United States v. Wegematic Corporation

• Citation: 360 F.2d 674
• Decision Date: 05 May 1966
• Docket Number: No. 225,Docket 29855.,225
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. WEGEMATIC CORPORATION, Defendant-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

360 F.2d 674 (1966)

UNITED STATES of America, Plaintiff-Appellee, v. WEGEMATIC CORPORATION, Defendant-Appellant.

No. 225, Docket 29855.

United States Court of Appeals Second Circuit.

Argued March 28, 1966.

Decided May 5, 1966.

John L. Goldstone, New York City (Leon, Weill & Mahony, New York City), for defendant-appellant.

Arthur S. Olick, New York City (Robert M. Morgenthau, U. S. Atty. for Southern District of New York, Alvin H. Meadow, Asst. U. S. Atty., of counsel), for plaintiff-appellee.

Before LUMBARD, Chief Judge, and FRIENDLY and ANDERSON, Circuit Judges.

FRIENDLY, Circuit Judge:

The facts developed at trial in the District Court for the Southern District of New York, fully set forth in a memorandum by Judge Graven, can be briefly summarized: In June 1956 the Federal Reserve Board invited five electronics manufacturers to submit proposals for an intermediate-type, general-purpose electronic digital computing system or systems; the invitation stressed the importance of early delivery as a consideration in determining the Board's choice. Defendant, a relative newcomer in the field, which had enjoyed considerable success with a smaller computer known as the ALWAC III-E, submitted a detailed proposal for the sale or lease of a new computer designated as the ALWAC 800. It characterized the machine as "a truly revolutionary system utilizing all of the latest technical advances," and featured that "maintenance problems are minimized by the use of highly reliable magnetic cores for not only the high speed memory but also logical elements and registers." Delivery was offered nine months from the date the contract or purchase order was received. In September the Board acted favorably on the defendant's proposal, ordering components of the ALWAC 800 with an aggregate cost of $231,800. Delivery was to be made on June 30, 1957, with liquidated damages of $100 per day for delay. The order also provided that in the event the defendant failed to comply "with any provision" of the agreement, "the Board may procure the services described in the contract from other sources and hold the Contractor responsible for any excess cost occasioned thereby." Defendant accepted the order with enthusiasm.

The first storm warning was a suggestion by the defendant in March 1957 that the delivery date be postponed. In April it informed the Board by letter that delivery would be made on or before October 30 rather than as agreed, the delay being due to the necessity of "a redesign which we feel has greatly improved this equipment"; waiver of the stipulated damages for delay was requested. The Board took the request under advisement. On August 30 defendant wrote that delivery would be delayed "possibly into 1959"; it suggested use of ALWAC III-E equipment in the interim and waiver of the $100 per day "penalty." The Board also took this request under advisement but made clear it was waiving no rights. In mid-October defendant announced that "due to engineering difficulties it has become impracticable to deliver the ALWAC 800 Computing System at this time"; it requested cancellation of the contract without damages. The Board set about procuring comparable equipment from another manufacturer; on October 6, 1958, International Business Machines Corporation delivered an IBM 650 computer, serving substantially the same purpose as the ALWAC 800, at a rental of $102,000 a year with an option to purchase for $410,450.

In July 1958 the Board advised defendant of its intention to press its claim for damages; this suit followed. The court awarded the United States $46,300 for delay under the liquidated damages clause, $179,450 for the excess cost of the IBM equipment, and $10,056 for preparatory expenses useless in operating the IBM system — a total of $235,806, with 6% interest from October 6, 1958.

The principal point of the defense, which is the sole gound of this appeal, is that delivery was made impossible by "basic engineering difficulties" whose correction would have taken between one and two years and would have cost a million to a million and a half dollars, with success likely but not certain. Although the record does not give an entirely clear notion what the difficulties were, two experts suggested that they may have stemmed from the magnetic cores, used instead of transistors to achieve a solid state machine, which did not have sufficient uniformity at this stage of their development. Defendant contends that under federal law, which both parties concede to govern, see Cargill, Inc. v. Commodity Credit Corp., 275 F.2d 745, 751-753 (2 Cir. 1960), the "practical impossibility" of completing the contract excused its defaults in performance.

We agree with the defendant that the decisions most strongly relied on by the Government are not controlling; much of the seeming confusion in this field of law stems from failure to make necessary distinctions as to who is suing whom for what. Thus Day v. United States, 245 U.S. 159, 38 S.Ct. 57, 62 L.Ed. 219 (1917), and Fritz-Rumer-Cooke Co. v. United States, 279 F.2d 200, 6 Cir. (1960), involved no question of nonperformance but an attempt by a contractor who had fully performed to secure added compensation for surmounting unexpected difficulties. While Austin Co. v. United States, 314 F.2d 518, 161 Ct.Cl. 76, cert. denied, 375 U.S. 830, 84 S.Ct. 75, 11 L.Ed.2d 62 (1963), did involve failure by a manufacturer to perform because of engineering problems, it was not an effort to resist damages, which the Government did not seek; the contractor was attempting to recover costs incurred prior to termination under a special clause in the contract without which, as...