B-131671, JUNE 13, 1957, 36 COMP. GEN. 817

B-131671, JUNE 13, 1957, 36 COMP. GEN. 817

CONTRACTS - CLAIMS - ASSIGNMENTS - VALIDITY - DELAYED APPROVAL BY GOVERNMENT A CONTRACT ASSIGNMENT WHICH WAS CONDITIONED ON APPROVAL BY THE GOVERNMENT BUT WHICH WAS NOT APPROVED UNTIL MORE THAN A MONTH AFTER THE ASSIGNEE HAD GIVEN NOTICE THAT HE WISHED TO WITHDRAW FROM THE ARRANGEMENT DOES NOT ESTABLISH PRIVITY OF CONTRACT BETWEEN THE GOVERNMENT AND THE ASSIGNEE SO THAT THE GOVERNMENT CAN RECOVER EXCESS COSTS FOR PURCHASES FROM ANOTHER SOURCE.

TO THE SECRETARY OF THE ARMY, JUNE 13, 1957:

REFERENCE IS MADE TO YOUR LETTER OF APRIL 25, 1957, REQUESTING OUR ADVICE AS TO WHETHER THERE EXISTS A LEGALLY ENFORCEABLE CONTRACT BETWEEN THE INSULINE CORPORATION OF AMERICA AND THE DEPARTMENT OF THE ARMY BY REASON OF MODIFICATION NO. 2 TO CONTRACT NO. DA-36-039-SC-70422 DATED OCTOBER 5, 1955, WITH THE ALLIED ENGINEERING DIVISION, ALLIED INTERNATIONAL, INC., WHICH CORPORATION LATER CHANGED ITS NAME TO ANAL INDUSTRIES, INC.

IN DECEMBER 1955 ANAL INDUSTRIES, INC., NOTIFIED THE CONTRACTING OFFICER THAT IT WAS IN FINANCIAL DIFFICULTIES AND DESIRED TO DISCUSS THE POSSIBILITY OF ASSIGNING THE CONTRACT TO THE INSULINE CORPORATION OF AMERICA. UNDER THE TERMS OF AN AGREEMENT DATED JANUARY 17, 1956, ANAL ASSIGNED ALL OF ITS RIGHT, TITLE AND INTEREST IN THE CONTRACT TO INSULINE IN CONSIDERATION OF INSULINE'S AGREEMENT TO PERFORM THE CONTRACT WORK AND TO PAY TO ANAL THE SUM OF $2,500 WHEN THE ASSIGNMENT HAD BEEN APPROVED BY THE GOVERNMENT. THIS AGREEMENT APPEARS TO HAVE BEEN DRAWN UP IN ACCORDANCE WITH A LETTER FROM THE LEGAL OFFICE, SIGNAL CORPS SUPPLY AGENCY, ADVISING THAT SUCH AN AGREEMENT SHOULD BE FURNISHED TO THAT OFFICE "IN ORDER THAT A NOVATIONAL SUPPLEMENTAL AGREEMENT MAY BE PREPARED.'

THE PROPOSED " NOVATION SUPPLEMENTAL AGREEMENT" WAS DRAFTED AS A PROPOSED MODIFICATION NO. 2 TO THE CONTRACT. ALTHOUGH IN A LETTER DATED FEBRUARY 22, 1956, INSULINE REFERRED TO A PROPOSED NEW DELIVERY SCHEDULE CALLING FOR PREPRODUCTION SAMPLES BY MAY 1, 1956, AND COMPLETION OF DELIVERIES DURING THE PERIOD AUGUST 31 THROUGH DECEMBER 31, 1956, AND REQUESTED THAT IT BE AUTHORIZED TO PROCEED ON OR BEFORE MARCH 1, 1956, THE PROPOSED NOVATION AGREEMENT, RECOGNIZING THE ASSIGNMENT, BUT PROVIDING NO CHANGE IN THE DELIVERY SCHEDULE, WAS NOT RECEIVED BY INSULINE UNTIL AFTER MARCH 12, 1956, AT WHICH TIME THE CONTRACTOR WAS ALREADY TECHNICALLY IN DEFAULT. NEVERTHELESS, INSULINE SIGNED AND RETURNED THE PROPOSED CONTRACT MODIFICATION TO THE CONTRACTING OFFICER BY LETTER DATED MARCH 15, 1956.

THE PROPOSED MODIFICATION NO. 2 WAS SIGNED BY ANAL INDUSTRIES, INC., ON OR ABOUT MARCH 23, 1956, AND THE CONTRACTING OFFICER THEN FORWARDED IT FOR APPROVAL BY HIGHER ADMINISTRATIVE AUTHORITY, WHICH WAS NOT GRANTED UNTIL MAY 3. IT WAS NOT IN FACT EXECUTED ON BEHALF OF THE GOVERNMENT UNTIL MAY 14. ON APRIL 16, 1956, INSULINE HAD REQUESTED THAT THE PROPOSED CONTRACT MODIFICATION BE DISAPPROVED BY THE GOVERNMENT, ALLEGING THAT PRICES FOR SUPPLIES HAD ADVANCED AND THAT, IN ANY EVENT, THE CONTRACT DELIVERY SCHEDULES COULD NOT BE MET AND WOULD HAVE TO BE RENEGOTIATED IF THE COMPANY WERE COMPELLED TO ACCEPT THE CONTRACT. THE CONTRACTING AUTHORITIES CONCEDED THE NECESSITY FOR MODIFICATION OF THE DELIVERY SCHEDULE, BUT REFUSED TO CONSIDER ANY CHANGE OF PRICE. UPON INSULINE'S REFUSAL TO PROCEED WITHOUT SUBSTANTIAL PRICE INCREASE, CONTRACT NO. DA-36- 039-SC-70422 WAS TERMINATED FOR DEFAULT ON NOVEMBER 16, 1956, AND THE CONTRACT ITEMS WERE PURCHASED FROM ANOTHER SOURCE AT A COST WHICH WAS $121,429.88 IN EXCESS OF THE TOTAL CONTRACT PRICE. A DEMAND WAS MADE UPON INSULINE FOR PAYMENT OF THAT AMOUNT. YOU STATE THAT ADMINISTRATIVE PROCEDURES HAVE BEEN INSTITUTED TO RECOUP THIS AMOUNT THROUGH SETOFF ON OTHER CONTRACTS OF INSULINE AND THAT, AS OF APRIL 4, 1957, THE AMOUNT OF $8,588.08 HAD BEEN WITHHELD ON CURRENT, OPEN UNASSIGNED CONTRACTS OF THE COMPANY.

IT IS SET FORTH IN YOUR LETTER THAT THE SIGNAL CORPS HAS PROCEEDED ON THE THEORY THAT THE ASSIGNMENT OF JANUARY 17, 1956, WAS A THIRD PARTY CREDITOR BENEFICIARY CONTRACT AS TO WHICH THE GOVERNMENT HAS AN ENFORCEABLE RIGHT AGAINST INSULINE; OR THAT, IF IT BE CONSIDERED AS MERELY AN OFFER BY INSULINE TO TAKE OVER THE ANAL CONTRACT, IT WAS A CONTINUING OFFER WHICH INSULINE HAD NO RIGHT TO WITHDRAW UNTIL THE GOVERNMENT HAD HAD A REASONABLE TIME TO CONSIDER AND ACCEPT IT. INSULIN, ON THE OTHER HAND, CONTENDS THAT THE JANUARY 17, 1956, AGREEMENT WAS NOT A THIRD-PARTY BENEFICIARY CONTRACT AND THAT, EVEN IF IT WERE, THE SIGNAL CORPS DID NOT APPROVE THE ASSIGNMENT AS IMPLIEDLY REQUIRED BY R.S. 3737 (41 U.S.C. 15) BEFORE (A) THE PASSAGE OF SUCH AN UNREASONABLE PERIOD OF TIME AS TO VOID ANY RIGHTS ON THE PART OF THE GOVERNMENT, OR (B) SUCH CHANGES IN CONDITIONS, WHICH CHANGES WERE COMMUNICATED TO THE GOVERNMENT, AS TO PRECLUDE THE GOVERNMENT FROM THEN ACCEPTING ANY BENEFITS UNDER THE ASSIGNMENT.

WE HAVE EXAMINED THE COURT CASES CITED BY THE SIGNAL CORPS, BUT FIND NOTHING THEREIN CLEARLY TO SUPPORT THE THEORY THAT THE GOVERNMENT OBTAINED AN ENFORCEABLE RIGHT AGAINST INSULINE BY VIRTUE OF HAVING FINALLY APPROVED THE ASSIGNMENT IN QUESTION. SUCH ACTION WAS TAKEN AT A TIME WHEN THE GOVERNMENT HAD BEEN PLACED ON NOTICE THAT INSULINE WISHED TO WITHDRAW FROM THE ARRANGEMENT, OR WOULD UNDERTAKE ITS PERFORMANCE ONLY AT A HIGHER PRICE AND ON A REVISED DELIVERY SCHEDULE.

FROM THE RECORD BEFORE US, IT SEEMS CLEAR THAT THE SO-CALLED ASSIGNMENT OF JANUARY 17, 1956, WAS CONDITIONED UPON THE APPROVAL OF THE GOVERNMENT. EVEN IF IT WERE NOT, THERE WAS NO PRIVITY OF CONTRACT BETWEEN INSULINE AND THE GOVERNMENT, AND THERE IS BELIEVED TO BE CONSIDERABLE DOUBT WHETHER, IN THE ABSENCE OF ANY AGREEMENT BETWEEN THE GOVERNMENT AND AN ASSIGNEE OF A GOVERNMENT CONTRACT, THE GOVERNMENT ACQUIRES AN ENFORCEABLE RIGHT AGAINST THE ASSIGNEE, SINCE IT IS NOT OBLIGED EITHER UNDER THE GENERAL RULE OF LAW RESPECTING ASSIGNMENTS OR UNDER SECTION 3737 OF THE REVISED STATUTES (41 U.S.C. 15) TO RECOGNIZE THE ASSIGNEE. SEE BALL ENGINEERING COMPANY V. J. G. WHITE, INC., 283 F. 496; AND 18 OP. ATTY. GEN. 88.

ASSUMING, WITHOUT DECIDING, THAT INSULINE'S OFFER COULD NOT BE WITHDRAWN UNTIL THE EXPIRATION OF A REASONABLE TIME, WE BELIEVE THAT UNDER THE CIRCUMSTANCES SHOWN A REASONABLE TIME HAD ELAPSED BEFORE APRIL 16, ON WHICH DATE THE OFFER WAS CLEARLY REPUDIATED. SEE CHEMICALS RECOVERY CO. V. UNITED STATES, 103 F.1SUPP. 1012.

FOR THE REASONS STATED, WE CONCLUDE THAT THERE DOES NOT EXIST A LEGALLY ENFORCEABLE CONTRACT BETWEEN THE INSULINE CORPORATION OF AMERICA AND THE DEPARTMENT OF THE ARMY BY REASON OF MODIFICATION NO. 2 TO CONTRACT NO. DA- 36-039-SC-70422.