Fraass Surgical Mfg. Co., Inc. v. US, 343-73.

• Decision Date: 22 February 1978
• Docket Number: No. 343-73.,343-73.
• Citation: 571 F.2d 34
• Parties: FRAASS SURGICAL MFG. CO., INC. v. The UNITED STATES.
• Court: U.S. Claims Court

571 F.2d 34

FRAASS SURGICAL MFG. CO., INC. v. The UNITED STATES.

No. 343-73.

United States Court of Claims.

February 22, 1978.

Jacob H. Fischman, Forest Hills, N.Y., attorney of record, for plaintiff. Norman Jacobson, Bayside, N. Y., of counsel.

Gerald L. Schrader, Washington, D. C., with whom was Asst. Atty. Gen. Barbara Allen Babcock, Washington, D. C., for defendant.

Before DAVIS, Judge, Presiding, KUNZIG and BENNETT, Judges.

OPINION

PER CURIAM:

This case comes before the court on defendant's motion, filed November 10, 1977, under Rule 141(b), moving that the court adopt, as the basis for its judgment in this case, the recommended decision of Trial Judge David Schwartz, filed September 30, 1977, pursuant to Rule 134(h), plaintiff having failed to file a notice of intention to except or exceptions thereto and the time for so filing pursuant to the Rules of the court having expired. Upon consideration thereof, without oral argument, since the court agrees with the trial judge's recommended decision, as hereinafter set forth,^* it hereby grants defendant's motion and adopts the said decision as the basis for its judgment in this case. Therefore, it is concluded as a matter of law that plaintiff is not entitled to recover and the petition is dismissed.

OPINION OF TRIAL JUDGE

SCHWARTZ, Trial Judge:

This is an action for reformation of a contract in which plaintiff, a manufacturer of medical and surgical equipment, agreed to produce airmen's survival kits for the Air Force. Government furnished material (GFM) valued at $126,220 was present on the plaintiff's premises when the plant was destroyed by fire, without fault of the plaintiff. A clause in the contract imposed on the contractor strict liability for losses of GFM by fire. With a reservation of rights, plaintiff paid the Government $75,000 received as insurance proceeds, and the Government withheld the remaining $51,220 from payments due under the contract. Plaintiff sues for refund of the $126,220, praying that the court reform the contract to replace the strict liability clause with another clause under which the contractor would be liable for the fire loss only in case of fault or wrongdoing.

The case has previously been considered by the court on the Government's motion for summary judgment. Fraass Surgical Mfg. Co. v. United States, 505 F.2d 707, 205 Ct.Cl. 585 (1974). The court dismissed portions of the petition and remanded the case for trial of a disputed question of fact determinative of the time of accrual of the cause of action and thus of the defense of limitations; and if the action were not barred by limitations, for trial of the claim of mutual mistake said to warrant reformation. Plaintiff has since amended its petition to allege that the challenged clause is unconscionable and therefore unenforceable.

I The Statute of Limitations

Plaintiff instituted suit on September 21, 1973; the suit is therefore barred under the 6-year statute if the cause of action accrued before September 21, 1967. 28 U.S.C. § 2501 (1970). The standard for determination of the date of accrual was determined by the court in the earlier opinion. "The claim first accrues on a claim for nonpayment of money," the court held, "on the date when payment becomes due and is wrongfully withheld in breach of the contract." Fraass Surgical Mfg. Co. v. United States, supra, 505 F.2d at 710, 205 Ct.Cl. at 591, quoting from Oceanic S.S. Co. v. United States, 165 Ct.Cl. 217, 225 (1964).

The fire which destroyed the property in question occurred on January 9, 1967. Following meetings with Government officers during January and February of that year, plaintiff resumed its performance of the contract in June. On August 24, the Government received plaintiff's invoice number 5854, apparently the first invoice since the fire. The Government claims that on September 15 it mailed an Advice of Payment form to plaintiff, notifying it that payment of $12,382.02, due on that invoice, was being withheld. The Government argues that receipt of this notice, which it is implied occurred before September 21, 1967, was the last event necessary to permit the plaintiff to bring suit as for a wrongful withholding. Accordingly, the court is asked to hold that the period of limitations began to run before September 21, 1967 and had expired when the suit was brought on September 21, 1973. The contention fails, for lack of notice to plaintiff of a firm withholding. The withholding pursuant to the Advice of Payment was tentative only. The Advice stated that the deduction was being made pursuant to a letter from the contracting officer of July 10, 1967, "authorizing tentative withholding." The evidence is that money withheld pursuant to such authority is placed in an escrow account pending a final determination of the amount to be withheld.

Receipt of the Advice, therefore, was not a notice of an accomplished offset as a withholding from contract payments which were due the plaintiff, such as would require it to bring suit. Plaintiff was entitled to regard the action taken as non-final — merely a temporary postponement of payment. A final statement by the Government of the amount of its loss was dated September 8 and was agreed to by plaintiff on September 21. On October 10, 1967, the plaintiff with a reservation of rights turned over to the Government its insurance company's check for $75,000, reducing the balance due the Government to $51,220.38. On October 19, 1967, the remaining amount of the Government's claim was set off against payments due to the plaintiff on invoices for goods delivered, and payment was made to plaintiff of the balance due on the invoices. No payment by plaintiff or offset against sums due to plaintiff is therefore shown to have taken place earlier than October 10, 1967. Thus limitations had not expired when suit was brought on September 21, 1973.

II Reformation

Reformation is sought to rectify the alleged mistaken inclusion in the contract of clause 60.1-3a(g), allotting to the contractor the risk of loss by fire of Government furnished material.¹ Plaintiff urges that the parties intended to include a different clause, under which plaintiff would be liable only for loss by reason of fault or wrongdoing by its officers. Were the contract so reformed, plaintiff would prevail, for the fire took place wholly without its fault.

This court will normally grant reformation when there has been a mutual mistake of fact which causes the terms of a written contract to depart from the actual intention of the parties. Fraass Surgical Mfg. Co. v. United States, supra, 505 F.2d at 713, 205 Ct.Cl. at 596; Space Corp. v. United States, 470 F.2d 536, 540, 200 Ct.Cl. 1, 8-9 (1972); Bromion Inc. v. United States, 411 F.2d 1020, 1022, 188 Ct.Cl. 31, 35 (1969). The plaintiff in such a case must show, of course, that the Government would have agreed to the contract if worded in accordance with the plaintiff's intention. Ling-Temco-Vought, Inc. v. United States, 475 F.2d 630, 639, 201 Ct.Cl. 135, 150-51 (1973); McNamara Constr. Ltd. v. United States, 509 F.2d 1166, 1170, 206 Ct.Cl. 1, 9-10 (1975). A claim may also be stated by allegations of the occurrence of a mistake of which the Government knew or should have known and that the Government should be required to share in the loss as a matter of equity. Burnett Electronics Lab., Inc. v. United States, 479 F.2d 1329, 1333, 202 Ct.Cl. 463, 472 (1973) (collecting the cases); Ruggiero v. United States, 420 F.2d 709, 715-16, 190 Ct.Cl. 327, 339-40 (1970).

Here a different kind of mistake by each of the parties is alleged. The Government, presumed to have intended to include in the contract the clause which the regulations bound it to use (Chris Berg, Inc. v. United States, 426 F.2d 314, 192 Ct.Cl. 176 (1970)), is said to have chosen wrongly between the two clauses — strict-liability and liability-for-fault-only — specified in the Armed Services Procurement Regulation for two different types of contracts. Plaintiff's mistake, of a very different sort, is alleged to have occurred when plaintiff's president, relying on his recollection of past contracts with the Government, did not read the contract before he signed it, and thus did not notice that the wrong risk-of-loss clause had been included. Failure to read a contract before signing it does not necessarily foreclose reformation, since the gravamen of the reformation inquiry is whether the document reflects the agreement actually reached by the parties. Chicago & N.W. Ry. Co. v. United States, 68 Ct.Cl. 524, 538 (1929). On the other hand, a contractor who does not read the contract furnished him by the Government must still show a mistake by the Government before he can obtain reformation, since otherwise the mistake is not mutual. See, for example, National Electronic Lab. Inc. v. United States, 180 F.Supp. 337, 148 Ct.Cl. 308 (1960); Schoeffel v. United States, 193 Ct.Cl. 923 (1971); Dale Ingram, Inc. v. United States, 475 F.2d 1177, 201 Ct.Cl. 56 (1973).

Both clauses involved in the claim for reformation — the clause present in the contract and the clause plaintiff says should have been there — have their source in the version of ASPR § 13-702 in force at the time the contract was made. 32 C.F.R. § 13-702 (1966).

Subdivision (a) of ASPR § 13-702 directed the inclusion in fixed-price contracts of the clause actually in the instant contract, 60.1-3a(g), with an exception stated in subdivision (b). Subdivision (b) provided that the less strict clause — making the contractor liable only for fault — should be included in "fixed price contracts under which the contractor is required to submit the certified cost or pricing data" provided for in ASPR § 3-807.3.² ASPR § 13-702, 32 C.F.R. § 13-702 (1966). In turn ASPR § 3-807.3, essentially a restatement of the Truth-in-Negotiations Act, 10 U.S.C. § 2306(f) (1970), provided that cost and pricing data should not be required where a negotiated...