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U.S. Supreme Court

United States v. Bethlehem Steel Co., 205 U.S. 105 (1907)

United States v. Bethlehem Steel Company

No. 188

Argued January 28, 1907

Decided March 11, 1907

205 U.S. 105


The rule that prior negotiations are merged in the contract is general in its nature, and does not preclude reference to letters between the parties prior to the execution of a contract in order to determine whether from the language used in the contract the parties intended stipulated deductions for delay as a penalty or as liquidated damages.

Where, in response to government advertisements, the same party submits different bids, the largest price being for the shortest time of delivery, the acceptance of the bid for the shorter time is evidence that the element of time is of essence, and a stipulated deduction of an amount per day equivalent to the difference between the short and long time for delivery is to be construed as liquidated damages for whatever delay occurs in the delivery, and not as a penalty, although the word penalty may have been used in some portions of the contract.

41 Ct.Cl. 19 reversed.

The Bethlehem Steel Company recovered a judgment in the Court of Claims (41 Ct.Cl.19) for the sum of $21,000 against the appellant, from which judgment the United States has appealed to this Court.

The company filed its petition in the Court of Claims, seeking to recover a balance which it alleged was due from the United States on a contract which had been entered into by the company with Brigadier General Flagler, Chief of Ordnance, in behalf of and for the United States, for the construction of certain gun carriages which the company alleged had been constructed according to the contract, and for which the government had failed to pay the full amount which became due upon its performance.

The facts were found by the Court of Claims, from which it appears that the government, on the eighth day of March, 1898, advertised for proposals for the construction of six disappearing gun carriages, and the specifications accompanying

Page 205 U. S. 106

the advertisement set forth the character and extent of the work. The claimant, in response to the advertisement, submitted four distinct sealed proposals to the War Department for the construction of such carriages. By the first proposal, the company agreed to furnish five or more gun carriages for the sum of $31,000 each, the first to be delivered within six months of the date of contract, to be followed by two carriages every three months thereafter. By the second proposal, the company offered to furnish the same number for the sum of $33,000 each, the first to be delivered within five months from date of contract, to be followed at the rate of one carriage every month thereafter. By the third proposal, the offer was to furnish the same number for the sum of $35,000 each, the first to be delivered within four months, and the second within five months of date of contract; the remaining carriages to follow at the rate of three carriages every two months thereafter. By the fourth proposal, the offer was to furnish the same number for the sum of $36,000 each, the first to be delivered in four months, the second in five months, and the remaining carriages at the rate of two carriages every month thereafter.

These alternative proposals were made in consequence of a letter written the company by the Chief of Ordnance, dated March 11, 1898, of which the following is a copy:

"Office of the Chief of Ordnance,"

"United States Army"

"Washington, March 11, 1898"

"Gentlemen: It is suggested that, in making bids for carriages, you estimate first, on the price of carriages under the supposition that the works will run for twenty-four hours; second, that later, if it be found advantageous, the ordinary working hours may be observed. It is considered best that bids should be made for carriages by numbers -- as, for instance, so much for five 8-inch carriages, for six, eight, etc. Therefore it is considered judicious that bids should be made for rapid

Page 205 U. S. 107

delivery of a certain number of carriages or for less rapid delivery of the same. It should be understood, however, that time will be considered very important."

"Respectfully, D. W. Flagler"

"Brig.Gen., Chief of Ordnance"

The following are the further findings of the Court of Claims:

"IV. The defendants, through the War Department, accepted proposal No. 4 of the claimant company."

"V. In drawing up the contract between the United States and the claimant company, a slight modification of proposal No. 4 was decided upon, which was as follows:"

"Whereas in proposal No. 4, claimant company was to deliver five or more carriages, the first in four months, the second in five months, and the remaining ones to follow at the rate of two carriages per month. In drawing up the contract, this was changed so as to provide for the delivery of one carriage in four months (as proposed) and five carriages in six months from the date of contract, thus reducing the time of delivery of all the carriages from seven to six months, this reduction of the total delivery being offset by the increased latitude given claimant company as to intermediate deliveries."

"VI. On April 4, 1898, the Ordnance Department transmitted a form of contract of even date to the claimant company for execution and return by letter, as follows:"

"Office of the Chief of Ordnance"

"United States Army"

"Washington, April 4, 1898"

"The Bethlehem Iron Co., South Bethlehem, Pa."

"Gentlemen: I am instructed by the Chief of Ordnance to transmit herewith contract, in quintuplicate, dated the 4th instant, for six 12-inch disappearing gun carriages, model 1896, for execution and return to this office."

"Respectfully, R. Birnie"

"Capt., Ord. Dept., U.S.A."

Page 205 U. S. 108

"To this letter the claimant company made reply on April 5, 1898:"

"The Bethlehem Iron Co., South Bethlehem, Pa."

"Chief of Ordnance, U.S.A."

"War Department, Washington, D.C."

"Sir: We have examined the contract forms, covering six disappearing gun carriages, model 1896, for 12-inch B.L. rifles, for which we submitted proposals under the date 19th ultimo, and write to call your attention to the third clause, relating to our liability on account of any patent rights granted by the United States, is not struck out, as has been done in the case of previous contracts for carriages."

"We also note that the penalty mentioned in the contract for each day of delay in delivery of each carriage is $75 instead of $10, as is stipulated in the instructions to bidders and specifications."

"We made our bid under the understanding that the penalty for nondelivery was to be $10 per day, and we respectfully request that the contract forms may be modified in accordance with this understanding."

"We return herewith the contract forms, and remain,"


"The Bethlehem Iron Company"

"R. W. Davenport"

"Second Vice President"

"Whereupon the claimant company was informed by the Chief of Ordnance, by letter of April 9, 1898, as follows:"

"Office of the Chief of Ordnance"

"United States Army"

"Washington, April 9, 1898"

"The Bethlehem Iron Company"

"South Bethlehem, Pa."

"Gentlemen: In reply to your letter of April 5, 1898, returning contract forms, I have the honor to inform you that

Page 205 U. S. 109

your request in regard to your liability on account of patent rights has been complied with, and the third paragraph has been stricken out."

"In regard to the penalty for delay in delivery being $75 per day instead of $10 per day, I have to state that the former amount is the average difference in time of delivery between your price recently bid for slow delivery of these carriages and the price under the accepted bid. The Department feels it to be just that this average difference should be the prescribed penalty; but, if you should prefer, instead of taking the average difference, that the exact difference per day for each particular carriage should be prescribed, the forms will be altered accordingly."

"The contracts are returned, hoping this explanation will be satisfactory."

"Respectfully, D. W. Flagler"

"Brigadier General, Chief of Ordnance"

"Thereafter it was found that an error had been made in the above computation, in that the $75 per day deduction provided for should have been $35 instead, and the claimant company was duly informed of this by letter dated April 16, 1898, which is as follows:"

"Office of the Chief of Ordnance"

"United States Army"

"Washington, April 16, 1898"

"The Bethlehem Iron Company,"

"South Bethlehem, Pa."

"(Through the Inspector or Ordnance, U.S.A."

"Gentlemen: Referring to my letter, No. 21985, of the 9th instant, I would invite your attention to the fact that an error was made in the computation in the amount of the deduction in price per day of delay in delivery of 12-inch disappearing carriages, L. F. model of 1896, recently ordered from you and to inform you that the contract should read that such deduction in price should be $35 per day of delay in

Page 205 U. S. 110

delivery, in accordance with principle stated in my above-mentioned letter."

"Respectfully, D. W. Flagler"

"Brigadier General, Chief of Ordnance"

"Before signing the contract in its present form, the claimant company, by communication on April 20, 1898, requested that the same should be modified in some respects, which request is contained in the following communication:"

"The Bethlehem Iron Company"

"South Bethlehem, Pa. April 20, 1898"

"Chief of Ordnance, U.S.A."

"War Department, Washington, D.C."

"Sir: Referring to the forms of contract for six 12-inch disappearing gun carriages, carrying the date of April 4, 1898, which have recently been received, but not yet executed, and to the conversation which the writer had with you on Thursday last, we beg to state that, on further carefully considering the possibilities of the case, we do not believe that we will be able to deliver the six carriages within six months, as called for by the proposed contract. We will, however, undertake to complete, in accordance with our bid, the delivery of the first carriage in four months, the second within five months, and the remaining four at the rate of two per month, thus making the total time of delivery of the six carriages seven instead of six months, it being understood that no penalty will be charged against us for the one month of delay which will thus accrue on the fifth and sixth carriages."

"By agreeing to this proposition, the Department will be the gainer, in that the second carriage will be due at the end of the fifth month, while, as the contract now reads, it would not be due until the end of the sixth month."

"With the above understanding confirmed, we will execute the contract as it now stands, except as to the amount of penalty for delay in delivery, which, in accordance with your letter of April 16, will be $35 instead of $75 per day. "

Page 205 U. S. 111

"We return the contract forms in order that the change as regards penalty may be made."

"We remain, respectfully,"

"The Bethlehem Iron Company"

"R. W. Davenport"

"Second Vice President"

"To which letter the following reply was made:"

"Office of the Chief of Ordnance"

"United States Army"

"Washington, April 25, 1898"

"The Bethlehem Iron Company"

"South Bethlehem, Pa."

"(Through Inspector of Ordnance, U.S.A.)"

"Gentlemen: In reply to your letter of the 20th instant, I have the honor to inform you that the schedule of deliveries of 12-inch disappearing carriages contained therein will, in view of the earlier resulting delivery of the second carriage, be accepted in lieu of the schedule in the contract, without enforcement of penalties which would result from the change of schedule."

"The amount of the penalty for delay in delivery is changed from $75 to $35 per day in accordance with my letter of the 16th instant, and the contract forms are returned herewith for execution."

"Respectfully, D. W. Flagler"

"Brigadier General, Chief of Ordnance"

"The above correction was therefore made in the said contract, and the same was duly signed and executed by the claimant company and immediately transmitted to the War Department. A copy of said contract is annexed to and made part of the petition."

The following are the material portions of the contract:

"Under advertisement dated _____, 189_, the said parties of the first part do hereby contract and engage with the said

Page 205 U. S. 112

United States to manufacture, for the Ordnance Department, U.S. Army, in accordance with said instructions to bidders, as amended, specifications, and drawings, all of which are hereto attached and form part of this contract."

"Six (6) disappearing gun carriages, model 1896, for 12-inch B. L. rifles, drawings dated April 27 and June 19, 1896 (latest revision July 14 and December 30, 1897) at thirty-six thousand dollars ($36,000) each, free on board cars at South Bethlehem, Pa."

"The first carriage to be delivered within four (4) months from date of this contract, and the remaining five (5) carriages within six (6) months from date of this contract."

"It is further stipulated and agreed that the party of the first part will furnish such limited additional number of these carriages at the price and rate of delivery stated, as the party of the second part may desire, under available appropriations."

"* * * *"

"It is further stipulated and agreed that, if any carriage herein contracted for is not delivered by the party of the first part at the times specified herein, there will be deducted, in the discretion of the Chief of Ordnance, thirty-five ($35) dollars per day from the price to be paid therefor for each day of delay in delivery of each carriage, respectively. But if at any time the Chief of Ordnance shall decide that continuous and great delay or other serious default has occurred, he may, to protect the interests of the United States, apply the provisions of the 5th section of the regular contract form and waive further per diem deduction in price."

"All penalties incurred under this contract shall be offset against any payments falling due to the said party of the first part."

"The work must pass the required inspection at all stages of its progress, and be approved by the officers of the Ordnance Department before being accepted and paid for by the United States."

"(Signed by the parties. "

Page 205 U. S. 113

"* * * *"

"VII. Thereupon the Bethlehem Iron Company proceeded to manufacture the said gun carriages, and ultimately delivered them to the United States, and they were accepted by the latter. The following table gives first, the date fixed by the said contract for the delivery of each one of said carriages; second, the date of its delivery, and, third, the extent of the delay in its delivery."


No. of Date for delivery Date of delivery Extent of

carriages fixed by contract (actual) delay


16 Aug. 4, 1898 Jan. 28, 1899 77 days

17 Sept. 4, 1898 Mar. 6, 1899 183 "

18 Oct. 4, 1898 Apr. 13, 1899 191 "

19 Oct. 4, 1898 Mar. 18, 1899 165 "

20 Nov. 4, 1898 Apr. 29, 1899 176 "

21 Nov. 4, 1898 May 27, 1899 204 "


Total delay 1096 days


"Of the above days of delay, which amounted in the aggregate to 1,096 days, the United States, through the Chief of its Bureau of Ordnance, decided that the Bethlehem Iron Company was responsible for delays to the extent of 100 days upon each of the six disappearing gun carriages, or 600 days in all, but did not charge said company with the balance of said days, or 496 days in all; which at the stipulated sum of deduction at $35 per day for each day of delay in the delivery of each gun carriage, amounted to the sum of $21,000, which sum was deducted from the payments made the claimant company, and the balance, or the sum of $195,000, was paid over to the claimant company, who receipted for said payment under protest."

"VIII. The court finds as the ultimate fact that the defendants' officers hindered and delayed the claimant in the performance of the work by changes in the plans of construction, as alleged in the petition, and in various other ways; but the court also finds that the claimant contributed to the delay

Page 205 U. S. 114

in the completion of the work by being insufficiently equipped and prepared to complete it within the time prescribed in the contract and by taking other work to the exclusion of that referred to in these findings, and the court further finds that the transactions in the process of manufacture were so involved and intermerged that it is impossible, on the evidence produced, for the court to ascertain and determine whether the defendants should be charged with a greater proportion of the delays set forth in the foregoing table in Finding VII than those assumed by the defendants' officers, to-wit, 496 days out of the total amount of delays, to-wit, 1,096 days."

It does not appear that the defendants were ready to use the gun carriages hereinbefore described at the time when they were finally delivered by the claimant; nor does it appear that they could have used them on their fortifications if they had been delivered at an earlier day. Nor does it appear that the defendants suffered any injury or damage whatever by the delay of the claimant in delivering the said gun carriages hereinbefore set forth.

"Conclusion of Law"

"Upon the foregoing findings of fact, the court decides, as a conclusion of law, that the claimant recover judgment in the sum of twenty-one thousand dollars ($21,000). "

Page 205 U. S. 117

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