#### HENRY WAYLAND PEABODY ET AL. v. THE UNITED STATES.

[No. 30032.

Decided October 24, 1910.]

*On the Proofs.*

The contract requires the contractors to deliver monthly a certain quantity of “ *Wallsend ”*coal, and contains the usual clause in government contracts, that in case of the contractors’ failure to deliver, the contracting quartermaster “ *shall have the power to purchase in open market ”*“ *such quantity of coal of equal grade as may he required,’’*“ *the difference in cost to he charged to the contractors.’’*In consequence of a strike it becomes impossible for the contractors to furnish Wallsend coal, but they are allowed by the contracting quartermaster to furnish an inferior coal at the same price, it being “ *agreed that the same shall he considered as a purchase outside of the contract to meet existing conditions’’*The market value of this inferior coal at the time and place of delivery, owing in part to the strike aforesaid, is $5.15 a ton, which is “ *the price orally agreed upon and paid to the contractors ”*by the contracting quartermaster. The contractors subsequently enter into a second contract. The Quartermaster-General decides that the contracting quartermaster could not agree to accept the inferior coal as a purchase outside of the first contract, and he deducts $3,193 from money due on the second contract.

I. Where a coal contract contains the usual clause of government contracts that in case of the contractor’s failure to perform the defendants may purchase in open market, *“ the difference in cost to he charged to the contractors,”*and they furnish an inferior article under an oral agreement with the quartermaster in charge that “ *the same shall he considered as a purchase outside of the contract to meet existing conditions ”*(viz, the impossibility of procuring the coal named in the formal contract because of a strike), and the inferior coal is accepted and paid for, the transaction may be closed; but this will not prevent the defendants from subsequently treating it as a purchase in open market from a third party and recovering, by way of set-off, not the difference in cost (which is nothing), but the difference in value, which is $3,193.

II. Where contractors obligated themselves to furnish a designated kind of coal they are not released from the obligation, though their inability to perform was the result of a strike in the collieries from which the coal came.

*533III. Set-off may be maintained by the defendants in a suit on a second contract for a liability incurred by the claimants in a former contract, and this though the causes of action are distinct.

*The Reporters’*statement of tbe case:

The following are the facts of the case as found by the court:

I. The claimants, as partners, under the firm name and style of Henry W. Peabody & Co., did, on the 1st day of July, 1904, enter into the following contract for the supply of coal for the use of the Quartermaster’s Department, United States Army, during the fiscal year ending June 30, 1905:

“ This agreement, entered into this first day of July, nineteen hundred and four, between John L. Clem, colonel and assistant quartermaster-general, United States Army, of the first part, and Henry Wayland Peabody, Charles Dummer Barry, Frederick Walker Lincoln, and John Rice Bradlee, comprising the firm of Henry W. Peabody & Co., of New York, in the county- of New York, State of New York, of the second part, witnesseth, that the said Jno. L. Clem, colonel and assistant quartermaster-general, United States Army, for and in behalf of the United States of America, and the said Henry W. Peabody & Co. do covenant and agree to and with each other as follows:

“ I. That the said parties of the second part shall furnish and deliver for the use of the Quartermaster’s Department, United States Army, during the fiscal year commencing on the first day of July, nineteen hundred and four, and ending on the thirtieth day of June, nineteen hundred and five, seventy thousand (70,000) tons, of two thousand two hundred and forty (2,240) pounds each, of coal, known as ‘ Wallsend,’ of good quality for steaming purposes, screened and picked twice, free from dust, shale, or slag, as follows:

*“*II. That deliveries shall be made ex ship, Manila Bay, at a rate not to exceed eight thousand (8,000) tons per month: Provided, That the said parties of the second part shall make deliveries on this contract at Iloilo, Cebu, Camp Overton, Jolo, or Zamboanga, P. I., in such quantities, not to exceed eight thousand (8,000) tons per month, and at such times as may be required by the United States, and provided further, that the United States shall give the said parties of the sec*534ond part forty-two (42) days’ written notice, when requiring deliveries at ports outside of Manila Bay.

“ III. That deliveries to be made in Manila Bay shall be in two (2) shiploads, one of which shall arrive between the first day and the fifteenth day of each calendar month, and the other between the fifteenth day and the last day of each calendar month, but in no case shall two shiploads of coal be in Manila Bay, discharging under this contract, at the same time: Provided, That should said two (2) ships be discharging at the same time the United States shall not be liable for demurrage.

“ IY. That all deliveries on this contract shall be subject to careful inspection, under instructions of the chief quartermaster, Philippines Division, United States Army, and the quantity delivered shall be determined by weight.

“ Y. That the United States shall discharge vessels at the rate of three hundred and fifty (850) tons per day in Manila Bay, and at the rate of three hundred (300) tons per day at Iloilo, Cebu, Camp Overton, Jolo, and Zamboanga, P. I., for weather-working days, exclusive of Sundays, holidays, and feast days, said discharging to commence not later than twelve (12) hours, ex steamer, or (24) hours ex sailing vessel, after notice, in writing, of arrival in port; and for failure on the part of the United States to discharge vessels as herein provided, the United States shall be liable for and pay demurrage at the rate of one hundred and seventy-five (175) dollars per day, U. S. currency: Provided, That in the event that quarantine shall be established at any port, where it may be necessary under this contract for any vessel to touch, hostilities, blockades, fire, act of God, public enemies, piracy, or restraint of rulers or princes, causing delay in movement or discharge of vessel thereby, then neither party to this contract shall be held responsible for such delay: *Provided*further, That in case the United States shall fail to discharge three hundred (800) tons per day at outposts, and shall make up for any such shortage by discharging a correspondingly larger amount at Manila than the amount specified, three hundred and fifty (350) tons per day, then the United States shall not be liable for demurrage caused by failure to discharge stipulated amount at said outports.

“ YI. That the said parties of the second part shall file with the officer in charge of water transportation an official report, of tests, showing the quality of the coal intended to be delivered and a sufficient sample for test, and if at any time the coal offered under this contract shall fall below the *535report so filed or the quality of the sample submitted, then such coal will be rejected.

“ VII. That the United States reserves the right to increase or diminish the amount of coal called for under this contract twenty (20) per cent, upon written notice to the said parties of the second part of such intention; said notice to be given by the chief quartermaster, Philippines Division, or by the officer in charge of water transportation, under said chief quartermaster’s authority.

“ VIII. That the United States shall furnish the said parties of the second part with free entry, under section 385, customs tariff, for all coal delivered under this contract.

“ IX. That payment for coal delivered under this contract shall be made as early as practicable after the discharge of each and every vessel at Manila or outports.

“ X. That deliveries on this contract shall, if required, commence on the fifteenth day of August, nineteen hundred and four, provided that the agreement is approved by the proper authorities of the War Department; otherwise, not until such approval is obtained.

“JXI. That for and in consideration of the faithful performance of the stipulations of this agreement, the party of the second part shall be paid, at the office of the officer in charge of water transportation at Manila, P. I., as follows: For each and every ton of coal furnished and delivered at Manila, Iloilo, Cebu, Camp Overton, Jolo, and Zamboanga, P. I., subject to all the provisions of this contract, the sum of five (5) dollars and fifteen (15) cents per ton, U. S. currency.

“ XII. That in case of failure of the said parties of the second part to comply with the stipulations of this contract according to the true intent and meaning thereof, then the party of the first part shall have the power to purchase in open market at the luwest price obtainable, or by special contract, such quantity of coal of equal grade as may be required, not to exceed the amount herein stated, the difference in cost to be charged to and paid by the said parties of the second part, or their sureties.

“ XIII. Neither this contract nor any interest therein shall be transferred to any other party or parties, and in case of such transfer the United States may refuse to carry out this contract either with the transferor or the transferee, but all rights of action for any breach of this contract by said Henry W. Peabody & Co. are reserved to the United States.

“ IX. No Member of or Delegate to Congress, nor any person belonging to or employed in the military service of the United States, is or shall be admitted to any share or part *536of this contract, or to any benefit which may arise therefrom.a

“ This contract shall be subject to approval of the commanding general, Philippines Division, U. S. A.

“ In witness whereof the parties aforesaid have hereunto placed their hands the date first hereinbefore written. .

“ Witnesses:

“(Sgd.) J. O. TeeteR, as to

“(Sgd.) J No. L. Clem,

*“Colonel and Asst.*Quartermaster-General, *U. 8. Army.*

“(Sgd.) Kobert Lee Strayer, as to

“(Sgd.) HeNry W. Peabody & Co.,

“ By George Nichols Lamb,

“ *Attorney.*

“(Executed in quintuplícate.)

“ Note. — The name of the principal intended to be bound as party of the second part, whether an individual, a part-' . nership, or a corporation, should be inserted in and signed to the contract. An officer of a corporation, a partner, or an agent signing for the principal should add his name and designation after 'the word ‘ by ’ and under the name of the principal.

“ This contract need not be executed under seal.

“ Insertion of words ‘ of equal grade ’ in 5th line of Article XII made after signing.

“(Sgd.) E. Ií. Grieeith, as to “(Sgd.) J NO. L. Clem,

“ *Gol., Asst. Q. M. G., Ü. 8. A.*

“(Sgd.) R. L. Strayer, as to

“(Sgd.) HeNry W. Peabody & Co.,

“(Sgd.) By George Nichols Lamb,

“ *Attorney.*

“ Headquarters Philipitne DivisioN,

“ Manila, *July*9, *190*

“ Approved:

“By command of Major-General Wade:

“(Sgd.) W. J. Glasgow,

“ Oaftain, *13th*Cavalry, *A. D. 0.,*

“ *Actg. Asst. Adjt. General.*

*537[Indorsements.]

“ Articles of agreement between Jno. L. Clem, Asst. Quartermaster, U. S. A., at Manila, P. I., and Henry W. Peabody & Co. For 70;000 tons coal at Manila, P. I. Dated July 1, 1904. Expires June 30, 1905. Bond, $5,000. Sureties: Fidelity Dep. Co. of Maryland, American Surety Co.

“ HEADQUARTERS PHILIPPINE Division, *July 6, 190If.”*

II. Deliveries were begun under this contract in August, 1904, and averaged about one delivery a month, and were made at the times and places and to the amounts requested by the officers of the Quartermaster’s Department, who did not require or wish the full amount specified in the contract 'to be delivered, and who also did not give and were not required to give the amount of notice specified in paragraph 2 of the contract for deliveries at ports outside of Manila Bay.

In the month of January, 1905, a strike took place at the Newcastle collieries in Australia, the source of supply of the coal known as Wallsend, specified in the contract, whereby the claimants became temporarily unable to supply that kind of coal. Being informed of this fact by cablegram dated January 21, 1905, and received at Manila on the same day, the agent of the claimants conveyed immediate notice thereof to Col. John L. Clem, Assistant Quartermaster-General, United States Army, chief quartermaster of the Division of the Philippines at Manila, informing him at the same time that, as also stated in the same cablegram, an equal quantity of good Australian coal, known as mountain coal, could be supplied. It was stated in the conversation with Colonel Clem that this mountain coal was not fully equal to Walls-end, but that it was believed to be a good coal. Colonel Clem agreed to accept said mountain coal. It was then and there stated between said agent of the claimants and said Colonel Clem that the price to be paid for the 6,000 tons of mountain coal then required by the Government should be $5.15 a ton, the same price as specified in the contract for Wallsend coal, and agreed that the same should be considered as a purchase outside of the contract to meet existing conditions. The agent of the claimants thereupon cabled to *538their office at Sydney, New South Wales, Australia, ordering the 6,000 tons of mountain coal, and the same was delivered by the claimants, accepted by the Government, and paid for on a voucher of the disbursing quartermaster at Manila at the rate of $5.15 a ton.

III. On the 3d of February, 1905, after the shipment, but before the delivery of said mountain coal, the claimants addressed a letter to Colonel Clem asking to be furnished with an order for said coal as a purchase in accordance with the agreement and conversation referred to in the preceding finding. Colonel Clem thereupon informed the claimants, through the officer in charge of water transportation, that a sample of thq mountain coal would be shipped to the Quartermaster-General for test, and in case of its falling below the Wallsend coal, the difference would be charged against the claimants under the contract. The claimants, by letter of February 18, 1905, protested against this' qualification, insisting that the agreement orally made with Colonel Clem was to accept mountain coal at the same price as that specified in the contract for Wallsend coal without reserve as to quality. The mountain coal was inferior to Wallsend coal, but its market value at Manila at that time, owing in part to said strike, was $5.15 a ton, the price orally agreed upon and paid to the claimants.

IY. A sample taken from the cargo of mountain coal above mentioned was sent to the Quartermaster-General at Washington, and on being subjected to test was found to be of less value than the Wallsend coal, as provided by the contract, the pro rata reduction in price of the cargo being found to be $3,193.32, or of the value of $4.63 a ton instead of $5.15.

Thereafter claimant entered into a second contract with the chief quartermaster of the Division of the Philippines to deliver 60,000 tons of West Wallsend coal for the fiscal year beginning July 1, 1905. In the month of April, 1906, the quartermaster deducted from the price of a cargo of coal delivered under said contract the sum of $3,193.32 due the United States, the difference in value between the Walls-end coal as provided by the contract and the mountain coal delivered by the claimant.

*539*Mr. Geo. A. King*for the claimants.

*Mr. W. F. Norris*(with whom was *Mr. Assistant Attorney-General John Q. Thompson)*for the defendants.

a

 Here add to any contract made 'with an incorporated company for its general benefit tbe following words, viz: “ But this stipulation, so far as it relates to Members of or Delegates to Congress, is not to be construed to extend to tbis contract.” — See sec. 3740, Revised Statutes.

Peelle, Ch. J.,

delivered the opinion of the court:

The claimants, by the terms of the contract set forth in the findings, agreed to furnish and deliver to the Quartermaster’s Department, United States Army, Philippine Islands, for the fiscal year ending June 30, 1905, 70,000 tons of Wallsend coal, from Australia in deliveries ex ship Manila Bay, at the rate of 8,000 tons per month, and at certain other places in said islands mentioned in the contract upon the 'giving of the notice therein required, all at the price of $5.15 per ton.

The claimants commenced delivery in August, 1904, and delivered to the satisfaction of the officers of the Government until January, 1905, when, by reason of a strike in the Newcastle collieries in Australia, the claimants were unable to supply said Wallsend coal. The chief quartermaster of the Division of the Philippine Islands, with whom the contract on behalf of the Government was made, was informed of the strike and of the claimants inability to deliver Wallsend coal by reason thereof. The claimants at the same time offered to furnish the Government an equal quantity of good Australian coal known as mountain coal, though inferior to the Wallsend coal, at the same price, and said quartermaster agreed to accept 6,000 tons thereof at $5.15 per ton, the purchase to be considered outside the contract to meet existing conditions.

Thereupon a cable message was sent by the agent of the claimants to their office in Sydney, New South Wales, Australia, directing the shipment of said quantity of mountain coal. After shipment, but before delivery had .been made, the quartermaster, upon the request of the claimants to be furnished with ah order for said coal in accordance with the verbal agreement so made, informed the claimants that a sample of said mountain coal would be shipped to the Quartermaster-General for test, and in case it fell below the Wallsend coal the difference would be charged against the claimants under *540their contract, to which the claimants in writing protested as not in accordance with their verbal agreement.

Though the mountain coal was inferior to the Wallsend coal, it was reasonably worth at Manila at the time, owing in part to said strike, $5.15 per ton. A sample of said mountain coal was sent to the Quartermaster-General at Washington, but in the meantime the coal so ordered and 'delivered was accepted and paid for. Thereafter the coal so sent was tested and found to be of the value of $4.63 per ton, as compared with Wallsend coal, or $3,193.32 less than for the same tonnage of Wallsend coal.

The claimants thereafter entered into a second contract with said chief quartermaster to delivery 60,000 tons of West Wallsend coal for the fiscal year ending June 30, 1906, and in April following there was deducted from the amount then due the claimants for coal so delivered under said second contract the sum of $3,193.32, for the recovery of which the claimants now bring this action.

The claimants’ contention is that whether the purchase be regarded as a delivery under the contract or as an open market purchase, they are entitled to recover because of the verbal agreement and the acceptance of the coal and payment therefor at the price agreed upon; that thereby the transaction was settled and consummated, and thereafter the Government had no right to reopen the transaction and deduct the amount it did under the second contract without the claimants’ consent.

The claimants treat the purchase of the mountain coal as a slight departure from the written contract and as within the authority of the officer in charge of its execution. There is much force in the argument that though the contract may. not have conformed to the requirements of the law, still, since the coal was accepted and paid for at the rate agreed upon, the transaction was closed, and in support of this contention the claimants cite a number of authorities, but owing to the prior contractual relations between the parties concerning the same subject-matter we are unable to agree with counsel that the authorities cited by him apply in the present case. Here there was no conflict in the provisions of the contract requiring modification, nor did the quartermaster *541in charge require the claimants to do or perform any act outside the terms of the contract, nor was it in any way the fault of the United States or any of its officers that the claimants were unable to perform their contract in delivering Wallsend coal. They had obligated themselves to deliver Wallsend coal in certain quantities, and their inability to do so was the result of a strike in the collieries in Australia from which said coal came. There is no provision in the contract, however, which exempts or excuses the claimants from the performance of their contract by reason of a strike. They were equally bound to deliver the coal contracted for after as well as before the strike and when, for their accommodation and convenience, the quartermaster agreed to accept a different and inferior quality of coal at the contract rate, though nothing was said at the time .about a sample being sent to the Quartermaster-General for test, still the oral contract, if contract it was, must be construed with reference to the terms of the written contract, Article XII of which provides:

> “ XII. That in case of failure of the said parties of the second part to comply with the stipulations of this contract according to the true intent and meaning thereof, then the party of the first part shall have the power to purchase in open market at the lowest price obtainable, or by special contract, such quantity of coal of equal grade as may be required, not to exceed the amount herein stated, the difference in cost to be charged to and paid by the said parties of the second part, or their sureties.”

Under paragraph 4 of the contract all deliveries were to be subject to a careful inspection, while under paragraph 6 the claimants were required to file with the officer in charge of water transportation an official report of test showing quality of coal intended to be delivered, together with a sufficient sample for test, and if the coal offered for delivery fell below said report or the quality of the sample so submitted, same was to be rejected.

In view of the provisions of the contract and the legal limitations upon the quartermaster as the agent of the Government, of which the claimants were bound to take notice, we can not accept the oral agreement as modifying the written contract or definitely fixing the price of the moun*542tain coal when it was at the time known to both parties to be inferior to the Wallsend coal. On the contrary, the oral agreement, whether the mountain coal was to be accepted under the contract or as an outside purchase, was subject to the provisions of the contract between the same parties. The amount of the deduction was ascertained as provided by the contract and, under the law, was a proper subject of set-off against any claim in favor of the claimant.

True, there is no fraud or bad faith charged in this case, but if the officers or agents of the Government can excuse a contractor from the performance of his contract by accepting an inferior quality of coal or other supplies than that contracted for and, too, at the contract rate, then contractors who may have underbid to secure a contract might thereby gain an advantage over other bidders to the detriment of the Government, especially where performance is prevented by some cause not covered by the contract. The question of hardship not provided against in the performance of a contract is not a question to be considered by the officer or agent, who has no authority to relieve therefrom or to compensate one on account of losses suffered by him in the fulfillment of his contract. He is the agent of the Government to see that the contract is carried out and has no authority to vary the same to meet conditions not therein provided against.

Without considering the case further, we think the opinion of the Judge-Advocate-General, as well as the opinion of the Comptroller, in rejecting the claim was correct, and the petition must, therefore, be dismissed, which is accordingly ordered.