
    J. H. POWELL, GEORGE R. POWELL AND FLORENCE S. POWELL, INDIVIDUALLY AND AS COPARTNERS, TRADING AS POWELL ANCHOR & CHAIN CO., A PARTNERSHIP v. THE UNITED STATES
    [No. 49310.
    Decided March 2, 1954]
    
      
      Mr. Ralph S. Groskey for the plaintiffs.
    
      Mr. LeRoy /Southmayd, Jr., with whom was Mr. Assistant Attorney General Warren E. Burger, for the defendant.
   JoNes, Chief Judge,

delivered the opinion of the court:

On October 12, 1942, plaintiffs contracted with the Navy Department to manufacture a designated number of carpenter stoppers. This is a suit for what plaintiffs claim is the value of stoppers which they allege had been manufactured but had not yet been delivered at the time the contracts were terminated.

The original contract called for delivery of 761 stoppers. By six change orders the contract was supplemented by adding 667 stoppers and 924 bridles.

The stoppers were to be in three different sizes and the bridles were to be of two sizes. The specifications provided that the stoppers should be “in general accordance with Bureau of Ships Drawing * * * with the bridle omitted.”

On June 30, 1943, the same parties entered into a second contract for additional stoppers and bridles to be delivered on or before August 30,1943.

The first contract provided for stoppers in varying sizes ranging from 1%" to 2" and for bridles ranging from %" to 2". The second contract provided for %" stoppers and 1%" bridles.

There was no requirement in either contract that the stoppers involved in this suit be proof tested to any particular load, but there was a requirement as to the proof testing of the bridles.

The original contract set up a definite delivery schedule which the plaintiffs were required to meet in the order stated. Under date of November 24', 1942, before any deliveries had been made, plaintiffs were furnished a revised schedule for the first contract divided into Schedule A for deliveries to ships and Schedule B for deliveries to depots. It was provided that Schedule A deliveries were to be given, priority over Schedule B deliveries.

On six different dates between March 1 and June 25, 1943, defendant in letters to plaintiffs revised the delivery schedules. While plaintiffs were somewhat in arrears in deliveries on those dates the letters did not complain of that fact, but were directed to the fact that plaintiffs had not followed the prescribed order of delivery pursuant to the designated priority.

As of July 16, 1943, plaintiffs were slightly in arrears on deliveries under the first contract of %" stoppers, the schedule calling for 796 and 780 having been delivered. No 2" stoppers had been delivered at that time. No deliveries were made at any time under the second contract, although the contract items were ready for delivery July 16, 1943.

Before articles ready for delivery could be shipped it was required that they be inspected by a Naval inspector. On July 16,1943, shipments were suspended due to a suspension by the Navy of further inspection of articles offered. The reason assigned was that the Navy had been receiving adverse reports from their field activities to the effect that the equipment was faulty.

On August 27,1943, plaintiffs were requested by the Naval Inspector in Charge to make arrangements whereby the articles eould be tested in accordance with certain prescribed directions.

Plaintiffs made oral protests but none in writing to the July 16 suspension of inspection and to the inspection method prescribed by defendant’s letter of August 27,1943, prior to the termination of the contracts. Between August 27 and October 2, plaintiffs made oral but no written requests for inspection of the articles that had been manufactured.

The stoppers involved in plaintiffs’ claim were never inspected prior to the termination of the contract on October 4, 1943, although plaintiffs submitted them to the defendant for purposes of inspection and testing prior to the time of the contract termination.

On October 4, 1943, the Navy notified plaintiffs by telegram of the termination of both contracts, stating that “because of your failure to make deliveries as specified in the subject contracts of material as specified in the subject contracts your right to make deliveries thereunder is hereby terminated.”

In October 1943 and July 1944 the Navy conducted tests of certain 1%" stoppers and bridles and %" stoppers manufactured under the contracts in suit. These tests established that the 1%" stoppers and bridles were defective and failed to meet proof test specifications. The tests to which the %" stoppers were subjected were beyond any required by the specifications and did not establish that the %" stoppers failed to meet specification requirements.

The 2" stoppers were tested by the Navy at the same time. In November and December 1943 the defendant, in response to plaintiffs’ protests, advised that no additional deliveries would be permitted. Between the date of cancellation and January 1945 the plaintiffs made several protests and requested reports on the outcome of tests made or being made by the defendant. On January 22, 1945, defendant advised plaintiffs that the test data had not as of that date been received and the record does not disclose when defendant furnished the test data to plaintiffs thereafter.

On September 15,1949, a price adjustment agreement was entered into on the basis of approximately 77 percent of the original contract price on the material delivered and accepted prior to the termination of the contracts. The agreement stated that “the materials delivered under said contract have been determined by the parties to have been defective and not in accordance with specifications.

Under this agreement plaintiffs released and discharged defendant from all liabilities and claims arising under the contracts except as to material claimed to have been on hand and ready for delivery at the time of the termination, and the claim of interest on the same items.

At all times after July 16, 1943, plaintiffs had on hand and ready for delivery under the first contract seventy-two 2" stoppers and 324 %" stoppers; also twenty-four %" stoppers ready for delivery under the second contract.

In April and October 1951 Navy representatives made visual inspections of the %" and 2" stoppers in plaintiffs’ possession and awaiting delivery acceptance, and reported that they failed to meet requirements as to finish and dimensions.

Our trial commissioner has found, and we have adopted the finding, that the %" and 2" stoppers manufactured by plaintiffs under the first contract and ready for delivery at the time of the termination were “in general accordance with” specified drawings of that contract. Likewise we have adopted his finding that the %" stoppers manufactured by plaintiffs under the second contract and ready for delivery at the date of the termination, were “not in accordance with the specified drawing” of that contract.

There are some rather unusual facts connected with this case. There were no proof-test requirements stipulated in either the first contract or in the specifications connected therewith as to either the %" stoppers or the 2" stoppers which are involved in this suit. The record shows that these articles were needed largely because of the great number of ships that were sunk or damaged by the submarines, and that England had developed something along this line. The only evidence as to proof-test requirements in relation to stoppers to be found in the entire record is a British-made stopper which was stamped “Steel wire rope test 5 tons” and which plaintiffs claim was furnished them by defendant’s representatives. This sample is marked “Plaintiffs’ Exhibit 3.” However, on August 8,1943, more than 10 months after the contract was executed and more than 20 days after the inspection was discontinued, a notation was placed on the Navy’s copy of the official contract drawing to the effect that all stoppers and bridles shall be proofed to 14 short tons. This load test was not on either the contract or the drawings that were furnished to plaintiffs and they were not notified of the notation. In fact, the plaintiffs contend that the first that they knew of any proof-test requirements was at the time of the settlement agreement, at which time they claim they were induced by the notation to believe that the articles delivered under the contract had not been in accordance with specifications, and that they did not realize until they later examined their own copy that such notation was not a part of the original requirement.

Another strange development in connection with the cancellation was the sudden action on the part of the defendant, without any previous complaint of the delay, in cancelling the contract when the deliveries in wartime were so slightly behind the schedule. There are other facts of record which make the action taken even more difficult to understand. The defendant had let a second contract for bridles and stoppers to plaintiffs only about 16 days before the suspension of inspections. Over a period of years the defendant neglected or failed to make inspection of the stoppers that were on hand, but undelivered at the time of the suspension, though repeatedly requested to do so. An inspection was not made until eight years later, and then only a visual inspection was made. After this belated inspection it was reported that the stoppers failed to meet contract requirements as to finish and dimensions. This report was entirely different from the reasons assigned for the terminations in October 1948, and might have been influenced by the notation that was placed on the defendant’s copy of the specifications more than ten months after the signing of the contract and some weeks after the suspension of inspection to the effect that a 14-ton test would be required for the stoppers, and to which test plaintiff did not agree.

In view of these facts and in view of the further fact that at the time of the cancellation the submarine menace had been greatly reduced, which fact is shown by the record and is one of which the court may take judicial notice, one cannot help wondering if the picture had not so changed that the Navy felt it did not need any more stoppers. If this were true, the Navy could not be blamed for cancelling the contract, which action it had a right to take, but if so it would seem that it would have been wiser to have frankly said as much. At any rate, in all the circumstances, even conceding the right to cancel, the plaintiffs should be paid for any materials that they had completed and which were ready for delivery at the time of the cancellation if they met the required specifications.

As to the second contract, we have found that the %" stoppers involved in that agreement were not “in accordance with the specified drawing” and therefore plaintiffs are not entitled to recover anything on this particular contract.

As to the first contract, there was a proof test as to the bridles. Concededly the bridles did not meet the test and therefore plaintiffs do not claim that they are entitled to recover on this portion of the contract.

It is very evident that the portion of the contract in reference to stoppers and bridles is separable. In fact, the numbers varied and were not necessarily linked together. Apparently from the record the bridles could have been and probably were ordinary chains. Both stoppers and chains were ordered from other concerns and could have been and probably were used interchangeably. In fact, the chains could be used for many purposes.

We have found that the seventy-two 2" stoppers and 324 %" stoppers were ready for delivery under the first contract at the time of the notification of termination and that these stoppers were manufactured “in general accordance with” the specified drawings of that contract. Therefore, we find that plaintiffs are entitled to recover' for these particular stoppers.

The contract price of the seventy-two 2" stoppers was $12,888; the contract price of the three hundred twenty-four %" stoppers aggregated $19,537.20. However, in view of the fact that the plaintiffs made an agreed settlement for the stoppers of this size that were actually delivered on the basis of approximately 77 percent of the original contract price, and in view of all the circumstances and the facts disclosed by the record, we find that plaintiffs should recover only 77 percent of the contract price of the undelivered stoppers. Plaintiffs are entitled to recover the sum of $24,967.40.

It is so ordered.

MaddeN, Judge; Whitaker, Judge; and LittletoN, Judge, concur.

FINDINGS OF FACT

The court, having considered the evidence, the report of Commissioner C. Murray Bernhardt, and the briefs and argument of counsel, makes findings of fact as follows:

1. Plaintiffs, comprising a Pennsylvania partnership trading as Powell Anchor & Chain Company, are United States citizens.

2. On October 12, 1942, plaintiffs and the United States, represented by the Purchasing Officer, Bureau of Supplies and Accounts, Navy Department, entered into Contract NXss-LL-14927 (hereafter shortened to Contract 14927), whereby plaintiffs were to furnish and deliver to defendant 761 carpenter stoppers of various sizes for $67,111.10.

3. By six change orders the contract was supplemented by 667 stoppers and 924 bridles at an aggregate price of $114,-300.10, thereby increasing the total contract price to $181,411.20. The requirements of Contract 14927 and supplements are abstracted as follows:

4.Contract 14927 and supplements thereto set up a definite delivery schedule which the plaintiffs were required to meet in the order stated. This schedule was subsequently revised on several occasions.

5. The contract contained the following pertinent provisions :

SectiON 3. Specifications.—
“General Specifications for Inspection of Material,5’ issued by the Navy Department July 1,1941, shall form a part of these Specifications, copies of which together with any Navy Standard or Federal specification (if mentioned herein), may be obtained upon application to the Supply Officer of any Navy Yard, the Navy Purchasing Officer, Newport, R. I., New York, N. Y., and San Francisco, Calif., or to the Bureau of Supplies and Accounts.
Section 4. Payments.—
The contractor shall be paid, upon the submission of properly certified invoices or vouchers, the prices stipulated herein for articles delivered and accepted or services rendered, less deductions, if any, as herein provided. * * *
Section 5. Inspection.—
(a) All material and workmanship shall be subject to inspection and test during manufacture and at all other times and places. In case any articles are found to be defective in material or workmanship, or otherwise not in conformity with the specifications or requirements, the Government shall have the right to reject such articles, or require their correction. Rejected articles, or articles requiring correction, shall be removed by and at the expense of the contractor promptly after notice so to do.
(b) _ If inspection and test, whether preliminary or final, is made on the premises of the contractor or subcontractor, the contractor shall furnish, without additional charge, all reasonable facilities and assistance for the safe and convenient inspections and tests required by the inspectors in the performance of their duty. Special and performance tests shall be as described in the specifications. The Government reserves the right to charge to the contractor any additional cost of inspection and test when articles are not ready at the time inspection is requested by the contractor.
(c) FinaHnspection and acceptance of materials and finished articles will be made after delivery, unless otherwise stated. If final inspection is made at a point other than the premises of the contractor or a subcontractor, it shall be at the expense of the Government except for the value of samples used in case of rejection.
% & H* * #
SectioN 7. Guarantees.—
The contractor guarantees that the articles provided for under this contract will conform to the specifications herein, will be suitable for the purposes intended and will be free from any defects in material and workmanship. Any such failure or defects which shall occur within one year after delivery to the Government shall be corrected by the contractor, upon written notice to the contractor by the Government, and the contractor shall repair or replace such defective articles or parts thereof with all possible speed and diligence until such articles conform with the specifications herein, are suitable for the purposes intended and are free from any defects in material and workmanship. The cost of any such repairs or replacements, including transportation expenses, shall be borne by the contractor. The guarantee herein stated shall continue, as to corrected or repaired articles, for one year after the above repairs or replacements have been made. When the Government, because of requirement of public necessity or for other reasons, waives its right to require correction or replacement of articles not conforming to specifications, or defective in material and workmanship, payment therefor shall be made at a proper reduction in price to be mutually agreed upon.
Section 8. Termination.—
If the contractor refuses or fails to make deliveries of the materials or supplies within the time specified in this contract, or any extension thereof, or otherwise fails to perform his obligations hereunder, 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 or other failure. * * *
Akticle 9. Disputes. — Except as otherwise specifically provided in this contract, all disputes concerning questions of fact arising under this contract shall be decided by the contracting officer, subject to written appeal by the contractor within 30 days to the head of the department concerned or his duly authorized representative, whose decision shall be final and conclusive upon the parties hereto. In the meantime the contractor shall diligently proceed with performance.

The specifications provided, inter alia, that the %" stoppers should be “in general accordance with Bureau of Ships Drawing No. 466286 with the bridle omitted”, and the 2" stoppers should be “in general accordance with Bureau of Ships Drawing No. 474995 with the bridle omitted”. There was no requirement that the %" and 2" stoppers be proof tested to any particular load, although the specifications in a change order to the same contract, dated November 11,1942, as to 1%" bridles and 2" bridles required proof testing to 100 and 150 short tons, respectively.

6. On July 1,1943, the same parties entered into Contract NXss-33157 (hereafter shortened to Contract 33157), whereby plaintiffs agreed to furnish under Item 1, 24 %" stoppers for $1,447.20, and under Item 2, 24 1%" bridles for $1,728, for delivery on or before August 30, 1943.

7. The “Payment” terms, “Inspection” requirements, and “Termination” provisions of Contract 33157 were similar to those contained in Contract 14927, and the “Disputes” clause was identical.

8. The specifications in Contract 33157 provided:

Item 1 [i. e., %" stoppers] shall be in accordance with Bureau of Ships Drawing No. 466286 and any modifications thereto, with the bridle omitted.
Item 2 [i. e., 1%" bridles] shall be in accordance with Bureau of Ships Drawing 573418 (Powell No. 19) and shall be proof tested to 100 short tons.

The specifications contained no requirement that the %" stoppers be proof tested to any particular load.

9. Under date of November 24, 1942, at which time no deliveries had been made, plaintiffs were furnished a revised delivery schedule for Contract 14927 divided into Schedule A for deliveries to ships and Schedule B for deliveries to depots. Schedule A deliveries were to be given priority over Schedule B deliveries, and plaintiffs were instructed that Schedule A deliveries “must in all cases be met.”

10. Defendant’s letters to plaintiffs, dated March 1 and 27, April 13, May 20, and June 8 and 25, all in 1943, revised the delivery schedule. Although on each of those dates plaintiffs were in arrears on deliveries, the letters did not complain of that fact, but were directed to the fact that plaintiffs had not followed the prescribed order of deliveries, in that the schedule provided for an order of shipments corresponding to certain priorities in the intended uses of the individual items.

11. The need for 2" stoppers was not pronounced through 1942 and the early part of 1943, and the need for stoppers and bridles of other sizes required in the contract was more urgent.

12. a. As of July 16, 1943, plaintiffs were in arrears on deliveries under Contract 14927 to the following extent:

Number due through 7/16/iS Number delivered Item: under revised schedule through 7/16/4S
%" stoppers_ 796 780
2" stoppers_ 62 0
1%" stoppers_ 226 251
1%” bridles_ 618 544
2” bridles_ 36 30

5. No deliveries were ever made under Contract 33157, although the contract items were ready for delivery July 16, 1943.

13. Before material ready for delivery could be shipped it had to be inspected by a Naval inspector. On July 16,1943, shipments were suspended due to a suspension by the Navy of further inspection of articles offered, for the reason that the Navy had been receiving adverse reports from their field activities and users in the field that the equipment was faulty.

14. By letter dated August 27, 1943, plaintiffs were requested by the Naval Inspector in Charge that arrangements be made whereby the material could be tested in accordance with certain prescribed directions.

15. Plaintiffs made oral but no written protests to the July 16,1943, suspension of inspection and the inspecting method prescribed by defendant’s letter of August 27,1943, prior to the termination of the contracts.

16. “General Specifications for Inspection of Material,” a Navy publication incorporated by reference in Contract 14927, read in part:

(a) All material shall be inspected and (if tests are required) tested by an inspector representing the Bureau concerned, and acceptance or rejection should be based upon whether or not the material involved meets the requirements mentioned herein and in the Navy Department specifications.
(b) When the tests prescribed in a specification do not cover all of the requirements as given in that specification, the inspector shall make such tests under conditions outlined in paragraphs 86 and 37, as he may deem necessary to determine whether or not the material meets the requirements of the specification.

In addition, it required the manufacturer to notify the inspector in writing when the material was ready for inspection, but such requests during the contract period usually were received orally by the Navy and acted on without objection.

17. During the period August 27,1943, to October 2,1943, plaintiffs made oral but no written requests for inspection of material, and the articles involved in plaintiffs’ claim were never inspected prior to the termination of the contracts on October 4, 1943, although plaintiffs submitted articles to defendant for purposes of inspection and testing prior to contract termination and Naval inspectors saw them ready for inspection.

18. On October 4, 1943, the Navy notified plaintiffs by telegram of the termination of Contracts 14927, NXss-27576 and 33157, “because of your failure to make deliveries as specified in the subject contracts of material as specified in the subject contracts your right to make deliveries thereunder is hereby terminated.”

19. The telegraphic notice of termination was confirmed by a letter dated October 11, 1943, wherein it was stated “because of your failure to make deliveries as specified in the subject contracts of material, as specified therein, your right to make deliveries thereunder is terminated.”

20. a. In October 1943 and July 1944, the Navy conducted tests of certain 1%" stoppers and bridles and %" stoppers manufactured under the contracts in suit and the tests established that the 1%" stoppers and bridles were defective and failed to meet proof-test specifications. But the tests to which the %" stoppers were subjected were beyond any required by the specifications (which had no proof-test requirements as to %" stoppers) and did not establish that the %" stoppers failed to meet specification requirements.

5. No 2" stoppers were tested by the Navy at the tests in October 1943 and July 1944.

21. By letter dated November 1, 1943, the Navy Bureau of Supplies and Accounts acknowledged receipt of a letter from plaintiffs, voicing an exception to the termination action. Plaintiffs were advised, in part, as follows:

* * * it is noted that tests completed in respect to the equipment covered by the subject contracts, with the exception of 2" carpenter stoppers and 2" bridles, disclose that all such material has failed before proof loads, required by the subject contracts, were reached.
* * * Thus, it is not believed that any of the equipment manufactured under the subject contracts is serviceable, and, accordingly, no additional deliveries will be permitted.

22. The Navy Bureau of Supplies and Accounts, under date of December 17,1943, acknowledged plaintiffs’ letter of November 30, 1943, requesting acceptance of material, and again advised plaintiffs that after careful consideration of their request to continue the contract, the termination must stand and no additional deliveries would be permitted.

23. After further efforts by plaintiffs to persuade defendant to accept further deliveries, the Navy Department, Bureau of Supplies and Accounts, notified plaintiffs by letter of January 5, 1944, that—

* * * the Government will adhere to its termination action * * * and no additional deliveries will be permissible.

Between contract termination and January 1945, during which time plaintiffs wrote on several occasions to the Navy Department, Bureau of Supplies and Accounts, requesting reports on the outcome of tests made or being made by defendant of the material, defendant advised plaintiffs in writing that vouchers for the undelivered articles would not be paid unless the tests proved them to be satisfactory. On January 22, 1945, defendant advised plaintiffs that the test data had not yet been received. So far as the record discloses, the test data was not made available to plaintiffs until the course of trial of the instant case.

24. By an agreement between the parties, dated September 15, 1949, a price adjustment on the basis of approximately 77 percent of the original contract price was made on the articles delivered and accepted under contracts 14927 and 27576 prior to the termination of the contracts. The agreement stated that “the materials delivered under said contracts have been determined by the parties to have been defective and not in accordance with specifications.” By this agreement plaintiffs released and discharged defendant from all liabilities and claims arising under the contracts, except as to claims for—

(a) Payments due on material alleged to have been on hand and ready for delivery under the above three contracts [including one not relevant here] at the time of termination, and
(b) Alleged interest on the amounts involved in the claims described above.

25. At all times from July 16,1943, to the time of contract termination and thereafter, plaintiffs had on hand and ready for delivery the following items at indicated contract prices, which, plus interest, constitute the claim in this suit:

Price Contract
72 — 2" stoppers- $12,888.00 NXss-LL-14927
324 — %" stoppers- 19,537.20 HXss-LL-14927
24 — %" stoppers- 1,447.20 NXss- 33157

26. In April and October 1951 Navy representatives made visual inspections of the %" and 2" stopper’s in plaintiffs’ possession and awaiting delivery acceptance, and reported that they failed to meet contract requirements as to finish and dimensions.

27. The %" and 2" stoppers manufactured by plaintiffs under Contract 14927 and not accepted for delivery were, as required by the specifications of that contract, “in general accordance with” the specified drawings. The contract specifications and drawings were defective in material respects.

28. The %" stoppers manufactured by plaintiffs under Contract 33157 and not accepted for delivery were not, as required by the specifications of that contract, “in accordance with the specified drawing”, although such stoppers were of the same quality and manufacture as those produced under Contract 14927.

CONCLUSION OE LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiffs are entitled to recover, and it is therefore adjudged and ordered that they recover of and from the United States twenty-four thousand nine hundred sixty-seven dollars and forty cents ($24,967.40). 
      
       A carpenter stopper is a marine device consisting of an arrangement of metal pieces hinged together which, when clamped over a wire cable and a loose metal wedge block, grips the lay of the cable in such a way that the grip increases as tension is applied to the cable. The interior surfaces of the device which come into contact with the cable are contoured so as to fit the lay of the cable. When in use, one end of the stopper is attached to a bridle (an arrangement of metal links),-, and the free end of the bridle is in turn fastened to a fixed object on the ship. The free end of the cable is fastened to the object that is to be lifted or towed.. The stopper and bridle permit the application or maintenance of a strain on wire cable engaged in ship salvage or towing operations.
     
      
       Plaintiffs contend that their signatures to this agreement were induced by reliance on a drawing asserted by the Navy to be a copy of an official contract drawing bearing on its face a proof-load requirement of 14 short tons, which requirement was in fact inserted on the drawing August 8, 1943, and did' not appear on the contract drawing.
     
      
       In layman’s language, a carpenter stopper Is a marine device consisting of an arrangement of metal pieces Ringed together which, when clamped over a wire cable and a loose metal wedge block, grips the lay of the cable in such a way that the grip increases as tension is applied to the cable. The interior surfaces of the device which come into contact with the cable are contoured so as to fit the lay of the cable. When in use, one end of the stopper is attached to a bridle (an arrangement of metal links), and the free end of the bridle is in turn fastened to a fixed object on the ship. The free end of the cable is fastened to the object that is to be lifted or towed. The stopper and bridle permit the application or maintenance of a strain on wire cable engaged in ship salvage or towing operations.
     
      
       These had all been inspected and approved, without testing by a Naval inspector prior to shipment, who found that their finishes and dimensions were in substantial compliance with contract requirements.
     
      
       Contract NX-ss-27576 is not involved in this proceeding.
     
      
       Plaintiffs contend that their signatures to this agreement were induced by reliance on a drawing asserted by Navy to be a copy of an official contract drawing bearing on the face a reference to a proof-load requirement of 14 short tons, which latter was in fact inserted on the drawing August 8, 1943, and did not appear on the contract drawing.
     