Priebe & Sons, Inc. v. United States

332 U.S. 407, 68 S. Ct. 123, 92 L. Ed. 2d 32, 92 L. Ed. 32, 1947 U.S. LEXIS 2855
Supreme Court of the United States·Decided November 17, 1947·No. 16·Published·Cited by 258 cases

Opinions

Mr. Justice Douglas

delivered the opinion of the Court.

This case, here on certiorari to the Court of Claims, presents the question whether a provision in a government contract for “liquidated damages,” as construed and applied, should be denied enforcement on the ground that it constitutes a “penalty.”

Shortly after the enactment of the Lend-Lease Act of March 11, 1941, 55 Stat. 31, 22 U. S. C. (Supp. V, 1946), § 411 et seq., the United States acting through agencies of the Department of Agriculture embarked on a program of purchasing dried eggs for shipment to England and Russia. Petitioner agreed to furnish a quantity of dried eggs under that program to the Federal Surplus Commodities Corporation (FSCC). The contract called for “May 18 [1942] delivery” which date, according to the contract, “shall be the first day of a 10-day period within which the FSCC will accept delivery, the particular day within the period being at the FSCC’s option.” Petitioner was also required to have the eggs inspected, delivery to be accompanied by inspection and weight certificates.

The contract contained two provisions respecting “liquidated damages.” One, contained in paragraph 9, was [409]*409applicable to delays in delivery.1 It has no application here, for as we shall see, deliveries were timely. The provision for “liquidated damages” with which we are concerned is contained in paragraph 7 and is applicable to a totally different situation. It provides, with exceptions not material here, that “failure to have specified quantities of dried egg products inspected and ready for delivery by the date specified in the offer” will be cause for payment of “liquidated damages.” 2

On May 18, 1942, petitioner had not made delivery nor had the eggs been inspected. Inspection was, however, completed and certificates issued by May 22, which was prior to the time when FSCC asked for delivery. For it was not until May 26 that FSCC gave the first of several written notices for the shipment of eggs involved in this litigation. Petitioner made timely shipments pursuant to those instructions. Subsequently FSCC ascer[410]*410tained that petitioner’s inspection certificates had been issued after May 18 and accordingly deducted from the price 10 cents per pound on the theory that the failure to have the eggs inspected and ready for delivery by May 18 was a default which put into operation the “liquidated damages” provision of the contract.

Petitioner brought this suit in the Court of Claims to recover the amounts withheld plus interest. The Court of Claims, being of the view that there had been a breach of contract for which the United States was entitled to “liquidated damages,” dismissed the petition. 106 Ct. Cl. 789, 65 F. Supp. 457.

We construe the contract to mean that the time for delivery by petitioner was not May 18, 1942 but the time or times chosen by the FSCC within the ten-day period which began on May 18. That is to say, performance by petitioner was not due until request was made and instructions given for delivery. That interpretation is in accord with the uncontested finding of the Court of Claims that petitioner promised delivery “within a ten-day period commencing May 18, the precise date to be selected” by the FSCC.

The contract was drawn, however, to make the “liquidated damages” provisions include so-called defaults of petitioner which antedated the time when delivery was due but which in no way interfered with or caused delay in that performance. As noted, “liquidated damages” became payable on “failure to have specified quantities of dried egg products inspected and ready for delivery by the date specified in the offer,” viz. by May 18, 1942. The Court of Claims held this provision enforceable even though petitioner had made prompt delivery of the eggs, because it felt that the provision enabled respondent to carry on its dried-egg program “with assurance that it could count on the dried-egg products being ready on the specified date.” That position is amplified by respond[411]*411ent. The argument in short is that liability to pay “liquidated damages” for failure to have goods ready for delivery even prior to the time when delivery is due gives assurance against tardy deliveries; that a prompt timetable of shipments was important here because of war conditions and the necessity of having goods ready for loading whenever shipping space was available; that delay in deliveries would cause unmeasurable damage; and that even though no damage were apparent in a particular case, the “liquidated damages” provision should be enforced as a deterrent of tardy deliveries in the whole class of contracts relating to this procurement program.

It is customary, where Congress has not adopted a different standard, to apply to the construction of government contracts the principles of general contract law. United States v. Standard Rice Co., 323 U. S. 106, 111, and cases cited. That has been done in other cases where the Court has considered the enforceability of “liquidated damages” provisions in government contracts. United States v. Bethlehem Steel Co., 205 U. S. 105, 120-121; Wise v. United States, 249 U. S. 361, 365-366. We adhere to those decisions and follow the same course here.

Today the law does not look with disfavor upon “liquidated damages” provisions in contracts. When they are fair and reasonable attempts to fix just compensation for anticipated loss caused by breach of contract, they are enforced. Wise v. United States, supra, p. 365; Sun Printing & Pub. Assn. v. Moore, 183 U. S. 642, 672-674; Restatement, Contracts § 339; Dunlop Pneumatic Tyre Co. v. New Garage & M. Co., [1915] A. C. 79. And see Kothe v. Taylor Trust, 280 U. S. 224, 226. They serve a particularly useful function when damages are uncertain in nature or amount or are unmeasurable, as is the case in many government contracts. United States v. Bethlehem Steel Co., supra, p. 121; Clydebank Engineering & Shipbuilding Co. v. Castaneda, [1905] A. C. 6, 11-13, 20; [412]*412United States v. Walkof, 144 F. 2d 75, 77. And the fact that the damages suffered are shown to be less than the damages contracted for is not fatal. These provisions are to be judged as of the time of making the contract. United States v. Bethlehem Steel Co., supra, p. 121.

Judged by these standards, the provision in question may not be sustained as an agreement for “liquidated damages.” It does not cover delays in deliveries.3 It can apply only where there was prompt performance when delivery was requested but where prompt delivery could not have been made, due to the absence of the certificates, had the request come on the first day when delivery could have been asked.

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Priebe & Sons, Inc. v. United States, 332 U.S. 407, 68 S. Ct. 123, 92 L. Ed. 2d 32, 92 L. Ed. 32, 1947 U.S. LEXIS 2855 (1947).

332 U.S. 407 (Priebe & Sons, Inc. v. United States) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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