B-138939, APRIL 24, 1959, 38 COMP. GEN. 719

B-138939: Apr 24, 1959

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CONTRACTS - DELIVERIES - REJECTION - CONTRACTOR'S REFUSAL TO REMOVE OR ACCEPT RETURN - RESALE RIGHT UPON THE REFUSAL OF A CONTRACTOR TO REMOVE OR TO ACCEPT THE RETURN OF MATERIAL WHICH WAS REJECTED BY THE GOVERNMENT FOR FAILURE TO CONFORM TO THE SPECIFICATIONS. PROVIDED THAT THE MATERIAL WAS PROPERLY REJECTED. 1959: REFERENCE IS MADE TO YOUR LETTER OF MARCH 6. CONTRACT GS 08S-11211 WAS AWARDED JUNE 17. AN INITIAL SHIPMENT WAS REJECTED AS BEING CLASS 1 RATHER THAN CLASS 2 AS CALLED FOR BY THE CONTRACT. THE MATERIAL WAS RESHIPPED PURSUANT TO THE CONTRACTOR'S INSTRUCTIONS AND A REPLACEMENT LOT THEREAFTER DELIVERED WAS REJECTED BY THE GOVERNMENT FOR THE SAME REASONS. WAS REFUSED BY THE CONTRACTOR.

B-138939, APRIL 24, 1959, 38 COMP. GEN. 719

CONTRACTS - DELIVERIES - REJECTION - CONTRACTOR'S REFUSAL TO REMOVE OR ACCEPT RETURN - RESALE RIGHT UPON THE REFUSAL OF A CONTRACTOR TO REMOVE OR TO ACCEPT THE RETURN OF MATERIAL WHICH WAS REJECTED BY THE GOVERNMENT FOR FAILURE TO CONFORM TO THE SPECIFICATIONS, THE GOVERNMENT BECAME AN UNWILLING BAILEE WITH THE RIGHT TO RESELL THE REJECTED MATERIAL TO RECOVER STORAGE AND HANDLING COSTS, PROVIDED THAT THE MATERIAL WAS PROPERLY REJECTED.

TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, APRIL 24, 1959:

REFERENCE IS MADE TO YOUR LETTER OF MARCH 6, 1959, AND ACCOMPANYING PAPERS, REQUESTING OUR DECISION AS TO THE GOVERNMENT'S RIGHT TO SELL MATERIAL DELIVERED BY NU-1PAKO PRODUCTS COMPANY, BROOKLYN, NEW YORK, AND REJECTED BY THE GOVERNMENT UNDER A SUPPLY CONTRACT, IN SATISFACTION OF STORAGE AND OTHER COSTS, THE CONTRACTOR HAVING REFUSED TO REMOVE SUCH REJECTED MATERIAL OR TO OTHERWISE DISPOSE OF IT.

IT APPEARS FROM THE INFORMATION SUBMITTED THAT THE FOLLOWING INFORMAL SOLICITATION BY THE DENVER FEDERAL CENTER OF BIDS FOR DELIVERING WITHIN 30 DAYS F.O.B., DENVER, COLORADO, 60 ROLLS OF GRADE C, TYPE I, CLASS 2, FLEXIBLE GREASE-PROOF BARRIER MATERIAL, CONTRACT GS 08S-11211 WAS AWARDED JUNE 17, 1957, TO THE LOW BIDDER, NU-1PAKO PRODUCTS COMPANY (BY MUTUAL AGREEMENT INCREASED TO 66 ROLLS) AT $18 A ROLL OR A TOTAL CONTRACT PRICE OF $1,188, DELIVERED. AN INITIAL SHIPMENT WAS REJECTED AS BEING CLASS 1 RATHER THAN CLASS 2 AS CALLED FOR BY THE CONTRACT. THE MATERIAL WAS RESHIPPED PURSUANT TO THE CONTRACTOR'S INSTRUCTIONS AND A REPLACEMENT LOT THEREAFTER DELIVERED WAS REJECTED BY THE GOVERNMENT FOR THE SAME REASONS. THE CONTRACTOR HAS CONTINUALLY DISPUTED THE REJECTION OF THE MATERIAL ON THE GROUND THAT IT BID ON CLASS 1 MATERIAL, AND TOWARD THE END OF THE EXTENDED DISPUTE WOULD NOT ACKNOWLEDGE LETTERS AND REFUSED TO SIGN FOR REGISTERED AND CERTIFIED MAIL. RECEIPT OF A DECISION BY THE CONTRACTING OFFICER DATED OCTOBER 31, 1957, UNDER PARAGRAPH 12," DISPUTES" OF THE GENERAL PROVISIONS, STANDARD FORM 32, 1949 EDITION, INCORPORATED INTO THE CONTRACT, SENT TO IT BY CERTIFIED MAIL, WAS REFUSED BY THE CONTRACTOR.

FOLLOWING THE CONTRACTOR'S REFUSAL TO ANSWER OR TO ACKNOWLEDGE CORRESPONDENCE REPEATEDLY DEMANDING REMOVAL OF THE REJECTED MATERIAL, THE REGIONAL OFFICE DETERMINED THAT THE PROPER COURSE WAS TO SELL IT FOR STORAGE CHARGES AND EXCESS COSTS WHICH HAD ACCRUED AGAINST THE CONTRACTOR. THE CONTRACTOR WAS SO NOTIFIED BY CERTIFIED LETTER DATED JANUARY 16, 1958, WHICH THE CONTRACTOR REFUSED TO ACCEPT.

THE SALE WAS ACCOMPLISHED UNDER SEALED BIDS TO THE HIGH BIDDER FOR $72.22 AND THE MATERIAL HAS BEEN DELIVERED AND PRESUMABLY LARGELY CONSUMED. EXCESS COSTS OF $63.10 AND HANDLING AND STORAGE CHARGES FOR THE MONTHS OF OCTOBER, NOVEMBER, AND DECEMBER, 1957, AND FOR JANUARY 1958 HAD ACCRUED IN THE SUM OF $26 AT THE TIME OF SALE, MAKING A TOTAL OF $89.10 CLAIMED BY THE REGIONAL OFFICE TO BE DUE THE GOVERNMENT. THE CONTRACT IS SILENT WITH RESPECT TO THE DISPOSITION OF MATERIAL REJECTED BUT NOT REMOVED BY THE CONTRACTOR.

SUBSEQUENT TO THE SALE, THE CONTRACTOR DEMANDED IN HIS LETTER OF OCTOBER 28, 1958, THAT THE GOVERNMENT PAY THE SUM OF $3,798 FOR THE MATERIAL DELIVERED UNDER THE CONTRACT, OR IN THE ALTERNATIVE, SUGGESTED THAT "ALL THE ROLLS OF GREASE-PROOF WE SOLD YOU, LOCATED IN YOUR WAREHOUSE OR ELSEWHERE," BE RETURNED UPON CONDITION THAT THE CONTRACTOR BE PERMITTED TO SELL IT AND FILE CLAIM FOR ANY LOSS.

IT IS RECOGNIZED IN YOUR LETTER THAT THE GOVERNMENT DID NOT ACQUIRE TITLE TO THE MATERIAL IN QUESTION, BUT IT IS CONTENDED THAT THE GOVERNMENT IS PRESUMABLY ENTITLED TO SOME RECOMPENSE FOR STORAGE AND OTHER COSTS. YOUR REGIONAL COUNSEL URGES THAT THE GOVERNMENT HAD A RIGHT TO SELL ON THE USUAL WAREHOUSEMAN'S AUTHORITY TO SELL STORED MATERIAL FOR THE PAYMENT OF STORAGE CHARGES, BUT YOU STATE YOUR AGENCY ORDINARILY DOES NOT REGARD ITSELF AS BEING IN THE WAREHOUSE BUSINESS.

YOU SUGGEST "THAT THE RIGHT SO TO SELL MAY WELL BE AN INHERENT ONE POSSESSED BY ANY SOVEREIGN, EVEN IN A RELATIVELY COMMERCIAL CAPACITY.' HOWEVER, WE CAN FIND NO SUPPORT FOR THIS VIEW. ON THE CONTRARY, THE COURTS HAVE HELD THAT GENERALLY NO DIFFERENT CONSTRUCTION AND EFFECT MAY BE GIVEN TO THE GOVERNMENT'S ACTIONS UNDER ITS CONTRACTS FROM THOSE APPLICABLE TO CONTRACTS BETWEEN INDIVIDUALS. SEE SMOOT V. UNITED STATES, 82 U.S. 36; COOKE V. UNITED STATES, 91 U.S. 389; UNITED STATES V. BOSTWICK, 94 U.S. 53; AND PERRY V. UNITED STATES, 294 U.S. 330. IN THE LAST-CITED CASE THE COURT STATED AT PAGE 352 THAT:

WHEN THE UNITED STATES, WITH CONSTITUTIONAL AUTHORITY, MAKES CONTRACTS, IT HAS RIGHTS AND INCURS RESPONSIBILITIES SIMILAR TO THOSE OF INDIVIDUALS WHO ARE PARTIES TO SUCH INSTRUMENTS. THERE IS NO DIFFERENCE SAID THE COURT IN UNITED STATES V. BANK OF THE METROPOLIS, 15 PET. 377, 392, EXCEPT THAT THE UNITED STATES CANNOT BE SUED WITHOUT ITS CONSENT. SEE ALSO, THE FLOYD ACCEPTANCES, 7 WALL. 666, 675; COOKE V. UNITED SATES, 91 U.S. 389, 396.

WITH RESPECT TO THE STORAGE CHARGES CLAIMED, THERE WAS NO PROVISION IN THE CONTRACT EXPRESSLY PROVIDING FOR THEIR ASSESSMENT AND COLLECTION AND THE REFUSAL OF THE CONTRACTOR TO ACCEPT THE NOTICE OF JANUARY 16, 1958, DID NOT NECESSARILY CREATE A CONTRACT TO PAY THE CHARGES CLAIMED BY THE GOVERNMENT. SEE BOWLEY V. FULLER, MAINE SUPREME JUDICIAL COURT, 115 A. 466, AND THE CASES IN THE ANNOTATION, 24 ALR 958. NOR DOES IT APPEAR, AS INDICATED IN YOUR LETTER, THAT YOUR AGENCY ACQUIRED WAREHOUSEMAN'S LIEN UNDER THE REPORTED CIRCUMSTANCES.

WHEN THE CONTRACTOR REFUSED TO REMOVE IT, THE GOVERNMENT APPARENTLY BECAME AN UNWILLING BAILEE OF THE REJECTED MATERIAL. IN CONSIDERING A CASE INVOLVING SIMILAR CIRCUMSTANCES, IT WAS HELD BY THE CIRCUIT COURT OF APPEALS, 2D CIRCUIT, MAY 26, 1897, IN RUBIN V. STURTEVANT, 80 F. 930, THAT WHEN A VENDEE IN AN EXECUTORY CONTRACT OF SALE RESCINDS THE CONTRACT AND RETURNS THE GOODS BECAUSE THEY DO NOT CORRESPOND TO A WARRANTY, BUT THE VENDOR REFUSES TO RECEIVE THEM, IT IS PROPER, IF NOT OBLIGATORY, FOR A VENDEE TO TAKE SUCH MEASURES AS ARE EXPEDIENT TO SAVE UNNECESSARY LOSS TO THE VENDOR, IN WHICH EVENT THE VENDEE IS ENTITLED TO STORAGE CHARGES AND OTHER REASONABLE EXPENSES, AND IT IS MORE EXPEDIENT TO SELL THE GOODS, THE VENDEE MAY DO SO, AND HE THEREBY BECOMES RESPONSIBLE ONLY FOR THE PROCEEDS. CF. BURROUGH V. ELY, SUPREME COURT OF APPEALS OF WEST VIRGINIA, NOVEMBER 14, 1903, 46 S.E. 371. THIS REMEDY HAS ALSO BEEN RECOGNIZED IN OTHER JURISDICTIONS, AND PARTICULARLY IN CASES ARISING UNDER THE UNIFORM SALES ACT WHICH HAS BEEN ADOPTED BY A MAJORITY OF THE STATES, INCLUDING COLORADO AND NEW YORK, THE CONTRACTOR'S PLACE OF BUSINESS. SEE SECTION 69 (5) (D) OF THE ACT WHICH DEALS EXPRESSLY WITH THE RIGHT OF RESALE BY THE BUYER WHERE THERE HAS BEEN A BREACH OF WARRANTY; WILSON V. WERK, OHIO SUPREME COURT, APRIL 11, 1922, 136 N.E. 202; AND THE CASES COLLECTED IN THE ANNOTATION, 24 ALR 1445. SEE, ALSO, GANT V. CUTTING-LARSON, MUNICIPAL COURT OF MANHATTAN, NEW YORK, DECEMBER 1919, 181 N.Y.S. 581; CANNON V. CHADWELL, COURT OF APPEALS OF TENNESSEE, NOVEMBER 30, 1940, 150 S.W. 2D, 710, 713; GARBARK V. NEWMAN, SUPREME COURT OF NEBRASKA, JANUARY 18, 1952, 51 N.W. 2D 315, 325; UNION PIPE AND MACHINERY V. LURIA STEEL AND TRADING CORPORATION, UNITED STATES COURT OF APPEALS, 6TH CIRCUIT, SEPTEMBER 20, 1955, 225 F. 2D 829, 835; NORTH AMERICAN CONTRACTING CORPORATION V. HALEY, MUNICIPAL COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA, APRIL 15, 1958, 140 A. 2D 314; AND HELLER V. HAMMOND, SUPREME COURT OF NEW JERSEY, APPELLATE DIVISION, NOVEMBER 3, 1958, 145 A.2D 499, 503.

IT SEEMS REASONABLY CLEAR, THEREFORE, THAT ON THE BASIS OF THE INFORMATION YOU HAVE SUBMITTED THE RIGHT TO RESELL THE REJECTED MATERIAL UPON REFUSAL OF THE CONTRACTOR TO REMOVE IT OR TO ACCEPT ITS RETURN WAS AN ALTERNATIVE REMEDY WHICH WAS AVAILABLE TO THE REGIONAL OFFICER PROVIDED, OF COURSE, THE MATERIAL WAS PROPERLY REJECTED. IT IS SUGGESTED THAT CONSIDERATION BE GIVEN BY YOUR ADMINISTRATION TO AN APPROPRIATE REVISION OF THE GENERAL PROVISIONS OF STANDARD FORM 32, WHICH WILL CLARIFY THE DISPOSITION TO BE MADE OF REJECTED SUPPLIES IN SUCH SITUATIONS.