a written contract dated December 31, 1917, with the United States, represented in that behalf by J. E. Hoffer, colonel, Ordnance Department, U. S. A., as contracting officer, but signed by Charles N. Black, lieutenant colonel, Ordnance Department, N. A., by the terms of which the contractor agreed to manufacture for the Government of the United States 4,000,000 complete rounds of 75 m/m high-explosive shells, and the United States agreed to pay therefor the cost thereof, plus a variable profit of $1.00 per shell, more or less, dependent upon the actual cost of the work. The shells were to be delivered in monthly installments from February, 1918, to and including August 31, 1918. Drawings and specifications pertaining thereto were made a part of said contract. A copy of said contract, together with the drawings and specifications, is attached to the petition herein marked " Exhibit A," and is made a part of this finding by reference.

III. Previous to the execution of the contract the contractor had performed shrapnel contracts with the English Government and also with the Government of the United States. At the time the contract was entered into a 75 m/m shrapnel contract with the United States was in the course of performance, which contract the contractor expected to complete during February, 1918. It was the intention of the contractor to machine the forgings for the 75 m/m highexplosive shells (the same being the original contract in question in this suit) at its Edgewater plant, upon the completion of the 75 m/m shrapnel contract, but the shrapnel contract was not sufficiently completed to enable the contractor to commence machining the high-explosive shells until June, 1918. By August 31, 1918, the last date for deliveries under the original contract, approximately 80,000 75 m/m high-explosive shells had been machined by the contractor, and only 30,000 complete rounds had been delivered.

IV. In the early fall of 1918, or some time previous to October 14, 1918, conferences were had by and between the representatives of plaintiff corporation and the representatives of the Government in reference to changing the contract from a cost-plus to a fixed-price contract with an

Reporter's Statement of the Case

extension of time for deliveries, which resulted in the execution of a supplemental contract dated November 1, 1918, changing the terms of payment from a cost-plus and variable-profit basis to a fixed price of $8.50 for each completed shell. Article 6 of this contract is as follows:

"Except as herein modified, all the terms and conditions of the original contract dated December 31, 1917, shall remain in full force and effect."

Article 7 of said fixed-price contract provides:

"The contractor hereby releases the United States from all claims and demands arising out of any alleged faults or failures upon the part of the United States in furnishing components, etc."

A copy of the first supplemental contract is attached to the petition herein, marked "Exhibit C," and made a part of this finding by reference.

V. By procurement order dated January 18, 1918, the terms of which were accepted in writing by J. R. Harbeck, vice president of the American Can Company, certain changes were made in the terms of the original contract with respect to the supply of certain of the component parts for the complete rounds. A copy of said procurement order is attached to the petition herein marked "Exhibit B," and is made a part of this finding by reference.

VI. The signing of the armistice on November 11, 1918, rendered unnecessary the manufacture of the remaining portion of the shells under the contract, and plaintiff was requested to suspend operations thereunder. Plaintiff made a proposal to the Government that it be permitted to complete the manufacture of at least 2,500,000 of the 4,000,000 shells under the contract. The Government acceded to this proposal and under date of February 1, 1919, plaintiff company and the United States entered into a second supplemental contract, by the terms of which the original contract was further modified and amended so as to reduce the contract number of complete rounds from 4,000,000 to 2,500,000 and to provide a basis of payment for parts of complete rounds manufactured by the contractor in excess of those necessary to complete the 2,500,000 rounds and for parts supplied by

Reporter's Statement of the Case

the United States going into the 2,500,000 rounds. The second supplemental contract provided, as in the first supplemental contract, that all the terms and conditions of the original contract, except as therein or previously amended, should remain in full force and effect. This contract also contained the provision:

"ARTICLE 1. The contractor shall deliver, and the United States shall accept the following specified quantity of the articles contracted for at the price provided in the original contract as amended, payment of which price shall be accepted by the said contractor in full satisfaction of any and all claims arising out of the said original contract as hereby amended. Of the 4,000,000 complete rounds of 75-millimeter shells provided for in the original contract, the contractor shall deliver only 2,500,000."

A copy of the second supplemental contract is attached to the petition marked "Exhibit D," and is made a part of this finding by reference.

VII. Under date of June 21, 1919, a third supplemental contract was entered into by and between the parties, further modifying and changing the original contract, and providing that the materials or components supplied by the United States for use in completing the contract should be paid for by the contractor, and agreed prices therefor be deducted from payments made the contractor, and that the propellant charges and explosives used in loading the shell booster and adapter parts of the complete rounds should be supplied by the United States without charge. This third supplemental contract provided, like the first and second supplemental contracts, that, except as therein or previously modified, all of the terms of the original contract should remain in full force and effect. A copy of the third supplemental contract is attached to plaintiff's petition, marked “Exhibit E," and is made a part of this finding by reference.

VIII. Incidental to the making of the original contract dated December 31, 1917, the United States agreed to advance to the plaintiff the sum of $4,908,000, and the parties entered into a contract dated December 19, 1917, covering the terms upon which such advance was to be made and repaid. On said date the American Can Company agreed to and did

Reporter's Statement of the Case

execute and deliver to the United States its promissory note for the sum of $4,908,000, bearing interest at the rate of 5 per cent per annum, and payable on demand to the office of the Secretary of War of the United States, Washington, D. C.; and the United States agreed to and did advance and loan to the American Can Company the said sum of $4,908,000.

IX. As the performance of the contract progressed certain amounts were deducted from time to time from monies due the contractor, and applied on the payment of the loan, aggregating $3,612,499.99. In addition to the credit of this amount, the contractor paid the sum of $528,943.30 and $264.77, making a total amount paid in cash or credit of $4,141,708.06. On or about May 10, 1920, the representatives of the Government inadvertently and erroneously credited the contractor with the full amount of the loan, together with interest, and returned the note to the contractor marked "canceled." At the time said note was returned there was due and owing the Government, on said note, the principal sum of $766,291.94.

The amount of said unpaid indebtedness was shown on the munitions books of the American Can Company. During the year 1921 these books were closed and said unpaid indebtedness was transferred to the general ledger of the general books of the American Can Company, but no entry was made on the said general ledger or general books showing the name of the creditor to whom the indebtedness was payable.

Interest on said unpaid balance of the loan had been also entered in the "Accrued interest" account on the general books of the American Can Company from time to time to the date of taking of the evidence herein (1926), but such entry did not disclose to whom said interest was due.

The plaintiff corporation had not audited its books at the time said note was returned, but shortly thereafter discovered that the loan had not been fully paid and that there was still due and owing on said note the sum of $766,291.94.

Plaintiff did not direct the attention of the officers of the Government to the error and did not then and there pay, and