
    THE TENNESSEE SOAP COMPANY v. THE UNITED STATES
    [No. 95-52.
    Decided November 30, 1954]
    
      
      Mr. Harold G. Herrily for plaintiff. Messrs. Wrape and Herrdy and Louis I. Hailey were on the briefs.
    
      Mr. Thomas H. McGrail, with whom was Mr. Assistant Attorney General Warren E. Burger, for defendant.
   Jones, Chief Judge,

delivered the opinion of the court:

The plaintiff, a manufacturer of laundry soap, on June 1, 1950, contracted with the Navy Department for the delivery by plaintiff of 120,000 pounds, more or less, of laundry soap. The delivery was to be made between July 1 and September 30, 1950, at such times and in such quantities as might be determined and specified by the Navy Department. The price was to be $.0826 per pound.

The plaintiff was given a preliminary notice of award during the month of June 1950, although the official award was not received by it until August 7, 1950.

By the terms of the agreement under the head of “Estimated Quantities” it was stipulated that the quantities set forth are estimates only; that the contractor was required to furnish and the Government to accept such quantities as should from time to time be ordered; that in any event the Government was obligated only to order supplies having an aggregate value of not less than $10; that the contractor was required to furnish supplies up to the estimated quantities. It was also further provided that if the Government ordered and the contractor furnished more than the estimated maximum amount, payment for the excess should be at the stipulated unit prices.

It was further provided that the soap should be delivered at such times and in such quantities as might be specified in each order and that unless otherwise specified the soap should be delivered within 24 hours after the receipt of each order, and that no deliveries were to be made until specific orders were received by the plaintiff.

There was a further provision to the effect that if the contractor failed or refused to make delivery within the time specified the Government “may by a notice in writing to the contractor terminate the performance of work under this contract in whole or in any part.”

It was further stipulated that in the event defendant exercised its right to terminate it might purchase in the open market articles or services similar to those called for by the contract and charge the excess cost to the contractor, provided the contractor should not be charged with any liability if such default or failure was due to causes beyond its control and without its fault or negligence. The several causes that would excuse plaintiff and the conditions under which it would be excused from the obligation are set out in finding 7. Two of these causes that would excuse plaintiff from the obligation were (1) strikes and (2) “delays of a subcontractor or supplier in furnishing material or supplies ■owing to causes beyond the control and without fault or negligence of the Contractor unless the Contractor could reasonably have secured the materials and supplies from other sources.”

The contract contained a further provision that all disputes concerning questions of fact which might arise should be decided by the contracting officer whose decision should be final unless appeal was made to the Secretary of the Navy within 30 days from receipt of such decision.

About June 22, 1950, plaintiff shipped a railroad car lot of 40,000 pounds of laundry soap to a warehouse in San Francisco, California, pursuant to the terms of the contract. Between July 1 and 24,1950, orders were placed by the Navy against this shipment and deliveries were made in amounts totaling somewhat less than 40,000. On July 24 the Navy placed an order for 10,000 pounds of soap pursuant to the contract, but this order was not filled and plaintiff’s warehouse agent advised the Navy that the soap was temporarily unavailable. On August 1, 1950, the Navy notified plaintiff’s agent that the requirement still existed and that if performance was not made within 24 hours the contract would be terminated. The soap was not delivered by August 3, 1950, and on that date the contract was terminated pursuant to Article 15 of the general provisions of the contract.

By letter of that date, August 3, 1950, the Navy advised plaintiff that a replacement contract would be made as soon as possible, and that until such a contract should be made the Navy would purchase on a spot basis its immediate needs, including the 10,000 pounds requested on July 24, 1950, and that plaintiff would be notified of the excess cost.

The plaintiff on August 5, 1950, replied that its failure to supply the requested soap resulted from a stepped-up demand by the Navy caused by the Korean war and a deficiency of alkalies used in the production of the soap caused by strikes within the plants of plaintiff’s suppliers, and that these factors were beyond plaintiff’s control. The Navy’s contracting officer did not consider the reasons for nondelivery by plaintiff to be beyond its control and refused to accept any further shipments from plaintiff.

Thereafter the contracting officer purchased from time to time 82,350 pounds of replacement soap from other producers at a net excess cost of $2,046.21 above the stipulated unit price. The Navy charged this excess cost against the plaintiff and this amount was withheld by the defendant from other sums admittedly due the plaintiff.

The plaintiff sues for a recovery of this amount.

The plaintiff strongly insisted that its failure to have on hand sufficient soap to fill the order was due to strikes in the plants which processed and furnished the type of dense soda ash required in the manufacture of soap and that this situation was beyond the control of the plaintiff. The contracting officer found as a fact that the causes of the delay were not beyond plaintiff’s control. Plaintiff did not appeal such finding.

The plaintiff insists that this was a unilateral contract; that the defendant only obligated itself to purchase soap in the aggregate value of $10, and that this consideration was not sufficient to bind the plaintiff to deliver such indefinite amounts from time to time as the defendant might see fit to order, and that the contract therefore lacked mutuality. However, we find that the contract was enforceable to the extent that it had been performed when the contracting officer elected to terminate it. Willard, Sutherland and Company v. United States, 262 U. S. 489, 494; William C. Atwater and Company, Inc., v. United States, 262 U. S. 495; A. L. R. Ann. Vol. 26 (2d) 1146, 1160. In the Willard, Sutherland case a contract was made for the purchase of coal by the Government at a stated price per ton which did not require the Government to take or limit its demand to any ascertainable quantity. We quote from the opinion in that case, at pages 493, 494:

There is nothing in the writing which required the Government to take, or limited its demand, to any ascertainable quantity. It must be held that, for lack of consideration and mutuality, the contract was not enforceable. * * *
While the contract at its inception was not enforceable, it became valid and binding to the extent that it was performed.

While in the above case the plaintiff was suing on the entire contract and the contract was held void for lack of mutuality except to the extent performed, the same reasoning applies to the case at bar. The defendant cites the case of Sylvan Crest Sand & Gravel Company v. United States, 150 F. 2d 642. We do not think the decision in that case is applicable to the facts in the instant case.

It is difficult to avoid the conclusion that the contracting officer made a mistake in holding that under the terms of the contract the plaintiff was not excused in failing to deliver the 10,000 pounds of soap ordered on July 24,1950, because of conditions beyond its control. However, since plaintiff failed to appeal the decision of the contracting officer it is, under the terms of the contract, bound by that decision. While the contracting officer’s decision was apparently almost in the teeth of the facts, there is not enough in the record to justify a finding that his decision was arbitrary, capricious or so grossly unfair as to imply bad faith. We hold, therefore, that under this decision which was not appealed, the plaintiff was obligated to furnish the 10,000 pounds of soap which were procured from other sources by defendant at an excess cost of $234.

However, for the Government to undertake to charge the plaintiff with the excess cost of procuring 82,350 pounds of replacement soap which had not even been ordered and which, because of the termination of the further performance of the contract, plaintiff was not even given a chance to deliver, is too much like exacting the pound of flesh.

This is clearly a separable contract, enforceable only to the degree that it was performed or that the soap was ordered. Plaintiff was given no assurance at any time that any soap would be ordered except as ships might come in from time to time within the period and need the soap, and even in such instances the amount of the specific orders would not be definite until the amount of the ship’s needs was disclosed.

If the case were before us on the facts shown by the evidence we would be inclined to allow the plaintiff recovery of the full amount claimed, $2,046.21, but since the plaintiff failed to appeal the contracting officer’s decision as to the 10,000 pounds of soap which were specifically ordered on July 24, 1950, we have no choice but to hold the plaintiff liable for failure to deliver this specific amount that was made definite and certain by the order. We hold, however, that the defendant was not justified in exacting from the plaintiff the excess cost on the balance of the estimates which at the time of the termination of the performance of the contract were wholly indefinite and unascertainable. It would be a rank injustice to hold otherwise.

The plaintiff is entitled to recover the sum of $1,812.21.

It is so ordered.

Laeamoke, Judge; Madden, Judge; Whitaker, Judge; and Littleton, Judge, concur.

FINDINGS OP FACT

The court, having considered the evidence, the report of Commissioner Currell Vance, and the briefs and argument of counsel, makes findings of fact as follows:

1. The plaintiff is a Tennessee corporation engaged in the business of manufacturing laundry soap, with its principal place of business at Memphis, Tennessee.

2. The plaintiff entered into Contract N220s-55198A on June 1, 1950, with the Bureau of Supplies and Accounts, Department of the Navy, for the delivery by plaintiff of 120,000 pounds, more or less, of laundry soap at such times and in such quantities as determined and specified by the Department of the Navy during the period from July 1, 1950, to September 80, 1950, at the price of $0.0826 per pound.

3. Paragraph 7 (b) under “Instructions to Bidders,” as incorporated into the contract, provided as follows:

An award or preliminary notice of award will be mailed (or delivered) to the successful bidder at the earliest practicable date, whereupon such award or notice of award will constitute a binding contract between the bidder and the Government without further action on the part of the bidder.

The plaintiff received a preliminary notice of award sometime in June and commenced performance of the contract immediately. The official award was received by plaintiff on August 7, 1950. The trade practice was that a time lag existed between the awarding of such a contract and the official notification of such an award.

4. Paragraph 1 of the “Special Conditions,” as contained in the schedule of the contract, provided as follows:

1. Estimated, Quantities: The quantities set forth herein are estimated only. The quantities which the contractor may be required to furnish and the Government to accept hereunder shall be the quantities which shall from time to time be ordered hereunder by the ordering activities during the period of this contract. In any event, however, the Government shall order supplies hereunder having an aggregate value at the above unit prices of not less than $10.00 and the Government shall be entitled to order and the contractor shall be required to furnish supplies hereunder up to the estimated quantities set forth herein. If the Government orders and the contractor furnishes more than the foregoing maximum amount the total quantity ordered and furnished shall be treated for all purposes as having been ordered and furnished under the terms of this contract and payment therefor shall be made at the unit-price or prices.

5. Paragraph 8 of the “Special Conditions,” as contained in the schedule of the contract, provided as follows:

3. Delivery: Orders placed during the period of the contract, shall be delivered, at such times and in such quantities as specified in each order, all transportation charges paid, to such destinations within the zone set forth in the schedule as are designated by the ordering activity. Unless otherwise specified in the order, all material shall be delivered within twenty-four (24) hours after receipt of order, excepting Saturdays, Sundays and holidays. Orders in export pack shall be delivered within fourteen (14) days after receipt of order.
No deliveries are to be made until specific orders are received.

6. A “Notice to Bidders” was added to the schedule of the contract and provided as follows:

Notice to Bidders
Articles contained in the attached bid tender are required for the furnishing of Ship’s Store supplies to naval vessels on limited visits to the Port of San Francisco. The attention of bidders is directed to the twenty-four hour delivery requirement contained in paragraph 3 of the “Special Conditions” sheet attached hereto. Bidders located outside of the immediate San Francisco Bay Area must designate a local Agent or Distributor with whom orders may be placed in order that this requirement may be met. Failure to do so will result in no award being made on your bid.
Name of Bidder: The Tennessee Soap CompaNy.
Orders to be placed with:
Name: c/o Central Warehouse & Drayage.
Address : 164 Townsend.
City: San Francisco, California.
Telephone : DOuglas 2-4694.

7. Section 15 of “General Provisions” of the contract provided in part as follows:

(a) Whenever the Contractor
(1) refuses or fails to make deliveries of the articles called for herein within the time specified in this contract, or
(2) otherwise defaults in the performance of this contract or so fails to make progress in the prosecution of the work hereunder as to endanger performance of this contract in accordance with its terms and fails to cure such default or failure within a period of 10 days (or such longer period as the contracting officer may allow) after receipt from the contracting officer of a notice specifying the default or failure,
the Government, subject to the provisions of paragraph (a) of the Section hereof entitled “Termination at the Option of the Government” and of paragraph (f) below, may by a notice in writing to the Contractor terminate the performance of work under this contract in whole or in any part.
sfc # # :f:
(c) In addition to its other remedies, the Government may, after exercising its right to terminate pursuant to paragraph (a) above, purchase in the open market or otherwise obtain articles or services similar to those called for by this contract in an amount which, together with the completed articles delivered or services performed by the Contractor under (b) above, shall not exceed the total quantity terminated. If the cost to the Government of the articles or services so procured exceeds the price fixed for such articles or services under this contract, the Contractor, and its surety, if any, shall be liable for such excess.
* * * * *
(f) This contract shall not be terminated under the provisions of this Section and the Contractor shall not be charged with any liability to the Government if the default or failure of the Contractor is due to causes beyond the control and without the fault or negligence of the Contractor. Such causes shall include but not be restricted to (1) acts of God or of the public enemy, (2) acts of the Government of the United States or any State or political subdivision thereof, (3) fires, floods, explosions, earthquakes, or other catastrophes, (4) epidemics, (5) quarantine restrictions, (6) strikes, (7) freight embargoes, (8) unusually severe weather, (9) inability of the Contractor to obtain equipment or material due to the operation of governmental priorities, preferences or allocations of equipment or material, or (10) delays of a subcontractor or supplier in furnishing material or supplies owing to causes beyond the control and without the fault or negligence of the Contractor unless the Contractor could reasonably have procured the materials or supplies from other sources.
(g) In the event that a Notice of Termination under this Section has been delivered to the Contractor and it thereafter is determined that the default or failure is due to causes beyond the control and without the fault or negligence of the Contractor, performance of work under this contract shall be deemed to have been terminated, effective date of the Notice of Termination, pursuant to the Section entitled “Termination at the Option of the Government,” and the rights and obligations of the parties shall in such event be governed by said Section.

8. Section 20 of “General Provisions” of the contract provided as follows:

Except as otherwise specifically provided in this contract, all disputes concerning questions of fact which may arise under this contract, and which are not disposed of by mutual agreement, shall be decided by the contracting officer, who shall mail to the Contractor a written notification of his determination. Within thirty days from said mailing the Contractor may appeal to the Secretary of the Navy, whose decision shall be final and conclusive upon the parties. Pending decision of a dispute hereunder the Contractor shall diligently proceed with the performance of this contract.

9. On or about June 22,1950, plaintiff shipped a railroad carload of 40,000 pounds of laundry soap to a warehouse in San Francisco, California, pursuant to the terms of the contract. Between July 1 and July 24, 1950, orders were placed by the Navy against this shipment, and deliveries were made by plaintiff’s warehouse agent, in amounts totaling less than the 40,000 pounds.

10. On July 24,1950, the Navy placed an order for 10,000 pounds of soap pursuant to the contract, but this order was not filled and plaintiff’s warehouse agent advised the Navy that the soap was temporarily unavailable. On August 1, 1950, the Navy notified plaintiff’s agent that the requirement still existed and that performance under the contract would be terminated if delivery was not made within twenty-four hours thereafter. Plaintiff’s agent in San Francisco, California, did not advise plaintiff’s officers in Memphis of this Navy order for 10,000 pounds of soap.

11. The soap requested by the Navy orders of July 24,1950 and August 1, 1950, was not delivered by August 3, 1950. The contract was terminated for default on August 3, 1950, pursuant to Article 15 of the general provisions of the contract.

12. By letter dated August 3,1950, and received by plaintiff August 4, 1950, the Navy advised plaintiff that a replacement contract would be made as soon as possible to procure the requirements for soap covered by the contract over the remaining period of the contract, that until such contract could be awarded it would be necessary to negotiate individual purchases on a spot basis to meet immediate needs including the 10,000 pounds requested on July 24, 1950, and that the plaintiff would be informed as promptly as possible after September 30, 1950, of the exact amount of the excess costs incurred.

13. On August 5,1950, plaintiff replied to the Navy letter of August 3,1950, and stated that plaintiff’s failure to supply the requested soap resulted from a stepped-up demand by the Navy caused by the Korean war, and a deficiency in alkalies used in the production of the soap caused by strikes within the plants of plaintiff’s suppliers, and plaintiff stated further that these factors were beyond its control. On August Y, 1950, plaintiff’s president contacted the Navy’s contracting officer by telephone and discussed the reasons for plaintiff’s failure to supply the soap. The Navy’s contracting officer did not consider the reasons for nondelivery by plaintiff to be beyond its control under Section 15 (f) of the general provisions of the contract and refused to accept any further shipments from plaintiff.

14. After the termination of the contract, the contracting officer purchased 82,350 pounds of replacement soap from other producers. Of this amount, 1,000 pounds were purchased on August 8, 1950, 3,000 pounds on August 9, 1950, about 50,000 pounds during the remainder of August 1950, and the other purchases were made in September 1950. The additional costs to the Navy of these purchases over the contract price was $2,046.21.

15. By letter dated November 17, 1950, the contracting officer advised plaintiff again that the reasons for its nondelivery were not considered beyond its control pursuant to Section 15 of the general provisions of the contract, and informed plaintiff that the excess costs to the Navy, in obtaining soap in lieu of that covered by the contract, pursuant to Section 15 (c) of the General Provisions, was $2,046.21. By letter dated December 21, 1950, the contracting officer again notified plaintiff that it was indebted to the Navy in the amount of $2,046.21 pursuant to Section 15 (c) of the general provisions of the contract.

16. It is plaintiff’s strong insistence that its failure to have on hand sufficient soap to fill the order referred to herein-above in finding 10, was due to strikes in the plant which processed and furnished the type of dense soda ash required in the manufacture of the soap. The proof in the record tends strongly to support the truth of plaintiff’s claims in this regard. However, as stated above, the contracting officer found that the causes of the delay were not beyond plaintiff’s control, and the plaintiff has taken no administrative appeal from such finding.

17. The sum of $2,046.21 mentioned hereinabove in finding 14, has been withheld by the defendant from other sums admittedly due the plaintiff.

18. As stated above, the only unfilled order under plaintiff’s contract was the order of July 24, 1950, renewed August 1, 1950, for 10,000 pounds. The reasonable excess cost to the defendant for procuring elsewhere said 10,000 pounds of soap was $234.

CONCLUSION OF 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 the plaintiff is entitled to recover, and it is therefore adjudged and ordered that it recover of and from the United States one thousand eight hundred twelve dollars and twenty-one cents ($1,812.21).  