United States v. Walkof
| Decision Date | 18 July 1944 |
| Docket Number | No. 252.,252. |
| Citation | 144 F.2d 75 |
| Parties | UNITED STATES v. WALKOF. |
| Court | U.S. Court of Appeals — Second Circuit |
Benjamin Siegel, of New York City (Benjamin Siegel and Benjamin Brownstein, both of New York City, of counsel), for Nathaniel Walkof, as trustee in Bankruptcy of Lion Overall Co., Inc.
James B. M. McNally, U. S. Atty., of New York City (R. Lewis Townsend, Asst. U. S. Atty., and Francis M. Shea, Asst. Atty. Gen., both of New York City, and Leavenworth Colby, Attorney, Department of Justice, of Washington, D. C., of counsel), for United States of America.
Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
On July 30, 1940 Lion Overall Co., Inc. entered into a written contract with the United States to furnish 25,000 one-piece working suits to the War Department at the Philadelphia Quartermaster Depot for a unit price of $2.12, less a discount of one-half of 1% for payment within twenty calendar days. The suits were to be delivered 10% within twenty-one days after date of receipt of notice of award, 12% within the next seven days, and 16% each six days thereafter, until deliveries of the quantity contracted for should be completed. The total contract price for the garments was $53,000. The contractor defaulted in making deliveries under the contract and on January 15, 1941, the government terminated his right to proceed further. At that time, 19,009 suits had been delivered out of the total of 25,000, but 5,991 had not been delivered although the last delivery date under the contract schedule was September 27, 1940. Thereafter, in accordance with the provisions of Article 17 of the contract, the United States procured 5,943 suits from another contractor at a unit cost price of $2.11 per garment, the delivery of which was to be made on or before February 26, 1941. The result of the purchase of the suits under the new contract was an added cost to the government of only $3.56. But the latter presented not only a claim for this amount and also for two other small items aggregating $18, but also a claim for liquidated damages against the estate of the contractor, Lion Overall Co., Inc., which was adjudicated a bankrupt in or about April 1941. It is conceded that if the terms of the contract be literally applied, liquidated damages became due for the delay in performance to the amount of $6,729.14 in addition to the item of $3.56 and the two other items which aggregated $18. The gross amount claimed by the government as liquidated damages equalled $20,886.95 but it applied to this gross sum a credit of $14,157.81, representing a balance due for suits which it had received from the contractor and had not paid for.1
The referee in bankruptcy allowed the government only its actual damages of $21.56 and rejected its claim of $6,750.70 for net liquidated damages on the ground that it was really a claim for a penalty rather than for liquidated damages and was, therefore, not provable because of Section 57, sub. j2 of the Bankruptcy Act, 11 U.S.C.A. § 93, sub. j. Upon review Judge Bright reversed the referee and allowed the government's entire claim.
The question before us is whether the item of $20,886.95 was a penalty within the meaning of Section 57, sub. j.
The appellant contends that under the New York law the liquidated damage clause in the contract imposes a penalty and refers to the recent decision of Weinstein & Sons, Inc., v. City of New York, 264 App.Div. 398, 35 N.Y.S.2d 530, affirmed 289 N.Y. 741, 46 N.E.2d 351, in support of this contention. The provision for liquidated damages in that case is found in a contract between Weinstein & Sons Inc. and the City of New York to supply dress woolens for a W. P. A. municipal sewing project at a price of $22,057.59. The New York courts held that the liquidated damages provided for delay in making deliveries and equalling 20% of the contract price bore no reasonable relation to any probable damage that might follow a breach of the contract and that the subject-matter of the contract was something that could readily be obtained from others. Accordingly they rejected the claim for liquidated damages. The inconvenience of late deliveries whereby the City of New York had to make some change in its plans for distribution of the dress woolens in...
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