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.
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.
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 ...