
    THOMAS E. ZODA v. THE UNITED STATES
    [No. 353-55.
    Decided January 20, 1960]
    
      Mr. Norman Both for the plaintiff. Mr. Max E. Green-berg was on the briefs.
    
      Mr. William A. Stem, II, with whom was Mr. Assistant Attorney General George Cochran Doub, for the defendant.
   Laramore, Judge,

delivered the opinion, of the court:

Plaintiff, the assignee of Television Equipment Corporation (hereinafter referred to as TEC) sues to recover damages for the alleged unjustified termination of a contract to manufacture and deliver cathode ray oscilloscopes. Defendant is counterclaiming for excess costs on reletting.

The facts briefly are these: Plaintiff, on September 22, 1950, entered into a contract with the United States acting through the Civil Aeronautics Administration (hereinafter referred to as CAA) for the manufacture and delivery of 606 VHF cathode ray oscilloscopes for the sum of $105,965.16.

Prior to the award of the contract, TEC’s plant was inspected by representatives of CAA. These representatives informed TEC that its testing equipment was inadequate. However, notice to proceed with performance under the contract was given TEC by the CAA on October 6, 1950.

The contract provided for the delivery of an initial unit 60 days from and including the effective date of the notice to proceed, 10 units within 30 calendar days after receipt by the contractor of the Government’s approval of the initial unit, and remaining units at the rate of 40 units each 7-calendar-day period thereafter.

The specifications of the contract provided that the oscilloscopes to be manufactured included a VHF (very high frequency) component having an impedance of 1,000 ohms and a sensitivity of 3 volts per inch of deflection and the vacuum tube amplifier could not be used therein. This component had never been manufactured commercially before this contract.

On October 11, 1950, TEC wrote to CAA setting forth a resume of the engineering problems presented in connection with the work under the contract in suit. As part of its solution to such problems, the use of a vacuum tube amplifier was suggested.

On October 20, 1950, CAA replied by letter stating that the use of a vacuum tube amplifier should be avoided, if practicable, because of certain undesirable results which were experienced from such use. This letter reads in part as follows:

In view of these facts it is suggested that an experimental unit be constructed so that measurements may be made to determine the maximum deflection sensitivity which can be expected in practice without the use of vacuum tube amplifiers. It is requested that we be advised as soon as the information is available regarding the maximum deflection sensitivity which can be achieved for input impedances of 500 ohms and 1000 ohms.
Please do not hesitate to advise if we may be of any assistance since we believe that rather close liaison between your company and ourselves is desirable at this stage of the contract.

Engineers employed by TEC found it difficult to produce the specification component without the use of a vacuum tube amplifier. Since this use was forbidden by the specifications, TEC, by letter, suggested certain modifications to the contract specifications, the most important of which was the lowering of the requirement of input impedance from 1,000 to 500 ohms. The letter concluded:

There will be no modifications in contract price or time required by us for the above changes in specifications.

CAA replied by letter stating that the suggested specification modifications had been approved. The letter concluded:

No change in contract price or time is entailed and issuance of the change order by the Procurement Branch will be your official notification of the modification of the specification requirements.

Change Order No. 1 was accordingly issued and provided:

No change in contract time or price is involved.

Change Order No. 1 resulted in the easing of the original requirements.

By January 11, 1951, because of large scale purchases growing out of the Korean incident, TEC had difficulty in obtaining the material deliveries. Consequently, TEC requested a defense order number (a priority) which was issued. This priority was forwarded to TEC on January 24, 1951.

On February 8, 1951, TEC’s engineers brought an engineering model of the oscilloscope to the CAA in Washington. It was demonstrated and did not function properly. After two days spent in rearranging components and building aluminum shields for various circuits, TEC took the model back to its plant with the understanding that TEC would advise CAA when the oscilloscopes would be ready for testing.

On March 14, 1951, arrangements were made for testing TEC’s engineering model oscilloscope at Poughkeepsie, New York. In the course of making such arrangements, TEC advised Mr. Bartholomew, CAA’s project engineer, that 80 percent of the material needed for the contract in suit was on hand or under firm commitment from the supplier. TEC further advised that orders had been placed on all components and that it was preparing a letter to be sent to CAA’s expediter for assistance in difficult phases of procurement.

On March 16,1951, CAA’s engineers witnessed tests of an engineering model of the oscilloscope. The engineer reported that with further corrections the model would meet specifications. TEC reported that it would freeze the design of the scope and proceed to set up production as fast as delivery of component parts would allow. CAA requested that TEC advise it of any encountered problems which would delay delivery, in order that it (CAA) might do all it could to insure deliveries of these equipments.

On April 4, 1951, a representative of TEC telephoned CAA and stated he had been spending nearly all his time expediting delivery of materials and components for the contract and that he hoped to commence production work on the following Monday. He stated that several components were still in short supply but that the first unit would probably be ready for testing within the next three weeks.

On April 6,1951, TEC’s sales engineer called CAA asking whether it would be possible to cancel the contract, stating that it was learned that contract material costs amounted to $170 per unit, whereas the contract price was $174 per unit. This request for cancellation was apparently coupled with a request for a contract renegotiation. At any rate, TEC was advised that two courses were open to it — (1) to cancel the contract for non-performance with excess costs on reletting, or (2) performance by TEC of the contract. TEC was also told that CAA was without authority to change .their contract arrangement.

On April 26, 1951, TEC informed CAA that it intended to proceed with the contract and further stated that it (TEC) hoped to have two pre-production models ready for preliminary Government inspection sometime the following week.

On May 11,1951, CAA wrote to TEC’s president reminding him that the contractor had hoped to have two pre-production models ready for preliminary inspection sometime the first week in May but that as of that date CAA had received no information as to the status of the work or what TEC proposed to do about the contract. CAA further requested that TEC furnish it with a statement not later than May 18, 1951, setting forth the status of the work and the action proposed to be taken by TEC.

TEC, by its president, replied stating that it hoped to have two pre-production models ready for Government inspection by June 1, 1951 and that it had procured components •and materials for the production run of the oscilloscopes. 'TEC further stated that a large part of the materials were ■on hand. TEC again advised • of a number of problems which it had previously outlined (that it required a higher •contract price) and requested that if CAA “has not the power to solve these problems that the matter be taken up with the Department of Commerce.”

No pre-production models were ready for Government inspection by June 1 and accordingly on June 12,1951, TEC was advised in a letter from CAA in part as follows:

As you are aware delivery of the initial unit under this contract was due December 4, 1950. We have subsequently been informed of certain delays in the production of the prototype, but your letter of May 14, 1951, indicated that two pre-production models would be ready for inspection on June 1,1951.
Our needs are such that we cannot allow further delays in the production of this equipment. Accordingly, you are hereby notified that, unless these pre-production models are completed and ready for inspection on or before June 20, 1951j and unless we are simultaneously furnished with positive evidence of your ability to furnish the production quantities at the rate set forth in the contract, your right to proceed will be terminated. In the event of such termination, your liability for any excess costs occasioned the Government by the purchase of this equipment from another source will be determined in accordance with the terms of the contract.

The oscilloscopes were urgently needed by CAA and because of the protracted delays in production and the 'difficulty of obtaining materials, CAA representatives became concerned as to TEC’s ability to. complete the contract or the ability of CAA to place an order with some other firm in the event of TEC’s default. Because of this concern, a CAA representative .contacted a Washington representative of the Allen B. DuMont Laboratories, Inc. to ascertain whether DuMont was in a position to manufacture approximately 600 oscilloscopes if an order should be placed with them, and the price which DuMont would charge the Government.

On June 13, 1951, CAA was advised by letter that two pre-production models would be completed for inspection and tests on June 20, 1951. TEC again stated that it was desirable that the contract be renegotiated.

Arrangements .were made for inspection at TEC’s plant on June 20, 1951 of the two pre-production models. Again TEC was advised that CAA was without authority to renegotiate the contract price upward. CAA then requested that, if production depended upon an increased contract price, that CAA be notified immediately.

On June 20, 1951, Mr. Chester S. Bartholomew, CAA project engineer, went to the TEC plant and observed certain tests on one oscilloscope. Two other units were estimated by him to be about 50 percent complete. The tests conducted were in the nature of spot checks on specification requirements. The test equipment at TEC’s plant did not permit the full range, of tests for a determination as to (whether the initial unit did or did not meet all contract specifications. Bartholomew reported to the contracting officer however that the unit did substantially comply with the specifications.

On the following day, June 21, 1951, the contracting officer, along with Bartholomew and his superior, Mr. Clark, conferred at TEC’s plant with Mr. John B. Milliken, President. The latter informed the group that production could not commence because of the financial' condition of TEC. He again requested an increase in the contract price and was .told that that could not be accomplished. He said that TEC was then in the process of clearing with the Securities and Exchange Commission an issue of debentures and that TEG should know in two weeks whether it would obtain sufficient, capital to continue operations. Milliken was told that CAA_ would advise him early that week that CAA would either t

1. Allow him not more than 30 days to set up production and furnish a fixed number of .units, or
2. Declare his firm in default and terminate its right to proceed.

On June 27, 1951, CAA terminated TEC’s right to proceed and the termination notice stated

In view of the fact that the contract time on the subject contract has expired and the further fact that you are unable to furnish evidence of your ability to proceed with the production of the oscilloscopes, your right to proceed further is hereby terminated.
The Government will proceed to obtain these units from other sources and your liabilities will be determined under the provisions of Article 5 of the contract.

At that time TEC was in default in delivery under the contract because it had not delivered an initial unit by June 27, 1951, which had been fully tested and found to comply with the specifications.

Thereafter, TEC made efforts.to have CAA reconsider its termination, but CAA never withdrew such decision.

TEC appealed and asked for a hearing, which request was denied. (Defendant does not contend that the action of the head of the department upholding the contracting officer is final and conclusive.)

In this posture of the case the only question involved is whether the termination by the Government was justified.

In this connection plaintiff argues that it was not in default because the Government had waived the requirements of the initial contract with regard to delivery dates, and that the Government was obliged to give TEC notice fixing a reasonable time within which to make delivery.

The defendant concedes and agrees that the Government waived the time for making delivery of the initial units. However, the defendant says that TEC had such a reasonable time and more.

From the facts in this case we agree with the defendant. After much discussion over contract price, after seeking renegotiation, and after seeking cancellation, plaintiff finally promised two pre-production models ready for inspection by June 15. Plaintiff failed to make good on this promise and on June 12, 1951, defendant insisted that unless the pre-production models were completed and ready for inspection on or before June 20, 1951, and that TEC furnish evidence of ability to produce under the contract, its right to proceed would be terminated. Inasmuch as the oscilloscopes were urgently needed by the CAA, this it seems to the court was a perfectly normal and reasonable request.

At this juncture plaintiff again made a promise — to have the two pre-production models ready for testing on June 20. Again plaintiff failed in its promise. On June 20,1951, only one pre-production model was completed, and at that time it was learned that certain important materials were not only not on hand but subject to indefinite delivery delays. Furthermore on the following day, June 21, 1951, TEC’s president informed the CAA that because of financial difficulties production could not commence.

Thus on June 27,1951, the CAA sent to plaintiff a termination notice because of default in deliveries under the contract.

We can find no unreasonableness on the part of the defendant. Beyond question TEC was in default, and through no responsibility of the defendant. As a matter of fact, TEC was given every opportunity to perform under the contract and failed so to do.

Therefore, under the facts of this case, we can do nothing but uphold the Government’s termination of the contract.

Having found that the defendant was within its rights in terminating the contract, the question then arises as to the defendant’s right to recover on its counterclaim.

The facts with respect to said counterclaim are these: Article 5 of the contract provides in part as follows:

* * * If the contractor refuses or fails to make deliveries of the materials or supplies within the time specified in Article 1, or any extension thereof, the Government may by written notice terminate the right of the contractor to proceed with deliveries or such part or parts thereof as to which there has been delay. In such event, the Government may purchase similar materials or supplies in the open market or secure the manufacture and delivery of the materials and supplies by contract or otherwise, and the contractor and his sureties shall he liable to the Government for any excess cost occasioned the Government thereby: * * *

CAA relet the contract after obtaining bids from all original bidders except one. The excepted original bidder, having another contract with the CAA, was at the time experiencing technical difficulties in production. It was for this reason that that company was not invited to submit a proposal. Again we can find nothing unreasonable or illegal in this respect.

At any rate, finally a replacement contract was entered into with Allen B. DuMont Laboratories, Inc. to furnish the 606 VHF cathode ray oscilloscopes under the same specifications as the contract in suit. This reletting resulted in a total excess cost of $63,502.74.

Plaintiff claims certain impropriety in letting the replacement contract. First, plaintiff says the second low original bidder was not solicited to bid on the replacement contract*' In this respect, as we pointed out earlier, this bidder was then having difficulty under another contract with the CAA and the Government properly excluded that company. Secondly, plaintiff seems to say that the action of the CAA in contacting DuMont before the termination spells out some sort of conspiracy on the part of CAA to get the business in the hands of DuMont. We can find absolutely no merit in this contention. Since CAA was extremely anxious and needed to have early and prompt delivery of the oscilloscopes, and since it was at least becoming apparent that TEC would either default or suffer cancellation of the contract because of financial resons, it was natural that inquiry would be made at other sources of supply. We can see nothing in this action on the part of CAA which would lead us to the belief that CAA was guilty of any act of impropriety.

Under Article 5 of the contract the Government had the right to relet and plaintiff is liable for the excess costs.

Accordingly, defendant is entitled to recover on its counterclaim the sum of $63,502.74, without interest, and judgment will be entered to that effect. Plaintiff’s petition is dismissed.

It is so ordered.

.'Barksdale, District Judge, sitting by designation; Madder, Judge; WhitakeR, Judge; and JoNes, Chief Judge, concur.

FINDINGS OP PACT

The court, having considered the evidence, the report of Trial Commissioner William E. Bay, and the briefs and argument of counsel, makes findings of fact as follows:

1. Television Equipment Corporation (hereinafter referred to as TEC) is a corporation duly organized under the laws of the State of Delaware and at all times hereinafter mentioned maintained an office in the City and State of New York.

2. On March 31, 1953, TEC duly executed and delivered to the plaintiff, Thomas E. Zoda, an assignment of all its property, including the claim forming the basis of this action, for the benefit- of its creditors; said assignment was duly filed and recorded in the office of the Clerk of the County of New York, State of New York, on the 6th day of April 1953.

3. Plaintiff has duly qualified as such assignee for the benefit of creditors, has acted and is still acting as such assignee for the benefit of creditors, and is the owner and holder of the claim herein.

4. On September 22, 1950, as a result of competitive bids submitted, TEC entered into a contract with the United States of America, acting through the Department of Commerce, Civil Aeronautics Administration (hereinafter referred to as CAA), for the manufacture and delivery by TEC of 606 VHF cathode ray oscilloscopes for the sum of $105,965.16; the said contract, which is known as Contract No. Cca-28884 was executed on behalf of the United States of America by R. E. Mulari, Deputy Chief, Procurement Branch, CAA, as contracting officer, and on behalf of TEC by John B. Milliken, President.

5. Prior to the award of the contract TEC had submitted to CAA a financial statement which purported to show that TEC had assets of $210,966.97, with capital and surplus of $168,074.81. No proof of the accuracy of said financial statement has been offered.

6. Prior to the award of the contract, representatives of CAA had inspected TEC’s plant in the City of New York, and its testing equipment. These representatives informed TEC that its testing equipment was inadequate.

7. Notice to proceed with performance under the contract was given to TEC by the CAA on October 6,1950.

8. The contract provided for the delivery of an initial unit 60 days from and including the effective date of notice to proceed, ten units within 30 calendar days after date of receipt by the contractor of Government approval of the initial unit and remaining units at the rate of 40 units each 7-calendar-day period thereafter. The contract contemplated delivery of the oscilloscopes provided to be manufactured by TEC within 113 days after the receipt by TEC of notice of Government approval of the initial unit.

9. The specifications of the contract provided that the oscilloscopes to be manufactured include a VHF (very 'high frequency) component having an impedance of 1000 ohms and a sensitivity of 3 volts per inch of deflection and the vacuum tube amplifier could not be used therein.

10. The VHF component described by the specifications had never been manufactured commercially before this contract.

11. On October 11,1950, TEC wrote to CAA setting forth a resumé of the engineering problems presented in connection with the work under the contract in suit. As part of its solution to such problems, the use of a vacuum tube amplifier was suggested.

12. On October 20, 1950, CAA replied to TEC’s letter of October 11, stating that use of a vacuum tube amplifier in the design of the oscilloscope should be avoided, if practicable, because of certain undesirable results which were expected from such use. The letter reads in part as follows:

In view of these facts it is suggested that an experimental unit be constructed so that measurements may be made to determine the maximum deflection sensitivity which can be expected in practice without the use of vacuum tube amplifiers. It is requested that we be advised as soon as the information is available regarding the maximum deflection sensitivity which can be achieved for input impedances of 500 ohms and 1000 ohms.
Please do not hesitate to advise if we may be of any assistance since we believe that rather close liaison between your company and ourselves is desirable at this stage of the contract. .

13. Engineers employed by TEC found it difficult to produce a VHF component with an impedance of 1000 ohms and a sensitivity of 3 volts per inch of deflection, unless the use of a vacuum tube amplifier was resorted to, which use was forbidden by the specifications.

14. Following a conference between representatives of TEC and CAA, on December 14, 1950, TEC suggested by letter certain modifications to the contract specifications, the most important of which was the lowering of the requirement of input impedance from 1000 to 500 ohms. The letter concluded:

There will be no modifications in contract price or time required by us for the above changes in specifications.

15. On January 2,1951, the CAA wrote TEC that the suggested specification modifications had been reviewed and approved by CAA engineers, and that a recommendation of approval had been forwarded to the procurement branch. The letter concluded:

No change in contract price or time is entailed and issuance of the change order by the Procurement Branch will be your official notification of the modification of the specification requirements.

16. On January 8, 1951, the contracting officer issued Change Order No. 1, incorporating the suggested changes which reads in part as follows:

No change in contract time or price is involved.

17. It is clear from the testimony of both parties that the changes in specifications included in Change Order No. 1 resulted in the easing of the original requirements.

18. By January 11, 1951, the impact of large scale purchasing by the military, because of the Korean incident, had an effect upon the ability of the plaintiff to obtain material deliveries. Because of this, on that day, TEC requested that C, A A! do what It could to obtain a defense order number (a priority) to the contract in suit. This was accomplished and forwarded to TEC on January 24,1951.

19. On February 8, 1951, TEC engineers brought an engineering model of the oscilloscope to the CAA in Washington. It was demonstrated to CAA engineers in the laboratory at CAA. Mr. C. S. Bartholomew, CAA project engineer, made the following report of such demonstration:

On Thursday, February 8,1951, Mr. Wells, Mr. Marks and the YHF oscilloscope project engineer from Television Equipment Corporation brought in their engineering model of the VHF oscilloscope and demonstrated it to us in the lab. Sensitivity and input impedance requirements were well met for the maximum sensitivity condition. However, when approximately _ 20 watte power was applied to the coax stray rf coupling within the oscilloscope case, it caused violent cross-coupling effects to appear on the pattern. Mr. Marks and the project engineer devoted Thursday afternoon and all day Friday re-arranging components and building aluminum shields for various circuits in an attempt to improve this situation. Considerable improvement was realized; however, there was still too much stray rf coupling and they plan to work on this problem when they return to their plant.
We had planned to take this unit to the Baltimore VOB to see how it worked out in checking 10 kc modulation and also residual modulation from the modulation eliminator. However, this plan was discarded inasmuch as the scope was not sufficiently free from stray rf effects to warrant making this check until the equipment was further improved. Mr. Wells informed us that he would give us a call when they were ready to test the scope again. We suggested that there was a possibility that one of the engineers from this office might be in the vicinity of New York when they got ready and could drop in and witness teste. Otherwise, it would be necessary to arrange another demonstration either here or in New York.

20. On March 14,1951, arrangements were made for testing TEC’s engineering model oscilloscope at Poughkeepsie, New York. In the course of making such arrangements, TEC advised Mr. Bartholomew that 30 percent of the material needed for the contract in suit was on hand or under firm commitment from the supplier. TEC further advised that orders had been placed on all components and that it was preparing a letter to be sent to CAA’s expediter for assistance in difficult phases of procurement.

21. On March 16, 1951, Mr.' Bartholomew witnessed tests of an engineering model of the oscilloscope. He reported the results of his observations of such tests to his superior, as follows:

SUBJECT: Engineering Model VHF Oscilloscope, Cca-28884
On Friday, March 16, 1951,1 witnessed tests of the subject equipment at Poughkeepsie, New York, in the company of Mr. Marks and Mr. Greenburg of Television Equipment Corporation. Considerable change in this equipment had been made to eliminate objectionable BF coupling into the sweep circuits. In an effort to accomplish this, additional shielding was tried around the lumped constant BF circuit. However, the shielding reduced the “Q” of the circuit to such an extent that the BF sensitivity was no longer acceptable. The problem was solved by replacing the lumped constant circuit with tuned balanced transmission line, the open end of the transmission line being connected directly to the vertical plates of the oscilloscope and the dc positioning potential as well as the audio signals fed to the plates through this transmission line. In order to avoid shorting out dc and audio signals, a capacitor was used as an BF short to tune the transmission line to the desired frequency. In order to prevent this capacitor from affecting the response of the scope to signals in the order of 100 kc, provision was made for sliding the short off from the transmission line and on to a pair of dielectric rods.. This system does not require any switching or positioning of links to ready the scope for BF measurements. However, as pointed out above, the shorting element consisting of a capacitor must be slid off from the transmission line when the scope is being used for other than VHF applications.
In order t'o determine the effect of this scope on the BF circuits of the VOB, the following tests were made. The input to the scope was connected to the test point No. 1 of the modulation eliminator and the sensitivity was adjusted for full screen deflection of the pattern. The reference level as indicated on the VOB monitor was increased by two percent when the scope was connected. As nearly as could be determined there was no effect on. phase alarm limits. The input to the scope was? then connected to test point No. 2 and the. sensitivity again adjusted to produce full screen deflection. There was a six percent reduction in variable signal level but no change in phase or alarm limits when the scope was connected to this point. The scope appeared to have more than ample sensitivity for this application, and it is believed that a usable deflection will be obtainable even on low powered terminal YOR’s with this equipment. Mr. Marks stated that they would freeze the design of the scope and proceed to set up production as fast as delivery of component parts would allow. In this connection, Mr. Marks gave me a letter addressed to Mr. Linnell, W-355, which enumerated orders for component parts which had already been placed, in order that CAA could expedite deliveries of critical items to the manufacturer. I requested that they advise us of any problems which they might encounter which would appreciably delay delivery, so that we might do all in our power to insure early deliveries of these equipments.

22. On April 4,1951, a representative of TEC telephoned CAA and stated he had been spending nearly all his time expediting delivery of materials and components for the contract and that he hoped to commence production work on the following Monday. He stated that several components were still in short supply but that the first unit would probably be ready for testing within the next three weeks.

23. On April 6,1951, Mr. Nelson Wells, TEC’s sales manager, called CAA and said that as a result of a meeting with management officials of TEC, he wished to find out whether it would be possible to cancel the contract in suit for 606 oscilloscopes. He indicated that TEC found that the material costs amounted to $170 per unit, whereas the contract unit price was $174. The request for cancellation was apparently coupled with a request for a contract renegotiated at a higher price. Wells was told that only two courses of action were available:

1. To cancel the contract for non-performance with excess costs on the reletting charged to TEC.
2. Performance by TEC of the contract.

Wells was told that CAA was aware of the increase in the cost of labor and material over the past several months but CAA was without authority to change their contract arrangements. Wells was referred to the head of the procurement office, a contracting officer.

24.On April 21,1951, TEC’s president wrote to A. S. Rein-ford, Chief, Procurement Branch, CAA, enclosing a memorandum outlining “the difficulties in which we now find ourselves.” The letter states in part:

The company is not in a position to afford to take a substantial loss in the performance under its contract.

The memorandum enclosed states that the contractor finds that his bill of materials alone exceeds the contract price by $11,782, and adds:

To complete the contract the contractor requires an increase in the contract price as follows:
Additional cost of materials-$11,782.10
Labor_ 18,300.00
Overhead_ 18.300. 00
Gross profit (7%)- 10,804.31
Total_$59,186.41

25. On April 26,1951, CAA telephoned TEC, and the chief engineer of TEC said that that firm intended to proceed with the contract. He further stated that he hoped to have two pre-production models ready for preliminary Government inspection sometime the following week, and that he would probably visit the Washington office of CAA to discuss the contract further.

26. On May 11, 1951, A. S. Reinford sent the following letter to TEC to the attention of Mr. John B. Milliken, President:

Reference is made to our letter dated April 30,1951, concerning Contract Number Cca-28884, Order Number CA-51-3493, for 606 Cathode-Ray Oscilloscopes.
It has been noted that on April 26, 1951, your Mr. Marks informally advised our Mr. V. C. Clark by telephone that the contractor hoped to have two pre-production models ready for preliminary Government inspection sometime during the first week in May. As of this date we have received no information from which we can ascertain the status of the work, we have not been advised that the two pre-production, models have been completed, nor have we been advised, in accordance with our letter of April 30, 1951, as to what action you propose to take with respect to this contract.
In view of the foregoing, it is requested that you furnish us a statement to reach this office not later than May 18,1951, setting forth the status of the work under the contract and the action you propose to take.

27. TEC, by its president, replied to the above letter by stating that it expected to have two pre-production models; ready for Government inspection by June 1,1951, that it had procured components and materials for the production run of the oscilloscopes and a large part of the materials were on hand. However, TEC advised that it had a number of problems which it had outlined in its letter of April 21 (see finding 24) and TEC requested that if CAA “has not the power to solve these problems that the matter be taken up with the Department of Commerce.”

28. No pre-production models were ready for Government inspection by June 1 and accordingly on June 12,1951, TEC was advised in a letter from CAA in part as follows:

As you are aware delivery of the initial unit under this contract was due December 4, 1950. We have subsequently been informed of certain delays in the production of the prototype, but your letter of May 14, 1951, indicated that two pre-production models would be ready for inspection on June 1,1951.
Our needs are such that we cannot allow further delays in the production of this equipment. Accordingly, you are hereby notified that, unless these pre-production models are completed and ready for inspection on or before June 20, 1951; and unless we are simultaneously furnished with positive evidence of your ability to furnish the production quantities at the rate set forth in the contract, your right to proceed will be terminated. In the event of such termination, your liability for any excess costs occasioned the Government by the purchase of this equipment from another source will be determined in accordance with the terms of the contract.

29. The oscilloscopes were urgently needed by CAA and because of the protracted delays in production and the difficulty of obtaining materials, CAA representatives became concerned as to TEC’s ability to complete the contract or the ability of CAA to place an order with some other firm in the event of TEC’s default. Because of this concern, a CAA representative contacted a Washington representative of the Allen B. DuMont Laboratories, Inc. to ascertain whether DuMont was in a position to manufacture approximately 600 oscilloscopes if an order should be placed with them, and the price which DuMont would charge the Government.

30. On June 13,1951, Mr. Milliken advised CAA by letter that two pre-production models would be completed for inspection and test on June 20, 1951. Bequest was made that arrangements for such inspection be accomplished. The letter advised that TEC was ready and able to complete production quantities under the contract and concluded as follows:

However, it is desirable and necessary that the Contract price be renegotiated in view of the substantial increases m material and component costs and labor and engineering costs.

31. On June 15,1951, the contracting officer replied to TEC stating that arrangements would be made for inspection at TEC’s plant on June 20, 1951 of the two pre-production models of the oscilloscopes. He further advised that CAA had previously advised that it was without authority to renegotiate the contract price upward, that further consideration of the request for an increased price would not be given, and that if the production of the oscilloscopes was contingent on TEC obtaining an increased contract price that CAA be notified immediately.

32. On June 20,1951, Mr. Chester S. Bartholomew, CAA project engineer, went to the TEC plant and observed certain tests on one oscilloscope. Two other units were estimated by him to be about 50 percent complete. The tests conducted were in the nature of spot checks on specification requirements. The test equipment at TEC’s plant did not permit the full range of tests for a determination as to whether the initial unit did or did not meet all contract specifications. Bartholomew reported to the contracting officer however that the unit did substantially comply with the specifications. ,

33. On the following day, June 21, 1951, the contracting officer, along with Bartholomew and his superior, Mr. Clark, conferred at TEC’s plant with Mr. John B. Milliken, President. The latter informed the group that production could not commence because of the financial condition of TEC. He again requested, an increase in the contract price and was told that that could not be accomplished. He said that TEC was then in the process of clearing with the Securities and Exchange Commission an issue of debentures and that TEC should know in two weeks whether it would obtain sufficient capital to continue operations. Milliken was told that CAA would advise him early that week that CAA would either:

1. Allow him not more than 30 days to set up production and furnish a fixed number of units, or
2. Declare his firm in default and terminate its right to proceed.

34. On June 27, 1951, the Chief, Procurement Branch, CAA, sent the following termination notice to TEC:

In view of the fact that the contract time on the subject contract has expired and the further fact that you are unable to furnish evidence of your ability to proceed with the production of the oscilloscopes, your right to proceed further is hereby terminated.
The Government will proceed to obtain these units from other sources and your liabilities will be determined under the provisions of Article 5 of the contract.

35. TEC was in default in delivery under the contract because it had not delivered an initial unit by June 27,1951, which had been fully tested and found to comply with the specifications.

36. Thereafter efforts were made by TEC to have CAA reconsider its action in terminating its right to proceed but after consideration by CAA it concluded to stand by the decision to terminate.

37. TEC duly appealed to the Acting Administrator, Department of Commerce, to wit, the head of said department, from the termination of the said contract and from the imposition of excess costs against it, and requested a personal hearing thereon with the opportunity to hear the contentions of Government representatives, to question Government representatives and to present evidence in reply thereto.

38. The head of the said department denied the said appeal, and denied the personal hearing requested by letter-dated December 7, 1951, stating:

After giving full consideration to the various statements and contentions in your appeal documents and considering the provisions of the contract and the facts-, on record, it is my conclusion that a personal hearing-would divulge no reasons for your failure to perform within the specified contract time that fall within the-excusable causes provided in the contract. We regret exceedingly that it was necessary for us to terminate-your right to proceed further but in view of the fact, that you were approximately six months behind in delivery of the initial unit and because of our need for-this equipment, we had no alternative other than to obtain this equipment from another source and hold you and your sureties liable for the excess cost occasioned the Government thereby.

39. There is no competent evidence to indicate what loss,, if any, TEC sustained as a result of the termination of ita oscilloscope contract with CAA. In this connection, it is. noted that TEC’s books of account, in which its costs and expenses were recorded, were destroyed at the direction of' the attorney who had represented, and who still represents,, the plaintiff, Zoda, in the State court proceedings as assignee-for the benefit of creditors. This was done in order to save-further storage charges. The destruction of the books and records of TEC was effected without fraudulent intent oil the part of the plaintiff.

DEFENDANT’S COUNTERCLAIM

40. Article 5 of the contract provides in part as follows::

* * * If the contractor refuses or fails to make deliveries of the materials or supplies within the time-specified in Article 1, or any extension thereof, the Government may by written notice terminate the right of' the contractor to proceed with deliveries or such part or-parts thereof as to which there has been delay. In such event, the Government may purchase similar materials; or supplies in the open market or secure the manufacture and delivery of the materials and supplies by contract or otherwise, and the contractor and his sureties; shall be liable to the Government for any excess cost occasioned the Government thereby: * * *

41. Prior to termination of the contract, a representative of CAA, in order to ascertain whether the contract could be relet in the event that TEC’s rights to proceed were terminated, made inquiry of the third bidder, Allen B. DuMont Laboratories, Inc., and inquired as to whether DuMont was in a position, should such an order be placed, to manufacture approximately 600 oscilloscopes and the price at which this might be done. On the original invitation for bids the second lowest bidder was H. C. Schloer Company of Vestal,, New York. That company, at the time TEC’s right to proceed was terminated, had another contract with CAA for furnishing electronic equipment in connection with which it was experiencing technical difficulties in production, and was therefore not asked to submit a proposal. On August 14, 1951, CAA telegraphed Tel-Instrument Co., Inc. and Beiner Electronics Co., Inc., other bidders which had responded to the original invitation for the cathode ray oscilloscopes involved in this case, a message reading as follows:

PLEASE EESTATE FIEM UNIT PEICE FOE 606 VHF CATHODE-EAY OSCILLOSCOPES IN AC-COEDANCE WITH ITEM ONE SCHEDULE TWO INVITATION 5336 OPENED AUGUST 4,1950 FOE WHICH YOU SUBMITTED BID. TELEGEAPHIC EEPLY STATING PEICE AND DELIVEEY TIME EEQUESTED BY AUGUST 17.

Prior to sending of the telegram, CAA had received a firm bid from the Allen B. DuMont Company to furnish the oscilloscopes at a unit price of $279.65. The other original bidders to whom telegrams were sent quoted unit prices of $295 and $346. No invitations to submit bids were sent to Spectrum Engineers, Inc., which was then out of business, or to the General Electric Company, which had originally made a high bid for performing the work.

42. On August 17, 1951, CAA. entered into a replacement contract with Allen B. DuMont Laboratories, Inc., to furnish 606 VHF cathode ray oscilloscopes, as indicated under Schedule II, Item 1 (c-d); all in accordance with bid on Invitation No. 5336, at a unit price of $279.65, for a total consideration of $169,467.90.

43. The applicable specifications were the same as those originally applicable to the TEC contract in suit.

44. Deliveries under the relet contract with DuMont were as follows:

Pre-production model — within four months from and including effective date of notice to proceed. Production quantities — within six months from date of Government acceptance of the prototype, at the rate of 100 to 200 units each month.

45. On May 26,1952, Change Order No. 2 was issued under the DuMont contract which substituted a DuMont type K1154P1 cathode ray tube in lieu of the 5 JP series originally specified, at an increase in unit price of $5.00. No change in time for performance was involved.

46. On May 26,1952, the contracting officer issued Change Order No. 3 to the DuMont contract which incorporated the changes which had been made by Change Order No. 1 of the contract in suit. No change in time for performance was involved.

47. DuMont delivered 606 oscilloscopes which it contracted to deliver to the defendant for which it was paid at the contract rate of $279.65 each, plus the $5.00 per unit for the change in the cathode ray tube. Since the unit price on the contract in suit was $174.86, the defendant was required to and did pay an excess of $104.79 per unit without regard to the $5.00 per unit increase for the oscilloscopes as delivered by DuMont over and above the price in the contract under which TEC defaulted. This resulted in total excess costs of $63,502.74, which the defendant demanded of TEC. No part of this sum has been paid to the defendant.

CONCLUSION OP LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is not entitled to recover, and the petition therefore is dismissed.

The court, further concludes as a matter of law that the defendant is éntitled to recover of and from plaintiff on its counterclaim the sum of sixty three thousand, five hundred two dollars and seventy-four cents ($63,502.74) without interest. 
      
       Not in evidence.
     