UNITED STATES v. BETHLEHEM STEEL COMPANY.
APPEAL FROM THE COURT OF CLAIMS.
No. 188.
Argued January 28, 29, 1907.
Decided March 11, 1907.
The rule that prior negotiations are merged in the contract is general in its nature and does not preclude reference to letters between the parties prior to the execution of a contract in order to determine whether from the language used in the contract the parties intended stipulated deductions for delay as a penalty or as liquidated damages.
Where in response to. Government advertisements the same party submits . different bids, the largest price being for the shortest time of delivery, the acceptance of the bid for the shorter time is evidence that the element of time is of essence, and a stipulated deduction of an amount per day equivalent to.the difference between the short and long time for delivery is to be construed as liquidated damages for whatever delay occurs in the delivery, and not as a penalty, although the word penalty may have been used in some portions of the contract.
41C. 01. 19, reversed.
. The Bethlehem Steel Company recovered a judgment in the Court of Claims (41 C. Cl. 19) for the sum of $21,000 against the appellant, from which judgment the United States, has appealed to this court.
The company filed its petition in the Court of Claims seek- ing to recover a balance which' it alleged was due from the United States on a contract, which had been entered into by the company with Brigadier General Flagler, Chief of Ordnance, in behalf of and for the United States, for the construction of certain gun carriages, which the company alleged had been constructed according to the contract and for which the Government had failed to pay the full amount which became due upon its performance.
The facts were found by the Court óf Claims, from which it appears that the Government on the eighth day of March, 1898, advertised for proposals for the construction of six’ disappearing gun carriages, and the specifications accompany-*106ihg the advertisement set forth the character and extent of the -work. The claimant, in response to the advertisement, submitted four distinct sealed proposals to the War Department for the construction of such carriages. By the first proposal the company agreed to furnish five or more gun carriages for the sum of $31,000 each, the first to be delivered within six months of the date of contract, to be followed by two carriages every three months thereafter. By the second proposal the company offered to furnish the same number for the sum of $33,000 each, the first to.be delivered within five months from date of contract, to be followed at the rate of one carriage every month thereafter. By the third proposal the offer was to furnish the same number for the sum of $35,000 each, the first to be delivered within four months, and the second within five months of date of contract; the remaining carriages to follow at the fate of three carriages every two months thereafter. By the fourth proposal the offer was to furnish the same number for the sum of $36,000 each, the first to be delivered in four months, the second in five months, and the remaining carriages at the rate of two carriages every month thereafter.
These' alternative proposals were made in consequence of a letter written the company by the Chief of Ordnance, dated March 11, 1899, of which the following is a copy:
“Office of .the Chief Of Ordnance,
“United States Army, “Washington, March 11, 1898.
“Gentlemen: . It is suggested that in making bids for carriages you estimate, first on the price of carriages under -the supposition that- the works will run for twenty-four hours; second, .that later, if it be- found advantageous, the ordinary working hours may be .observed. It is considered best that bids should be made for carriages by numbers, as, for instance, so much for-five 8-inch carriages, for six, eight, etc. Therefore it is considered judicious that bids should be made for rapid *107delivery of a certaiii number of' carriages or for less rapid delivery of the same. It should be understood, however, that time will be considered very important.
“Respectfully, D. W. Flagler,
“Brig. Gen., Chief of Ordnance.”
The following are the further findings of the Court of Claims': • “IV. The defendants, through the War Department,, accepted proposal No. 4 of- the claimant company.
“V. In drawing up the contract between the United States and' the claimant company a slight modification of proposal No. 4 Was decided upon, which was as follows:
“Whereas in proposal No. 4 claimant company was to deliver five or more carriages, the first in four months, the second in five months, and the remaining ones-to follow at the rate-of two carriages per month. In drawing up the contract this was changed so as to provide for the delivery of one carriage in four months (as proposed) and five carriages in six months from the date of contract, thus reducing the time of delivery of all the carriages from seven to six months, this. reduction of the total delivery being offset by the increased. latitude given claimant company as to intermediate deliveries.
“VI. On April 4, 1898, the Ordnance Department transmitted a form of contract of even date to the claimant company for execution and return by letter, as follows:
“ ‘Office of the Chief of Ordnance,
“ ‘United States Army,
“ ‘Washington, April 4, 1898.
“ ‘The Bethlehem Iron Co., South Bethlehem, Pa.
“ ‘Gentlemen: I am instructed by the Chief of Ordnance to - transmit herewith contract, in quintuplicate, dated the 4th instant, for six 12-inch disappearing gun carriages, model 1896, for execution and return to this office.
“ ‘Respectfully, R. Birnie,
“ ‘Capt., Ord. Dept., V. S. A.’'
*108“To this letter the claimant company made reply on April 5, 1898:
“ ‘The Bethlehem Iron Company,
“ ‘South Bethlehem, Pa., April 5,1898. “‘Chief of Ordnance, U. S. A.,
“ ‘War Department, Washington, D. C.
“ ‘Sir: We have examined the contract,forms, covering six disappearing gun carriages, model 1896, for 12-inch B. L. rifles,
, for which we submitted proposals under the date 19th ultimo, and write to call your attention to the third clause, relating to our liability on account of any patent rights granted by the United States, is not struck out, as has been done in the case of previous contracts for carriages.
“ ‘We also note that the penalty mentioned in the contract for each day of delay in delivery of each carriage is $75 instead of $10; as is stipulated in the instructions to bidders and specifications'.
“‘We made our bid under the understanding that the penalty for non-delivery was to be $10 per day, and we respectfully request that the contract forms may be modified in accordance with this understanding.
“ ‘We return herewith the contract forms, and remain,
“ ‘Respectfully,
“ ‘The Bethlehem Iron Company, ‘“R. W. Davenport,
“ ‘Second Vice President *
“Whereupon the claimant company was informed by the Chief of Ordnance, by letter of April 9, 1898, as follows:
“ ‘Office of tfie Chief of Ordnance,
“ ‘United States Army,
“ ‘Washington, April 9) 1898.
“ ‘The Bethlehem Iron Company,
“ ‘South Befhlehem, Pa.
“ ‘Gentlemen: In reply to your letter of April 5, 1898, returning contract forms, I have the honor to inform you that *109your request in .regard to your liability on account of patent rights has been complied with and the third paragraph has been stricken out.
“ 'In regard to the penalty for delay in delivery being $75 per day instead of $10 per day, I have to state that the former amount is the average difference in time of delivery between your price recently bid for slow delivery of these carriages and the price under the accepted bidf The department feels it to be just that this average difference should be the prescribed penalty; but, if you should prefer, instead of taking the average difference, that the exact difference per day for each particular carriage should be prescribed, the forms will be altered accordingly.
“ ‘The contracts are returned, hoping this explanation will he satisfactory.
“ ‘Respectfully, D. W. Flagler,
“ ‘Brigadier General, Chief of Ordnance.’
“Thereafter it was found that an error, had been made! in the above computation, in that the $75 per day deduction provided for should have been $35 "instead, and the claimant company was duly informed .of this by letter dated April 16, 1898, which is as follows:
“ ‘ Office of the Chief of Ordnance;
“ ‘United States Army,
“ ‘Washington, April 16, 1896.
“ ‘The Bethlehem Iron Company,
“ ‘ South Bethlehem, Pa.
“ ‘ (Through the Inspector of Ordnance, U. S. A.)
“‘Gentlemen: Referring to my letter,'No. 21985, of the 9th instant, I would invite your attention to the fact that -an error was made in thq computation in the amount of the deduction in price per day of delay in delivery of 12-inch disappearing carriages, L. F., model of 1896, recently ordered from you, and to inform you that the contract-should read that-such deduction in price should be $35 per day-of delay-in *110delivery, in accordance with principle stated in my above-mentioned letter.
“•/Respectfully, D. W. Flagler,
“ ‘Brigadier General, Chief of Ordnance.’
“Before signing the contract in its present form the claimant company, by communication on April 20, 1898, requested that the.same should be modified in some respects, which request is contained in the following communication:
“ ‘The Bethlehem Iron Company,
“ ‘South Bethlehem, Pa., April 20, 1898. “*‘Chief of Ordnance, U. S. A.,
“ ‘War Department, Washington, D. C.
“ ‘Sir: Referring to the forms of contract for six 12-inch disappearing gun carriages, carrying the date of April 4, 1898, which have recently been received, but not ‘yet executed, and to the conversation which the writer had with you on Thursday last, we beg to state that on further carefully considering the possibilities of the case we do not believe that we will be able to deliver the six carriages within six months, as called for by the proposed contract. We will, however, undertake to complete, in accordance with our bid, the delivery of the first carriage in four months, the second within five months, and the remaining four at the rate of two per month-, thus making the total time of delivery of the six carriages seven instead of six months, it being understood that no penalty will be charged against us for the one month of deláy which will thus accrue on the fifth and sixth carriages.
“ ‘By agreeing to this proposition the department will be the gainer, in that the second carriage will be due at the end of the fifth month, while, as the contract now reads, it would not be due until the end of the sixth month.
“ ‘With the above understanding confirmed,.we will execute the cotitract as it now stands, except as to the amount of penalty for delay in delivery, which, in accordance with your . letter of April 16, will be $35 instead of $75 per day.
*111“ ‘We return-the contract forms in order that the change as regards penalty may be made.
'“•‘We remain, respectfully,
“ ‘The Bethlehem- Iron- Company,
“ ‘R. W. Davenport,
“ ‘Second Vice President.’
“To which letter the following reply was made:
“ ‘Office of the Chief of Ordnance,
“ ‘United States Army,
“ ‘Washington, April 25, 1898.
“ ‘The Bethlehem Iron'Company,
“ ‘South Bethlehem, Pa.
“ ‘ (Through Inspector of Ordnance, U. S. A.)
“ ‘Gentlemen : In reply to your letter of the 20th instant, I have the honor, to inform you that the schedule of deliveries of 12-inch disappearing carriages contained therein .will, in view of the earlier, resulting delivery of the second carriage, be accepted in lieu of the schedule in the contract, without enforcement of penalties which wquld result from the changé of schedule.
“ ‘The amount of the penalty for delay in,delivery is changed from $75 to $35 per day in. accordance with my letter of the ,16th instant, and the contract forms are returned herewith for execution.
“ ‘Respectfully, D..W. Flagler,
“‘Brigadier General, Chief of Ordnance.’’
“The above correction was therefore made in the said contract, and the same was duly • signed and executed by the claimant company and immediately transmitted to the War Department. A copy of said contract is annexed- to and niade part of the petition.”
The following are the material portions of..the contract:
“ Under advertisement dated ', 189 , the said parties of the first part do hereby . contract and engage with the said *112United States to manufacture, for the Ordnance Department, U. S. Army, in accordance with said instructions to bidders as amended, specifications and drawings, all of which are hereto attached and form part of this contract.
“ Six (6) disappearing gun carriages, model 1896, for 12-inch B. L. rifles, drawings dated April'27 and June 19, 1896 (latest revision July 14 and December 30, 1897), at thirty-six thousand dollars ($36,000)-each, free on board cars at South Bethlehem, Pa.'
“The first carriage to be delivered within four (4) months from date of this contract, and the remaining five (5) carriages within six (6) months from date of this contract.
“It is further stipulated and agreed that the party of the first part will furnish such limited additional number of these carriages,- at the price and rate of delivery stated; as the party of the second part may desire, under available appropriations.'
*jc ^ ^ ^
“It is further stipulated and agreed that if any carriage herein contracted for is not delivered by the party of the first part at the times specified herein, there will be deducted, in the discretion of the Chief of Ordnance, thirty-five ($35) dollars per day from the price to be paid therefor for each day of delay in delivery of each carriage, respectively. But if at any time' the Chief of Ordnance shall decide That continuous and great delay or other serious default has occurred, he may, to protect the interests of the United States, apply the provisions of the 5th section of the regular contract form and waive further per diem deduction in price.
“All penalties incurred under this contract shall be offset against any payments falling due to the said party of the first part.
“The work must pass the required inspection at all stages of its progress, and be approved by the officers of the Ordnance Department before being accepted and paid for by the United States:
“ (Signed by the parties.)
*113‡ ‡ ‡ ‡ ‡
“VII. Thereupon the Bethlehem Iron Company-proceeded to manufacture the said gun carriages,^ and ultimately délivered them to the.United States, and they were accepted by the latter. The following table gives, first, the date fixed by the said contract for the delivery of each one of said carriages; second, the date of its delivery, and, third, the extent of the delay in its delivery.
Number of .carriage. Date for delivery fixed by contract. Date of delivery (actual)I Extent of delay.
16 August 4,1898. . . January 28, 1899. 177 days.
17 September 4, 1898. March 6,1899. . . 183 “
18 October 4,1898.. . April 13,1899. . . 191 “
19 October 4, 1898... March 18,1899. . 165 “
20 November 4', 1898. April 29, 1899. . . 176 “
21 November 4,1898. May 27,1899.... 204 "
Total delay. 1,096 days.
“Of the above days of delay, which amounted-in the aggregate to 1,096 days, the United States, through the- Chief of its Bureau of Ordnance, decided that the. Bethlehem Iron Com-pany was responsible for delays to the extent of 100 days upon each of the six disappearing gun carriages, or 600 days in all, but did not charge said company with the balance of said days, or 496 days in all; which, at the stipulated sum of deduction at $35 per day for each day of delay in the delivery of each gun carriage, amounted to the sum of $21,000, which sum was deducted from the payments made the claimant company, and the balance, or the sum of $195,000, was paid over to the claimant company, who receipted for said payment under protest.
“ VIII. The court finds as the ultimate fact that the defendants’ officers hindered and delayed the claimant in the performance of the work by changes in the plans of construction, as alleged in the petition, and in various other ways; but the court also finds that the claimant contributed ,to the delay *114in the completion of the work by being insufficiently equipped and prepared to complete it within the time prescribed in the contract and by taking other work to the exclusion of that referred to in these findings; and the court further finds that the transactions in the process of manufacture were so involved and intermerged that it is impossible, on- the evidence produced, for the court to ascertain and determine whether the defendants should be charged with a greater proportion of the delays set forth in the foregoing table in Finding VII than those assumed by the defendants’ officers, to wit, 496 days out of the total amount of delays, .to wit, 1,096 days.
. “It does not appear that the defendants were ready to use the gun carriages hereinbefore described at thé time when they were finally delivered by the claimant; nor does it appear that they could have used them on their fortifications if they had been delivered at an earlier day. Nor does it appear that the defendants suffered any injury or damage whatever .by the delay of the claimant in delivering the said gun carriages hereinbefore set forth.
“ Conclusion of.[ law.
“Upon the foregoing findings of fact the court decides, as a conclusion of law, that the claimant recover judgment in the sum of twenty-one thousand dollars ($21,000).”
The Attorney General and Mr. Assistant Attorney General Van Orsdel, with whom Mr. Franklin W. Collins was on the' brief, for appellant:
Time was of the essence of the contract. Time may be of the^essence of a- contract for the sale of property. Taylor v. Longworth, 14 Pet. 172; Jones v. United States, 96 U. S. 24, Secombe v. Steel, 20 How. 94-104; Brown v. Guaranty Trust Co., 128 U. S. 403. In this case it was an all-important consideration, was so represented in the advertisements and the instructions to bidders, and.was so treated by the appellee in its proposals and in the contract itself.
*115The per diem deductions were not penalties, and. though referred to as such in the contract neither the Government nor the court in its interpretation of the contract is to be concluded by the use of the technical term “penalty.” Davis and Davidson v. United States, 17 C. Cl. 201; cited with approval in Halladay v. United States, 35 C. Cl. 453; also in Edgar Thompson Works v. United States, 34 C. Cl. 218.
Courts have frequently held the sum stipulated to be paid on breach of the agreement to be', from the nature of the case, a penalty, notwithstanding the strongest language showing the intention of the parties to be that it should be paid in full as liquidated damages. Boys v. Ancell, 5 Bing. (N. Car.) 391; Davies v. Benton, 6 B. & C. 216; Horner v. Flintoff, 9 M. & W. 678; Reindel v. Shell, 4 C. B. (N. S.) 97.
On the other hand, cases are numerous in which the parties have used the term “penalty” which seems on its face to import a forfeiture rather than a valuation of damage, yet the courts have held that the stipulated sum was, from the very nature of the case, to be considered as liquidated damages and recoverable in full. Sainter v. Ferguson, 7 C. B. 716; Leighton v. Wales, 3 M. & W. 545; Sparrow v. Paris, 7 H. & N. 594.
On the other hand, a contract for a “penalty” may appear from the context to be a contract for “liquidated damages,” and may be so treated.. Page on Contracts, 1905, § 1172; Robinson v. Aid Society, 68 N. J. L. 723; Illinois Central Ry. v. Cabinet Co., 104 Tennessee, 568; Clark v. Barnard, 108 U. S. 436; Jacqua v. Heddington, 114 Indiana, 309.
Where the contract calls for a per diem deduction as the measure of injury, in the event of the occurrence of a specified-contingency, and the sum agreed upon does not appear unreasonable upon the face of the contract, and the actual damages are impossible of ascertainment, and no fraud or duress has been practiced to induce either party to enter into the contract, and the sources of information are open alike to *116both parties, the court should hold that the sum stipulated is the agreed measure of damages.
Mr. James H. Hayden for appellee: •
The contract in suit is free from ambiguity and the parties are bound by it. Resort cannot he had to their transactions which occurred while the contract was in fieri, for the purpose of showing that they intended something different from the import of the language employed in the instrument. Simpson v. United States, 172 U. S. 372, 379; Brawley v. United States, 96 U. S. 168, 173; Van Buren v. Digges, 11 How. 461, 466; Harvey v. United States, 8 C. Cl. 501, 506, 508.
If they .were relevant matter, the negotiations of the parties, which preceded the execution of the contract, would not sustain the contention of the United States, to the effect that the stipulation concerning penalty was intended to provide for a deduction, as liquidated damages, or something else. '
A review of the preliminary correspondence which passed between the Chief of Ordnance and the Bethlehem Company shows that the parties understood what they were doing when they signed the contract, and that the penal clause providing in terms for the imposition of penalty in case of the contractor's default was framed by the Chief of Ordnance, exactly as he wished it to be framed. The contract was drawn by him, not by the claimant. The liability to be incurred by the contractor for delay in delivering the carriages was referred to by the Chief of Ordnance as penalty in letters which he directed to the claimant on April 9,1898, and April 25, 1898, and was denominated penalty by the Bethlehem Company in its letters, written to' the Chief of Ordnance on April 5,1898, and April 20, 1898. There is nothing to indicate that" the parties attempted to ascertain what loss the Government would suffer from delay, or thát they fixed by agreement the measure of damages to be recovered in case of the company’s default.
The contract is to be interpreted as one which provided for a forfeiture or penalty, in case of the contractor’s default.
*117The fact that the delay, caused by both parties, did not occasion actual damage and that a deduction made as liquidated damages, at the arbitrary rate of $35 per diem on each carriage, would be extortionate and lead to an. unjust result, furnish sufficient reasons to sustain the judgment.
Time was not -of -the essence of the -contract (Taylor v. Longworth, 14 Pet. 172, 174; Jones v. United States, 96 U. S. 24; Secombe v. Steele, 20 How. 94, 104 distinguished), as' in those cases it was made so by express stipulation or by implication from the nature of the property and the • avow;ed objects of the seller and purchaser. Aside from naming a period within which the gun carriages should be delivered, the contract .in suit contains nothing to indicate that time was of the essence.- The penal clause itself shows that the parties contemplated the possibility of delays occasioned by acts of one or both of them. Neither can it be implied from the nature of the ploperty that time was of the essence. The conduct of the parties and the situation of the United States shows that it was not. The progress of the work was hindered by changes ordered by the Chief of Ordnance. The carriages were accepted without complaint long alter the date fixed by contract for their delivery. The United States was not ready to make use of them when delivered. It could not have made use of them had they been delivered sooner. It would simply have been put to the expense of storing and caring for them.