PRIEBE & SONS, INC. v. UNITED STATES.
No. 16.
Argued October 13, 1947.
Decided November 17, 1947.
J. Arthur Miller and Allen H. Gardner argued the cause for petitioner. With them on the brief was Samuel Williston.
Philip Elman argued the cause for the United States. With him on the brief were Solicitor General Perlman, Assistant Attorney General Ford, Paul A. Sweeney and Melvin Richter.
Mr. Justice Douglas
delivered the opinion of the Court.
This case, here on certiorari to the Court of Claims, presents the question whether a provision in a government contract for “liquidated damages,” as construed and applied, should be denied enforcement on the ground that it constitutes a “penalty.”
Shortly after the enactment of the Lend-Lease Act of March 11, 1941, 55 Stat. 31, 22 U. S. C. (Supp. V, 1946), § 411 et seq., the United States acting through agencies of the Department of Agriculture embarked on a program of purchasing dried eggs for shipment to England and Russia. Petitioner agreed to furnish a quantity of dried eggs under that program to the Federal Surplus Commodities Corporation (FSCC). The contract called for “May 18 [1942] delivery” which date, according to the contract, “shall be the first day of a 10-day period within which the FSCC will accept delivery, the particular day within the period being at the FSCC’s option.” Petitioner was also required to have the eggs inspected, delivery to be accompanied by inspection and weight certificates.
The contract contained two provisions respecting “liquidated damages.” One, contained in paragraph 9, was applicable to delays in delivery. It has no application here, for as we shall see, deliveries were timely. The provision for “liquidated damages” with which we are concerned is contained in paragraph 7 and is applicable to a totally different situation. It provides, with exceptions not material here, that “failure to have specified quantities of dried egg products inspected and ready for delivery by the date specified in the offer” will be cause for payment of “liquidated damages.”
On May 18, 1942, petitioner had not made delivery nor had the eggs been inspected. Inspection was, however, completed and certificates issued by May 22, which was prior to the time when FSCC asked for delivery. For it was not until May 26 that FSCC gave the first of several written notices for the shipment of eggs involved in this litigation. Petitioner made timely shipments pursuant to those instructions. Subsequently FSCC ascertained that petitioner’s inspection certificates had been issued after May 18 and accordingly deducted from the price 10 cents per pound on the theory that the failure to have the eggs inspected and ready for delivery by May 18 was a default which put into operation the “liquidated damages” provision of the contract.
Petitioner brought this suit in the Court of Claims to recover the amounts withheld plus interest. The Court of Claims, being of the view that there had been a breach of contract for which the United States was entitled to “liquidated damages,” dismissed the petition. 106 Ct. Cl. 789, 65 F. Supp. 457.
We construe the contract to mean that the time for delivery by petitioner was not May 18, 1942 but the time or times chosen by the FSCC within the ten-day period which began on May 18. That is to say, performance by petitioner was not due until request was made and instructions given for delivery. That interpretation is in accord with the uncontested finding of the Court of Claims that petitioner promised delivery “within a ten-day period commencing May 18, the precise date to be selected” by the FSCC.
The contract was drawn, however, to make the “liquidated damages” provisions include so-called defaults of petitioner which antedated the time when delivery was due but which in no way interfered with or caused delay in that performance. As noted, “liquidated damages” became payable on “failure to have specified quantities of dried egg products inspected and ready for delivery by the date specified in the offer,” viz. by May 18, 1942. The Court of Claims held this provision enforceable even though petitioner had made prompt delivery of the eggs, because it felt that the provision enabled respondent to carry on its dried-egg program “with assurance that it could count on the dried-egg products being ready on the specified date.” That position is amplified by respondent. The argument in short is that liability to pay “liquidated damages” for failure to have goods ready for delivery even prior to the time when delivery is due gives assurance against tardy deliveries; that a prompt timetable of shipments was important here because of war conditions and the necessity of having goods ready for loading whenever shipping space was available; that delay in deliveries would cause unmeasurable damage; and that even though no damage were apparent in a particular case, the “liquidated damages” provision should be enforced as a deterrent of tardy deliveries in the whole class of contracts relating to this procurement program.
It is customary, where Congress has not adopted a different standard, to apply to the construction of government contracts the principles of general contract law. United States v. Standard Rice Co., 323 U. S. 106, 111, and cases cited. That has been done in other cases where the Court has considered the enforceability of “liquidated damages” provisions in government contracts. United States v. Bethlehem Steel Co., 205 U. S. 105, 120-121; Wise v. United States, 249 U. S. 361, 365-366. We adhere to those decisions and follow the same course here.
Today the law does not look with disfavor upon “liquidated damages” provisions in contracts. When they are fair and reasonable attempts to fix just compensation for anticipated loss caused by breach of contract, they are enforced. Wise v. United States, supra, p. 365; Sun Printing & Pub. Assn. v. Moore, 183 U. S. 642, 672-674; Restatement, Contracts § 339; Dunlop Pneumatic Tyre Co. v. New Garage & M. Co., [1915] A. C. 79. And see Kothe v. Taylor Trust, 280 U. S. 224, 226. They serve a particularly useful function when damages are uncertain in nature or amount or are unmeasurable, as is the case in many government contracts. United States v. Bethlehem Steel Co., supra, p. 121; Clydebank Engineering & Shipbuilding Co. v. Castaneda, [1905] A. C. 6, 11-13, 20; United States v. Walkof, 144 F. 2d 75, 77. And the fact that the damages suffered are shown to be less than the damages contracted for is not fatal. These provisions are to be judged as of the time of making the contract. United States v. Bethlehem Steel Co., supra, p. 121.
Judged by these standards, the provision in question may not be sustained as an agreement for “liquidated damages.” It does not cover delays in deliveries. It can apply only where there was prompt performance when delivery was requested but where prompt delivery could not have been made, due to the absence of the certificates, had the request come on the first day when delivery could have been asked. A different situation might be presented had the contract provided for notice to the Government when the certificates were ready. Then we might possibly infer that promptness in obtaining them served an important function in the preparation of timetables for overseas shipments. But the contract contains no such provision; and it is shown that FSCC had no knowledge that the certificates were not ready on May 18 until long after deliveries had been made. So, it is apparent that the certificates were only an essential of proper delivery under this contract.
It likewise is apparent that the only thing which could possibly injure the government would be failure to get prompt performance when delivery was due. We have no doubt of the validity of the provision for “liquidated damages” when applied under those circumstances. United States v. Bethlehem Steel Co., supra; Wise v. United States, supra. And see Maryland Dredging Co. v. United States, 241 U. S. 184; Robinson v. United States, 261 U. S. 486. But under this procurement program delays of the contractors which did not interfere with prompt deliveries plainly would not occasion damage. That was as certain when the contract was made as it later proved to be. Yet that was the only situation to which the provision in question could ever apply. Under these circumstances this provision for “liquidated damages” could not possibly be a reasonable forecast of just compensation for the damage caused by a breach of contract. It might, as respondent suggests, have an in terrorem effect of encouraging prompt preparation for delivery. But the argument is a tacit admission that the provision was included not to make a fair estimate of damages to be suffered but to serve only as an added spur to performance. It is well-settled contract law that courts do not give their imprimatur to such arrangements. See Kothe v. Taylor Trust, supra; Restatement, Contracts § 339. All provisions for damages are, of course, deterrents of default. But an exaction of punishment for a breach which could produce no possible damage has long been deemed oppressive and unjust. See Salmond & Williams on Contracts (2d ed. 1945) § 202.
It is said, however, that a different rule should obtain here because of the broad procurement powers involved under the Lend-Lease Act. We are pointed, however, to no provision by which the Congress authorized the imposition of penalties as sanctions to that program; nor do we find any. We cannot infer such a power. The power to purchase on appropriate terms and conditions is, of course, inferred from every power to purchase. But if that is the source of congressional authority to impose penalties, then any procurement officer, in war or in peace, could impose them. That is contrary to the premise underlying all our decisions on this question which involve government contracts. The rule which they announce has been applied both to the exigencies of war (United States v. Bethlehem Steel Co., supra) and of peace (Wise v. United States, supra). The other view is such a radical break with the past and so counter to the whole development of the law as to indicate that the congressional purpose should be plain before we take the step.
Reversed.
That provision of the contract provided:
“Inasmuch as the failure of the vendor to deliver the quantity of the commodity or commodities specified in the contract in accordance with the terms of this announcement will, because of the urgent need for the commodity by the purchaser arising from the present emergent conditions, cause serious and substantial damages to the purchaser, and it will be difficult, if not impossible, to prove the amount of such damages, the vendor agrees to pay to the FSCC liquidated damages as stated in this paragraph. The sum is agreed upon as liquidated damages and not as a penalty and shall be in the amount set forth below for each pound of dried egg product undelivered in accordance with the terms of this announcement. . . . The parties have computed, estimated, and agreed upon this sum as an attempt to make a reasonable forecast of probable actual loss because of the difficulty of estimating with exactness the damages which result.”
The “liquidated damages” ranged from 10 to 30 cents per pound dependent upon the elapsed time between the acceptance date and May 18,1942.
The measure of “liquidated damages” in this situation was the same as that for delays in delivery set forth in note 1, supra.
They are covered, as we have already noted, by the provision set forth in note 1, supra.
U.S. Court of Customs and Patent Appeals U.S. Court of International Trade U.S. Court of Claims, Court of Federal Claims U.S. Court of Military Appeals, renamed as Court of Appeals for the Armed Forces U.S. Court of Military Review U.S. Court of Veterans Appeals U.S. Customs Court U.S. Court of Appeals, Federal Circuit U.S. Tax Court Temporary Emergency U.S. Court of Appeals U.S. Court for China U.S. Consular Courts U.S. Commerce Court Territorial Supreme Court Territorial Appellate Court Territorial Trial Court Emergency Court of Appeals Supreme Court of the District of Columbia Bankruptcy Court U.S. Court of Appeals, First Circuit U.S. Court of Appeals, Second Circuit U.S. Court of Appeals, Third Circuit U.S. Court of Appeals, Fourth Circuit U.S. Court of Appeals, Fifth Circuit U.S. Court of Appeals, Sixth Circuit U.S. Court of Appeals, Seventh Circuit U.S. Court of Appeals, Eighth Circuit U.S. Court of Appeals, Ninth Circuit U.S. Court of Appeals, Tenth Circuit U.S. Court of Appeals, Eleventh Circuit U.S. Court of Appeals, District of Columbia Circuit (includes the Court of Appeals for the District of Columbia but not the District of Columbia Court of Appeals, which has local jurisdiction) Alabama Middle U.S. District Court Alabama Northern U.S. District Court Alabama Southern U.S. District Court Alaska U.S. District Court Arizona U.S. District Court Arkansas Eastern U.S. District Court Arkansas Western U.S. District Court California Central U.S. District Court California Eastern U.S. District Court California Northern U.S. District Court California Southern U.S. District Court Colorado U.S. District Court Connecticut U.S. District Court Delaware U.S. District Court District Of Columbia U.S. District Court Florida Middle U.S. District Court Florida Northern U.S. District Court Florida Southern U.S. District Court Georgia Middle U.S. District Court Georgia Northern U.S. District Court Georgia Southern U.S. District Court Guam U.S. District Court Hawaii U.S. District Court Idaho U.S. District Court Illinois Central U.S. District Court Illinois Northern U.S. District Court Illinois Southern U.S. District Court Indiana Northern U.S. District Court Indiana Southern U.S. District Court Iowa Northern U.S. District Court Iowa Southern U.S. District Court Kansas U.S. District Court Kentucky Eastern U.S. District Court Kentucky Western U.S. District Court Louisiana Eastern U.S. District Court Louisiana Middle U.S. District Court Louisiana Western U.S. District Court Maine U.S. District Court Maryland U.S. District Court Massachusetts U.S. District Court Michigan Eastern U.S. District Court Michigan Western U.S. District Court Minnesota U.S. District Court Mississippi Northern U.S. District Court Mississippi Southern U.S. District Court Missouri Eastern U.S. District Court Missouri Western U.S. District Court Montana U.S. District Court Nebraska U.S. District Court Nevada U.S. District Court New Hampshire U.S. District Court New Jersey U.S. District Court New Mexico U.S. District Court New York Eastern U.S. District Court New York Northern U.S. District Court New York Southern U.S. District Court New York Western U.S. District Court North Carolina Eastern U.S. District Court North Carolina Middle U.S. District Court North Carolina Western U.S. District Court North Dakota U.S. District Court Northern Mariana Islands U.S. District Court Ohio Northern U.S. District Court Ohio Southern U.S. District Court Oklahoma Eastern U.S. District Court Oklahoma Northern U.S. District Court Oklahoma Western U.S. District Court Oregon U.S. District Court Pennsylvania Eastern U.S. District Court Pennsylvania Middle U.S. District Court Pennsylvania Western U.S. District Court Puerto Rico U.S. District Court Rhode Island U.S. District Court South Carolina U.S. District Court South Dakota U.S. District Court Tennessee Eastern U.S. District Court Tennessee Middle U.S. District Court Tennessee Western U.S. District Court Texas Eastern U.S. District Court Texas Northern U.S. District Court Texas Southern U.S. District Court Texas Western U.S. District Court Utah U.S. District Court Vermont U.S. District Court Virgin Islands U.S. District Court Virginia Eastern U.S. District Court Virginia Western U.S. District Court Washington Eastern U.S. District Court Washington Western U.S. District Court West Virginia Northern U.S. District Court West Virginia Southern U.S. District Court Wisconsin Eastern U.S. District Court Wisconsin Western U.S. District Court Wyoming U.S. District Court Louisiana U.S. District Court Washington U.S. District Court West Virginia U.S. District Court Illinois Eastern U.S. District Court South Carolina Eastern U.S. District Court South Carolina Western U.S. District Court Alabama U.S. District Court U.S. District Court for the Canal Zone Georgia U.S. District Court Illinois U.S. District Court Indiana U.S. District Court Iowa U.S. District Court Michigan U.S. District Court Mississippi U.S. District Court Missouri U.S. District Court New Jersey Eastern U.S. District Court (East Jersey U.S. District Court) New Jersey Western U.S. District Court (West Jersey U.S. District Court) New York U.S. District Court North Carolina U.S. District Court Ohio U.S. District Court Pennsylvania U.S. District Court Tennessee U.S. District Court Texas U.S. District Court Virginia U.S. District Court Norfolk U.S. District Court Wisconsin U.S. District Court Kentucky U.S. Distrcrict Court New Jersey U.S. District Court California U.S. District Court Florida U.S. District Court Arkansas U.S. District Court District of Orleans U.S. District Court State Supreme Court State Appellate Court State Trial Court Eastern Circuit (of the United States) Middle Circuit (of the United States) Southern Circuit (of the United States) Alabama U.S. Circuit Court for (all) District(s) of Alabama Arkansas U.S. Circuit Court for (all) District(s) of Arkansas California U.S. Circuit for (all) District(s) of California Connecticut U.S. Circuit for the District of Connecticut Delaware U.S. Circuit for the District of Delaware Florida U.S. Circuit for (all) District(s) of Florida Georgia U.S. Circuit for (all) District(s) of Georgia Illinois U.S. Circuit for (all) District(s) of Illinois Indiana U.S. Circuit for (all) District(s) of Indiana Iowa U.S. Circuit for (all) District(s) of Iowa Kansas U.S. Circuit for the District of Kansas Kentucky U.S. Circuit for (all) District(s) of Kentucky Louisiana U.S. Circuit for (all) District(s) of Louisiana Maine U.S. Circuit for the District of Maine Maryland U.S. Circuit for the District of Maryland Massachusetts U.S. Circuit for the District of Massachusetts Michigan U.S. Circuit for (all) District(s) of Michigan Minnesota U.S. Circuit for the District of Minnesota Mississippi U.S. Circuit for (all) District(s) of Mississippi Missouri U.S. Circuit for (all) District(s) of Missouri Nevada U.S. Circuit for the District of Nevada New Hampshire U.S. Circuit for the District of New Hampshire New Jersey U.S. Circuit for (all) District(s) of New Jersey New York U.S. Circuit for (all) District(s) of New York North Carolina U.S. Circuit for (all) District(s) of North Carolina Ohio U.S. Circuit for (all) District(s) of Ohio Oregon U.S. Circuit for the District of Oregon Pennsylvania U.S. Circuit for (all) District(s) of Pennsylvania Rhode Island U.S. Circuit for the District of Rhode Island South Carolina U.S. Circuit for the District of South Carolina Tennessee U.S. Circuit for (all) District(s) of Tennessee Texas U.S. Circuit for (all) District(s) of Texas Vermont U.S. Circuit for the District of Vermont Virginia U.S. Circuit for (all) District(s) of Virginia West Virginia U.S. Circuit for (all) District(s) of West Virginia Wisconsin U.S. Circuit for (all) District(s) of Wisconsin Wyoming U.S. Circuit for the District of Wyoming Circuit Court of the District of Columbia Nebraska U.S. Circuit for the District of Nebraska Colorado U.S. Circuit for the District of Colorado Washington U.S. Circuit for (all) District(s) of Washington Idaho U.S. Circuit Court for (all) District(s) of Idaho Montana U.S. Circuit Court for (all) District(s) of Montana Utah U.S. Circuit Court for (all) District(s) of Utah South Dakota U.S. Circuit Court for (all) District(s) of South Dakota North Dakota U.S. Circuit Court for (all) District(s) of North Dakota Oklahoma U.S. Circuit Court for (all) District(s) of Oklahoma Court of Private Land Claims