B-143542, AUGUST 30, 1960, 40 COMP. GEN. 143

B-143542, AUGUST 30, 1960, 40 COMP. GEN. 143

CONTRACTS - SALES - REMISSION OF LIQUIDATED DAMAGES - STORAGE CHARGES - AUTHORITY STORAGE CHARGES WHICH WERE ASSESSED AGAINST A PURCHASER FOR DELAY IN THE REMOVAL OF GOVERNMENT SURPLUS PROPERTY ON THE BASIS OF RATES STIPULATED IN THE SALES CONTRACT, WHICH RATES WERE DERIVED FROM MOTOR FREIGHT TARIFFS APPLICABLE TO CARRIERS REQUIRED TO STORE FREIGHT, MAY BE REGARDED AS IN THE NATURE OF LIQUIDATED DAMAGES AND, EVEN THOUGH THE PURCHASER DID NOT REMOVE THE PROPERTY UNTIL THE CHARGES FOR STORAGE WERE IN EXCESS OF THE PURCHASE PRICE, THIS DOES NOT ESTABLISH THAT THE AGREED STORAGE RATES ARE UNREASONABLE SO AS TO CONSTITUTE A PENALTY RATHER THAN VALID LIQUIDATED DAMAGES. IN THE ABSENCE OF ANY INDICATION THAT THE PROVISION FOR THE REMISSION OF LIQUIDATED DAMAGES IN SECTION 10 (A) OF THE ACT OF SEPTEMBER 1, 1950, 41 U.S.C. 256A, IS LIMITED TO PROCUREMENT CONTRACTS, IT MAY BE REGARDED AS APPLICABLE TO ALL TYPES OF CONTRACTS, INCLUDING SALES CONTRACTS, AND CONSIDERATION MAY BE GIVEN UNDER 41 U.S.C. 256A, FOR THE REMISSION OF LIQUIDATED STORAGE CHARGES ASSESSED AGAINST A PURCHASER FOR DELAY IN THE REMOVAL OF GOVERNMENT SURPLUS PROPERTY.

TO THE SECRETARY OF THE ARMY, AUGUST 30, 1960:

REFERENCE IS MADE TO LETTER OF JULY 19, 1960, FROM THE ASSISTANT SECRETARY ( LOGISTICS), REQUESTING A DECISION CONCERNING THE ASSESSMENT OF ACCRUED STORAGE CHARGES FOR DELAY IN REMOVAL OF ITEMS 90 THROUGH 94, PURCHASED BY SAMUEL KASS, INC., ON SPOT BID SALE NO. 30-127-S-60-4 AND ITEM 15, PURCHASED BY AMERICAN HANDLING EQUIPMENT, INC., ON SPOT BID SALE NO. 30-127-S-60-17.

CLAUSE 7 OF THE GENERAL SALE TERMS AND CONDITIONS OF EACH OF THE TWO CONTRACTS PROVIDES THAT IF THE PURCHASER FAILS TO REMOVE THE PROPERTY WITHIN THE SPECIFIC TIME THE GOVERNMENT SHALL HAVE THE RIGHT TO CHARGE THE PURCHASER AND COLLECT UPON DEMAND A REASONABLE STORAGE CHARGE IF THE PROPERTY IS STORED ON PREMISES OWNED OR CONTROLLED BY THE GOVERNMENT, OR TO STORE THE PROPERTY ELSEWHERE FOR THE PURCHASER'S ACCOUNT. ALSO, THIS CLAUSE PROVIDES THAT IN ADDITION TO THESE RIGHTS THE GOVERNMENT MAY, AFTER THE EXPIRATION OF 30 DAYS AFTER THE DATE SPECIFIED FOR REMOVAL AND UPON 10 DAYS' WRITTEN NOTICE, RESELL THE PROPERTY AND APPLY THE PROCEEDS THEREFROM AGAINST THE STORAGE AND ANY OTHER COSTS INCURRED FOR THE PURCHASER'S ACCOUNT. WITH RESPECT TO STORAGE CHARGES, EACH CONTRACT PROVIDED FURTHER AS FOLLOWS:

THE GOVERNMENT SHALL HAVE THE RIGHT TO CHARGE THE PURCHASER AND COLLECT UPON DEMAND STORAGE CHARGES FOR ALL PROPERTY NOT REMOVED WITHIN20 CALENDAR DAYS AFTER NOTICE OF AWARD (TIME TO BE COMPUTED FROM THE DATE OF MAILING SAID NOTICE). STORAGE CHARGES WILL BE COMPUTED ON THE FOLLOWING BASIS: FOR EACH OF THE FIRST FIVE DAYS, OR FRACTION THEREOF INCLUDING SUNDAYS AND HOLIDAYS (1NATIONAL, STATE OR MUNICIPAL), THREE AND THREE-QUARTERS CENTS (?03 3/4) PER ONE HUNDRED (100) POUNDS OR FRACTION THEREOF. FOR THE SIXTH AND EACH SUCCEEDING DAY OR FRACTION THEREOF INCLUDING SUNDAYS AND HOLIDAYS (1NATIONAL, STATE OR MUNICIPAL), SEVEN AND ONE-HALF (?07 1/2) PER HUNDRED (100) POUNDS OR FRACTION THEREOF. THE MINIMUM STORAGE CHARGE FOR PROPERTY HELD BEYOND THE TWENTY (20) DAYS PERIOD WILL BE ONE DOLLAR AND TWENTY ONE CENTS($1.21).

SAMUEL KASS, INC., DELAYED IN REMOVING ITEMS 90 THROUGH 94 (2,513,846 INSULATOR CLEATS) PURCHASED ON SPOT BID SALE NO. 30-127-S-60 4 FOR $1,377.88, FOR A PERIOD OF 95 DAYS BEYOND THE TIME SPECIFIED IN THE CONTRACT FOR REMOVAL OF THE PROPERTY. AS A RESULT OF THE DELAY, STORAGE CHARGES IN THE AMOUNT OF $22,337.59 HAVE ACCRUED IN ACCORDANCE WITH THE RATE SET FORTH IN THE CONTRACT. THE CONTRACTING OFFICER HAS DENIED A REQUEST BY THE PURCHASER FOR A 14-DAY EXTENSION IN THE REMOVAL DATA. THE PURCHASER INDICATED IN ITS LETTER OF JANUARY 12, 1960, THAT IT WAS EXPERIENCING DIFFICULTY WITH ITS TRUCKMAN.

AMERICAN HANDLING EQUIPMENT, INC., DELAYED IN REMOVING ITEM 15 (4,000 PALLETS), PURCHASED ON SPOT BID SALE NO. 30-127-S-60-17 FOR $2,684, FOR A PERIOD OF 36 DAYS BEYOND THE TIME SPECIFIED IN THE CONTRACT FOR REMOVAL OF THE PROPERTY. AS A RESULT OF THE DELAY, STORAGE CHARGES IN THE AMOUNT OF $6,565.43 HAVE ACCRUED IN ACCORDANCE WITH THE RATE SET FORTH IN THE CONTRACT. IN ITS LETTER OF APRIL 1, 1960, THE PURCHASER REQUESTED AN EXTENSION IN THE TIME SPECIFIED FOR REMOVAL BECAUSE OF BAD WEATHER THE PREVIOUS MONTH BUT THE REQUEST WAS DENIED BY THE CONTRACTING OFFICER.

THE QUESTIONS PRESENTED IN REGARD TO THE ASSESSMENT OF STORAGE CHARGES ARE (1) WHETHER THESE CHARGES AMOUNT TO A PENALTY; AND (2) WHETHER THE PROVISIONS OF 10 U.S.C. 2312 OR 41 U.S.C. 256A EXTEND TO THE REMISSION OF LIQUIDATED STORAGE CHARGES UNDER CONTRACTS FOR THE SALE OF SURPLUS GOVERNMENT PROPERTY.

THE COURTS HAVE HELD THAT WHERE A PURCHASER PERMITS GOODS TO REMAIN AN UNREASONABLE TIME ON THE PROPERTY OF THE SELLER AFTER THE SALE HAS BEEN CONSUMMATED THERE ARISES AN IMPLIED CONTRACT TO PAY FOR STORAGE. DUCEY LUMBER CO. V. LANE, 25 N.W. 568; AND FRAZIEF V. SOUTHERN COUNTRIES GAS CO., 226 P. 833. ALSO, IT HAS BEEN HELD THAT THE RECOVERY BY A SELLER FOR STORAGE OF GOODS FOR A PURCHASER MUST BE LIMITED TO REASONABLE WAREHOUSE CHARGES AND MUST NOT BE GOVERNED BY THE VALUE OF THE SPACE OCCUPIED BY THE GOODS IN THE SELLER'S BUILDING. DREYFUSS V. FOSTER ET AL., 3 N.Y.S. 54.

THE CONTRACTS OF SALE IN THESE CASES EMBODIED THESE PRINCIPLES OF LAW IN THAT CLAUSE 7 OF EACH CONTRACT SPECIFICALLY PROVIDED THAT THE GOVERNMENT HAD THE RIGHT TO COLLECT REASONABLE STORAGE CHARGES IF THE PROPERTY WAS STORED ON PREMISES OWNED OR CONTROLLED BY THE GOVERNMENT, OR TO STORE THE PROPERTY ELSEWHERE FOR THE PURCHASER'S ACCOUNT. THE QUESTION THEN REMAINING IS WHETHER THE STIPULATED STORAGE RATE IS A REASONABLE ONE. NOT ONLY DID THE PURCHASERS AGREE TO THE STORAGE RATES SET OUT IN THE CONTRACTS, BUT IT IS REPORTED THAT THE RATES HERE INVOLVED ARE DERIVED FROM THE MOTOR FREIGHT TARIFFS WHICH ARE APPLICABLE WHEN A CARRIER IS REQUIRED TO STORE FREIGHT. IN CASES INVOLVING DEMURRAGE PERMITTED TO BE CHARGED BY CARRIERS FOR NONREMOVAL OF FREIGHT, IT HAS BEEN HELD THAT A RATE AGREED UPON IS TO BE REGARDED AS IN THE NATURE OF LIQUIDATED DAMAGES. SEE 29 COMP. GEN. 16.

IT IS GENERALLY HELD THAT THE VALIDITY OF CONTRACT PROVISIONS MUST BE DETERMINED FROM THE FACTS AND CIRCUMSTANCES AT THE TIME THE PARTICULAR CONTRACT WAS ENTERED INTO, AND WHERE THE AMOUNT AGREED UPON AS LIQUIDATED DAMAGES FOR DELAY IN PERFORMANCE BEARS A REASONABLE RELATION TO THE DAMAGES THAT MIGHT BE INCURRED THEREBY, THE COURTS WILL HOLD THAT SUCH A STIPULATION IS VALID AND ENFORCEABLE. SEE THE CASES CITED IN 21 COMP. GEN. 529. THERE IS NO SHOWING THAT THE STORAGE RATES HERE ARE UNREASONABLE AND THE FACT THAT THE PROPERTY IN THESE CASES WAS NOT REMOVED UNTIL THE CHARGES FOR STORAGE WERE IN EXCESS OF THE PURCHASE PRICE IN EACH CASE DOES NOT ESTABLISH THAT THE AGREED STORAGE RATE WAS UNREASONABLE AND, THEREFORE, A PENALTY. ALSO, THERE IS NOTHING IN THE RECORD TO SHOW THAT THE GOVERNMENT COULD HAVE TAKEN ANY ACTION TO MITIGATE THE DAMAGES; NOR DO THE FACTS SHOW THAT THE CONTRACTING OFFICER HAS ANY LEGAL BASIS FOR EXTENDING THE REMOVAL DATE.

WITH REGARD TO THE REMISSION OF LIQUIDATED STORAGE CHARGES (DAMAGES) ON AN EQUITABLE BASIS, THERE IS FOR CONSIDERATION THE QUESTION AS TO WHETHER THE PROVISIONS OF 10 U.S.C. 2312 OR 41 U.S.C. 256A ARE FOR APPLICATION IN THESE CASES. AS TO 10 U.S.C. 2312, THAT SECTION PROVIDES AS FOLLOWS:

UPON THE RECOMMENDATION OF THE HEAD OF AN AGENCY, THE COMPTROLLER GENERAL MAY REMIT ALL OR PART, AS HE CONSIDERS JUST AND EQUITABLE, OF ANY LIQUIDATED DAMAGES ASSESSED FOR DELAY IN PERFORMING A CONTRACT, MADE BY THAT AGENCY, THAT PROVIDES FOR SUCH DAMAGES.

THIS PROVISION OF LAW IS CONTAINED IN CHAPTER 137 OF THE CODE ENTITLED "1PROCUREMENT GENERALLY," INDICATING THE ENTIRE CHAPTER PERTAINS TO PURCHASE CONTRACTS. IN FACT, SECTION 2303 OF TITLE 10 IN THIS CHAPTER SPECIFICALLY STATES THAT THE CHAPTER APPLIES TO THE PURCHASE, AND CONTRACT TO PURCHASE, BY ANY OF THE AGENCIES NAMED (INCLUDING THE DEPARTMENT OF THE ARMY) OF ALL PROPERTY AND ALL SERVICES, AS LISTED THEREIN. THE TRANSACTIONS IN QUESTION ARE SALES OF PROPERTY PURSUANT TO AUTHORITY DELEGATED TO THE DEFENSE ESTABLISHMENT BY THE ADMINISTRATOR OF THE GENERAL SERVICES ADMINISTRATION UNDER THE PROVISIONS OF 40 U.S.C. 484. NEITHER OF THESE TRANSACTIONS INVOLVES A PURCHASE OF PROPERTY AND, THEREFORE, THE PROVISIONS OF 10 U.S.C. 2312 ARE CLEARLY NOT APPLICABLE TO THE CASES HERE INVOLVED.

AS TO 41 U.S.C. 256A, THAT SECTION PROVIDES AS FOLLOWS:

WHENEVER ANY CONTRACT MADE ON BEHALF OF THE GOVERNMENT BY THE HEAD OF ANY FEDERAL AGENCY, OR BY OFFICERS AUTHORIZED BY HIM SO TO DO, INCLUDES A PROVISION FOR LIQUIDATED DAMAGES FOR DELAY, THE COMPTROLLER GENERAL UPON RECOMMENDATION OF SUCH HEAD IS AUTHORIZED AND EMPOWERED TO REMIT THE WHOLE OR ANY PART OF SUCH DAMAGES AS IN HIS DISCRETION MAY BE JUST AND EQUITABLE.

THIS CODE PROVISION IS SECTION 10 (A) OF THE ACT OF SEPTEMBER 5, 1950, 64 STAT. 591. SECTION 10 (B) OF THAT ACT REPEALED SECTION 306 OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949, 63 STAT. 396, WHICH DEALT WITH THE REMISSION OF LIQUIDATED DAMAGES ON AN EQUITABLE BASIS. THE CODIFICATION NOTE ON 41 U.S.C. 256A STRESSES THE FACT THAT SECTION 10 OF THE ACT OF SEPTEMBER 5, 1950, WAS NOT ENACTED AS A PART OF THE FEDERAL PROPERTY AND ADMINISTRATIVE SERVICES ACT OF 1949. THE LANGUAGE OF 41 U.S.C. 256A MUST BE CONSIDERED APART FROM ANY OTHER PROVISIONS OF LAW AND SINCE THE SECTION DOES NOT LIMIT ITS APPLICATION TO PROCUREMENT CONTRACTS IT MAY BE REGARDED AS APPLICABLE TO ALL TYPES OF CONTRACTS, WHICH, OF COURSE, INCLUDE SALES CONTRACTS. ACCORDINGLY, CONSIDERATION MAY BE GIVEN UNDER THE PROVISIONS OF 41 U.S.C. 256A TO THE REQUESTS OF THE PURCHASERS HERE INVOLVED FOR THE REMISSION OF THE LIQUIDATED STORAGE CHARGES AS MAY BE JUST AND EQUITABLE.