Although parties to a contract may agree that time is of the
essence and may stipulate for liquidated damages, they may
subsequently so modify the requirements as to completion that
performance within the stipulated time becomes unimportant.
Flynn v. Des Moines Railway, 63 Ia. 490, approved.
As the record in this case does not show that there was any
culpable delinquency in completion of a contract for the building
of a vessel, or any detriment to the government, but that the
vessel was delivered, tested, approved, and paid for without
protest on the part of the government on account of delay, and, as
it does appear, the Quartermaster General had, in his discretion,
orally waived the time limit in the contract,
held
that:
In a case of contract authorized by law necessarily entered into
and conducted by officers of the government, they must necessarily
have the power to make it effective in its progress as well as in
its beginning, and the oral agreement of the Quartermaster General
was within the scope of his official authority, and amounted to a
modification of the contract.
Salomon v. United
States, 19 Wall. 17, followed.
United States v.
Bethlehem Steel Co., 205 U. S. 105,
distinguished.
48 Ct.Cl. 50 reversed.
The facts, which involve the right of the government to deduct
from final payment on a contract an amount
Page 235 U. S. 452
alleged to be due as liquidated damages for noncompletion on a
former contract with the claimant, and also the question of whether
such liquidated damages had been waived by the government, are
stated in the opinion.
Page 235 U. S. 453
MR. JUSTICE McKENNA delivered the opinion of the Court.
Petition in the Court of Claims for judgment for the sum of
$4,750, balance due upon a contract entered into between petitioner
in such court, appellant here, and the United States, for the
construction of a steel hull twin-screw suction dredge, and for
installing therein the propelling and other machinery.
There was and is no controversy as to the performance
Page 235 U. S. 454
of the contract or as to the amount due upon it. The government
set up as an offset an amount alleged to have been illegally paid
on a prior contract between appellant and the government, which
contract, according to the findings of the Court of Claims (all the
facts which we state being the findings of the Court of Claims),
was entered into between appellant and the government on June 24,
1903, for the construction and equipment of a single screw steamer
for harbor service of the Quartermaster's Department and submarine
cable service, according to certain specifications which were made
part of the contract, for a consideration of $88,000, to be paid in
various amounts as the work progressed, less ten percent, to be
withheld to make good any defects, the vessel to be completed
within one hundred and forty days, exclusive of Sundays and legal
holidays, or by December 9, 1903.
It was provided that, if appellant should
"fail to complete and deliver the steamer within the stipulated
time, it should pay to the United States the sum of $50.00 per day
as liquidated damages for each and every day so delayed, exclusive
of Sundays and legal holidays, which amount, it was provided, might
be withheld from any money due"
appellant under the contract.
*
Page 235 U. S. 455
On December 1, 1903, before the time stipulated for completion
had expired at the request of appellant, owing to unavoidable
delays in procuring the necessary material, the Quartermaster
General of the Army, within his discretion under the contract,
orally waived the time limit in the contract, and subsequently, on
April 2, 1904, confirmed the waiver by letter.
On April 1, 1904, or ninety-five days, exclusive of Sundays and
holidays, after the time fixed in the contract, the Quartermaster
General directed the depot quartermaster at New York to make final
payment for the steamer, retaining, however, the 10% to make good
any defects there might be in the material and workmanship. On July
13, 1904, the entire sum stipulated to be paid by the government
was paid without any deduction whatever.
It does not appear that appellant unreasonably delayed the work
after the waiver of the time limit, or that the government suffered
any actual pecuniary loss or damage by reason of the delay in the
completion and delivery of the steamer.
The court found the facts as to the other contract as set out in
the petition of appellant, and that appellant was paid the
stipulated price therefor, less the sum of $4,750,
"which [we quote from the findings] the defendants (the United
States) claim was the amount arising as liquidated damages for the
ninety-five days' delay of the claimant [appellant here] in the
completion of the steamer under the first contract hereinbefore
referred to, and which amount the defendants further claim was
inadvertently and under mistake of fact paid to the claimant
company"
(appellant). And the court recites
Page 235 U. S. 456
that the government set up by way of counterclaim the amount so
paid, and that the government claimed such sum was due as
liquidated damages for the ninety-five days' delay of the claimant
(appellant) in the execution of the first contract, and claimed
further that such sum was "inadvertently, improperly, and illegally
paid by the officers of the government." The record shows that the
counterclaim was filed February 15, 1912.
From the findings of fact, the court decided "as a conclusion of
law that the petition be dismissed." And this as a consequence of
sustaining the counterclaim of the government, the court deciding
that a waiver of the time limit "did not embrace and release from
the payment of the agreed damages, which were assessable upon its
[appellant's] default." The court said:
"Under such circumstances, an officer, in the absence of some
provision of law or contract therefor, would have no authority to
release a contractor from the provision for liquidated damages so
arising."
This appeal was then taken.
Appellant attacks the conclusion of the court, and contends that
"the waiver of the time limit in the first contract necessarily
tolled the provision in that contract for liquidated damages." The
government, on the other hand, maintains
"that the waiver of the time limit simply estopped the
government from annulling the contract, but that this in no way
affected the other terms of the contract."
It is the effect of the contention of the government, curious
certainly at first impression, if we consider the intention of the
parties, that the time limit was waived but its sanction was
retained, and what seemed to be concession to a delay which was
without fault (so found by the Court of Claims) carried with it the
full rigor of the bond.
It may be that the government would have had the right to annul
the contract upon the default of appellant
Page 235 U. S. 457
and avail itself of resultant remedies. It did not do so, but
preferred to retain the contract and extend the time of its
execution, and, we may assume, upon a consideration of the
circumstances, as much in view of the government's interest as
appellant's interest, the government suffering no damage by the
delay, but getting the instrumentality for which it had contracted
in time for its purpose, sooner, indeed, it may be, than if it had
annulled the contract with appellant and relet the work to another.
These were considerations which the Quartermaster General, in the
government's interest, might well entertain. And it may have seemed
to that officer that it would have been as harsh as it would have
been useless to sacrifice what had been already done, and
faithfully done, by annulling the contract or by refusing to excuse
the delay in final performance which was without fault. The case
should be judged by that consideration and conduct. But the
government insists that these seemingly natural suppositions cannot
be indulged, and urges against them the principle of building
contracts that, if the builder has failed to complete the whole or
any specific part of the building or structure within the time
limited by his covenant, the other party has the option of
abandoning the contract for such failure or of permitting the party
in default to go on. If he chooses the latter course, he so far
waives absolute performance as to be liable on his covenant for the
contract price of the work when completed. For the injury done him
through the broken covenant, he may sue, or, if he waits to be
sued, he may recoup the damages thus sustained in reduction of the
sum due upon the contract for the completed work.
Phillips v.
Seymour, 91 U. S. 646, and
United States v. Bethlehem Steel Company, 205 U.
S. 105, are cited. Cases are also cited which declare
the same principle in regard to contracts for the sale and delivery
of goods where time is of the essence of the contract. The latter
cases were cases of actual damages, and so also was
Page 235 U. S. 458
Phillips v. Seymour, where, there being no legal
evidence of actual damage, it was decided none could be
recovered.
It may be said that a provision for liquidated damages is a
declaration by the parties of the fact of damage from delay in the
performance of the work contracted for and the measure of its
amount, it not being susceptible of exact ascertainment.
United
States v. Bethlehem Steel Company supra, is adduced for the
application of the proposition to the case at bar. The contract in
that case was entered into when war was imminent with Spain, and
was for the delivery of gun carriages. It contained a clause for a
deduction, in the discretion of the Chief of Ordinance, of $35 per
day from the price to be paid for each day of delay in the delivery
of each carriage. The clause was held, considering the
circumstances, to be not a penalty, but a provision for liquidated
damages, and that it was competent for the parties to the contract
to provide the latter, and, having so provided, recovery might be
had "for the amount stated as liquidated damages upon the violation
of the contract, and without proof of the damages actually
sustained." It will be observed, therefore, that a condition of
recovery was proof of violation of the contract. The condition does
not exist in the case at bar. The contract was not violated. The
time for its performance was extended, and, we may observe, before
any default had occurred. In that case, there was no waiver of the
time limit; in the case at bar, there was an express waiver. That
case therefore fails in its asserted analogy. Undoubtedly parties
may agree that time shall be of the essence of their contract and,
the proper legal conditions existing, may stipulate for damages and
the measure of them, but they may subsequently change their views
and requirements and consider that performance within the
stipulated time is unimportant.
Flynn v. Des Moines Ry., 63 Ia. 490, is directly in
point. The plaintiff in the case entered into a contract
Page 235 U. S. 459
with the railroad to construct part of its line. Payments for
the work were to be made monthly upon the certificate of the
engineer of the company, and it was covenanted that 10% from the
value of the work as an agreed compensation for damages should be
retained by the company in case of failure by Flynn to complete the
whole amount of the work according to the stipulations of the
agreement. It was contended by the railway company that it was
entitled to retain the 10% as liquidated damages. The court found
that the stipulation as to time was waived, and by being waived,
was eliminated from the contract, and the railway company was not
entitled to any sum as liquidated damages.
In the present case, as we have seen from the findings, there
was no thought by the officers of the government of a culpable
delinquency on the part of the appellant, or of detriment to the
government. The steamer was delivered, tested, approved, and paid
for.
It was held, however, by the Court of Claims that the
Quartermaster General had no power to waive the provision for
liquidated damages. It is not clear that counsel contends for so
broad a proposition. His contention is that "the government is not
bound by the acts of its officers in making unauthorized payments
through mistake of fact or of law." There was no mistake of fact,
and by mistake of law counsel may mean the action of the
Quartermaster General was outside of the scope of the official
authority given him by law. If that officer so acted, the
government is not bound by his acts.
Wisconsin Central R. Co.
v. United States, 164 U. S. 190,
164 U. S. 212,
and
Logan County v. United States, 169
U. S. 259.
The cited cases (they are those upon which the government
relies) involved the construction of statutory law -- in other
words, of a specific law which was the source of the officer's
authority. The case at bar is a case of contract, authorized by
law, necessarily entered into and
Page 235 U. S. 460
conducted by the officers of the government, and as necessarily
they must have had the powers to make it effective in its beginning
and progress. The Court of Claims recognized this, and found that
"the Quartermaster General, United States Army, within his
discretion under the contract, orally waived the time limit in said
contract" -- a very essential discretion which might have been
embarrassed or defeated if it had not extended to what depended
upon the time limit of the contract. We think the case therefore
falls under the ruling of
Salomon v. United
States, 19 Wall. 17,
86 U. S. 19-20,
where it is said that
"the Act of 1862, 12 Stat. 411, c. 93, requiring contracts for
military supplies to be in writing, is not infringed by the proper
officer having charge of such matter accepting delivery of such
supplies after the day stipulated, nor is a verbal agreement to
extend the time of performance invalid."
See also District of Columbia v. Camden Iron Works,
181 U. S. 453.
Judgment reversed and cause remanded, with direction to
dismiss the counter petition of the government, and to enter
judgment for appellant in the amount claimed by it.
MR. JUSTICE McREYNOLDS took no part in the consideration and
decision of the case.
*
"That the Maryland Steel Company shall complete the construction
and equipment of the said steamer, and deliver same to the party of
the first part in New York harbor, or as directed by him, in one
hundred and forty (140) days, exclusive of Sundays and legal
holidays, from the date of this contract. And it is hereby agreed
that, in case the party of the second part fails to complete in all
respects and deliver the said steamer within the time herein
specified, the loss resulting to the United States from such
failure is hereby fixed at the rate of fifty ($50) dollars per day
for each and every day, exclusive of Sundays and legal holidays,
completion and delivery of the vessel is delayed beyond the period
hereinbefore specified, and it is hereby stipulated that the party
of the first part may withhold such amount as liquidated damages
from any money due and payable to the party of the second part by
the United States for work done under this contract. In the event
of the act of God, war, fire, or strikes and lockouts of workmen
affecting the working of this contract, the date of completion of
the steamer may be extended for such periods as may be deemed just
and reasonable by the party of the first part, to cover the time
lost from any of the above-mentioned causes."