A-70130, FEBRUARY 8, 1937, 16 COMP. GEN. 735

A-70130: Feb 8, 1937

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THERE IS NO AUTHORITY FOR THE GOVERNMENT TO REIMBURSE SAID CONTRACTOR FOR ANY PART OF AN AMOUNT ASSESSED UNDER SAID RULES AS A PENALTY AND INCREASED COSTS BECAUSE OF NECESSITY OF PROCUREMENT OF THE COTTON ELSEWHERE. SHOULD HAVE KNOWN THAT SHIPMENT WITHIN THE TIME ALLOWED WAS HIGHLY IMPROBABLE. 1937: THERE IS FOR CONSIDERATION THE CLAIM OF W. THE AMOUNT INVOLVED WAS RETURNED UNCERTIFIED ON PREAUDIT OF BUREAU VOUCHER NO. 5067 OF THE AGRICULTURAL ADJUSTMENT ADMINISTRATION. THE FACTS ARE AS FOLLOWS: UNDER THE TERMS OF HIS CONTRACT NO. THE MANAGER OF THE COTTON POOL WAS OBLIGATED TO REIMBURSE GARRARD FOR ALL STORAGE AND WAREHOUSE CHARGES AND INSURANCE PREMIUMS ADVANCED BY GARRARD FOR THE ACCOUNT OF THE MANAGER OF THE COTTON POOL WITH RESPECT TO SUCH COTTON.

A-70130, FEBRUARY 8, 1937, 16 COMP. GEN. 735

AGRICULTURAL ADJUSTMENT ADMINISTRATION - COTTON POOL SALES - BREACH OF CONTRACT - GOVERNMENT INDEMNIFICATION OF PRIVATE CONTRACTOR WHERE, UNDER A CONTRACT WITH THE MANAGER, COTTON PRODUCERS' POOL OF THE AGRICULTURAL ADJUSTMENT ADMINISTRATION, PROVIDING FOR THE PROPER RECEIVING, WAREHOUSING, INSURING, SELLING, AND OTHERWISE SERVICING THE COTTON COVERED BY THE CONTRACT, THE SOLE COMPENSATION TO BE A COMMISSION ON COTTON SOLD, DUE, AND PAYABLE UPON RECEIPT OF THE PROCEEDS BY THE COTTON POOL, THE CONTRACTOR FAILS TO MAKE SHIPMENT UNDER A CONTRACT OF SALE WITH A MILL OPERATING UNDER THE SOUTHERN MILLS RULES, 1935, WITHIN THE TIME REQUIRED BY SAID RULES, THERE IS NO AUTHORITY FOR THE GOVERNMENT TO REIMBURSE SAID CONTRACTOR FOR ANY PART OF AN AMOUNT ASSESSED UNDER SAID RULES AS A PENALTY AND INCREASED COSTS BECAUSE OF NECESSITY OF PROCUREMENT OF THE COTTON ELSEWHERE, THE CONTRACT HAVING BEEN ILL-ADVISED AND AT THE RISK OF THE CONTRACTOR WHO KNEW AT THE TIME OR, BECAUSE OF PRIOR EXPERIENCE, SHOULD HAVE KNOWN THAT SHIPMENT WITHIN THE TIME ALLOWED WAS HIGHLY IMPROBABLE, IF NOT IMPOSSIBLE.

DECISION BY ACTING COMPTROLLER GENERAL ELLIOTT, FEBRUARY 8, 1937:

THERE IS FOR CONSIDERATION THE CLAIM OF W. M. GARRARD IN THE AMOUNT OF $530, COVERED BY BUREAU VOUCHER NO. 7408, DECEMBER 15, 1936, OF THE AGRICULTURAL ADJUSTMENT ADMINISTRATION. THE AMOUNT INVOLVED WAS RETURNED UNCERTIFIED ON PREAUDIT OF BUREAU VOUCHER NO. 5067 OF THE AGRICULTURAL ADJUSTMENT ADMINISTRATION, UNDER DATE OF NOVEMBER 2, 1936, AND REVIEW OF THAT ACTION REQUESTED.

THE FACTS ARE AS FOLLOWS: UNDER THE TERMS OF HIS CONTRACT NO. AAA 385, FEBRUARY 15, 1934, WITH THE MANAGER, COTTON PRODUCERS' POOL OF THE AGRICULTURAL ADJUSTMENT ADMINISTRATION, GARRARD UNDERTOOK TO PROPERLY RECEIVE, WAREHOUSE, AND INSURE IN THE NAME OF THE MANAGER, COTTON POOL, AND OTHERWISE SERVICE THE COTTON COVERED BY THE CONTRACT, SUCH SERVICE INCLUDING CHECKING AND PAYMENT OF STORAGE AND WAREHOUSE CHARGES, AND SUPERVISION OF SUCH COTTON IN RESPECT TO ADEQUATE STORAGE AND INSURANCE, AND TO SELL SAID COTTON FROM TIME TO TIME AT THE BEST MARKET PRICE OBTAINABLE UNDER EXISTING MARKETING CONDITIONS AT THE TIME OF SALE.

THE MANAGER OF THE COTTON POOL WAS OBLIGATED TO REIMBURSE GARRARD FOR ALL STORAGE AND WAREHOUSE CHARGES AND INSURANCE PREMIUMS ADVANCED BY GARRARD FOR THE ACCOUNT OF THE MANAGER OF THE COTTON POOL WITH RESPECT TO SUCH COTTON, AND TO PAY GARRARD AS SOLE COMPENSATION FOR SERVICES TO BE RENDERED FOR THE SALE, HANDLING, CLASSING, MARKETING, AND OTHERWISE SERVICING SAID COTTON, A COMMISSION OF 3 PERCENT UPON THE GROSS SALE PRICE OF THE COTTON SOLD IN COMPLIANCE WITH THE TERMS OF THE CONTRACT, SUCH COMPENSATION TO BE DUE AND PAYABLE IF AND WHEN THE COTTON WAS SOLD AND THE PROCEEDS RECEIVED BY THE COTTON POOL. ALSO, THE CONTRACT PROVIDED IN SECTION 1, PARAGRAPH (4), THAT THE MANAGER, COTTON POOL, SHOULD NOT BE OR BECOME CHARGEABLE WITH ANY COST OR EXPENSE INCIDENT TO THE HANDLING, CLASSING, MARKETING, OR ANY OTHER SERVICE WITH RESPECT TO SUCH COTTON, EXCEPT AS STATED ABOVE.

THE RECORDS INDICATE THAT GARRARD HANDLED ALL TRANSACTIONS IN CONNECTION WITH THE COTTON COVERED BY THE CONTRACT THROUGH THE STAPLE COTTON COOPERATIVE ASSOCIATION, GREENWOOD, MISS., HEREINAFTER CALLED THE ASSOCIATION, OF WHICH HE IS OR WAS GENERAL MANAGER; THAT ALL DISBURSEMENTS WERE MADE BY THE ASSOCIATION AS GARRARD'S AGENT AND CHARGED BACK TO HIM, HE IN TURN BEING REIMBURSED BY THE MANAGER OF THE COTTON POOL IN ACCORDANCE WITH THE TERMS OF THE CONTRACT; AND THAT THE 3 PERCENT COMPENSATION RECEIVED BY GARRARD FROM THE MANAGER OF THE COTTON POOL LIKEWISE WAS TURNED OVER TO THE ASSOCIATION.

ON AUGUST 31, 1935, GARRARD, OR THE ASSOCIATION AS HIS AGENT, UNDERTOOK TO SELL 200 BALES OF COTTON TO W. D. LAWSON AND CO., GASTONIA, N.C., FOR IMMEDIATE DELIVERY TO THE HAMPTON SPINNING MILLS, CLOVER, S.C. PARAGRAPH 16 OF THE SOUTHERN MILLS RULES 1935, PROVIDED THAT COTTON SOLD FOR IMMEDIATE SHIPMENT MUST BE SHIPPED, AND BILLS OF LADING, OR MUTUALLY ACCEPTABLE EQUIVALENT THEREFOR ISSUED WITHIN 7 BUSINESS DAYS FROM THE DATE OF SALE. SEPTEMBER 1 AND 8, 1935, WERE SUNDAYS AND SEPTEMBER 2 WAS LABOR DAY, NONE OF THEM BUSINESS DAYS. SHIPMENT OF THE COTTON SHOULD HAVE BEEN MADE NOT LATER THAN SEPTEMBER 10, 1935. ONE HUNDRED AND TWO BALES WERE SHIPPED FROM MEMPHIS, TENN., ON SEPTEMBER 19, AND THE REMAINING 98 BALES WERE SHIPPED SEPTEMBER 23, 9 AND 13 DAYS LATE, RESPECTIVELY. IN THE MEANTIME, LAWSON AND CO. HAD BEEN ADVISED BY LETTER OF SEPTEMBER 13, 3 DAYS AFTER SHIPMENT OF THE COTTON SHOULD HAVE BEEN MADE, AS FOLLOWS:

WE HEREBY CERTIFY THAT, BECAUSE OF CONDITIONS BEYOND OUR CONTROL, PARTIALLY SET FORTH HEREIN, WE WILL NOT BE ABLE TO OBTAIN BILL OF LADING COVERING THE SALE OF TWO HUNDRED (200) BALES OF COTTON, ORDERED SHIPPED TO THE HAMPTON SPINNING MILLS, CLOVER, SOUTH CAROLINA, COVERED BY OUR CONTRACT D-276, YOUR NO. 21, WITHIN THE TIME LIMIT SPECIFIED.

THIS IS COTTON BELONGING TO THE GOVERNMENT POOL, WHICH WAS KNOWN TO YOU, AND BECAUSE OF THE FACT THAT THE WAREHOUSE RECEIPTS ARE HELD IN THE FEDERAL RESERVE BANK, NEW ORLEANS, LA., THEY ARE NOT SUBJECT TO IMMEDIATE HANDLING BY US, BUT WE MUST FORWARD REQUEST TO THEM AND AWAIT OUR TURN IN OBTAINING FROM THEM, CAUSING DELAYS IN ORDERING OUT.

THIS COTTON BEING OF PRIOR SEASONS' GROWTH AND OF A SPECIAL GRADE, STAPLE AND CHARACTER, IN ORDER TO SECURE THE AMOUNT SPECIFIED IT WAS NECESSARY TO SHIP FROM SCATTERED WAREHOUSE POINTS, THEREBY NECESSITATING THE CONCENTRATION OF THE COTTON AT ONE CENTRAL POINT INTO CARLOADS. THIS IS NOW IN PROCESS, BUT OWING TO THE FACT THAT WE HAVE NO CONTROL OVER THE WAREHOUSES OR CARRIERS, WE BELIEVE IT WILL NOT BE POSSIBLE TO CONCENTRATE AND FORWARD BILL OF LADING WITHIN THE TIME LIMIT SPECIFIED. IT IS OUR PURPOSE TO ENDEAVOR TO FORWARD AS MUCH OF THIS COTTON AS POSSIBLE AT THE EARLIEST DATE, COMPLETING WHEN ALL COTTON HAS BEEN CONCENTRATED.

THIS LETTER WAS SIGNED BY R. D. PORTWOOD, TRAFFIC MANAGER, STAPLE COTTON COOPERATIVE ASSOCIATION.

ON SEPTEMBER 20, LAWSON AND CO. REPLIED:

WE REGRET TO ADVISE YOU THAT WE ARE UNABLE TO ACCEPT REASONS STATED IN YOUR LETTER OF THE 13TH INST. FOR YOUR INABILITY TO HAVE THE 200 BALES OF COTTON PURCHASED FOR ACCOUNT OF THE HAMPTON SPINNING MILLS, OUR CONTRACT NO. 21, YOUR NO. D-276, LOADED WITHIN THE SPECIFIED TIME LIMIT. THE MILL WAS IN URGENT NEED OF THE COTTON AND THEREFORE REQUIRED SAME TO BE SHIPPED WITHIN A SPECIFIED TIME AND IN ORDER TO AVOID SHUTTING DOWN IT HAS BEEN NECESSARY FOR THEM TO PURCHASE REPLACEMENT OF THIS COTTON ELSEWHERE.

WE WILL RENDER TO YOU STATEMENT COVERING THE DIFFERENCES WITH PENALTIES IN ACCORDANCE WITH THE SOUTHERN MILL RULES.

IT IS TO BE NOTED THAT WHILE THIS LETTER WAS DATED SEPTEMBER 20, 1935, A DAY LATER THAN THE FIRST SHIPMENT OF COTTON FROM MEMPHIS, EVIDENTLY LAWSON AND CO. HAD PREVIOUSLY GIVEN NOTICE THAT THE COTTON WOULD NOT BE ACCEPTED UNDER THE CONTRACT, FOR THE SHIPMENT OF SEPTEMBER 19 WAS NOT MADE TO THE HAMPTON SPINNING MILLS AT CLOVER, S.C., BUT WAS SHIPPED TO THE AVON BONDED WAREHOUSE, GASTONIA, N.C.

UNDER DATE OF SEPTEMBER 23, 1935, MR. PORTWOOD WROTE MR. MURRAY M. STEWART, JR., OF THE COTTON PRODUCERS' POOL, WASHINGTON, D.C. IN PERTINENT PART AS FOLLOWS:

THIS IS TO ADVISE THAT CONTRACT OF SALE D-276 COVERING TWO HUNDRED (200) BALES OF COTTON SOLD TO W. D. LAWSON AND CO., GASTONIA, N.C., FOR SHIPMENT TO THE HAMPTON SPINNING MILLS, HAS BEEN CANCELLED BECAUSE OF THE FACT THAT WE WERE UNABLE TO HAVE THE COTTON FORWARDED WITHIN THE TIME LIMIT SPECIFIED (10 DAYS).

THIS WAS CAUSED BY THE FACT THAT WE WERE DELAYED IN RECEIVING THE WAREHOUSE RECEIPTS FROM NEW ORLEANS, TOGETHER WITH THE FACT THAT THE COTTON WAS BADLY SCATTERED AND IN ORDER TO SECURE THE CARLOAD RATE IT WAS NECESSARY TO CONSOLIDATE THE COTTON AT MEMPHIS AND CONSIDERABLE TIME OVER THE TIME LIMIT ALLOWED UNDER THE CONTRACT WAS CONSUMED.

AS A RESULT OF THIS WE HAVE DIVERTED THE 200 BALES OF COTTON INTO THE AVON BONDED WAREHOUSE AT GASTONIA AND WILL STORE THERE UNTIL RESOLD.

SOUTHERN MILL RULES, PARAGRAPH 18, PROVIDED THAT IF FOR ANY REASON NOT EXCUSABLE UNDER THAT PARAGRAPH--- NONE OF WHICH IS APPLICABLE IN THE PRESENT INSTANCE--- THE SELLER FAILED TO MAKE SHIPMENT OR DELIVERY WITHIN THE TIME SPECIFIED IN A CONTRACT, THE BUYER MIGHT CANCEL THE CONTRACT, OR MIGHT BUY IN OPEN MARKET COTTON EQUAL TO THAT CONTRACTED FOR, IN EITHER CASE THE MARKET DIFFERENCE TO BE ADJUSTED BETWEEN THE BUYER AND SELLER, WITH ONE-QUARTER CENT PER POUND PENALTY AGAINST THE SELLER. UPON THAT BASIS, W. D. LAWSON AND CO. CHARGED THE ASSOCIATION A MARKET DIFFERENCE OF 28 POINTS ON 100,000 POUNDS OF COTTON, OR $280, AND PENALTY OF ONE-QUARTER CENT PER POUND, OR $250, AN AGGREGATE OF $530, FOR WHICH GARRARD SEEKS REIMBURSEMENT FROM THE GOVERNMENT.

IN SUPPORT OF THE REQUEST FOR REVIEW, THERE IS SUBMITTED A STATEMENT OF THE STAPLE COTTON COOPERATIVE ASSOCIATION FOR MR. GARRARD RELATIVE TO THE SALE, FROM WHICH IT APPEARS THAT REQUEST FOR THE WAREHOUSE RECEIPTS WAS FORWARDED TO P. H. FULLER, REPRESENTATIVE OF THE COTTON PRODUCERS' POOL IN NEW ORLEANS, ON SEPTEMBER 1, 1935, THAT THEY WERE DELIVERED TO MR. FULLER BY THE NEW ORLEANS BRANCH OF THE FEDERAL RESERVE BANK OF ATLANTA ON SEPTEMBER 11, AND TURNED OVER TO THE ASSOCIATION AND MAILED OUT TO THE POINTS WHERE THE COTTON WAS STORED ON SEPTEMBER 12, 1935. THE STATEMENT CONCLUDES:

WE FURTHER WISH TO STATE THAT NUMEROUS SALES OF COTTON BELONGING TO THE COTTON POOL WERE MADE UNDER SIMILAR CIRCUMSTANCES AND RECEIPTS WERE RECEIVED WITHIN FROM THREE TO FIVE DAYS OF REQUEST. WHILE, IN MANY OTHER INSTANCES, BECAUSE OF THE FACT THAT THE COTTON POOL AT NEW ORLEANS WAS SELLING LARGE QUANTITIES OF COTTON AND THE FEDERAL RESERVE BANK WAS WORKING ALL RECEIPTS COVERED BY SUCH SALES, WE WERE NOT ABLE TO OBTAIN RECEIPTS PROMPTLY; AND, ON SEVERAL OCCASIONS, IT WAS NECESSARY FOR A REPRESENTATIVE OF MR. GARRARD TO VISIT NEW ORLEANS AND OBTAIN THE WAREHOUSE RECEIPTS IN THIS MANNER, SUCH EXPENSE BEING BORNE BY MR. GARRARD BECAUSE OF THE FACT THAT HE DESIRED TO RENDER EVERY ASSISTANCE POSSIBLE BOTH TO OUR MILL FRIENDS AND THE SECRETARY OF AGRICULTURE.

THE RECORD INDICATES THAT 130 BALES OF THE COTTON SOLD WERE LOCATED AT EIGHT DIFFERENT POINTS IN MISSISSIPPI, AND IT IS PRESUMED THE OTHER 70BALES WERE ALREADY IN MEMPHIS, TENN., AT THE TIME THE SALE WAS MADE.

IT IS EVIDENT, NOT ONLY FROM THE STATEMENT ABOVE, BUT FROM THE CONTEMPORARY CORRESPONDENCE, THAT THE FACTS THAT THE COTTON WAS LOCATED AT VARIOUS POINTS,"BADLY SCATTERED; " THAT IT WAS NECESSARY TO CONSOLIDATE IT AT MEMPHIS, THAT THE WAREHOUSE RECEIPTS WERE HELD IN THE FEDERAL RESERVE BANK AT NEW ORLEANS; THAT "THEY ARE NOT SUBJECT TO IMMEDIATE HANDLING BY US, BUT WE MUST FORWARD REQUEST TO THEM AND AWAIT OUR TURN IN OBTAINING FROM THEM, CAUSING DELAYS IN ORDERING OUT; " THAT THE ASSOCIATION HAD BEEN UNABLE ON SEVERAL OCCASIONS IN THE PAST, AND MIGHT BE UNABLE IN THE CASE OF THE SALE HERE UNDER CONSIDERATION, TO OBTAIN THE NECESSARY WAREHOUSE RECEIPTS PROMPTLY, WERE ALL KNOWN TO THE ASSOCIATION AT THE TIME THE SALE TO LAWSON AND CO. WAS UNDERTAKEN. IT MUST HAVE BEEN APPARENT THAT NOT ONLY UNFORESEEN, BUT EVEN ORDINARY DELAYS INCIDENT TO THE TRANSACTION OF THE BUSINESS MIGHT SERVE TO POSTPONE DELIVERY OF THE COTTON. YET, DESPITE THIS, THE ASSOCIATION ENTERED INTO AN UNQUALIFIED COMMITMENT ON AUGUST 31 TO DELIVER, OR CERTAINLY TO SHIP, 200 BALES OF COTTON FOR LAWSON AND CO. ON OR BEFORE SEPTEMBER 10, 1935. SO FAR AS THE RECORD DISCLOSES, THE ASSOCIATION TOOK NO STEPS TO PROTECT ITSELF AGAINST POSSIBLE DELAY, AND THERE IS NO SUGGESTION THAT THERE WAS ANY AGREEMENT OR UNDERSTANDING WITH THE PURCHASER RELATIVE THERETO, OR THAT LAWSON AND CO. AGREED TO ACCEPT DELIVERY OF THE COTTON EXCEPT WITHIN THE SPECIFIED TIME. ON THE CONTRARY, IT APPEARS THAT THE PURCHASERS WERE NOT NOTIFIED THAT THERE WOULD BE DELAY UNTIL SEPTEMBER 13, 1935, 3 DAYS AFTER THE EXPIRATION OF THE SHIPPING PERIOD.

IT IS PLAIN THAT THE AMOUNT INVOLVED, AS IT IS DESIGNATED, REPRESENTS PENALTY AND DAMAGES FOR WHICH GARRARD, THROUGH THE ASSOCIATION, BECAME LIABLE TO LAWSON AND CO. BY REASON OF AN ILL ADVISED, IMPROVIDENT, AND UNAUTHORIZED COMMITMENT TO MAKE DELIVERY OF THE 200 BALES OF COTTON WITHIN A SPECIFIED TIME, WHEN IT WAS OR SHOULD HAVE BEEN KNOWN THAT DELIVERY WITHIN THAT TIME, IF NOT IMPOSSIBLE, WAS, TO SAY THE LEAST, HIGHLY IMPROBABLE.

UNDER THE FACTS PRESENTED THERE APPEARS NO AUTHORITY UNDER THE CONTRACT, OR OTHER LEGAL BASIS, FOR THE ALLOWANCE TO GARRARD OF ANY PART OF THE ITEM OF $530 AS REIMBURSEMENT TO HIM FOR THE PENALTY AND DAMAGES INCURRED. THAT IT WAS NOT A DISBURSEMENT INCIDENT TO PROPERLY RECEIVING, WAREHOUSING, AND INSURING THE COTTON WITHIN THE MEANING OF THE CONTRACT IS PLAIN; THAT IT WAS NOT AN ITEM WHICH HE WOULD BE ENTITLED TO RECEIVE UNDER THE 3-PERCENT COMPENSATION PROVISION OF THE CONTRACT IS OBVIOUS SINCE THE COTTON WAS NOT SOLD, AND NO COMPENSATION WOULD BE DUE UNTIL THE COTTON WAS SOLD AND THE PROCEEDS RECEIVED BY THE COTTON POOL. AS STATED ABOVE, THE ITEM REPRESENTS ONE OF DAMAGES AND PENALTY INCURRED BY GARRARD, OR THE ASSOCIATION AS HIS AGENT, BY REASON OF ENTERING INTO A POSITIVE COMMITMENT FOR THE DELIVERY OF 200 BALES OF COTTON ON THE CHANCE THAT DELIVERY COULD BE MADE WITHIN THE LIMITED TIME SPECIFIED, OR ON THE FURTHER CHANCE THAT THE PURCHASER WOULD ACCEPT A LATER DELIVERY. SUCH A CHANCE WAS A RISK ASSUMED BY GARRARD, AND, UNDER THE SPECIFIC PROVISION OF SECTION 1, PARAGRAPH 4, OF THE CONTRACT, ANY RESULTING LOSS IS NOT LEGALLY CHARGEABLE TO THE GOVERNMENT.

ACCORDINGLY, THE CLAIM IS FOR DISALLOWANCE, AND PREAUDIT ACTION OF NOVEMBER 2, 1936, IN THE PREMISES MUST BE AND IS SUSTAINED.