149 F.2d 130 (2nd Cir. 1945), 287, Doehler Metal Furniture Co. v. United States

Docket Nº:287.
Citation:149 F.2d 130
Case Date:April 26, 1945
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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149 F.2d 130 (2nd Cir. 1945)




No. 287.

United States Court of Appeals, Second Circuit.

April 26, 1945

Page 131

On December 22, 1938, plaintiff, Doehler Metal Furniture Company, Inc., entered into a contract with defendant, the United States of America, for the sale by Doehler to the defendant of 6, 141 pieces of steel furniture (to be manufactured by Doehler) for the use of the army in the Canal Zone, at a price of $92, 391.80 less a discount of 1% for payment within ten days after delivery, which delivery was to be made on or before April 12, 1939. Article 5 of the contract provided in part:

'Article 5. Delays- Damages. If the contractor refuses or fails to make deliveries of the materials or supplies within the time specified in Article 1, or any extension thereof, the Government may by written notice terminate the right of the contractor to proceed with deliveries or such part or parts thereof as to which there has been delay. In such event, the Government may purchase similar materials or supplies in the open market or secure the manufacture and delivery of the materials and supplies by contract or otherwise, and the contractor and his sureties shall be liable to the Government for any excess cost occasioned the Government thereby * * * .'

Doehler having failed to make delivery of any of the furniture, the government, by telegram dated April 17, 1939, confirmed by a letter of April 19, notified Doehler that 'pursuant to article five * * * your right to proceed is hereby terminated' as to 5, 464 pieces of the furniture but directing Doehler to 'expedite performance' as to the balance, or 677 pieces; the letter stated that the purchase of the 5, 464 pieces had been made in the open market and that the difference in cost would be charged to Doehler. On May 31, Doehler delivered to the government the 677 pieces; it was subsequently agreed by the parties that the amount due therefor was $8, 860.11. On April 18, the government, after soliciting bids, had made a contract with the lowest bidder, Equipment & Furniture Corporation, for delivery, on or before May 29, 1939, of the 5, 464 pieces at price of $105, 057.90, less 1% discount for payment within ten days. In all other respects the contract was the same as that with Doehler except that there was substituted for Article 5 a provision for liquidated damages which, so far as here pertinent, reads as follows:

'Article * * * Delays- Liquidated Damages. If the contractor refuses or fails to make delivery of the materials or supplies within the time specified in Article 1, or any extension thereof, the actual damage to the Government for the delay will be impossible to determine, and in lieu thereof the contractor shall pay to the Government, as fixed, agreed, and liquidated damages for each calendar day of delay in making delivery, the amount as set forth in the specified or accompanying papers, and the contractor and his sureties shall be liable for the amount thereof; Provided, however, That the Government reserves the right to terminate the right of the contractor to proceed with deliveries or such

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part or parts thereof as to which there has been delay, and to purchase similar material or supplies in the open market or secure the manufacture and delivery thereof by contract or otherwise, charging against the contractor and his sureties any excess cost occasioned the Government thereby, together with liquidated damages accruing until such time as the Government may reasonable procure similar material or supplies elsewhere * * * .'

The government having made prompt payment to Equipment, received a 1% discount. Deducting (1) this discount, (2) the 8, 860.11 and (3) a few small items not necessary to mention here, the government asserted that the cost for the 5, 644 pieces delivered under this contract exceeded the price under the Doehler contract by $21, 682.42. Against this amount the government credited Doehler with the $8, 860.11 and certain other small items, leaving a let amount due the Government of $12, 711.85. 1 Because of delays on the part of Equipment, the government collected from it $9, 119.75 in liquidated damages, pursuant to the above liquidated damage clause.

The government having refused to pay the $8, 860.11, Doehler brought this suit therefor in the court below. The government counterclaimed for $12, 711.85. Both parties moved for summary judgment. The trial court denied Doehler's motion and entered judgment dismissing Doehler's complaint but awarding the government $3, 612.10, that being the $12, 711.85 excess cost minus the $9, 119.75 (received as liquidated damages from Equipment) plus $20 costs. Doehler has appealed from the judgment; the government has also appealed, assigning as error the failure to include in the judgment the sum of $9, 119.75.

Gresser & Walker, of New York City (Nathan Walker, of New York City, on the brief), for plaintiff-appellee-appellant.

John F. X. McGohey, of New York City (John F. Ryan, of New York City, of counsel), for defendant-appellant-appellee.

Before L. HAND, CHASE and FRANK, Circuit Judges.

FRANK, Circuit Judge.

1. Since Doehler was in default as to delivery of all the furniture covered by the contract, the government had the privilege, conferred by the reletting provision, to refuse to accept delivery in toto and to let a new contract for the 6, 321 pieces, holding Doehler for the 'excess cost.# Doehler contends that the government could not exercise that privilege as to reletting with respect to part of the furniture, while calling on Doehler to deliver the balance, and that therefore Doehler cannot be held liable pursuant to the reletting provision. In effect, the argument is that, by its conduct, the government abandoned its rights under that provision. That contention is untenable. The government's voluntary relinquishment of a portion of its privilege was not an abandonment of the rest of it. Although we do not so decide, we may assume, arguendo, that Doehler might properly have refused to deliver the 677 pieces; but even if it were true that, in that respect, the government sought to

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deviate from the terms of the contract conferring the privilege, that fact would not invalidate the exercise of that privilege as to the 5, 644 pieces.

We may arrive at the same conclusion by another route: If we assume that the attempted exercise of the privilege, because partial, was invalid, then the notice of April 17-18 was an offer to Doehler by the government to exercise that privilege in part and to receive delivery from Doehler of the 677 pieces; assuming further that Doehler could properly have refused that offer and that, had it done so, the government, by reletting a contract for only 5, 644 pieces, would have lost its rights under the reletting provision, the fact is that Doehler did not refuse but, on May 31, some six weeks after the notice, delivered the 677 pieces; accordingly, whatever Doehler's legal position might otherwise have been, it is surely now in no position to object to the enforcement of the reletting provision as to the 5, 644 pieces.

2. Doehler contends that the inclusion in the Equipment contract of the liquidated damage clause wiped out Doehler's liability for 'excess cost' under the reletting provision, regardless of whether or not, in fact, that inclusion caused all or part of the increased price under the Equipment contract. For, argues Doehler, the addition of that clause was a material change which 'affected the price as a matter of law.' This alleged doctrine (reminiscent, in its rigid formality, of the rule in Shelley's case) finds no support in the cases; those cited by Doehler related to relet contracts calling for performance of work of a kind substantially different from that which the first contractor had agreed to perform or for the delivery of goods of a substantially different character. 2

The addition, however, of the liquidated damage clause may in fact have accounted, to some extent or entirely, for the increased price named in the Equipment contract. Doehler argues that Equipment must have known that the government could never prove any precise amount of damages caused by delay; and that, therefore, Equipment, recognizing that the added clause increased its risk, should it delay in making delivery, must be 'conclusively presumed' to have demanded that its contract included a promise of extra compensation for taking that risk. But that argument impliedly rests on the axiom that businessmen invariably recognize the risks they take and always nicely calculate them in dollars and cents. Doubtless at one time many economists, believing it to be self-evidently true that every man is solely a fanatically rational 'economic man', accepted that axiom as virtually a law of nature; but, as the result of accurate observation of human behavior, that axiom is now generally treated as an assumption to be used most cautiously with full awareness that it is a 'neglective fiction.' 3 Courts use such (and other) fictions; but

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this particular fiction should surely not be the basis of a 'conclusive presumption' or otherwise serve as a substitute for evidence.

Moreover, we would indulge in the sheerest guessing if we were to say that Equipment must necessarily have regarded the added clause as appreciably augmenting its risk; for the contract, even without that clause, would have subjected Equipment, if it delayed, to the consequences of the relet provision with a possibility of its liability for increased costs, a possibility which, in wartime conditions, might easily have become a strong probability. Besides, as Doehler (somewhat inconsistently) says in its brief, Equipment, when it made its contract, 'may have been so sanguine of ability to perform in time as to make any delay damage seem unimportant.'

Whether, then,...

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