B-130285, FEBRUARY 26, 1957, 36 COMP. GEN. 612

B-130285: Feb 26, 1957

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

IN RELIANCE ON REPRESENTATIONS BY A GOVERNMENT PROPERTY DISPOSAL OFFICER THAT SURPLUS PROPERTY OFFERED FOR SALE IS IN GOOD CONDITION. SUBMITS A BID FOR PROPERTY OFFERED FOR SALE BY LOT ON AN "AS IS" "WHERE IS" BASIS WITH EXPRESS DISCLAIMER OF WARRANTY AS TO THE CONDITION. IF AFTER ACCEPTANCE OF THE BID THE PROPERTY DOES NOT CONFORM TO THE DISPOSAL OFFICER'S REPRESENTATIONS WHICH WERE BASED ON RECORDS RATHER THAN ON PERSONAL KNOWLEDGE. THE PURCHASER MAY NOT HAVE THE CONTRACT REFORMED ON THE BASIS OF MUTUAL MISTAKE TO RECOVER A PORTION OF THE PURCHASE PRICE. WHICH INDICATES THAT THE DESCRIPTION OF THE PROPERTY IS BASED ON THE BEST AVAILABLE INFORMATION. THERE IS NO AUTHORITY FOR REFORMATION OF THE CONTRACT ON THE BASIS OF MUTUAL MISTAKE.

B-130285, FEBRUARY 26, 1957, 36 COMP. GEN. 612

SURPLUS SALES - CONTRACTS - MUTUAL MISTAKE - DESCRIPTION AND CONDITION - REPRESENTATION BY A DISPOSAL OFFICER A PURCHASER WHO, IN RELIANCE ON REPRESENTATIONS BY A GOVERNMENT PROPERTY DISPOSAL OFFICER THAT SURPLUS PROPERTY OFFERED FOR SALE IS IN GOOD CONDITION, SUBMITS A BID FOR PROPERTY OFFERED FOR SALE BY LOT ON AN "AS IS" "WHERE IS" BASIS WITH EXPRESS DISCLAIMER OF WARRANTY AS TO THE CONDITION, ASSUMES ALL RISKS CONCERNING THE ACCURACY OF SALES DESCRIPTION, AND, IF AFTER ACCEPTANCE OF THE BID THE PROPERTY DOES NOT CONFORM TO THE DISPOSAL OFFICER'S REPRESENTATIONS WHICH WERE BASED ON RECORDS RATHER THAN ON PERSONAL KNOWLEDGE, THE PURCHASER MAY NOT HAVE THE CONTRACT REFORMED ON THE BASIS OF MUTUAL MISTAKE TO RECOVER A PORTION OF THE PURCHASE PRICE. THE DISCLAIMER OF WARRANTY CLAUSE IN SURPLUS GOVERNMENT PROPERTY SALES CONTRACTS, WHICH INDICATES THAT THE DESCRIPTION OF THE PROPERTY IS BASED ON THE BEST AVAILABLE INFORMATION, RELIEVES THE GOVERNMENT OF RESPONSIBILITY FOR THE CORRECTNESS OF THE DESCRIPTION, AND, IF THE PURCHASER RECEIVES PROPERTY WHICH DOES NOT CONFORM TO THE DESCRIPTION, THERE IS NO AUTHORITY FOR REFORMATION OF THE CONTRACT ON THE BASIS OF MUTUAL MISTAKE. B-123009, MARCH 18, 1955, UNPUBLISHED DECISION, OVERRULED.

TO THE MIDWEST WASTE MATERIAL COMPANY, FEBRUARY 26, 1957:

REFERENCE IS MADE TO A LETTER DATED DECEMBER 28, 1956, FROM YOUR ATTORNEY, REQUESTING REVIEW OF SETTLEMENT DATED DECEMBER 7, 1956, WHICH DISALLOWED YOUR CLAIM FOR $248,212 UNDER CONTRACT NO. DA (S) 91-503-EUC 527, DATED SEPTEMBER 27, 1954, FOR THE SALE TO YOUR COMPANY OF 26 ITEMS OF SURPLUS PROPERTY ADVERTISED FOR SALE ON AUGUST 18, 1954, BY THE USAREUR PROPERTY DISPOSAL SERVICE, GIESSEN QUARTERMASTER DEPOT, GIESSEN, GERMANY.

INCLUDED AMONG THE ITEMS AWARDED TO YOUR COMPANY WERE ITEMS 19 THROUGH 32, WHICH WERE LISTED AS SEPARATE LOTS OF 18 OUNCE SERGE COATS OF VARIOUS SIZES, CONTAINING ESTIMATED QUANTITIES AGGREGATING 240,332; AND ITEM 119 WHICH WAS LISTED AS ONE LOT OF 168,080 COATS, WOOL SERGE, AND 28 COATS, WOOL O.D. ON ITEMS 19 TO 24, 26 TO 28, AND 31 YOU QUOTED A LUMP-SUM PRICE OF $211,431. ON ITEMS 25, 29, AND 30 YOU QUOTED A LUMP-SUM PRICE OF $101,650. FOR ITEM 32 YOU QUOTED A PRICE OF $2,431, AND FOR ITEM 119 YOU QUOTED A PRICE OF $173,429.

IT IS CONTENDED THAT ON THE BASIS OF INSPECTIONS MADE BY YOUR REPRESENTATIVES AT THE TWO DEPOTS WHERE THE GOODS WERE STORED, MUNICH AND GIESSEN, IT WAS BELIEVED THAT ITEMS 19 THROUGH 31 CONTAINED ONLY NEW COATS AND THAT ITEMS 32 AND 119 CONTAINED USED COATS IN EXCELLENT CONDITION. HOWEVER, UPON DELIVERY TO YOUR COMPANY IT WAS DISCOVERED THAT THE MAJORITY OF THE BALES MARKED AS CONTAINING 30 COATS EACH CONTAINED COATS WHICH HAD DETERIORATED CONSIDERABLY AND WERE PRACTICALLY OF NO VALUE, OR IN SOME CASES CONTAINED CAPS, PILLOWS AND RAGS INSTEAD OF COATS. FOR THOSE PORTIONS OF THE 15 ITEMS WHICH DID NOT CONFORM WITH THE ADVERTISED DESCRIPTIONS, IT IS STATED THAT YOU PAID A TOTAL OF $310,194 AND THAT THEIR ACTUAL MARKET VALUE WAS ONLY $61,982, A DIFFERENCE OF $248,212, WHICH AMOUNT YOU ARE NOW CLAIMING.

PREVIOUSLY, YOU SUBMITTED A CLAIM TO THE PROPERTY DISPOSAL OFFICER FOR REFUND OF THE AMOUNT OF $325,961.70 PLUS 40 PERCENT TO COVER EXPENSES ALREADY INCURRED AND ANTICIPATED PROFIT ON THE TRANSACTION. THAT CLAIM WAS DENIED BY THE PROPERTY DISPOSAL OFFICER ON THE BASIS THAT "THIS SALE WAS MADE BY LOT, AND THE CONTRACTOR WAS ON NOTICE BEFORE THE SALE THAT IF HE BID ON AND PURCHASED THE LOT HE COULD NOT CLAIM ANY ALLOWANCE ON ACCOUNT OF DEFICIENCY IN QUANTITY.' THE MATTER WAS SUBSEQUENTLY BROUGHT BEFORE THE BOARD OF CONTRACT APPEALS, HEADQUARTERS, U.S. ARMY, EUROPE, AND THE ARMED SERVICES BOARD OF CONTRACT APPEALS. IN EACH OF THESE PROCEEDINGS THE CLAIM WAS DENIED ON JURISDICTIONAL GROUNDS, IT HAVING BEEN DETERMINED THAT THE " DISPUTES" ARTICLE OF THE CONTRACT COVERS ONLY DISPUTES ON QUESTIONS OF FACT AND DOES NOT AUTHORIZE THE CONSIDERATION OF CLAIMS FOR BREACH OF CONTRACT.

YOUR PRESENT CLAIM IS, IN EFFECT, THAT THE CONTRACT SHOULD BE REFORMED IN ORDER TO PLACE YOU IN THE SAME POSITION THAT YOU WOULD HAVE BEEN IF YOU HAD KNOWN THE EXACT OR APPROXIMATE QUANTITY OF COATS AVAILABLE FOR SALE AND IT IS EMPHASIZED IN THE PRESENTATION MADE ON YOUR BEHALF THAT YOUR CLAIM IS FOUNDED UPON MUTUAL MISTAKE IN THE FORMATION OF THE CONTRACT.

THE " GENERAL SALE TERMS AND CONDITIONS," MADE A PART OF THE INVITATION, PROVIDE IN PERTINENT PART, AS FOLLOWS:

1. INSPECTION.--- BIDDERS ARE INVITED AND URGED TO INSPECT THE PROPERTY TO BE SOLD PRIOR TO SUBMITTING BIDS. PROPERTY WILL BE AVAILABLE FOR INSPECTION AT THE PLACES AND TIMES SPECIFIED IN THE INVITATION. THE GOVERNMENT WILL NOT BE OBLIGED TO FURNISH ANY LABOR FOR SUCH PURPOSE. NO CASE WILL FAILURE TO INSPECT CONSTITUTE GROUNDS FOR A CLAIM OR FOR THE WITHDRAWAL OF A BID AFTER OPENING.

2. CONDITION OF PROPERTY.--- ALL PROPERTY LISTED HEREIN IF OFFERED FOR SALE "AS IS" AND "WHERE IS," AND WITHOUT RECOURSE AGAINST THE GOVERNMENT. * * * THE DESCRIPTION IS BASED ON THE BEST AVAILABLE INFORMATION, BUT THE GOVERNMENT MAKES NO GUARANTY, WARRANTY, OR REPRESENTATION, EXPRESSED OR IMPLIED, AS TO QUANTITY, KIND, CHARACTER, QUALITY, WEIGHT, SIZE, OR DESCRIPTION OF ANY OF THE PROPERTY, OR ITS FITNESS FOR ANY USE OR PURPOSE, AND NO CLAIM WILL BE CONSIDERED FOR ALLOWANCE OR ADJUSTMENT OR FOR RESCISSION OF THE SALE BASED UPON FAILURE OF THE PROPERTY TO CORRESPOND WITH THE STANDARD EXPECTED: THIS IS NOT A SALE BY SAMPLE.

8. ADJUSTMENT FOR VARIATION IN QUANTITY OR WEIGHT.--- ANY VARIATION BETWEEN THE QUANTITY OR WEIGHT LISTED FOR ANY ITEM AND THE QUANTITY OR WEIGHT OF SUCH ITEM TENDERED OR DELIVERED TO THE PURCHASER WILL BE ADJUSTED ON THE BASIS OF THE UNIT PRICE QUOTED FOR SUCH ITEM; BUT NO ADJUSTMENT FOR SUCH VARIATION WILL BE MADE WHERE AN AWARD IS MADE ON A "PRICE FOR THE LOT" BASIS.

THERE IS NO QUESTION THAT THE DESCRIPTIONS OF THE SEVERAL LOTS IN THE BID INVITATION CONTAINED NO STATEMENT OF ANY KIND AS TO THE CONDITION OF THE ARTICLES OFFERED, NOR DO WE UNDERSTAND THAT YOUR COUNSEL QUESTION THE VALIDITY OF THE DISCLAIMER OF WARRANTY ABOVE QUOTED. RATHER IT IS CONTENDED THAT THE PROPERTY DISPOSAL OFFICER, AS WELL AS HIS SUBORDINATES, ASSURED YOUR REPRESENTATIVES WHO WERE INSPECTING THE GOODS PRIOR TO BIDDING THAT THE COATS IN ALL BUT TWO OF THE LOTS WERE NEW OR UNUSED, AND THAT THOSE IN THE OTHER TWO LOTS WERE IN SUBSTANTIALLY THE SAME CONDITION AS FOUND IN THE SEVERAL OPEN BALES WHICH WERE INSPECTED; THAT THE DISPOSAL OFFICER FULLY BELIEVED THAT THE COATS IN QUESTION WERE IN SUCH CONDITION AND ACCEPTED YOUR BID WITH THAT UNDERSTANDING; AND THAT SINCE THE CONTRACT WAS MADE IN THE HONEST BUT ERRONEOUS BELIEF ON BOTH SIDES THAT THE LOTS SOLD CONSISTED SOLELY OF COATS IN NEW OR GOOD CONDITION, THERE WAS NO VALID CONTRACT.

ASSUMING SOLELY FOR THE PURPOSE OF ARGUMENT THAT A CASE OF MUTUAL MISTAKE IS ESTABLISHED, WE SEE NO BASIS FOR THE RELIEF REQUESTED. ORDINARILY, THE REMEDY FOR MUTUAL MISTAKE IN THE EXECUTION OF A CONTRACT IS TO REFORM THE CONTRACT SO THAT IT WILL CONFORM TO THE ACTUAL AGREEMENT BETWEEN THE PARTIES, WHERE THE CONTRACT EXECUTED FAILS TO EXPRESS THAT AGREEMENT. THE FACTS HERE PRESENTED THERE IS NO BASIS FOR REFORMING THE CONTRACT BY SUBSTITUTING FOR THE PRICE STATED THEREIN THE FIGURE CLAIMED TO BE THE ACTUAL VALUE OF THE GOODS SOLD, SINCE THERE WAS OBVIOUSLY NO AGREEMENT ON SUCH A PRICE, OR ON ANY PRICE OTHER THAN THE AMOUNT OF YOUR BID. NOR, IN THE FACE OF THE EXPRESS DISCLAIMER OF WARRANTY, OF WHICH BOTH PARTIES WERE FULLY AWARE, CAN IT BE SERIOUSLY CONTENDED THAT THE CONTRACT COULD BE REFORMED BY INSERTING A WARRANTY WHICH THE DISPOSAL OFFICER WAS WHOLLY UNAUTHORIZED TO MAKE, EVEN IF HE HAD SO INTENDED. FINALLY, IT IS QUITE IMPOSSIBLE AT THIS TIME TO ALLOW A RESCISSION OF THE CONTRACT, SINCE THE PARTIES CANNOT NOW BE RESTORED EVEN APPROXIMATELY TO THE POSITIONS WHICH THEY OCCUPIED AT THE TIME OF THE CONTRACT.

YOUR ATTORNEY HAS INVITED ATTENTION TO TWO DECISIONS OF OUR OFFICE IN WHICH RELIEF WAS GRANTED TO PURCHASERS OF GOVERNMENT SURPLUS PROPERTY, NOTWITHSTANDING SPECIFIC DISCLAIMERS OF WARRANTY IN THE SALE AGREEMENTS. IN ONE OF THESE DECISIONS, B-126338, JANUARY 4, 1956, TO THE SECRETARY OF THE NAVY, THE PURCHASER, BEFORE BIDDING ON APPROXIMATELY 51,840 POUNDS OF SCRAP SILK, REQUESTED A SAMPLE IN LIEU OF INSPECTION, AND REQUESTED THAT IF THE LOT DID NOT RUN UNIFORM OTHER SAMPLES SHOULD BE SENT IN ORDER THAT IT MIGHT JUDGE THE QUALITY OF THE MERCHANDISE OFFERED. THE SAMPLE FURNISHED TO THE PURCHASER WAS OF NATURAL COLORED SILK BUT A CONSIDERABLE PART OF THE DELIVERY MADE BY THE GOVERNMENT CONTAINED COLORED SILK WHICH APPARENTLY WAS OF NO VALUE TO THE PURCHASER UNLESS CHEMICALLY TREATED TO REMOVE THE COLOR. THE ACQUISITION COST OF THE MATERIAL WAS $7,776 AND THE PURCHASER QUOTED A PRICE OF $16,127.42. ANOTHER BIDDER QUOTED A PRICE OF $9,211.97. SINCE IT APPEARED THAT THE CONTRACTING OFFICER KNEW THAT A PART OF THE LOT WAS COLORED, HIS FAILURE TO INCLUDE COLORED SAMPLES WHEN HE UNDERTOOK TO FURNISH SAMPLES--- EVEN THOUGH HE WAS NOT AUTHORIZED TO MAKE THE SALE ONE BY SAMPLE--- WAS, WE BELIEVE, AT VARIANCE WITH THE GOVERNMENT'S OBLIGATION OF GOOD FAITH.

THE OTHER DECISION CITED, B-123009, DATED MARCH 18, 1955, INVOLVED A SALE OF PAINT BRUSHES, WHERE IN SOME MANNER CHEAP HORSEHAIR BRUSHES HAD BEEN PACKED IN BOXES BEARING LABELS DESCRIPTIVE OF GOOD QUALITY BRISTLE BRUSHES OF FAR HIGHER VALUE, AND THE SALES DESCRIPTION CONTAINED THE SAME ERRONEOUS INFORMATION. IT IS TRUE THAT IN THAT DECISION WE CHARACTERIZED THE SITUATION AS ONE OF MUTUAL MISTAKE. ON MATURE CONSIDERATION, HOWEVER, WE NOW BELIEVE THAT THIS WAS ERRONEOUS, AND THAT THE CONCEPT OF MUTUAL MISTAKE HAS GENERALLY NO PROPER APPLICABILITY TO CONTRACTS OF SALE CONTAINING THE STANDARD DISCLAIMER OF WARRANTY CLAUSE USED IN MOST SALES OF SURPLUS GOVERNMENT PROPERTY. THAT CLAUSE CLEARLY STATES THAT THE DESCRIPTION CONTAINED IN THE SALES OFFERING "IS BASED ON THE BEST AVAILABLE INFORMATION," BUT, IN EFFECT, THAT THE GOVERNMENT MAKES NO WARRANTY AS TO ITS CORRECTNESS IN ANY RESPECT.

TO PERMIT A DISPOSAL OFFICER'S BELIEF IN THE CORRECTNESS OF THE DESCRIPTION OR OF THE RECORD INFORMATION UPON WHICH IT WAS BASED TO CONSTITUTE A GROUND FOR RELIEF OF A PURCHASER ON A MUTUAL MISTAKE THEORY, IF THE DESCRIPTION WAS IN FACT INCORRECT, WOULD OBVIOUSLY NULLIFY THE MANIFEST PURPOSE AND INTENT OF THE DISCLAIMER OF WARRANTY. WE WOULD NORMALLY ASSUME THAT EVERY DISPOSAL OFFICER BELIEVES IN THE ACCURACY OF HIS DESCRIPTIONS AND THE PROPERTY RECORDS FROM WHICH THEY WERE PREPARED; IF HE KNEW OR HAD GOOD REASON FOR BELIEVING THAT THEY WERE NOT ACCURATE, THERE COULD WELL BE A QUESTION OF BAD FAITH WHICH MIGHT JUSTIFY AVOIDANCE

OF THE CONTRACT.

IN THIS INSTANCE THE TESTIMONY OF THE DISPOSAL OFFICER CLEARLY SHOWS THAT HIS BELIEF THAT THE COATS IN QUESTION WERE NEW OR IN GOOD CONDITION WAS BASED UPON RECORDS BEFORE HIM RATHER THAN UPON ANY ACTUAL PERSONAL EXAMINATION. IN OTHER WORDS, HE ACTUALLY HAD NO MORE PERSONAL KNOWLEDGE OF THE TRUE FACTS THAN DID YOUR REPRESENTATIVES, BUT BY THE EXPRESS TERMS OF THE OFFERING ALL THE RISKS AS TO THE ACCURACY OF THE DESCRIPTIONS WERE ACCEPTED BY YOU WHEN YOU BID, AND IMPOSED UPON YOU BY THE ACCEPTANCE OF YOUR OFFER.

ALTHOUGH RECOGNIZING THAT THE CONTRACTING OFFICER HAS AGREED WITH YOUR POSITION THAT IT WOULD HAVE BEEN PRACTICALLY IMPOSSIBLE FOR YOUR REPRESENTATIVES TO HAVE MADE A COMPLETE INSPECTION OF THE VARIOUS LOTS DESCRIBED AS COATS BEFORE THE TIME SCHEDULED FOR THE SUBMISSION OF BIDS -- SOME 14,000 BALES OF MATERIAL DESCRIBED AS COATS WERE STORED AT THE TWO LOCATIONS--- WE NEVERTHELESS ARE OF THE OPINION THAT THE TERMS OF SALE WERE SUFFICIENT TO INDICATE TO YOUR COMPANY THAT IT WOULD BE CONSCIOUSLY TAKING THE CHANCE THAT, IF IT SUBMITTED A BID AND THE TRANSACTION PROVED TO BE UNPROFITABLE OR EVEN CAUSED A CONSIDERABLE LOSS, THE GOVERNMENT WOULD BE UNDER NO OBLIGATION TO REFUND ANY PART OF THE AGREED SALE PRICES FOR THE SPECIFIED LOTS.

FOR THE REASONS STATED, THE SETTLEMENT OF DECEMBER 7, 1956, IS SUSTAINED.