McClure v. United States , 110 F. Supp. 603 ( 1953 )

JoNes, Chief Judge,

delivered the opinion of the court:

This is a suit for adjustment in the price to be paid plaintiffs on a construction contract due to changes in ocean freight rates.

The contract called for construction of officers’ quarters in the Panama Canal Zone. The contract price was $3,930,916.

The bid which was dated March 11, 1940, was opened March 12, 1940, and accepted on April 8, 1940, on which latter date a notice of award and a notice to proceed were issued by the defendant.

Upon receipt of these notices plaintiffs commenced performance of the work on April 15,1940, pending execution of payment and performance bonds and the formal execution of the contract. The contract was signed as of April 16, 1940, the actual signing date being about August 1, 1940.

The plaintiffs entered into an agreement dated May 21, 1940, with a subcontractor for the latter to sell and deliver to plaintiffs the specified tile and fittings for the buildings.

The prime contract contained the following provision:

It is understood and agreed that the Contractor’s Bids are based in part upon the freight rates prevailing on the Panama Railroad at the time the award is made and that if such rates are changed at any time during the life of the Contract, thereafter each 'monthly or other periodic or final payment to the Contractor shall be increased or decreased in the amount of any consequent increased or decreased cost for freight due to increase or decrease in the freight rates actually paid by the Contractor for shipments on account of the Contract during the period to which said payment applies.

It is plaintiffs’ contention that under the terms of the contract they are entitled to an adjustment equivalent to 7^ cents per hundredweight on that portion of the materials that was shipped while the rate was 60 cents per hundredweight, a total of $7,467.99.

The ocean freight rate on roofing tile on March 12, 1940, and until April 17,1940, inclusive, was 60 cents per hundred pounds. On April 18,1940, the rate was reduced to 52.5 cents per hundred pounds, but on August 12,1940, was restored to 60 cents per hundred pounds where it remained through the remainder of the time here involved.

The single issue on this phase of the case turns on when the award was made.

It is plaintiffs’ contention that the award did not become effective until August 1,1940, when the contract was actually signed.¹ They cite this statement in the notice of award:

This award shall become effective upon the execution of the formal contract, by you, and the furnishing, by you, of the performance and payment bonds required by the Act of August 24, 1985 * * *.

However, the award was dated April 8, 1940. At that time the rate was 60 cents. At the time plaintiffs received notice of award and began work on April 15, 1940, it was 60 cents, and that was the rate which prevailed at the time they had submitted their bid on March 11, 1940. Plaintiffs continued with the work after April 15, 1940.

We conclude that the basic rate of the contract was 60 cents. The parties treated the contract as being effective upon receipt of notice of award, leaving only the usual requirements of furnishing performance and payment bonds and the formality of the actual signing. Had the ocean freight rate been increased between April 15,1940, and August 1, it certainly would not have been fair to plaintiffs to deny them the increase on the ground that the contract was not formally signed until August 1, 1940.

The plaintiffs therefore are not entitled to recover since at no time was the rate above 60 cents which was the rate that prevailed at the time of the bid, the receipt of the award and the actual beginning of the work.

The defendant has filed a counterclaim in the sum of $1,885.88.

An employee of the subcontractor who presented the claim on behalf of the plaintiffs and the Comptroller General’s representative in acting on the claim were not aware of the fact that the ocean freight rate in effect at the time of the receipt of the award was 60 cents. The Comptroller General’s representative, on the mistaken assumption that at the time of the opening of the bids and the receipt of the award and notice to proceed, the rate was 52.5 cents, caused a certificate of settlement, dated December 11, 1943, to be issued to plaintiffs, covering the difference in the ocean freight paid on shipments made after August 1,1940, since the rate that had been temporarily reduced to 52.5 cents had been restored to 60 cents per hundred pounds on that date. The plaintiffs were paid this part of their claim.

The Comptroller General later issued a certificate of settlement correcting what it is claimed was an error in issuing the previous certificate, and certifying that plaintiffs were indebted to the United States in the sum of $1,885.38 which he claims was erroneously paid.

There is no allegation or proof as to mutual mistake and no plea for reformation of the contract. In fact, there is no proof that plaintiffs did not know, or have access to knowledge of what the ocean freight rates were at any particular time. There is no allegation of misrepresentation. The entire case is based on the claim that the rate had been reduced before the award became effective.

In view of our conclusion that the award was made in early April 1940, was received by plaintiffs not later than April 15 and that plaintiffs began performance of the contract on that date and continued performance from that date, thus treating the award as complete, and in the light of the undisputed fact that the ocean freight rate during all the negotiations, when the bids were opened and when the plaintiffs received notice of the award and began work was 60 cents per hundred pounds, it seems manifest that that was the basic rate contemplated by the parties. It follows that after the ocean freight rate was restored to 60 cents after August 1,1940, it was still not above the basic rate prevailing at the time the award was actually made.

An error, therefore, was made in paying the plaintiffs the sum of $1,885.38, and defendant should recover that amount on its cross action. McElrath v. United States, 102 U. S. 426, 440.

It follows that plaintiffs are not entitled to recover and their petition is dismissed.

On its counterclaim defendant is entitled to recover from plaintiffs, jointly and severally, $1,885.38, and judgment will be entered in that amount, with interest.

It is so ordered.

Howell, Judge; MaddeN, Judge; WhitakeR, Judge; and LittletoN, Judge, concur.

FINDINGS OE PACT

The court makes findings of fact, based upon the evidence, the report of Commissioner George H. Foster, and the briefs and argument of counsel, as follows:

1. Plaintiff, Tucker McClure, an individual, is a citizen of the United States, and the Thompson-Markham Company is a co-partnership consisting of George K. Thompson and Fred S. Markham, citizens of the United States, having their principal place of business in the city of Los Angeles, California. The Ludowici-Celadon Company is a corporation having its principal place of business at Chicago, Illinois.

2. Under date of April 16, 1940, plaintiffs entered into contract No. W-6708-qm-96 with the War Department, Quartermaster Corps, for the construction of officers’ and noncommissioned officers’ quarters in the Panama Canal Zone at Fort Clayton and Albrook Field, for a consideration of $3,930,916.

3. Plaintiffs’ bid was dated March 11,1940. The bid was opened March 12,1940, and accepted April 8,1940. On the latter date a notice of award and a notice to proceed were issued by defendant to the plaintiffs.

April 15,1940, upon receipt of the notice to proceed, plaintiffs commenced performance of the contract work and continued the work pending formal execution of the performance and payment bonds and the signing of the contract, the latter being signed as of April 16, 1940, by defendant on or about August 1, 1940.

4. Under date of May 21, 1940, plaintiffs entered into a written subcontract with the Ludowici-Celadon Company, which subcontract recited that defendant’s War Department had accepted plaintiffs’ bid and awarded plaintiffs the contract described in findings 2 and 3, and further recited that the subcontractor would sell and deliver to plaintiffs the specified roofing tile and tile fittings for the War Department buildings plaintiffs had contracted to construct.

5. Paragraph GC-47 of the General Conditions of the prime contract, as modified by Addendum No. 7, all of which are incorporated in and made a part of the terms of the contract, contains the following standard provisions with respect to ocean freight adjustments :

GC-47. Bates for Miscellaneous Services and Supplies Obtained From the Government: The current “Departmental Tariff” or “Special Tariff”, or supplements thereto, containing schedules of rates for services and supplies for the departments and divisions of the Panama Canal, will apply to the Contractor and his SubContractors when the services and supplies are available, unless otherwise provided in these specifications for particular services and supplies. For services and supplies not included in the current “Departmental Tariff” or “Special Tariff”, the current commercial tariff or supplements thereto, containing schedules of rates for services and supplies for shipping and allied interests at the Panama Canal, will apply to the Contractor and his Sub-Contractors when the services and supplies are available, unless otherwise provided in these specifications for particular services and supplies. Copies of the tariffs mentioned may be obtained from the Office of the Panama Canal, Balboa Heights, C. Z., or Washington, D. C. All rates so quoted are subject to change without notice.

It is understood and agreed that tlie Contractor’s Bids are based in part upon the freight rates prevailing on the Panama Railroad at the time the award is made and that if such rates are changed at any time during the life of the Contract, thereafter each monthly or other periodic or final payment to the Contractor shall be increased or decreased in the amount of any consequent increased or decreased cost for freight due to increase or decrease in the freight rates actually paid by the Contractor for shipments on account of the Contract during the period to which said payment applies.

6. The Government-owned Panama Railroad Company, which owned and operated the Panama Railroad Steamship Line, was a member of the Atlantic and Gulf/Panama Canal Zone, Colon and Panama City Conference. Its only port of call in the United States was New York City. This Conference was composed of seven lines, including both the Panama Railroad and the United Fruit Company, a private ocean carrier. The Conference adopted one rate schedule applicable to all members so that when the Conference rate was increased, the rate of all members was likewise increased, and whether plaintiffs shipped via the Government’s Panama Railroad Steamship Line, or another Conference line, such as the United Fruit Company, the ocean freight rate to Balboa, Canal Zone was the same.

7. Under date of November 14,1940, the Comptroller General of the United States rendered a decision stating that a standard freight rate adjustment provision such as is contained in Paragraph GC-47, supra, was not applicable to shipments made over private ocean carriers, but only to shipments over the Government’s Panama Railroad Steamship Line, also known as the Panama Line.

8. By letter dated July 8, 1941, the Chief of Office, the Panama Canal, informed the Comptroller General that in the early part of 1941, work on important Army and Panama Canal Zone contracts was being delayed due to shipments of essential materials being deferred until facilities of the Panama Railroad Steamship Line were available. At the same time the Chief of Office transmitted a letter from the Acting Governor of the Panama Canal asking whether the standard freight adjustment provisions might be construed to permit the adjustment of contract payments on private steamship lines on the basis of the Conference rates of the Atlantic and Gulf/Panama Canal Zone, Colon and Panama City Conference.

9. Under date of July 16, 1941, the Comptroller General made a general ruling that certain modifications of the provisions of Paragraph GC-47 were permissible, said decision (21 Comp. Gen. 31), is incorporated herein by reference. Accordingly, under date of August 1, 1941, plaintiffs and defendant amended their particular contract by Supplemental Agreement No. 2 which principally added paragraph (b) pertaining to services obtained from any ocean carrier. The Agreement provided:

GC-46. (GC-47) Rates:

a. For supplies and services obtained from the Government : The current “Department Tariff” or “Special Tariff” or supplements thereto, containing schedules of rates for services and supplies for the Departments and Divisions of the Panama Canal, The Panama Railroad and The Panama Railroad Steamship Line will apply to the Contractor and his Sub-Contractors when the services and supplies are available, unless otherwise provided in these specifications for particular services and supplies. For services and supplies not included in the current “Department Tariff” or “Special Tariff”, the current commercial tariff, or supplements thereto, containing schedules of rates for services and supplies for shipping and allied interests at the Panama Canal, will apply to the Contractor and his Sub-Contractors when the services and supplies are available, unless otherwise provided in these specifications for particular services and supplies. Copies of the tariffs mentioned may be obtained from the Office of the Panama Canal, Balboa Heights, Canal Zone, or Washington, D. C. All rates so quoted are subject to change without notice.

It is understood and agreed that the contractor’s bids are based in part upon the freight rates prevailing on the Panama Railroad at the time the award is made and that if such rates are changed at any time during the life of the contract, thereafter each monthly or other periodic or final payment to the contractor shall be increased or decreased in the amount of any consequent increased or decreased cost for freight due to increase or decrease in the freight rates actually paid by the Contractor for shipments on account of the contract during the period to which said payment applies.

b. For services obtained from any ocean carrier: By the submission of a bid hereunder and its acceptance by The United States it is agreed that if any increase or decrease in the ocean freight rates applicable to the articles, materials, supplies or equipment furnished is made by the Steamship conference operating in the trade involved, or is prescribed by the United States Maritime Commission, the contract price will be increased or decreased accordingly: Provided, That any such increase in the contract price shall not be more than the amount by which the ocean freight charges actually paid exceed the ocean freight charges based on Steamship Conference rates in effect on date of opening of bids: And Provided Further, That the delay in Payment of the amount representing any such increase shall not effect the right of the United States to prompt payment discount on the remainder of the contract price.

B. That the Paragraph above shall not apply to shipments sailing from ports of the United States prior to the date of this agreement but shall not effect any provisions of said contract, heretofore existing.

In all other respects the provisions of the contract shall remain unchanged.

10. The ocean freight charges on roofing tile based on the Conference rates in effect on the date of opening of bids, namely March 12, 1940, and until April 17, 1940, inclusive, were $0.60 per 100 pounds. The Conference rate was reduced to $0,525 per 100 pounds on April 18, 1940, but restored to $0.60 per 100 pounds on and after August 12,1940.

Subsequent to August 12,1940, plaintiffs, through the subcontractor, shipped approximately ten million pounds of roofing tile via the United Fruit Company, a private steamship carrier and a member of the aforesaid Conference, from New Orleans to Balboa at the $0.60 rate and paid a total of $7,467.99 in excess of what would have been paid if the rate had remained $0,525 per 100 pounds. Of the sum of $7,467.99, $5,582.61 related to shipments made prior to August 1, 1941 (the date of Supplemental Agreement No. 2), and $1,885.38 related to shipments made subsequent to August 1, 1941.

11. After the execution of the aforesaid Supplemental Agreement No. 2 the subcontractor as plaintiffs’ representative filed a claim with the Comptroller General for the $7,467.99 paid as a result of shipments made via United Fruit Company vessels at the $0.60 rate without disclosing that the rate in effect on the date of opening bids was also $0.60. The claim schedules purported to show that the ocean freight on shipments of roofing tile from New Orleans to Balboa had been increased from $0,525 to $0.60 per 100 pounds and the schedules were supported by bills of lading which showed that subsequent to August 1, 1941, plaintiffs had made shipments via the United Fruit Company vessels at the rate of $0.60 per 100 pounds, which was $1,885.88 in excess of the amount payable if the rate had been $0,525.

An employee of the subcontractor who, as representative of the plaintiffs, presented the claim on behalf of the plaintiffs, and the Comptroller General’s representative in acting on the claim, were not aware of the fact that the ocean freight rate in effect on the date of opening of the bids was $0.60 rather than $0,525 per 100 pounds. The Comptroller General’s representative in applying the provisions of the contract and the Supplemental Agreement, disallowed the claim for the shipments made prior to August 1, 1941, because they were not made over the Government’s Panama Railroad Steamship Line. With regard to the shipments made after August 1, 1941, on the mistaken assumption that the ocean freight rate in effect on the date of the opening of bids was $0,525 and that the rate had been increased to $0.60 per 100 pounds, the Comptroller General’s representative caused a certificate of settlement dated December 11,1948, to be issued to plaintiffs for $1,885.38. The certificate would not have been issued if the Comptroller’s representative had been informed that the ocean freight rate in effect on the date of opening of bids was $0.60. The certificate was not issued in compromise of the claim. On the basis of this erroneous certificate of settlement so issued, the Finance Officer, U. S. Army, on or about December 21, 1943, paid plaintiff the sum of $1,885.38 on Government voucher No. 417398. Plaintiff has not reimbursed defendant for the $1,885.38 and the Comptroller has issued a certificate of settlement correcting the error and certifying that plaintiffs are indebted to the United States for the $1,885.38 erroneously paid. [Amended. See below.]

CONCLUSION OE LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law plaintiffs are not entitled to recover and the petition is therefore dismissed.

The court further concludes that as a matter of law defendant is entitled to recover on its counterclaim, and it is therefore adjudged and ordered that it recover of and from plaintiffs, jointly and severally, one thousand eight hundred eighty-five dollars and thirty-eight cents ($1,885.38). [Amended. See below.]

Judgment is also rendered against plaintiffs for the cost of printing the record herein, the amount thereof to be entered by the clerk and collected by him according to law.

On defendant’s motion to amend the judgment in this case (No. 47268), which motion was granted, the following opinion was rendered May 13, 1953:

Jones, Chief Judge,

delivered the opinion of the court:

The defendant is entitled to interest on the overpayment from the time of making the demand for repayment, October 15, 1947. United States v. Skinner, 35 F. 2d 889; Standard Steel Car Co. v. United States, 67 C. Cls. 445. However, in the circumstances of this case we think four percent is a reasonable rate.

The judgment will be amended by adding after the figures $1,885.38 a comma and a clause reading as follows: “together with interest thereon at the rate of four percent per annum from October 15,1947, to date of payment.”

It is so ordered.

1 A supplemental agreement was signed under date of August 1, 1941, but this does not materially affect plaintiff’s claim since both at the time of the opening of the bids and at the time of the making of the award as we have interpreted the contract under the facts of this ease, the rate was 60 cents per hundred pounds.