
    LIBBY, McNEILL & LIBBY v. THE UNITED STATES
    [No. E-607.
    Decided February 27, 1928]
    
      On the Proofs
    
    
      Contract for millo; ascertainment of profit; aolual cost. — In a contract for sale of milk to the Government, under wliicli certain excess profits were to be refunded, the correct ascertainment óf profit was upon the actual cost of filling- the particular order, where only one order was given, and not upon the average cost of that and all other orders given to the contractor in his year’s business.
    
      The Reporter's statement of the case:
    
      Mr. W. Pa/rhef Jones for the plaintiff. Mr. Willia/m H. Long was on the brief.
    
      Mr. Héber H. Rice, with whom was Mr. Assistant Attorney General Herrrtiau J. GaTloaoay, for the defendant.
    The court made special findings of fact, as follows:
    I. The plaintiff herein, Libby, McNeill & Libby, is a corporation duly organized and existing under the laws of the State of Maine. ■ •
    II. The milk manufacturers, among whom was the plaintiff herein, entered into an agreement with the defendant on November 14, 1917, for the sale of milk to the Army, Navy, and Marine Corps for the period from November 1, 1917, to December 31, 1918, which agreement was subsequently reduced to writing by the chairman of the m,ilk manufacturers war committee, and contained among others the following provisions:
    “ The milk manufacturers agree that profit made on sales to the Army, Navy, and Marine Corps, as an average for the period in question, shall not be more than 420 per case on evaporated milk and 590 per case on condensed milk, calculated on the basis of Federal Trade Commission cost accounting, as set forth in the pamphlet issued by the Federal Trade Commission under date of July, 1917, entitled ‘ Uniform contracts for cost accounting, definitions, and method.’ * * *
    “ The price which the Army, Navy, and Marine Corps shall pay for milk purchased in the respective months shall be determined as follows: [Provision is here made that the basis of the price would be the market price existing the first part of each month, less a proper differential representing freight, bringing the price to an f. o. b. factory basis.]
    “ Orders shall be placed after the 20th of the month only for a shipment in a subsequent month, and such orders shall take the price determined for the month in which shipment is designated to be made.
    “ At the close of the period during which supplies may be purchased on this basis, following January first, 1919, investigation of the costs by the representative companies shall be made by the Federal Trade Commission or some other agency agreed upon by the buyers and manufacturers. In the event that any manufacturer has made, during the period, an average of more than 420 per case on evaporated milk and 590 per case on condensed milk, the excess above such margin of profit shall be refunded by the respective manufacturers to the Army, Navy, or Marine Corps, respectively. In the event a manufacturer has made less than 420 per case provided on evaporated milk and 590 per case on condensed milk, neither the Army, Navy, nor Marine Corps shall be obliged to make any additional payments.”
    III. Pursuant to the foregoing agreement, plaintiff sold and delivered to the Quartermaster Corps of the Army the following quantities of evaporated milk during the months of November and December, 1917, at the rates stated below:
    
      
      
    
    IV. An examination of plaintiff’s books was made by the Federal Trade Commission, which found, upon its method of cost accounting, that the cost to the plaintiff of the foregoing deliveries was $62,528.20, or an average of $4,928 per case, and the average price paid for same by defendant was $5,556 per case, which was $0,218 )n excess of the allowed profit of $0.42 per case, or a total excess profit of $2,702.80. Said commission further found that the profit made by plaintiff upon all of the evaporated milk, including the aforesaid 12,700 cases, which it sold to the Army, Navy, and Marine Corps during the period of fourteen months referred to in the manufacturers’ agreement, averaged $0,305 per case, or $0,115 less than the allowed profit of $0.42 per case.
    V. On April 22, 1918, the depot quartermaster, New York City, issued Purchase Order No. 4-1492 to plaintiff for 360,000 cans (7,500 cases) of evaporated milk at 10-J-f^ per can ($5.06 per case). Delivery thereof was delayed and made in installments during the months of May, June, and July, 1,250 cases being delivered on July 2nd, 1918. The market price existing during the first part of April, 1918, was $5.06 per.case; of May, $4.56; of June, $4.21; and of July, $4,805 per case.
    The War Department paid the plaintiff the April price for ,5,250 cases, the June pr,ice for 1,000 oases, and the July price for 1,250 cases, or a total of $36,781.25. On account of delayed deliveries and the provision of the manufacturers’ agreement relative to orders placed after the 20th of the month the parties later agreed to adopt the May prices for the entire order (making a total of $34,200), and the difference to be refunded accordingly. The difference between the amount paid by the War Department and the amount so adopted of $2,581.26 has not been refunded to defendant either in whole or in part.
    VI. On December 10, 1918, the quartermaster department of the Army placed with plaintiff an order for 2,000 cases of condensed m,ilk at $7.98 per case, this being the only quantity of condensed milk sold to the Government between November 1, 1917, and December 31, 1918. This condensed milk was delivered on December 23, 1918, and the price paid for same by defendant was $7.98 per case, or $15,960. The cost to the plaintiff of the condensed milk, as found by the Federal Trade Commission upon examination of plaintiff’s books, averaged $6,413 per case, by taking as a basis for computing same the average cost to plaintiff of the raw milk used during the entire year 1918 at the plaintiff’s plant at Adams Centre, New York, where it was manufactured, together with the average cost of the other accessories, that is, the materials and supplies used and expenses incurred in connection with the manufacture of same during the year. By permitting upon this bas,is a profit of 59 cents per case, being the maximum profit possible under the manufacturers’ agreement, the selling price to the Government would have been $14,006, which is $1,954 less than the amount actually paid therefor by defendant. However, by basing the cost of the condensed milk not upon the general average for the year, but upon the cost of the raw milk used to fill this particular order (using as the basis the average cost of raw milk used at that plant during October, November, and December, 1918), together with the average cost of the aforesaid accompanying materials, the cost to the plaintiff of the condensed milk in question was found by the Federal Trade Commission to be $7,698 per case, or $0,282 per case less than the amount received for same from defendant. By permitting upon this basis a profit of 59 cents per case, being the maximum profit possible under the manufacturers’ agreement, the selling price to the Government would have been $16,576, which is $616 more than the amount actually paid therefor by the defendant. In averaging the cost of the cans, labels, and boxes used, the average cost for the year was taken in both methods above mentioned, being the only practical method of computing same.
    VII. The raw milk which was used in the manufacture of the condensed milk in question was purchased by plaintiff subsequent to October 1, 1918, and the cost of this raw milk as shown by the records of the Federal Trade Commission was not less than the average cost of the raw milk purchased by plaintiff at the Adams Centre plant during the months of October, November, and December, 1918.
    VIII. After payment by defendant to plaintiff of the amounts hereinbefore mentioned for the three orders of milk aforesaid these accounts were audited by the accounting officers of the Government, who thereupon disallowed the total sum of $7,238.05, as follows: The sum of $2,702.80 upon the shipments in November and December, 1917, as set out in Finding IV, the sum of $2,581.25 in connection with the order of April 22, 1918, as described in Finding V hereof, and the sum of $1,954 upon the order of December, 1918, as described in Finding VI hereof. Thereafter the said amount of $7,238.05 was deducted by defendant from an amount otherwise due the plaintiff under another contract, which made the basis of its suit. Said deduction was originally made in the sum of $7,264.30 on June 2, 1924, and thereafter, on September 29, 1925, defendant paid the plaintiff the sum of $26.25, being the amount - which had been deducted in excess of the said sum of $7,238.05.
    IX. The goods or supplies referred to were sold and delivered by plaintiff to the United States Marine Corps and the same were paid for by defendant, excepting the amount of $7,238.05.
    The court decided that plaintiff was entitled to recover, in part.
   Moss, Judge,

delivered the opinion of the court:

This case is submitted on a stipulation of facts, no evidence having been presented.

Plaintiff is suing for the recovery of $7,264.30 as the balance due plaintiff under certain contracts and purchase orders for certain supplies sold and delivered to the United States Marine Corps, at agreed prices, in the year 1924. Defendant contends that plaintiff is indebted to the Government on account of overpayment by the Government on certain transactions occurring in the year 1918 amounting to $4,535.25.

The Government entered into an agreement with plaintiff and other milk manufacturers, effective from November 1, 1917, to December 31, 1918, a period of 14 months, for the sale of milk to the Army, Navy, and Marine Corps, known in the record as the “manufacturers’ agreement.” This agreement provided for the allowance of an average profit for the entire period of 14 months of 420 per case on evaporated milk and 590 per case on condensed milk.

Defendant contends that it overpaid plaintiff in the sum of $2,T02.80 on certain deliveries of evaporated milk, on the ground that plaintiff’s profits were in excess of the profits allowed by the agreement. It appears, however, that the average profit on the evaporated milk for the full period of 14 months was less than 420 per case. Plaintiff is entitled to this sum.

The manufacturers’ agreement provided that in orders placed after the 20th of the month the price for the month of designated delivery should control. On April 22, 1918, an order was issued for 7,500 cases of evaporated milk. The delivery was delayed, and was made in installments during the months of May, June, and July. Plaintiff was paid on the basis of the April price for 5,250 cases, the June price for 1,000 cases, and the July price for 1,250 cases, a total of $36,181.25. In a controversy between the parties growing out of this transaction it was later agreed that the May price should prevail, and on that basis plaintiff was overpaid in the sum of $2,581.25. Defendant is entitled to a credit in said amount.

Another item of $1,954 claimed by defendant grows out of the following transaction: On December 10, 1918, an order was issued for 2,000 cases of condensed milk at the price of $1.98 per case. It was delivered on December 23, 1918, and plaintiff was paid the contract price, $15,960. In attempting to arrive at the profit to be allowed plaintiff in this transaction the Government took as a basis for computing the cost of this milk the average cost to plaintiff of the raw milk used at plaintiff’s plant during the entire year 1918. By this method plaintiff’s profit exceeded the 590 profit allowed by the manufacturers’ agreement, and amounted to $1,954 excess payment to plaintiff. This was the only order and delivery of condensed milk during the period in which the manufacturers’ agreement was operative. In such circumstances it was obviously improper to consider the average, cost to plaintiff of all the raw milk used by plaintiff for the entire year. The proper method for arriving at the profit in this isolated transaction was to deduct from the selling price the actual cost, which is easily ascertainable, of supplying this particular order. The profit based on actual cost was less than the profit of 590 allowed by the manufacturers’ agreement.

For the reasons hereinabove set forth plaintiff is entitled to recover $4,656.80, and it is so ordered.

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