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BETHLEHEM STEEL COMPANY v. CITY OF CHICAGO

United States District Court, Northern District of Illinois, E.D


October 22, 1964

BETHLEHEM STEEL COMPANY, A CORPORATION, PLAINTIFF,
v.
CITY OF CHICAGO, A MUNICIPAL CORPORATION, DEFENDANT.

The opinion of the court was delivered by: Robson, District Judge.

Defendant has moved for summary judgment and plaintiff has filed a countermotion for the same relief. Plaintiff has also moved to strike portions of the defendant's answer, as amended. The suit involves the parties' rights and liabilities under a written construction contract of December 21, 1961, governing plaintiff's furnishing and erecting for $1,734,200 the steel work for a section of the South Route Superhighway known as Section S-2424.3-2HF.

The critical provision of the contract here involved is that which provides for $1,000 "liquidated damages" for each day of delay. The work was originally to have been completed on or before July 29, 1962, but that date was extended by the City to September 20, 1962. The work was actually completed November 21, 1962 — 52 days late — giving rise to the City's claim of the right to deduct $52,000 from the contract price.

The court concludes that there is no genuine issue of fact, and that the defendant's motion for summary judgment should be granted as to the $52,000 item. The plaintiff's countermotion for summary judgment should be denied as well as its motion to strike portions of the defendant's answer, as amended.

Plaintiff raises the further issue of the right to five per cent interest on $98,464.69, the remainder of the balance owed it, from February 7, 1963, or, in the alternative, from January 29, 1964, from which latter date (the time this suit was instituted) it also seeks interest on the $52,000 item.

Pursuant to the court's direction, defendant prepared and filed on July 7, 1964, its proposed stipulation of facts, which plaintiff has refused to sign. However, as the court reviews the proposed stipulation it concludes that it is founded on unchallenged documentary proof.

The work which Bethlehem undertook was the erection in Chicago of structural steel for a 22-span steel stringer elevated highway structure, approximately 1,815 feet long, to carry the South Route Superhighway from South Canal Street to the South Branch of the Chicago River. Bethlehem's work was preceded and followed by the work of other contractors on the same section.

The "Proposal and Acceptance" in the instructions to bidders required the bidders to "* * * complete * * * within the specified time the work required. * * *" Time was expressly stated to be the essence of the contract and specified provisions were made for delivery of the steel within 105 days thereafter, or a total of 195 days after commencement of work, which was to be not later than 15 days from notification. The successful bidder was to submit to the Commissioner of Public Works a "Time Schedule" for his work and if "less than the amount * * * specified to be completed" were accomplished "the City may declare this contract forfeited. * * *" The work had to be completed irrespective of weather conditions.

The all important provision specifying $1,000 a day "liquidated damages" for delay is as follows:

    "The work under this contract covers a very
  important section of the South Route Superhighway,
  and any delay in the completion of this work will
  materially delay the completion of and opening of the
  South Route Superhighway thereby causing great
  inconvenience to the public, added cost of
  engineering and supervision, maintenance of detours,
  and other tangible and intangible losses. Therefore,
  if any work shall remain uncompleted after the time
  specified in the Contract Documents for the
  completion of the work or after any authorized
  extension of such stipulated time, the Contractor
  shall pay to the City the sum listed in the following
  schedule for each and every day that such work
  remains uncompleted, and such moneys shall be paid as
  liquidated damages, not a penalty, to partially cover
  losses and expenses to the City.

    "Amount of Liquidated Damages per Day * * *.
  $1,000.00.

    "The City shall recover said liquidated damages by
  deducting the amount thereof out of any moneys due or
  that may become due the Contractor. * * *"

Provision was made to cover delay in a contractor's starting due to preceding contractor's delay. Unavoidable delays by the contractor were also covered, and extensions therefor accordingly granted.

There was delay in the preceding contractor's work, and Bethlehem was advised that certain parts of the work would be ready to receive the structural steel by May 10, 1962. Bethlehem noted the day and asked a 32-calendar day extension of its own completion date, and in a letter of June 2, 1962, requested instead a 35-day extension; still later a 52-day extension and then a 69-day extension. In reply to the last letter, the Chief Engineer of the City wrote Bethlehem on July 3, 1962:

    "This will acknowledge receipt of your letter dated
  June 29, 1962 in which you claim an additional
  extension of time of seventeen (17) calendar days
  making a total of sixty-nine (69) days.

    "Our records show that due to your own delay in
  fabrication you were unable to deliver the steel for
  erection as scheduled. Had the piers in question been
  completed you still were unable to supply the
  structural steel for erection. * * *

    "We wish to advise you at this time that the full
  length of time claimed as a delay will not be allowed
  as most of your delay has been

  caused within your own organization and not by our
  sub-structure contractor." (Italics supplied.)

The contractor whose work depended on Bethlehem's wrote on July 13, 1962, to the City's Chief Engineer with reference to Bethlehem's delay:

    "We are greatly alarmed by the lack of progress on
  the erection of structural steel. We have started
  framing for deck slabs in Spans 2, 3, 4 and 5, but it
  appears that we will very shortly run out of space to
  work to keep our deck slab pouring operation
  continuous. Since Bethlehem Steel Company is not our
  subcontractor on this steel erection, we are turning
  to you for assistance in expediting erection to
  enable us to proceed with docks and complete
  them. * * *"

The same contractor wrote again on July 20, 1962, in regard to Bethlehem's delay:

    "* * * [I]t will be noted that steel erection is
  pushed back over one month, which indicates their
  work will be two months behind their contract
  completion date of July 29, 1962.

    "This structural steel delay, over which we have
  absolutely no control, will delay final completion of
  the job, unless some measures are taken to expedite
  the framing and placing of deck concrete. * * *

    "The additional costs should be determined within
  the next ten days."

Still further complaint was made by the same contractor on July 27, 1962, when it wrote:

    "We have not been able to complete our deck
  framing * * * because of Bethlehem Steel Company's
  work that still has to be completed in these piers.
  Beyond this point none of the structural steel is
  ready for deck framing. Leaving gaps in our deck
  framing, which we have had to do at Piers 7 and
  8, causes interruption of production, with consequent
  time loss, very considerable additional expense in
  organizational disruption, and greater hazard to our
  personnel in working `islands,' rather than
  continuous deck.

    "We are very much concerned with the rate of
  progress of the steel erection. We are now forced to
  start laying off carpenters because of lack of area
  in which to work. * * *

    "At present it appears that we will be forced to
  cease our concreting operations by the end of next
  week. This will be done with the greatest reluctance,
  this being the most favorable season of the year for
  concrete work." (Italics supplied.)

The City's chief engineer wrote Bethlehem on July 25, 1962, a notice of intention to apply the liquidated damage provision of the contract as follows:

    "Our records show that on July 15, 1962 your
  contract was only approximately 31.0% complete. At
  this date, 92.8% of the time allowed to complete this
  contract had elapsed and you should have been 98.0%
  complete.

    "In your letters of April 27, May 10, 15, and 25,
  June 1, 6, 12, 18 and 29, you requested extensions of
  time due to alleged delays by the O'Neil Construction
  Company in completing their piers. An analysis of
  your contract shows that if the piers in question had
  been complete you did not have the steel fabricated
  and delivered for erection. Any delay on your
  contract is caused by your own organization and not
  by the O'Neil Construction Company. Therefore none of
  your previous requests will be considered for any
  extensions of time." (Italics supplied.)

The City granted Bethlehem an extension of 63 days, from the original set completion date of July 29, which would bring it to September 20. Actual completion was November 21, or 52 days later, which delay the City assessed at $1,000, or a total of $52,000 for liquidated damages. Having granted the 63-day extension the City made no claim to liquidated damages for that delay.

Bethlehem contends it is entitled to the $52,000 on the ground that the City actually sustained no damages in that the Superhighway was timely completed. If the contract were construed otherwise the provision would be a penalty.

Defendant's answer points out that

  "* * * [Where] * * * a contractor for construction of
  public work on a highway * * * is one of several
  contracts executed for the purpose of carrying out
  the project, and the planned coordination of all work
  under the various contracts then make it difficult if
  not impossible, to determine what actual damage would
  result if delays are encountered in construction
  under the contract, the circumstances are appropriate
  for the inclusion of a liquidated damage provision in
  such construction contract. * * *"

And also that

  "* * * [A] liquidated damages provision in a contract
  for construction is to be judged as of the time of
  making the contract, and the fact that actual damages
  suffered are shown to be greater or less than the
  liquidated damages fixed by the parties is not
  determinative of the unreasonableness of the
  stipulated damages nor fatal to their validity."

The City further maintains that no interest is due on the $98,464.69 owed by it in that the contract is an entirety and Bethlehem is not entitled to the sum until it executes the final papers, which it refuses to do because of the dispute over the $52,000 withheld for the delay.

A certificate executed by the General Manager of Sales of Bethlehem, dated October 18, 1963, stated "that the following is a true and correct statement of the contract amount up to and including the last day of the period covered by this estimate * * * $98,464.70." Defendant points out this does not claim the $52,000 or interest on the $98,464.70, and therefore estops plaintiff from claiming either of those two items.

Defendant assails plaintiff's June 26, 1964, motion to strike paragraphs 1 and 2 of the original answer, as amended, because it was tardily presented some four and one-half months after the answer was amended on February 10, 1964. It also objects thereto because when the motion to amend the answer was filed, counsel for plaintiff stated he had no objection thereto. Further, plaintiff waived the right to object to the answer when it filed its motion for summary judgment, and finally, by its failure to assert said motion at the pre-trial conferences. The defendant also cites the well-established rule of liberality in the allowance of amendments. It also maintains that the motion to strike is insufficient because it does not state with particularity the bases for the insufficiency. Further, a motion to strike is not favored, and is a drastic remedy to be sparingly used. (City of Chicago v. Allen Bradley Company, 32 F.R.D. 448 (D.C.Ill. 1963); Brown & Williamson Tobacco Corp. v. United States, 201 F.2d 819 (6th Cir. 1963))

The decisions involving contract provisions for liquidated damages or penalties are legion. The consensus seems to be in favor of upholding and enforcing such provisions, even absent proof of any actual damages, where it was reasonable at the time of making the contract to so contract. Thus it was said in Rex Trailer Co. v. United States, 350 U.S. 148, at page 151, 76 S.Ct. 219, at page 221, 100 L.Ed. 149 (1956):

    "* * * Liquidated damages are a well-known remedy,
  and in fact Congress has utilized this form of
  recovery in numerous situations. In all building
  contracts, for example, Congress has required the
  insertion of a liquidated-damage clause which `shall
  be conclusive and binding upon all parties' without
  proof of `actual or specific damages
  sustained * * *.'" (Italics supplied.)

  Again, in the same case, at page 153, 76 S.Ct. at page 222, the Supreme Court said:

    "* * * As this Court recognized in Priebe & Sons v.
  United States, 332 U.S. 407, 411-412, 68 S.Ct. 123,
  126, 92 L.Ed. 32, liquidated damages `serve a
  particularly useful function when damages are
  uncertain in nature or amount or are unmeasurable, as
  is the case in many government contracts. * * *' And
  the fact that no damages are shown is not fatal."

    "The damages resulting from this injury may be
  difficult or impossible to ascertain * * *." (Italics
  supplied.)

In Wise v. United States, 249 U.S. 361, 365, 39 S.Ct. 303, 304-305, 63 L.Ed. 647, the Supreme Court said:

    "* * * [T]he result of the modern decisions was
  determined to be that * * * courts will endeavor, by
  a construction of the agreement which the parties
  have made, to ascertain what their intention was when
  they inserted such a stipulation for payment, of a
  designated sum or upon a designated basis, for a
  breach of a covenant of their contract * * *. When
  that intention is clearly ascertainable from the
  writing, effect will be given to the provision, as
  freely as to any other, where the damages are
  uncertain in nature or amount or are difficult of
  ascertainment or where the amount stipulated for is
  not so extravagant, or disproportionate to the amount
  of property loss, as to show that compensation was
  not the object aimed at or as to imply fraud,
  mistake, circumvention or oppression. There is no
  sound reason why persons competent and free to
  contract may not agree upon this subject as fully as
  upon any other, or why their agreement, when fairly
  and understandingly entered into with a view to just
  compensation for the anticipated loss, should not be
  enforced.

    "* * * The later rule, however, is to look with
  candor, if not with favor, upon such provisions in
  contracts when deliberately entered into between
  parties who have equality of opportunity for
  understanding and insisting upon their rights, as
  promoting prompt performance of contracts and because
  adjusting in advance, and amicably, matters the
  settlement of which through courts would often
  involve difficulty, uncertainty, delay and
  expense. * * *

    "* * * It is obvious that the extent of the loss
  which would result to the government from delay in
  performance must be uncertain and difficult to
  determine and it is clear that the amount stipulated
  for is not excessive * * *.

    "The parties * * * were much more competent to
  justly determine what the amount of damage would be,
  an amount necessarily largely conjectural and resting
  in estimate, than a court or jury would be, directed
  to a conclusion, as either must be, after the event,
  by views and testimony derived from witnesses who
  would be unusual to a degree if their conclusions
  were not, in a measure, colored and partisan."
  (Italics supplied.)

In Priebe & Sons v. United States, 332 U.S. 407, at page 412, 68 S.Ct. 123, at page 126, the court said:

    "* * * We have no doubt of the validity of the
  provision for `liquidated damages'."

Long ago, the Second Circuit held similarly in Wood et al. v. Niagara Falls Paper Co., 121 F. 818 (1903).

In Weiss v. United States Fidelity & Guaranty Co., 300 Ill. 11, at pages 16-17, 132 N.E. 749, at page 751 (1921), the Illinois Supreme Court held:

    "Where a contract provides for liquidated damages
  at so much per day for delay in the performance of

  a building contract beyond the time fixed for
  completing the building, as this contract does, it is
  not necessary in an action for breach to allege
  actual damages from such delay, as plaintiff is
  entitled to rely on the contract to show that damages
  at the rate stipulated will result from the breach."

    "* * * Where the damages cannot be calculated in
  such a contract by market value nor by any precise
  pecuniary standard, or where, from the peculiar
  circumstances which the contract contemplates, there
  must be other uncertainties affecting the practical
  ascertainment of the amount of actual loss, the law
  favors any fair adjustment of damages by stipulation.
  If the contract does not afford any data from which
  the actual damages can be calculated, this
  circumstance affords a reason for regarding the sum
  designated in it as liquidated damages."

In the older case of United States v. Bethlehem Steel Co., 205 U.S. 105, at page 119, 27 S.Ct. 450, at page 455, 51 L.Ed. 731 (1906), the Supreme Court said:

    "* * * [T]he courts * * * have now become strongly
  inclined to allow parties to make their own
  contracts, and to carry out their intentions, even
  when it would result in the recovery of an amount
  stated as liquidated damages, upon proof of the
  violation of the contract, and without proof of the
  damages actually sustained." (Italics supplied.)

A complete study of this problem appears in the article, Liquidated Damages in Illinois, 31 Illinois Law Review 879, 880. It is there said:

    "The validity of liquidated damage clauses is
  traditionally determined by the application of three
  primary tests, which may be referred to as the intent
  test, the reasonableness test, and the uncertainty
  test.

    "* * * [T]he intent and reasonableness tests must
  be applied with reference to the time when the
  contract was made, and before the breach occurred."

Especially pertinent is the observation made in the above cited article, at pages 885, 887:

    "In principle it can make no difference whether or
  not actual loss followed from the breach for which
  stipulated damages are sought, because the validity
  of the stipulation must be judged as of the time when
  the contract was entered into. * * *"

    "Considered as a whole, the Illinois cases support
  the view that the stipulation will be upheld although
  no loss be shown, if a loss in the amount stipulated,
  and legally compensable, was to have been
  anticipated." (Italics supplied.)

Similar holdings are: Hennessy v. Metzger, 152 Ill. 505, 38 N.E. 1058, and Burnett v. Nolen, 336 Ill.App. 376, 84 N.E.2d 155.

The Illinois Uniform Commercial Code, Ill.Rev.Stat. 1961, Ch. 26, which became effective after this contract, similarly provides:

    "Damages for breach by either party may be
  liquidated in the agreement but only at an amount
  which is reasonable in the light of the anticipated
  or actual harm caused by the breach, the difficulties
  of proof of loss, and the inconvenience or
  non-feasibility of otherwise obtaining an adequate
  remedy. A term fixing unreasonably large liquidated
  damages is void as a penalty."

Viewing this contract from the time it was entered into, it is evident that the provision for $1,000 for a day's delay was a reasonable provision and that it was the parties' intent that that be the sum recoverable for each day's delay in order to forestall legal proceedings for a determination of the precise amount of damages. Further, as the court reads the correspondence, it is evident that in some measure at least, Bethlehem's delay gave rise to real problems to the City in the expeditious consummation of the work, because of complaints of hindrance to the prosecution of other contractors' work, with necessary laying off of employees, greater danger of accidents, etcetera.

Bethlehem argues that the fact that the route was timely opened ipso facto proves there could be no damage. However, it is surmisable that if Bethlehem were the only contractor who delayed, this route could have been opened far earlier due to the evident expedition of the other contractors, with consequent beneficial earlier use of the route.

Since the court does not agree with plaintiff's contention that the City is wrongfully withholding $52,000, it follows that the City is not required to pay interest on it, or on the $98,464.69, which it has refused to pay absent the "contract payment voucher" and "final estimate" together with waivers from any subcontractors or materialmen, required by the contract, Section 4, Special Provisions I, C-6, and absent prior demand.

Plaintiff's motion to strike the "Second Defense" as an argumentative conclusion of law and not simple and concise, has some justification, at least as to lack of conciseness, but it is not so derelict as to impel a granting of the motion as to it. It does contain material more properly found in a brief but plaintiff can deem itself helped by clarification of defendant's position rather than prejudiced by its inclusion. The motion is also made to strike the "Third Defense" with its supporting exhibits, incorporating by reference appended exhibits of correspondence between the parties to support the defense of defendant. The court does not agree that these exhibits bear no relevance to any issue of fact raised by the pleadings but believes they are highly enlightening in resolving those issues. There is no challenge in the motion to strike of the authenticity or verity of the documents appended as exhibits.

The court concludes that that part of plaintiff's countermotion for summary judgment seeking recovery of the sum of $98,464.69 should be granted and that part seeking $52,000, interest on either or both such sums, and costs, should be denied; that that part of defendant's motion for summary judgment seeking a dismissal of plaintiff's cause as to the $52,000, interest, and costs, should be granted. Plaintiff's motion to strike portions of defendant's answer is denied. The City is directed to submit a final judgment in accordance with this conclusion, within ten days, furnishing a copy thereof to the plaintiff.

19641022

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