Believe it or not, the word and concept of “new” is not clearly defined in the law nor in general. We are familiar with the idea of something new meaning unused or maybe simply not old, but beyond that, we may give this common word little thought.
For example, if you buy conduit or a piece of welding equipment in an electrical supply outlet, so long as it is in shrink-wrap and comes out of the back room, do you ask when it was manufactured? If you find out the equipment is two years old, do you reject it because it is not new?
Your contracts most likely contain a term somewhere that all goods delivered shall be new unless otherwise specified. How often do you deliver and install items for such a contract that you already have in your warehouse, perhaps purchased for another job and not needed then? Even if these items have been in storage for some time? After all, these items are like new, aren’t they?
The issue of “new” versus “not used” versus “old” came to the fore on a dispute concerning Veterans Affairs (VA) medical facility to the tune of over $1 million.
Reliable Contracting Group had a contract to design and build electrical improvements for the VA. Part of that work included backup electrical generators, which was subcontracted to Fisk Electric. Fisk, in turn, issued a purchase order to a supplier for two Cummins generators. The relevant specification stated that “all equipment incorporated into the work shall be new.”
There was nothing surprising here, except that the contract did not define what “new” meant. A relevant federal regulation did not help clarify matters as it defined “new” to mean the equipment had to be “composed of previously unused components.”
When the generators arrived on-site, they appeared to be in bad condition, at least from the outside, and both Fisk and Reliable wrote to the VA informing it of this observation. When asked to do so by the VA, neither Fisk nor Reliable was prepared to swear that the equipment was new.
After some investigation, the following information came to light: 1) the equipment was three years old; 2) the generators had been purchased previously by another but returned; 3) the superficial damages were caused by improper storage and could be repaired; and 4) the equipment had never been commissioned or used. This last point is significant, as commissioning would have initiated the manufacturer’s warranty. With this new information, Reliable and Fisk asked the VA to let them install the generators, but the VA refused. New replacement generators resulted in increased costs of $1.1 million.
Reliable argued in court that the definition of “new” should be “not used.” The court did not accept that argument. The court considered other possible definitions of “new” and found most of them to be unsatisfactory. One possibility the court rejected was “not previously owned by another.” The court agreed with the testimony of a witness for Fisk that, in the industry, “simply being owned and kept in storage does not make a generator used.”
A second proposal also rejected by the court was to equate “new” with “recently manufactured,” a dictionary definition. This approach would only add a criterion—date of manufacture—that bears no relation to the quality of the equipment or the intention of the contract.
The court settled on a definition that some might consider unsatisfactory, as did a dissenting judge in the case. The court said: “‘New could require a fresh condition.” That is, the goods retained their “original quality.” The court explained that, under this formulation, equipment with superficial damage that can be fully and easily cured can be considered as new, but not equipment that is “seriously damaged.” The age of the equipment plays no role in this formulation, except possibly to the extent that there have been technological advances since the time it was manufactured. (Presumably, “used” equipment is not “new,” even if it were cleaned up and brought back to original condition.)
The case is remarkable for two reasons: 1) it represents a rare instance where the word “new” was actually interpreted by a court (and held to be ambiguous); and 2) the definition invented by the court seems so loosely defined. Although the decision was based on federal regulations, it would still be helpful in private contract disputes as influential authority.
The question for you is whether you could come up with a better definition. I asked a couple of electrical contractors how they would define “new.” Both of them agreed that the age of the item was not important; it was whether the item had been used by someone else. For them, items not yet commissioned or placed in service would be new no matter how long they had been on a vendor’s shelf. Do you agree?