B-167071, JUL. 15, 1969

B-167071: Jul 15, 1969

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SINCE CONTRACTOR'S FINANCIAL DIFFICULTIES WERE NOT ATTRIBUTABLE TO GOVERNMENT OR THAT APPOINTMENT OF RECEIVER CONTRIBUTED TO SITUATION ASSESSMENT OF LIQUIDATED DAMAGES IS REQUIRED. SECRETARY: REFERENCE IS MADE TO LETTER DATED MAY 26. REQUESTING OUR OPINION OF WHETHER YOUR AGENCY WAS CORRECT IN CHARGING MAINLINE FOODS. 964.47 WERE ASSESSED FOR LATE DELIVERY OF THE 45. A SCHEDULE WAS ENCLOSED WITH THE LETTER OF MAY 26. SHOWING THE DATES THAT NOTICES TO DELIVER WERE ISSUED. 925 CASES WERE AS FOLLOWS. WAS FREE TO SHIP EARLIER IF IT DESIRED: 5. ALLEN WAS APPOINTED AS RECEIVER FOR MAINLINE FOODS. ARGUING IN ESSENCE THAT THE SHIPMENTS COULD HAVE BEEN MADE BY THE DATES SHOWN IN THE NOTICES TO DELIVER HAD IT NOT BEEN FOR THE RECEIVERSHIP.

B-167071, JUL. 15, 1969

CONTRACTS - LIQUIDATED DAMAGES DECISION TO SECRETARY OF AGRICULTURE CONCLUDING THAT LIQUIDATED DAMAGES SHOULD BE ASSESSED AGAINST MAINLINE FOODS, INC., FOR FAILURE TO TIMELY DELIVER SPECIFIED QUANTITIES OF CANNED CORN. SINCE CONTRACTOR'S FINANCIAL DIFFICULTIES WERE NOT ATTRIBUTABLE TO GOVERNMENT OR THAT APPOINTMENT OF RECEIVER CONTRIBUTED TO SITUATION ASSESSMENT OF LIQUIDATED DAMAGES IS REQUIRED.

TO MR. SECRETARY:

REFERENCE IS MADE TO LETTER DATED MAY 26, 1969, FROM ASSISSTANT SECRETARY RICHARD LYNG, REQUESTING OUR OPINION OF WHETHER YOUR AGENCY WAS CORRECT IN CHARGING MAINLINE FOODS, INC. (MAINLINE), BROOKS, OREGON, LIQUIDATED DAMAGES FOR ITS FAILURE TO TIMELY DELIVER SPECIFIED QUANTITIES OF CANNED CORN UNDER CONTRACT NO. 12-25-010-15815, AWARDED BY THE FRUIT AND VEGETABLE DIVISION, CONSUMER AND MARKETING SERVICE, OF YOUR DEPARTMENT.

THE AMENDED CONTRACT CALLED FOR 56,580 CASES OF CANNED CORN, TO BE DELIVERED DURING THE PERIOD JANUARY 20, 1969, THROUGH FEBRUARY 18, 1969. LIQUIDATED DAMAGES OF $5,964.47 WERE ASSESSED FOR LATE DELIVERY OF THE 45,925 CASES, 10,655 CASES HAVING BEEN DELIVERED ON TIME. A SCHEDULE WAS ENCLOSED WITH THE LETTER OF MAY 26, 1969, SHOWING THE DATES THAT NOTICES TO DELIVER WERE ISSUED, THE LAST DATE FOR EACH SHIPMENT, THE ACTUAL SHIPPING DATES AND THE LIQUIDATED DAMAGES ASSESSED FOR EACH SHIPMENT.

THE REVISED SHIPPING DATES FOR THE 45,925 CASES WERE AS FOLLOWS, ALTHOUGH MAINLINE FOODS, INC., WAS FREE TO SHIP EARLIER IF IT DESIRED:

5,745 CASES BY FEBRUARY 28, 1969

38,434 CASES BY MARCH 3, 1969

1,746 CASES BY MARCH 4, 1969

ON FEBRUARY 19, 1969, MR. RICHARD H. ALLEN WAS APPOINTED AS RECEIVER FOR MAINLINE FOODS, INC., BY ORDER OF THE STATE CIRCUIT COURT FOR MARION COUNTY, OREGON. MR. ALLEN HAS REQUESTED THAT MAINLINE BE RELIEVED OF LIQUIDATED DAMAGES, ARGUING IN ESSENCE THAT THE SHIPMENTS COULD HAVE BEEN MADE BY THE DATES SHOWN IN THE NOTICES TO DELIVER HAD IT NOT BEEN FOR THE RECEIVERSHIP. IN A LETTER TO THE ACTING CHIEF, VEGETABLE BRANCH, FRUIT AND VEGETABLE DIVISION, CONSUMER AND MARKETING SERVICE, DEPARTMENT OF AGRICULTURE, DATED MARCH 13, 1969, MR. ALLEN STATED HIS POSITION AS FOLLOWS:

"I WAS APPOINTED BY THE MARION COUNTY CIRCUIT COURT AS RECEIVER OF MAINLINE FOODS, INC. ON FEBRUARY 19, 1969. I BECAME OFFICIALLY QUALIFIED AS SUCH ON FEBRUARY 24, 1969, BY FILING OF A BOND. IT REQUIRED SEVERAL DAYS TO GATHER THE FACTS OF THE SITUATION IN ORDER TO REPORT TO THE COURT AND DECIDE ON A COURSE OF ACTION. AT THE TIME, THERE WERE NO FUNDS TO PAY FOR LOADING AND SHIPPING THE PRODUCT PURSUANT TO THE ABOVE CONTRACT AND WE HAD TO ARRANGE FOR FINANCING. AFTER SECURING FUNDS, IT WAS NECESSARY TO PETITION THE COURT FOR AUTHORITY TO MAKE SUCH EXPENDITURES NECESSARY TO SHIP AND AN ORDER TO THAT EFFECT WAS SECURED. WE ALSO HAD TO SECURE RELEASES OF THE PRODUCT FROM WAREHOUSING AND IT TOOK UNTIL MONDAY, MARCH 10, TO ACCOMPLISH ALL OF THE ABOVE.'

IN THE LETTER OF MAY 26, 1969, IT WAS STATED THAT THE SOLE QUESTION FOR THIS OFFICE TO DECIDE WAS "WHETHER THE APPOINTMENT OF A RECEIVER MIDWAY DURING THE REVISED SHIPPING PERIOD AFFECTS THE TERMS OF THE CONTRACT.' YOUR DEPARTMENT HAD CONCLUDED THAT IT DOES NOT.

THE CONTRACT CONSISTED OF DEPARTMENT OF AGRICULTURE FORM FV-1 DATED JUNE 1, 1967 ("CONTRACT TERMS AND CONDITIONS FOR THE PURCHASE OF FRUIT AND VEGETABLE PRODUCTS"); DEPARTMENT OF AGRICULTURE ANNOUNCEMENT FV 454, DATED DECEMBER 2, 1968 ("CANNED WHOLE KERNEL CORN"); MAINLINE'S OFFER TO SELL DATED 12 DECEMBER 1968; THE ACCEPTANCE WIRE DATED DECEMBER 19, 1968; AND AMENDMENT NO. 1 TO THE CONTRACT DATED FEBRUARY 14, 1969 (CHANGING 17,680 CASES OF BRINE PACK CORN TO THE EQUIVALENT NUMBER OR 18,760 CASES OF VACUUM PACK CORN).

ARTICLE 29 OF FORM FV-1, ENTITLED FAILURE TO PERFORM, STATES IN PART AS FOLLOWS:

"* * * WHETHER OR NOT ANY NOTICE OF TERMINATION IS GIVEN, IF THE CONTRACT CONTAINS PROVISION FOR LIQUIDATED DAMAGES FOR DELAY IN SHIPMENT, LIQUIDATED DAMAGES SHALL BE ASSESSED IN ADDITION TO ANY OTHER DAMAGES WHICH ARE ASSESSABLE WITH RESPECT TO AN UNDELIVERED QUANTITY. NOTWITHSTANDING THE FOREGOING, CONTRACTOR SHALL NOT BE CHARGED WITH ANY LIQUIDATED OR OTHER DAMAGES IF HE GIVES USDA PROMPT WRITTEN NOTICE OF ANY DELAY IN SHIPMENT OF ANY QUANTITY OF THE PRODUCT AND THE CAUSE THEREOF, AND IF 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 CLAUSES 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. * * *"

IN ADDITION, ARTICLE 28 OF FORM FV-1 AND ARTICLE 7 OF ANNOUNCEMENT FV-454 PROVIDE, IN EFFECT, THAT THE EXCULPATORY PROVISIONS OF THE ABOVE CITED ARTICLE 29 SHALL APPLY TO THE ASSESSMENT OF LIQUIDATED DAMAGES. INDICATED IN THE ASSISTANT SECRETARY'S LETTER OF MAY 26, THE FACTS ARE NOT IN DISPUTE AND THE SOLE QUESTION IS WHETHER, AS A MATTER OF LAW, THE APPOINTMENT OF A RECEIVER MIDWAY DURING THE REVISED SHIPPING PERIOD AFFECTS THE TERMS OF THE CONTRACT.

THE RECEIVER IN THIS CASE WAS NOT APPOINTED UNTIL FEBRUARY 19, 1969, AND DID NOT BECOME OFFICIALLY QUALIFIED UNTIL HIS BOND WAS FILED ON FEBRUARY 24, 1969. ALTHOUGH THE REMAINING CASES OF CANNED CORN WERE NOT REQUIRED TO BE SHIPPED UNTIL FEBRUARY 28 AND MARCH 3 AND 4, 1969, IT APPEARS THAT MAINLINE CORPORATION'S FINANCES WERE IN A VIRTUALLY HOPELESS STATE AS OF FEBRUARY 19, 1969, AS EVIDENCED BY THE APPOINTMENT OF A RECEIVER ON THAT DATE, AND HIS DECLARATION THAT HE DISCOVERED A FEW DAYS LATER THAT THERE WERE NO FUNDS FOR THE LOADING AND SHIPPING EXPENSES FOR THE CORN.

THE GENERAL RULE IS THAT THE CONTRACTOR ASSUMES THE RISK OF PROVIDING FUNDS TO PERFORM THE CONTRACT AND THAT UNDER-CAPITALIZATION IS NO EXCUSE. SEE WILLEMS INDUSTRIES, INC. V UNITED STATES, 155 CT. CL. 360, 295 F.2D 822 (1961). AN EXCEPTION HAS BEEN CARVED TO THIS RULE WHERE THE FINANCIAL CAUSE WAS ATTRIBUTABLE TO THE GOVERNMENT (SEE LITCHFIELD MFG. CORP. V UNITED STATES, 167 CT. CL. 604, 338 F.2D 94 (1964); SHAFFER V UNITED STATES, 128 CT. CL. 299, 121 F.SUPP. 656 (1954) AND BROOKLYN AND QUEENS SCREEN MFG. CO. V UNITED STATES, 97 CT. CL. 532 (1942).

THERE IS NO EVIDENCE IN THIS CASE THAT APPELLANT'S FINANCIAL WOES WERE ATTRIBUTABLE TO THE GOVERNMENT OR THAT THE APPOINTMENT OF THE RECEIVER SUBSTANTIALLY CONTRIBUTED TO A FINANCIAL SITUATION THAT WAS ALREADY VIRTUALLY HOPELESS, SO THAT THE RULE AS ENUNCIATED BY THE COURT OF CLAIMS IN CONSOLIDATED AIRBORNE SYSTEMS, INC. V UNITED STATES, 348 F.2D 941 (1965), WOULD APPEAR FOR APPLICATION. IN THAT CASE THE CONTRACTOR SOUGHT TO BE EXCUSED FROM PERFORMANCE BECAUSE ITS FINANCIAL CONDITION WAS SUCH THAT ATTEMPTED PERFORMANCE OF THE CONTRACT WOULD HAVE RENDERED IT HOPELESSLY INSOLVENT OR EVEN AN ADJUDICATED BANKRUPT. THE COURT HELD RESULTING DELAYS UNEXCUSABLE AND STATED AT PAGE 946:

"* * * IT MUST BE DEEMED AN IMPLIED TERM OF EVERY CONTRACT THAT THE PROMISOR WILL NOT PERMIT HIMSELF, THROUGH INSOLVENCY OR BANKRUPTCY, MUCH LESS THE THREAT OF THE SAME, TO BE DISABLED FROM MAKING PERFORMANCE AND IN THIS VIEW, BANKRUPTCY OR INSOLVENCY IS BUT THE NATURAL AND LEGAL CONSEQUENCE OF SOMETHING DONE OR OMITTED TO BE DONE BY THE BANKRUPT OR INSOLVENT. * * *"

ACCORDINGLY, WE SEE NO LEGAL ALTERNATIVE TO YOUR DEPARTMENT'S CHARGING LIQUIDATED DAMAGES IN THIS CASE IN ACCORDANCE WITH THE CONTRACT TERMS.