Case ID: us-ct-cl_61/html/0571-01.html
Source: Caselaw Access Project
Author: {"author": "GRAham, Judge,", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

S. D. GUGGENHEIM, M. GUGGENHEIM, S. GUGGENHEIM, AND MAURICE KASTRINER, SURVIVING TRUSTEES OF THE GUGGENHEIM CO., v. THE UNITED STATES
    [No. B-101.
    Decided February 15, 1926]
    
      On the Proofs
    
    
      Termination of contract; apportionment of delinquencies. — Where a contractor fails to make the deliveries of certain manufactured articles required by its contract, and delays by the Government in furnishing agreed raw materials for other articles are not the cause of said failure on the contractor’s part, the Government is not liable for a breach by terminating and transferring the contract for completion to a third party.
    
      The Reporter's statement of the- case:
    
      Mr. Franh Davis, jr., for the plaintiffs. Mr. Julius Bloomberg and Bloomberg <& 'Wolf were on the briefs.
    
      Mr. George PL. Foster, with whom was Mr. Assistant Attorney General Herman J. Galloway, for the defendant.
    The court made special findings of fact, as follows:
    I. The Guggenheim Company was a corporation duly organized under the laws of Ohio on the 4th day of June, 1907, and existed as such until the 11th day of July, 1919, during which period it was actively engaged in textile manufacturing in the city of Cleveland, where it had its principal office and place of business. On the 11th day of July, 1919, the said Guggenheim Company was duly dissolved in the manner provided by the laws of the State of Ohio. Upon the dissolution of the said Guggenheim Company, to wit, the 11th day of July, 1919, the plaintiffs named in this petition as trustees of the Guggenheim Company constituted its duly elected and last-acting board of directors, and thereupon, by virtue of section 8742 of the General Code of Ohio, then and still in force, said directors became the trustees of the said Guggenheim Company, no other persons having been appointed by the legislature or by the stockholders, directors, or trustees of the corporation, or by a court of competent authority as such.
    By virtue of section 8743 of the General Code of Ohio in effect at the time of the dissolution of said corporation and still in effect, the said trustees, plaintiffs herein, have capacity to maintain this action.
    II. Prior to the occurrence of matters hereinafter referred to, the plaintiffs’ corporation ivas possessed of a modern up-to-date manufacturing plant, fully equipped for the manufacture of ladies’ garments.
    III. About the middle of May, 1917, the Guggenheim Company, having been assured that a contract with defendant would be entered into for the manufacture of uniforms, prepared its equipment by purchasing additional machinery and making contracts for certain necessary materials, in addition to those which were to be furnished by the defendant.
    IY. At the time of the negotiations preliminary to the aforesaid contract the said company was shown samples of the khaki cloth of which the finished product was to be made, and also samples of the finished product, and spent some time in the investigation of the methods of manufacture used by the Government in its own uniform manufacturing establishments.
    Y. On or about June 6, 1917, the Guggenheim Company received the following letter:
    WAR DEPARTMENT,
    Office of the Depot Quartermaster,
    
      Philadelphia,,-Pa., June 6th, 1917.
    
    No. 421.1-145.
    From: Depot Quartermaster.
    To: The Guggenheim Co., 2160 Superior Ave., Cleveland, O-Subject: Award of contract — Manufacturing clothing.
    1. In accordance with your offer, you are hereby authorized to manufacture from materials furnished by this corps, and deliver to the Chicago depot of this corps approximately 50,000 coats, service, cotton, @$0.847 each. Delivery: $10,000 during Juty, 20,000 during August, 20,000 during September, 1917.
    85,000 coats, service, wool, @ $1.749 each. Delivery: 15,000 during September, 20,000 during October, 25,000 during November, and 25,000 during December, 1917.
    To conform to specification requirements and standard samples. Sizes will be made the subject of a separate communication.
    2. Contract will be dated June 7th, 1917.
    
      3. Contract will provide that the materials are to be delivered by this corps, f. o. b. Cleveland, Ohio, and the finished garments delivered by yon at the Chicago depot of this corps; you to be liable for the loss of or damage to any materials furnished from any cause whatsoever while in your possession. In this connection bond in the amount .$60,000.00 will be required to cover the value of materials in your possession at any one time, and you are requested to .advise this office the name of a qualified surety company who will join in this bond with you; also whether your company is a partnership or a corporation; if a partnership, the names of all the members of your firm; if a corporation, under the laws of what State incorporated.
    4. Please acknowledge receipt.
    M. Ghat ZaliNski,
    Colonel, Q. M. Corps, D. Q. M.
    
    YI. A written contract was executed in triplicate by plaintiff’s company and the defendant as of June Y, 191Y, in accordance with the aforesaid letter of June 6,191Y. Attached to the contract were specifications for the coats to be manufactured. A copy of the contract is filed in the case as Exhibit B to the petition and is made a part of this finding by reference.
    VII. By the first part of July the Guggenheim Company was in a position to devote its entire capacity to the fulfillment of the Government contract. It had a force of from 50 to Y5 experienced operators, together with the usual complement of superintendents and forewomen, and in anticipation of the contract made arrangements for the hiring of some 100 extra, experienced and inexperienced, machine operators. From advices received from the offices of the defendant, plaintiffs’ company expected to receive its first delivery of goods on or about the middle of June. The superintendents and forewomen and the administrative force of the said company were maintained on salary, but without, work, following the conclusion of its contracts with private individuals. The other workers were instructed to report and keep in touch with the company from time to time so that they could immediately be put to work when the goods arrived.
    VIII. Delay by the Government in furnishing materials was experienced, and it was not until the very last of July or the first of August that plaintiffs’ company received any cloth whatsoever. Plaintiffs’ plant had been idle during all of this period and its organization of executive heads only had been maintained. During this period of delay plaintiffs’ company made frequent requests for delivery of cloth and protests against the delay being experienced. Immediately on receiving the cloth it took steps to rehabilitate its organization. On account of the delay, however, its former workers and those for whom it had contracted had gone to other employers in large numbers, so that its request of them to begin work resulted in the response of only about twelve experienced operators and thirty or forty inexperienced operators.
    IX. The plaintiffs’ company did its utmost to reorganize its working staff, but was only partially successful. The large demands of other establishments in the city of Cleveland and vicinity during that period of time had lowered the number of available workers of the class it required. At or about this time plaintiffs’ company was visited by an inspector of the defendant. This inspector was informed by the plaintiffs’ company that the delay in furnishing materials had so seriously disrupted its organization that it desired if possible to have the contract cancelled. Plaintiffs’ company was informed by the inspector that there was not time to allow such matters to stand in the way of results and that it would have to do the very best it could as the defendant needed the coats, and, further, that if it did not go ahead with the contract the defendant itself would step in and take over the work.
    X. The material which had been furnished the plaintiffs’ company as a sample for inspection was of soft and pliable standard khaki cloth. The cloth first supplied under the contract for conversion into cotton coats was of tougher material and full of sizing.
    The initial shipment was received by the company about August 1,1917, and was a carload lot of cotton cloth. Upon its receipt the company tried to cut the cotton cloth by laying it up much higher than was practicable. The ma-. chines would not cut it at this thickness and considerable difficulty was experienced thereby. This same material caused the company great difficulty in the sewing of the garments. Its employees, who were employed on a piecework basis, had trouble with their work and a great number became disgruntled at the lack of progress being made and quit the company’s employment. Its entire organization was disrupted and disorganized thereby.
    On September 6, 1917, the company wrote the following letter:
    The Guggenheim Company,
    Cleveland, Sept. 6, 1917.
    
    Depot Quartermaster, U. S. A.
    
      Chicago Depot, Chicago, 111.
    
    (Kind attention of Capt. Zimmerman.)
    Dear Sir : On account of the ill health of our Mr. S. D. Guggenheim we would like to ask you to kindly cancel or transfer our contract of 85,000 woolen service coats. The manager who had been appointed to take care of this contract proved inefficient and incapable of handling it, but with the assistance of Mr. S. L. Guggenheim we have been able to organize our factory in the manufacture of the cotton service coats.
    If after making you some representative shipments of coats, it is your desire to keep this organization employed, we will be pleased to put it at your service.
    We also wish to add that materials have been purchased for this woolen contract at the market prices at the time that the contract was placed, and which material we shall be pleased to transfer at our cost with the contract.
    Yours very truly,
    The Guggenheim Go.,
    Per S. D. Guggenheim, Pres.
    
    Subsequent shipments of cloth, the amount and dates thereof do not appear, conformed to sample, and during the month of October, 1917, appreciable progress was made under the contract.
    On September 11, 1917, the depot quartermaster at Chicago wrote the following letter to the depot quartermaster at Philadelphia:
    “ 1. Reference attached letter from Guggenheim Company, it is recommended that the contract held by these people for 85,000 woolen blouses be canceled or transferred.
    “ 2. Existing conditions have been very carefully investigated and it is thought to be to the best interests of the Government that this contract be canceled or transferred. It is to be noted that this firm has never manufactured anything but ladies’ shirt waists, and lack of evidence of ability to manufacture men’s garments appears.on all sides.
    “ 3. It is recommended that the contract be transferred to the Bloch Uniform Company, of Cleveland, Ohio, as they have indicated their willingness to take over the aforementioned contract on expiration of their contract for overcoats, which will be on or before December 1st to 15th. The Bloch Company is making excellent progress on their contract for overcoats and are showing evident ability to best serve the interests of the Government.
    “ By authority of the depot quartermaster.”
    On October 8,1917, there was written the following letter:
    “ Depot Quartermaster,
    Chicago, III.:
    
    “ 1. Deferring to your letter of September 11, regarding contract dated June 7th, with Guggenheim Co., of Cleveland, 85,000 wool coats, at $1,749, please inform this office what is the present status of this contract.
    “2. If the Guggenheim Co. desires to have this contract canceled as far as the wool coats are concerned, we will do so, but we are unable to transfer the contract as suggested, nor can we make any arrangement, nor any guarantee, by which the new contractor will take the trimmings off the hands of the Guggenheim people. That is a matter which concerns the Guggenheim Co. and not us.
    “ 3. We are willing to consider a further offer from the Bloch Uniform Co., of Cleveland, but inasmuch as they will not be ready to go on with the service coats until they complete their overcoat contract between December 1st and 15th we do not desire to make the award for this 85,000 wool coats to them, but will make it to some one who can go right ahead with the manufacture at the present time.
    “ 4. Furthermore, we are now able to place the contracts for these coats at $1,749, rags to remain the property of the United States, which item was not included in the contract with Guggenheim Co.
    “ 5. Please wire us on receipt of this communication whether we shall cancel the wool coats with the Guggenheim Company. « M. Gray Zalinski,
    “ Colonel, Q. M. Corps, D. Q. MC
    
    The chief inspector from the office of the Quartermaster General of the Army, in the' department having to do with contracts of this nature, visited the plant of the company on or about December 18, 1917, reported conditions existing at the plant, and suggested to his superior officer that the balance of the contract be turned over to other manufacturers for completion. On December 22, 1917, Col. H. J. Hirsch, the officer in charge of this department of the Quartermaster General’s office in Washington, wired the inspector in Cleveland as follows:
    “ Interview Guggenheim Company with view of having them complete cut garments and cancel remainder. We would consider favorably proposition to award balance to Bloch. Do not permit Guggenheim to cut up any more sixteen-ounce. How many uncut yards on hand? No award was made to ICorach and Co.”
    On December 29, 1917, Colonel Hirsch wired the depot quartermaster in Chicago to cancel the contract if he thought best. Under directions of the chief inspector, the company, in the latter part of December, 1917, stopped cutting of new cloth and made the necessary arrangements to stop work under the contract.
    On January 8, 1918, the following letter was sent to the company:
    “ The Guggenheim Company, Cleveland, Ohio. i£ Depot Quartermaster, Chicago, Ill.
    “ Subject: Contract for coats, wool, service.
    “ 1. Upon recommendation of Colonel Hirsch, Quartermaster Corps, purchasing and manufacturing office, Washington, D. C., in his telegram dated December 29, 1917, that portion of your contract number 1209 dated June 7, 1917, pertaining to the manufacture of 85,000 coats, service, wool, is hereby canceled with the exception that all garments now in process of manufacture will be completed by you as soon as possible.
    “ 2. You are directed to turn over to the Bloch Company, of Cleveland, Ohio, all the materials furnished you by the Government now in your possession. Obtain receipts in duplicate from the Bloch Company, being careful that all the items shown on the receipts by proper name and classification the same as issued to you and furnish one copy of the receipt to this office.
    “ 3. Prompt action and full report of the number of garments you have out and still to be completed and delivered must be made.
    “ By authority of the depot quartermaster:
    “ C. D. MeyeR,
    
      “ Major-, Q. M. R. OR ■
    
    
      The evidence does not show that it in any manner thereafter protested against or objected to the termination of the contract. The plaintiffs’ company did not request additional time for performance of the contract and none was granted. There is no evidence that the contracting officer notified the contractor that any change was required in the separate quantities of supplies to be delivered under the contract.
    XI. Except for the direct labor on the garments at piecework rates, its general expenses for administrative and executive labor and general overhead on the work done were the same as they would have been if all of the garments had been completed, according to contract. The cost of the direct labor on the unfinished coats is not satisfactorily proved.
    The contractor was also paid a bonus for saving material on the woolen coats.over the Government allowance, which amounted to approximately 10 cents per coat.
    The contractor received also from the Government about six cents per woolen coat for rags saved therefrom and returned to the Government.
    It does not appear that any of the rags from the cotton coats were purchased by or returned to the Government.
    XII. At the time the contract was terminated the plaintiffs’ company had not performed its part of the contract, in that the finished goods had not been delivered by it to the defendant in the quantities called for by the contract.
    The plaintiffs’ company without protest complied with the directions given in the notice of cancellation dated January 8,1918 (Finding X herein), delivered to the Bloch Company all the unused material, including the trimmings, for the sale of which to the Bloch Company it had made amicable arrangements therewith; proceeded to complete the manufacture of coats in process, on completion thereof delivered them to the defendant, and was paid in full at the contract price for all coats delivered to and accepted by the Government.
    Thereafter, at a time not proven, the company presented a claim to the War Department, the nature and amount of which do not appear. The latter declined to pay the claim. The company presented a like claim to the Comptroller of the Treasury, when does not appear, which the Comptroller disallowed. Thereafter, on the 15th day of May, 1922, the plaintiffs filed their petition in this court.
    XIII. There is evidence tending to show affirmatively that at the time the contract was terminated and for some time prior thereto the plaintiffs’ company agreed to and acquiesced in the termination of the contract.
    XIV. The contract called for the manufacture and delivery of “ approximately ” 50,000 coats, service cotton, at $.847 each, of different sizes, to be delivered i.0',000 during July, 20,000 during August, and 20,000 during September, 1917, and also for the manufacture and delivery of “ approximately ” 85,000 coats, service, wool, at $1,749 each, of different sizes, to be delivered 15,000 during September, 20,000 during October, 25,000 during November, and 25,000 during December, 1917.
    It does not appear from the evidence when or in what quantities cotton coats manufactured under the contract were delivered, nor what was the exact number of cotton coats remaining undelivered at the time the contract was canceled, but it does appear that there were 250 cotton coats undelivered at the time the company ceased operations, between the first and the fifteenth of February, 1918.
    It does not appear when or in what quantities woolen coats manufactured under the contract were delivered, nor what was the exact number of woolen coats remaining undelivered at the time the contract was canceled, but it does appear that at the time the company ceased operations, between the first and fifteenth of February, 1918, only 11,050 woolen coats had been manufactured and delivered.
    It is admitted that there was no delay by the Government in its delivery of material for the woolen coats, and it does not appear that the delay in the delivery of material for the cotton coats caused delay in the production and delivery of the woolen coats.
    Of the claim for prospective profits alleged to have been lost by the plaintiffs’ company because of the alleged breach by the defendant, less than $100 relates to unmanufactured cotton coats. The amount claimed for loss is based almost entirely upon prospective profits on the uncompleted portion of the-woolen coats.
    
      The court decided that plaintiffs were not entitled to recover.
   GRAham, Judge,

delivered the opinion of the court:

The plaintiffs here seek to recover the sum of $63,752.52 as prospective profits by reason of an alleged breach of a contract due to the cancellation of same by the defendant. The contract was dated June 7, 1917, and expired December 31, 1917. It provided for the manufacture and delivery of 50,000 cotton service coats, and 85,000 woolen service coats. The cotton coats were to be delivered, 10,000 during July, 20,000 during August, and 20,000 during September. The woolen coats were to be delivered, 15,000 during September, 20,000 during October, 25,000 during November, and 25,000 during December. The defendant was to furnish the cloth for both kinds of coats, to be delivered f. o. b. Cleveland, Ohio. The contract, in terms, fixes no time for delivery. In addition to the price of $0,847 for each cotton coat manufactured, delivered, and accepted, and $1,749 for each woolen coat, the plaintiffs were to have the rags and clippings provided the Government did not decide to purchase them at a price to be determined by the authorities of the Department of Commerce. The Government did not purchase the rags and clippings, and the plaintiffs retained them.

The Government, as stated, was to furnish the cloth; the plaintiffs were to furnish all other things necessary to turn out the completed garments, including braid, labor, etc. It is admitted that there were 250 cotton coats undelivered at the time the company ceased operations, between the 1st and 15th of February, 1918, and that only 11,050 woolen coats had been manufactured and delivered at that time.

The theory upon which plaintiffs seek to recover is that they were delayed in commencing work by the failure of the defendant to furnish the cloth required for the manufacture of the cotton coats, which, under the contract, it was obligated to furnish. There is no claim that there was delay in delivery of the cloth for the woolen coats, the manufacture of which was not to commence until the first of September. The delay complained of was the failure of the Government to deliver any cloth for the manufacture of the cotton coats until the latter part of July or the first of August.

Plaintiffs claim that they were ready to commence operations in the early part of July, with the necessary equipment, supplies, and force of workmen; that by reason of the delay and the nonemployment of their workmen, the latter drifted away and sought other employment so that when the cloth began to arrive during the latter part of July and the first of August their organization was so crippled that they could not proceed with the work as they had prepared to do and were unable to procure the needed employes; that this situation had a continuing effect, and accounted for their failure to manufacture and deliver the coats in the quantities and at the time fixed in the contract; and that for this reason the Government was not justified in cancel-ling the contract on account of delay and unsatisfactory conditions of production and delivery, as these circumstances had been brought about by the Government’s failure to deliver the cloth promptly.

As early as September 6, just as plaintiffs were beginniEg the manufacture of the woolen coats, which were by far the largest part of the contract both as to volume and amount of money involved, they asked to have their contract cancelled and the whole contract for the woolen coats transferred to someone else, for the reason that their manager, who was taking care of the contract for them, had proved inefficient and incapable of handling it, and they offered to transfer the materials purchased, and which under the contract they were called upon to purchase, to the defendant at cost price. Whereupon, on September 11, the depot quartermaster at Chicago, to whom the manufactured goods were to be delivered, recommended the cancellation of the contract, stating that the plaintiffs had never been engaged in the manufacture of anything but ladies’ shirt waists and had not shown ability to manufacture men’s garments, and that the contract should be transferred to the Bloch Uniform Co., of Cleveland, who already had a contract for overcoats and were showing excellent progress and evident ability to serve the interests of the Government.

On October 8 the depot quartermaster at Philadelphia wrote to the depot quartermaster at Chicago, saying that if the plaintiffs wished the contract cancelled as to the woolen coats the Government would do so, but that the latter would be unwilling to agree to take the trimmings off plaintiffs’ hands. It appears that plaintiffs later made amicable arrangements with the Bloch Uniform Co. to take these trimmings off their hands.

On December 18, owing to the default of the plaintiffs in delivering materials at the times and in quantities fixed in the contract, the defendant sent a representative to Cleveland to look into the situation. Pie had a conference with several members of the plaintiffs’ company. He was informed that they would be glad! to be released from their obligations on the woolen coat part of their contract, among other reasons assigning S. D. Guggenheim’s ill health, their lack of proper equipment and experience, and that it was a costly venture and they were losing money.

Defendant’s representative reported this to his superior and recommended that the contract be transferred to the Bloch Uniform Company, with whom, as above stated, the Guggenheims afterwards made amicable arrangements for taking off their hands the materials they had purchased for completing the contract.

On December 22 the same representative of the defendant was instructed to confer with the Guggenheim Company with a view to having them complete the.garments already cut. The instructions were carried out and the representative sent the following communitíation to his superior: “ * * * stopped all cutting. Guggenheim will complete all in work and cut. Bloch will be in Washington December 28.”

On January 8, 1918, the defendant wrote a letter to the plaintiff company notifying them that that portion of the contract pertaining to the manufacture of the 85,000 woolen coats was cancelled except garments- then cut, which were to be completed by the company, and directing them to turn over the materials on hand belonging to the Government to the Bloch Unifonm Co. Thereupon, without protest or objection, the plaintiff company turned over the materials on hand to the Bloch Company, completed the manufacture of the cut garments, and were paid the contract price for all garments manufactured and delivered, both cotton and woolen.

Plaintiffs never presented a claim to the Claims Board of the War Department in connection with the matter. It does appear that they presented a claim, the time is not shown, to the Auditor of the War Department, who refused to pay it, and some time later, when, it is not shown, they presented a claim to the Comptroller of the Treasury, payment of which was refused. On May 15, 1922, more than four years from the date of the cancellation of the contract, they filed their petition in this court.

The court has found that there was no satisfactory proof that the delay in furnishing material for the cotton coats caused the delay in the manufacture and delivery of the woolen coats, and therefore the delay in the manufacture and delivery of the woolen coats was not due to any neglect or default upon the part of the defendant. As there can be no question that there was upon the part of the plaintiffs delay and failure to perform in accordance with the requirements of the contract, we are left with the single question whether under all the circumstances the Government had a right to cancel the contract and secure its performance by a third party.

This is a right that a person has under the law of contracts, where the other party has unquestionably failed of performance. But, aside from this, the contract itself provides that “ in case of the failure of the contractor to perform any part of the contract the party of the first part or his successor shall have the right to supply the deficiency by procurement in open market or otherwise * * * at the expense of the contractor; and in case the failure should occur prior to the time fixed for performance of all parts of the contract, the right is hereby reserved to the United States to elect whether the contractor shall be permitted to continue the performance as to such remaining part * * * or whether the entire unperformed part shall be procured at the expense of the contractor.”

Under this provision of the contract, and under the circumstances recited, the defendant was justified in canceling the contract, the, plantiffs being admittedly in default by their failure to perform, and not having shown that their default was due to any fault on the part of the defendant.

It is for the plaintiffs to make out their case clearly and satisfactorily. The court is not called upon, and it will not undertake, to balance the delinquencies of the parties to a suit, and add and subtract to reach a speculative result. Plaintiffs’ contract called for performance. This they failed to furnish, and, under the provisions of the contract, in such a situation the defendant could terminate the contract and transfer it for completion to a third person, which it did. In doing so it was within its rights and committed no breach of the contract. This is sufficient to determine the case. However, under the facts it might well be held that the plaintiffs had consented to the cancellation — more than that, had desired it. This is borne out by their request for cancellation, their inefficient management and loss of money on the contract, as well as their failure to protest, their voluntary transfer of the materials to others, the completion by plaintiffs of the cut garments, their acceptance without protest of the payment made by the Government of the contract price.

In our view of the case it is unnecessary to pass upon the question whether under paragraph 8 of the contract the defendant had an absolute right to cancel upon the failure of the plaintiffs to perform. Nor is it necessary to consider, on the question of the delay in delivery by the defendant, the fact that the contract in terms fixed no time for delivery of the cloth by the defendant, or the further question, whether the plaintiffs did not acquiesce in the cancellation or did not in effect negotiate themselves out of their contract.

We are of opinion that the defendant was within its rights in terminating the contract, and that the plaintiffs have already been paid what they were legally entitled to under the circumstances.

The petition should be dismissed and it is so ordered.

Hat, Judge; DowNet, Judge; Booth, Judge; and Campbell, Chief Justice, concur.