B-147131, MAR. 2, 1962

B-147131, MAR. 2, 1962

TO CUMMINGS AND SELLERS:

BY LETTER OF SEPTEMBER 1, 1961, AND SUBSEQUENT CORRESPONDENCE, YOU HAVE ON BEHALF OF THE STEEL IMPROVEMENT AND FORGE COMPANY REQUESTED RECONSIDERATION OF OUR SETTLEMENT CERTIFICATE OF JULY 26, 1961, DENYING A CLAIM OF THAT FIRM IN THE AMOUNT OF $21,281.35 WHICH AROSE OUT OF A PARTIAL TERMINATION FOR CONVENIENCE OF CONTRACT NO. NOBS 62075BETWEEN THE DEPARTMENT OF THE NAVY AND THE ROUND WOODHOUSE CHAIN AND MANUFACTURING COMPANY.

ON MARCH 11, 1954, THE GOVERNMENT PARTIALLY TERMINATED THE CITED PRIME CONTRACT FOR CONVENIENCE AND ADVISED THE CONTRACTOR TO TERMINATE ALL SUBCONTRACTS AND PURCHASE ORDERS TO THE EXTENT AFFECTED. THE NOTICE OF TERMINATION WAS REAFFIRMED BY NOTICE OF MARCH 24, 1954, IN WHICH THE GOVERNMENT ADVISED THE CONTRACTOR THAT ALL SUBCONTRACTORS SHOULD BE INSTRUCTED TO ADVISE THEIR LOWER-TIER SUBCONTRACTORS OF THE TERMINATION. PURSUANT TO THE INITIAL ADVICE, STEEL IMPROVEMENT, A SECOND-TIER SUBCONTRACTOR, WAS GIVEN NOTICE OF TERMINATION BY ITS FIRST-TIER SUBCONTRACTOR AND ASKED FOR A STATEMENT OF ITS CLAIM. ACTING ON THAT REQUEST, STEEL IMPROVEMENT SUBMITTED TO THE UPPER-TIER SUBCONTRACTOR A PROPOSED SETTLEMENT ON FORM NO. DD 540. ON APRIL 7, 1954, COPIES OF ITS SETTLEMENT PROPOSAL WERE FILED BY THE CLAIMANT WITH THE LOCAL INSPECTOR OF NAVAL MATERIAL. IT IS NOTED THAT PAGE 4 OF THE CITED FORM, COMPLETED AND SIGNED BY AN OFFICIAL OF THE CLAIMANT, INCLUDES A PREPRINTED CERTIFICATION THAT THE SETTLEMENT AND SUPPORTING SCHEDULE AND EXPLANATIONS WERE PREPARED WITH THE KNOWLEDGE THAT THEY MIGHT BE USED DIRECTLY OR INDIRECTLY AS THE BASIS OF SETTLEMENT OF A CLAIM OR CLAIMS AGAINST THE UNITED STATES. NOTE, HOWEVER, THAT THE STATEMENT IS INCLUDED IN THE FORM WITH RESPECT TO THE CONTRACTOR'S CHARGES AS OPPOSED TO CHARGES OF SUBCONTRACTORS. THE FORM, COPIES OF WHICH WERE FORWARDED TO THE GOVERNMENT, WAS ACCOMPANIED BY A TERMINATION INVENTORY, ALSO PREPARED AND SIGNED BY AN OFFICER OF THE CLAIMANT. THIS TERMINATION INVENTORY CONTAINS CERTAIN PREPRINTED MATERIAL INCLUDING A CERTIFICATE WHICH STATES IN PART:

"SUBJECT TO ANY AUTHORIZED PRIOR DISPOSITION, TITLE TO THE INVENTORY LISTED IN THE ATTACHED SCHEDULE IS HEREBY TENDERED TO THE GOVERNMENT AND IS WARRANTED TO BE FREE AND CLEAR OF ALL LIENS AND ENCUMBRANCES.'

YOU FURTHER STATE THAT AFTER THE PROPOSED SETTLEMENT AND TERMINATION INVENTORY FORMS WERE RECEIVED BY THE INSPECTOR OF NAVAL MATERIAL VARIOUS GOVERNMENT AGENTS CALLED UPON THE CLAIMANT PERSONALLY AND BY TELEPHONE TO INVESTIGATE AND REVIEW THE SETTLEMENT PROPOSAL AND THAT, AFTER SUCH REVIEW, PAYMENT WAS RECOMMENDED BY THOSE AGENTS IN THE AMOUNT OF $21,281.35 WHICH REPRESENTED A DECREASE IN THE ORIGINAL PROPOSAL OF $803.44. THE DEDUCTION IS SAID TO HAVE BEEN MADE WITH THE CLAIMANT'S CONCURRENCE. BY LETTER OF JULY 26, 1954, THE GOVERNMENT ADVISED THE UPPER -TIER SUBCONTRACTOR OF THE AGREEMENT AND REQUESTED THAT A SETTLEMENT BE NEGOTIATED BY THE UPPER-TIER SUBCONTRACTOR WITH THE CLAIMANT. THAT SETTLEMENT PROPOSAL INCLUDED THE CLAIMANT'S TERMINATION INVENTORY.

ON AUGUST 12, 1954, THE INSPECTOR OF NAVAL MATERIAL ISSUED INSTRUCTIONS DIRECTLY TO THE CLAIMANT TO SHIP THE INVENTORY TO A GOVERNMENT FACILITY. ON AUGUST 23, 1954, A GOVERNMENT BILL OF LADING WAS ISSUED AND THE SHIPMENT WAS IN FACT MADE BY THE CLAIMANT. ON AUGUST 28 THE GOVERNMENT ADVISED THE FIRST-TIER SUBCONTRACTOR THAT IT WAS IN POSSESSION OF THE INVENTORY.

YOU CONTEND THAT THE FOREGOING ESTABLISHES A RIGHT IN THE CLAIMANT TO BE PAID THE AMOUNT CLAIMED DIRECTLY BY THE GOVERNMENT. WHILE RECOGNIZING THE GENERAL RULE THAT NO PRIVITY EXISTS BETWEEN THE GOVERNMENT AND SUBCONTRACTORS, YOU BASE YOUR RIGHT TO PAYMENT ON TWO THEORIES. THE FIRST OF THESE IS THAT THE CLAIMANT IS A THIRD-PARTY BENEFICIARY OF A CONTRACT BETWEEN THE GOVERNMENT AND THE PRIME CONTRACTOR AND, THEREFORE, THAT PRIVITY NEED NOT BE ESTABLISHED. IN SUPPORT OF YOUR POSITION YOU CITE THE CASE OF DANIEL HAMM DRAYAGE COMPANY V. WILLSON (1949), 178 F.2D 633. THAT CASE INVOLVED AN ACTION BY GENERAL CREDITORS OF A BANKRUPT PRIME CONTRACTOR IN WHICH SUCH CREDITORS WERE APPEALING FROM AN ORDER OF A LOWER COURT DIRECTING THE TRUSTEE IN BANKRUPTCY TO ENTER INTO A SETTLEMENT WITH THE GOVERNMENT ON A TERMINATION FOR CONVENIENCE WHEREBY THE GOVERNMENT WOULD MAKE DIRECT SETTLEMENT WITH THE SUBCONTRACTORS. THE PLAINTIFFS CONTENDED THAT SUCH AMOUNTS, WHICH UNDER THE SETTLEMENT APPROVED BY THE LOWER COURT WOULD BE PAID DIRECTLY TO THE SUBCONTRACTORS, SHOULD BECOME PART OF THE ESTATE AND THAT THE SUBCONTRACTORS SHOULD STAND IN THE POSITION OF GENERAL CREDITORS. THE COURT, IN AFFIRMING THE POSITION OF THE LOWER COURT, STATED THAT THE CONTRACT BETWEEN THE GOVERNMENT AND THE PRIME CONTRACTOR WITH RESPECT TO THE CLAIMS OF THE SUBCONTRACTOR WAS A CONTRACT FOR THE BENEFIT OF THE LATTER, WHO WERE THEREBY MADE THIRD PARTY BENEFICIARIES.

IN OUR VIEW THE SUBCONTRACTORS WERE THIRD-PARTY BENEFICIARIES, NOT WITH REGARD TO THE PRIME CONTRACT BUT UNDER THE AGREEMENT BETWEEN THE CONTRACTING PARTIES PURSUANT TO WHICH THE GOVERNMENT UNDERTOOK TO MAKE DIRECT SETTLEMENT WITH THE SUBCONTRACTORS. IN THE SITUATION HERE UNDER CONSIDERATION THERE WAS NO SUCH AGREEMENT BETWEEN THE GOVERNMENT AND THE PRIME CONTRACTOR. A THIRD-PARTY BENEFICIARY HAS AN ENFORCEABLE RIGHT ONLY IF THERE IS A CONTRACT UNDER WHICH ONE PARTY THERETO MADE A BINDING PROMISE TO RENDER THE PERFORMANCE DEMANDED. 4 CORBIN ON CONTRACTS, SECTION 773. UNLIKE THE SITUATION IN THE CITED CASE, THERE EXISTS HERE NO AGREEMENT WITH ANOTHER PARTY WHEREBY THE GOVERNMENT HAS UNDERTAKEN ANY OBLIGATION WITH RESPECT TO THE CLAIMANT.

THE SECOND THEORY PRESENTED IS THAT THE RELATIONS BETWEEN THE AGENTS OF THE GOVERNMENT AND THE CLAIMANT, DESCRIBED ABOVE (PARTICULARLY THE TENDER OF THE INVENTORY TO THE GOVERNMENT, THE ORDER TO SHIP THE TERMINATION INVENTORY AND THE SHIPMENT MADE DIRECTLY TO THE GOVERNMENT), GAVE RISE TO AN IMPLIED CONTRACT UPON WHICH STEEL IMPROVEMENT COULD SUBMIT A CLAIM IN ITS OWN NAME. IN SUPPORT OF THIS ARGUMENT YOU CITE THE CASE OF UNITED STATES V. GEORGIA MARBLE CO. (1939), 106 F.2D 955, IN WHICH THE COURT FOUND THAT THE PLAINTIFF COULD RECOVER ON AN IMPLIED CONTRACT WITH THE GOVERNMENT WHERE THE GOVERNMENT TOOK POSSESSION OF AND UTILIZED MATERIALS, TO WHICH THE PLAINTIFF RETAINED TITLE, WHICH WERE ON THE CONSTRUCTION SITE WHEN THE PRIME CONTRACT WAS TERMINATED FOR DEFAULT. YOU RELY ALSO ON THE CASE OF CORUM V. UNITED STATES (1949), 112 CT.CL. 479, IN WHICH THE PLAINTIFF WAS A SUBCONTRACTOR UNDER A COST-PLUS-FIXED-FEE PRIME CONTRACT WHICH GAVE THE GOVERNMENT THE OPTION TO PURCHASE EQUIPMENT ON THE CONTRACT SITE AND TO APPLY A PORTION OF THE RENTAL TO THE PURCHASE PRICE. THE AGREEMENT BETWEEN THE SUBCONTRACTOR AND THE PRIME CONTRACTOR, WITH RESPECT TO THE AMOUNT OF THE RENTAL TO BE APPLIED TO THE PURCHASE PRICE, WAS LESS FAVORABLE TO THE GOVERNMENT THAN THE PROVISIONS OF THE PRIME CONTRACT. THE GOVERNMENT ELECTED TO PURCHASE THE SUBCONTRACTOR'S EQUIPMENT AND ISSUED TO THE SUBCONTRACTOR PURCHASE ORDERS FOR THE EQUIPMENT WHICH WERE CONSISTENT WITH THE TERMS OF THE SUBCONTRACT AGREEMENT. THE GOVERNMENT, IN FACT, MADE PAYMENT TO THE SUBCONTRACTOR UNDER SOME OF THE PURCHASE ORDERS AND THE SUIT WAS BROUGHT FOR THE PURCHASE PRICE ON THE REMAINDER. THE COURT, IN HOLDING FOR THE PLAINTIFF, FOUND THAT PRIVITY EXISTED BETWEEN IT AND THE UNITED STATES, APPARENTLY ON THE BASIS OF THE PURCHASE ORDERS. WE DO NOT FIND THAT THE CORUM CASE IS SUPPORT FOR YOUR POSITION, SINCE IN OUR VIEW PRIVITY WAS FOUND BY THE COURT TO EXIST ON THE BASIS OF ACTUAL CONTRACTS (THE PURCHASE ORDERS) BETWEEN THE PLAINTIFF AND THE GOVERNMENT.

WHILE WE FIND THE GEORGIA MARBLE CASE TO BE PERSUASIVE, IT SHOULD BE NOTED THAT IN THAT INSTANCE THE GOVERNMENT TOOK POSSESSION OF THE SUBCONTRACTOR'S PROPERTY WITHOUT THE CONSENT OF THE LATTER, WHILE HERE THE CLAIMANT VOLUNTARILY TURNED OVER ITS TERMINATION INVENTORY.

IN MERRITT V. UNITED STATES (1923), 58 CT.CL. 371, AFFIRMED 267 U.S. 338, A SUBCONTRACTOR BROUGHT AN ACTION AGAINST THE GOVERNMENT AFTER THE PRIME CONTRACT HAD BEEN TERMINATED FOR CONVENIENCE AND THE SUBCONTRACTOR HAD BEEN ORDERED TO DELIVER SOME INVENTORY TO THE PRIME CONTRACTOR. THE GOVERNMENT PAID THE PRIME CONTRACTOR FOR THE DELIVERY FOR THE ACCOUNT OF THE SUBCONTRACTOR AT THE CONTRACT PRICE. THE PRIME, HOWEVER, FRAUDULENTLY ADVISED THE SUBCONTRACTOR THAT THE GOVERNMENT HAD PAID FOR THE INVENTORY AT A LOWER PRICE AND, ON THE BASIS OF THAT REPRESENTATION, THE SUBCONTRACTOR ACCEPTED A LESSER AMOUNT. THE GOVERNMENT DISCOVERED THE FRAUD AND REQUIRED THE PRIME TO REPAY TO THE GOVERNMENT THE DIFFERENCE BETWEEN THE PRICE IN THE SETTLEMENT WITH THE PRIME AND THAT PAID BY THE PRIME TO THE SUBCONTRACTOR. THE COURT OF CLAIMS AND THE SUPREME COURT, HOWEVER, REFUSED TO FIND ANY EXPRESS OR IMPLIED CONTRACT BETWEEN THE SUBCONTRACTOR AND THE GOVERNMENT NOTWITHSTANDING THAT THE SHIPMENT WAS MADE AFTER TERMINATION AT THE BEHEST OF THE GOVERNMENT.

WHETHER IN A GIVEN INSTANCE AN IMPLIED CONTRACT HAS BEEN CREATED DEPENDS UPON THE APPLICABLE FACTS. THE DEALINGS BETWEEN THE SUBCONTRACTOR AND THE GOVERNMENT WITH RESPECT TO THE TERMINATION INVENTORY MIGHT BE SAID TO SUPPORT A FINDING THAT AN IMPLIED CONTRACT CAME INTO EXISTENCE. ON THE OTHER HAND, THE GOVERNMENT DID NOT EXERCISE ITS OPTION UNDER THE PRIME CONTRACT TO HAVE THE SUBCONTRACTS ASSIGNED TO IT--- WHICH WOULD HAVE BEEN CONSISTENT WITH AN INTENT TO DEAL DIRECTLY WITH THE CLAIMANT. FURTHER, THE GOVERNMENT, EVEN AFTER THE RECEIPT OF THE SUBCONTRACTOR'S TERMINATION INVENTORY, CONTINUED TO NEGOTIATE WITH THE PRIME ON THE BASIS OF A SETTLEMENT INCLUDING THE AGREED-UPON AMOUNT OF THE SUBCONTRACTOR'S CLAIM. FINALLY, WE FIND NOTHING IN THE RECORD NECESSARILY INCONSISTENT WITH AN INTENTION BY THE GOVERNMENT TO EFFECT AN OVER-ALL SETTLEMENT WITH THE PRIME CONTRACTOR.

THE POSITION OF THE DEPARTMENT OF THE NAVY WITH RESPECT TO THE CLAIM IS THAT THE ACTIONS OF THE GOVERNMENT REPRESENTATIVES DID NOT ESTABLISH AN IMPLIED CONTRACT. AS NOTED ABOVE IT IS OUR CONCLUSION THAT THERE IS EVIDENCE TO SUPPORT THE NAVY'S POSITION. ON THE OTHER HAND, AS INDICATED, THERE IS ALSO SUPPORT FOR YOUR POSITION. IN VIEW OF THE SUBSTANTIAL AND SIGNIFICANT QUESTION REMAINING UNRESOLVED, IT IS OUR DUTY TO RESOLVE THE DOUBT IN FAVOR OF THAT COURSE WHICH WILL RESULT IN THE CONSERVATION OF APPROPRIATED FUNDS AND TO LEAVE TO THE PROPER JUDICIAL AUTHORITY THE FINAL DETERMINATION OF THE MATTER. CHARLES V. UNITED STATES, 19 CT.CL. 316; LONGWILL V. UNITED STATES, 17 CT.CL. 288. ACCORDINGLY, THE DENIAL OF YOUR CLAIM IS SUSTAINED.