B-39523, MARCH 8, 1944, 23 COMP. GEN. 655

B-39523: Mar 8, 1944

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AS FOLLOWS: CERTAIN CLAIMS HAVE BEEN MADE BY DEALERS WHO HAVE FURNISHED LUMBER TO SHIPYARDS CONSTRUCTING WOODEN VESSELS FOR THE COMMISSION FOR AMOUNTS DUE FOR SUCH LUMBER AND UNPAID BY THE SHIPBUILDING COMPANY. IT IS FELT THAT IT WOULD BE HELPFUL TO THE COMMISSION IF IT COULD HAVE YOUR VIEWS IN REGARD THERETO. PURSUANT TO THE PROVISIONS OF THE SHIPBUILDING CONTRACT IT WAS CANCELLED BY THE COMMISSION WITHOUT PAYMENT TO THE CONTRACTOR. CORNITIUS HARDWOOD COMPANY HAS NOT RECEIVED PAYMENT FOR A CONSIDERABLE QUANTITY OF LUMBER WHICH WAS DELIVERED PRIOR TO THE CANCELLATION OF THE CONTRACT OF ASTORIS- 1WARRENTON SHIPYARDS. THERE IS CONSIDERABLE EVIDENCE TO THE EFFECT THAT CERTAIN EMPLOYEES OF THE OFFICE OF PURCHASES AND MATERIALS REPRESENTED TO THE LUMBER DEALER THAT PAYMENT OF AMOUNTS DUE FOR LUMBER SHIPPED IN ACCORDANCE WITH THEIR ALLOTMENT WAS GUARANTEED BY THE GOVERNMENT.

B-39523, MARCH 8, 1944, 23 COMP. GEN. 655

CONTRACTS - TERMINATION - GOVERNMENT LIABILITY TO SUPPLIER OF GOVERNMENT ALLOTTED MATERIAL THE FACT THAT LUMBER REQUIRED IN THE PERFORMANCE OF A GOVERNMENT LUMP-SUM CONTRACT HAD BEEN FURNISHED TO THE CONTRACTOR BY ITS SUPPLIER UNDER AN ALLOTMENT BY A GOVERNMENT AGENCY--- THE PURPOSE OF SUCH ALLOTMENT BEING TO FACILITATE AND EXPEDITE THE ACQUISITION OF NEEDED MATERIAL, LEAVING THE CONTRACTOR AND SUPPLIER FREE TO NEGOTIATE AND CONTRACT ON THEIR OWN TERMS- -- MAY NOT BE CONSIDERED AS OBLIGATING THE GOVERNMENT TO PAY THE SUPPLIER FOR THE LUMBER AFTER THE CONTRACT HAD BEEN TERMINATED IN ACCORDANCE WITH ITS PROVISIONS WITHOUT OBLIGATION OR LIABILITY OF THE GOVERNMENT TO THE CONTRACTOR.

COMPTROLLER GENERAL WARREN TO THE CHAIRMAN, UNITED STATES MARITIME COMMISSION, MARCH 8, 1944:

THERE HAS BEEN CONSIDERED YOUR LETTER OF JANUARY 18, 1944, AS FOLLOWS:

CERTAIN CLAIMS HAVE BEEN MADE BY DEALERS WHO HAVE FURNISHED LUMBER TO SHIPYARDS CONSTRUCTING WOODEN VESSELS FOR THE COMMISSION FOR AMOUNTS DUE FOR SUCH LUMBER AND UNPAID BY THE SHIPBUILDING COMPANY, AND IT IS FELT THAT IT WOULD BE HELPFUL TO THE COMMISSION IF IT COULD HAVE YOUR VIEWS IN REGARD THERETO.

THE TYPE OF CLAIM WHICH HAS BEEN RECEIVED MAY BE ILLUSTRATED BY A SPECIFIC CASE. ON DECEMBER 29, 1942, THE LUMBER COORDINATING UNIT OF THE OFFICE OF PURCHASES AND MATERIALS OF THE NAVY DEPARTMENT GAVE AN ALLOTMENT TO GEORGE C. CORNITIUS HARDWOOD COMPANY TO FURNISH LUMBER REQUIRED FOR THE CONSTRUCTION OF WOODEN BARGES BY ASTORIA-1WARRENTON SHIPYARDS, INC., WHICH COMPANY HAD A CONTRACT ON A LUMP-SUM BASIS WITH THE COMMISSION. SUBSEQUENTLY A FIRE OCCURRED IN THE SHIPYARD, AND PURSUANT TO THE PROVISIONS OF THE SHIPBUILDING CONTRACT IT WAS CANCELLED BY THE COMMISSION WITHOUT PAYMENT TO THE CONTRACTOR. SUBSEQUENT THERETO THE SHIPBUILDING CORPORATION BECAME BANKRUPT AND TO DATE THE GEORGE C. CORNITIUS HARDWOOD COMPANY HAS NOT RECEIVED PAYMENT FOR A CONSIDERABLE QUANTITY OF LUMBER WHICH WAS DELIVERED PRIOR TO THE CANCELLATION OF THE CONTRACT OF ASTORIS- 1WARRENTON SHIPYARDS, INC. BY THE COMMISSION.

THERE IS CONSIDERABLE EVIDENCE TO THE EFFECT THAT CERTAIN EMPLOYEES OF THE OFFICE OF PURCHASES AND MATERIALS REPRESENTED TO THE LUMBER DEALER THAT PAYMENT OF AMOUNTS DUE FOR LUMBER SHIPPED IN ACCORDANCE WITH THEIR ALLOTMENT WAS GUARANTEED BY THE GOVERNMENT. SUCH STATEMENTS WERE UNAUTHORIZED. HOWEVER, IN VIEW THEREOF, AND OF THE FACT THAT THE LUMBER WAS SHIPPED IN ACCORDANCE WITH THE REQUIREMENTS OF THE ALLOTMENT, THE DEALER FEELS THAT HE IS ENTITLED TO BE PAID BY THE GOVERNMENT.

THE GENERAL COUNSEL OF THE COMMISSION IS OF THE OPINION THAT THE COMMISSION IS NOT OBLIGATED TO MAKE ANY PAYMENT TO THIS DEALER AND FURTHER THAT ITS AUTHORITY TO BUY THE DEALER'S CLAIMS AGAINST THE BANKRUPTCY ESTATE IS EXTREMELY DOUBTFUL. IT IS RECOGNIZED, HOWEVER, THAT THE DEALER HAS AN EQUITABLE CLAIM AGAINST THE GOVERNMENT.

PLEASE ADVISE WHETHER YOU WOULD BE REQUIRED TO TAKE EXCEPTION TO ANY PAYMENTS MADE UNDER AN AGREEMENT BETWEEN THE COMMISSION AND GEORGE C. CORNITIUS HARDWOOD COMPANY WHEREUNDER SUCH COMPANY WOULD ASSIGN ITS CLAIM AGAINST THE BANKRUPTCY ESTATE TO THE COMMISSION AND RECEIVE AN AMOUNT EQUAL TO THE UNPAID PORTION OF ITS BILLS FOR LUMBER.

IT IS UNDERSTOOD FROM YOUR LETTER THAT THE CONTRACT WITH ASTORIA 1WARRENTON SHIPYARDS, INC., WAS CANCELLED BY THE GOVERNMENT PURSUANT TO PROVISIONS CONTAINED THEREIN WITHOUT PAYMENT AND WITHOUT OBLIGATION OR LIABILITY ON THE PART OF THE GOVERNMENT TO THE CONTRACTOR UNDER SAID CONTRACT. ALSO, AS THE INVOLVED LUMBER APPARENTLY WAS SOLD TO THE CONTRACTOR BY GEORGE C. CORNITIUS HARDWOOD COMPANY ON CREDIT, IT IS ASSUMED THAT TITLE THERETO PASSED TO THE CONTRACTOR UPON DELIVERY TO ITS SHIPYARD, THEREBY CREATING A DEBTOR-CREDITOR RELATIONSHIP BETWEEN THE CONTRACTOR AND SAID LUMBER COMPANY. THUS, REGARDLESS OF THE PRESENT CONDITION OF THE LUMBER, THE ONLY RIGHT THE SAID LUMBER COMPANY APPARENTLY HAS AGAINST ITS VENDEE, ASTORIA-1WARRENTON SHIPYARDS, INC., WITH RESPECT TO ANY UNPAID PORTION OF THE PURCHASE PRICE IS TO SHARE IN THE ASSETS OF THE ESTATE UNDER THE BANKRUPTCY PROCEEDINGS.

BUT IT IS NOT UNDERSTOOD THAT THE GOVERNMENT ENTERED INTO ANY CONTRACT DIRECTLY WITH THE LUMBER COMPANY; NOR, AS A GENERAL PROPOSITION, IS THERE ANY PRIVITY OF CONTRACT BETWEEN THE GOVERNMENT AND A MATERIALMAN OR SUBCONTRACTOR. SEE, IN THIS LATTER CONNECTION, KELLOGG V. UNITED STATES, 7 WALL. 361; UNITED STATES V. DRISCOLL, 96 U.S. 421; H. HERFURTH, JR., INC. V. UNITED STATES, 89 C.1CLS. 122; JOSEPH PETRIN, ET AL. V. UNITED STATES, 90 C.1CLS. 670. NOR IS IT UNDERSTOOD FROM THE FACTS STATED IN YOUR LETTER THAT THE GOVERNMENT TOOK POSSESSION OF THE INVOLVED LUMBER UPON TERMINATION OF THE CONTRACT UNDER CIRCUMSTANCES SUCH AS MIGHT HAVE GIVEN RISE TO AN IMPLIED CONTRACT WITH THE LUMBER COMPANY TO PAY FOR THE LUMBER. CF. UNITED STATES V. GEORGIA MARBLE COMPANY, 106 F.2D 955. HOWEVER, THERE REMAINS FOR CONSIDERATION THE EFFECT OF THE ALLOTMENT MADE BY THE LUMBER COORDINATING UNIT OF THE OFFICE OF PURCHASES AND MATERIALS OF THE NAVY DEPARTMENT TO THE LUMBER COMPANY TO FURNISH LUMBER REQUIRED FOR THE CONSTRUCTION OF WOODEN BARGES BY THE SHIPBUILDING COMPANY--- INCLUDING THE EFFECT OF THE ALLEGED STATEMENTS OF CERTAIN EMPLOYEES OF THE NAVY DEPARTMENT TO THE LUMBER DEALER THAT THE GOVERNMENT GUARANTEED PAYMENT OF AMOUNTS DUE FOR LUMBER SHIPPED IN ACCORDANCE WITH THE ALLOTMENT.

IT IS UNDERSTOOD FROM INFORMAL INQUIRY THAT THE PROCEDURE UNDER WHICH SUCH ALLOTMENT WAS GRANTED IS DESIGNED SOLELY TO FACILITATE AND EXPEDITE THE ACQUISITION OF MATERIALS REQUIRED FOR WORK UNDER WAR CONTRACTS, THE GOVERNMENT UNDERTAKING MERELY TO LOCATE AN AVAILABLE SOURCE AND SUPPLY OF SUCH MATERIALS. MOREOVER, IT IS UNDERSTOOD THAT AFTER THE GRANT OF ALLOTMENT THE PRIME CONTRACTOR AND THE DEALER WERE FREE TO NEGOTIATE AND CONTRACT ON THEIR OWN TERMS; IN FACT, THERE DOES NOT APPEAR TO HAVE BEEN ANY LEGAL OBLIGATION UPON THE CONTRACTOR TO BUY, OR THE DEALER TO SELL, THE LUMBER COVERED BY THE ALLOTMENT. THUS, IT WOULD SEEM CLEAR THAT THE MERE GRANT OF AN ALLOTMENT DID NOT OPERATE TO VEST IN THE LUMBER DEALER ANY RIGHT AGAINST THE UNITED STATES IT DID NOT OTHERWISE HAVE.

THE LUMBER COMPANY MAY DERIVE NO LEGAL RIGHT FROM THE ALLEGED REPRESENTATIONS BY EMPLOYEES OF THE OFFICE OF PURCHASES AND MATERIALS OF THE NAVY DEPARTMENT TO THE EFFECT THAT PAYMENT OF AMOUNTS DUE FOR LUMBER SHIPPED IN ACCORDANCE WITH THE ALLOTMENT WAS GUARANTEED BY THE GOVERNMENT. IT IS STATED UNEQUIVOCABLY IN YOUR LETTER THAT SUCH STATEMENTS WERE UNAUTHORIZED. THAT THE LUMBER COMPANY IS CHARGED WITH KNOWLEDGE OF SUCH LACK OF AUTHORITY IS SO WELL SETTLED AS NOT TO REQUIRE DISCUSSION OR THE CITATION OF AUTHORITIES; SO THAT, EVEN IF THE ALLEGED STATEMENTS WERE IN FACT MADE, THEY CAN HAVE NO MATERIAL BEARING ON THE MATTER.

ACCORDINGLY, IT MUST BE CONCLUDED THAT UNDER THE CIRCUMSTANCES APPEARING THE LUMBER DEALER HAS NO VALID CLAIM AGAINST THE GOVERNMENT FOR LUMBER SOLD AND DELIVERED TO THE CONTRACTOR. AND, IN VIEW THEREOF, TO PURCHASE THE CLAIMS OF THE LUMBER DEALER AGAINST THE ESTATE OF THE BANKRUPT CONTRACTOR, AS PROPOSED, WOULD BE TANTAMOUNT TO THE GRANT OF A PURE GRATUITY TO SUCH DEALER TO THE EXTENT OF THE DIFFERENCE BETWEEN THE AMOUNT SO PAID AND THE AMOUNT EVENTUALLY REALIZED ON THE CLAIM. MOREOVER, IT DOES NOT APPEAR TO BE ANY PART OF THE AUTHORIZED FUNCTIONS OF THE UNITED STATES MARITIME COMMISSION TO PURCHASE SUCH CLAIMS. CONSEQUENTLY, THIS OFFICE WOULD BE WITHOUT AUTHORITY TO ALLOW CREDIT FOR PAYMENTS MADE UNDER SUCH AN AGREEMENT.