B-166456, APR. 8, 1969

B-166456: Apr 8, 1969

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TO WALTER ENGLISH COMPANY: REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 28. CONTRACTS (CONTRACTORS) SHALL MAKE SHIPMENTS ON PREPAID UNIFORM STRAIGHT BILLS OF LADING AND USDA WILL REIMBURSE CONTRACTORS FOR TRANSPORTATION AS PROVIDED IN ARTICLE 24 OF FORM FV-1.'. IT IS REPORTED THAT 39 CASES OF PLUMS SHIPPED IN B AND O CAR NO. 298288. WERE DAMAGED AND REJECTED TO THE CARRIER BY THE CONSIGNEE ON DECEMBER 2. WAS PREPARED BY THE CONSIGNEE ON DECEMBER 10 AND SIGNED BY THE CARRIER'S AGENT ON DECEMBER 17. YOU WERE NOTIFIED OF THE DAMAGES ON JANUARY 18. AS THE RESULT OF THIS COMPLAINT AN INVESTIGATION WAS UNDERTAKEN BY AN AUDITOR OF THE OIG. CANS OF PURPLE PLUMS AND TOMATO PASTE LABELED AS GOVERNMENT DONATED COMMODITIES WERE OFFERED FOR SALE BY THE GOPHER LUMBER AND SUPPLY COMPANY.

B-166456, APR. 8, 1969

TO WALTER ENGLISH COMPANY:

REFERENCE IS MADE TO YOUR LETTER OF FEBRUARY 28, 1969, TRANSMITTED TO OUR OFFICE BY CONGRESSMAN SAMUEL L. DEVINE, REQUESTING REVIEW OF OUR DECISION OF SEPTEMBER 16, 1968, DISALLOWING YOUR CLAIM FOR REFUND OF $150, THE AMOUNT DEDUCTED FROM MONIES DUE YOU AS LIQUIDATED DAMAGES ASSESSED UNDER CONTRACT NO. 12-25-010-10638, BY THE DEPARTMENT OF AGRICULTURE.

THE RECORD SHOWS THAT ON SEPTEMBER 11, 1964, THE AGRICULTURE MARKETING SERVICE ACCEPTED YOUR OFFER TO SELL 30,000 CASES OF CANNED PURPLE PLUMS PURSUANT TO ANNOUNCEMENT FV-360, DATED AUGUST 25, 1964, FOR SCHOOL LUNCH DISTRIBUTION BY THE DEPARTMENT. THE ANNOUNCEMENT INCLUDED A PROVISION THAT -- "PRICES SHOWN IN OFFERS SHALL BE ON THE BASIS OF F.O.B. CARS OR TRUCKS AT SHIPPING POINT. DELIVERY, HOWEVER, SHALL BE MADE AT DESTINATIONS TO BE SPECIFIED BY USDA. CONTRACTS (CONTRACTORS) SHALL MAKE SHIPMENTS ON PREPAID UNIFORM STRAIGHT BILLS OF LADING AND USDA WILL REIMBURSE CONTRACTORS FOR TRANSPORTATION AS PROVIDED IN ARTICLE 24 OF FORM FV-1.'

IT IS REPORTED THAT 39 CASES OF PLUMS SHIPPED IN B AND O CAR NO. 298288, CONSIGNED TO GORDON W. GUNDERSON, DIRECTOR, SCHOOL LUNCH PROGRAMS, C/O ELLSWORTH ROBINSON, ROBINSON TRANSFER COMPANY, LA CROSSE, WISCONSIN, WITH STOP-OFF AT EAU CLAIRE, WISCONSIN, C/O JOHN R. MACDONALD, SUPERIOR TRANSIT STORAGE CORPORATION, WERE DAMAGED AND REJECTED TO THE CARRIER BY THE CONSIGNEE ON DECEMBER 2, 1964. FORM FD 57, REPORT OF SHIPMENT RECEIVED SHORT AND/OR DAMAGED, WAS PREPARED BY THE CONSIGNEE ON DECEMBER 10 AND SIGNED BY THE CARRIER'S AGENT ON DECEMBER 17, 1964. YOU WERE NOTIFIED OF THE DAMAGES ON JANUARY 18, 1965, AND MADE PAYMENT THEREFOR BY CHECK DATED JANUARY 20, 1965.

IN EARLY 1966 THE OFFICE OF THE INSPECTOR GENERAL, CHICAGO REGIONAL OFFICE, RECEIVED A COMPLAINT FROM A CITIZEN OF ST. CLOUD, MINNESOTA, THAT FOODS DONATED BY THE USDA COULD BE PURCHASED AT THE GOPHER LUMBER AND SUPPLY COMPANY, ST. CLOUD, MINNESOTA. AS THE RESULT OF THIS COMPLAINT AN INVESTIGATION WAS UNDERTAKEN BY AN AUDITOR OF THE OIG. ACCORDING TO THE INFORMATION INCLUDED IN INVESTIGATION REPORT C-130 10, CANS OF PURPLE PLUMS AND TOMATO PASTE LABELED AS GOVERNMENT DONATED COMMODITIES WERE OFFERED FOR SALE BY THE GOPHER LUMBER AND SUPPLY COMPANY. AT THE TIME OF THE AUDITOR'S VISIT TO THE LUMBER COMPANY, THE CANS OF TOMATO PASTE WERE NO LONGER AVAILABLE AND, THEREFORE, THEIR ORIGIN WAS NOT TRACEABLE. HOWEVER, CANS OF PURPLE PLUMS WERE STILL OFFERED FOR SALE WITHOUT THE GOVERNMENT MARKINGS HAVING BEEN OBLITERATED. IT WAS DETERMINED THAT THESE CANS WERE PART OF THOSE PURCHASED BY THE GOVERNMENT FROM YOUR FIRM UNDER CONTRACT NO. 12-25 010-10638 AND THAT THE 39 DAMAGED CASES FROM YOUR SHIPMENT HAD BEEN SHIPPED TO THE CARRIER'S WAREHOUSE ON MARCH 16, 1965, AND STORED THERE UNTIL THEIR SALE TO THE GOPHER LUMBER AND SUPPLY COMPANY.

AS A RESULT THEREOF, YOU WERE ADVISED BY LETTER DATED JANUARY 25, 1967, THAT YOU WERE BEING ASSESSED LIQUIDATED DAMAGES IN THE AMOUNT OF $150 PURSUANT TO PARAGRAPH VIII OF THE ADDITIONAL TERMS AND CONDITIONS OF YOUR CONTRACT, WHICH PROVIDES AS FOLLOWS: "VIII. DISPOSITION OF EXCESS OR REJECTED CONTAINERS AND CASES: CONTRACTOR AGREES THAT HE WILL NOT DISPOSE OF, IN COMMERCIAL FOOD TRADE CHANNELS, ANY CONTAINERS AND CASES, OR ANY REJECTED PRODUCT, WHICH BEAR MARKINGS IDENTIFYING THEM WITH THE CONTRACT. THIS WILL BE ACCOMPLISHED BY (1) COMPLETELY OBLITERATING PRIOR TO THE APPLICATION OF ANY NEW LABELING OR CASE MARKINGS, ALL USDA IDENTIFYING MARKS OR (2) BY DESTROYING THE CONTAINERS AND CASES. FAILURE TO ACCOMPLISH THIS WILL CAUSE SERIOUS AND SUBSTANTIAL DAMAGE TO USDA SINCE IT MAY RESULT IN INVESTIGATIONS REGARDING THE POSSIBILITY OF THE PRODUCT HAVING BEEN DIVERTED TO IMPROPER CHANNELS OF USE AND IN ADVERSE PUBLICITY TO THE PROGRAM. SINCE IT WILL BE DIFFICULT TO PROVE THE AMOUNT OF SUCH DAMAGE, CONTRACTOR SHALL PAY TO USDA BY WAY OF COMPENSATION, AND NOT AS A PENALTY, LIQUIDATED DAMAGES IN THE AMOUNT OF $150.00 IF CONTAINERS AND CASES, OR ANY REJECTED PRODUCT, IDENTIFIED WITH THE CONTRACT ARE DISPOSED OF BY CONTRACTOR IN COMMERCIAL FOOD TRADE CHANNELS WITHOUT FIRST COMPLETELY OBLITERATING ALL USDA IDENTIFYING MARKS.' THIS AMOUNT WAS SUBSEQUENTLY SET-OFF AGAINST MONIES DUE YOU ON ANOTHER CONTRACT AS YOU REFUSED ALL DEMANDS FOR PAYMENT MADE BY THE DEPARTMENT OF AGRICULTURE.

YOUR RESISTENCE TO PAYMENT OF THE LIQUIDATED DAMAGES ASSESSED AGAINST YOU IS BASED PRIMARILY UPON YOUR CONTENTION AS TO WHEN TITLE TO THE PLUMS PASSED TO THE GOVERNMENT AND YOUR INTERPRETATION OF PARAGRAPH VIII QUOTED ABOVE. AS STATED IN YOUR LETTER OF FEBRUARY 28, 1969, TO OUR OFFICE: "* * * THE TERMS OF OUR SALE TO THE GOVERNMENT WERE FOB SHIPPING POINT. * * * WE COMPLETELY LOST CONTROL OF THE PRODUCT WHEN TITLE TO THE PLUMS PASSED TO THE GOVERNMENT AT THE SHIPPING POINT. * * *

* * * * * * * "WE HAD NOTHING TO DO WITH THE HANDLING OF THE GOODS AT DESTINATION; WE DID NOT KNOW THERE WAS ANY DAMAGE IN TRANSIT UNTIL SEVERAL WEEKS LATER. THEN THE U.S.D.A. DID SEND US A REPORT OF THE DAMAGE, AND THE CARRIER'S RECEIPT THEREFOR, SOLELY SO THAT WE MIGHT FILE A CLAIM AND REIMBURSE THE GOVERNMENT, IN ACCORDANCE WITH ARTICLE IX. SUCH WAS THE FULL EXTENT OF OUR RESPONSIBILITY WITH RESPECT TO DAMAGED GOODS. * * *"

WITH REGARD TO INTERPRETATION OF PARAGRAPH VIII, YOU REFER TO THE LANGUAGE THEREIN WHICH STATES THE "CONTRACTOR AGREES THAT HE WILL NOT DISPOSE OF, IN COMMERCIAL FOOD TRADE CHANNELS, ANY CONTAINERS AND CASES, OR ANY REJECTED PRODUCT, WHICH BEAR MARKINGS IDENTIFYING THEM WITH THE CONTRACT" AND LANGUAGE WHICH PROVIDES THAT THE CONTRACTOR SHALL PAY $150 "IF CONTAINERS AND CASES, OR ANY REJECTED PRODUCT, IDENTIFIED WITH THE CONTRACT ARE DISPOSED OF BY CONTRACTOR IN COMMERCIAL FOOD TRADE CHANNELS WITHOUT FIRST COMPLETELY OBLITERATING ALL USDA IDENTIFYING MARKS.' IT IS YOUR POSITION THAT THIS LANGUAGE INDICATES A CONTRACTUAL VIOLATION OCCURS ONLY WHEN THE CONTRACTOR TAKES THE DEFINITE ACTION OF PLACING THE PRODUCT INTO COMMERCIAL CHANNELS. IN THIS CONNECTION, YOU CONTEND THAT "ALL DECISIONS CONCERNING THE DISPOSITION OF THE 39 CASES ALLEGEDLY DAMAGED IN TRANSIT WERE MADE BY THOSE PERSONS OR COMPANIES RETAINED BY THE GOVERNMENT TO UNLOAD THE CARS AND DISTRIBUTE THE PLUMS.'

WE BELIEVE YOUR ARGUMENT WITH RESPECT TO PASSAGE OF TITLE IS CONTRARY TO EXPRESS PROVISIONS OF THE CONTRACT. YOUR STATEMENT THAT "THE TERMS OF OUR SALE TO THE GOVERNMENT WERE FOB SHIPPING POINT" IS AN INACCURATE STATEMENT OF THE PROVISION YOU REFER TO AND DOES NOT, IN ITS PROPER CONTEXT, CONNOTE, AS YOU IMPLY, THAT TITLE PASSED UPON DELIVERY OF THE PLUMS TO THE CARRIER. THE PROVISION OF THE ANNOUNCEMENT TO WHICH YOU REFER, WHICH IS QUOTED IN FULL HEREINBEFORE, STATES THAT "PRICES SHOWN IN OFFERS SHALL BE ON THE BASIS OF F.O.B. CARS OR TRUCKS AT SHIPPING POINT.' THIS PROVISION RELATES TO PRICE AND NOT TO PASSAGE OF TITLE. THIS PARAGRAPH ALSO PROVIDES THAT DELIVERY WILL BE AT DESTINATIONS SPECIFIED. IN ADDITION, YOUR ARGUMENT IN THIS REGARD DOES NOT APPEAR TO HAVE TAKEN INTO CONSIDERATION THE PROVISIONS OF ARTICLE 22, SHIPMENT AND DELIVERY, OF FORM FV-1, CONTRACT TERMS AND CONDITIONS FOR THE PURCHASE OF FRUIT AND VEGETABLE PRODUCTS, WHICH WAS INCORPORATED IN AND MADE A PART OF ANNOUNCEMENT FV-360. THIS ARTICLE PROVIDES IN PERTINENT PART THAT: "DELIVERY SHALL BE MADE AT CONTRACTOR'S PLANT, OR AT LOCAL FACILITIES, OR BY RAIL OR TRUCK (USDA OPTION) AT DESTINATIONS NAMED IN SHIPPING INSTRUCTIONS ISSUED BY THE ASCS COMMODITY OFFICE. * * * TITLE AND RISK OF LOSS, * * * SHALL PASS TO USDA UPON DELIVERY AT DESTINATION NAMED IN SHIPPING INSTRUCTIONS.' ARTICLE 27, DISPOSITION OF DAMAGED PRODUCT FOUND IN SHIPMENTS BY COMMON CARRIER, PROVIDES THAT PRODUCTS SHOWING EXTENSIVE DAMAGE WILL BE REJECTED TO THE CONTRACTOR WHO SHALL ASSUME CUSTODY THEREOF. IN ADDITION, PARAGRAPH IX, SHORTAGE OR DAMAGE, PROVIDES THAT CONSIGNEES RECEIVING SHIPMENTS BY COMMON CARRIER SHOWING DAMAGE ARE TO NOTIFY THE CARRIER'S AGENT, PREPARE A DAMAGE REPORT, AND REFUSE ACCEPTANCE OF THE PRODUCT. THIS PARAGRAPH ALSO PROVIDES THAT "CONTRACTORS SHALL, THEREFORE, ARRANGE FOR DRIVERS TO RETURN ANY OF THE PRODUCT REJECTED BY THE CONSIGNEE.'

WE BELIEVE THESE PROVISIONS OF THE CONTRACT MAKE IT AMPLY CLEAR THAT TITLE TO THE PLUMS DID NOT PASS TO THE GOVERNMENT UPON THEIR DELIVERY TO THE CARRIER AS YOU CONTEND. FURTHERMORE, IT IS EQUALLY CLEAR THAT YOUR RESPONSIBILITY FOR THE REJECTED PRODUCTS INVOLVED MORE THAN PAYING THE DAMAGES. THE PROVISIONS CITED ABOVE REQUIRED YOU TO ASSUME CONTROL OF THE PRODUCTS FOR THE PURPOSE OF DISPOSING OF THEM AFTER YOU RECEIVED NOTICE OF THEIR REJECTION.

FURTHERMORE, WE BELIEVE YOUR INTERPRETATION OF PARAGRAPH VIII IS TOO NARROW AND DOES NOT GIVE EFFECT TO ALL THE LANGUAGE THEREIN. IN ADDITION TO STATING THAT THE CONTRACTOR AGREES HE WILL NOT DISPOSE OF ANY REJECTED PRODUCTS BEARING IDENTIFYING MARKS IN COMMERCIAL FOOD TRADE CHANNELS, THIS PARAGRAPH PROVIDES THAT "THIS WILL BE ACCOMPLISHED BY (1) COMPLETELY OBLITERATING PRIOR TO THE APPLICATION OF ANY NEW LABELING OR CASE MARKINGS, ALL USDA IDENTIFYING MARKS OR (2) BY DESTROYING THE CONTAINERS AND CASES.' THEREFORE, IT IS CLEAR THAT THIS PROVISION REQUIRES SPECIFIC AFFIRMATIVE ACTION ON THE PART OF THE CONTRACTOR TO PREVENT "ANY CONTAINERS AND CASES, OR ANY REJECTED PRODUCT, WHICH BEARS MARKINGS IDENTIFYING THEM WITH THE CONTRACT" FROM ENTERING COMMERCIAL FOOD TRADE CHANNELS. UPON RECEIVING NOTICE OF THE DAMAGED AND REJECTED PRODUCTS IT BECAME YOUR RESPONSIBILITY UNDER THE TERMS AND CONDITIONS OF THE CONTRACT TO PREVENT THEIR PASSAGE INTO COMMERCIAL CHANNELS BEARING IDENTIFYING MARKS.

FINALLY, YOU CONTEND THAT THERE IS NOT SUFFICIENT EVIDENCE THAT THE CANS OF PLUMS OFFERED FOR SALE BY THE GOPHER LUMBER AND SUPPLY COMPANY CAME FROM THE 39 DAMAGED CASES. YOU STATE THAT THEY ,COULD AS WELL HAVE COME, THROUGH LOSS OR THEFT, FROM ANY ONE OF THE OTHER 29,961 CASES DELIVERED UNDER THE CONTRACT.' IT IS CONCEIVABLE THAT THE CANS OFFERED BY GOPHER CAME INTO ITS POSSESSION BY LOSS OR THEFT. HOWEVER, WE BELIEVE THE WEIGHT OF THE EVIDENCE INDICATES OTHERWISE WITH SUFFICIENT DEFINITENESS TO SUPPORT THE ADMINISTRATIVE ASSESSMENT OF LIQUIDATED DAMAGES. AS NOTED HERETOFORE, UPON RECEIPT OF A COMPLAINT, THE OFFICE OF THE INSPECTOR GENERAL FOUND CANS OF PLUMS BEARING IDENTIFYING MARKS FOR SALE BY GOPHER LUMBER AND SUPPLY COMPANY IN ST. CLOUD, MINNESOTA. THE OIG WAS ABLE TO IDENTIFY THESE CANS WITH YOUR CONTRACT AND UPON FURTHER INVESTIGATION FOUND THAT GOPHER HAD PURCHASED THE 39 DAMAGED CASES FROM THE CARRIER AFTER THEY HAD BEEN HELD IN ITS WAREHOUSE FOR MORE THAN TWO MONTHS AFTER YOU RECEIVED NOTICE OF DAMAGE AND REJECTION.

ACCORDINGLY, THE DENIAL OF YOUR CLAIM BY OUR CLAIMS DIVISION IS SUSTAINED.