Chairman, is as far as I know, we do not know what they sold the orange juice for that we released. We have the information

Mr. WHITTEN. Are you acquainted with the marketing news service?

Mr. SMITH. Not for processed commodities.

Mr. WHITTEN. You are not familiar with its operations?

Mr. SMITH. With market news; yes.

Mr. WHITTEN. It doesn't give any information on canned goods? Mr. SMITH. It does not.

Mr. WHITTEN. Do any of the commodity groups, members of any trade associations, or any other person regularly send out this information?

Mr. SMITH. We obtain from trade associations the information that they collect from their members on what their members report to them that they sell juice for. Now I have the information here as to what the price of orange juice was before the freeze, what it went up to after the freeze, and what it is currently.

Mr. WHITTEN. Could you obtain from the people affected a statement as to what they sold this juice for and the profits made? Mr. SMITH. We could certainly ask them.

Mr. WHITTEN. All right, sir. Try that approach and keep the committee advised. What are the figures you do have?

Mr. SMITH. Just before the freeze, orange juice concentrators were selling concentrated orange juice for $1.25 per dozen of 6-ounce cans. That price immediately after the freeze jumped up to $2.30. It has since declined to $2.05. Now the containers in which we offered to buy and entered into contracts for were in twelve 32-ounce cans. And the $4.63 per case that I gave you before is for that size container. But from these figures that I just gave you, the performance of the market, pricewise, I think is well reflected.

(NOTE.-Complete details and documents on the frozen concentrated orange juice purchase program are included in the material inserted on pp. 1534-1549.)

AUTHORITY TO SELL COMMODITIES PURCHASED UNDER SECTION 32

Mr. WHITTEN. Mr. Smith, this becomes more curious. Mr. SMITH. I'm sorry, I don't mean to make it appear so, sir. Mr. WHITTEN. You have already told me what the General Counsel would say. Here is what you did as I understand the present state of the record. You went out and bought 340,000 cases of citrus at the urging of the processors or others and, when it became very valuable, where those from whom you bought could sell at $2.30 instead of $1.25 you agreed to pay, you let certain processors have it back. Could you not have sold it?

Mr. SMITH. Well, under section 32 it has always been my understanding that the authority doesn't exist to buy a commodity and turn around and sell it, Mr. Chairman.

Mr. WHITTEN. You have no authority at all to sell.

Mr. SMITH. Right. That is my understanding.

Mr. WHITTEN. Would you point out to me where you got that understanding and also where there was any authority to turn the juice back so a few could make this extra profit?

95910-63-pt. 3- -28

Mr. SMITH. Well, that is from

Mr. WHITTEN. Who has title once you buy it, the Commodity Credit Corporation?

Mr. SMITH. No.

Mr. LENNARTSON. The Secretary, Department of Agriculture. Mr. WHITTEN. Where is the section that says you can't sell anything you have?

Mr. HOLMAAS. Under the surplus property disposal authority you can dispose of it. I don't know what these rules are exactly, but you go through certain channels of disposing of excess government property, which is what this would become, I would assume, unless it were donated to schools and institutions and so on.

Mr. WHITTEN. Could we have the details as to the law? (The information requested follows:)

LEGAL ASPECTS OF THE ORANGE JUICE CONTRACTS

1. Were the contracts binding?

The frozen concentrated orange juice contracts were firm contracts calling for delivery of the product at destination points to be specified in shipping instructions issued by the Department. However, in the opening sentence of its announcement the Department expressly stated that it contemplated the purchase of frozen concentrated orange juice "as a surplus removal activity." In entering into the contracts both the Department and the contractors recognized the existence of a surplus of oranges. When the freeze destroyed the surplus of citrus fruit there was a change in conditions.

Section 32 is designed to aid the farm program by removing surplus agricultural commodities and the products thereof, from domestic markets, by encouraging exportation pursuant to clause (1) of that section, and by diverting from the normal channels of trade and commerce, pursuant to clause (2) thereof, as by purchasing and donating such commodities and products for relief distribution. Since the effect of the freeze was to destroy surplus accumulation of orange juice, the expenditure of section 32 funds thereafter could not be said to accomplish a surplus removal purpose and continued procurement would be on a questionable basis.

condi

Further, the change in surplus conditions raises a question whether the contracts could be considered firm thereafter. As stated in 17 C.J.S. Contracts, Section 464, "Where from the nature of the contract it is evident that the parties contracted on the basis of the continued existence of the tion or state of things, to which it relates, the subsequent *** cessation of existence of the condition, will excuse the performance, a condition to such effect being implied, in spite of the fact that the promise may have been unqualified."

2. What is the authority to cancel binding contracts entered into under section 32?

It has been held that when the public interest does not require continuation of a contract, a contracting officer may terminate such contract which he was authorized to make and that he may, by supplemental contract, agree with a contractor upon the compensation to be paid for work already performed, etc.. provided the amount agreed upon is proper and just and the contractor will accept such amount in full and final settlement of all rights incident to or arising out of the original and supplemental contracts. (See United States v. Corliss Steam Engine Co., 91 U.S. 321; 14 Comp. Dec. 589; 15 id. 439; 21 id. 134; 26 id. 170; and 4 Comp. Gen. 526.) As stated by the Comptroller General. "The determination as to whether the public interest requires such termination is a matter for administrative decision and does not rest with this office which is concerned primarily with the availability of the appropriation for any expendture resulting from the termination" (18 C.G. S26, 828).

As a matter of fact, in the case of cancellation of the orange juice contracts, the question was not only whether it was in the public interest to terminate the contracts, but whether, since funds were available only "in such amounts as the Secretary finds will effectuate substantial accomplishment of any one

or more of the purposes" of the section, a continuance of a surplus removal program was authorized in the face of diminished supplies of oranges.

3. What is the authority regarding the resale of commodities bought under section 32?

Any resale of commodities purchased with section 32 funds under clause (2) must be a part of the operation of diverting them from the normal channels of trade and commerce, and therefore resale into normal commercial channels would not be authorized.

4. What were the conditions for the passage of title under the contracts?

The frozen concentrated orange juice contracts required that delivery was to be made at destinations specified by the Department. Title passed to the Department upon delivery at such destinations to the Department's consignee (State and private charitable institutions).

In this case, only 6,407 cases (19,221 gallons) had been delivered and title passed to the Government. These quantities were not canceled.

Mr. WHITTEN. Mr. Smith, you are familiar with the cheese and butter case of a few years ago, under the preceding administration. We shall insert the facts for the record here which show that certain corporations and individuals had lots of surplus butter on hand holding for the Government.

(The material requested is as follows:)

PURCHASE AND RESALE OF BUTTER AND CHEESE UNDER DA 112

Announcement DA 112, issued March 9, 1954, advised that CCC would purchase salted creamery butter and American Cheddar cheese for the remainder of March 1954 at the support prices then in effect provided the offerors of such butter and cheese entered into a contract to repurchase from CCC on April 1, 1954, the identical butter and cheese. This announcement indicated that CCC would continue to purchase butter and cheese under announcement DA 99 and DA 100.

Paragraphs 12 and 14 of "Terms and Conditions" of DA 112 stated:

Paragraph 12.-"Commodities offered for sale under the terms of this announcement shall remain in the place and in the form in which they are sampled or graded from the time of the sampling or grading until they are delivered to CCC and finally until title revests in the offeror."

Paragraph 14.-"Settlement for commodities purchased and resold under the terms of this announcement shall be made after redelivery to offeror on the basis of vouchers or certified invoices submitted by the offeror, in each case claiming the net difference between the sales price to CCC and the sales price from CCC to offeror.

"Vouchers or invoices shall contain the statement 'the commodity remainded in the place in which it was sampled or graded from the time of sampling or grading until repurchased and redelivered to the offeror,' and shall be supported by USDA grading and inspection certificates. Settlement will be made on the basis of the nearest even net pounds."

Mr. Don S. Anderson, Acting Director, Livestock and Dairy Division, who signed DA 112, advised that butter and cheese could have been sold to CCC up to March 31, 1954, under DA 99 and 100 respectively and could have been purchased from CCC at any time under DA 107, thereby accomplishing what was accomplished under DA 112. Mr. Anderson stated that the difference between DA 112 and the previously mentioned announcement was the method in which settlement was made. He said that under DA 99 and 100 the offeror probably would not have been paid for the butter and cheese sold to CCC for approximately 45 days. If the offeror sold butter and cheese to CCC under these announcements late in March 1954 and then early in April 1954 repurchased the same amount of butter and cheese from CCC under DA 107, the offeror would have been required to pay CCC for the butter or cheese purchased from CCC before the offeror had received payment for the sale made to CCC. Mr. Anderson said that this would have worked a hardship on small companies and was one of the primary reasons why DA 112 was issued.

Mr. Anderson advised that it was the Department's opinion at the time, and still is, that DA 112 did not circumvent any existing regulations. He stated that after DA 112 was investigated by a congressional subcommittee the matter was referred to the Department of Justice.

Mr. SMITH. Well, that is from

Mr. WHITTEN. Who has title once you buy it, the Commodity Credit Corporation?

Mr. SMITH. No.

Mr. LENNARTSON. The Secretary, Department of Agriculture.

Mr. WHITTEN. Where is the section that says you can't sell anything you have?

Mr. HOLMAAS. Under the surplus property disposal authority you can dispose of it. I don't know what these rules are exactly, but you go through certain channels of disposing of excess government property, which is what this would become, I would assume, unless it were donated to schools and institutions and so on.

Mr. WHITTEN. Could we have the details as to the law? (The information requested follows:)

LEGAL ASPECTS OF THE ORANGE JUICE CONTRACTS

1. Were the contracts binding?

The frozen concentrated orange juice contracts were firm contracts calling for delivery of the product at destination points to be specified in shipping instructions issued by the Department. However, in the opening sentence of its announcement the Department expressly stated that it contemplated the purchase of frozen concentrated orange juice "as a surplus removal activity." In entering into the contracts both the Department and the contractors recognized the existence of a surplus of oranges. When the freeze destroyed the surplus of citrus fruit there was a change in conditions.

Section 32 is designed to aid the farm program by removing surplus agricultural commodities and the products thereof, from domestic markets, by encouraging exportation pursuant to clause (1) of that section, and by diverting from the normal channels of trade and commerce, pursuant to clause (2) thereof, as by purchasing and donating such commodities and products for relief distribution. Since the effect of the freeze was to destroy surplus accumulation of orange juice, the expenditure of section 32 funds thereafter could not be said to accomplish a surplus removal purpose and continued procurement would be on a questionable basis.

Further, the change in surplus conditions raises a question whether the contracts could be considered firm thereafter. As stated in 17 C.J.S. Contracts, Section 464, "Where from the nature of the contract it is evident that the parties contracted on the basis of the continued existence of the *** condition or state of things, to which it relates, the subsequent ** cessation of existence of the condition, will excuse the performance, a condition to such effect being implied, in spite of the fact that the promise may have been unqualified."

2. What is the authority to cancel binding contracts entered into under section 32?

It has been held that when the public interest does not require continuation of a contract, a contracting officer may terminate such contract which he was authorized to make and that he may, by supplemental contract, agree with a contractor upon the compensation to be paid for work already performed, etc., provided the amount agreed upon is proper and just and the contractor will accept such amount in full and final settlement of all rights incident to or arising out of the original and supplemental contracts. (See United States v. Corliss Steam Engine Co., 91 U.S. 321; 14 Comp. Dec. 589; 15 id. 439; 21 id. 134; 26 id. 170; and 4 Comp. Gen. 526.) As stated by the Comptroller General, "The determination as to whether the public interest requires such termination is a matter for administrative decision and does not rest with this office which is concerned primarily with the availability of the appropriation for any expendture resulting from the termination” (18 C.G. 826, 828).

As a matter of fact, in the case of cancellation of the orange juice contracts, the question was not only whether it was in the public interest to terminate the contracts, but whether, since funds were available only "in such amounts as the Secretary finds will effectuate substantial accomplishment of any one

or more of the purposes" of the section, a continuance of a surplus removal program was authorized in the face of diminished supplies of oranges.

3. What is the authority regarding the resale of commodities bought under section 32?

Any resale of commodities purchased with section 32 funds under clause (2) must be a part of the operation of diverting them from the normal channels of trade and commerce, and therefore resale into normal commercial channels would not be authorized.

4. What were the conditions for the passage of title under the contracts?

The frozen concentrated orange juice contracts required that delivery was to be made at destinations specified by the Department. Title passed to the Department upon delivery at such destinations to the Department's consignee (State and private charitable institutions).

In this case, only 6,407 cases (19,221 gallons) had been delivered and title passed to the Government. These quantities were not canceled.

Mr. WHITTEN. Mr. Smith, you are familiar with the cheese and butter case of a few years ago, under the preceding administration. We shall insert the facts for the record here which show that certain corporations and individuals had lots of surplus butter on hand holding for the Government.

(The material requested is as follows:)

PURCHASE AND RESALE OF BUTTER AND CHEESE UNDER DA 112

Announcement DA 112, issued March 9, 1954, advised that CCC would purchase salted creamery butter and American Cheddar cheese for the remainder of March 1954 at the support prices then in effect provided the offerors of such butter and cheese entered into a contract to repurchase from CCC on April 1, 1954, the identical butter and cheese. This announcement indicated that CCC would continue to purchase butter and cheese under announcement DA 99 and DA 100.

Paragraphs 12 and 14 of "Terms and Conditions" of DA 112 stated:

Paragraph 12.-"Commodities offered for sale under the terms of this announcement shall remain in the place and in the form in which they are sampled or graded from the time of the sampling or grading until they are delivered to CCC and finally until title revests in the offeror."

Paragraph 14.-"Settlement for commodities purchased and resold under the terms of this announcement shall be made after redelivery to offeror on the basis of vouchers or certified invoices submitted by the offeror, in each case claiming the net difference between the sales price to CCC and the sales price from CCC to offeror.

"Vouchers or invoices shall contain the statement 'the commodity remainded in the place in which it was sampled or graded from the time of sampling or grading until repurchased and redelivered to the offeror,' and shall be supported by USDA grading and inspection certificates. Settlement will be made on the basis of the nearest even net pounds."

Mr. Don S. Anderson, Acting Director, Livestock and Dairy Division, who signed DA 112, advised that butter and cheese could have been sold to CCC up to March 31, 1954, under DA 99 and 100 respectively and could have been purchased from CCC at any time under DA 107, thereby accomplishing what was accomplished under DA 112. Mr. Anderson stated that the difference between DA 112 and the previously mentioned announcement was the method in which settlement was made. He said that under DA 99 and 100 the offeror probably would not have been paid for the butter and cheese sold to CCC for approximately 45 days. If the offeror sold butter and cheese to CCC under these announcements late in March 1954 and then early in April 1954 repurchased the same amount of butter and cheese from CCC under DA 107, the offeror would have been required to pay CCC for the butter or cheese purchased from CCC before the offeror had received payment for the sale made to CCC. Mr. Anderson said that this would have worked a hardship on small companies and was one of the primary reasons why DA 112 was issued.

Mr. Anderson advised that it was the Department's opinion at the time, and still is, that DA 112 did not circumvent any existing regulations. He stated that after DA 112 was investigated by a congressional subcommittee the matter was referred to the Department of Justice.