Putnam Mills Corporation v. United States

• Decision Date: 20 June 1973
• Docket Number: No. 357-70.,357-70.
• Citation: 479 F.2d 1334,202 Ct. Cl. 1
• Parties: PUTNAM MILLS CORPORATION v. The UNITED STATES.
• Court: U.S. Claims Court

202 Ct. Cl. 1, 479 F.2d 1334 (1973)

PUTNAM MILLS CORPORATION v. The UNITED STATES.

No. 357-70.

United States Court of Claims,

June 20, 1973.

Martin N. Whyman, New York City, attorney of record, for plaintiff. Albert Lyons, New York City, of counsel.

Gerald L. Schrader, Washington, D. C., with whom was Asst. Atty. Gen. Harlington Wood, Jr., for defendant.

Before DAVIS, Acting Chief Judge, DURFEE, Senior Judge, SKELTON, NICHOLS, KASHIWA, KUNZIG, and BENNETT, Judges.

ON PLAINTIFF'S MOTION AND DEFENDANT'S CROSS-MOTION FOR SUMMARY JUDGMENT

BENNETT, Judge:

The plaintiff now before the court, Putnam Mills Corporation (Putnam), seeks to recover $14,480.22 from the United States, alleging that it has either an express or an implied contract with the defendant through its agent, the Small Business Administration (SBA), as guarantor or escrow promisor of amounts due Putnam as a subcontractor-supplier of the Sorensen Manufacturing Company (Sorensen). Putnam seeks the cost of goods delivered to Sorensen for which Putnam has never received payment from either Sorensen or the United States. For reasons to be detailed, the court holds that, even if it is assumed for the purposes of this discussion that a contract of some type existed between the plaintiff and the Government, the plaintiff has failed to show that it substantially performed its obligations under the contract; therefore, it has not presented a claim redressable under 28 U.S.C. § 1491. There is no genuine issue as to any material fact. The case is before the court on motions for summary judgment.

In late 1967, the Air Force awarded the Sorensen Manufacturing Company two contracts¹ for the manufacture of parachutes at a total price of $389,321.69. A cash flow analysis of Sorensen's financial situation revealed that the contractor would require a maximum of $140,000 in financing. The Small Business Administration was prepared to loan the contractor $100,000 (the maximum amount the SBA had authority to loan), in order to help meet this financing requirement. The balance of the financing could be avoided as unnecessary if Sorensen's suppliers would agree to 60-day credit terms instead of the usual 30-day terms for payment on the goods received by Sorensen.

Sorensen, on December 5, 1967, entered into a subcontract with the plaintiff, Putnam, for the supply of specified quantities of four colors of nylon ripstop parachute cloth.² The contract called for the delivery of one-third the total quantity of each color ordered to be shipped at monthly intervals for 3 months. By shipping the order in percentage lots the contractor could apparently start production immediately, without the necessity of inventorying large quantities of cloth until a supply in the right proportions was achieved.

The proceeds of a $100,000 loan made by the SBA to Sorensen were held by the SBA in an escrow-type arrangement to be used to pay Sorensen's suppliers direct. The SBA likewise received payments from the Air Force as the contract was completed in order to assure disbursements to the suppliers as their bills became due. The plaintiff, uneasy about the requested 60-day credit terms, exchanged correspondence with SBA officials seeking to obtain a guaranty of payment for the cloth it was to supply the contractor. The precise nature of this correspondence will be detailed infra in an attempt to define the terms of the alleged express or implied agreement created by these letters. Suffice it to say at this point that the plaintiff apparently agreed to go along with the 60-day credit terms and began to ship the fabric. The deliveries, however, did not arrive in the proportions specified. By March 15, 1968, the date on which the second of the three shipments was to have arrived and 66 percent of each color should have been delivered, the plaintiff had sent 100 percent of the sand colored fabric, 25 percent of the natural colored fabric, and only 0.4 percent and 1.4 percent of the international orange and olive green fabrics, respectively. As of May 1, 1968, the contractor had received the vast majority of the quantities ordered of the sand, international orange and olive cloth, but Putnam had sent only 30 percent of the natural colored fabrics. Part of the quantity of natural fabric that was sent had to be returned since it did not comply with the width specifications of the contract.

The end result of this confusion and failure to deliver the correct quantities of goods was that Sorensen's production slowed and eventually stopped since it did not have sufficient quantities of all the colors of fabric that went into each parachute. Putnam never sent the rest of the natural colored cloth since the contractor had not fully paid for the amounts shipped up to that point. Sorensen's inability to pay was a direct result of its failure to keep up the production schedule and thereby receive progress payments from the Air Force. The contractor was clearly caught in a vicious circle of nondelivery leading to nonproduction and leading to nondelivery again. The contract was eventually completed, but only when Sorensen obtained the balance of the needed natural colored fabric from another supplier at a higher price. On November 29, 1968, Sorensen finally paid Putnam $28,726.09, which amount represented the contract price of the fabric actually delivered by Putnam for which it had not yet been paid, less $12,628.89 as a setoff, which included the excess reprocurement costs Sorensen had to pay for the bulk of the natural fabric, and consequential damages representing the cost to Sorensen of the plant shutdowns occasioned by Putnam's late, improper and incomplete deliveries. The amount Putnam is now seeking in its claim before this court is the amount of the setoff, plus interest, $14,480.22.

Pursuant to an arbitration clause in its contract with Sorensen, the plaintiff instituted arbitration proceedings before the American Arbitration Association in New York City in an attempt to recover the amount of the setoff. Sorensen, located in the State of Utah, did not defend its interests in the arbitration action because of lack of funds for travel and legal fees. A default judgment for Putnam resulted, based on the uncontested evidence presented by it to the arbitrators. The arbitration decision, awarding plaintiff $14,480.22, was confirmed by the Supreme Court of New York, in an action in which Sorensen likewise took no part. In neither case was the United States served with notice of the proceedings. Thereafter, the plaintiff attempted to execute its judgment against Sorensen, but was unable to collect any portion of the amount owed, since by this time Sorensen had gone out of business.

Putnam next attempted to recover the judgment in a suit against the United States brought in the United States District Court for the Southern District of New York, alleging that it had either an express or an implied contract with the United States, through its agent, the SBA, as guarantor or escrow promisor of amounts owed by Sorensen to its suppliers under the Air Force contracts. The District Court dismissed the case for lack of subject matter jurisdiction, which decision was affirmed on appeal to the United States Court of Appeals for the Second Circuit. In a per curiam opinion, dated October 6, 1970, the Court of Appeals stated:

* * * Although plaintiff apparently has no enforceable claim on an express guaranty, he may well have an enforceable promise to hold the funds in escrow, either on a promissory estoppel theory citations omitted, or because the plaintiff\'s promise to supply the fabric constituted conventional consideration. 432 F.2d 553, 554 (1970).

The Court of Appeals went on to conclude:

It is our view that plaintiff has pleaded a claim which may well entitle it to recovery in contract. However since the claim exceeds $10,000 it must be asserted in the Court of Claims. * * *. 432 F.2d at 554.

This dicta, taken literally by plaintiff, has provided the impetus for the present suit alleging the same cause of action plaintiff had pressed before the District and Circuit Courts.

It is clear that, unless the plaintiff can provide evidence of the existence of some type of contract between it and the United States, it cannot, as a subcontractor, recover directly from the United States for amounts owed to it by the prime. United States v. Munsey Trust Co., 332 U.S. 234, 241, 67 S.Ct. 1599, 91 L.Ed. 2022 (1947); United States Fid. & Guar. Co. v. United States, 475 F.2d 1377, 201 Ct.Cl. ___ (March 1973). Both parties deal extensively with the language in the correspondence between the plaintiff and the SBA in an effort to prove or disprove the existence of a contract. The plaintiff is using the correspondence to allege that an express contract or one implied in fact, over which this court has jurisdiction,³ existed between it and the United States. Whether or not an enforceable contract arose out of the language of the letters could be a complicated problem. Contrary to what the plaintiff has argued, representations or agreements made by an agent of the Government in his representative capacity will not necessarily bind the United States if such an agreement is beyond the agent's authority. Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384, 68 S.Ct. 1, 92 L.Ed. 10 (1947); Housing Corp. of America v. United States, 468 F.2d 922, 199 Ct.Cl. 705 (1972). In addition, the Government is not estopped from later denying the agent's lack of authority. California-Pac. Util. Co. v. United States, 194 Ct.Cl. 703, 720 (1971). Due to the complications involved and the fact that this case presents an alternative basis for reaching a decision resolving the matter, the court refrains from dealing with these issues and will assume arguendo that the SBA agent had the authority to, and did, enter into a binding contract with the plaintiff.

At this point it then becomes necessary to examine the language contained in the...