De Laval Steam Turbine Co. v. United States

Background

A manufacturer of marine steam turbines had entered into thirteen written contracts to build propulsion units for ships before January 12, 1918. In early 1918 the United States, acting through the Emergency Fleet Corporation, requisitioned those contracts and told the parties it would pay just compensation and assume responsibility. The dispute here involves three unfinished contracts (priced at $150,000, $735,000, and $216,000). The maker continued work under government direction, then suspended operations after the Armistice, stored materials, and later reclaimed those materials at an agreed salvage value.

Reasoning

The core question was whether the manufacturer could recover anticipated profits it would have earned if allowed to finish the contracts. The Court explained that when the government lawfully takes or cancels contracts under its wartime powers, injured parties are entitled to fair payment for the value taken and their actual losses, not damages that resemble a private breach claim. The Court relied on earlier decisions and said just compensation means the contract’s value at cancellation plus actual costs, not projected future profits. The Court accepted the lower court’s factual finding that the contracts’ market value at cancellation was $8,500 and declined to disturb that finding.

Real world impact

Companies whose wartime contracts are requisitioned or canceled by the government can expect compensation for the contract’s market value and their actual expenses, but not for lost future profits they might have earned. The ruling also treats existing contracts as made subject to Congress’s wartime takeover powers, so cancellation claims will follow the same rule whether the contract was originally with the government or between private parties.