Swiff-Train Company v. United States, 31002.

• Decision Date: 11 June 1971
• Docket Number: No. 31002.,31002.
• Parties: SWIFF-TRAIN COMPANY, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fifth Circuit

443 F.2d 1140 (1971)

SWIFF-TRAIN COMPANY, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.

No. 31002.

United States Court of Appeals, Fifth Circuit.

June 11, 1971.

Seagal V. Wheatley, U. S. Atty., San Antonio, Tex., Morton Hollander, William D. Appler, Attys., Dept. of Justice, Washington, D. C., L. Patrick Gray, III, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., for defendant-appellant.

Jack A. Efron, San Antonio, Tex., Levey & Goldstein, San Antonio, Tex., for plaintiff-appellee.

Before TUTTLE, THORNBERRY and INGRAHAM, Circuit Judges.

TUTTLE, Circuit Judge:

The United States appeals from a judgment rendered against it in favor of Swiff-Train Company which brought the action under the Tucker Act alleging it was a third party beneficiary of a contract entered into between the Fort Sam Houston Guest House Fund and Midwest Carpet Distributors. It is clear that Swiff-Train furnished carpeting to the guest house and that payment was made contrary to the agreement between Midwest and the Fund.

The facts as stated in the government's brief, the statement of which is accepted by the appellee, are as follows:

"The Guest House Fund at Fort Sam Houston, Texas, is a non-appropriated fund activity organized to provide temporary accommodations for military personnel, their relatives and guests visiting the base or patients at Brooke General Army Hospital. Non-appropriated fund activities are unincorporated entities authorized by Army regulations to administer "moneys not appropriated by Congress for the benefit of military personnel or civilian employees" (AR-230-5, App. 8-9). Unlike the appropriated fund establishments of the Government, their operating expenses are not provided for by annual appropriation, and they are not required to return their operational receipts to the Treasury. In the case of the Guest House Fund, its sole revenue comes from service charges paid by the guests who use its facilities.

In September, 1968, the Guest House Fund entered into a contract with Bill R. May, doing business as Midwest Carpet Distributors, to carpet the rooms, stairs and hallways in the three buildings which comprise the Guest House, at a price of $11,200. That contract provided that the check for the carpeting be made payable jointly to the contractor and Swiff-Train Company, the supplier of the carpeting. The joint payment provision was included in the contract prepared by Midwest Carpet Distributors at the insistence of Swiff-Train Company, which otherwise would not have sold the carpeting to Midwest.

The carpeting was installed by November 26, and the Guest House Fund custodian had a check prepared jointly to Midwest and Swiff-Train, which was to be mailed to Midwest. However, before the check was put in the mail, the owner of Midwest called Lt. Russo and asked that he make the check solely payable to Midwest. The owner explained that he had sent checks out to Swiff-Train and the installers, and if possible he would like to have the check made out to him so that he could deposit it to cover the checks already written. The check was made out to Midwest and negotiated several days later.

On December 3, Swiff-Train advised Lt. Russo that it had not been paid. Lt. Russo attempted to have the check stopped but was advised by the bank where the Guest House Fund maintained its account that payment had already been made. Swiff-Train made efforts to recover the money due it from Midwest, whose owner had moved to California. When these efforts proved unsuccessful, this action was brought to obtain recovery from the United States."

The trial court, clearly feeling that it would be inequitable for the governmental agency to escape liability because of the failure of Lt. Russo to make the check payable in the manner that would protect the supplier of the merchandise, equated the waiver of immunity by the United States in the Tort Claims Act, 28 USCA 1346(b), with the waiver of immunity in the Tucker Act.¹ In doing so, the court recognized that the great weight of authority, principally in the court of claims, was contrary to its determination. The trial court attributed this line of decisions to what it felt was an "incorrect" judgment by the Court of Claims in Borden v. United States, 116 F.Supp. 873, 126 Ct.Cl. 902 (1953).

In the Borden case an accountant sued the United States for salary withheld from him on account of loss of payroll funds belonging to the Army Exchange Service, European Theatre, for which the United States claimed that Borden was responsible. It is clear that the Court of Claims, in declining to permit the suit to stand against the United States, placed considerable weight on the dictum by the United States Supreme Court in the case of Standard Oil Company of California v. Johnson, 316 U.S. 481, 62 S.Ct. 1168, 86 L.Ed. 1611, dealing with an entirely different subject. There was there involved the right of the state of California to tax the facilities of an Army post exchange. The court held that the post exchange was an arm of the United States Government and was exempt from taxation. However, in discussing the nature of a post exchange, similar, to the extent of being a non-appropriated fund, to the guest house fund which made the contract with which we are here involved, the court used the following language: 116 F.Supp. 876:

"The commanding officer of an Army Post, subject to the regulations and the commands of his own superior officers, has complete authority to establish and maintain an exchange. He details a post exchange officer to manage its affairs. This officer and the commanding officers of the various company units make up a council which supervises exchange activities. None of these officers receives any compensation other than his regular salary. The object of the exchanges is to provide convenient and reliable sources where soldiers can obtain their ordinary needs at the lowest possible prices. Soldiers, their families, and civilians employed on military posts here and abroad can buy at exchanges. The Government assumes none of the financial obligations of the exchange. But government officers, under government regulations, handle and are responsible for all funds of the exchange which are obtained from the companies or detachments composing its membership. Profits, if any, do not go to individuals. They are used to improve the soldiers\' mess, to provide various types of recreation, and

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