United States v. Systron-Donner Corporation

• Decision Date: 27 September 1973
• Docket Number: No. 71-1455.,71-1455.
• Citation: 486 F.2d 249
• Parties: UNITED STATES of America, Plaintiff-Appellee, v. SYSTRON-DONNER CORPORATION, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

486 F.2d 249 (1973)

UNITED STATES of America, Plaintiff-Appellee, v. SYSTRON-DONNER CORPORATION, Defendant-Appellant.

No. 71-1455.

United States Court of Appeals, Ninth Circuit.

September 27, 1973.

Harold C. Nachtrieb (argued), of Miller, Groezinger, Pettit, Evers & Martin, San Francisco, Cal., Lingel H. Winters, Gen. Counsel, Systron-Donner Corp., Concord, Cal., for defendant-appellant.

Walter H. Fleischer (argued), L. Patrick Gray, III, Asst. Atty. Gen., Dept. of Justice, Washington, D. C., James L. Browning, Jr., U. S. Atty., Peter R. Goldschmidt, Asst. U. S. Atty., San Francisco, Cal., Thomas J. Press, Michael C. Farrar, Dept. of Justice, Washington, D. C., for plaintiff-appellee.

Before GOODWIN and WALLACE, Circuit Judges, and CURTIS,^* District Judge.

WALLACE, Circuit Judge:

The United States brought suit against Systron-Donner Corporation, a California corporation, alleging common-law fraud, charging violations of the False Claims Act,¹ and seeking recovery of money paid by mistake.² The district court dismissed the fraud and False Claims Act counts but, after a court trial, allowed the United States to recover $39,681.46 under the common-law doctrine of payment by mistake. Systron-Donner appeals and we reverse.

During 1959 and 1960, the Department of the Navy awarded to the Lockheed Aircraft Corporation, Missiles and Space Company (Lockheed) four costplus-fixed-fee contracts for the production of the Polaris missile. Thereafter Lockheed awarded Systron-Donner three subcontracts for the production of 206 ignition programmers. Unlike the costplus prime contract, these subcontracts were for a fixed price. Systron-Donner submitted a price proposal or offer to Lockheed during the formation of the subcontracts. After a period of negotiation, a reduced unit price was agreed upon.³

The original price proposal contained cost breakdowns for various items. These breakdowns included certain erroneous double entries for material and hardware, aggregating $39,681.46 for the 206 programmers. Lockheed did not know of this mistake inclusion when it entered into the fixed unit price subcontracts although it had reviewed the proposal before awarding them to Systron-Donner. Thus the final unit price agreed upon may have included the value of the double entries and the United States would have paid Lockheed that additional amount, as part of its cost, plus a fixed fee.

The district court entered judgment for the government for the full amount of $39,681.46. It reasoned that the United States labored under an erroneous belief that the unit price did not include double charges, that this mistake was material to the payment of the contract price because the government would not have paid had it known the true facts, and that, therefore, the United States should recover the amount paid due to mistake. Although Systron-Donner questions the factual findings of the trial court as not supported by the evidence, it did not sustain its burden to show them to be clearly erroneous. The only remaining question is one of law.⁴

Undoubtedly the common-law remedy of payment by mistake is available to the United States independent of its statutory remedies.⁵ "The Government by appropriate action can recover funds which its agents have wrongfully, erroneously, or illegally paid." United States v. Wurts, 303 U.S. 414, 415, 58 S.Ct. 637, 638, 82 L.Ed. 932 (1938). "If the government made these payments under an erroneous belief which was material to the decision to pay, it is entitled to recover the payments." United States v. Mead, 426 F.2d 118, 124 (9th Cir. 1970). However, the payments in Wurts were income tax refunds and those in Mead were made to farmers pursuant to a conservation program. Here we are concerned with payments under the terms of negotiated contracts. The question is whether the result should be different.

The right of restitution due to a mistake in payment prevents the unjust enrichment of the payee at the expense of the payor. Thus a payment made pursuant to the terms of a supposed contract or a mistaken belief in the existence of a non-contractual duty can be recovered. See Restatement of Restitution §§ 15, 19 (1937). However, that theory does not apply here because these contracts are not supposed or non-existent. The parties did not lack the capacity to contract and the objects of the contracts were not illegal. The critical point is that unless Systron-Donner was unjustly enriched, the United States cannot recover in restitution. See Restatement of Restitution §§ 1, 12, 60 (1937). Therefore, we must first determine whether Systron-Donner was unjustly enriched.

The claimed injustice derives from Systron-Donner's non-fraudulent duplication of cost entries in the computation of its offer for a fixed-price contract. In other words, the company made a unilateral mistake in the formation of its bid.⁶ The mistaken calculation of a subcontractor's bid does not of itself render a contract voidable. There is still an objective agreement as to the terms of the contract. See Restatement of Contracts § 503 (1932); 3 Corbin on Contracts § 609, at 679 (1960). Under similar circumstances, courts have enforced a contract against the mistake maker, holding him to the terms of his low bid on construction contracts⁷ or his high bid for the sale of scrap or surplus property.⁸ Where the contractual bid has been accepted, the courts have allowed the offeree the benefit of the bargain to the detriment of the bidder.

Systron-Donner presents the opposite problem: should the bidder be allowed the benefit of the bargain when he mistakenly overbids rather than underbids? The government contends this is a one-way street. If the subcontractor's mistake results in an accepted bid too low, he may not complain; but if his mistake results in an accepted bid too high, the contractor may recover from the subcontractor. When equitable powers are involved, close scrutiny must be given to a result which appears to be inequitable.

Not unexpectedly, we have found no reported cases where someone attempted to rescind an overbid subcontract, probably because the overbid would not be the lowest bid and would seldom be accepted. But if someone offers to do a $300 job for $500 and that bid is accepted, there seems to be no basis in law or logic, absent fraud, for denying the bidder his profit. He may be enriched, but not unjustly so. The presence of the government as a party to the prime contract should not affect that result.

Reversed and remanded.

ALFRED T. GOODWIN, Circuit Judge (dissenting):

Because the case is not one likely to occur again (Congress has closed the gate) I have been reluctant to record my dissent. But I believe the district court correctly perceived the problem and reached the right result. I would affirm.

Here there was no competitive bidding between Lockheed's suppliers, so the usual safeguards of the market place do not even in theory protect Lockheed's ultimate purchaser against overcharges. Systron-Donner's argument is that its bid to Lockheed became a contract, and that when Lockheed agreed to pay the contract price, that price, with all its faults, became the "cost" item to be calculated in the cost-plus statement Lockheed...