B-157481, JAN. 27, 1966

B-157481, JAN. 27, 1966

TO PECK IRON AND METAL COMPANY, INC.:

REFERENCE IS MADE TO YOUR LETTER OF NOVEMBER 30, 1965, AND SUBSEQUENT CORRESPONDENCE, REQUESTING THAT WE RECONSIDER OUR DECISION B-157481, DATED NOVEMBER 29, 1965, REGARDING VARIOUS QUESTIONS RAISED BY YOU CONCERNING CERTAIN PROVISIONS IN A CONTRACT AWARDED TO YOU BY THE DEFENSE SUPPLY AGENCY (DSA) FOR THE PURCHASE OF THE AIRCRAFT CARRIER AVT-8.

THE VESSEL WAS OFFERED FOR SALE, FOR SCRAPPING PURPOSES ONLY, UNDER SEALED BID SALE INVITATION NO. 18-6002, DATED JUNE 16, 1965, ISSUED BY THE DEFENSE SURPLUS SALES OFFICE, BROOKLYN, NEW YORK. THE STATUTORY AUTHORITY FOR THE SALE, 10 U.S.C. 7305, READS, IN PERTINENT PART, AS FOLLOWS:

"/B) THE SECRETARY OF THE NAVY SHALL APPRAISE EACH VESSEL STRICKEN FROM THE NAVAL VESSEL REGISTER UNDER SECTION 7304 OF THIS TITLE. IF HE CONSIDERS THAT THE SALE OF THE VESSEL IS IN THE BEST INTEREST OF THE UNITED STATES, HE SHALL ADVERTISE IT FOR SALE.

"/I) EACH VESSEL SOLD AS PRESCRIBED IN THIS SECTION SHALL BE DELIVERED TO THE PURCHASER UPON FULL PAYMENT TO THE SECRETARY OF THE AMOUNT BID.'

BID OPENING WAS HELD ON JULY 15, AS SCHEDULED. YOUR BID WAS THE SOLE BID. ACCORDINGLY, AFTER RECEIPT OF ANTI-TRUST CLEARANCE FROM THE DEPARTMENT OF JUSTICE, AS REQUIRED BY ARTICLE 23 OF THE SALE TERMS AND CONDITIONS, THE VESSEL WAS AWARDED TO YOU ON AUGUST 3.

IN A LETTER DATED AUGUST 12, ADDRESSED TO OUR OFFICE, YOU REQUESTED OUR DECISION ON VARIOUS QUESTIONS CONCERNING THE LEGALITY OF CERTAIN PROVISIONS IN THE CONTRACT OF SALE, TO WHICH YOU APPARENTLY HAD RAISED NO PREVIOUS OBJECTION. THE PROVISIONS IN QUESTION, SET FORTH IN ARTICLE 30 OF THE SALE TERMS AND CONDITIONS, REQUIRED THE PURCHASER TO STRIP FROM THE VESSEL CERTAIN GOVERNMENT PROPERTY, INCLUDING ARMOR AND STEEL PLATING TO BE CUT IN SPECIFIED SIZES FOR THE GOVERNMENT. IN A SUBSEQUENT LETTER OF OCTOBER 11, YOU AMENDED YOUR ORIGINAL REQUEST FOR DECISION TO INCLUDE THE MATTER OF WHETHER, IN THE EVENT WE HELD THAT THE PLATING REMOVAL AND CUTTING REQUIREMENT WAS VALID, DSA COULD PROPERLY INCLUDE IN A VESSEL SALES CONTRACT A REQUIREMENT THAT THE PURCHASER REMELT THE PLATING AND CAST IT INTO VARIOUS STRUCTURAL SHAPES BEFORE ITS RETURN TO THE GOVERNMENT.

IN OUR DECISION OF NOVEMBER 29, WE ADVISED YOU THAT SUBSEQUENT TO THE AWARD AND THE FILING OF YOUR ORIGINAL REQUEST FOR DECISION WITH OUR OFFICE, THE DEPARTMENT OF THE NAVY DEVELOPED AN URGENT NEED FOR VARIOUS ITEMS OF EQUIPMENT ABOARD THE VESSEL; THAT TIME DID NOT PERMIT THE DELAY INCIDENT TO REMOVAL OF THE ITEMS BY YOU; THAT THE ATOMIC ENERGY COMMISSION, WHICH WAS TO USE THE ARMOR AND STEEL PLATING, HAD CHANGED ITS REQUIREMENTS, WHICH WOULD NECESSITATE REVISION OF THE SALE CONTRACT; AND, THEREFORE, DSA EXERCISED THE RIGHT RESERVED TO THE GOVERNMENT UNDER ARTICLE 38 OF THE CONTRACT TO WITHDRAW THE PROPERTY AND CANCEL THE SALE. IN VIEW OF THE FOREGOING CIRCUMSTANCES WE EXPRESSED THE OPINION THAT DSA'S CANCELLATION ACTION WAS JUSTIFIED, AND WE DECLINED TO RENDER A DECISION ON THE MERITS OF THE QUESTIONS YOU HAD RAISED CONCERNING THE CONTRACT REQUIREMENT FOR THE REMOVAL AND CUTTING OF THE ARMOR AND STEEL PLATING.

IN YOUR LETTER OF NOVEMBER 30, YOU MAKE THE FOLLOWING STATEMENTS:

"THE PRIOR DECISIONS ON 10 U.S.C. 7305 HAVE CONFIRMED THAT INSTRUMENTS PURPORTING TO PASS TITLE THEREUNDER CANNOT BE CONDITIONED, AS IN ARTICLE 38 OF THE SALES INVITATION; CONSEQUENTLY, WE ARE OF THE OPINION THAT:

"1. WE HAD ATTEMPTED TO TAKE DELIVERY OF THE VESSEL PRIOR TO THE DSA REPORT OF 16 NOVEMBER, WHICH PURPORTED TO ESTABLISH A NEED FOR CERTAIN PROPERTY, AND THIS POSITION WAS DENIED BY THE SALES CONTRACTING OFFICER.

"2. THERE HAS BEEN NO SHOWING, THOUGH SAME HAS BEEN REQUESTED, AS TO THE BONA FIDE REQUIREMENT FOR PROPERTY ORIGINALLY COVERED BY THE SALES CONTRACT.

"3. ARTICLE 38, IF VALID, HAS REFERENCE ONLY TO PROPERTY COVERED BY THE SALES CONTRACT AND DOES NOT HAVE REFERENCE TO PROPERTY, THE TITLE TO WHICH REMAINED WITH THE GOVERNMENT.

"4. ARTICLE 38 IS IMPROPER IN VIEW OF THE DECISIONS SUBSEQUENT TO 10 U.S.C. 7305, SINCE IT INCLUDES A CONDITION NOT SPECIFICALLY AUTHORIZED BY THAT ACT.'

IN YOUR LETTER OF DECEMBER 31, YOU STATE THAT YOU WOULD BE AGREEABLE TO A WAIVER OF ANY CLAIMS AGAINST THE GOVERNMENT FOR ANY MATERIAL REMOVED BY THE DEPARTMENT OF THE NAVY FROM THE VESSEL TO WHICH THE GOVERNMENT DID NOT ORIGINALLY RETAIN TITLE. ADDITIONALLY, YOU REQUEST A LIST OF SUCH MATERIAL.

WE ARE ADVISED BY DSA, WHOSE REPORT WE MUST ACCEPT IN THE ABSENCE OF EVIDENCE TO OVERCOME THE PRESUMPTION OF ITS CORRECTNESS, THAT IN VIEW OF YOUR LETTER OF AUGUST 12 TO OUR OFFICE, WHICH RAISED CERTAIN QUESTIONS RELATIVE TO THE PROPRIETY AND LEGALITY OF YOUR CONTRACT, DSA REACHED AN INFORMAL AGREEMENT WITH YOU THAT PERFORMANCE OF THE CONTRACT WOULD BE HELD IN ABEYANCE PENDING ISSUANCE OF A DECISION BY OUR OFFICE. NEVERTHELESS, THE RECORD INDICATES THAT AFTER THE PRESIDENT OF YOUR FIRM HAD COMMUNICATED WITH THE SALES CONTRACTING OFFICER ON SEPTEMBER 24 REGARDING PAYMENT FOR THE VESSEL ON SEPTEMBER 29, AND REMOVAL OF THE VESSEL BY YOU ON OCTOBER 1, DSA WAS WILLING TO RELEASE THE VESSEL TO YOU UPON RECEIPT OF FULL PAYMENT. WE ARE FURTHER ADVISED THAT DSA ATTEMPTED TO REACH YOUR PRESIDENT BY TELEPHONE ON SEPTEMBER 28 TO SO ADVISE HIM, AND THAT WHEN YOUR MR. GOTTLIEB WAS ULTIMATELY REACHED BY TELEPHONE ON SEPTEMBER 29, HE INFORMED DSA THAT THE PLANNED TOWING ARRANGEMENTS FOR THE VESSEL HAD FAILED AND, THEREFORE, YOU DID NOT WISH TO TAKE DELIVERY AT THAT TIME. THEREAFTER, IT IS REPORTED, THERE WAS NO FURTHER INDICATION FROM YOU THAT YOU INTENDED TO PAY FOR, OR TO REMOVE, THE VESSEL PRIOR TO THE TERMINATION OF THE CONTRACT, AND AT NO TIME DID YOU ACTUALLY TENDER THE PURCHASE PRICE TO THE GOVERNMENT.

CONCERNING THE PASSAGE OF TITLE TO THE VESSEL, ARTICLE 5 OF THE SALE TERMS AND CONDITIONS READS AS FOLLOWS:

"5: TITLE. UNLESS OTHERWISE SPECIFIED IN THE INVITATION, TITLE TO THE VESSEL/S) SOLD HEREUNDER SHALL VEST IN THE PURCHASER AS AND WHEN FULL PAYMENT IS MADE.'

ARTICLE 6 PROVIDED THAT THE PURCHASER WOULD BE ENTITLED TO POSSESSION OF THE VESSEL UPON VESTING OF TITLE IN HIM.

SINCE YOU DID NOT PAY THE FULL PURCHASE PRICE OF THE VESSEL TO THE GOVERNMENT, IT IS CLEAR THAT UNDER ARTICLE 5 TITLE TO THE VESSEL DID NOT PASS TO YOU, AND, ABSENT TITLE, UNDER ARTICLE 6 YOU WERE NOT ENTITLED TO POSSESSION. SUCH CONTRACT PROVISIONS ARE IN ACCORD WITH 10 U.S.C. 7305 (I).

OF MORE IMPORTANCE, HOWEVER, IS THE FACT THAT UNDER ARTICLE 38, REGARDLESS OF WHETHER TITLE HAD PASSED TO YOU, THE GOVERNMENT HAD THE RIGHT, SO LONG AS THE VESSEL REMAINED IN ITS CONTROL, TO WITHDRAW IT FROM SALE IN THE EVENT OF A BONA FIDE REQUIREMENT THEREFOR ON THE PART OF THE GOVERNMENT. WHILE YOU URGE THAT ARTICLE 38 IS IMPROPER IN VIEW OF DECISIONS SUBSEQUENT TO 10 U.S.C. 7305, SINCE IT INCLUDES A CONDITION NOT SPECIFICALLY AUTHORIZED BY THAT STATUTE, YOU HAVE FAILED TO IDENTIFY ANY DECISIONS WHICH SO HELD.

THE CARDINAL RULE IN THE INTERPRETATION OF CONTRACTS OF SALE, AS IN THE INTERPRETATION OF ANY OTHER CONTRACT, IS TO DETERMINE THE INTENTION OF THE PARTIES IF IT CAN BE ASCERTAINED FROM THE INSTRUMENT AND THE CIRCUMSTANCES APPEARING WITHOUT THE VIOLATION OF SOME SETTLED LEGAL PRINCIPLE. B-57242, MARCH 24, 1947. WHILE IT IS TRUE, AS YOU STATE, THAT 10 U.S.C. 7305 DOES NOT SPECIFICALLY AUTHORIZE THE INCLUSION IN A VESSEL SALES CONTRACT OF A PROVISION FOR WITHDRAWAL OF THE VESSEL FROM SALE, EVEN AFTER AWARD, BASED ON GOVERNMENT NEED, THERE IS NO PROHIBITION EITHER IN 10 U.S.C. 7305 OR ANY OTHER STATUTE, TO OUR KNOWLEDGE, AGAINST SUCH PROVISION, NOR DOES SUCH PROVISION VIOLATE ANY LEGAL PRINCIPLE. CONVERSELY, IT HAS BEEN HELD THAT THE SECRETARY OF THE NAVY MAY LEGALLY REMOVE SUCH ARTICLES AND EQUIPAGE FROM VESSELS PRIOR TO THEIR SALE AS MAY STILL BE SERVICEABLE TO THE GOVERNMENT. 28 OP.ATTY.GEN. 470. FURTHER, IN UNITED STATES V. WEISBROD, 202 F.2D 629 (1953), A SIMILAR PROVISION IN A CONTRACT FOR THE SALE OF SURPLUS GOVERNMENT PROPERTY, WHICH RESERVED TO THE GOVERNMENT THE RIGHT TO WITHDRAW THE PROPERTY PRIOR TO REMOVAL BY THE PURCHASER, SUBJECT ONLY TO REFUND OF SO MUCH OF THE PURCHASE PRICE AS HAD BEEN PAID TO THE GOVERNMENT, WAS UPHELD AS BEING WITHIN THE GOVERNMENT'S RIGHT TO ATTACH TO THE SALE SUCH REASONABLE CONDITIONS AS ARE NECESSARY FOR THE GENERAL WELFARE. SEE, ALSO, ERIE COAL AND COKE CORPORATION V. UNITED STATES, 266 U.S. 518; NORTH AND JUDD MANUFACTURING CO. V. UNITED STATES, 84 F.SUPP. 649 (1949); FREEDMAN V. UNITED STATES, 320 F.2D 359 (1963). ACCORDINGLY, IT IS OUR OPINION THAT ARTICLE 38 IS NOT IN VIOLATION OF ANY APPLICABLE LEGAL PRINCIPLE WHICH WOULD RENDER IT INOPERATIVE OR INAPPLICABLE IN THE PRESENT CASE.

AS TO YOUR CONTENTION THAT ARTICLE 38 DOES NOT HAVE REFERENCE TO PROPERTY TO WHICH THE GOVERNMENT RETAINED TITLE, IT IS TO BE NOTED THAT THE ARTICLE REFERS TO "ANY OR ALL OF THE PROPERTY COVERED BY THIS CONTRACT.' SUCH LANGUAGE, IN OUR VIEW, IS BROAD ENOUGH TO INCLUDE THE PROPERTY WHICH THE PURCHASER IS REQUIRED BY ARTICLE 30 TO STRIP AND RETURN TO THE GOVERNMENT. HOWEVER, SINCE THE NEED OF THE GOVERNMENT, WHICH DEVELOPED WHILE THE VESSEL WAS STILL IN THE POSSESSION OF THE GOVERNMENT, INVOLVED BOTH PROPERTY WHICH WAS INTENDED TO BE SOLD AS WELL AS PROPERTY TO WHICH THE GOVERNMENT HAD RETAINED TITLE, THERE IS NO QUESTION THAT THE PROVISION WAS PROPERLY INVOKED BY DSA.

CONCERNING YOUR STATEMENT THAT YOU WOULD BE WILLING TO WAIVE CLAIM AGAINST THE GOVERNMENT FOR ANY MATERIAL TO WHICH THE GOVERNMENT DID NOT RETAIN TITLE BUT WHICH THE DEPARTMENT OF THE NAVY HAS REMOVED FROM THE VESSEL, PLEASE BE ADVISED THAT THE DECISIONS OF THIS OFFICE ARE SUBJECT TO REVIEW ONLY TO THE EXTENT THAT MISTAKES OF LAW OR FACT ARE ALLEGED. SINCE YOUR OFFER TO WAIVE CLAIM HAD NOT BEEN MADE AT THE TIME OUR DECISION OF NOVEMBER 29, 1965, WAS RENDERED, IT WAS NOT CONSIDERED IN REACHING SUCH DECISION, AND IT THEREFORE IS NOT A PROPER MATTER FOR CONSIDERATION IN OUR REVIEW.

WHILE OUR CONCLUSIONS RENDER UNNECESSARY ANY REPLY TO YOUR QUESTION CONCERNING THE IDENTITY OF THE ADDITIONAL EQUIPMENT TO WHICH THE GOVERNMENT HAS MADE CLAIM, YOU MAY BE ADVISED THAT SUCH EQUIPMENT CONSISTED OF CONDENSERS, PUMPS AND OTHER ITEMS, AND THAT REMOVAL OF SUCH EQUIPMENT, TOGETHER WITH FOUR TURBO-GENERATORS, WAS REQUIRED BY DECEMBER 15, 1965, IN ORDER TO PERMIT OVERHAUL PRIOR TO THEIR INSTALLATION IN OTHER NAVAL VESSELS BY AUGUST 1966.

FOR THE REASONS STATED, WE MUST AFFIRM OUR CONCLUSION IN OUR DECISION OF NOVEMBER 29, 1965, THAT THE CIRCUMSTANCES INVOLVED AFFORDED ADEQUATE JUSTIFICATION FOR THE CANCELLATION OF THE SALES CONTRACT BY DSA.