
    WINCHESTER REPEATING ARMS CO. v. THE UNITED STATES
    [No. A-243.
    Decided June 1, 1925]
    
      On the Proofs
    
    
      Contract; settlement agreement; breach. — Where plaintiff’s contract with the Government to manufacture and deliver certain supplies was suspended on account of the armistice, and a settlement agreement was entered into in which the Government admitted a certain amount to be due the plaintiff as a result of the suspension of the original contract, and a part thereof was paid to plaintiff, and thereupon prolonged negotiations were carried on, the plaintiff claiming the Government should pay a larger sum than admitted to be due, the delay caused by such negotiations was not a breach of the settlement agreement and plaintiff was limited to the amount agreed upon therein.
    
      The Reporter’s statement of the case:
    
      Mr. II. Stanley Hinrichs for the plaintiff. Mr. Frank S. Fright was on the briefs.
    
      
      Mr. Edwin S. McGrary, with whom was Mr. Assistant Attorney General WUliam, J. Donovan, for the defendant.
    The following are the facts a,s found by the court:
    I. The plaintiff is a corporation duly organized and existing under the laws of the State of Connecticut, with its principal office at New Haven in said State.
    II. In October, 1911, the United States, being then at war, was greatly in need of a satisfactory telescopic rifle sight suitable for military purposes. The official War Department standard sight (manufactured by Warner & Swazey arid costing about $60) was unsatisfactory, and the War Department had made an unsuccessful effort to develop a satisfactory sight.
    III. The plaintiff had theretofore developed and manufactured one of the three sportsman’s telescopic rifle sights then being made in the United States and had also done some preliminary work upon the development of a sight suitable for military purposes but had abandoned said work. On October 22, 1917, the Ordnance Bureau, knowing that the plaintiff had abandoned said efforts, addressed a letter to the plaintiff asking whether it would accept an order to develop a telescopic rifle sight suitable for military purposes and stating that the said bureau would turn over to the plaintiff all data on hand which was considered of use in developing a suitable telescopic rifle sight, and also “paying for the necessary tools, laboréete., unless a sufficient number of sights are ordered to enable you to distribute the preliminary expenses incurred over various orders.”
    IY. Thereupon the plaintiff conducted an investigation of some of the problems involved, and on November 17, 1917, notified the said Ordnance Bureau that “it seems probable that we can develop a satisfactory telescope. * * * We are therefore going ahead with the development of this telescope and will submit one for your consideration at our earliest opportunity. In regard to your suggestion that the Ordnance Department pay for the necessary tools, labor, etc., this is quite unnecessary; in fact, we would prefer to continue the development in the same way we started, and making no charge to. the department if the sight should not be accepted. We hope, of course, that the sight will be sufficiently satisfactory so that the department will place orders Avith us, in Avhich case our initial cost will be absorbed in the purchase price.” To Avhich Captain Lee O. Wright, of the Ordnance Department, replied in writing on November 21, 1917, stating:
    
      “ It is noted that this development will be undertaken at your own expense. Your decision in this matter is appreciated, and it is hoped that you will be successful in developing a satisfactory telescope at an early date,-;’
    Y. The plaintiff did develop a military telescopic riñe sight Avhich Avas satisfactory to the War Department and Avas adopted as the official War Department standard after competitive tests; and on May 11, 1918, the plaintiff was notified by the Engineering Bureau of the War Department that its sight would be adopted, and that to meet requirements while production Avas being reached the department would order plaintiff’s sportsman’s telescope. Also stating “ in the meantime, expedite drawings and specifications for approval by the Engineering Bureau. Large orders to be placed immediately.”
    VI. The said telescopic rifle sight so developed by’ the plaintiff and adopted by the War Department was a small •telescope about 10% inches in length, with attachments for fastening to a rifle, which attachments were such as to withstand with a minimum strain the shock and recoil incident to the discharge of the rifle. The telescope had forty-two component parts and utilized seven patents belonging to the plaintiff and a new invention, which has since been patented, which involves a new theory of geometric optics. Said sight was provided with devices by which it could be adjusted for ranges up to twelve hundred yards and for varying conditions of wind. It magnified the object about two and three-fourths times, and so greatly increased the light-gathering power of the eye that with its use on a rifle it was possible for the marksman to hit a target at night when it was so dark that said target was scarcely visible to the-naked eye.
    VII. After November 17, 1917, and prior to the adoption of said telescopic sight the plaintiff expended various sums of money in experimental work and otherwise, in designing and developing the said sight and in originating and developing a lens system therefor; and following the said telegram of May 11, 1918, it expended other moneys in preparing for the grinding of the necessary .lenses and preparing for the manufacture of the other component parts and also in making certain changes in the sight which were desired by the officials of the War Department. These preliminary costs amounted to the sum of $34,762.31, divided as follows: '
    1. In designing and developing said telescopic sight, the sum of $25,720.82, as follows:
    Costs of labor and material in designing and' building equipment to be used in manufacturing the sights_ $763. 31
    Costs of labor and material expended in designing and developing said costs- 12, 009. 01
    Paid the Stevens Arms Company for privilege of using patent_ 5, 000. 00
    Paid Professor Hastings, optical expert, for optical services in developing optical and lens system for this sight- 8, 000." 00
    Total_ 25, 772. 32
    2. Claimant also expended in originating and developing a lens system for said sight the sum of $8,989.99:
    Costs of experimental lens grinding and experimental work in developing equipment for lens grinding- 8,217. 57
    Expended for material equipment and services on lenses for these sights_ 772.42
    Total_ 8, 989. 99
    All of the aforesaid, sums were expended previous to August 24, 1918, when the War Department entered into a contract with the plaintiff for the purchase of 32,000 of said sights at $38 each, the lenses being furnished by the Government. In arriving at said price the plaintiff included as an element of its cost said preliminary expenses incurred by it after November 17, 1917.
    VIII. If the said contract dated August 24,1918, had been completely performed the plaintiff’s profits therefrom would have exceeded $121,600, but before any of the articles had been completed the War Department entered into negotiations with the plaintiff looking to the termination of the contract, which negotiations culminated in the execution of a contract dated August 14, 1919. The said contract dated August 24, 1918, is attached to the petition marked “ Exhibit H,” and is made a part hereof by reference. The contract dated August 14, 1919, which is the basis of this suit, is attached to the petition marked “ Exhibit J,” and is made a part hereof by reference.
    IX. The United States, on December 12, 1918, by letter to plaintiff, directed it to immediately suspend further operations under the contract of August 24, 1918, except such operations as were necessary to complete delivery of 9,216 telescopic rifle sights. On January 2, 1919, the United States, by a letter to plaintiff, directed it to completely suspend operations under said contract. A copy of said letter is attached to the petition of the plaintiff marked “ Exhibit I ” and is made a part hereof by reference. The plaintiff when ordered to suspend operations was ready, willing, and able to completely perform the contract in accordance with its terms.
    Said partial settlement supplemental contract, dated August 14, 1919, provided, inter alia, for the immediate payment to the plaintiff of $88,000 (to cover costs incurred after the making of the contract of August 24, 1918) and states that the Government finds that not less than $111,348.79 is due the plaintiff, but that the contractor claims an amount in excess of that sum. The partial settlement supplemental contract states that the contractor is willing to agree to a complete termination of operations under the original contract and 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 the performance of the incompleted portion of said contract and provision of the speedy determination and payment of the various items of remnhursement and remuneration hereinafter set forth.”
    X. As a part of the covenants of said partial settlement supplemental contract dated August 14, 1919, the defendant agreed to pay the plaintiff a sum of $88,000 forthwith,, which ■was done, and further agreed, after a speedy determination, to reimburse and remunerate the contractor for:
    1. Such portion of and expenditures, obligations, and liabilities necessarily incurred, including 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
    2. Such expenditures incurred and services properly rendered under this supplemental agreement:
    
    “ Section A. For raw material, 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.
    }{; % % % :Jt
    “ 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 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 portion of the 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 the contractor for expenditures, obligations, and liabilities necessarily incurred, including work, labor, and services necessarily rendered, under the original contract, or in preparation for the performance thereof, or under this supplemental agreement.”
    
      XI. The plaintiff made its claims before the War Claims Board tinder the various headings and sections noted in said partial settlement supplementary contract as A, B, C, D, E, F, and G, with the result that claims on sections B, C, and E were entirely disallowed and denied.
    Under section A a settlement was offered, and the amounts claimed in plaintiff’s petition and its bill of particulars No. 1 in this case that fell under the provision of section A are the following:
    Steel purchased_$8, 852. 26
    Brass purchased_I_ 15, 587. 34
    Material furnished subcontractor- 5,817.11
    30, 256. 71
    Under section U there was allowed the following:
    Amount due to Intertype Corporation, a subcontractor_$65, 615.15
    Paid Doehler Die Casting Co_ 1,206. 00
    66,821.15
    Under the section F settlement was offered, and the amounts claimed in plaintiff’s petition and bill of particulars No. 1 in this case amount to $763.31.
    The sum of the amounts claimed in plaintiff’s petition and bill of particulars filed herein falling under such subdivisions A, D, and F, as aforesaid, amounts to $97,841.17, of which amount $88,000 has been paid by the United States, and an allowance of $1,100 agreed upon for materials retained by plaintiff, which reduced said amount to a balance of $8,741.17, being the total amount covered by partial settlement supplemental contract of August 14, 1919, and its sections A, B, C, D, E, F, and G, under Article V thereof, which is claimed in plaintiff’s petition and remains unpaid.
    Under section G the Secretary of War, before whom said claim was brought upon appeal, offered to allow the plaintiff an additional $5,000 for the sum it expended to secure the right to use the Stevens patent in the manufacture of this telescopic sight, but no sum or sums were allowed plaintiff either by the War Claims Board or the Secretary of War as remuneration for sums spent in experimental or development work before the date of its contract of August 24,1918.
    The plaintiff turned over to the Government all the property in process of purchase for use for the original contract, except for the materials it retained, at an agreed price of $1,100, to be credited to the Government.
    XII. The War Department paid to the plaintiff the $88,000 referred to in said partial settlement supplemental contract of August 14, 1919, and the plaintiff, instead of accepting the balance of $29,343.79, filed several claims before the War Claims Board for various sums as permitted by said contract and designated to be classified under sections A, B, C, D, E, F, and G of Article V of said contract in the sum of $168,469.88.
    The War Claims Board denied all of said claims except the sum of $12,372.43, which on appeal the Secretary of War increased by the allowance of an additional item of $5,000 for the sum paid by plaintiff for the privilege of using the Stevens patent in the manufacture of said telescopic sights, thereby making a total of $17,372.43, which the Secretary of War thereupon offered the plaintiff in addition to the $88,000 previously allowed and paid to it and which further amount was so offered in full settlement of all demands and claims in connection with this matter.
    XIII. The settlement contract determined and concluded all the claims of plaintiff except those falling within the classes therein enumerated in Article Y. It acknowledged that not less than $117,343.79 was due the plaintiff, of which it promised to pay $88,000 forthwith, leaving a sum not less than $29,343.79 admittedly due and for which it promised payment. In order to determine the exact amount due the plaintiff, the parties agreed that claims falling within the certain described classes of Article Y ivere to be considered, that prospective profits were released and waived by the agreement, as were all other claims not coming within the classes named in Article Y, to wit:
    1. Reimbursement and remuneration for expenditure, liabilities, and obligations necessarily incurred, including work, labor, and service rendered in connection with the performance of the original contract.
    
    2. Expenditures incurred and service properly rendered under this supplemental agreement. ,
    For releasing all claims except these the plaintiff received $88,000 and other considerations.
    
      The court decided that plaintiff was entitled to recover, in part.
   Hat, Judge,

delivered the opinion of the court:

After the preliminary negotiations the plaintiff on August 24, 1918, entered into an agreement in writing with the United States whereby it agreed to manufacture 32,000 telescopic musket sights at $38 each, or for the entire number of sights the sum of $1,216,000.

Before any of these articles were completed the armistice between this country and Germany occurred, and on December 12, 1918, before any of said articles were completed, the United States directed the plaintiff to suspend further operations under the contract, except such as should be necessary to complete delivery of 9,216 sights. On January 2, 1919, before any of the said articles were completed, the United States, by a letter to the plaintiff, directed it. to completely suspend all operations under the contract. The letter stated the request to suspend was made with a view to the negotiation of a supplemental contract providing for the cancellation, settlement, and adjustment of the existing contract between the parties. On August 14, 1919, after negotiations between the parties, they entered into a settlement contract in writing, whereby the United States agreed to pay the plaintiff the sum of $88,000, and the contract contained an averment that the United States was due and owing to the plaintiff the sum of $117,343.79, which included the said sum of $88,000. The United States then paid and the plaintiff accepted the said sum of $88,000. But the plaintiff claimed that there was a larger sum due it than the $117,343.79 which the United States admitted was due.

The plaintiff thereupon executed the contract aforesaid, in which it agreed to waive all rights to prospective profits if it could secure forthwith reimbursement of a portion of the expenditures and obligations necessarily incurred by it in the performance of the incompleted portion of the contract of August 24,1918, and provision for the speedy determination and payment of the various items of reimbursement and remuneration which are set forth in the contract and are to be found in Finding X.

The plaintiff undertook negotiations with the United States whereby it sought to show that there was owing to it a larger sum than the sum of $117,343.79. These negotiations finally culminated in an offer by the Secretary of War to pay to the plaintiff the sum of $17,372.43, which, in addition to the sum of $88,000 already paid to the plaintiff, was to be in full satisfaction of all claims against the United States. This offer the plaintiff declined, and brought this suit.

The plaintiff claims that the settlement "contract was breached by the United States because it says that the United States did not make a speedy determination and payment of the amount due the plaintiff as provided for in the contract. But the evidence shows that the United States was ready upon the execution of the contract to pay the plaintiff the sum of $117,343.79, and did pay the plaintiff $88,000 thereof; the plaintiff thereupon filed claims aggregating-over $168,000, and the parties continued to negotiate in an endeavor to arrive at an agreement as to the true amount due under the terms of the settlement contract. It can not be said that an honest effort to arrive at an agreement constitutes a breach of contract. If the negotiations were long drawn out that is not the fault of either party, and neither one of them can be held to have breached the contract by reason of delay in arriving at a settlement.

The plaintiff was unwilling to accept payment of the amount which the United States admitted was due it, and now brings this suit, not only for what it claims to be due under the settlement contract but also for prospective profits which it waived when it executed the settlement contract, and for expenses incurred by it before the execution of the original contract of August 24, 1918. Those expenses were incurred by- plaintiff with the express understanding that they would be undertaken by the plaintiff at its own expense, and with the assertion by it that its initial cost would be absorbed in the purchase price.

The plaintiff voluntarily signed the settlement contract; it has received money, $88,000, under it, and must abide by its terms. Whatever loss it has incurred was brought about by the armistice; it took the chance that the war might come to an end at any time; that its contract might be terminated at any time; and that it would stand to lose the profits which it Avas preparing to realize. Under the original contract no articles Avere completed, the United States received no benefit from the contract, and it is only bound to pay for services, performed and for preparations made to perform the contract ; and this principle the plaintiff agreed to when it executed the settlement contract. The court will not set aside a contract into which the parties entered with full knowledge of all its provisions unless there has been some fraud or illegality in the case. The plaintiff can not noAv be heard to assert claims Avhich it has voluntarily waived.

A judgment will be entered in favor of the plaintiff for $29,343.79, which sum the United States admit to be due it.

DoavNet, Judge; Booth, Judge; and Campbell, Chief Justice, concur.

Graham, Judge, took no part in this decision:  