B-157843, JAN. 17, 1966

B-157843, JAN. 17, 1966

TO THE POSTMASTER GENERAL:

REFERENCE IS MADE TO A LETTER DATED DECEMBER 7, 1965, FROM THE DEPUTY ASSISTANT POSTMASTER GENERAL, BUREAU OF FACILITIES, FURNISHING A REPORT OF THE REQUEST MADE BY THE NATIONAL BANK OF WASHINGTON, IN A LETTER DATED OCTOBER 12, 1965, TO OUR OFFICE, FOR RELIEF IN THE FORM OF PERMITTING AN ADDITIONAL RENTAL CHARGE OF $4,500 UNDER "LESSOR IMPROVEMENTS" AGREEMENT ENTERED INTO ON SEPTEMBER 9, 1964, BY THE POST OFFICE DEPARTMENT WITH THE BANK AS SUBSTITUTED TRUSTEE UNDER THE WILL OF JOHN O. GHEEN, DECEASED, AND SUCCESSOR TRUSTEE UNDER THE WILL OF LULU L. GHEEN, DECEASED. IT WAS AGREED THAT AN ADDITIONAL FIXED RENTAL CHARGE OF $44,475 WOULD BE PAID BY THE GOVERNMENT UPON THE COMPLETION OF CERTAIN IMPROVEMENTS TO THE PROPERTY LOCATED AT 1423 IRVING STREET, N.W., WASHINGTON, D.C., NOW UNDER LEASE TO THE GOVERNMENT AND BEING USED AS A POSTAL FACILITY KNOWN AS THE COLUMBIA HEIGHTS STATION.

THE POST OFFICE DEPARTMENT HAD REQUESTED THE BANK, AS LESSOR, TO HAVE IMPROVEMENTS MADE, CONSISTING OF THE INSTALLATION OF A CENTRAL AIR- CONDITIONING SYSTEM, THE INSTALLATION OF NEW LIGHTING FIXTURES, AND CERTAIN REMODELING ITEMS INVOLVING GENERAL CONSTRUCTION WORK. DRAWINGS AND SPECIFICATIONS WERE FURNISHED TO THE BANK AND IT SOLICITED BIDS OR PROPOSALS ON THE BASIS THEREOF. ONLY ONE PROPOSAL WAS RECEIVED, HAVING BEEN SUBMITTED ON JULY 7, 1964, BY TWO FIRMS IN THE TOTAL SUM OF $44,475, WITH EACH FIRM SHOWING WHAT PORTION OF THE TOTAL PRICE IT EXPECTED TO RECEIVE. ONE COMPANY, JOHN G. WEBSTER COOLER COMPANY, INCORPORATED, INSERTED AN AMOUNT OF $16,975 AND THE OTHER COMPANY, GEORGE C. SWINK COMPANY, INSERTED AN AMOUNT OF $27,500. ON THE BASIS OF THAT JOINT PROPOSAL, REFERENCE TO WHICH IS MADE IN THE AGREEMENT OF SEPTEMBER 9, 1964, THE BANK AND THE GOVERNMENT NEGOTIATED THE ADDITIONAL RENTAL CHARGE OF $44,475.

WHEN THE TWO COMPANIES WERE AGAIN CONTACTED, THEY SUBMITTED SEPARATE PROPOSALS IN THE AMOUNTS OF $16,975 AND $27,500, WITH THE WEBSTER COMPANY'S PROPOSAL COVERING THE AIR-CONDITIONING REQUIREMENTS AND THE SWINK COMPANY'S PROPOSAL COVERING THE INSTALLATION OF NEW WIRING, ELECTRICAL EQUIPMENT AND LIGHTING FIXTURES. NEITHER PROPOSAL REFERRED TO THE REMODELING WORK AS SPECIFIED IN THE NOTATIONS MADE ON THE POST OFFICE DRAWING NO. SK-270. THE BANK ACCEPTED THE WEBSTER COMPANY'S PROPOSAL ON SEPTEMBER 22, 1964, AND THE SWINK COMPANY'S PROPOSAL WAS ACCEPTED BY THE BANK ON SEPTEMBER 25, 1964. THE BANK HAS STATED THAT WHEN IT SOLICITED QUOTATIONS ON THE ENTIRE WORK, IT FAILED TO SPECIFICALLY MENTION THE REMODELING WORK; THAT IN PREPARING THE JOINT PROPOSAL REPRESENTATIVES OF THE WEBSTER AND SWINK COMPANIES WORKED VERY CLOSELY WITH THE POST OFFICE PERSONNEL; AND THAT THE BANK HAS BEEN INFORMED THAT, DURING THESE DISCUSSIONS, THE MATTER OF THE REMODELING WORK WAS NEVER MENTIONED BY EITHER PARTY. IN VIEW THEREOF, AND THE FACT THAT THE SUBSEQUENT INDIVIDUAL PROPOSALS CONTAINED NO REFERENCE TO THE PERFORMANCE OF REMODELING WORK, IT IS APPARENT THAT A MISTAKE WAS MADE IN THE PROPOSAL JOINTLY SUBMITTED BY THE TWO COMPANIES, OFFERING TO COMPLETE ALL OF THE WORK AS DESCRIBED IN THE POST OFFICE DEPARTMENT'S DRAWINGS AND SPECIFICATIONS FOR A TOTAL PRICE OF $44,475.

THE ELECTRICAL WORK WHICH THE SWINK COMPANY AGREED TO PERFORM AND THE AIR -CONDITIONING WORK WHICH THE WEBSTER COMPANY AGREED TO PERFORM HAVE BEEN COMPLETED. THE BANK ATTEMPTED TO SECURE PERFORMANCE OF THE REMODELING WORK AT NO ADDITIONAL COST ON THE BASIS THAT THE JOINT PROPOSAL CONTAINED NO EXCEPTION WITH RESPECT TO THE REQUIREMENTS OF THE POST OFFICE DEPARTMENT'S DRAWINGS AND SPECIFICATIONS. HOWEVER, THE BANK STATES THAT THE CONTRACTORS CONTEND THAT THEY ARE NOT RESPONSIBLE FOR THE REMODELING WORK SINCE IT WAS NOT INCLUDED IN THEIR CONTRACT PRICES. SINCE THE OFFERED PRICE UNDER THE ORIGINALLY SUBMITTED JOINT PROPOSAL IS CONSIDERABLY LESS THAN THE POST OFFICE DEPARTMENT'S COST ESTIMATE OF $51,000 FOR COMPLETION OF ALL OF THE REQUIRED WORK, IT IS THE BANK'S POSITION THAT THE DEPARTMENT SHOULD HAVE TAKEN ADDITIONAL STEPS TO VERIFY THAT ALL OF THE DESIRED WORK WAS INCLUDED IN THE WEBSTER-SWINK PROPOSAL OF JULY 7, 1964, WHEN THE "LESSOR IMPROVEMENTS" AGREEMENT WITH THE BANK WAS BEING NEGOTIATED.

THE BANK HAS INDICATED THAT THE DEPARTMENT IS WITHHOLDING PAYMENT OF $6,000 UNDER THE "LESSOR IMPROVEMENTS" AGREEMENT PENDING THE COMPLETION OF THE REQUIRED REMODELING WORK. THE BANK HAS ADVISED US THAT, NOTWITHSTANDING THE DISCLAIMER OF LIABILITY BY THE TWO CONTRACTORS IN THE MATTER, THE WEBSTER COMPANY HAS OFFERED TO PERFORM THE REMODELING WORK ON A COST-REIMBURSABLE BASIS, AND FURNISHED A TOTAL COST ESTIMATE OF $4,500. THE BANK IS REQUESTING RELIEF TO THAT EXTENT AND, IF THE RELIEF SHOULD BE GRANTED, THE APPROXIMATE TOTAL SUM OF $10,500 WOULD APPARENTLY BE DUE THE BANK, AS LESSOR, WHEN THE REMODELING WORK HAS BEEN PERFORMED.

THE JOINT PROPOSAL CONTAINS NO TIME LIMITATION FOR ITS ACCEPTANCE BUT IT IS QUESTIONABLE WHETHER THE JOINT PROPOSAL WAS STILL AVAILABLE FOR ACCEPTANCE AFTER THE INDIVIDUAL PROPOSALS OF THE TWO COMPANIES WERE RECEIVED BY THE BANK. IN ANY EVENT, SINCE THE INDIVIDUAL PROPOSALS DID NOT PURPORT TO COVER THE PERFORMANCE OF ANY REMODELING WORK, IT IS APPARENT THAT, IF THE BANK HAD MADE AN AWARD ON THE BASIS OF THE JOINT PROPOSAL AFTER RECEIPT OF THE INDIVIDUAL PROPOSALS, SUCH CONTRACT WOULD HAVE BEEN SUBJECT TO RESCISSION OR EQUITABLE ADJUSTMENT UNDER THE ESTABLISHED RULE THAT, IF A MATERIAL MISTAKE IS MADE BY ONE PARTY TO A CONTRACT AND THE MISTAKE IS KNOWN TO THE OTHER PARTY, OR BECAUSE OF ACCOMPANYING CIRCUMSTANCES THE OTHER PARTY HAS REASON TO KNOW OF THE MISTAKE, THE PARTY MAKING THE MISTAKE HAS THE RIGHT TO RESCISSION AND RESTITUTION. SEE C. N. MONROE MANUFACTURING COMPANY V. UNITED STATES, 143 F.SUPP. 449, 451; AND UNION PAINTING COMPANY V. UNITED STATES, 198 F.SUPP. 282. IN OUR OPINION, THE BANK IN THIS CASE WAS ON CONSTRUCTIVE NOTICE OF THE MISTAKE MADE BY THE WEBSTER-SWINK COMPANIES IN THEIR PROPOSAL OF JULY 7, 1964, WHEN IT RECEIVED THE INDIVIDUAL PROPOSALS OF THOSE CONCERNS QUOTING THE SAME AMOUNTS WHICH THE COMPANIES HAD INSERTED NEAR THEIR SIGNATURES TO THE JOINT PROPOSAL.

ALTHOUGH THE DEPARTMENTAL REPORT HAS INDICATED THAT IT WAS THE PRIMARY RESPONSIBILITY OF THE BANK TO DETERMINE WHETHER IT HAD RECEIVED AN ACCEPTABLE PROPOSAL FOR THE PERFORMANCE OF ALL OF THE DESIRED WORK WHEN THE BANK AGREED TO ACCEPT THE SUM OF $44,475 AS ADDITIONAL RENTAL ON ACCOUNT OF THE IMPROVEMENTS TO BE MADE, THE "LESSOR IMPROVEMENTS" AGREEMENT WAS BASED ON THE WEBSTER-SWINK PROPOSAL AND THE DEPARTMENT KNEW THAT THE BANK WAS RELYING ON THAT PROPOSAL AS AN INDICATION OF THE TOTAL COST WHICH WOULD BE INCURRED IF ALL OF THE DESIRED IMPROVEMENTS WERE COMPLETED.

HENCE, AND NOTWITHSTANDING THE DEPARTMENT'S APPARENT BELIEF THAT ITS OWN COST ESTIMATE DID NOT INDICATE PROBABLE ERROR IN THE WEBSTER SWINK PROPOSAL, IT WOULD APPEAR THAT THE BANK NEVERTHELESS SHOULD HAVE BEEN ADVISED OF THE GOVERNMENT'S TOTAL COST ESTIMATE OF $51,000 IN THE COURSE OF THE NEGOTIATION PROCEEDINGS LEADING TO THE EXECUTION OF THE "LESSOR IMPROVEMENTS" AGREEMENT, SO THAT THE BANK COULD HAVE DETERMINED FOR ITSELF WHETHER OR NOT TO REQUEST A VERIFICATION OF THE WEBSTER SWINK PROPOSAL IN THE AMOUNT OF $44,475, BEFORE AGREEING TO THE ADDITIONAL RENTAL CHARGE IN SUCH AMOUNT. IN THIS CONNECTION, THE BANK CONTENDS THAT IT WAS NOT INFORMED OF SUCH ESTIMATE UNTIL AFTER THE COMPLETION OF THE ELECTRICAL AND AIR-CONDITIONING WORK BY THE SWINK AND WEBSTER COMPANIES, AND THE DEPARTMENTAL REPORT DOES NOT PURPORT TO SHOW THAT THE $51,000 COST ESTIMATE WAS MADE KNOWN TO THE BANK AT THE TIME THE "LESSOR IMPROVEMENTS" AGREEMENT WAS BEING NEGOTIATED.

IN THE CIRCUMSTANCES, IT APPEARS THAT IT WOULD BE INEQUITABLE TO REQUIRE THE BANK TO COMPLETE THE REMODELING WORK WITHOUT INCREASING THE AGREED UPON ADDITIONAL RENTAL CHARGE BASED UPON COMPLETION OF ALL THREE CATEGORIES OF IMPROVEMENTS DESIRED BY THE GOVERNMENT. WE THEREFORE ARE NOT REQUIRED TO OBJECT TO THE EXECUTION OF AN AMENDMENT TO THE "LESSOR IMPROVEMENTS" AGREEMENT WHICH WOULD PERMIT AN ADDITIONAL RENTAL CHARGE OF NOT TO EXCEED THE WEBSTER COST ESTIMATE OF $4,500 FOR THE REMODELING WORK.