Opinion ID: 268421
Heading Depth: 1
Heading Rank: 2

Heading: plaintiff's damages

Text: 43 Having rejected each of the absolute defenses urged by the Government, we must determine the appropriate measure of damages incurred as a result of the improper cancellation. The position advanced by the defendant, and accepted by the Trial Commissioner, is that plaintiff is entitled only to the traditional remedy of damages given by this court for breach of an express contract. The purpose of that remedy is to place the party against which the breach has been committed in the position it would have held if the contract had been fully performed. Acme had suffered large losses in the performance of Contract 1213 at the time it was wrongly canceled by the defendant. According to projections, however, Acme would have been able to reduce its losses considerably had it been permitted to complete the contract. The Trial Commissioner therefore determined that plaintiff was entitled to recover any post-cancellation costs incurred as a result of the Government's erroneous action, plus the amount by which it would have been able to decrease its losses through completion of the contract. In this way, the Commissioner reasoned, Acme would be given the same benefits it would have received had it been permitted to carry out the agreement. 44 Plaintiff's main argument is that it is entitled to restitution as an alternative remedy. Under that standard of relief, a party whose contract has been repudiated or otherwise breached may, if he meets certain conditions, recover the reasonable value of his services, measured as of the time of performance. The purpose is to restore the injured party to the pre-contract status quo, not to put him in his post-contract position. Restitution has long been recognized by the commentators as one of three possible remedies for the substantial breach of an express contract, the others being damages and specific performance. See Restatement, Contracts §§ 347-57; 5 Corbin, Contracts §§ 1102-21 (1951); 5 Williston, Contracts §§ 1454-85 (rev. ed. 1937). The Restatement contains a full discussion of restitution in its chapter entitled Judicial Remedies for Breach of Contract. Corbin states explicitly, In the present chapter we are dealing with restitution as a remedy for breach of contract; a judgment for such restitution is as truly a remedy for a `breach' as is a judgment for damages. 5 Corbin, Contracts § 1104 (1951). The applicability of restitution as an alternative remedy for breach is also well-established in both the federal and the state courts. E. g., Michael Del Balso, Inc. v. Carozza, 78 U.S.App.D.C. 56, 136 F.2d 280 (1943); United States for use of Susi Contracting Co. v. Zara Contracting Co., 146 F.2d 606, 610 (C.A. 2, 1944); Southern Painting Co. v. United States ex rel. Silver, 222 F.2d 431, 433-34 (C.A. 10, 1955); Valente v. Weinberg, 80 Conn. 134, 67 A. 369, 13 L.R.A.,N.S., 448 (1907); Pelletier v. Masse, 49 R.I. 408, 143 A. 609 (1928). 27 45 Although the Court of Claims has permitted quantum meruit recovery for contracts implied in fact (see, e. g., New York Mail & Newspaper Transp. Co. v. United States, 154 F.Supp. 271, 276, 139 Ct.Cl. 751, 759, cert. denied, 355 U.S. 904, 78 S.Ct. 332, 2 L.Ed.2d 260 (1957)), no past contractor has successfully sought restitutionary relief for breach of an express contract. But unless this form of recovery is precluded by our general jurisdictional statute, 28 U.S.C. § 1491, we must be guided by the principal that, When the United States, with constitutional authority, makes contracts, it has rights and incurs responsibilities similar to those of individuals who are parties to such instruments. Perry v. United States, 294 U.S. 330, 352, 55 S.Ct. 432, 435, 79 L.Ed. 912 (1935). See, also, New York Mail & Transp. Co. v. United States, supra, 154 F.Supp. at 276, 139 Ct.Cl. at 759; Refining Associates, Inc. v. United States, 109 F.Supp. 259, 261, 124 Ct.Cl. 115, 120 (1953). Since contracts with the United States are to be governed by the same principles as those between man and man (Gilbert v. United States, 1 Ct.Cl. 28, 37 (1863), aff'd, 75 U.S. (8 Wall.) 358, 19 L.Ed. 303 (1869), and see Padbloc Co. v. United States, 161 Ct.Cl. 369, 377 (1963)), we are obliged to award restitution to a petitioner meeting the prescribed qualifications, unless there is some jurisdictional impediment. 46 The Tucker Act empowers this court to render judgment upon any claim against the United States founded    upon any express or implied contract with the United States   . 28 U.S.C. § 1491. Although this precludes recovery on the basis of a contract merely implied in law (see Sutton v. United States, 256 U.S. 575, 581, 41 S.Ct. 563, 65 L.Ed. 1099 (1921)), the plaintiff seeks restitution for breach of an express contract, which clearly comes within the ambit of the Act. The cases cited by the Trial Commissioner simply denied quantum meruit (i. e. restitutionary) recovery for the alleged breach of an express contract where the court determined that no breach had in fact taken place. See Lacchi Constr. Co. v. United States, 102 Ct.Cl. 324, 355-356 (1944); Frazier-Davis Constr. Co. v. United States, 100 Ct.Cl. 120, 161-162 (1943); Steel Products Eng'r Co. v. United States, 78 Ct.Cl. 410, 418 (1933). 28 47 The Government says that, even if restitution is an available remedy, Acme has not met the conditions necessary for recovery on that basis. The accepted rule is that, 48 If the performance that the contract required of the plaintiff has been wholly prevented, and if the result of his labor and expenditure still belongs to him, he has no remedy by way of restitution. If the performance required was the production and delivery of a finished article, and the defendant wrongfully prevents completion and delivery of the article, the plaintiff cannot get judgment for the reasonable value of his work and labor in preparation to perform, except so far as it may be included in a claim for damages. Such work and labor is not itself requested or received by the defendant. 49 Restatement, Contracts § 348, Comment c. Defendant contends that Contract 1213 was for the purchase of (completed, 75 mm. recoilless rifles from plaintiff, and therefore contemplated the production and delivery of finished article[s], for the breach of which plaintiff is entitled only to damages. This misconceives the nature of the contract which states, expressly, that Acme is to  furnish and deliver specified items (emphasis added). The entire pre-contract negotiations were based on the assumption that it was Acme which would manufacture the requested rifles. The defendant at first had reservations about plaintiff's ability to perform the contract, but, after investigating Acme's plant and personnel, the Government concluded that Acme and its subcontractors would be capable of carrying out the agreement. Defendant's Exhibit 12. One of the contemplated benefits of awarding the contract to Acme was that placing this procurement [in] subject contractor's plant will not only broaden the manufacturing base but create a salutary effect, pricewise, on all other procurements of this type. Ibid. Thus, the Government contracted not only for a finished product, but also for the manufacture of that product by Acme. When an agreement of this nature is breached, restitution is available. 50 The next argument is that plaintiff's recovery must be limited to the reasonable value of the goods it actually delivered prior to cancellation. It is clear, however, that restitution is permitted as an alternative remedy for breach of contract in an effort to restore the innocent party to its pre-contract status quo, and not to prevent the unjust enrichment of the breaching party. Judgment will be given for the value of service    rendered, even though the product created thereby has been lost or dstroyed by the defendant, and even though there never was any product created by the service that added to the wealth of the defendant. Restatement, Contracts § 348, Comment a (emphasis added). It is when the plaintiff is the party in default that his recovery may be limited by the amount of the benefit to the defendant. See Schwasnick v. Blandin, 65 F.2d 354, 357 (C.A.2, 1933). But if the promisee has performed so far as he has gone, and the promisor breaks his promise, the promisee may abandon the contract and sue for restitution, in which he can recover the reasonable value of his services, measured by what he could have got for them in the market, and not by their benefit to the promisor. Ibid. See, also, Restatement, Contracts § 347, Comment c. Acme's recovery is not limited to the value of the goods received by the Government under the contract; rather, it can be based on the reasonable value of the entire performance. 51 Acme's position is that the reasonable value of its services is most accurately reflected by the actual costs it incurred in the performance of Contract 1213. As the best means of restoring the status quo ante, cost of performance is often used as the basis for determining the amount of quantum meruit recovery, in the absence of any challenging evidence. United States for Use of Susi Contracting Co. v. Zara Contracting Co., 146 F.2d 606, 611 (C.A.2, 1944); see, also, United States for use of Arc & Gas Welder Associates, Inc. v. Blount, 182 F.Supp. 648, 665 (D.Md.), aff'd, Arc & Gas Welder Associates, Inc. v. Green Fuel Economizer Co., 285 F.2d 863 (C.A.4, 1960), cert. denied, 366 U.S. 919, 81 S.Ct. 1095, 6 L.Ed.2d 241 (1961); United States for use of Wander v. Brotherton, 106 F.Supp. 353, 354-355 (S.D.N.Y.1952). But if the defendant is able to show that the costs incurred by the contractor were excessive (as a result, for example, of inefficiency or extravagance), the amount of recovery is commensurately reduced. Cf. Barrett Co. v. United States, 273 U.S. 227, 235, 47 S.Ct. 409, 71 L.Ed. 621 (1927); United States v. Behan, 110 U.S. 338, 345-346, 4 S.Ct. 81, 28 L.Ed. 168 (1884). 29 52 The record before us is inadequate to determine whether Acme's costs were, in fact, excessive. Plaintiff's expenses appear to be inordinately high even if one takes into account its lack of experience in this manufacturing line and the prospective advantage to the Government of broadening the base of procurement. The contract ceiling price, for instance, was $384.95 per unit, but plaintiff's actual cost in manufacturing the first 446 rifles was $1,179.29, and its cost of production during the last six months of the contract was $690.21. See findings 7, 52(a), (c). Although it is conceivable that these expenditures accurately reflect the value of Acme's services, the present record does not provide enough information for a sufficiently accurate answer. In particular, it would seem important to compare Acme's costs with those of other manufacturers of the same rifles during that period, taking into consideration that Acme should be permitted greater reimbursement than established manufacturers because of its inexperience and the anticipated benefits of its entry as a competitor. Since this issue was not squarely presented at the original trial, the defendant had no real opportunity to prove that plaintiff's costs were inflated; it should be permitted to do so now. We are therefore remanding the case to the Trial Commissioner under Rule 47(c) for a separate determination of liability. 53 To the extent that Acme's actual costs are used in making this determination, the Commissioner should consider that the amounts which plaintiff paid its sub-contractors latently included reimbursements for kickbacks paid to various members of the Tucker organization. See findings 18-25. Although the defendant has not attempted to prove that any of the subcontract prices were inordinately high, the kickbacks involved were hardly ordinary business expenses incurred in manufacturing 75 mm. rifles. If Acme's total costs are to measure the value of its services, they must be reduced by any kickbacks actually paid to the Tucker organization by plaintiff's subcontractors. Nor should Acme be reimbursed for the amounts it paid to Tucker; for the reasons given in the companion case, we conclude that his employment violated the covenant against contingent fees. See Acme Process Equipment Co. v. United States, Ct.Cl., No. 538-59, 347 F.2d 538, decided this day. 30 Tucker's salaries cannot be considered reasonable expenses which enhanced the value of Acme's services to the Government. Neither the contingent fee payments nor the kickbacks may be included in the computation of Acme's restitutionary recovery. 31
54 Plaintiff urges that a determination of the reasonable value of its contract performance must take into account costs incurred as a result of defective government-furnished machinery. By supplying deficient equipment, it is alleged, the defendant forced Acme to render additional services, which had market value and are compensable under the theory of restitutive recovery. The purportedly defective machinery was, however, furnished under a separate facilities contract, not the main contract. That agreement explicitly disclaimed liability for damages or loss of profit by reason of any delay in delivery or failure to deliver any or all of the items set forth   , or for delivery of such items not in satisfactory operating condition or not of a suitable type. (Emphasis added.) The contract also stipulated, In the event [government-furnished] items are not in fit operating condition, the Contractor shall repair, restore, or rehabilitate such equipment so as to make it serviceable or fit for use (cost connected with such repairs, restoration, or rehabilitation shall not be reimbursed to the Contractor). If the provisions concerning government property had been included in the main contract, such a disclaimer or limitation of liability for breach of warranty would possibly have to be disregarded under plaintiff's theory, which fixes the measure of recovery by the value of the services performed, rather than by the terms of the breached contract providing or restricting compensation. But the facilities contract was separate and was not materially breached; its clauses limiting liability remain in effect. 32 We must therefore determine whether the plaintiff is correct that the disclaimer clause is less-than-absolute and does not bar recovery for increased costs resulting from defective government machinery. 55 Plaintiff would have us read this disavowal of liability as applicable only to ordinary repairs made following delivery of the equipment. Because the disclaimer refers to Acme's obligation to repair the machinery in case of delivery of such items not in operating condition, Acme infers that the cost of extraordinary repairs incurred in the course of performance was to be borne by the defendant. Aside from the practical difficulty of separating normal and extraordinary expenses, there is a more basic objection. The terms of the disclaimer are broad, and refer to Acme's duty to repair items not in operating condition, without imposing any limitation as to the time when the equipment becomes inoperable or the amount of work required to fix it. There is no reason to qualify or limit the general sweep of the contract words. 56 On the other hand, along with the disclaimer, the facilities agreement also specified that, if the equipment supplied by the Government required repair as a result of defects present at the time of delivery, the Contracting Officer, upon written request of the Contractor, may equitably adjust the price, the time of performance, and other terms and conditions of the affected supply contract(s).    Any failure by the parties hereto to agree upon such equitable adjustment shall be determined in accordance with the article of the related supply contract(s) entitled `Disputes'. See finding 35. We do not interpret these provisions as inconsistent with the explicit disavowal of liability. Instead, they specify the only form in which relief can be obtained for injuries resulting from substandard machinery furnished by the defendant; unless the contractor makes timely written request for an equitable adjustment, he must, according to the disclaimer, bear all costs of resulting delays and repairs. See, generally, Goodwin, Government-Furnished Property, Government Contracts Monograph No. 6, p. 17 (1963); Paul, United States Government Contracts and Subcontracts 267 et seq. (1964). 33 57 During the course of contract performance, Acme made at least two written requests for reimbursement of costs incurred as a result of defects in equipment supplied by the defendant. See finding 39(b) (2), (6). About one week after cancellation, on August 26, 1954, the plaintiff filed a claim with the Philadelphia Ordnance District, asking to be repaid for all parts which it purchased to make the defendant's machinery workable. Finding 44(a). This August 1954 request is challenged by the defendant as untimely. Considering all the circumstances, we cannot agree. The machinery was supplied to plaintiff throughout 1953; although some performed reasonably well, other pieces required constant tinkering and broke down repeatedly, disrupting the smooth flow of production. See findings 39(b), 43(c). At least as late as May 1954, flaws in the government machinery were still being encountered (see finding 39 (b) (11)), and, if past experience is the guide, such difficulties were probably prevalent until the suspension of contract performance a little over a month later. Had plaintiff been required to ask for an equitable adjustment each time a minor defect was discovered, the result would have been a continuous flow of such requests to the contracting officer. The time and effort expended by both parties in effecting numerous equitable adjustments would have been excessive. Instead, Acme apprised the defendant of the various difficulties at approximately the time they were encountered, but, with several minor exceptions, it in effect waited until after the abrupt termination of the contract to make a single request for compensation. This was undoubtedly the most efficient manner of obtaining relief. Plaintiff's cumulative demand for reimbursement in August 1954, as well as the two requests made prior to annulment of the contract, were timely. 58 Plaintiff's letters sought reimbursement for repair costs, without specifically invoking the equitable adjustment provision of the facilities contract or the Disputes article of the supply contract. But the letters were easily understandable, and the failure to delineate the precise clauses permitting recovery should not stand as a bar. Cf. Specialty Assembling & Packing Co. v. United States, 298 F.2d 794, 796, 156 Ct.Cl. 252, 254-255 (1962). To the extent that the trial commissioner finds that these timely claims for reimbursement reflect actual costs incurred by the contractor because of defective government equipment — rather than its own inexperience or inefficiency — the plaintiff is entitled to an equitable adjustment as provided in the facilities contract. This equitable adjustment should be added to the determination of the value of the rest of plaintiff's performance. 34