B-158787, JUN. 17, 1966, 45 COMP. GEN. 805

B-158787: Jun 17, 1966

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

CONTRACTS - DELIVERIES - PRO RATA BASIS - PROPRIETY A CONTRACTOR WHO UNABLE TO MEET DELIVERY COMMITMENTS DUE TO ADVERSE WEATHER CONDITIONS AFFECTING PRODUCTION PRORATES DELIVERIES AMONG ALL ITS CUSTOMERS IS NOT LIABLE TO THE GOVERNMENT FOR FAILURE TO MAKE COMPLETE DELIVERY. CONTRACTS - PERFORMANCE - IMPOSSIBILITY - WEATHER CONDITIONS THE FACT THAT IF PROPERLY MANAGED A CROP AVAILABLE PRIOR TO A FREEZE WOULD HAVE PERMITTED A CONTRACTOR TO PERFORM UNDER A GOVERNMENT CONTRACT DOES NOT IMPOSE DEFAULT LIABILITY FOR DELIVERY FAILURE. IT WOULD BE IMPROPER TO CONSIDER THAT THE CONTRACTOR SHOULD HAVE PERFORMED THE CONTRACT BY HARVESTING A CROP OTHER THAN THE ONE INTENDED AT AN EARLIER TIME. CONTRACTS - DAMAGES - MEASURE - ACTUAL AND EXCESS COMMODITY COSTS THE MEASURE OF DAMAGES FOR AN UNEXCUSABLE CONTRACT DEFAULT UNDER A CONTRACT PROVIDING FOR ACTUAL DAMAGES DUE TO DELAY OR FAILURE TO DELIVER AND FOR EXCESS COSTS INCURRED IN PROCURING THE PRODUCT OR ANY PART OF IT ELSEWHERE IS NOT ONLY THE EXCESS COMMODITY COSTS INCURRED IN REPURCHASING THE PRODUCT.

B-158787, JUN. 17, 1966, 45 COMP. GEN. 805

CONTRACTS - DELIVERIES - PRO RATA BASIS - PROPRIETY A CONTRACTOR WHO UNABLE TO MEET DELIVERY COMMITMENTS DUE TO ADVERSE WEATHER CONDITIONS AFFECTING PRODUCTION PRORATES DELIVERIES AMONG ALL ITS CUSTOMERS IS NOT LIABLE TO THE GOVERNMENT FOR FAILURE TO MAKE COMPLETE DELIVERY, EVEN THOUGH THE CONTRACT DID NOT PROVIDE FOR PRORATION, ABSENT A PROVISION IN THE CONTRACT TO CONFIRM GENERAL INFORMATION TO THE TRADE THAT PRO RATA DELIVERIES WOULD NOT BE ACCEPTED, AND THE CONTRACTOR WITHIN HIS RIGHTS TO RELY ON THE GENERAL PRINCIPLE OF LAW REQUIRING PRORATION AMONG CONTRACTING PARTIES WHEN EXPECTED PRODUCTION FAILS FOR CAUSES BEYOND CONTROL MAY BE RELIEVED OF LIABILITY. CONTRACTS - PERFORMANCE - IMPOSSIBILITY - WEATHER CONDITIONS THE FACT THAT IF PROPERLY MANAGED A CROP AVAILABLE PRIOR TO A FREEZE WOULD HAVE PERMITTED A CONTRACTOR TO PERFORM UNDER A GOVERNMENT CONTRACT DOES NOT IMPOSE DEFAULT LIABILITY FOR DELIVERY FAILURE, THE CONTRACTOR INTENDING TO USE THE CROP WHICH FROZE IN THE PERFORMANCE OF THE CONTRACT, AND ENTITLED AS A MATTER OF LAW TO ANTICIPATE NORMAL PRODUCTION FROM PLANTINGS, IT WOULD BE IMPROPER TO CONSIDER THAT THE CONTRACTOR SHOULD HAVE PERFORMED THE CONTRACT BY HARVESTING A CROP OTHER THAN THE ONE INTENDED AT AN EARLIER TIME; THEREFORE, THE CONTRACTOR MAY BE RELIEVED OF THE DAMAGES ASSESSED. CONTRACTS - DAMAGES - MEASURE - ACTUAL AND EXCESS COMMODITY COSTS THE MEASURE OF DAMAGES FOR AN UNEXCUSABLE CONTRACT DEFAULT UNDER A CONTRACT PROVIDING FOR ACTUAL DAMAGES DUE TO DELAY OR FAILURE TO DELIVER AND FOR EXCESS COSTS INCURRED IN PROCURING THE PRODUCT OR ANY PART OF IT ELSEWHERE IS NOT ONLY THE EXCESS COMMODITY COSTS INCURRED IN REPURCHASING THE PRODUCT, BUT, ALSO, AS ACTUAL DAMAGES, THE ADDITIONAL ADMINISTRATIVE COSTS BROUGHT ABOUT BY THE NECESSITY FOR SOLICITING NEW OFFERS, AND THE FACT THAT AN EXACT ASSESSMENT OF DAMAGES MAY BE DIFFICULT TO ASCERTAIN BECAUSE AT THE TIME OF THE DEFAULT THE ARTICLES IN DEFAULT CANNOT BE PURCHASED IN THE OPEN MARKET DOES NOT DESTROY THE RIGHT TO RECOVER DAMAGES AS WELL FOR THAT PART OF THE CONTRACT WHICH CANNOT BE REPLACED.

TO THE SECRETARY OF AGRICULTURE, JUNE 17, 1966:

REFERENCE IS MADE TO LETTER OF MARCH 24, 1966, FROM THE ASSISTANT SECRETARY FOR ADMINISTRATION REQUESTING A DECISION REGARDING THE ASSESSMENT OF DAMAGES AGAINST THE KRIER PRESERVING COMPANY AND THE FRUITLAND CANNING ASSOCIATION, INC; FOR DEFAULTING UNDERCONTRACTS 12-25 010-11740 AND 12-25-010-11724, RESPECTIVELY, TO FURNISH CANNED WHOLE KERNEL CORN FOR THE NATIONAL SCHOOL LUNCH PROGRAM.

ARTICLE 28 OF THE CONTRACT TERMS PROVIDES:

IF CONTRACTOR REFUSES OR FAILS TO PERFORM THE CONTRACT WITHIN THE TIME SPECIFIED, OR ANY EXTENSION THEREOF, USDA MAY, BY WRITTEN NOTICE, TERMINATE THE RIGHT OF CONTRACTOR TO PROCEED WITH DELIVERY OR WITH SUCH PART OR PARTS THEREOF AS TO WHICH THERE HAS BEEN DELAY AND, WHETHER OR NOT SUCH NOTICE OF TERMINATION IS GIVEN, MAY HOLD CONTRACTOR FOR THE AMOUNT OF ANY DAMAGES PROVIDED FOR IN THE ANNOUNCEMENT OR, IF PROVISION FOR DAMAGES IS NOT MADE IN THE ANNOUNCEMENT, FOR ANY ACTUAL DAMAGES SUFFERED AS A RESULT OF DELAY OR FAILURE TO DELIVER AND ANY EXCESS COSTS INCURRED IN PROCURING ELSEWHERE THE PRODUCT OR ANY PART THEREOF. HOWEVER, CONTRACTOR SHALL NOT BE CHARGED WITH ANY SUCH DAMAGES OR COSTS IF HE GIVES USDA PROMPT WRITTEN NOTICE OF SUCH DELAY AND THE CAUSE THEREOF, AND IF THE CONTRACTING OFFICER OR OTHER DESIGNEE OF USDA DETERMINES IN WRITING THAT THE DELAY IS DUE SOLELY TO CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF CONTRACTOR OR A SUBCONTRACTOR. SUCH CAUSES MAY INCLUDE, BUT ARE NOT RESTRICTED TO, ACTS OF GOD OR OF THE PUBLIC ENEMY, ACTS OF THE GOVERNMENT, FIRES, FLOODS, EPIDEMICS, QUARANTINE RESTRICTIONS, STRIKES, FREIGHT EMBARGOES, UNUSUALLY SEVERE WEATHER, AND DEFAULTS OF SUBCONTRACTORS DUE TO ANY OF SUCH CAUSES, UNLESS USDA SHALL DETERMINE THAT THE SUPPLIES OR SERVICES TO BE FURNISHED BY THE SUBCONTRACTOR WERE OBTAINABLE FROM OTHER SOURCES IN SUFFICIENT TIME TO PERMIT CONTRACTOR TO MEET THE REQUIRED DELIVERY SCHEDULE. WRITTEN NOTICE OF SUCH DETERMINATION SHALL BE GIVEN TO CONTRACTOR AND SHALL BE FINAL AND CONCLUSIVE UPON THE PARTIES, SUBJECT ONLY TO APPEAL BY CONTRACTOR AS PROVIDED IN ARTICLE 41 IN THIS DOCUMENT.

ARTICLE 41 REFERRED TO IN THE LAST PART OF ARTICLE 28 IS THE "DISPUTES" CLAUSE. IT PROVIDES THAT ANY DISPUTE CONCERNING A QUESTION OF FACT ARISING OUT OF THE CONTRACT SHALL BE DECIDED BY THE CONTRACTING OFFICER AND SUCH DECISION SHALL BE FINAL AND CONCLUSIVE UNLESS APPEALED TO THE SECRETARY OF AGRICULTURE WITHIN 30 DAYS. THE ARTICLE PROVIDES FURTHER THAT THE DECISION OF THE SECRETARY OR HIS AUTHORIZED REPRESENTATIVE SHALL BE FINAL AND CONCLUSIVE UNLESS DETERMINED BY A COURT OF COMPETENT JURISDICTION TO HAVE BEEN FRADULENT, OR CAPRICIOUS, OR ARBITRARY, OR SO GROSSLY ERRONEOUS AS TO IMPLY BAD FAITH, OR NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. THE ARTICLE ALSO STATES THAT CONSIDERATION OF QUESTIONS OF LAW IN CONNECTION WITH DECISIONS PROVIDED FOR IN THE ARTICLE IS NOT PRECLUDED BUT THE DECISION IS NOT FINAL.

BOTH CONTRACTORS ENCOUNTERED ADVERSE WEATHER CONDITIONS IN THE PERFORMANCE OF THE CONTRACTS. THEY APPLIED TO THE CONTRACTING OFFICER FOR RELIEF FROM LIABILITY FOR NOT FURNISHING THE UNCOMPLETED PORTION OF THE CONTRACTS.

THE CONTRACTING OFFICER DECIDED THAT KRIER SHOULD NOT BE RELIEVED FROM LIABILITY FOR NOT DELIVERING 19,378 CASES OF CORN BECAUSE, DESPITE THE UNUSUALLY SEVERE WEATHER IT ENCOUNTERED, IT PRODUCED MORE CANNED CORN THAN IT NEEDED TO MEET THE 50,000 CASES CALLED FOR IN THE CONTRACT AND THE FAILURE TO FURNISH ALL OF THAT QUANTITY WAS DUE TO ITS DECISION TO PRORATE DELIVERIES AMONG ALL ITS CUSTOMERS WHEN IT UNABLE TO MEET ALL OF ITS COMMITMENTS AS A RESULT OF THE WEATHER. THE CONTRACTING OFFICER RECOGNIZED THAT, WHILE PRORATED DELIVERIES MAY BE CUSTOMARY IN THE TRADE WHEN ADVERSE CONDITIONS AFFECT PRODUCTION, THE CONTRACT WITH THE GOVERNMENT DID NOT PROVIDE FOR PRORATION. MOREOVER, IT IS STATED IN THE LETTER FROM THE ASSISTANT SECRETARY THAT THE DEPARTMENT OF AGRICULTURE HAS TAKEN THE POSITION AND THE TRADE HAS BEEN GENERALLY INFORMED THAT PRO RATA DELIVERIES WILL NOT BE ACCEPTED.

THE CONTRACTING OFFICER DECIDED THAT THE FAILURE OF FRUITLAND TO DELIVER THE 5,603 BALANCE OF THE 6,600 CASES OF CORN CONTRACTED FOR WAS NOT DUE SOLELY TO CAUSES BEYOND ITS CONTROL, BECAUSE IT HAD CORN AVAILABLE PRIOR TO THE FREEZE WHICH IF PROPERLY MANAGED COULD HAVE BEEN HARVESTED TO MEET THE CONTRACT REQUIREMENTS.

THREE QUESTIONS REGARDING THE ABOVE MATTERS ARE PRESENTED TO OUR OFFICE FOR CONSIDERATION. FIRST, THE QUESTION OF KRIER'S LIABILITY FOR FAILURE TO DELIVER THE TOTAL CONTRACT QUANTITY IS PRESENTED IN VIEW OF THE PRINCIPLE OF LAW REQUIRING PRORATION OF THE CROP PRODUCED AMONG CONTRACTING PARTIES WHERE THE EXPECTED PRODUCTION FAILS FOR CAUSES BEYOND THE CONTROL OF THE GROWER, CITING HALEY V. VAN LIEROP, 64 F.SUPP. 114, AFFIRMED 153 F.2D 212. SECOND, THERE IS PRESENTED THE QUESTION WHETHER THE CONTRACTING OFFICER'S INTERPRETATION IN THE FRUITLAND DECISION OF THE CONTRACT LANGUAGE "DUE SOLELY TO CAUSES BEYOND THE CONTROL AND WITHOUT THE FAULT OR NEGLIGENCE OF CONTRACTOR" CAN BE SUSTAINED AS MATTER OF LAW. FINALLY, WE ARE ADVISED THAT IN AN EFFORT TO OBTAIN THE 24,981 CASES OF CORN WHICH WERE NOT DELIVERED UNDER THE TWO UNCOMPLETED CONTRACTS, THE DEPARTMENT SOLICITED OFFERS FOR SUPPLYING THAT QUANTITY AND ONLY ONE OFFER OF 2,095 CASES WAS RECEIVED AND PURCHASED AND THE BALANCE OF 22,886 CASES WILL REMAIN UNFILLED AND THE ADDITIONAL FREIGHT AND COMMODITY COST OF $2,487.99 INCURRED BY REASON OF THE REPLACEMENT PURCHASE WILL BE PRORATED BETWEEN THE TWO CONTRACTORS ON THE BASIS OF THE PERCENT OF THE TOTAL UNDELIVERED QUANTITY ATTRIBUTABLE TO EACH. WE ARE ASKED WHETHER THIS ALONE WILL BE SUFFICIENT IN VIEW OF THE HOLDING IN 34 COMP. GEN. 347 THAT, WHERE NO PURCHASE IS MADE TO REPLACE THE DELIVERIES WHICH ARE IN DEFAULT, THE MEASURE OF DAMAGES IS THE DIFFERENCE BETWEEN THE CONTRACT PRICE AND THE MARKET VALUE AT THE TIME OF BREACH. IT IS SUGGESTED THAT IT SHOULD BE SUFFICIENT BECAUSE AN ATTEMPT TO REPURCHASE WAS MADE AND THERE WAS LITTLE TRADING CARRIED ON AT THE TIME OF BREACH, SO THAT A TRUE MARKET PICTURE WAS UNOBTAINABLE. IN THAT CONNECTION, IT IS STATED THAT THE PUBLICATION, CANNING TRADE, IN EARLY OCTOBER, QUOTED F.O.B. PRICES FOR GRADE "A" WHOLE KERNEL CORN AT $4.25 TO $4.50 PER CASE OF SIX NO. 10 SIZE CANS AT MIDWESTERN POINTS, BUT LITTLE CORN WAS OFFERED AT THAT TIME, BECAUSE PROCESSORS HAD EITHER SOLD THEIR PRODUCTION OR WERE HOLDING FOR HIGHER PRICES. IT IS STATED FURTHER THAT PRICES OF WHOLE KERNEL CORN ADVANCED STEADILY DURING THE FALL AND WINTER MONTHS OF 1965-1966 AND THAT DURING FEBRUARY QUOTATIONS OF $5.375 TO $5.50 PER CASE WERE REPORTED.

IN THE HALEY CASE CITED ABOVE, THE COURT SAID:

A GROWER IS ENTITLED AS A MATTER OF LAW TO ANTICIPATE NORMAL PRODUCTION FROM HIS PLANTINGS AND TO MAKE ADVANCE CONTRACTS IN ANTICIPATION OF THAT PRODUCTION. IN CASES WHERE SUCH CONTRACTS ARE MADE IN GOOD FAITH AND NORMALLY EXPECTED PRODUCTION FAILS FOR CAUSES BEYOND THE CONTROL OF THE GROWER, HE IS PROTECTED AGAINST LIABILITY FOR DAMAGES, PROVIDED HE MAKES JUST AND EQUITABLE DISTRIBUTION OF THE CROP ACTUALLY PRODUCED, PRO RATA, AMONG THE CONTRACTING PARTIES. 64 F.SUPP. 114, 117. SEE ALSO THE NOTE AT 74 A.L.R. 995, 997, WHEREIN IT IS STATED:

BUT WHERE THE SELLER HAS ASSUMED A QUALIFIED, AND NOT AN ABSOLUTE, OBLIGATION, AND THE CONDITIONS AGAINST WHICH HE HAS CONTRACTED ARE PRESENT, THE DOCTRINE OF PRO RATA PERFORMANCE BECOMES APPLICABLE, AND THE SELLER HAS NOT ONLY THE RIGHT, BUT IS DUTY BOUND, TO DISTRIBUTE HIS AVAILABLE SUPPLY PROPORTIONATELY AMONG HIS CONTRACT CUSTOMERS. IN OTHER WORDS, IN CASE A CONTRACTOR, BECAUSE OF EXCUSABLE IMPOSSIBILITY OR OTHER LEGAL DEFENSE, IS UNABLE TO FULFILL ALL OF NUMBER OF SIMILAR OBLIGATIONS AND YET CAN FULFILL ANY ONE OF THESE OBLIGATIONS IF HE TOTALLY DISREGARDS THE OTHERS, HE MAY APPORTION THE POSSIBLE PERFORMANCE PRO RATA AMONG THE SEVERAL CONTRACTS AND BE EXCUSED FROM FURTHER LIABILITY.

IN VIEW OF THE STATEMENTS IN THE HALEY CASE AND IN THE A.L.R. NOTE, IT APPEARS THAT KRIER IS ENTITLED TO AVAIL ITSELF OF THE DEFENSE OF PRO RATA DELIVERIES. WHILE THE DEPARTMENT MAY HAVE GENERALLY INFORMED THE TRADE THAT PRO RATA DELIVERIES WILL NOT BE ACCEPTED, THERE IS NO EXPRESS PROVISION IN THE CONTRACT MAKING THAT POLICY A PART OF THE CONTRACT AND IT WOULD THEREFORE APPEAR THAT KRIER WOULD BE WITHIN ITS RIGHT TO RELY UPON THE GENERAL LAW.

FROM THE INFORMATION FURNISHED CONCERNING THE FRUITLAND MATTER, IT APPEARS THAT, WHILE THE CONTRACTOR MIGHT HAVE BEEN ABLE TO USE CORN OTHER THAN THE CORN WHICH FROZE IF IT HAD NOT PERMITTED IT TO REACH ADVANCED STAGES OF MATURITY BEFORE THE FREEZE, THE CONTRACTOR HAD INTENDED TO USE THE CROP WHICH FROZE FOR THE IMMEDIATE CONTRACT. WHILE IT MIGHT BE SAID WITH THE BENEFIT OF HINDSIGHT THAT THE CONTRACTOR SHOULD HAVE EMPLOYED SOME OTHER PLAN, AS OBSERVED IN THE HALEY CASE, ABOVE, A CONTRACTOR IS ENTITLED AS A MATTER OF LAW TO ANTICIPATE NORMAL PRODUCTION FROM ITS PLANTINGS. THAT BEING THE CASE AND SINCE IT APPEARS THAT THE CONTRACTOR INTENDED TO USE IN THE PERFORMANCE OF THE CONTRACT THE CROP WHICH FROZE, IT WOULD BE IMPROPER AS A MATTER OF LAW TO CONSIDER THAT THE CONTRACTOR SHOULD HAVE PERFORMED THE CONTRACT BY HARVESTING ANOTHER CROP AT AN EARLIER TIME.

IT THEREFORE APPEARS THAT KRIER AND FRUITLAND ARE ENTITLED TO BE RELIEVED OF LIABILITY FOR THEIR DEFAULTS. WHILE BECAUSE OF THIS CONCLUSION IT IS NOT NECESSARY TO CONSIDER THE MEASURE OF DAMAGES FOR DEFAULT, FOR FUTURE GUIDANCE, ATTENTION IS INVITED TO THE FACT THAT WHERE THERE IS AN UNEXCUSABLE DEFAULT UNDER A CONTRACT UTILIZING ARTICLE 28, QUOTED ABOVE, THE CONTRACTOR IS NOT ONLY LIABLE FOR EXCESS COMMODITY COSTS INCURRED IN REPURCHASING, BUT ALSO, AS ACTUAL DAMAGES, THE ADDITIONAL ADMINISTRATIVE COSTS BROUGHT ABOUT BY THE NECESSITY FOR SOLICITING NEW OFFERS. FURTHER, THE MERE FACT THAT AN EXACT ASSESSMENT OF DAMAGES MAY BE DIFFICULT TO ASCERTAIN BECAUSE AT THE TIME OF DEFAULT ALL THE ARTICLES IN DEFAULT CANNOT BE PURCHASED IN THE OPEN MARKET DOES NOT DESTROY THE RIGHT TO RECOVER DAMAGES AS WELL FOR THAT PART WHICH CANNOT BE REPLACED. SEE PARROTT V. ALLISON, 145 F.2D 415, AND 78 C.J.S. SALES SECTION 549.