
    COAST COALING & ENGINEERING CO. v. THE UNITED STATES
    [No. C-909.
    Decided June 1, 1925]
    
      On the Proofs
    
    
      Contract; cancellation clause; l)ad faith. — Wliei-e a contract between the plaintiff and the United States contains a clause providing-that “ whenever it is definitely shown that work is not progressing satisfactorily, the Navy reserves the right to take charge of the work,” the contractor to become liable to the Navy for all cost of completion in excess of the contract price, and the Government ostensibly takes over the work under said clause when there is no default, as a military necessity to forestall a strike of plaintiff’s laborers, it is an act of bad faith, and plaintiff may recover the value of its services.
    
      The Reporter's statement of the case:
    
      Mr. Frederick De 0. Faust for the plaintiff. /Sherley,. Faust <& Wilson and Pratt dt> McAlpin were on the brief.
    
      Mr. Edw>. D. Hays, with whom was Mr. Assistant Attorney General Herman, J. Galloway, for the defendant.
    The following are the facts as found by the court:
    I. On or about the 8th day of May, 1918, the plaintiff company became, and ever since has been, a corporation duly organized, created, and existing under and by virtue of the laws of the State of New Jersey.
    II. Several weeks prior to the incorporation of the plaintiff company one Herbert Coppell, a member of the banking firm of .Maitland, Coppell & Co., of New York, was invited by the Hon. Franklin Roosevelt, Assistant Secretary of the Navy, in the course of an interview at the Navy Department, to submit a bid for the work then being performed by the Government at New York of coaling naval vessels engaged in transporting the Army to France.
    Mr. Coppell possessed a wide knowledge and experience in this particular class of work acquired as president of a corporation which for some years previously had been engaged in the business of coaling naval and merchant ships in New York Harbor, but whose activities had been suddenly terminated a short time before by act of the Government in commandeering all of its machinery and equipment under a requisition order of the Secretary of the Navy.
    As a result of Mr. Roosevelt’s invitation Mr. Coppell caused the plaintiff company to be incorporated, as aforesaid, for the express purpose of submitting a bid for said work, which after due advertisement and proposal was subsequently awarded to plaintiff, and a written contract was thereafter executed, under date of June 15, 1918, between the plaintiff and the United States by the Paymaster General of the Navy, acting under the direction of the Secretary of the Navy.
    III. By the terms of this contract the plaintiff agreed to supply the necessary services during the fiscal year ending June 30, 1919, for handling coal to be furnished by the Government in coaling such naval transports at the port of New York as the Navy should designate at stated unit prices per ton for coal handled by mechanical means and a different rate for coal handled by tub gear or hand; the rate of pay was fixed for overtime and standing-by delays caused by the Navy, and it was provided that all payments under the contract should be made at the office of the assistant aid for supply, third naval district, Hoboken, N. J., within 10 days from presentation of customary bills and proper evidences of delivery, inspection, and acceptance of services rendered.
    The United States, upon its part, agreed to furnish elevators, coal buckets, booms, derricks, steam hoisters, barges, and other equipment necessary for handling the coal and to maintain the same in first-class working condition;.to supply electric current and other necessary requisites, including tug services for shifting coal barges, and *to duly perform various other conditions more fully set forth in the contract attached as Exhibit A to the petition herein.
    The contract contained, among others, the further provisions :
    “ (j) Whenever it is definitely shown that the work is not progressing satisfactorily the Navy reserves the right to take charge of the work for the contractor’s account, contractor being liable to the Navy for all payments that may have been received and all cost for the completion of the contract in excess of the cost provided for herein; in no event, however, shall the contractor be liable for any .failure to perform or fulfill, or any delay in performing or fulfilling, any of its obligations hereunder or covenants herein contained caused directly or indirectly by any order, act, or •omission of the Government.
    “ Provided, That the Coast Coaling and Engineering Company shall be bound to notify the Navy or the representative of or the aid for supply, third naval district, in writing, of any such order, act, or omission immediately after the same shall come to the knowledge of the Coast Coaling and Engineering Company.
    “(m) It is distinctly understood that the services contemplated under this contract shall be performed to the satisfaction of the representatives of or the aid for supply, third naval district, and that in the case of unsatisfactory services on the part of any employee of the contractor the employee will be promptly discharged or removed on demand of the Navy’s representative.”
    IY. The plaintiff received advance notice from the department that the contract would be awarded to it and immediately set about perfecting its working organization. Competent men of wide, practical experience, long identified with the stevedoring business, were secured for the various executive positions, and suitable arrangements were made with the International Longshoremen’s Association, the union organization of the port, whereby an adequate number of skilled Italian stevedores was made available on the docks at all times, day and night, for the performance of the work.
    These Italians were the best and the only class of labor then available at the port of New York for this particular work, which required not only skill and experience but men of powerful physique accustomed to the long grueling hours of work in the dark, damp bunkers of the ships.
    V. The plaintiff commenced work under the contract on July 1, 1918, and thereafter performed every duty it was called upon to perform with vigor and dispatch and with an adequate force of labor until midnight of August 22, 1918. It coaled every sbip it was directed to coal promptly and efficiently and completed the work well within the time allotted for it by the Navy. No ship was delayed in sailing during this period from any failure or fault on- the part of the plaintiff. Every request or suggestion made by the officers in charge for the Navy for the improvement of the work was cheerfully adopted and fully tried out by the officers of the plaintiff company notwithstanding any doubts they may have personally entertained as to the wisdom of the course suggested.
    VI. On the 21st of August, 1918, the plaintiff, by direction of the assistant to aid for supply, began the work of coaling the transports Agamemnon and Mount Vernon under instructions to complete same by the 25th of August.
    On the 22d of August, while the work was in progress, the assistant to aid for supply telegraphed Herbert Coppell, president of the plaintiff company, who on the day previous, with the knowledge and consent of that officer, had gone to Atlantic City, as follows:
    HobokeN, N. J., August 22,1918.
    
    Mr. HERBERT Coppell,
    
      Atl. Avenue and Plaza Place, Chelsea, N. J.:
    
    Conditions here very unsatisfactory. Grave doubt as to whether Kelly will be able to save the situation. In view thereof it is considered necessary that you should be here in person. Suggest conference my office tomorrow morning.
    
      t George W. PigmaN.
    VII. At 8.30 in the evening of August 22 and before Mr. Coppell could arrive from Atlantic City, Commander Pig-man verbally notified the plaintiff’s head foreman on the docks that the Navy would take charge of bunkering the transports for the contractor’s account, to begin on 'the following morning, August 23, at Y o’clock, and confirmed this notification under date of August 23 to the plaintiff company in the following communication :
    
      ASSISTANT TO All) FOR Sl-PPLY
    Third Naval District,
    Hoboken, N. J., August 28, 1918.
    
    The Coast Coaling & Engineering Coutpant,
    
      No. 52 William Street, New York, N. Y.
    
    Attention: Mr. Herbert Coppell, President.
    Subject: Contract for bunkering transports at1 the Army Piers, Hoboken, N. J.
    StRS: Confirming the verbal notification communicated to your head foreman on these docks about 8.30 p. m. yesterday, August 22, the Navy will take charge of the work of bunker-ing transports at the Army piers, Hoboken, N. J., for the contractor’s account, under clause J of your contract No. 38513, for the fiscal year 1919, to begin at 7 a. m., August 23, 1918. _
    _ It is considered that the progress of the work on the U. S. S. Agamemnon and the ti. S. S. Mount Vernon during the day of August 22 to 3 p. m. definitely showed that the work under your contract was not progressing satisfactorily. Acting under orders from the commander cruiser force to take over the work of coaling these ships because of the failure of the contractor to perform this work satisfactorily, definite steps were taken, with the approval of the commandant, third naval district, by this office to act in accordance with the terms of the aforementioned paragraph J, contract No. 38513.
    The instances cited above are the result, in the opinion of this office, of a complete lack of properly organized foremen, under the direction of a competent head man, to plan and attend to the carrying out of all the various intricate details involved in coaling ships at these docks, and the resultant continued disorganization is responsible for the definite unsatisfactory condition which developed yesterday. The general situation has been a source of great anxiety to this office, has been constantly brought to your attention both orally and .in writing, but your endeavors to change and improve your organization have not produced satisfactory results to date, although it has been constantly hoped that eventually some order and efficiency would be attained.
    It is necessary to emphasize the fact in this connection that, serious as the situation was on the Agamem/non and the Mount Vernon, it alone was not responsible for the action which has been taken. In the opinion of the assistant to aid for supply, as well as the commander cruiser force, it became apparent that your organization on these piers, as it stood yesterday, was not capable of satisfactorily fulfilling your contract. For this reason it was considered a detriment to 
      the Government’s interest to depend any longer upon your company for the performance of this work, in that delay to any and all of these transports was threatened.
    This action has been reported to the Navy Department, ■and the details involved will be handled as they arise.
    Respectfully,
    G. W. PlGMAN,
    
      Pay Inspector, Ü. S. N.
    
    VIII. The plaintiff immediately filed written notice and protest with the proper officers of the Navy against the action thus taken, and asserted that plaintiff was being prevented from carrying out tl\e terms of its contract by the acts of the Navy, but the assistant to the aid for supply, acting under orders of the commander of cruiser force and the commandant of the third naval district, as aforesaid, refused to permit plaintiff to perform any further services under said contract.
    IN. The amount due plaintiff company for services rendered under the contract at the rates therein specified to midnight of August 22, 1918, was $62,154.07, and bills for that sum were promptly presented by plaintiff to assistant to the aid for supply, who, in due course, approved and forwarded the same for payment to the Paymaster General of the Navy, with the recommendation that the contract be canceled as of August 23,1918.
    X. The Paymaster General in turn forwarded the bills to the Auditor for the Navy Department, with the recommendation that they be paid. The auditor, under date of October 29, 1919, refused to authorize payment upon the ground that the work had been taken over under the terms of Commander Pigman’s letter of August 23, 1918, for the account of the contractor, due to the contractor’s failure to satisfactorily perform the same, and held that inasmuch as the cost of completion of the work by the Navy was shown to be in excess of the cost provided in the contract, such excess was properly chargeable against the plaintiff.
    The plaintiff appealed to the Comptroller of the Treasury who, under date of June 12, 1920, sustained the'decision of the auditor, holding that Commander Pigman acted in accordance with the power given him in the contract and that to justify an allowance of the claim would require the comptroller to substitute his judgment for that of the officer in charge and hold that the work was progressing satisfactorily at the time it was taken over by the Navy, which determination the comptroller did not feel justified in making upon the evidence before him.
    XI. The plaintiff on July 1, 1921, appealed to the Comptroller General, the successor of the Comptroller of the Treasury, for a reconsideration of the comptroller’s decision upon the ground that all the facts had not been presented when the latter rendered his decision, and on July 8, 1921, Commander Pigman forwarded to the Comptroller General, jffirough the Navy Department, the following statement :
    Jtjlt 8, 1921.
    From: G. W. Pigman, commander, S. C., U. S. N.
    To: Bureau of Supplies & Accounts, Navy Department.
    Subject: Statement in connection with claim of the Coast Coaling and Engineering Company re Navy contract No. 38513, of June 15th, 1918. Appeal No. 31940, dated June 11th, 1920, from settlement No. 187524, of Óctober 29th, 1919, by Auditor for the Navy Department.
    Reference: (a) Letter from Harold J. Pack, dated July 5th, 1921, to Comdr. G. W. Pigman, S. C., U. S. N., herewith. (b) Copy of Coast Coaling and Engineering Company’s letter of June 3d, 1921, to the Comptroller General of the United States requesting reconsideration of comptroller’s decision, etc.
    Enclosures: References (a) and (&).
    . 1. In compliance with request contained in reference (a), original herewith, the following statement is submitted with the request that it be forwarded to the Comptroller General of the United States if the bureau approve my action in making this statement; and, further, if such a statement is desired by the Comptroller General of the United States.
    2. The work of coaling the U. S. Army transports was taken over by the Navy for the Government from the Coast Coaling and Engineering Company by the organization under my charge on the U. S. Army piers at Hoboken, New Jersey, August 22d, 1918, as a military necessity and to prevent any possible delay in the sailing of the Army transports for France. The work and the responsibility of coaling these ships were mine, but such a decisive st<p was taken only under the orders of the commander cruder force and the commandant of the third naval district.
    
      3. It may be stated that the Coast Coaling and Engineering Company had not on that date, August 22d, 1918, actually failed to perform their contract and, as the facts stand, no one can say that they could not, nor would not, have completed their work satisfactorily had they been allowed to proceed. The gravest military necessity at that time demanded that the Government take no chances, but that it ■exercise all Government power, if necessary, to complete the ■coaling of these ships. To this end it seemed expedient that the Navy should take over this work in order to use force, if necessary, to control labor.
    4. In my opinion, expressed in my letters and memoranda to the Bureau of Supplies and Accounts at that time,: the Coast Coaling and Engineering Company and Mr. Coppell ■especially, representing said company, used every etfort to ■do this important work satisfactorily, and on their part neither time nor money was spared.
    5. For these reasons, as well as for the reason that, in my ■opinion, the taking over of the work was a military necessity and therefore should not have been completed against their account (as they were denied the right to prove their ability to complete their contract satisfactorily), payment of bills for work actually performed was recommended by me when said bills were submitted to the Bureau of Supplies and Accounts in 1918.
    G. W. Pigman.
    XII. The Comptroller General refused to reconsider the decision of the Comptroller of the Treasury upon the ground that accounting officers are without authority to reopen matters settled by their predecessors except for the correction of errors in calculation or for newly discovered material evidence not considered in the first instance, and held that the foregoing statement of Commander Pigman of July 8, 1921, did not constitute new or material evidence.
    XIII. On December 30, 1921, the Secretary of the Navy addressed a communication to the Comptroller General, transmitting statements from the Paymaster General and Commander Pigman setting forth grounds for the reopening of the case.
    XIV. The comptroller in a communication to the Secretary of the Navy dated February 10, 1922, adhered to his former viev that he was without authority to reopen matters settled bj his predecessors, except for neivly discovered material evidence, fraud, or to correct errors in calculation, and held that the communications presented to him as new evidence at the time of his action, September 21,1921, in the case accompanying the Secretary’s request of December 30, 1921, contained no evidence of any facts that were not before the- comptroller at the time he rendered his said decision.
    XY. The taking over of the contract for coaling the transports on August 23, 1918, by the assistant to aid for supply was not due to failure of plaintiff to satisfactorily perform the said work, but said action was taken by said assistant to aid for supply in obedience to orders of his superior officers, the commander of the cruiser force, approved by the commandant of the third naval district, as a military necessity to insure the continuous dispatch of troops overseas and to enable the Navy to exercise more direct control over the labor required for the coaling of said transports and because of an unwarranted apprehension that the plaintiff company might possibly be unable to maintain its then existing friendly relationship with the Italian stevedores employed in part to do the manual labor. There was no serious labor trouble in August, 1918. The plaintiff company was coaling the vessels with proper speed; in fact, was a little ahead of schedule, and could have coaled the vessels within the time limit prescribed. The contract was terminated in the supposed interest of future necessities of the Government and not for any default or failure of the plaintiff to discharge its obligations.
    XVI. From the outset of plaintiff’s work under the contract, and continuously thereafter, the assistant to aid for supply (the officer in direct charge thereof for the Navy) manifested grave anxiety concerning the labor situation in connection with the work of coaling, which he made the subject of a special report to the Navy Department, under date of July 15, 1918, in which report he summarizes his anxiety and fears from this source. The said officer after-wards admitted that the contract was not terminated for this cause, as above set forth.
    XVII. The act of said assistant to aid for supply in taking charge of the work of coaling under orders of his superior officers as aforesaid for the plaintiff’s account under clause “ (]') ” of said contract, because of the alleged failure of plaintiff to perform the same satisfactorily, was a mistake of fact so gross as to necessarily imply bad faith.
    The court decided that plaintiff was entitled to recover. Counterclaim dismissed.
   Booth, Judge,

delivered the opinion of the court:

On June 15, 1918, the plaintiff company entered into a written agreement with the defendant to supply the necessary services for handling coal during the fiscal year 1919. The coal and the mechanical means for disposing of the same were to be furnished by the Government, the plaintiff being required to furnish the requisite supply of labor and coal such naval transports at the port of New York as the Navy directed. The contract, which is made a part of the petition, contained this clause:

“(J) Whenever it is definitely shown that the work is not progressing satisfactorily the Navy reserves the right to take charge of the work for the contractor’s account, contractor being liable to the Navy for all payments that may have been received and all cost for the completion of the contract in excess of the cost provided for herein'; in no event, however, shall the contractor be liable for any failure to perform or fulfill, or any delay in performing or fulfilling any of its obligations hereunder or covenants herein contained caused directly or indirectly by any. order, act, or omission of the Government.”

The plaintiff company was especially familiar with the character of work it engaged to perform, knew well the inherent difficulties attending its performance, and from long experience was far better equipped to contend against adverse conditions than any other agency connected with the contract or service involved. The coaling of naval transports, expeditiously and within precise limits of time, was work not only of great magnitude but of supreme and critical importance during the war. The actual manual labor involved imposed the employment of large numbers of stevedores and the supply of this class of labor was limited almost exclusively to Italians, many of whom were unable to speak or comprehend the English language, and had fixed and rigid notions as to .hours of labor and weather conditions under which it should be performed. The plaintiff company was perfectly aware of the difficulties emanating or liable to emanate from this source, and demonstrated its ability to meet emergencies by fulfilling its contractual obligations to the very letter until midnight of August 22, 1918. The officers of the defendant, charged with the responsibility of having the transports properly coaled and ready for service at the precise time designated, were from the outset acutely disturbed over labor conditions, and seem to' have constantly entertained the fear that momentarily the stevedores would desert the plaintiff and leave the company helpless to perform its contract. No such state of affairs ever did obtain, but the defendant’s officers, in their zeal and anxiety, at a critical juncture in war time, in charge of work of overwhelming importance, balanced the consequences against the possibility of the event and acted accordingly. This record indisputably sustains this assertion, for on August 21, 1918, the plaintiff company was engaged in coaling the transports Agamemnon and Mount Vernon, which service was to be completed by August 25, 1918. On August 22, the day following the direction to coal the vessels, the assistant to aid for supply, Commander George W. Pigman, in a written communication to the plaintiff company, acting under orders from the “Commander, cruiser force,” took over -the work the plaintiff had agreed to perform, refused, after protest lodged by the plaintiff company, to allow it to proceed, and thereafter coaled the Navy transports at the cost and expense of the defendant. A written stipulation in the record concedes that the plaintiff company, up to Aizgust 22,1918, had earned under its contract and was entitled to be paid $62,154.07, and for this amount this suit is brought.

The defendant interposes a counterclaim. The amounts are not in dispute. The Government expended $88,895.15 more than it would have had to expend if the plaintiff had completed its contract according to its provisions, thus leaving a balance of $26,741.08, for which amount the defendant demands judgment. The decision turns upon the construetion and legal effect of clause “(j)” of the contract. The stipulation as to amount due the plaintiff company manifestly admits that the plaintiff had faithfully fulfilled its contract to this extent at least.

Clause “(j)” when considered in conjunction with clause “(m)” indicates clearly the establishment of an authority to determine the contract when the conditions enumerated obtain. Clauses of similar import have been so frequently before this and the Supreme Court that it i.s wholly unnecessary to multiply citations respecting their legal effect. In this instance it is sufficient to observe that where parties by mutual agreement stipulate the conditions upon which contractual obligations may be terminated, who may act and pass judgment upon the cause for termination, and the consequences which follow, the acts and conduct of one .so empowered may not be challenged, except for bad faith, or such gross error as would warrant the court in implying bad faith. United States v. Gleason, 175 U. S. 588; Yale & Towne Mfg. Co. v. United States, 58 C. Cls. 633. Obviously the burden of bringing the' case within the rule rests upon the plaintiff. As a matter of record, the plaintiff company has fully recognized the burden and proceeded accordingly. A contractual right of forfeiture, involving substantial damages and consequences, is generally closely scrutinized-by the courts, and where the plaintiff presents a record disclosing an unwarranted exercise of the same, contrary to the plain intent of the parties to the agreement, it will not be sustained. Clause “(j)” standing alone does not confer on any specific individual the right to invoke its provision; resort to other provision.s of the contract confer that authority. Therefore, clause “(j),” by its express terms, erects a specific condition, calls forth the existence of a state of facts, before it becomes available for the purpose of termination. It must be “ definitely shown that the. work is not progressing satisfactorily” before the plaintiff company may be called upon to lose all they have earned and respond in damages for a much larger sum. Hence, if the plaintiff, by a preponderance of testimony, in fact, uncontradicted testimony, establishes as a fact that its contract was in fact and in truth terminated for a reason other than one mentioned in clause “(j),” and wholly foreign to the one contemplated by the parties when the contract was executed, the error in so acting is sufficiently gross to warrant the court in implying bad faith. This is assuming, without deciding, that the officer who terminated the contract had authority under clause “(j)” thereof.

We have heretofore adverted to the defendant’s continuous and sustained anxiety over labor conditions. This ever-present menace, in the defendant’s view of the situation, finally impelled the officers in charge to resort to the war power of the Nation, at least to impress upon the stevedores that they were part of the Navy, and they were given badgvs to wear and advised that they were in the war service of the Government. The' labor organization in New York, of which they were largely members, was appealed to for aid, and assistants were dispatched to the scene to help in maintaining loyalty to the contract work. This was all done not because the plaintiff company had defaulted in the performance of its contract, or was on the point of defaulting, but as a war necessity, in the interest of the safety of the future, and to relieve from a possible contingency.

Surely it may not be contended in the face of this record that the contractor had failed in his undertaking or that in view of what had been done and what was being done it was definitely shown that the work was not progressing satisfactorily. It was progressing satisfactorily. There was no strike. The plaintiff company had very little trouble with. Italian labor. The work of coaling the two vessels mentioned was, to say the least, up to if not a little ahead of schedule. The anxiety and overzealousness of defendant’s officers, while commendable under the circumstances, was imaginary and not real.

The plaintiff is entitled under the rule in Ripley v. United States, 223 U. S. 695; United States v. Barlow, 184 U. S. 123; and Brinck, Receiver, v. United States, 53 C. Cls. 170, to a judgment for $62,154.07. Defendant’s counterclaim is dismissed. It is so ordered.

Hay, Judge; DowNey, Judge; and Campbell, Chief Justice, concur.

GRAham, Judge, took no part in the decision of this case.  