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154 Ct. Cl. Findings of Fact fund, from time to time, such percentage of the annual net profits of the contractor's business covered by the contract as the Commission shall determine is necessary to further build up a fund for replacement of the contractor's subsidized ships; but the Commission shall not require the contractor to make such deposit of the contractor's net profits in the capital reserve fund unless the cumulative net profits of the contractor, at the time such deposit is to be made, shall be in excess of 10 per centum per annum from the date the contract was executed. From the capital reserve fund so created, the contractor may pay the principal, when due, on all notes secured by mortgage on the subsidized vessels and may make disbursements for the purchase of replacement vessels or reconstruction of vessels or additional vessels to be employed by the contractor on an essential foreigntrade line, route, or service approved by the Commission, but payments from the capital reserve fund shall not be made for any other purpose.
The contractor may, with the consent of the Commission, pay from said fund any sums owing but not yet due on notes secured by mortgages on subsidized vessels.
(c) To attain the public objects for which the financial aid provided for in such contract is extended and to insure the continued maintenance and successful operation of the subsidized vessels, the contractor shall create and maintain, during the life of such contract, a "special reserve fund" in such depository or depositories as the Commission shall approve.
If the profits, without regard to capital gains and capital losses, earned by the business of the subsidized vessels and services incident thereto exceed 10 per centum per annum and exceed the percentage of
profits deposited in the capital reserve fund, as provided in subsection (b) of this section, the contractor shall deposit annually such excess profits in this reserve fund. From the special reserve fund the contractor may make the following disbursements and no others:
(1) Reimbursement to the contractor's general funds for any losses on the operation of the subsidized vessels and services incident thereto sustained subsequent to the execution of the operating-differential-subsidy contract;
(2) Reimbursement to the contractor's general funds for current operating losses on completed voyages of subsidized vessels whenever the Commission shall determine it is improbable that such current losses will be made up by profits on other voyages during the current year;
Findings of Fact (3) Payment of amounts due from the contractor to the Commission for reimbursement as provided in clause 5 of section 606, but such reimbursement shall be deferred until the amount on deposit in the special reserve fund shall be sufficiently in excess of 5 per centum of the capital necessarily employed in the business so that
payo ment of such reimbursement to the Commission will not reduce the special reserve fund below a sum equal to such 5 per centum of capital necessarily employed in the business: Provided, That such reimbursement to the Commission, if so deferred, shall be payable upon termination of the contract from any amounts then in the special reserve fund and the capital reserve fund: Provided further, That if any amounts shall have been transferred to the general funds of the contractor from either of such reserve funds and not repaid thereto, or if prepayments of amounts not due before one year after the date of termination of the contract have been made from the capital reserve fund pursuant to subsection (b) of this section, then the balance of such reimbursement not paid out of said reserve funds shall be payable out of any other assets of the contractor, but the amounts so payable from such assets shall not exceed in the aggregate the sum of the amounts so transferred and not repaid, and the amounts of such prepayments;
(4) After reimbursement to the contractor's general funds of all operating losses has been made, as provided in clause 1, and after reimbursement to the Commission of all amounts due from the contractor, as determined under clause 5 of section 606, if the amount accumulated in the special reserve fund shall then be in excess of 5 per centum of the capital necessarily employed in the business, the contractor may, if the Commission approves, withdraw some or all of such excess reserve and pay the sum so withdrawn into the contractor's general funds or distribute the sum so withdrawn as a special dividend to the contractor's shareholders or stockholders or as a bonus to officers or employees, as the contractor may determine.
(d) The Commission shall adopt and prescribe rules and regulations for the administration of the reserve funds contemplated by this section and shall include therein a definition of the term "net earnings” and the term "capital necessarily employed in the business," as such terms are employed in this section : Provided, however, That the term “net earnings” shall take into account as a proper accounting charge to operation of vessels expense, an annual depreciation charge on the vessels,
154 Ct. CI. Syllabus computed on the economic life of the vessel as provided in section 607(b) and the term "capital necessarily employed in thé business” shall not include borrowed capital.
Upon application of the contractor, the Commission, in its discretion, may permit the investment by the operator of some or all of the contractor's capital and special reserve fund in approved interest-bearing securities, approved by the Commission, upon condition that the interest on such securities shall be deposited in the capital reserve fund.
Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is entitled to recover and judgment will be entered to that effect. The amount of recovery will be determined pursuant to Rule 38(c).
NORTH AMERICAN PHILIPS COMPANY, INC. v.
THE UNITED STATES
[No. 354–56. Decided July 19, 1961. Defendant's motion for new
trial denied October 4, 1961)
ON THE PROOFS
Contracts; termination; reimbursable costs and expenses.-In an
action by plaintiff to recover amounts claimed to be due when its ten-year research and development contract with the Gov. ernment was terminated for the convenience of the Government at the end of three and one-half years, it is held (1) that under the provisions of the contract termination clauses and the Contract Settlement Act of 1944, 41 U.S.C. $ 101, et seq., plaintiff is entitled to recover its equity in the termination inventory except for the prototype engines; (2) that plaintiff is entitled to interest on the amount of its claim under the 1944 Act; and (3) that termination and post-termination expenses incurred and necessary should have been refunded to plaintiff. The case is remanded to a commissioner of the court to determine
the amounts of recovery. Contracts; termination; reimbursable costs; inventory items-exper
imental prototypes.-Upon the termination of a ten-year re search and development contract at the end of only three and one-half years, the contractor has an equity in the termination inventory for which he is entitled to be paid and this will cover
Syllabus all reusable items which are clearly inventory items. Prototypes of engines which were the end result of three so-called task orders completed at the time of termination, however, are not true inventory items because they could not have been used on further work under the contract had the contractor been permitted to complete it. The cost of the prototypes was not a true measure of their value. The real value of the prototypes to the contractor was the know-how acquired in their development and manufacture and upon the termination of the contract the contractor had no equity in the three prototypes
completed. United States - 74(16) Contracts; termination; reimbursable costs; capital equipment.
Upon the termination of a ten-year research and development contract at the end of three and one-half years, where the contract provides that title to the property purchased for the performance of the contract shall vest in the Government, and that the contractor shall be reimbursed for 60 percent of the cost of the equipment on a monthly basis spread out over the ten-year term, the contractor is entitled to recover its unreim
bursed share of the original cost of such capital equipment. United States On 74 (16) Contracts; termination; Contract Settlement Act; interest on
claim.—Under the provisions of the Contract Settlement Act of 1944, 41 U.S.C. & 101, et seq., the contractor may have interest on the amount of its claim at the rate of two and one-half per
cent, commencing 30 days after termination. United States On 74 (16) Contracts; termination; reimbursable costs; termination expenses.
Where a termination provision of a contract provides that the contractor shall be reimbursed for costs and expenses which were reimbursable under the contract up to the date of termination and for such of the costs as might continue for a reasonable time thereafter with the approval of the contracting officer, "which approval shall not be unreasonably withheld", it is unreasonable for the contracting officer to withhold his approval of reimbursement of termination costs actually paid
by the contractor and which were necessary and proper. United States 74 (16) Contracts; termination; reimbursable costs; post-termination ex
penses.—Where, upon the termination of a contract for the convenience of the Government, the contractor arranges for the sale of capital equipment to Columbia University and the title to the equipment is in the Government, the contractor is entitled to be paid for such post-termination expenditures rep
resenting expenses incurred in disposing of the property. United States On 74 (16)
154 Ct. Cl. Opinion of the Court Charles W. Halleck for plaintiff. Arthur J. Phelan and Hogan and Hartson on the briefs.
Kendall M. Barnes, with whom was Assistant Attorney General William H. Orrick, Jr., for defendant.
LARAMORE, Judge, delivered the opinion of the court:
This is a suit for the recovery of alleged termination costs growing out of a contract that was terminated for the convenience of the Government pursuant to the Contract Settlement Act of 1944, 41 U.S.C. 101, et seq.
The contract involved in this case was originally entered into with Philips Laboratories, Inc. However, on July 2, 1954, they entered into an agreement with the defendant whereby the plaintiff herein was substituted as the contractor under the contract.
The facts in this case are set out fully in the findings and will only briefly be related in this opinion.
Towards the end of World War II a Dutch company known as N. V. Philips Gloeilampenfabrieken was engaged in developmental work on an external combustion engine. In September of 1944, after the Germans had been driven out of Holland, an Allied mission went to the Netherlands to obtain technical intelligence on various projects. Reports on the nature of the Philips' developmental work were sent to Washington where they created interest on the part of the Navy's Bureau of Ships. As a result of this interest, the Navy and Philips Eindhoven decided to join forces for the further development of these engines. It was determined that these engines could best be developed in the United States and a new corporation known as Philips Laboratories, Inc., was formed on June 11, 1945, for that purpose. Pursuant to this plan it was agreed between the parties that a group of Dutch technicians and their families, together with special equipment and technical data, would be brought to this country for a period of 18 months. Even though no contract was signed at that time, this group immediately began work at Dobbs Ferry, New York, on the development of the new engine.
Thereafter, following nearly nine months of negotiations, a contract was entered into on June 19, 1946. This contract was dated June 1, 1946.