B-135731, APR. 29, 1958

B-135731: Apr 29, 1958

Additional Materials:

Contact:

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

 

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

TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO A LETTER OF MARCH 28. SUBMITTED BY UMBERTO CORTESE WAS ACCEPTED ON MARCH 4. CORTESE INDICATED THAT HE WOULD SIGN THE CONTRACT ONLY IF NO CUSTOMS FEES WERE TO BE LEVIED ON CERTAIN OF THE ITEMS INCLUDED IN THE SALE. HE WAS THEN APPARENTLY INFORMED BY ARMY PERSONNEL THAT IN THE OPINION OF THE REPRESENTATIVE OF THE IMPERIAL ETHIOPIAN GOVERNMENT IN ERITREA CUSTOMS FEES WOULD NOT BE CHARGED ON THE ITEMS CONCERNING WHICH HE HAD RAISED THE QUESTION. CORTESE WAS ADVISED BY THE ETHIOPIAN CUSTOMS DEPARTMENT THAT. APPARENTLY SINCE SUCH ACTION WOULD HAVE VIOLATED ARTICLE 9 OF THE SPECIFICATIONS WHICH CLEARLY PROVIDES FOR PAYMENT OF ALL TAXES AND CUSTOMS FEES BY THE CONTRACTOR.

B-135731, APR. 29, 1958

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER OF MARCH 28, 1958, WITH ENCLOSURES, FROM THE ASSISTANT SECRETARY OF THE ARMY (LOGISTICS) REQUESTING OUR RATIFICATION OF THE ACTION TAKEN BY THE CONTRACTING OFFICER IN ENTERING INTO A SUPPLEMENTAL AGREEMENT TO CONTRACT NO. DA-S93-100-AS-6-57 UNDER THE CIRCUMSTANCES SET OUT BELOW.

INVITATION FOR BIDS NO. S4-S93-100-57-5, ISSUED FEBRUARY 5, 1957, COVERED THE SALE OF CERTAIN SCRAP MATERIAL IN ASMARA, ERITREA. THE HIGH BID OF $2,680.80, SUBMITTED BY UMBERTO CORTESE WAS ACCEPTED ON MARCH 4, 1957, WELL WITHIN THE TIME PROVIDED BY THE TERMS OF THE INVITATION. THE NEXT DAY, MR. CORTESE INDICATED THAT HE WOULD SIGN THE CONTRACT ONLY IF NO CUSTOMS FEES WERE TO BE LEVIED ON CERTAIN OF THE ITEMS INCLUDED IN THE SALE. HE WAS THEN APPARENTLY INFORMED BY ARMY PERSONNEL THAT IN THE OPINION OF THE REPRESENTATIVE OF THE IMPERIAL ETHIOPIAN GOVERNMENT IN ERITREA CUSTOMS FEES WOULD NOT BE CHARGED ON THE ITEMS CONCERNING WHICH HE HAD RAISED THE QUESTION. THEREUPON, MR. CORTESE SIGNED THE CONTRACT AND SOON AFTER COMMENCED TO CARRY OUT ITS TERMS. ON OR ABOUT MARCH 12, 1957, MR. CORTESE WAS ADVISED BY THE ETHIOPIAN CUSTOMS DEPARTMENT THAT, CONTRARY TO THE OPINION PREVIOUSLY RELATED TO HIM, A CUSTOMS FEE WOULD BE CHARGED ON THE SUBJECT MATERIAL. MR. CORTESE REFUSED TO CONTINUE WORK UNDER THE CONTRACT UNLESS THE CONTRACTING OFFICER ARRANGED FOR PAYMENT OF THE CUSTOMS FEES BY THE UNITED STATES OR FOR THE ELIMINATION OF THE NECESSITY FOR THIS PAYMENT. THIS THE CONTRACTING OFFICER REFUSED TO DO, APPARENTLY SINCE SUCH ACTION WOULD HAVE VIOLATED ARTICLE 9 OF THE SPECIFICATIONS WHICH CLEARLY PROVIDES FOR PAYMENT OF ALL TAXES AND CUSTOMS FEES BY THE CONTRACTOR. ON APRIL 15, 1957, HOWEVER, THE CONTRACTING OFFICER AND THE CONTRACTOR ENTERED INTO A SUPPLEMENTAL AGREEMENT TO THE CONTRACT WHEREBY THE ORIGINAL AMOUNT TO BE PAID BY THE CONTRACTOR WAS REDUCED SOME 40 PERCENT WHICH AMOUNT WAS STILL IN EXCESS OF THE SECOND HIGH BID. THEREUPON, THE CONTRACT WAS COMPLETELY CARRIED OUT AND THE CUSTOMS DUTIES PAID BY THE CONTRACTOR.

THE CONTRACTING OFFICER APPARENTLY CONSIDERED THAT "REFORMATION" OF THE CONTRACT WAS PERMISSIBLE IN VIEW OF THE MUTUAL MISUNDERSTANDING CONCERNING THE APPLICABILITY OF CUSTOMS LEVIES TO THE TRANSACTION. THE ADMINISTRATIVE RECORD ENCLOSED WITH THE LETTER OF MARCH 28, 1958, IS NOT CLEAR AS TO WHETHER ANY STATEMENTS CONCERNING THE APPLICABILITY OF CUSTOMS LEVIES ON THE MATERIAL SOLD WERE MADE TO THE CONTRACTOR BY AUTHORIZED UNITED STATES PERSONNEL BEFORE THE BID HAD BEEN ACCEPTED. ASSUMING THAT NO SUCH REPRESENTATIONS WERE MADE WITHIN THAT TIME, THERE IS FOR APPLICATION THE RULE OF LAW THAT THE RIGHTS AND OBLIGATIONS OF THE PARTIES TO A CONTRACT ARE FIXED UPON THE ACCEPTANCE OF THE OFFER. SEE UNITED STATES V. PURCELL ENVELOPE CO., 249 U.S. 313. THEREFORE, UNDER THE FACTS ASSUMED THE CONTRACTOR WHO OBLIGED TO PERFORM THE CONTRACT PRIOR TO THE TIME ANY REPRESENTATIONS WERE MADE TO HIM CONCERNING THE CUSTOMS LEVIES BY UNITED STATES PERSONNEL AND IT CANNOT BE SAID THAT THE CONTRACTOR WAS INDUCED TO UNDERTAKE THE CONTRACTUAL OBLIGATIONS BY SUCH REPRESENTATIONS.

EVEN IF AUTHORIZED UNITED STATES PERSONNEL MADE REPRESENTATIONS TO THE CONTRACTOR WHICH INDUCED HIM TO SUBMIT HIS BID OR TO REFRAIN FROM WITHDRAWING HIS BID WHEN HE COULD LEGALLY HAVE DONE SO, WE DO NOT THINK THAT THE CONTRACT COULD PROPERLY BE WITHDRAWN OR RESCINDED ON THAT ACCOUNT. WHETHER THE CUSTOMS FEES COULD BE LEVIED IN CONNECTION WITH THIS TRANSACTION APPEARS TO BE A QUESTION OF LAW RATHER THAN OF FACT. A MUTUAL MISUNDERSTANDING OR MISTAKE OF LAW IS NOT GROUNDS FOR CANCELLATION OR MODIFICATION OF THE OBLIGATIONS OF A CONTRACT. BOREN V. BURGESS, 97 F.SUPP. 1019. SEE, ALSO, UPTON V. TRIBOLCOCK, 91 U.S. 45, AND 5 WILLISTON ON CONTRACTS (REVISED EDITION) SECTION 1591. FOR THE FOREGOING REASONS, IT APPEARS THAT THE CONTRACTOR WAS OBLIGATED TO PERFORM IN ACCORDANCE WITH THE TERMS OF THE ORIGINAL CONTRACT. SINCE NO COMPENSATING BENEFIT FLOWED TO THE GOVERNMENT, THE MODIFICATION OF APRIL 15, 1957, WAS INVALID. SEE AMERICAN SALES CORPORATION V. UNITED STATES, 27 F.2D 389, AFFIRMED 32 F.2D 141, CERTIORARI DENIED, 280 U.S. 574. ACCORDINGLY, WE CANNOT RECTIFY THE ACTION TAKEN BY THE CONTRACTING OFFICER. HOWEVER, IN VIEW OF THE TIME WHICH HAS ELAPSED SINCE THE CONTRACT WAS CARRIED OUT AND OF THE IMPROBABILITY THAT ANY RECOVERY CAN BE MADE AGAINST THE CONTRACTOR, WE PROPOSE NO FURTHER ACTION ON THE MATTER.