Savage Arms Corp. v. United States

Background

A private contractor agreed with the United States to make and deliver 440,000 magazines for Lewis machine guns at a fixed price. After delivering 24,347 units, the Ordnance chief asked for a suspension of 298,000 magazines. The contractor negotiated only with the local Claims Board and agreed informally to reduce the suspension so that 142,000 magazines would remain undelivered. The contractor later sought a formal revised suspension request, entered into a verbal deal to abandon claims if the government would revise the suspension, received the revised notice, stopped work, and tried to reserve a claim for lost profits. The government would not accept the remaining magazines or pay anticipated profits, and the contractor sued to recover those prospective profits.

Reasoning

The Court considered whether a contractor who agreed to eliminate part of its duties could later recover anticipated profits for the released portion. The Court held that the parties had mutually agreed to release the contractor’s obligation to deliver 142,000 magazines and that the government accepted that release. The opinion explained that executory contract duties can be released by mutual agreement without new consideration and that the contractor’s later attempt to reserve rights came too late or showed bad faith. The Court affirmed the judgment for the United States.

Real world impact

Companies that agree with government officials to reduce or end contractual duties cannot later claim lost future profits for the released portion if the government accepted the arrangement. A late attempt to reserve rights after accepting a revised suspension is ineffective. This decision resolves this dispute against the contractor and underscores the need for firms to protect rights before formally accepting suspension changes.