Mayor of Baltimore v. Industrial Electronics, Inc.

Hammond, J., delivered the opinion of the Court. The Mayor and City Council of Baltimore (the City) ap ²²⁶ peals from a judgment against it in a non-jury trial in which Industrial Electronics, Inc. (Electronics) recovered damages for cancellation by the City of contracts to supply and service two-way radio communication equipment for vehicles of the City’s Department of Traffic and Transit. Judge Cullen held that the equipment had met the City’s specifications but that Electronics had not fulfilled its obligations of maintenance and that the City had had the right to obtain proper maintenance and charge the cost thereof against the payments it owed Electronics under the contracts. Below and here the City claimed the right to cancel without liability for further payments, and Electronics said (in this Court in support of its cross-appeal) that there had been no breach of contract whatsoever by it, so that its damages were greater than those allowed by Judge Cullen.

In 1956 the City asked for bids on communication equipment to meet specifications prepared by the Electronic Maintenance Supervisor of the Department of Traffic and Transit. On January 9, 1957, the City accepted Electronics’ bid to lease it the specified equipment for five years with maintenance for that period (one of two alternatives under the proposal) and the right in the City to purchase the entire system for $1.00 per unit at the end of the contract period. The rental was to be paid in sixty equal monthly instalments. The original agreement was for fifty-five two-way radios to be installed in vehicles of the Department of Traffic and Transit and equipment at two stationary bases for broadcasting to the vehicles.

The City had the option to call for up to twenty additional radios. On October 2, 1957, the City purchased ten more radios under its option. On February 5, 1958, the City entered into another agreement with Electronics for fifteen more radios “as described in the original specifications.” On May 1, 1958, the City again exercised its option and took ten radios, making a total of ninety it held under the terms of the original contract. The acceptance dates of the additional units ran from September 1957 through August 1959.

On another occasion Henry Barnes, Director of the Department of Traffic and Transit, asked Electronics whether it would enter into another ²²⁷ contract for twenty-five more radios and another base station. It declined the invitation, and another firm supplied that equipment. As equipment was delivered and installed by Electronics, the City accepted it and began the monthly payments. The total contract price, if the payments had been made for the full five-year period, would have amounted to $95,834.00.

On March 21, 1960, the City cancelled the contracts on the ground of inadequate maintenance service, after it had paid $43,724.21 and owed a balance under the contracts of $52,109.79. The contracts consisted of the proposal, the specifications, and “the agreement.” The agreement (dated January 9, 1956, but actually entered into on January 9, 1957) recited that a contract —“subject to all the conditions, covenants, stipulations, terms and provisions contained in the said specifications, and in a certain bid or proposal therefore, * * * in all respects made a part hereof, has recently been awarded to the contractor * * * at and for the lump sum price * * *."The proposal provided that if the successful bidder (the “contractor”) abandoned his undertaking, or if the City thought performance of the contract was being “unnecessarily or unreasonably delayed,” or that there was wilful violation “of any of the conditions of the specifications” or bad faith in their execution or if the execution was “not in accordance with the terms thereof,” the City could “annul the contract or any part thereof * * *,” and “thereupon have the power to contract for the completion of said work * * * and to charge the entire cost and expense thereof to the contractor * * * out of such monies as may be due or may become due to the contractor under and by virtue of the contract.” If, in such case, the expense exceeded the amount due under the contract, the contractor or his surety “shall pay the amount of such excess to the City.” The specifications include these provisions: “It shall be understood that failure to comply with these terms may result in cancellation of the contract, and the supplier held responsible for all costs incurred because of the removal of equipment from the City’s premises if the contract is cancelled or the City will charge back to the contractor any and all expenses ²²⁸ incurred by the City because of the contractor’s failure to perform necessary maintenance.” Judge Cullen, although he did not spell out the reasons for his conclusions, evidently thought the rights of the City under the contracts and the circumstances of the case did not rise beyond obtaining adequate maintenance from others than Electronics (which was readily