B-154519, AUG. 18, 1964

B-154519, AUG. 18, 1964

TO AMINO KINZOKU SANGYO COMPANY, LTD.:

REFERENCE IS MADE TO YOUR LETTERS DATED MARCH 27, 1963 AND MARCH 25, 1964, REQUESTING RESCISSION OF DEFAULTED SURPLUS SALES CONTRACT NO. DA/S/92-557-FEC-34444 DATED SEPTEMBER 20, 1962, AND REFUND OF YOUR BID DEPOSIT, OR IN THE ALTERNATIVE, MITIGATION OF THE GOVERNMENT'S ASSESSMENT OF DAMAGES AGAINST YOU FROM 2,912,966 (20 PERCENT OF THE PURCHASE PRICE), TO 763,934 YENS (THE DIFFERENCE BETWEEN THE PRICE SPECIFIED IN YOUR CONTRACT AND THE AMOUNT ALLEGED TO HAVE BEEN REALIZED BY THE GOVERNMENT UPON RESALE FOR YOUR ACCOUNT).

THE CONTRACT, LET BY THE UNITED STATES ARMY DEPOT, JAPAN, IN THE AMOUNT OF 14,564,831 YENS, OBLIGATED YOU TO PURCHASE ITEM NO. 7 OF INVITATION FOR BIDS NO. 92-557-S-63-13 OR 250,470 POUNDS OF ALUMINUM INGOT SCRAP. THE ALUMINUM WAS DESCRIBED AS FOLLOWS IN INFORMATION ACCOMPANYING THE INVITATION:

"THESE INGOTS WERE SMELTERED FROM CONDEMNED AND OUT DATED CHAFF AND ARE 99 PERCENT PURE ALUMINUM.'

YOUR LETTERS STATE THAT YOU INSPECTED THE INGOTS PRIOR TO BIDDING, BUT THAT ONLY CHEMICAL ANALYSIS COULD HAVE YIELDED AN EXACT APPRAISAL OF THE INGOT PURITY AND YOUR REPRESENTATIVE WAS NOT PERMITTED TO CARRY AWAY A SAMPLE FOR THAT PURPOSE AT THE TIME. BETWEEN BID OPENING AND AWARD, HOWEVER, YOUR COMPANY WAS PERMITTED TO TEST SAMPLES OF ITEM 7 AND TWO SEPARATE LABORATORY ANALYSES WERE MADE, ONE BY YOUR OWN LABORATORY AND ONE BY THE ARIKI COMPANY, LTD. THE RESULTS OF THOSE TESTS CONTRADICTED THE AFORE-STATED DESCRIPTION IN THAT THE ALUMINUM CONTENT OF THE INGOTS WAS DETERMINED TO BE 96.89 PERCENT BY ONE LABORATORY AND 97.99 PERCENT BY THE OTHER. FURTHERMORE, THE PRESENCE OF LEAD IN AN AMOUNT OVER 1 PERCENT WAS DETECTED WHICH, IN THE OPINION OF YOUR CONSULTING ENGINEER, RENDERED THE METAL UNFIT FOR EITHER ROLLING OR CASTING.

UPON OBTAINING THE RESULTS OF THESE TESTS YOUR COMPANY REFUSED TO TAKE DELIVERY OF THE INGOTS AND REQUESTED CANCELLATION OF THE CONTRACT. THE CONTRACTING OFFICER DENIED YOUR REQUEST AND DECLARED YOUR BID DEPOSIT FORFEITED IN AN AMOUNT EQUAL TO 20 PERCENT OF THE PURCHASE PRICE. THE UNITED STATES ARMY JAPAN BOARD OF CONTRACT APPEALS DECLINED JURISDICTION OVER THE MATTER IN DECISION USARJ BCA NO. 164, DATED FEBRUARY 27, 1963, ON THE GROUND THAT THE BOARD IS WITHOUT AUTHORITY TO GRANT THE REMEDY OF RESCISSION.

BY PARAGRAPH 2 OF THE GENERAL SALE TERMS AND CONDITIONS, THE PROPERTY WAS OFFERED FOR SALE ON AN "AS IS" AND "WHERE IS" BASIS. THE SAME PARAGRAPH CONTAINED THE CUSTOMARY DISCLAIMER BY WHICH IT IS STIPULATED THAT THE GOVERNMENT MAKES NO WARRANTY, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO THE KIND, CHARACTER, QUALITY, OR DESCRIPTION OF THE ITEM OR AS TO ITS FITNESS FOR ANY USE OR PURPOSE. IT IS REGRETTABLE THAT THE INGOTS WERE MISDESCRIBED AS BEING 99 PERCENT PURE ALUMINUM WHEN IN ACTUALITY THE ALUMINUM CONTENT APPEARS TO HAVE BEEN SLIGHTLY LOWER. NONETHELESS, IN VIEW OF THE TERMS AND CONDITIONS ON WHICH THE SALE WAS CONSUMMATED, WE DISCERN NO LEGAL BASIS FOR RESCISSION OF THE CONTRACT. DADOURIAN EXPORT CORPORATION V. UNITED STATES, 291 F.2D 178 (1961); UNITED STATES V. HOFFMAN, 219 F.SUPP. 895 (1963); M. BERGER CO. V. UNITED STATES, 199 F.SUPP. 22 (1961).

THE RECORD BEFORE US INDICATES THAT THE AFORE-QUOTED DESCRIPTION OF THE PROPERTY WAS A DIRECT QUOTATION FROM THE DESCRIPTION PROVIDED TO THE ARMY PROPERTY DISPOSAL OFFICE BY THE AIR FORCE AGENCY REQUESTING THE SALE WHICH IN TURN PREDICATED ITS STATEMENT UPON A SPECTROGRAPHIC ANALYSIS OF FORM SAMPLE INGOTS PREFORMED ON MAY 12, 1961, BY THE MATERIALS PROCESSING BRANCH, PRECISION MEASUREMENT EQUIPMENT DIVISION, AIR MATERIAL FORCE PACIFIC AREA. IN VIEW OF THE ABOVE IT CAN ONLY BE CONCLUDED THAT THE BEST INFORMATION AVAILABLE TO THE SALES ACTIVITY WAS INCLUDED IN THE INVITATION.

BIDDERS ARE GENERALLY ABLE TO PROTECT THEMSELVES AGAINST THE CONSEQUENCES OF INADVERTENT MISDESCRIPTIONS IN SURPLUS SALES INVITATION DATA BY PHYSICALLY INSPECTING THE PROPERTY PRIOR TO ENTERING A BID. AS YOU POINT OUT, YOUR COMPANY WAS PREVENTED FROM FULLY INSPECTING THE SUBJECT MATTER OF THE PROPOSED PURCHASE BY THE ACTION OF PROCUREMENT OFFICIALS IN REFUSING YOU A SAMPLE FOR ANALYSIS. WE THINK THE OPPORTUNITY TO INSPECT AFFORDED YOU WAS ADEQUATE. THE VALUE OF THE INGOTS APPARENTLY WAS NOT SERIOUSLY DIMINISHED BY THE SLIGHTLY REDUCED ALUMINUM CONTENT AND BY THE AMOUNT OF LEAD PRESENT THEREIN SINCE YOU INFORM US THAT THEY EVENTUALLY FETCHED 13,800,897 YEN UPON RESALE (55.10 YEN PER POUND AS AGAINST YOUR OWN BID OF 58.15 YEN PER POUND). ALTHOUGH A FAIRER PROCEDURE WOULD HAVE BEEN TO PERMIT EACH BIDDER WHO WANTED ONE A SAMPLE IN THIS CASE, WE DO NOT THINK THE CONTRACTING PERSONNEL WERE GUILTY OF A VIOLATION OF THE PRESENTLY EXISTING RULES ON THE SUBJECT OF DISPOSAL OF UNITED STATES GOVERNMENT PROPERTY BY REFUSING TO SO DO. WE WILL SUGGEST TO THE DEPARTMENT OF DEFENSE, HOWEVER, THAT APPLICABLE REGULATIONS BE MODIFIED SO THAT IN THE FUTURE BIDDERS, UPON REQUEST, WILL BE ALLOWED TO REMOVE A SMALL SAMPLE OF SURPLUS MATERIALS FOR TESTING PURPOSES WHENEVER NECESSARY TO ENABLE THE ASCERTAINMENT OF PROPERTIES NOT DISCERNIBLE UPON VISUAL INSPECTION AND WHENEVER SUCH ACTION IS FEASIBLE UNDER THE CIRCUMSTANCES WITHOUT PREJUDICE TO OTHER BIDDERS OR TO THE GOVERNMENT.

UPON YOUR FAILURE TO PERFORM THE CONTRACT THE CONTRACTING OFFICER PROPERLY CHARGED YOUR COMPANY 2,912,966 YEN AND DEDUCTED THAT AMOUNT FROM YOUR BID DEPOSIT. PARAGRAPH 7, ENTITLED "DEFAULT," OF THE GENERAL SALE TERMS AND CONDITIONS EMBODIES IN THE INVITATION, READ, IN PERTINENT PART, AS FOLLOWS:

"* * * THE PURCHASER AGREES THAT IN THE EVENT HE FAILS TO PAY FOR THE PROPERTY OR REMOVE THE SAME WITHIN THE PRESCRIBED TIME, THE GOVERNMENT AT ITS ELECTION AND UPON NOTICE OF DEFAULT SHALL BE ENTITLED TO RETAIN * * * AS LIQUIDATED DAMAGES A SUM EQUAL TO 20 PERCENT OF THE PURCHASE PRICE OF THE ITEM (OR ITEMS) AS TO WHICH THE DEFAULT HAS OCCURRED.'

THE FACT THAT THE DIFFERENCE BETWEEN THE PRICE SPECIFIED IN YOUR CONTRACT AND THE AMOUNT OBTAINED UPON RESALE WAS FAR LESS THAN THE SUM FORFEITED AS LIQUIDATED DAMAGES IS IMMATERIAL TO A DETERMINATION OF THE PROPER MEASURE OF THE GOVERNMENT'S DAMAGES FOR DEFAULT. UNDER AMERICAN LAW WHEN A CONTRACT CONTAINING AN ENFORCEABLE LIQUIDATED DAMAGES PROVISION IS BREACHED, THE AMOUNT OF THE AGGRIEVED PARTY'S ACTUAL DAMAGES ARE OF NO CONCERN AND THE RECOVERY IS IN THE AMOUNT SPECIFIED IN THE CLAUSE SINCE THE REASONABLENESS OF THE PROVISION MUST BE CONSIDERED AS OF THE DATE THE CONTRACT IS ENTERED INTO. WILLISTON ON CONTRACTS, 783; 784.

FOR THE ABOVE-STATED REASONS WE REGRET TO INFORM YOU THAT CONTRACT NO. DA/A/92-557-FEC-34444 MAY NOT BE RESCINDED NOR MAY YOU BE REIMBURSED THE AMOUNT WHICH HAS BEEN WITHHELD FROM YOUR BID ..END :