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June 8, 1955


The opinion of the court was delivered by: MURPHY

By written agreement dated November 6, 1946, defendant agreed to manufacture, construct and deliver to the plaintiff at Wilkes-Barre, Pennsylvania, in this district, sixty-two locomotives at $ 115,000 each or $ 7,130,000. March 8, 1947, an additional contract was executed for twenty-six locomotives at $ 129,000 each, or $ 3,354,000. All eighty-eight locomotives were delivered for a total price of $ 10,484,000.

In the original contract defendant promised to make deliveries in accordance with a specified schedule and, failing therein, to pay $ 57.50 for each day's delay per locomotive. In each contract defendant guaranteed engine parts -- wheel sets (axles and wheels), tires and springs for three years; the rest of the material for one year.

 In its complaint in Count One plaintiff avers that there were delays of 2027 locomotive days in making deliveries under the original contract, for which damages are claimed in the sum of $ 116,552.50.

 In Count Two as to the original contract and Count Three as to the second contract, plaintiff asserts that during the period in question difficulties arose as to each locomotive because of faulty material or defective manufacture and workmanship, and that despite notice and demand defendant failed and refused to remedy the defects or replace all defective parts, materials and accessories with new parts, materials and accessories at the earliest possible date as agreed in the contract. Plaintiff therefore claims damages in Count Two as to the sixty-two locomotives in the sum of $ 1,058,696.20, and in Count Three as to the twenty-six locomotives under the second contract an exactly similar sum, i.e., $ 1,058,696.20. The total claim for damages is stated to be $ 2,233,944.90.

 It appears that as of October 27, 1952, the parties were in correspondence relative to a claim for delay in delivering the sixty-two locomotives under the original contract, and that defendant on November 3, 1952, indicated its willingness to arbitrate the issues involved. As of December 15, 1953, counsel for plaintiff indicated that they were attempting to obtain a statement of plaintiff's position which would afford a basis for negotiations between the parties on the several difficulties, and requested that counsel for defendant obtain a similar statement from their client. At that time counsel for plaintiff indicated that in order to protect the interests of their client and to prevent the statute of limitations from running, a complaint would be filed in the district court. Plaintiff's counsel indicated that although a complaint was to be filed it was not intended as any indication of plaintiff's unwillingness to settle the claim by arbitration or agreement. Finally a complaint was filed in this court on January 7, 1954.

 Under date of January 5, 1954, plaintiff's counsel in a letter to counsel for the defendant stated 'We wish to inform you that the sum of $ 1,058,696.20 is the total amount claimed for Counts Two and Three. However, at the time the complaint was drawn we did not have in our possession sufficient information from Ankara to allocate the damage properly between the contract for the twenty-six locomotives and the contract for the sixty-two locomotives * * *.'

 Apparently on March 24, 1953, plaintiff's counsel wrote to the defendant stating that the plaintiff also desired to arbitrate in accordance with the agreement (at the same time as the delay claim) a further claim it had against the Vulcan Iron Works dealing with 'faulty material or defective manufacture * * *.'

 By letter of March 31, 1953, defendant requested plaintiff to set forth the specific issues and/or claims which it believed were subject to arbitration under Article 21.

 Plaintiff's counsel set forth the claim in more detail in its letter of April 9, 1953, to which defendant replied by indicating its intention to 'review this phase of the matter at the next meeting of the Board of Directors scheduled for April 27, 1953'.

 August 14, 1953, plaintiff sought to bring to a head arbitration of the delay claim, at the same time forwarding 'four copies of the necessary form of submission of the dispute under the auspices of the American Arbitration Association'.

 Under date of September 23, 1954, plaintiff wrote to defendant's counsel as follows: 'Again, further demand is hereby made upon you to proceed with the arbitration of all of the above disputes in accordance with Article 21 of the contracts'.

 Article 21 reads as follows:

 'In the event of differences arising between the Administration and the Contractor in the elucidation or interpretation of the present Contract, all differences or disputes arising between the Administration and the Contractor regarding the terms of the present Contract, each contracting side shall appoint an Arbitrator; and in case these Arbitrators do not come to an agreement, a third Arbitrator shall be appointed by the Arbitrators.

 'If the selection is not agreed upon, the Chief Attorney of the United States of America shall be asked to make the appointment. If the latter refuses to do this, the Turkish Government and the Chief Justice of the United States shall agree upon the appointment of the person who is to appoint the third Arbitrator. The decision of two (2) of the three (3) Arbitrators shall be final and binding on both ...

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