U.S. Supreme Court Duesenberg Motors Corp. v. United States, 260 U.S. 115 (1922)
Duesenberg Motors Corporation v. United States
Argued October 19, 1922
Decided November 13, 1922
260 U.S. 115
APPEAL FROM THE COURT OF CLAIMS
1. A contractor who incurred expense under a contract to manufacture articles for the government for use in the late war, but whose opportunity to perform and earn the contemplated profits was cut short by the sudden cessation of hostilities, the declaration of the armistice, and the consequent termination of the contract in accordance with its terms, took the chances of this contingency, and cannot recover damages. P. 260 U. S. 124 .
2. Held, in this case, that delay of the government in furnishing necessary specification as contemplated by a contract for the manufacture of airplane motors of a foreign model, due to an honest but mistaken belief, shared by the contractor, that the model was perfected and adequate specifications in existence, was not an actionable breach of representation in view of the conduct and dealings of the parties for the expedition of the work, the absence of any protest over the delay, and the absence of averment that it prevented the contractor from being fully occupied with preparatory and other work under the contract . P. 260 U. S. 123 .
3. Time was of the essence for the government, but not for the contractor. P. 260 U. S. 124 .
56 Ct.Clms. 96 affirmed.
Appeal from a judgment of the Court of Claims dismissing, on demurrer, a petition claiming (1) the profits that would have been made by the claimant, under a contract with the government for manufacture of airplane motors, but for the government's alleged failure to supply the necessary specifications as agreed; (2) amounts paid by the claimant, because of the delay, as interest on money borrowed from the government and private sources for use in executing the contract, and (3), if (1) cannot be recovered, the amount lost by the claimant through terminating its commercial business to accept the contract.
MR. JUSTICE McKENNA delivered the opinion of the Court.
Action in the Court of Claims against the United States for expenses in endeavoring to perform certain contracts with the United States made during the war with Germany, or for anticipated profits.
The contracts were for aeronautical equipment for war purposes. There were a first and primary contract and seven other contracts called supplemental agreements. The latter contained modifications of the first or primary contract, and each agreement contained modifications of those which preceded.
The first or primary contract, dated November 20, 1917, provided for 500 United States standard 12-cylinder engines, sometimes referred to as Liberty engines. By an agreement dated December 11, 1917, the number was increased to 1,000. By another agreement, dated January 4, 1918, the type of motor was changed, and a motor called the Bugatti motor was substituted, and there were other agreements.
From this general statement it will be seen that the contract and agreements are determining elements in the claims sued upon. A full recital of them, however, would extend this opinion to an embarrassing length. We shall confine ourselves, therefore, to those which we regard of determining pertinence.
Upon demurrer of the United States, the Court of Claims decided the contractor entitled to no relief and dismissed its petition. This action is contested, and it is earnestly insisted that the contracts made time their essence and required speed and dispatch from the contractor, and demanded in their performance precedence upon all other work, involving necessarily sacrifice and expense upon the part of the contractor. And time, it is contended, being of the essence of the contracts, this necessarily implied that the United States must have done everything to permit the contractor to comply with its obligations. The government, however, was delinquent, and it is alleged that
"the drawings and specifications referred to in the contract (Exhibit A) as being attached thereto (but which were not in fact so attached) were furnished piecemeal from time to time, but not so as to enable the claimant to enter into quantity production, and the only work which was practicable under said contract was in making extensive alterations in the plant of claimant company to adapt it to the uses of the government for the purpose of carrying out the contract (Exhibit A), to assemble a competent engineering staff, and to make other preparations for the performance of said contract, all of which the claimant did at great expense."
And further delinquency is charged in not performing the agreement which substituted the Bugatti motors and Article I of the agreement is quoted as follows:
"That, subject to all the provisions of Article I in said contract No. 2318 contained, the contractor shall make for the government, instead of the articles described in Article I of said contract, 2,000 Bugatti motors, and such spare parts for said motors as the government may order from time to time during the period of the construction of said motors, in accordance with specifications to follow."
The specifications were not furnished, it is said, until September 25, 1918, and that the delay was a breach of
the contract and the contractor is entitled to recover for the losses caused thereby.
To this the Court of Claims answered that the contract contemplated a revision of the schedule [times of delivery] in regard to the engines. The provision to which that purpose was attributed is that:
"in view of the present uncertain factors inherent in the articles and in the establishment of the industry of producing them, it is understood that this schedule may require revision. . . ."
The schedule designated June, 1918, as the month of complete production.
Changes were provided for in another article, and by still another it was provided that if, in the opinion of the Chief Signal Officer of the United States, the public interests so required, the government might, upon 30 days' notice terminate the contract. And there was provision for settlement of disputes.
Dates are important to be considered. The supplemental contract in which Article I appears, and which adopts Article I of the first contract, is dated January 4, 1918. Another agreement which was supplementary to that agreement was dated January 15, 1918, and still another dated February 11, 1918.
In none of these agreements, continuing as they did the obligations of the parties to them and the means of their performance, is there a word of complaint that the government had been or was delinquent on account of not furnishing specifications or in any way. In the agreement of February 11, 1918, in Article II, it is provided that:
"In the interest of both parties hereto and in order to expedite the delivery of the said supplies, the government will advance to the contractor under the principal agreement the sum of four hundred thousand dollars ($400,000) on the terms and security hereinafter mentioned, and will make payments directly to the contractor by check dated February 25, 1918. "
There was another agreement dated February 14, 1918, which continued in effect, except as modified, all that preceded. There was no protest or complaint of any kind, no accusation of default or delay on the part of the government.
There was a seventh agreement made September 26, 1918, and another made October 23, 1918, for advance payments to the contractor.
The agreements are of significant strength. Their legal effect and that of the contract cannot be determined by any one provision, but the totality of them must be regarded and their relations and purposes.
A war of magnitude was waging. The government was eager for efficient instrumentalities, and the contractor was enticed by the profit of their manufacture. The matters were urgent, but they were beset with contingencies. The government could terminate the contract in the interest of the public welfare, and the war might cease. The latter did happen. However, before it happened and before, it may be, there were signs of its happening, there were dealings and adjustments of preparation between the government and the contractor. They took care of, and were intended to take care of, changing purposes, and no dissatisfaction was expressed. One of the changes was, as we have said, from the construction of 500 Liberty motors to 1,000, the completion and delivery of which was to be in June, 1918, and, as we have said, another change was the substitution of 2,000 Bugatti motors for the Liberty engines and for such spare parts as the government might order from time to time; the motors to be delivered by September, 1918. By the supplemental agreements which provided for those changes it was also provided that their cost was to be paid by the government, and the profit of the contractor was changed from $625 for each article to $750, and the government agreed to advance the contractor $1,250,000 to be repaid with interest at 6%.
Upon this change to the Bugatti motors comes the first claim of the contractor, based upon Article I of the agreement of January 4, 1918, by which it was provided as follows:
"That subject to all the provisions of Article I in said contract No. 2318 contained, the contractor shall make for the government, instead of the articles described in Article I of said contract, two thousand (2,000) Bugatti motors, and such spare parts for said motors as the government may order from time to time during the period of the construction of said motors, in accordance with specifications to follow. "
No time is specified. It is, however, contended that necessarily a reasonable time must have been intended and was not observed. The specifications, it is alleged, did not follow until September 25, 1918, when the entire time for the production of the motors was within a few days of expiring, whereby it became impossible to produce any of the articles within the time limit of the contract.
It is not alleged, however, that the failure to furnish the specifications was willful on the part of the government or fraudulent. On the contrary, it is alleged that there was a belief upon the part of the government officers by whom and under whom the supplemental agreement was made that there were in existence complete specifications of the articles which needed only to be obtained from France; that the motors had passed the experimental stage and were ready for production. It is, however, alleged that the statements in the contract operated as a representation to the contractor that such was the fact, and that production in quantity could begin at or shortly after the entry into the agreement. It is further alleged that, when the first motor was received shortly after the date of the agreement it developed that extensive changes would be necessary and the contractor was directed to proceed, meanwhile actively, with production
on the separate parts to the extent possible in view of the undeveloped character of the specifications of the engine. This was done in conjunction with the officers of the government.
It will be observed that it is not alleged that the belief of the government officers was not consistently entertained nor that the contractor did not share it. Nor is it said that the work on the separate parts and the preparations for the performance of the contract did not engage the contractor's time. Indeed, the fact is that, by January 4, there were changes to the advantage of the contractor, and again by the agreement of February 11, 1918, and another as late as October 23, 1918, by which the government agreed to advance to the contractor $1,250,000. And still no complaint. On the contrary there was acceptance of assistance.
It is manifest there were uncertainties on both sides and that as they developed preparations were necessary to meet them, and in meeting them, the contractor did not regard the government in any way delinquent. It was the abrupt and unexpected suspension of hostilities and the declaration of an armistice that was the cause of loss to the contractor, and the disappointment of profits from its contract which it was preparing to realize and would have realized. But it took that chance and has not now a legal claim against the government for reimbursement of its outlays. We need not distinguish between the outlays nor dwell upon them. They were outlays of the speculation, and subject to sacrifice and loss with its disappointment.
We have seen that counsel make much of the effect of the government's urgency, and, it is contended, time in consequence became an essential of the contract. This, the contention is, influenced the contractor and necessarily determines the obligation of the government. The government was undoubtedly urgent, made so by its serious
situation and tremendous responsibilities, but such was not the situation of the contractor. Time to perform its contract was all that was necessary to it, and, but for the Armistice, it would have had time. If the Armistice could have been foreseen, the relative situations might have been different. Expedition would not then have been exigent to the government's purposes, but would then have been necessary to the contractor if profits were to be realized from the production of the motors. There was no prophecy of the Armistice -- its sudden happening terminated the further execution of the contractor's undertaking, preventing, as we have said, the realization of profits. And, we repeat, this chance the contractor took and must abide the result.