A-5249, JANUARY 18, 1926, 5 COMP. GEN. 488

A-5249: Jan 18, 1926

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THE EXCESS COST OF A DIFFERENT AND HIGHER GRADE OF HAY (ALFALFA) PURCHASED IN THE OPEN MARKET ON DEFAULT OF A CONTRACTOR IS NOT THE PROPER BASIS FOR THE DAMAGES TO BE CHARGED THE CONTRACTOR. UNLESS IT WAS IMPRACTICABLE TO OBTAIN SIMILAR GRADES OF HAY IN THE OPEN MARKET. THE DIFFERENCE BETWEEN THE CONTRACT PRICE AND THE FAIR MARKET PRICE OF A SIMILAR ARTICLE OR COMMODITY AT THE TIME AND PLACE DELIVERY WAS REQUIRED UNDER THE CONTRACT IS PROPERLY CHARGEABLE TO THE DEFAULTING CONTRACTOR. 19 COMP. SHALL HAVE THE RIGHT TO SUPPLY THE DEFICIENCY BY PROCUREMENT IN OPEN MARKET. WAS ISSUED BY THE DEPOT QUARTERMASTER AT EL PASO. IN WHICH DELIVERY WAS REQUESTED OF 2. 572 POUNDS ARE REPORTED TO HAVE BEEN DELIVERED UNDER THIS CONTRACT.

A-5249, JANUARY 18, 1926, 5 COMP. GEN. 488

CONTACTS, DEFAULT - OPEN-MARKET PURCHASES AN "ACT OF GOD"--- I.E., DROUGHT--- DOES NOT EXCUSE THE FAILURE OF A CONTRACTOR TO PERFORM A FORMALLY EXECUTED CONTRACT FOR THE DELIVERY OF HAY, IN THE ABSENCE OF AN EXPRESS PROVISION THEREFOR IN THE CONTRACT. THE EXCESS COST OF A DIFFERENT AND HIGHER GRADE OF HAY (ALFALFA) PURCHASED IN THE OPEN MARKET ON DEFAULT OF A CONTRACTOR IS NOT THE PROPER BASIS FOR THE DAMAGES TO BE CHARGED THE CONTRACTOR, UNLESS IT WAS IMPRACTICABLE TO OBTAIN SIMILAR GRADES OF HAY IN THE OPEN MARKET, BUT THE DIFFERENCE BETWEEN THE CONTRACT PRICE AND THE FAIR MARKET PRICE OF A SIMILAR ARTICLE OR COMMODITY AT THE TIME AND PLACE DELIVERY WAS REQUIRED UNDER THE CONTRACT IS PROPERLY CHARGEABLE TO THE DEFAULTING CONTRACTOR. 19 COMP. DEC. 473; 20 ID. 509; 24 ID. 421, OVERRULED.

DECISION BY COMPTROLLER GENERAL MCCARL, JANUARY 18, 1926:

H. L. ROBERTS AND CO. REQUESTED RECONSIDERATION OF DECISION OF FEBRUARY 28, 1925, REVISING SETTLEMENT NO. US-430-W, DATED JULY 5, 1924, AND FINDING DUE FROM IT TO THE UNITED STATES THE SUM OF $852.20 AS THE NET EXCESS COST OF HAY PURCHASED IN THE OPEN MARKET AGAINST THE ACCOUNT OF THAT COMPANY BECAUSE OF FAILURE TO DELIVER HAY IN ACCORDANCE WITH ITS CONTRACT, AFTER CREDITING THE CONTRACTOR WITH $17.30 IN ADJUSTMENT OF SHORTAGE AND OVERAGE ON THREE CARS OF HAY DELIVERED BY THE CONTRACTOR.

BY CONTRACT DATED JUNE 13, 1917, H. L. ROBERTS AND CO. AGREED TO FURNISH AND DELIVER DURING THE PERIOD COMMENCING SEPTEMBER 1, 1917, AND ENDING SEPTEMBER 30, 1917---

TWO MILLION SEVEN HUNDRED AND FIFTY THOUSAND (2,750,000) POUNDS OF PRAIRIE FEEDING HAY, NEW CROP, (EQUAL TO SAMPLE SUBMITTED) AT SIXTY NINE CENTS ).69) PER ONE HUNDRED POUNDS.

PARAGRAPH 6 OF THE CONTRACT PROVIDES:

THAT IN CASE OF THE FAILURE OF THE CONTRACTOR TO PERFORM ANY PART OF THIS CONTRACT, THE CONTRACTING OFFICER, OR HIS SUCCESSOR, SHALL HAVE THE RIGHT TO SUPPLY THE DEFICIENCY BY PROCUREMENT IN OPEN MARKET, OR OTHERWISE, PURCHASING ANY OF THE SUPPLIES SO REQUIRED AT SUCH PLACE AS HE MAY ELECT-- - WITH A VIEW TO OBTAINING THE SAME PROMPTLY AND AT THE SAME TIME ENDEAVORING TO SECURE FAIR AND REASONABLE PRICES (THE ARTICLES PROCURED TO BE THE KIND HEREIN SPECIFIED AS NEARLY AS PRACTICABLE, AT THE EXPENSE OF THE CONTRACTOR; * * *).

CALL NO. 84, DATED AUGUST 10, 1917, WAS ISSUED BY THE DEPOT QUARTERMASTER AT EL PASO, TEX., IN WHICH DELIVERY WAS REQUESTED OF 2,737,000 POUNDS OF HAY, APPROXIMATELY THE ENTIRE QUANTITY COVERED BY THE CONTRACT, TO BEGIN SEPTEMBER 1, 1917, AND TO BE COMPLETED ON SEPTEMBER 20, 1917. ONLY 453,572 POUNDS ARE REPORTED TO HAVE BEEN DELIVERED UNDER THIS CONTRACT. UPON FAILURE OF THE CONTRACTOR TO COMPLETE DELIVERIES BY SEPTEMBER 30, 1917, AN OPEN-MARKET PURCHASE WAS MADE ON THAT DATE OF 16.88 TONS OF ALFALFA HAY AT $1.55 PER HUNDRED WEIGHT, THE TOTAL COST OF THE ALFALFA-HAY PURCHASE IN LIEU OF THE PRAIRIE FEEDING HAY STIPULATED IN THE CONTRACT BEING $523.28, OR $290.29 MORE THAN THE GOVERNMENT WAS OBLIGATED TO PAY FOR A LIKE QUANTITY OF PRAIRIE HAY UNDER THE CONTRACT IN QUESTION, AND BY SETTLEMENT OF JULY 5, 1924, THIS AMOUNT, LESS A CREDIT TO THE CONTRACTOR ON OTHER SHIPMENTS, WAS CHARGED AGAINST IT, THE NET AMOUNT OF THE CHARGE BEING $272.99.

IN ADDITION TO THE 16.88 TONS HEREINBEFORE REFERRED TO, THE GOVERNMENT WAS ALSO COMPELLED TO PURCHASE IN THE OPEN MARKET 115,841 POUNDS OF ALFALFA HAY AT A COST OF $1.19 PER HUNDREDWEIGHT, A TOTAL OF $1,378.51, SUCH COST BEING $579.21 MORE THAN THE CONTRACT PRICE FOR A LIKE QUANTITY OF PRAIRIE HAY UNDER THE CONTRACT. THIS PURCHASE WAS PAID FOR ON VOUCHER 510, NOVEMBER, 1917, ACCOUNTS OF CAPT. L. W. KESSLER, AND THE EXCESS COST WAS INCLUDED IN THE CHARGE AGAINST THE CONTRACTOR IN THE DECISION OF FEBRUARY 28, 1925, RECONSIDERATION OF WHICH HAS NOW BEEN REQUESTED.

THE WAR DEPARTMENT IN ITS COMMUNICATION OF NOVEMBER 22, 1922, RELATIVE TO THE OPEN-MARKET PURCHASES AGAINST THE CONTRACTOR'S ACCOUNT, STATED THAT THE HAY PURCHASED WAS THE MOST ECONOMICAL SUBSTITUTE FOR THAT CALLED FOR IN THE CONTRACT THAT COULD BE SECURED UNDER THE THEN EXISTING CONDITIONS. THE CONTRACTOR ALLEGES THAT ITS FAILURE TO DELIVER THE HAY CONTRACTED FOR WAS DUE TO AN UNUSUAL DROUGHT OCCURRING IN THAT PART OF TEXAS, WHICH RESULTED IN A SHORTAGE IN THE HAY CROP; IT IS CLAIMED THAT THE DROUGHT WAS EQUIVALENT TO AN "ACT OF GOD," EXCUSING THE BREACH OF THE CONTRACT; THAT IN ANY EVENT THE GOVERNMENT WAS NOT ENTITLED TO PURCHASE ALFALFA HAY IN LIEU OF PRAIRIE HAY AND CHARGE IT WITH THE DIFFERENCE IN PRICE, THE ALFALFA HAY BEING A DIFFERENT AND HIGHER GRADE OF HAY.

WHILE IT MAY BE THAT THE SHORTAGE OF PRAIRIE HAY IN THE PARTICULAR LOCALITY WAS DUE TO AN UNUSUAL DROUGHT CONDITION, IT IS NOT SHOWN THAT THE CONTRACTOR COULD NOT HAVE PROCURED THE SAME QUALITY OF HAY ELSEWHERE. THE FACT THAT THE GOVERNMENT PURCHASED ALFALFA HAY DOES NOT ESTABLISH THAT PRAIRIE HAY COULD NOT HAVE BEEN PROCURED HAD THE CONDITIONS PERMITTED OF THE DELAY INCIDENT TO ITS SHIPMENT--- THE GOVERNMENT WAS NOT IN A POSITION TO KNOW THAT THE CONTRACTOR WOULD DEFAULT IN DELIVERIES UNTIL SUCH DEFAULT HAD TAKEN PLACE, AND THEN IT WAS NECESSARY TO PROCURE A SUBSTITUTE ON SHORT NOTICE. EVEN ASSUMING THAT IT MIGHT HAVE BEEN IMPOSSIBLE TO PROCURE PRAIRIE HAY ELSEWHERE DUE TO THE DROUGHT, THAT FACT WOULD BE NO DEFENSE TO THE BREACH OF A FORMALLY EXECUTED CONTRACT. AN ACT OF GOD WILL EXCUSE THE FAILURE TO DO A THING WHERE THE LAW CREATED THE DUTY, BUT NOT WHERE IT IS CREATED BY THE POSITIVE AND ABSOLUTE CONTRACT OF THE PARTY. WHERE A PARTY BY HIS OWN CONTRACT CREATES A DUTY UPON HIMSELF HE IS BOUND TO MAKE IT GOOD, NOTWITHSTANDING SOME UNFORESEEN CONTINGENCY, AS HE MIGHT HAVE PROVIDED AGAINST SUCH CONTINGENCY IN HIS CONTRACT. SEE SCHOOL DISTRICT NO. 1 V. DAUCHY, 25 CONN. 530, IN WHICH THIS PRINCIPLE IS DISCUSSED AT LENGTH, AND MCGEHEE V. HILL, 4 PORT (ALA.), 170, APPLYING THE PRINCIPLE TO THE FAILURE TO DELIVER A SPECIFIED QUANTITY OF CORN DUE TO A DROUGHT; SEE ALSO 9 CYC. PAGES 627 ET SEQ.; SIMPSON V. UNITED STATES, 31 CT.CLS. 217; 172 U.S. 217; SATTERLEE V. UNITED STATES, 30 CT.CLS. 124; PHOENIX BRIDGE COMPANY V. UNITED STATES. 38 ID. 492.

THE CONTRACT IN THE PRESENT CASE SPECIFICALLY AUTHORIZED THE CONTRACTING OFFICER OR HIS SUCCESSOR TO SUPPLY ANY DEFICIENCY IN DELIVERY ON THE PART OF THE CONTRACTOR BY PURCHASE IN THE OPEN MARKET "/THE ARTICLES PROCURED TO BE THE KIND HEREIN SPECIFIED, AS NEARLY AS PRACTICABLE) " AT THE EXPENSE OF THE CONTRACTOR. ASSUMING ARGUENDO THAT THE GOVERNMENT DID NOT HAVE THE RIGHT TO PURCHASE A SUBSTITUTE OF A HIGHER GRADE WITHOUT SHOWING IMPRACTICABILITY OF SECURING THE SAME KIND OF HAY, THEN THE RIGHTS OF THE PARTIES WOULD BE FOR CONSIDERATION AS THOUGH NO PURCHASE HAD BEEN MADE, THE GOVERNMENT RESTING UPON ITS RIGHT TO PERFORMANCE OF THE CONTRACT IN KIND OR DAMAGES FOR FAILURE OF THE CONTRACTOR TO PERFORM. ALL AUTHORITIES AGREE THAT THE VENDEE IS ENTITLED TO DAMAGES UNDER SUCH CIRCUMSTANCES, AND THE WEIGHT OF AUTHORITY SEEMS TO BE THAT THE PROPER MEASURE OF DAMAGES IS THE DIFFERENCE BETWEEN THE CONTRACT PRICE AND THE MARKET PRICE OF LIKE ARTICLES OR COMMODITIES AT THE TIME AND PLACE OF DELIVERY. THE COURT OF CLAIMS HELD IN DECISION DATED DECEMBER 7, 1925, IN W. A. FERSON HAY CO. V. UNITED STATES, WHERE THE GOVERNMENT HAD REFUSED TO ACCEPT DELIVERIES OF HAY AND HAD BEEN SUED FOR DAMAGES THEREFORE THAT "THE MEASURE OF DAMAGES IS THE USUAL MEASURE OF DAMAGES IN CASE OF A BREACH SUCH AS WE HAVE HERE, VIZ, THE DIFFERENCE BETWEEN THE CONTRACT PRICE AND THE FAIR MARKET PRICE OF THE COMMODITY AT THE TIME AND PLACE OF DELIVERY FIXED BY THE CONTRACT.'

IT REMAINS THEREFORE ONLY TO DETERMINE THE FAIR MARKET VALUE OF PRAIRIE FEED HAY AT THE TIME AND PLACE OF DELIVERY REQUIRED BY THE CONTRACT. THE CONTRACT PROVIDED FOR DELIVERIES TO BE COMPLETED BY SEPTEMBER 30, 1917. IT APPEARS FROM THE RECORDS THAT THE SAME CONTRACTOR HAD ANOTHER CONTRACT WITH THE WAR DEPARTMENT FOR PRAIRIE FEEDING HAY UPON WHICH DEFAULT WAS ALSO MADE AND THE DEFAULT IN THAT CASE WAS SUPPLIED BY OPEN MARKET PURCHASE MADE BY THE QUARTERMASTER DEPOT AT FORT SAM HOUSTON, TEX., SEPTEMBER 25, 1917, OF 29 CARS OF PRAIRIE FEEDING HAY FROM THREE DIFFERENT FIRMS AT $1.24, $1.20, AND$1.19 PER 100 POUNDS. DELIVERIES OF THE 29 CARS WERE ALL MADE DURING THE PERIOD FROM SEPTEMBER 25 TO OCTOBER 1, 1917, AND THE EXCESS COST DEDUCTED FROM SUBSEQUENT PAYMENTS TO CONTRACTOR, WHICH PROCEDURE WAS APPARENTLY ACQUIESCED IN BY THE CONTRACTOR AS HIS LETTER OF DECEMBER 5, 1917, NOTED SUCH DEDUCTIONS AND REQUESTED CHECK FOR THE BALANCE OF THE VOUCHER FROM WHICH THE DEDUCTION WAS MADE. PURCHASES OF A LIKE COMMODITY FROM A NUMBER OF FIRMS IN THE OPEN MARKET AT APPROXIMATELY THE SAME TIME AND PLACE FORM A RELIABLE BASIS FOR A DETERMINATION OF A FAIR AND REASONABLE MARKET PRICE. THE HIGHER PRICE OF $1.24 WAS UPON THE SMALLEST PURCHASE MADE, SO THAT IT MAY BE ASSUMED THAT THE PRICE FOR LARGER QUANTITY DELIVERIES WAS PROPERLY REPRESENTED BY THE PRICES OF $1.20 AND $1.19 PER HUNDRED POUNDS. THE PRICE OF $1.19 COULD NOT THEREFORE BE CONSIDERED IN EXCESS OF THE FAIR MARKET VALUE OF PRAIRIE FEEDING HAY AT THE TIME THE CONTRACTOR DEFAULTED IN DELIVERY TO THE DETRIMENT OF THE GOVERNMENT, WHICH PRICE IS THAT PAID FOR THE 115,841 POUNDS OF ALFALFA HAY PURCHASED AS ABOVE SET FORTH. AS TO THIS PORTION OF THE ACCOUNT THE CHARGE OF $579.21 APPEARS TO BE CORRECT.

WITH RESPECT TO THE CHARGE FOR THE EXCESS COST OF THE 16.88 TONS OF ALFALFA HAY PURCHASED IN THE OPEN MARKET, I AM INCLINED UPON FURTHER CONSIDERATION TO THE VIEW THAT THE EXCESS COST OF A SUBSTITUTE OF A HIGHER GRADE THAN THAT CONTRACTED FOR IS NOT THE PROPER BASIS FOR THE ASSESSMENT OF THE DAMAGES SUFFERED BY THE GOVERNMENT UNLESS IT BE SHOWN THAT IT WAS IMPRACTICABLE TO OBTAIN SIMILAR GRADES OF HAY IN THE OPEN MARKET. THERE IS NO SUCH SHOWING HERE AND THIS ITEM WILL BE REVISED ON THE BASIS OF THE FAIR MARKET VALUE OF PRAIRIE FEEDING HAY WHICH HAS BEEN DETERMINED, SUPRA, TO BE NOT LESS THAN $1.19 PER 100 POUNDS, OR $23.80 PER TON OF 2,000 POUNDS. UPON THIS BASIS THE FAIR MARKET VALUE OF THE 16.88 TONS OF PRAIRIE FEEDING HAY WAS $401.74, OR AN EXCESS OF $168.80 OVER THE CONTRACT PRICE; DEDUCTING THE $17.30 ADJUSTMENT OF OVERAGE AND SHORTAGE ON THE HAY ACTUALLY DELIVERED, LEAVES THE NET AMOUNT DUE FROM CONTRACTOR ON THIS ITEM $151.50.

UPON RECONSIDERATION THE SETTLEMENT IS REVISED AND THERE IS CERTIFIED DUE FROM THE CONTRACTOR $730.71 IN LIEU OF THE CHARGE HERETOFORE RAISED OF $852.20. THE DECISIONS IN 19 COMP. DEC. 473; 20 ID. 509, AND 24 ID. 421, WILL NOT BE FOLLOWED HEREAFTER.