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U.S. METAL PRODS. CO. v. UNITED STATES

May 27, 1969

U.S. METAL PRODUCTS CO., Inc., Plaintiff,
v.
The UNITED STATES of America, Defendant


Bartels, District Judge.


The opinion of the court was delivered by: BARTELS

BARTELS, District Judge.

This action has been instituted under Section 1346(a)(2), 28 U.S.C.A., for the recovery from the Government of $6,237.44, representing the balance due to the plaintiff under a contract with the Government, which has interposed as a defense, an offset in the same amount, claimed to be due the Government under another contract. Plaintiff moves to strike the answer and for summary judgment under Rule 56, Fed.Rules Civ.Proc., 28 U.S.C.A.

 There were two contracts between the plaintiff and the Government, the first made on February 9, 1965, and the second on June 28, 1965. The contract upon which this suit is brought is designated as the "Second Contract", but the offset springs from a prior contract, designated as the "First Contract". The offset is the amount of damages caused by plaintiff's failure to perform the First Contract after it had filed a petition for an arrangement under Chapter XI of the Bankruptcy Act (Act), which arrangement was subsequently confirmed by the Referee in Bankruptcy. In the arrangement proceeding the defendant did not file a proof of claim for the amount of the offset, which amount plaintiff asserts was a provable claim and was discharged by the confirmation. The pertinent facts may be recited as follows:

 (1) On February 9, 1965, plaintiff was awarded the First Contract by the Defense Electronics Supply Center (DESC) through the Defense Supply Agency (DSA) located at Dayton, Ohio, providing for the supply of a number of Jack Boxes to the Government. On June 28, 1965, plaintiff was awarded the Second Contract by the Department of Navy but was not required to perform thereunder until notice from the defendant, which was not given until March, 1967, after the date the Referee in Bankruptcy had confirmed the arrangement. Performance was completed by May 31, 1968, and final payment made to the plaintiff on that date with notice of defendant's intention to withhold the sum of $6,237.44.

 (2) Although the First Contract was awarded in Ohio, plaintiff was advised by the Government on November 1, 1965, that responsibility for administration of the First Contract would be transferred to the Defense Contract Administration Services Region, New York, and that all correspondence relating to the Contract should be directed to the New York office.

 (3) The First Contract provided for delivery to the Government of a number of Jack Boxes pursuant to three calls in specified quantities at future times as required by DSA. Call 1 was made on February 10, 1965 and was met by the plaintiff. Call 2, dated November 24, 1965, required delivery beginning January 31, 1966 and ending March 31, 1966. Call 3 was made February 1, 1966 and required delivery on March 1, 1966 to May 31, 1966. As appears in the subsequent paragraphs, the 2nd and 3rd calls were not met and are the subject of this litigation.

 (4) On December 15, 1965, plaintiff wrote DESC, Ohio, that due to the failure of its brass supplier, it did not "look possible for us to meet the delivery schedule based upon the promises we have from the brass company."

 (5) On February 1, 1966, DESC, Ohio, made a request of plaintiff for delivery on Call 2, which was followed by a letter, dated February 9, 1966, from the Department of Commerce mandating plaintiff's supplier to supply brass to the plaintiff.

 (6) On March 17, 1966, plaintiff filed a petition for an arrangement under Chapter XI of the Act and continued the operation of its business. In its schedule of creditors and in its report of executory contracts required by Section 324(1) of the Act (11 U.S.C.A. § 724(1)), plaintiff did not list the United States as a creditor or a party to an executory contract.

 (7) Notice of the first meeting of creditors was mailed by the Referee on March 29, 1966, fixing the last day to file claims as October 19, 1966.

 (8) Although DESC received no notice of creditors' meeting, plaintiff by letter of March 22, 1966, notified DESC, Ohio, of the filing of the Chapter XI petition, stating that it was required by court order to operate profitably but could not do so at the present contract prices and appealed to the Government for a price increase on Jack Boxes.

 (9) On March 29, 1966, DESC denied this request and asked for a reply as to plaintiff's "anticipated future action", to which plaintiff responded on April 7, 1966:

 
"We believe there is a regulation which does permit an increase in price under certain distress conditions and we respectfully request that you investigate the possibility of an increase in price. In the meantime, as explained above we are preparing to start manufacturing the Jack Boxes in about two weeks."

 (10) Eight days later, however, on April 15, 1966, plaintiff wrote DESC, Ohio, that it could not manufacture the Jack Boxes at the contract prices without a loss and petitioned ...


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