Case ID: us-ct-cl_224/html/0740-01.html
Source: Caselaw Access Project
Author: {"author": "\n      Kunzig, Judge,\n    ", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

No. 43-78.
    July 18, 1980
    McGrew Bros. Sawmill, Inc.
    
      Alan I. Saltman, attorney of record, for plaintiff.
    
      Sandra P. Spooner, with whom was Assistant Attorney General Alice Daniel, for defendant.
   Contracts; amendment of petition changing character of claim; summary judgment; disputed issues of material fact; timber cutting contract; estimated quantities; disclaimer; industry practice. — On July 18, 1980 the court entered the following order:

Before Kashiwa, Judge, Presiding, Kunzig and Bennett, Judges.

This suit involves a contract, No. 018583, for the sale of standing timber by defendant acting through the United States Forest Service, Department of Agriculture. We have before us the parties’ cross-motions for summary judgment under Ct. Cl. Rule 101 and plaintiffs motion to amend the petition and defendant’s opposition thereto. The motion to amend the petition is allowed. However, we hold that there are disputed material issues of fact and so remand the case to the trial division.

On September 26, 1975, plaintiff was awarded a contract to cut and remove certain standing timber in the Umpqua National Forest in the Tiller Ranger District, State of Oregon. This was known as the Goolaway sale. Logging is to be completed by December 31, 1980. The contract provides for a price per thousand board feet of merchantable timber removed from contract designated areas rather than a lump sum price for all designated timber whatever its volume or grade. The contract also requires that all disturbed timber, whether or not merchantable, must be removed by helicopter. All unutilized material harvested on the sale has to be piled at designated locations.

Before award of the contract, bidders were given a prospectus describing the sale. The introduction to the prospectus states:

This prospectus is to furnish sufficient information in addition to that contained in the published advertisement to enable prospective bidders to decide whether further investigation of the sale is warranted, information GIVEN HERE OR OTHERWISE PROVIDED IS NOT A PART OF THE CONTRACT UNLESS STATED THEREIN. DETAILED CONDITIONS OF SALE ARE CONTAINED IN THE SAMPLE TIMBER SALE CONTRACT. IN THE EVENT A CONTRADICTION EXISTS BETWEEN THIS PROSPECTUS AND THE SAMPLE CONTRACT, THE contract governs. Timber Sale Contract, Form 2400-6, will be used. Sale area and sample contract should be inspected before submitting a bid. The appraisal, and other information on the timber, conditions of sale and bidding may be obtained at Forest Service offices named in the attached advertisement. [Capitals in original.]

The prospectus also contained estimates of the quantity of timber available. Along with the estimates there was the following language:

The quality, size, and age class of the timber are estimates based on detailed cruise information on file and available for inspection at the Forest Service offices listed in the advertisement, information listed herein is MADE AVAILABLE WITH THE UNDERSTANDING THAT VALUES SHOWN ARE NOT ESTIMATES OF A PURCHASER’S OWN RECOVERY AND ARE NOT A PART OF THE TIMBER SALE contract. For these reasons bidders are urged to examine the timber sale area and make their own recovery estimates. [Capitals in original.]

Nevertheless, the estimates of the timber quantities were made a part of the contract in section A2. The contract also contains a standard provision in clause B2.4, which says, "the estimated volumes stated in A2 are not to be construed as guarantees or limitations of the timber volumes to be designated for cutting under the terms of this contract.”

Plaintiff claims that it has logged part of the areas under the contract and made its own estimates of the amount of merchantable timber remaining unlogged. Plaintiff now alleges that the Forest Service grossly overestimated the amount of timber available. It did this, plaintiff claims, primarily for two reasons: (1) the Forest Service overestimated the acreage involved, and (2) it underestimated the defect rate. The defect rate here assailed was an assessment of the timber in terms of how much defective material and how much merchantable timber would be yielded by logging. The higher the defect rate, the lower the amount of merchantable timber. Defect rates before logging are by their nature estimates since the actual defect rate can only be known after the timber is logged. If the Forest Service did underestimate the defect rate, then plaintiff would recover less merchantable timber and would incur higher costs in collecting and piling defective material than it might have anticipated. Plaintiff claims that it will be unable to recover even its operating costs on this contract and so brings this suit.

We consider first plaintiffs motion to amend its petition. As the petition now stands, it asserts a count for breach of an implied warranty as to the amount of merchantable timber and a count for negligent misrepresentation of the amount of merchantable timber. The motion to amend would change the negligent misrepresentation count to a claim for reformation based on mutual mistake as to the amount of timber available. Since essentially the same circumstances are involved, and given the liberality of the amendment rules, the motion to amend should be granted. Ct. Cl. Rule 39(a). Defendant’s objection is largely that the motion to amend comes so late that defendant is prejudiced in its motion for summary judgment. However, the parties did brief the mutual mistake issue in support of their summary judgment motions and since we feel the case should be remanded to the trial division in any event, we do not find there is such prejudice to defendant, if any, as to warrant denying the motion.

Turning to the summary judgment motions, it is defendant’s position that any warranty regarding estimated timber quantities was fully disclaimed by the above-quoted language in the contract and prospectus. Defendant also contends that such disclaimers have the effect of shifting the risk of any mistake in the estimates to plaintiff so there cannot be any recovery on a mutual mistake theory either. Plaintiff takes the position that the disclaimers are effective only to indicate that the quantity estimates are not 100-percent accurate. However, plaintiff argues, the existence of quantity estimates in the contract constitutes an implied warranty that such estimates are accurate within a reasonable degree of error, and the parties contracted on the assumption that the quantity estimates were reasonably accurate. Thus, both counts ultimately turn on the proper interpretation of the contract terms, particularly provision A2, which contains the quantity estimates, and B2.4, which contains the above-quoted disclaimer of the estimates. On the papers before us, both parties’ interpretations of the contract are plausible and an ambiguity exists. Extrinsic evidence should therefore be considered to determine precisely the basis of the bargain between the parties. 4 WILLISTON § 600A (3d ed. 1961). As the parties dispute most of the extrinsic facts the motions for summary judgment must be denied and the case remanded to the trial division. Ct. Cl. Rule 101(d).

However, since it may be helpful to the parties and the trial judge, we will discuss a few of the problems we have with the parties’ present positions. Plaintiffs motion for summary judgment must be denied because even if we adopted its interpretation of the contract, a disputed issue of fact would remain as to whether the Forest Service’s estimates were reasonably accurate or not. However, we are not prepared to adopt plaintiffs interpretation at this point in any event, largely because the disclaimer language in the prospectus and contract weighs heavily against it. We also note that plaintiff has tried to impress us with the harsh result of defendant’s intrepretation that occurs to buyers in those instances where the Forest Service grossly overestimates the amount of merchantable timber available. However, the court must bear in mind in any interpretation of the disclaimer in the standard B2.4 clause that in the next case the Forest Service may grossly underestimate the amount of timber available. In that case, the interpretation defendant now urges may be a great boon to buyers since the contract would in no way limit the amount of timber the buyers could take.

Defendant’s motion must be denied because we are not willing to say, given what information we have presently before us, that defendant’s interpretation of the contract is correct as a matter of law. Defendant’s position is that any warranty as to the quantity estimates is fully disclaimed and therefore they are essentially meaningless surplusage. There are a number of difficulties with defendant’s position at present, some of which are discussed below.

First, there is the court’s recent decision in Timber Investors, Inc. v. United States, 218 Ct. Cl. 408, 587 F.2d 472 (1978). That case also involved a timber sale by the Forest Service. The contract and related documents also contained estimates of certain road construction work and disclaimers of the estimates. Under the circumstances of that case, the court held that the disclaimers, standing alone, were insufficient to insulate the Government from liability if its estimates were "so grossly erroneous as to indicate a failure to exercise reasonable care and diligence in arriving at said estimates.” 218 Ct. Cl. at 415 n.4, 587 F.2d at 475-76 n.4. Once the facts are resolved in this case, they may show that the instant contract is governed by the principles of the Timber Investors case.

Second, plaintiff cites a provision of the Forest Service Manual which states: "determination of timber volumes to be cut from the sale area will be carefully made, since a prospective purchaser should reasonably expect to base his operating plans and cost estimates on such figures.” Forest Service Manual § 2431.23. This might be taken as an indication of the Forest Service’s intent with regard to the inclusion of quantity estimates in the contract. This indication would seem to contradict defendant’s present position that the estimates are entirely meaningless surplusage.

We also find difficult to accept in itself the view that quantity estimates which are incorporated in a contract are totally meaningless. That contravenes the established canon of construction that, preferably, contracts are to be contrued in a way so as to give meaning to all their provisions. Monroe M. Tapper & Assoc. v. United States, 221 Ct. Cl. 27, 34, 602 F.2d 311, 315 (1979); Thanet Corp. v. United States, 219 Ct. Cl. 75, 82, 591 F.2d 629, 633 (1979); Bradley v. United States, 213 Ct. Cl. 745, 746-47 (1977); ITT Arctic Services, Inc. v. United States, 207 Ct. Cl. 743, 751-52, 524 F.2d 680, 684 (1975); Hol-Gar Mfg. Corp. v. United States, 169 Ct. Cl. 384, 395, 351 F.2d 972, 979 (1965); 4 Williston § 620 (3d ed. 1961); Restatement of Contracts § 236(a) (1932). Defendant argues that the estimates were supplied only "for what they were worth,” and to avoid a possible charge that the Government concealed superior knowledge of the subject matter. If that is so, we can well understand why the quantity estimates were supplied to bidders in the pre-award documents, but there would seem to be no reason to then incorporate the figures in the contract.

We also have some difficulties with defendant’s arguments based on the various disclaimers. First, the language defendant relies on most heavily is in the prospectus and is not even a part of the contract. Second, the disclaimer that is in the contract, which says that the estimated volumes are not "guarantees or limitations,” is in small print at the end of a paragraph dealing with instances where there are post-award designations of timber to be cut in an attempt to match the estimated volumes by species or species group stated in A2. We doubt, though need not now decide, that such language, standing alone, would be sufficient to bind buyers to quantity estimate terms which are grossly erroneous. Furthermore, plaintiff claims that bidders were not given enough time to make detailed reliable estimates of the available timber on their own. While this is a disputed issue of fact, if plaintiff is correct, it may be that plaintiff can show it had a right to rely on the Government’s estimates. See Schutt Constr. Co. v. United States, 173 Ct. Cl. 836, 353 F.2d 1018 (1965) (Congressional Reference case). The answer to this argument may be simply that if plaintiff felt it did not have enough time to make reliable estimates on its own, it should not have bid. However, the lack of time may also be an indication that the Forest Service’s intent was that bidders were to rely on the quantity estimates, at least to some extent. In any event, it is premature to decide if plaintiff had enough time for a site inspection or effectively used the time it did have. Since these are disputed fact issues, summary judgment on the present record is inappropriate now.

It is important to note that it is possible for the Forest Service to contract in such a way that its quantity estimates are entirely meaningless and the risk of even gross negligence on the Forest Service’s part in preparing the estimates is shifted to the buyers. See Rixon Electronics, Inc. v. United States, 210 Ct. Cl. 309, 536 F.2d 1345 (1976). However, that seems rather unusual and runs counter to the normal rule that contracts should be given fair and equitable interpretations. ITT Arctic Services, Inc. v. United States, supra; 4 Williston § 620 (3d ed. 1961); Restatement Of Contracts § 236 (1932). Hence, we would require very strong and clear language in the contract before we would be willing to conclude, based on contract language standing alone, that the parties have included quantity estimates in the contract when they intend those quantities to be meaningless, as defendant urges in its caveat emptor approach to this case.

Perhaps what troubles us most about deciding the question of contract interpretation at this point is our ignorance of industry practice, if indeed there is any such practice. Our view of the proper interpretation of this contract with its quantity estimates and disclaimers thereof would be considerably affected were we to know either that industry practice is to rely on Forest Service or seller estimates within a reasonable degree of error, or if, on the contrary, industry practice was that the existence of disclaimers such as were used here made it incumbent on buyers to rely only on estimates they themselves make. See Alfred A. Altimont, Inc. v. United States, 217 Ct. Cl. 628, 632-33, 579 F.2d 622, 625 (1978); Gholson, Byars & Holmes Constr. Co. v. United States, 173 Ct. Cl. 374, 395, 351 F.2d 987, 999 (1965). We also acknowledge, however, that it may be that an entire industry engages in unreasonable practices. See 5 Williston § 659 (3d ed. 1961).

We reiterate that the above discussion does not cover all the arguments that can be or have been made on this contract interpretation issue and we in no way mean to limit the arguments the parties may make on remand. The parties may renew all their arguments after appropriate proceedings have been completed in the trial division. We do not pass on either interpretation argued for by the parties nor even whether the above-mentioned interpretations are the only ones possible. We deny the cross-motions for summary judgment because of disputed material facts.

On remand, the trier may need to consider, inter alia, such issues as the following:

(1) Is there an industry practice regarding the interpretation of quantity estimates and disclaimers thereof? Is it a reasonable practice?

(2) Is there an industry practice with regard to purchasers making their own estimates?

(3) Was there enough time for plaintiff to make its own estimates of the available timber or to detect error in the Forest Service’s estimates and would it have been commercially feasible for plaintiff to do so?

(4) To what extent did plaintiff in fact rely on defendant’s estimates?

(5) Did plaintiff seek information from Forest Service offices as invited to do by the prospectus?

(6) If plaintiffs interpretation is upheld, were the Forest Service’s estimates reasonably accurate and made with reasonable care and diligence, considering industry standards?

Of course, other issues may arise depending on the resolution of the contract interpretation question, and we do not mean to restrict the scope of the proceedings below.

it is therefore ordered that the motion to amend the petition is granted.

it is further ordered that the parties’ motions for summary judgment are denied without prejudice and the case is remanded to the trial division for trial or other appropriate disposition in conformance with this order.

Kunzig, Judge,

dissenting:

With all respect for the sentiments of my colleagues, I cannot join in their conclusion. The majority’s decision disturbs me because it transforms a case which, if correctly decided, would be settled on elementary legal principles, into a case which must now undergo an aggravatingly complex and costly trial. On the unexplained conclusion that an "ambiguity” exists in the contract, the majority disregards the contract’s plain meaning and launches into questions of extrinsic evidence totally unnecessary to reach. The majority has succumbed to plaintiffs obfuscating tactic of raising a host of factual issues irrelevant to the fundamental legal questions involved.

The crux of the case, which the majority fails directly to address, is this: estimates of timber quantities on the Goolaway sale were included in section A2 of plaintiffs contract. No representation whatsover of a defect rate appeared in the contract, but the prospectus estimates did include a defect rate of 20.3%. Plaintiff now claims it will experience a defect rate of 51.13% on the contract and is incurring increased operational costs as a result. Plaintiff argues the Government somehow warranted that the defect rate would not be much more than 20.3% and that it should be responsible for the costs of the higher defect rate. Plaintiff does not, nor can it contend, it is being forced to pay for bad timber as a consequence of the higher defect rate because under the contract terms, plaintiff only pays according to thousand board feet of merchantable timber removed from the contract designated areas rather than a lump sum price for all designated timber, whatever its value or grade. Confining ourselves for the moment strictly to the terms of the contract, what does it say regarding the Government’s responsibility for the accuracy of the estimate included in section A2?

It states, rather clearly to me, in section B2.4:

However, the estimated volumes stated in A2 are not to be construed as guarantees or limitations of the timber volumes to be designated for cutting under the terms of this contract.

In the face of this disclaimer plaintiff argues it does not mean what it says. Plaintiff argues B2.4 was at most a partial disclaimer or that the parties contracted on the basis of mutual mistake. Finding this interpretation "plausible”, the majority concludes an ambiguity in the contract exists calling for the introduction of extrinsic evidence. Of course, extrinsic evidence is admitted only when an ambiguity can be found; if there is no ambiguity, extrinsic evidence is to be excluded in favor of the contract’s language. Here, there is no ambiguity, no need for extrinsic evidence, nor is plaintiffs interpretation in any way plausible. Plaintiffs argument that perhaps only a limited disclaimer was intended is contrary to a line of timber estimate cases in this court holding generally that where the Government fails to disclaim the accuracy of its estimates it may be held liable, Everett Plywood & Door Corp. v. United States, 190 Ct. Cl. 80, 419 F.2d 425 (1969), but when a disclaimer is given, no liability will attach. Russell & Pugh Lumber Co. v. United States, 154 Ct. Cl. 122, 290 F.2d 938 (1961). See also Brawley v. United States, 96 U.S. 168 (1877). The majority cites no authority for its novel "half disclaimer” interpretation other than Timber Investors, Inc. v. United States, 218 Ct. Cl. 408, 587 F.2d 472 (1978) which propounds no new rule of law and is readily distinguishable in any event, as I will explain below. The practical unworkability of such an interpretation of the disclaimer is further demonstrated when we consider how damages can be assessed. Under the majority approach, the court will have to arrived at a defect estimate rate which is only "reasonably erroneous”, a strange exercise to say the least.

Rather than attempting to construe the contract provisions as a coherent whole, Hol-Gar Manufacturing Co. v. United States, 169 Ct.Cl. 384, 351 F.2d 972 (1965), as is our obligation, the majority strains to find an "ambiguity.” Let us, however, assume the contract is ambiguous and proceed to examine specific extrinsic evidence. By far the most compelling evidence is the prospectus, recognized by both parties and addressed directly to the point in question. What does the prospectus say? With blazing red lights and blaring sirens the words of the prospectus in effect warn: Bidder, these estimates are no guarantee of timber quantity or quality. Do your own investigation and estimation. What need is there to resort to further extrinsic evidence, such as industry practice, in the face of unequivocal language? Carrying the argument further, even if we do look to industry practice we see the variation from estimates of timber defect rates is historically very high, recent figures showing variations of anywhere between 35% and 200%. Williamette Industries, Inc., Comp. Gen. Dec. B-188548, November 8, 1979. In this case the margin of error is roughly 30% thus far.

The straightforward and well settled principles described above, I contend, readily dispose of this case. Instead, the majority is swayed by a miscellany of minor factors none of which individually is sufficient to give plaintiff the decision, but apparently (the majority believes) are convincing when added together. In my opinion, a collection of weak arguments never amounts to a single strong one and the links used to forge the majority’s chain are weak indeed. To illustrate:

Great emphasis is placed on a Forest Service Manual provision, § 2431.23, cautioning Forest Service estimators to prepare estimates carefully. This is merely an admonition directed exclusively to Forest Service personnel and is wholly insufficient to serve as a basis for granting plaintiff substantive contract rights when it is beyond cavil the reason estimates are made at all is for the Government’s benefit — to ensure it may obtain a fair price for the timber it sells and comply with the Forest Service’s statutory duty not to sell timber for less than its appraised value. 16 U.S.C. § 472(a) (1976). Procedures followed and duties performed solely for benefit of the Government, as a general rule, cannot be asserted and relied upon by plaintiff. United States v. Neustadt, 366 U.S. 696, 708-10 (1961). See Centex Construction Co. v. United States, 162 Ct. Cl. 211 (1963); Burroughs Corp. v. United States, 223 Ct. Cl. 53, 617 F.2d 590, 599-60 (1980). Lastly, as to this point, Melvin McGrew, the individual completely responsible for bidding on the Goolaway sale on behalf of plaintiff, has already testified that he did not rely on, and in fact has never read the Forest Service Manual.

Moving on, the majority agonizes over why the estimates were placed in the contract at all and fears giving effect to the disclaimer renders the estimates a "nullity” it wishes to avoid. The argument is unfounded for several reasons. Looked at sensibly, the estimates were placed in the contract for what they were worth and disclaimed. As defendant notes, failure to place the estimates in the contract could leave defendant vulnerable to an accusation of undisclosed superior knowledge. Existence of a valid reason for inclusion of the estimate, with disclaimer, eliminates the majority’s "nullity” concern. Giving effect to the disclaimer in section B2.4 in no way renders the estimates null — the estimates stand as a representation of the Government to the contractor that these were the figures it used in arriving at its calculation of the timber’s worth. The estimate is by no means null for the contractor was free to imbue it with as much validity as it wished, but was not to regard it as any guarantee of actual conditions. Furthermore, adopting the majority’s position does far greater violence to the contract’s explicit terms, by in effect, striking the disclaimer. Acknowledging the disclaimer nullifies nothing, but ignoring it, as does the majority, excises it from the contract entirely.

The principles of Timber Investors, do not pertain to this case. The statement allowing the possibility of government liability for grossly erroneous estimates was dicta and limited to the "unique” circumstances of the case. Those circumstances included a situation where the plaintiff was essentially forced to accept, without the chance to verify itself, government estimates of road construction credits. Here plaintiff had ample opportunity and the means to verify the government’s estimate and was encouraged to do so. Also, Timber Investors discussed liability in terms of mutual mistake; yet that theory is inapplicable here since both parties must be deemed to have understood the "no guarantee” nature of the government’s estimates. Additionally, the historically extreme variance between defect estimates and actual circumstances indicates the parties’ awareness of the unreliability of such estimates.

The specific facts of this case and language of the contract at issue allow no other conclusion than that the government effectively disclaimed accuracy of the estimated defect rate. This conclusion is consonant with federal policy generally in timber sales as described by Oregon’s Senator Wayne Morse, 105 Cong. Rec. 13870 (1959):

The sale of timber by the government is on a caveat emptor basis. It would be prejudicial to the government’s interest to guarantee these estimates.

I might have more sympathy for plaintiff if it was an innocent novice in this field, but plaintiff has been in the logging business for approximately 30 years. Melvin McGrew himself has approximately 50 years experience in evaluating the value of timber. The organization needs no help from this court.

In conclusion, perhaps the most troubling aspect of the majority’s decision is that it provides a springboard for attack against disclaimer provisions in any government contract. In the future I fear the court will be compelled to struggle around this decision creating questionable distinctions, thereby engendering further uncertainty in the law. "I think that the order of the court in this case proposes a course of conduct that will be an expensive exercise in futility” not only in the instant case, but in many cases in the years that lie ahead.

I therefore dissent.

Defendant’s motion for rehearing en banc was denied October 2, 1980. On January 30, 1981 the petition was dismissed on plaintiffs motion. 
      
      
         Prairie v. United States, ante at 735.