Clem Perrin Marine Towing, Inc. v. Panama Canal Co.

• Decision Date: 02 April 1984
• Docket Number: No. 82-3723,82-3723
• Parties: 38 UCC Rep.Serv. 490 CLEM PERRIN MARINE TOWING, INC., Plaintiff-Appellee, v. PANAMA CANAL COMPANY, a corporate agency and instrumental of the United States, in personam, and its successor agency, the Panama Canal Commission, in personam, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 186

730 F.2d 186

38 UCC Rep.Serv. 490

CLEM PERRIN MARINE TOWING, INC., Plaintiff-Appellee, v. PANAMA CANAL COMPANY, a corporate agency and instrumental of

the United States, in personam, and its successor

agency, the Panama Canal Commission, in

personam, Defendant-Appellant.

No. 82-3723.

United States Court of Appeals, Fifth Circuit.

April 2, 1984.

Dwight A. McKabney, Gen. Counsel, James R. Dunworth, Cynthia J. Thomas, Panama Canal Com'n, APO, Miami, Fla., for defendant-appellant.

James Hanemann, Jr., Franklin G. Shaw, New Orleans, La., for plaintiff-appellee.

Appeal from the United States District Court for the Eastern District of Louisiana.

Before REAVLEY, RANDALL and HIGGINBOTHAM, Circuit Judges.

PATRICK E. HIGGINBOTHAM, Circuit Judge:

Defendant Panama Canal Company appeals from an adverse judgment for breach of a lease-purchase of a tugboat. The district court ordered PCC to return the tug, pay the last installment due on the lease, pay a sum equal to $300 a day for every day from the end of the lease-period until delivery of the tug, and legal interest on the money damages from the day PCC withheld the final lease installment. We reverse, holding that the dispute is governed by U.C.C. principles which authorize withholding performance in connection with a reasonable request for assurance absent a contrary agreement of the contracting parties. We hold that PCC's action was justified under this standard, and order judgment for PCC on its counterclaim for damages incurred in buying the mortgages on the tug.

I

Effective March 15, 1974, PCC and CPMT agreed to a "Bareboat Charter Party," providing for a three-year bareboat charter of a tug at a cost of $344,880. The agreement called for payments in seven installments, the last five of which were to be paid in advance in consecutive six-month periods. Article XIX of the agreement gave PCC an "option" to purchase the tug during the final ninety days of the three-year period for $26,400, well below CPMT's claimed market value of $190,000. CPMT agreed to provide merchantable title upon exercise of the option. Article XVIII gave either party the right to terminate the contract at any time during the first two years. PCC claims that the contract made at the time of the signing of the "Bareboat Charter Party" also included a purchase order incorporating by reference U.S. government Standard Form 32.

During August, 1976, PCC received information that CPMT was not making its payments on the tug's first mortgage. It also claims it learned for the first time during August that CPMT had encumbered the tug with a third mortgage in addition to the two mortgages outstanding against the tug when the contract was signed. The final installment of $49,480 was due on September 15, 1976, to cover the six-month period from that date until March 15, 1977. On August 27, 1976, PCC wrote to CPMT that "[i]t has come to our attention that one of the outstanding mortgages on this boat has fallen into default and the Panama Canal company therefore considers that reasonable grounds exist for requiring assurance that clear title to the boat will be perfected on or before December 15, 1976," the date the option to purchase became exercisable. Further, PCC stated that it would not forward the payment due September 15 until it received assurance.

CPMT's only response was to file this suit two days after PCC withheld payment. On December 20, after the purchase option matured, PCC tendered the final charter-hire installment along with the option payment. Delivery was made subject to the condition that CPMT furnish merchantable title. CPMT did not reply.

On April 13, 1977, the companies holding the first and second mortgages on the tug gave notice to PCC that they planned to foreclose and seize the vessel. On June 2, 1977, PCC bought those mortgages for $111,897. In its countersuit against individual third-party defendants Clem and Marie Perrin as well as CPMT, PCC contends that CPMT breached its agreement to provide merchantable title and seeks damages plus interest, in addition to its request for title to the tug.

After discovery and after the denial of several motions for summary judgment filed by both parties, trial in the case was set for May 8, 1978. On March 28, 1978, however, Clem and Marie Perrin filed Chapter XI bankruptcy petitions, and this case was stayed. On January 9, 1979, CPMT was declared bankrupt. The trustee in bankruptcy obtained an order allowing further prosecution of this suit on October 17, 1979, and PCC says it became aware the stay had been lifted when the trustee commenced new discovery proceedings on March 16, 1981.

II

PCC argues that CPMT's failure to exhaust its administrative remedies before suit deprived the district court of jurisdiction. It argues that federal Standard Form 32 is part of the contract, and that under Form 32's "disputes clause" CPMT was required to exhaust administrative remedies before bringing suit. We agree that federal Standard Form 32 is part of this contract. Even if CPMT is correct in claiming that it was never made aware of the purchase order mentioning Form 32, under the doctrine of G.L. Christian & Associates v. United States, 312 F.2d 418, 160 Ct.Cl. 1, reh'g denied, 320 F.2d 345, 160 Ct.Cl. 58, cert. denied, 375 U.S. 954, 84 S.Ct. 444, 11 L.Ed.2d 314 (1963) Form 32 was nevertheless part of the contract by operation of law because it was required by valid regulation. CPMT claims the incorporation of Form 32 was not required by regulation because this was a negotiated contract. However, 41 C.F.R. 1-16.202-1 requires that the forms used in advertised supply contracts also be used in negotiated supply contracts "unless it is determined in accordance with agency procedures that [the forms] are not appropriate for such use...." There is no evidence that the agency determined that use of Form 32 was inappropriate. Indeed, the evidence points in the opposite direction, for PCC referred to Form 32 in the purchase order.

While under normal circumstances the courts would not hear CPMT's claim before its administrative exhaustion if covered by the "disputes clause" of Form 32, see Crown Coat Front Co. v. United States, 386 U.S. 503, 511, 87 S.Ct. 1177, 1182, 18 L.Ed.2d 256 (1967), the requirement of administrative exhaustion can be waived. Id. at 511 n. 8, 87 S.Ct. at 1182 n. 8; Nager Electric Company v. United States, 396 F.2d 977, 184 Ct.Cl. 390 (1968). But see Atlantic Carriers v. United States, 131 F.Supp. 1, 5 (S.D.N.Y.1955). We agree with the district court that PCC waived its right to require CPMT to exhaust administrative remedies because of PCC's delay in asserting this point. See WRB Corp. v. United States, 177 Ct.Cl. 909 (1966). PCC did not raise the issue of administrative exhaustion until twenty days before trial, almost six years after suit was originally filed. PCC had filed an answer, a counterclaim, and moved for summary judgment three times. Extensive discovery had taken place. PCC's contention that the bankruptcy stay excused the delay in raising the exhaustion issue is meritless on its face, explaining at best only part of the delay. We are asked to penalize CPMT for PCC's failure to raise a problem that was easily discoverable from the day CPMT filed suit. We decline to do so.

III

There was much debate in the court below over whether this case falls within admiralty jurisdiction or federal question jurisdiction. Contracts for the sale of vessels are not within admiralty jurisdiction, but charter parties are. Richard Bertram & Co. v. Yacht, Wanda, 447 F.2d 966 (5th Cir.1971); Jack Neilson, Inc v. Tug PEGGY, 428 F.2d 54 (5th Cir.1970), cert. denied, 401 U.S. 955, 91 S.Ct. 973, 28 L.Ed.2d 238 (1971); The ADA, 250 F. 194 (2d Cir.1918). On the other hand, federal common law governs the construction of government contracts in the usual case, see United States v. Seckinger, 397 U.S. 203, 90 S.Ct. 880, 25 L.Ed.2d 224 (1970); United States v. Allegheny County, 322 U.S. 174, 64 S.Ct. 908, 88 L.Ed. 1209 (1944); Clearfield Trust Company v. United States, 318 U.S. 363, 63 S.Ct. 573, 87 L.Ed. 838 (1943), and there is federal question jurisdiction over cases arising under federal common law. Illinois v. City of Milwaukee, 406 U.S. 91, 92 S.Ct. 1385, 31 L.Ed.2d 712 (1972); Industrial Indemnity, Inc. v. Landrieu, 615 F.2d 644 (5th Cir.1980). Since the U.C.C. has been regarded as a source both for admiralty and federal common law, however, see United States v. Hext, 444 F.2d 804, 809 (5th Cir.1971); United States v. Conrad Pub. Co., 589 F.2d 949 (8th Cir.1978); Jones v. One Fifty Foot Gulfstar, 625 F.2d 44 (5th Cir.1980), whether this dispute falls within admiralty or federal question jurisdiction is irrelevant. Regardless of which ground of jurisdiction the case falls within, the law to be applied is the same.

IV

U.C.C. section 2-609 provides that when reasonable grounds for insecurity arise, a party may in writing demand assurance and, if commercially reasonable, suspend performance for which he has not already received the agreed return. A ground for insecurity need not arise from or be directly related to the contract under which a party suspends performance. U.C.C. Sec. 2-609, Comment 3. Here PCC had not already received the return for the performance it suspended; the payment was to be made at the beginning of the last six-month lease-period and title to the vessel had not yet been transferred. Under this standard, PCC need only prove it had reasonable doubt that CPMT would provide merchantable title, and need not prove, for example, that CPMT was insolvent, so long as the doubt is otherwise reasonable. See U.C.C. Sec. 2-609, Comment 4. If PCC further can carry its related burden of proving that it was commercially reasonable to suspend performance in light of that doubt, then its case will be made under the U.C.C. standard. Before we turn to this question, however, we must first examine the contract to...