This case, here on certiorari to the Court of Claims, presents the question whether a provision in a government contract for 'liquidated damages,' as construed and applied, should be denied enforcement on the ground that it constitutes a 'penalty.'
Shortly after the enactment of the Lend-Lease Act of March 11, 1941, 55 Stat. 31, 22 U.S.C.Supp. V, § 411 et seq., 22 U.S.C.A. § 411 et seq., the United States acting through agencies of the Department of Agriculture embarked on a program of purchasing dried eggs for shipment to England and Russia. Petitioner agreed to furnish a quantity of dried eggs under that program to the Federal Surplus Commodities Corporation (FSCC). The contract called for 'May 18 (1942) delivery' which date, according to the contract, 'shall be the first day of a 10-day period within which the FSCC will accept delivery, the particular day within the period being at the FSCC's option,' Petitioner was also required to have the eggs inspected, delivery to be accompanied by inspection and weight certificates.
The ontract contained two provisions respecting 'liquidated damages.' One, contained in paragraph 9, was applicable to delays in delivery. It has no application here, for as we shall see, deliveries were timely. The provision for cliquidated damages' with which we are concerned is contained in paragraph 7 and is applicable to a totally different situation. It provides, with exceptions not material here, that 'failure to have specified quantities of dried egg products inspected and ready for delivery by the date specified in the offer' will be cause for payment of 'liquidated damages.'
On May 18, 1942, petitioner had not made delivery nor had the eggs been inspected. Inspection was, however, completed and certificates issued by May 22, which was prior to the time when FSCC asked for delivery. For it was not until May 26 that FSCC gave the first of several written notices for the shipment of eggs involved in this litigation. Petitioner made timely shipments pursuant to those instructions. Subsequently FSCC ascertained that petitioner's inspection certificates had been issued after May 18 and accordingly deducted from the price 10 cents per pound on the theory that the failure to have the eggs inspected and ready for delivery by May 18 was a default which put into operation the 'liquidated damages' provision of the contract.
Petitioner brought this suit in the Court of Claims to recover the amounts withheld plus interest. The Court of Claims, being of the view that there had been a breach of contract for which the United States was entitled to 'liquidated damages,' dismissed the petition. 65 F.Supp. 457, 460.
We construe the contract to mean that the time for delivery by petitioner was not May 18, 1942 but the time or times chosen by the FSCC within the ten-day period which began on May 18. That is to say, performance by petitioner was not due until request was made and instructions given for delivery. That interpretation is in accord with the uncontested finding of the Court of Claims that petitioner promised delivery 'within a ten-day period commencing May 18, the precise date to be selected' by the FSCC.
The contract was drawn, however, to make the 'liquidated damages' provisions include so-called defaults of petitioner which antedated the time when delivery was due but which in no way interfered with or caused delay in that performance. As noted, 'liquidated damages' became payable on 'failure to have specified quantities of dried egg products inspected and ready for delivery by the date specified in the offer,' viz. by May 18, 1942. The Court of Claims held this provision enforceable even though petitioner had made prompt delivery of the eggs, because it felt that the provision enabled respondent t carry on its dried-egg program 'with assurance that it could count on the dried-egg products being ready on the specified date.' That position is amplified by respondent. The argument in short is that liability to pay 'liquidated damages' for failure to have goods ready for delivery even prior to the time when delivery is due gives assurance against tardy deliveries; that a prompt timetable of shipments was important here because of war conditions and the necessity of having goods ready for loading whenever shipping space was available; that delay in deliveries would cause unmeasurable damage; and that even though no damage were apparent in a particular case, the cliquidated damages' provision should be enforced as a deterrent of tardy deliveries in the whole class of contracts relating to this procurement program.