This is a petition by appellants, partners under the style of Henry W. Peabody & Company, for a balance alleged to be due on account of coal furnished the Quartermaster's Department, Philippine Division of the Army. So much of the contract, which was in writing and duly signed and approved, as required by 3744 of Revised Statutes (U. S. Comp. Stat. 1901, p. 2510 ), as is essential to a judgment, may be shortly stated: The contractors agreed to sell and deliver at Manila or certain other designated points, 70,000 tons of coal known as 'Wallsend' coal, of good quality 'for steaming purposes,' at $5.15 per ton, deliveries not to exceed 800 tons per month. The contractors were required [229 U.S. 47, 48] to file an official report of tests showing the quality of coal intended to be delivered, and a sufficient sample for test. The 6th provision of the contract was in these words:
By article 4 of the contract it was agreed, 'that all deliveries on this contract shall be subject to careful inspection, under instructions of the Chief Quartermaster, Philippine Division, United States Army,' etc. Payment for coal delivered under the contract was to be made on discharge of each cargo.
By article 12 it was agreed:
The II., III., and IV. findings of fact are in these words:
Mr. Frederick De Courcy Faust and Assistant Attorney General Thompson for appellee.
Statement by Mr. Justice Lurton:
Mr. Justice Lurton, after making the foregoing statement, delivered the opinion of the court:
From the facts it is plain that the contractors could not and did not deliver a cargo of 'Wallsend' coal in January, 1905, as their contract obligated them to do. This temporary inability was due to a strike at the colliery. This did not excuse them, since the contract did not so provide. The cargo of mountain coal which was bought to meet the immediate demand, though the same price was paid for it, had a fuel value of $3,193.32 less than that of the same quantity of Wallsend coal, as determined by tests and comparisons with the sample of Wallsend coal, and the question is whether this loss shall be borne by the government or by the contractor.
Appellants say that if any cargo did not conform to the standard, the only right of the government was to reject it. But it was not pretended that this cargo was Wallsend coal, or equal to that coal in quality, nor was it accepted as a delivery under the contract. That the Chief Quartermaster agreed to accept it and pay for it the price fixed for Wallsend coal under the contract, and did so accept and pay for it, constitutes the ground upon which the claim of appellants must rest.
The situation was one brought about by the inability of the contractors to carry out their contract. The coal was needed for present necessities. The deficiency in Wallsend coal had to be made up. There was thus presented one of the emergency conditions contemplated by [229 U.S. 47, 52] the law then in force, the act of April 23, 1904, 33 Stat. at L. 268, 269, chap. 1485 and the 548th and 549th paragraphs of the Army Regulations of 1904, providing for 'open market emergency purchases.' Under this condition and under this authority, the Chief Quartermaster agreed to accept a cargo of confessedly inferior coal, and pay the market price for that quality of coal in Manila at the time. That this cargo was not to be accepted as a fulfilment of the contract, and as a waiver of any difference in value between that and Wallsend coal, is demonstrated by the finding that it was agreed 'that the same should be considered as a purchase outside of the contract, to meet existing conditions.' It could not be regarded as an 'outside purchase' to meet conditions brought about by the contractors' fault, and at the same time be regarded as accepted in fulfilment of the contract.
The finding that the Chief Quartermaster, after the coal had been shipped, but before it arrived or was delivered, gave notice that he would send a sample of the coal to the Quartermaster General to be tested, and that if it fell below the Wallsend coal, the difference would be charged against the contractors, operated to put them upon guard. They might have refused delivery. They did not, although they protested and asserted views in opposition to that of the officer. The payment made was for that cargo as an 'outside purchase,' and not a payment under the contract for Wallsend coal. Neither is the agreement to take that cargo, and the payment made for it, to be regarded as a waiver of any difference that might exist between the quality and fuel value of the coal so purchased and the coal which should have been supplied. That it does not constitute a waiver results from the agreement that it should be considered 'an outside purchase,' and the express notice before delivery that the contractors would be charged with that difference. When that difference was ascertained, it was charged up and [229 U.S. 47, 53] retained from money due under a later contract. The liability might have been asserted by the government in an action; but it might, as it did, charge it up as a setoff against its own liability. It would be folly to require the government to pay under the one contract what it must eventually recover for a breach of the other.