Opinion ID: 1357557
Heading Depth: 1
Heading Rank: 4

Heading: subsequent misrepresentations

Text: As an alternative basis for requiring repayment of the $312,500 grant the trial court concluded that Beirne had materially breached his duty of good faith by misrepresenting, in November of 1975 and in May and June of 1976, expenditures made for the hospital project. On appeal this conclusion is attacked on legal rather than factual grounds. Appellants argue that the misrepresentations identified by the court were made in an attempt to obtain grant money for fiscal years 1976 and 1977. With respect to the funds actually received for 1975 no misrepresentations were made and thus, according to appellants, there can be no action herein for Beirne had done nothing wrong at that point nor had the State relied on anything that Beirne had done before giving him the money. The state's theory, which the trial court adopted, is that appellants had a duty honestly and in good faith to account for the use of the funds received and for project costs sufficient to justify the grant, that they breached this duty, and that to remedy this breach a return of the entire grant is required. In our view the evidence fails to show that appellants breached any duty with respect to accounting for the use of the funds received. Nothing in the record indicates that appellants withheld from the state any information as to the use of the $312,500 grant. The absence of any such evidence is dispositive of the trial court's decision that appellants were in breach of contract for failure to account for the use of the grant. On the other hand there is evidence that there were errors and exaggerations in the applications appellants submitted for 1976 and 1977 grant funds. The question is whether these warrant a return of the 1975 grant. In our view they do not. We would have no hesitation in ordering a refund of money which had been awarded based on false representations. Likewise, if the grant had been expended for an illegal purpose a refund would be appropriate. However, those situations do not exist here. What has occurred is that misrepresentations have been made in the course of seeking additional funding. There is nothing in the statute, or in any regulations, or in any terms of the grant, which explicitly or implicitly provides for a refund under this circumstance. In the absence of such a provision, it would be manifestly unfair to require appellants to repay an honestly obtained grant merely because later grant applications contained misrepresentations. Our conclusion in this respect is in accord with that of a leading commentator on the subject of grant law: The extent and manner by which federal agencies may seek refunds for illegal grantee expenditures are unclear, the great majority of grant-in-aid statutes being silent on the question. Because traditional contract principles are inappropos to an understanding of grant rights and responsibilities, one cannot simply assume that grantee breaches give rise to correlative grantor rights, such as the right to recapture improperly expended funds. The source of both liability and remedy must emanate explicitly or implicitly from the grant statutes, regulations duly enacted and consistent with the statute, or provisions in the grant agreement... . The correct analysis is that the statutory duty of federal agencies to administer grants-in-aid is necessarily accompanied by the power to enforce grant conditions through reasonable means. By regulation, therefore, the grantor can empower itself to recover federal payments illegally expended by the grantee, either by deductions from future payments, withdrawal of advanced funds, or lawsuits when the first two alternatives are not available. The typical audit disallowance, in fact, is a clear example of the exercise of this implicit authority. If the grantor, however, has failed to establish such a right of recapture through provisions in the grant agreement or duly promulgated regulations, it may well have forfeited its ability to impose the sanction in the absence of explicit statutory authority. Because of such failure, no legal basis would exist for the sanction; it would also be unfair to grantees to subject them to unannounced and improvised detriments. R. Capalli, Rights and Remedies Under Federal Grants, at 98-99 (1979) (emphasis added, footnotes omitted).