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May 23, 1956

UNITED STATES of America, Plaintiff,
AMERICAN EMPLOYERS INSURANCE COMPANY, Defendant and Third-Party Plaintiff. I. S. Rickman, individually and trading as Sylvania Manufacturing Company and Sylvania Manufacturing Company, Inc., Third-Party Defendants

The opinion of the court was delivered by: CLARY

This is a suit by the United States of America against American Employers Insurance Company (hereinafter called 'Employers') on a Performance Bond given by Employers guaranteeing the performance by Bo-Jack Manufacturing Corporation (hereinafter called 'Bo-Jack') of Contract No. W30-280-qm-6911 (O.I. 3593), dated 28 February, 1948, for the manufacture and delivery of 200,000 Poplin Khaki Shirts for the United States Army. The contract called for a delivery schedule beginning in the month of June, 1948 of 14,534 shirts in number, and each succeeding month for six months of 30,911 shirts. As a result of the failure of Bo-Jack to meet the delivery schedule, and under the circumstances hereinafter set forth, the Government terminated the contract and brought this action against Employers, as surety, under the Delays-Liquidated Damages Clause of the contract. The defendant, as third-party plaintiff, joined the subcontractor contractor as third-party defendant. The case was tried to the Court without a jury. From the pleadings, the evidence and the exhibits, the Court makes the following.

Findings of Fact

 1. The parties to this suit are the United States of America, plaintiff; American Employers Insurance Company, a Massachusetts Corporation, defendant and third-party plaintiff; Isaiah S. Rickman, individually and trading as Sylvania Manufacturing Company, and Sylvania Manufacturing Company, Inc. (hereinafter called 'Sylvania'), third-party defendants.

 2. At all times between January 24, 1948 and April 28, 1948, Isaiah S. Rickman was sole proprietor of a manufacturing company, trading as Sylvania Manufacturing Company, with textile plants at Montgomery, Pennsylvania, and Williamsport, Pennsylvania.

 3. On April 29, 1948 all of the assets of the unincorporated business were assigned to Sylvania Manufacturing Company, Inc. and said corporation assumed all the liabilities of Isaiah S. Rickman, individually and trading as Sylvania Manufacturing Company.

 4. On or about January 24, 1948, after a series of preliminary conferences between David Rose, president of Bo-Jack, and Isaiah S. Rickman, Bo-Jack and Sylvania entered into a written agreement wherein Sylvania undertook to manufacture and deliver 200,000 Poplin Khaki Army shirts, in the event that Bo-Jack was successful in its bid to the Quartermaster Corps of the Army for the supplying of said shirts to the Army under Bid No. QM-30-280-48-397, Bid opening 28, January, 1948. By the terms of this agreement (Exhibit D-17), should Bo-Jack be awarded the contract, Sylvania agreed to meet Army specifications, the required delivery schedule, and also agreed to pay to Bo-Jack liquidated damages due the Government for delay in delivery caused by it. In addition, Sylvania was to supply all thread, buttons, shipping supplies, labor and all other miscellaneous items needed relative to the manufacture and completion of the shirts. Bo-Jack was to supervise and guide the starting of the contract. Thereafter the contract was amended verbally to provide that Bo-Jack was to order and secure for Sylvania the thread, buttons and shipping supplies; Sylvania, however, to pay for them.

 5. On February 28, 1948 the War Department awarded Contract No. W30-280-qm-6911 to Bo-Jack providing for the manufacture of 200,000 Poplin Khaki Shirts with the delivery schedule as set out in the introduction to this opinion.

 6. As a condition of said contract Bo-Jack on March 10, 1948 provided a Performance Bond in the amount of $ 29,960.00 with itself, as principal, and Employers, as surety. The Performance Bond (Construction or Supply), a U.S. Standard Form No. 25 (Revised), provided that should the principal fail to comply with the requirements of the contract in all respects, the surety would be bound to the United States in damages. The Bond specifically provided for waiver of notice to the surety of all duly authorized modifications of said contract.

 7. Prior to the execution of the contract the Government inspected the facilities of Sylvania, approved said facilities and awarded the contract to Bo-Jack with the express understanding that the execution of the contract was to be through Sylvania's facilities and that delivery of the piece goods out of which the shirts were to be manufactured would be made directly to Sylvania's plant.

 8. Immediately after Bo-Jack was awarded the Government contract, it placed orders for the needed findings, threads, buttons, etc. as well as shipping supplies with suppliers with whom it had previously done business. David Rose, Bo-Jack's president, assured Isaiah S. Rickman, then sole owner of Sylvania, that these items would be delivered promptly and in due course for the performance of the contract.

 9. The Government delivered within a reasonable time the piece goods to Sylvania at its Montgomery plant and the necessary patterns directly to Bo-Jack.

 10. Despite the timely action of the Government with respect to the patterns, David Rose failed and neglected to promptly turn the same over to Sylvania. It required extraordinary effort on the part of Sylvania, through Rickman, to obtain possession of the patterns. They were finally secured by Rickman by waiting until early morning in front of Rose's house for Rose's return, the transfer occurring in the early hours of the morning after many hours wait by Rickman. In addition, Rose for Bo-Jack never fulfilled its obligation to Sylvania to 'supervise and guide the start of the production of the shirts'. Bo-Jack had experience with Government procurement contracts; Sylvania had none; and it was vitally important at the start that Bo-Jack impart its special skilled knowledge to Sylvania in order to enable Sylvania to obtain the mass production needed to meet delivery schedules.

 11. In addition to the difficulties occasioned by the facts related in the foregoing Finding of Fact, there was undue and unwarranted delay in the delivery of thread, buttons and findings, as well as shipping containers. The Court finds as a fact that this delay was in no wise occasioned by Sylvania but was the entire fault of Bo-Jack. The suppliers with whom Bo-Jack placed the orders would not deliver the supplies because of Bo-Jack's financial irresponsibility and it was not until Rickman guaranteed the payment of the accounts directly to the suppliers that the orders were accepted and shipped. The entire fault for the failure of any deliveries in the month of June is attributable directly to the failure of Bo-Jack to supply shipping containers until the last day of June, 1948, which made any June delivery by Sylvania impossible.

 12. The first delivery under the contract by Sylvania was on July 1, 1948 when 6,750 shirts were shipped. Thereafter there were shipments on July 15 -- 3,450; July 21 -- 3,150; July 28 -- 450; July 29 -- 6,750, or a total of 20,550 shirts.

 13. On July 9, 1948 the United States wrote Bo-Jack warning it that because of failure to make proper and prompt delivery, unless substantial improvements were made, it might become necessary to terminate the contract for default, and called attention to its obligation to pay the Government under the Delays-Liquidated Damages Clause one-fifth of 1% of the price of each unit for each day's delay after the delivery date. It further demanded an explanation of the delinquency and information as to what steps were being taken to overcome it.

 14. Bo-Jack never replied to that communication, but on July 15, 1948 Sylvania wrote the following letter:

 'Phone 9989

 Sylvania Mfg. Co.

 Makers of Blouses-Sportswear-Novelties

 47 West Third Street

 Williamsport, Pa.

 15 July 1948

 Our new address

 328 W. Fourth Street

 'Lt. Col, C. T. McEniry QMC 'Procurement Division 'Department of the Army '111 E. 16th Street 'New York, N.Y.


 QM 6911-01-3593 Shirts, Poplin, Khaki-1, Stand-Up Collar


 'We are in receipt today of a copy of your letter of 9 July directed to the Bo-Jack Manufacturing Co., Plymouth, Penna., the primary contractors, and we are the sub-contractor.

 'We shipped today 3,450 units and will be able to ship an additional 3,450 units, which is lot size, on Monday, the 19th, and should be able to complete all of the June schedule on or about the 21st of this month and on that date start shipping on the July schedule.

 'The reason for our present delinquency is due to a series of reasons, as follows:

 'We were late in getting started due to the fact that we did not receive our supplies, such as thread, buttons, shipping cartons and transfers.

 'This being our first experience with an Army shirt, in the training of our girls we were striving for quality rather than quantity at the risk of being delinquent on the early part of our contract. We ordinarily operate on a piece rate method and we put all of our employees on an hourly basis so that they would have no reason or incentive to rush their work.

  'Our plant was closed down beginning at noon, Friday, July 2nd for our annual vacation holiday and we started operations again on Monday of this week.

 'We feel very confident that we will catch up on our delinquent quantities in August, and if nothing unforeseen happens, we should be able to run ahead of schedule from that time on. We are running approximately 80 machines, employing about 135 people total, and they are all engaged in the making of shirts on this contract. At the present writing we have attained a production of approximately 1,200 units per day, and we are planning to work overtime, and if necessary transfer some employees from our Williamsport plant together with the necessary equipment to insure the delivery of the contract. Should there be anything further you would like to know, we would be very happy to comply.

 'Very truly yours,

 'Sylvania Manufacturing Co.

 '(s) I.S. Rickman

 'I.S. Richman


 'cc: Bo-Jack Mfg. Co.

 Plymouth, Pa.

 'cc: Mr. W. Leamy, Insp.'

 15. From the inception of the contract the relations between Bo-Jack and Sylvania deteriorated. Rickman became rather suspicious of Bo-Jack's actions and demanded that the contract be assigned to Sylvania. Under date of June 22, 1948 Bo-Jack, in writing, agreed to make such an assignment. The proposed agreement was that after assignment of the contract the payments by the Government would be made directly to Sylvania and that of the contract price of $ .749, the sum of $ .705 was to be retained by Sylvania and the remaining $ .044 per unit was to be paid to Bo-Jack by Sylvania immediately as payments were received from the finance office. This agreement never became effective because of the impossibility under existing law of assigning a Government Procurement Contract. However, taking advantage of the provision of law permitting the assignment of claims (monies) due under the contract rather than the contract itself, Assignment of Claims Act of 1940, Public Law No. 811, 76th Congress, 31 U.S.C.A. 203, the parties entered into an Agreement dated 15 July 1948 with the Williamsport National Bank of Williamsport, Pennsylvania, wherein the bank was to receive all of the monies due under the contract and apportion them between the parties in the ratio set forth in the proposed agreement of June 22, 1948. This agreement was entered into coincidental with the letter addressed by Sylvania to the Army, referred to in the foregoing Finding of Fact.

 16. From July 15, 1948 until early October, 1948, no further disagreements or difficulties between Bo-Jack and Sylvania, which might interfere with production by Sylvania, appear in the testimony.

 17. While Sylvania made periodic shipments, it totally failed to meet production schedule. As of September 30, 1948 of the 107,267 shirts due under the contract 38,676 were undelivered.

 18. On October 6, 1948 the Government terminated, by letter, the right of Bo-Jack to deliver the said 38,676 shirts, but said nothing in its letter about termination of the liability of Bo-Jack to deliver 30,911 shirts each in the succeeding three months of October, November and December.

 19. The chronology of events leading to the ultimate termination of the contract is as follows: On October 1, 1948 the Army Inspector in Charge reported to his superior that delinquency in delivery was due to the late start caused by the prime contractor being late in supplying the subcontractor with necessary findings and that there appeared to him to be a conflict between Rickman, subcontractor, and David Rose, prime contractor; further that he had been notified by the subcontractor that he, Rickman, intended to discontinue all operations when he had finished all shirts which had been cut. The basis for the above statement was that he would not continue without an understanding with David Rose (Bo-Jack), prime contractor. The letter of October 6, 1948, referred to in the above Finding of Fact, followed. On October 8, 1948 Sylvania wrote the Quartermaster Corps that he had stopped working on the Poplin Khaki Shirts under the contract on which it had been working as subcontractor for Bo-Jack, alleging that Bo-Jack had violated its contract, and requested immediate withdrawal of Government property from the plant on the ground that it would be occupied within a week or ten days by new tenants. On 15 October 1948 the Contracting Officer for the Army wrote Bo-Jack demanding that it take steps to complete its contract. The inspection report for the week of October 15, 1948 revealed only 14 completed shirts on hand. On October 29, 1948 Bo-Jack answered the letter of October 15th requesting permission to complete the contract in one of its other plants or at a regular contract plant, but did nothing further in the matter. On 30 November 1948 the Contracting Officer terminated the right to deliver the further balance due under the contract. This letter contained 'findings of fact' in accordance with the contract provision and no appeal was taken therefrom. On December 1, 1948 the defendant Employers was notified of the termination. On 25 July 1949 claim was made against Bo-Jack under the Delays-Liquidated Damages Clause and on 18 August 1949 claim was made against the Employers for damages under the contract because of the default of Bo-Jack. Upon refusal of Bo-Jack and Employers to pay, suit was instituted on January 5, 1953.

 20. As a result of the demand of Sylvania that the Government remove its cloth from its plant, the Quartermaster Corps made provisions to and promptly removed the government-owned cloth from the Montgomery plant of Sylvania to the Quartermaster Depot in Philadelphia within a few days after the demand was received.

 21. The Government advertised for bids for that part of the contract terminated on October 6, 1948, and on December 10, 1948 relet this portion of the contract to Southland Mfg. Co. of North Carolina; deliveries to be completed by the end of February, 1949.

 22. The Government also advertised for bids on the completion of the remaining shirts, 83,776 in number, terminated November 30, 1948, and on December 29, 1948 relet the manufacturing of these shirts to Raycord, Inc. of North Carolina; deliveries to be completed by the end of March, 1949.

 23. There being no contravening evidence, the Court finds that the Government acted with reasonable promptitude in the reletting of these contracts.

 24. Failure to complete the contract was due to the combined fault of Bo-Jack and Sylvania.

 25. The Government performed all duties required under the contract and in nowise interferred with the completion of the contract by Bo-Jack, prime contractor.

 26. The Delays-Liquidated Damages Clause of the contract provided a reasonable method of calculating damages and the Court finds that the rate of one-fifth of 1% of the unit price per day for delay in delivery constitutes liquidated damages, and not a penalty.

 27. Bo-Jack, prime contractor, defaulted in the delivery of 122,452 shirts, later supplied by Southland and Raycord.

 28. The following chart sets forth in detail the quantities, periods of delay, number of days, unit price, and the calculated liquidated damages to the Government, together with credits due Bo-Jack as a result of savings and liquidated damages collected from Southland and Raycord. Liquidated damages 1/5 of 1% of the Period of delay price of each Mfg. From date To date of No. of Unit unit for each Co. Quantity due delivery days Price day's DELAY S 18,564 9-30-48 1-31-49 123 $0.749 $3,420.49 R 11,330 9-30-48 2-10-49 133 $0.749 2,257.32 R 5,170 10-31-48 2-10-49 102 $0.749 789.96 S 15 10-31-48 2-16-49 108 $0.749 2.43 R 4,500 10-31-48 2-22-49 114 $0.749 768.47 S&R 21,226 10-31-48 2-28-49 120 $0.749 3,815.58 S&R 17,871 11-30-48 2-28-49 90 $0.749 2,409.37 R 500 11-30-48 3-14-49 104 $0.749 77.90 R 9,600 11-30-48 3-18-49 108 $0.749 1,553.13 R 2,940 11-30-48 3-25-49 115 $0.749 506.47 R 6,960 12-31-48 3-25-49 84 $0.749 875.79 R 23,776 12-31-48 3-31-49 90 $0.749 3,205.48 122,452 $19,682.39 To this total, the following credits are to be applied: (A) Withheld on DO Voucher No. 105840, Nov. 1949 $1,981.27 (B) Liquidated damages collected from Raycord and Southland 1,003.49 (C) Saving to Government from Raycord & Southland contracts 1,395.00 $4,379.76


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