Marley v. United States, 3-60.

• Decision Date: 20 March 1970
• Docket Number: No. 3-60.,3-60.
• Citation: 191 Ct. Cl. 205,423 F.2d 324
• Parties: Francis M. MARLEY (Formerly Joseph H. Coleman, Receiver in Bankruptcy of Firth Machine & Tool, Inc., Bankrupt, and the First National Bank of Fostoria, Ohio, Assignee) v. The UNITED STATES.
• Court: U.S. Claims Court

191 Ct. Cl. 205, 423 F.2d 324 (1970)

Francis M. MARLEY (Formerly Joseph H. Coleman, Receiver in Bankruptcy of Firth Machine & Tool, Inc., Bankrupt, and the First National Bank of Fostoria, Ohio, Assignee) v. The UNITED STATES.

No. 3-60.

United States Court of Claims.

March 20, 1970.

I. H. Wachtel, Washington, D. C., attorney of record, for plaintiffs, Sheldon I. Matzkin, Washington, D. C., of counsel.

Robert R. Donlan, Washington, D. C., with whom was Asst. Atty. Gen. William D. Ruckelshaus, for defendant.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS, COLLINS, SKELTON and NICHOLS, Judges.

PER CURIAM:

This case was referred to Trial Commissioner David Schwartz with directions to prepare and file his opinion on the issues of plaintiff's motion and defendant's cross-motion for summary judgment under the order of reference and Rule 99(c) since September 1, 1969, Rule 166(c). The commissioner has done so in an opinion and report filed on August 15, 1969, wherein such facts as are necessary to the opinion are set forth. Requests for review by the court were filed by both parties and the case has been submitted to the court on oral argument of counsel and the briefs of the parties. Since the court agrees with the opinion and recommended conclusion of the trial commissioner, as hereinafter set forth, it hereby adopts the same as the basis for its judgment in this case. Therefore, in accordance with the said opinion: plaintiff's motion for summary judgment on the first cause of action, seeking review of the decision of the Armed Service Board of Contract Appeals, is denied, the government's motion for summary judgment granted, and the first cause of action dismissed; partial summary judgment is entered on plaintiff's second cause of action, adjudicating that defendant is liable to plaintiff in the sum of $45,434.33, subject to set-off in the amount awarded to defendant, after trial, on its first and second counterclaims and in all other respects, the cross-motion for summary judgment concerning the second cause of action is denied; and, partial summary judgment is entered, on the government's motion for summary judgment on its first counterclaim and on its plea of set-off to plaintiff's second cause of action, adjudicating that the contract was breached by plaintiff's predecessor, Firth Machine & Tool, Inc., and that plaintiff is liable for damages, to the extent only of any amounts found to be due to him on the trial of his second cause of action, the damages to be determined in further proceedings, to begin after a period of 90 days, and the motion is denied in all other respects.

OPINION OF COMMISSIONER

SCHWARTZ, Commissioner:

Cross-motions for summary judgment raise issues concerning an ordnance contract, held by the Firth Machine & Tool, Inc., which was the subject of proceedings before the Armed Services Board of Contract Appeals. Firth became bankrupt pending the proceedings; its receiver and trustee prosecuted an administrative appeal and brought suit in this court in 1960. The present plaintiff, the purchaser at a bankruptcy sale of Firth's claims against the government, has been substituted for the receiver and trustee as the sole party plaintiff. The term plaintiff will be used herein to refer to the contractor, Firth, to its trustee in bankruptcy and to the successor to the trustee, the present plaintiff.

The contract held by plaintiff was terminated by the government in 1957, for default in making deliveries, and the government demanded of plaintiff the costs of the procurement elsewhere of the goods in excess of the contract price. In his first count, plaintiff seeks a review, in accordance with the Wunderlich Act, 41 U.S.C. §§ 321, 322, of the decision of the Board of Contract Appeals upholding the termination of the contract for default. A second count claims a sum of money in large part admittedly owed by the government to plaintiff, on unrelated contracts. The claim for money owed is subject to the government's larger claim, pleaded both as a set-off and as a counterclaim, for the excess procurement costs mentioned or in the alternative for damages for breach of the contract. The essence of the controversy is thus plaintiff's claim that the Board acted unlawfully in rejecting his excuses for his failures to deliver and in refusing to treat the default as one for the government's convenience, and the government's converse claim that the Board's decision upholding the termination for default is a final and binding adjudication of plaintiff's breach of contract, for which he is in consequence liable for excess costs or damages.

The case has been twice the subject of decision by the court, once on the rights of an assignee bank, no longer a party to the case (Coleman v. United States, 158 Ct.Cl. 490 (1962)), and once on the effect of the bankruptcy proceedings on rights of the present movant (Marley v. United States, 381 F.2d 738, 180 Ct.Cl. 898 (1967)). The second decision held the government's counterclaim and setoff, which were pending at the time of the bankruptcy sale of plaintiff's claim in 1965, to be unaffected by that sale, though it was made free and clear of liens.

I. The First Cause of Action — Plaintiff's Challenge of the Board Decision Upholding the Termination for Default

The contract, let by the Frankford Arsenal in April 1956, provided for the manufacture and supply of some 17,874 units, at $6.75 each, of a cartridge-activated device known as an M3 initiator, used in ejecting the pilot's seat from an aircraft.

Plaintiff and its subcontractors were increasingly delinquent in deliveries throughout the short life of the contract, from July of 1956 when deliveries were first due, to February of 1957, when the contract was terminated for default. The contract called for delivery of the first production "lot" in July, two lots in August and three in September and in succeeding months. A lot consisted of 610 units; a few extras were customarily added. The first production lot, due in July, was delivered in two parts, 240 units in July and 378 in August. The deliveries scheduled for August and September were not made. One lot was delivered in October and one in November. As of the end of November, only three lots had been delivered of 12 scheduled for delivery.

The source of the trouble was both volume of production and the quality of such units as were produced. The M3 initiator had been redesigned shortly before the contract was awarded, and plaintiff and his subcontractors had no experience with its production. The parts made by subcontractors suffered a high rate of rejection by plaintiff itself. Large numbers of parts and assembled units which were passed by plaintiff and tendered by him for delivery, failed to pass inspection by the government inspector stationed at the plant. And substantially all the units passed by the resident inspector failed to pass inspection at the Arsenal, the point from which initiators were shipped for use in aircraft.

Efforts were made to cure the troubles, in joint visits by the plaintiff's and the government's representatives to the subcontractors' plants. As early as July, plaintiff cancelled one of its subcontracts, and itself undertook the fabrication of the part involved. In a letter to the government requesting a modification of the delivery schedule, plaintiff acknowledged that it was responsible for having misjudged the capacity of the subcontractor. Promises of improvement made by the other subcontractor were not fulfilled and the parts produced continued to suffer a high rate of rejection. Further meetings and consultations were held and proposals made. The remaining subcontractor was cancelled in part and a third subcontractor enlisted.

On the basis of these cancellations and of hopes for the future, plaintiff proposed and on November 8, 1956, the government agreed to a modified contract which overlooked past delinquencies and established a new schedule of deliveries. The new schedule called for delivery in November of the one lot actually delivered in that month, plus 240 "reworked" units (first delivered in July and found to be defective on inspection at the Arsenal), two lots in December, plus 378 "reworked" units (delivered in August and found at the Arsenal to be defective), two lots in January, three lots in February and four in each of the succeeding months. (A lot was now calculated at 612 units.)

The lot delivered in November passed inspection at the plant and was accepted; it failed inspection at the Arsenal, as did the 240 reworked units. Thereafter, plaintiff made no deliveries. No units were tendered in December. In January, 288 units were tendered and failed to pass inpection at the plant, and in February 244 units were tendered and failed inspection. On January 16, 1957, the government warned plaintiff, in a "show cause" letter, that the contract would be terminated unless he delivered, by February 16, two lots and 618 reworked units. On February 18, no deliveries having been made, the contract was terminated for default.

The contracting officer and, on an appeal by plaintiff, the Armed Services Board of Contract Appeals held the termination for default to have been proper. Both rejected plaintiff's excuse that his defaults were beyond his control within the meaning of clause 11(b) of the contract, the standard default clause.¹

This suit followed, for a review of the Board's decision, claimed to be unsupported by substantial evidence and erroneous in law. Plaintiff contends that the termination for default should be held improper, and, pursuant to clause 11(e) (n. 1, supra) and the convenience-termination clause of the contract, converted into a termination for the convenience of the government, for which appropriate costs are payable. See General Builders Supply Co. v. United States, 409 F.2d 246, 187 Ct.Cl. 477 (1969).

Plaintiff moves for summary judgment on the ground that in rejecting his...