Opinion
No. 45256.
January 8, 1945.
No appearance for plaintiffs (George Nelson, on the brief).
Grover C. Sherrod, of Washington, D.C., and Francis M. Shea, Asst. Atty. Gen., for defendant.
Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
Action by Berg Shipbuilding Company and George Nelson, surety for the Berg Shipbuilding Company, against the United States for breach of a shipbuilding contract.
Judgment for defendant.
This case having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following special findings of fact:
1. The corporate records of the office of Secretary of State of the State of Washington show that the plaintiff Berg Shipbuilding Company, filed a copy of its articles of incorporation there on January 3, 1930; that the incorporators were Andrew B. Berg, H.A. Schurman and Oscar Pripp; that the principal place of business was located in Seattle, Washington, and that on July 1, 1935, the corporation became delinquent in the payment of its annual license fees and was automatically dissolved on July 1, 1938, for failure to remit its annual license fees for three years, pursuant to Chapter 70, Laws of 1937 of the State of Washington, Rem.Rev.Stat.Wash. § 3836 — 1 et seq.
2. In January 1933, the defendant through the Department of Commerce, Bureau of Lighthouses, let a contract to the plaintiff Berg Shipbuilding Company, Seattle, Washington, to construct the steel Lighthouse Tender Hemlock for the price of $228,480.60. By telegram and letter on January 30, 1933, the Berg Shipbuilding Company was advised that the contract had been approved and that the 275 days' time period therein contained would begin to run 10 days from that date, thus necessitating the completion of the work by November 11, 1933. Because of changes and extras, 20 days' additional time was allowed, i.e., to December 1, 1933. The work was to be done at Seattle, Washington, and in strict accordance with the specifications, schedules, and drawings which were made a part of the contract, all of which, including the contract, are in evidence as the defendant's exhibits 5 and 6 and are made a part of this finding by reference.
3. The Berg Shipbuilding Company furnished a standard form performance bond, with the United States Fidelity Guaranty Company as surety, in the sum of $228,480.60. To secure the surety against loss on this bond the Berg Shipbuilding Company executed an agreement to save it harmless, assigning to it all of the right, title and interest of the Berg Shipbuilding Company in its plant and equipment and materials purchased for the performance of the contract, and subrogating the United States Fidelity Guaranty Company to all its rights under the contract. George Nelson, a financial backer of the Berg Shipbuilding Company, who had an agreement with it to receive a part of the profits expected to be received from the contract, also executed this agreement with the United States Fidelity Guaranty Company. The performance bond and agreement are in evidence, as the defendant's exhibits 5 and 2, and are made a part of this finding by reference.
4. The Berg Shipbuilding Company constructed the vessel and some extras, and delivered the vessel on July 27, 1934, the total contract price and extras amounting to $242,260.48. As already shown, the contract time for completion as extended was December 1, 1933. Plaintiffs did not complete the vessel until 238 days later, July 27, 1934. By reason of this delay, plaintiffs were assessed liquidated damages in the amount of $47,600 which represents $200 per day for 238 days.
On October 16, 1934, plaintiffs made a claim to the contracting officer for the remission of these liquidated damages. This claim was considered by the contracting officer, who on November 2, 1934, wrote a letter to plaintiffs denying the claim and giving his reasons therefor. This letter is plaintiffs' exhibit 4 and is made a part of this finding by reference. There was no appeal from this decision of the contracting officer. Later, the claim was submitted to the Comptroller General who remitted $9,600 of the liquidated damages on the ground that 48 days of the delay "were caused by acts of the Government and were excusable under Article 9 of the contract." Accordingly, plaintiff, the Berg Shipbuilding Company, was paid and received on account of its contract, including all changes and extras, the net sum of $204,260.48, and $38,000 was withheld from it as liquidated damages.
5. The Berg Shipbuilding Company was unable to finance the construction of the vessel, and the United States Fidelity Guaranty Company paid $174,792.12 of the cost and, after receiving reimbursement in the amount of $39,867.05 from either the Berg Company or Nelson, took from Nelson a written agreement that he would pay the balance with interest, and, as security, an assignment of the stock in the Berg Shipbuilding Company, which he had by that time acquired, and other property, and a life insurance policy. This written agreement, dated February 19, 1935, also provided as follows:
"6. It is agreed that there has heretofore been assigned to the Company all of the right, title and interest of the Berg Shipbuilding Company in and to certain claims of said Company against the United States Government by reason of the construction of said Lighthouse Tender "Hemlock". The principal amounts of said claims are in the total sum of $83,862.13. The Company agrees that any amounts received by it by reason of said claims or by reason of any other claims hereafter asserted against the United States Government or any person shall be credited on the above indebtedness.
* * * * *
"8. The Company agrees to fully co-operate with Nelson and with the Berg Shipbuilding Company in the prosecution and collection of any and all claims that said Berg Shipbuilding Company may have against the United States Government, and further agrees to cooperate with Nelson in the prosecution and collection of any claim that Nelson may have against Andrew B. Berg."
The claim of $83,862.13, mentioned in the agreement, was made up of $47,600 of liquidated damages for delay in the completion of the contract, all of which at that time it appeared that the Government would retain but of which, as shown in finding 4, the Comptroller General later released and paid $9,600, and $22,909.28 and $13,352.85, respectively, of increased costs of labor and materials claimed to have been the result of the enactment of the National Industrial Recovery Act, 48 Stat. 195. These two latter claims are not asserted or involved in this suit.
6. The United States Fidelity Guaranty Company foreclosed on the security which it took from Nelson and also took a judgment against him, the exact amount of which does not appear. There is no satisfactory evidence that the judgment has been satisfied or that the United States Fidelity Guaranty Company would not be entitled to the benefit of any recovery that the Berg Shipbuilding Company or Mr. Nelson might make in this case of money retained by the Government as liquidated damages.
7. In January 1933, when the contract here sued on was entered into, Andrew B. Berg was president and H.A. Schurman was secretary of the Berg Shipbuilding Company. Berg and Oscar Pripp were the principal stockholders, and George Nelson's interest at that time was, as shown in finding 3, that he had agreed to indemnify and save harmless the United States Fidelity Guaranty Company, the surety on the performance bond, and was to receive a part of the profits to be derived from the performance of the contract. He also expected to advance some money to the Berg Shipbuilding Company. However, he was at that time neither an officer nor a stockholder.
8. When the work was started Berg gave the instructions and was in active charge of the men. He was experienced in the construction of wooden vessels but had had no experience in the construction of steel vessels. The yard of the Berg Shipbuilding Company was not equipped to fabricate or manufacture the chief parts of the vessel. It was only an "assembly" yard, and barely complete at that, and 18 or more contracts were let to subcontractors to fabricate and furnish the various parts that were to comprise the vessel. Willis G. Telfer, who had had experience in the construction of steel vessels, was employed as the chief superintendent under Berg, but soon after the work started disagreements and arguments took place between Berg and Telfer, Berg and other officers, foremen and employees of the Berg Shipbuilding Company, and between Berg and Lieutenant Fowler, the Government's inspector on the job. These arguments between Berg and Lieutenant Fowler resulted from Berg's unwillingness to construct the vessel in strict accordance with the specifications.
9. In the late fall of 1933, Berg resigned as president of the Berg Shipbuilding Company and left the job, and a little later Schurman resigned as secretary. In February 1934, George Nelson acquired stock of the Berg Shipbuilding Company and became its president; Oscar Pripp became vice president, and E. Bauman became secretary. Nelson, although a successful general contractor, had had no experience in the construction of vessels. The work continued to drag and the vessel was, as shown in finding 4, not completed until July 27, 1934.
10. The principal causes of whatever loss was sustained by the Berg Shipbuilding Company and of its failure to complete the vessel within the contract time as extended were:
(a) The contract price was too low;
(b) The contract period, which was fixed by the Berg Shipbuilding Company in its bid, was too short. Plaintiffs' exhibit 9 which shows the number of days in which each of the seven bidders offered to contract to complete the vessel, is made a part of this finding by reference;
(c) The Berg Shipbuilding Company lacked previous experience in the construction of steel vessels, and did not have an experienced and smooth-working organization of employees;
(d) The method of subletting the fabrication and manufacture of practically all the parts of the vessel and merely "assembling" them in the yard of the Berg Shipbuilding Company was not an economical or expeditious method of construction; there were delays in the ordering of parts and materials; and several of the subcontractors were late in furnishing parts;
(e) Friction and differences between Berg and the superintendent and foremen of construction in the employ of the Berg Shipbuilding Company, and friction and differences between Berg and Lieutenant Fowler, the Government's inspector on the job, growing out of Berg's unwillingness to construct the vessel in strict accordance with the specifications, caused delay and increased costs.
11. Section 7 of the specifications provides:
"Superintendent of Construction. — The bureau will authorize a representative, designated a superintendent of construction, to inspect the vessel during the progress of its construction. The work shall be open at all times to the superintendent, and every facility and assistance shall be extended to him in the prosecution of his duties. He will approve or reject the materials and workmanship in detail or upon completion, as they may be satisfactory or may fail to meet with the requirements of the specifications. He will decide questions relative to the intent of the plans and specifications subject to the bureau's approval as to important matters, and advise with the contractor as to the preparation of working plans, lists, and schedules. He will transmit plans and all correspondence from the contractors to the bureau. If the decisions of the superintendent are questioned by the contractors, the matter in dispute shall be referred in writing to the Commissioner of Lighthouses, through the superintendent, and the commissioner's decision shall be final."
No decision of the superintendent of construction was ever referred in writing to the Commissioner of Lighthouses as above provided.
Article 3 of the contract provides:
"Changes. — The contracting officer may at any time, by a written order, and without notice to the sureties, make changes in the drawings and (or) specifications of this contract and within the general scope thereof. If such changes cause an increase or decrease in the amount due under this contract, or in the time required for its performance, an equitable adjustment shall be made and the contract shall be modified in writing accordingly. No change involving an estimated increase or decrease of more than Five Hundred Dollars shall be ordered unless approved in writing by the head of the department or his duly authorized representative. Any claim for adjustment under this article must be asserted within ten days from the date the change is ordered, unless the contracting officer shall for proper cause extend such time, and if the parties cannot agree upon the adjustment the dispute shall be determined as provided in Article 15 hereof. But nothing provided in this article shall excuse the contractor from proceeding with the prosecution of the work so changed."
Article 5 of the contract provides:
"Extras. — Except as otherwise herein provided, no charge for any extra work or material will be allowed unless the same has been ordered in writing by the contracting officer and the price stated in such order."
Section 4 of the specifications provides:
"Changes. — Changes from the requirements of the specifications and plans after the award and acceptance of the contract shall be made only upon the written directions of the Commissioner of Lighthouses.
"Changes may be proposed by the bureau or the contractor, in writing, and shall be accompanied by drawings, calculations, etc., as may be necessary for their full understanding. Changes required by the bureau in the arrangements or details of the hull, machinery, joiner, or other work, wherein the general style and character of the vessel are maintained, shall be made by the contractor without extra compensation. Changes involving differences in cost shall be done only after consideration as to the amount and an agreement in writing relative thereto.
"The contractor shall be responsible for all departures from these plans and specifications without proper authority, and the bureau may at any time direct the removal and reconstruction of such changes, together with all parts affected thereby, by and at the expense of the contractor.
"Except for the change orders of May 18, June 28, and October 19, 1933, and for which the contractor has been paid in full, no changes or extras were ever ordered or authorized by the contracting officer; neither did any of the plaintiffs make any claim for adjustment within the period prescribed by Article 3 of the contract."
12. On September 13, 1933, the Deputy Commissioner of Lighthouses wrote the Berg Shipbuilding Company as follows:
"Referring to the progress of work on the construction of the tender Hemlock:
"The reports of progress received indicate that the degree of completion of the vessel on September 1st was 45%. The tender is due for completion on November 11, 1933, and has not yet been launched.
"The progress curve, based on the present rate of progress indicates that the vessel will not be completed and ready for delivery until about the first part of February 1934.
"Your attention is invited to the necessity for expediting the work with all possible speed in order that early delivery of the vessel may be accomplished as liquidated damages stipulated in your contract will be assessed. The Bureau will be pleased to receive a statement from you giving the approximate date you expect to make delivery of the vessel and what action you will take toward pushing the work to completion."
On September 23, 1933, Andrew B. Berg, President of the Berg Shipbuilding Company, wrote the Commissioner of Lighthouses as follows:
"Your letter of September 13th referring to progress of work on the construction of the tender Hemlock; when this contract was signed we were fully familiar with the working hours as bid by you to be 30 hours a week, but we were not familiar with the consequences of working a 6-hour day instead of 8.
"We made calculations as to a loss of 5 to 10%, but we did not anticipate that men would not adjust themselves to the 6-hour day, and as yet we have not found any of the many men that we have tried that will completely adjust themselves to the 6-hour day. The reason for this is that 6 hours will not warrant a stop at the end of 3 hours for lunch and a rest period, and this would lengthen the hours to the foremen to such extent that they will not stand for it. The 6-hour day has brought about irregular terms of administering the construction in that we cannot find any foremen that will work hand to hand and split this shift.
"Our calculation of efficiency of labor to this ship is from 25 to 30% loss compared to the 8-hour shifts. Although we have the hope that after a true study this can in time be overcome, at present this situation has slowed up the work to a similar percentage as can readily be shown through the progress schedule. We are working at present 100 men in our yard, and we know for sure that with the 8-hour day with full daylight from morning to evening we could have done the same work with around 60 men working a regular crew and the ship would now have been about to close. If the ship is not completed in time, it is due to the 6-hour day enforcement alone.
"We are trying to make the best of it with as many men as we can place on the job and expect to make delivery in December."
On February 7, 1934, the Acting Commissioner of Lighthouses wrote the Berg Shipbuilding Company as follows:
"The reports of progress of work on the Tender Hemlock indicate that the vessel now past due for delivery was but 80-percent completed on February 1, and that progress during the month of January was only 7 percent.
"It appears that the work should be expedited with all possible speed toward early completion, as liquidated damages at the rate of $200 per day will accrue until the vessel is completed in accordance with the provisions of the contract.
"The Bureau requests a statement giving the probable date of completion and what efforts are being made to push the work."
On February 16, 1934, the contractor sent a telegram to the Commissioner of Lighthouses which reads as follows:
"Referring to your letter seventh re Hemlock we extremely anxious to expedite completion and delivery at earliest possible date request that Superintendent of Construction Fowler be permitted to take full charge of yard and direction of our crews as this will obviate further difficulties and delays by having a competent executive in charge please wire reply."
On February 16, 1934, Putnam, the Commissioner of Lighthouses, sent a telegram to T.P. Fowler, Superintendent of Construction, in care of Berg Shipbuilding Company, Seattle, Washington, which reads as follows:
"Advise Berg reference their telegram February fifteenth Bureau is unable to assign Superintendent Fowler take charge their yard refer article eight Hemlock contract."
On April 9, 1934, the Deputy Commissioner of Lighthouses wrote a letter to the Berg Shipbuilding Company which reads as follows:
"Referring to the progress of construction on the tender Hemlock:
"It is noted from the progress report, that the work advanced only about 5.13% during the month of March. The vessel is urgently needed and you are requested to advise the Bureau if the work can be advanced more rapidly by placing two shifts of men on this contract. Attention is also invited to the matter of liquidated damages which are accruing at the rate of $200 per day."
13. The proof does not sustain plaintiffs' contention that Lieutenant Fowler, the Government's inspector on the job, took over the construction of the vessel, ousted the officers of the Berg Shipbuilding Company, ran the Berg Shipbuilding Company to suit himself and constructed the vessel in a manner more costly and difficult than called for by the specifications. Neither does the proof sustain plaintiffs' contention that the total of 68 days' additional time ultimately allowed plaintiffs by the Government was not as much as they were entitled to under the contract; nor is any other item of the plaintiffs' claim proved by the evidence.
The Berg Shipbuilding Company, a corporation, and Geo. Nelson, Surety for the Berg Company, are the plaintiffs. The Berg Company in 1933 made a contract to build The Hemlock, a steel lighthouse tender, for the Government. The tender was not completed until long after the date stipulated in the contract, as modified by change orders, and the Government, in paying the Berg Company, assessed and withheld liquidated damages, at the rate of $200 per day provided in the contract, amounting to $38,000.
The plaintiffs assert in this suit that the withholding of $38,000 of the contract price was a breach of contract by the Government, since it had, itself, caused the delay in completion; and that the acts which caused the delay, and other acts of the Government, caused the plaintiffs to incur excess costs in the construction of the vessel, and to lose their shipbuilding yard.
The Government asserts at the outset that the Berg Company, a former corporation chartered by the State of Washington, was automatically dissolved, on July 1, 1938, under the laws of that state, for failure to pay its annual license fees. The relevant Washington statutes are in Remington's Revised Statutes of Washington, Sections 3836 — 4, 10, 12, 13, 14 and 15. Section 3836 — 14 is, in part, as follows:
"§ 3836 — 14. Dissolution for non-payment — Noting on record — Reinstatement on payment. In the event that any corporation shall allow license fees due the state under existing laws or by virtue of this chapter, to become delinquent for a period of three consecutive years and the secretary of state shall be unable to collect said fees in full, it shall be his duty to enter upon his records a notation that such corporation is dissolved and said corporation shall thereupon be dissolved and the secretary of state shall thereupon be free to grant the name of the corporation so dissolved to any other corporation thereafter organized: * * *.
The omitted portions relate to reinstatement by paying the fees for which the corporation is delinquent.
"Upon reinstatement as herein provided it shall be the duty of the secretary of state to enter upon his records a notation that such corporation is reinstated, and it shall thereupon be reinstated as of the date on which its name was stricken from or noted as dissolved upon the records of the office of the secretary of state, and such corporation shall have the right to sue and shall enjoy the same rights and powers as if its name had never been stricken from the records or it had never been dissolved and all things done by it in the exercise of its corporate powers before such reinstatement shall become valid acts of the corporation."
The statute seems to be plain. We should not permit the policy of the State of Washington to be frustrated by permitting a former corporation, created by that state, to function as if it were in good standing when, by the law under which it was created, it had been automatically dissolved. The express provision, in the latter part of the section, that a dissolved corporation may, upon reinstatement, have the same right to sue as if it had not been dissolved seems to make it plain that it does not have the right to sue after it is dissolved and before it is reinstated. See Follett v. Clark, 19 Wn.2d 518, 143 P.2d 536, 537; Cf. Holpuch Case, Holpuch Co. v. United States, Ct. Cl., 58 F. Supp. 560.
The petition must be dismissed as to the Berg Shipbuilding Company because it has no corporate capacity to maintain a suit.
The Government also contends that the plaintiff Nelson may not maintain this suit because the Government is under no obligation to him, contractual or otherwise. Nelson was not a party to the contract, which was signed by the Berg Company. As shown in findings 3, 5, and 6, the United States Fidelity and Guaranty Company signed the performance bond, guaranteeing performance by the Berg Company, and the Berg Company and Nelson, who had some profit-sharing interest in the contract, made a written agreement to save the Fidelity Company harmless from liability on its bond, the Berg Company assigning to it all of its assets, and its rights against the United States under the contract. The Fidelity Company had to pay $174,792.12 to get the contract completed. It was repaid $39,867.05 of this, whether by the Berg Company or by Nelson does not appear. It took a further agreement from Nelson, to pay it the balance, with interest, and a mortgage on the Berg stock, which Nelson had by that time acquired, and other property. It sued Nelson, foreclosed on the security, and took a judgment against him for an amount which the evidence does not show. So far as is proved, the judgment has not been paid.
In these circumstances Nelson has no basis for suit. He made no contract with the Government. If, disregarding the contractual relation, we seek for some beneficial interest in Nelson which would entitle him, in equity, to money recovered in this suit, we find no such interest. The Fidelity Company would seem to be entitled, in equity, to any amount recovered, unless the amount was so large as to more than reimburse it. In that case the excess would, so far as is proved, belong to the trustees or liquidators of the Berg Shipbuilding Company. So the petition must be dismissed, as to the plaintiff Nelson, for lack of proof of his interest in the subject matter of the suit.
Because no professional counsel has appeared for the plaintiffs, we have, in spite of our conclusions stated above, considered the merits of the case. We have found, on the merits, that the Government did not, by any breach of duty on its part, cause damaging delay in the building of this ship, and did not assess more liquidated damages than it was properly entitled to assess, under the contract. Our conclusions in these regards are stated in our findings 10 and 13 and will not be repeated here. They show that, in our opinion, the plaintiffs, apart from any question of their capacity to sue, could not recover on the merits.
The petition will be dismissed.
It is so ordered.
WHALEY, Chief Justice, and WHITAKER, and LITTLETON, Judges.
JONES, Judge, took no part in the decision of this case.