A-63089, JULY 9, 1935, 15 COMP. GEN. 25

A-63089: Jul 9, 1935

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

CONTRACTS - MODIFICATION - PURCHASE OF REAL ESTATE FOR SLUM CLEARANCE PROJECTS THE GENERAL RULE IS THAT A CONTRACT MAY NOT BE MODIFIED PREJUDICIALLY TO THE INTERESTS OF THE UNITED STATES WITHOUT ADEQUATE CONSIDERATION. IS NOT A SUFFICIENT CONSIDERATION FOR THE MODIFICATION OF THE ORIGINAL CONTRACT. I HAVE HERETOFORE ENTERED INTO A CONTRACT. A COUNTERPART THEREOF WAS TRANSMITTED TO YOU UNDER DATE OF DECEMBER 10. YOU WILL NOTE THAT PARAGRAPH 2 OF THE CONTRACT PROVIDES THAT THE CONTRACTOR SHALL BE ENTITLED TO RECEIVE AS COMPENSATION FOR HIS SERVICES A SUM EQUAL TO 2 PERCENT OF THE APPRAISED VALUE OF PARCELS ON WHICH HE HAS SECURED OPTIONS SATISFACTORY TO THE GOVERNMENT OR. IN CASE OF CONDEMNATION PROCEEDINGS ON WHICH HE SHALL HAVE NEGOTIATED SETTLEMENTS SATISFACTORY TO THE GOVERNMENT.

A-63089, JULY 9, 1935, 15 COMP. GEN. 25

CONTRACTS - MODIFICATION - PURCHASE OF REAL ESTATE FOR SLUM CLEARANCE PROJECTS THE GENERAL RULE IS THAT A CONTRACT MAY NOT BE MODIFIED PREJUDICIALLY TO THE INTERESTS OF THE UNITED STATES WITHOUT ADEQUATE CONSIDERATION. THE SURRENDER OF AN EXPECTANCY UNDER THE ORIGINAL CONTRACT FOR THE PURCHASE OF OPTIONS ON REAL ESTATE FOR SLUM CLEARANCE PROJECTS TO RECEIVE A BONUS FOR SECURING CERTAIN OPTIONS FOR THE GOVERNMENT WHICH COULD NOT RIPEN INTO A RIGHT UNLESS AND UNTIL A SPECIFIED NUMBER OF OPTIONS HAD BEEN ACQUIRED, IS NOT A SUFFICIENT CONSIDERATION FOR THE MODIFICATION OF THE ORIGINAL CONTRACT.

COMPTROLLER GENERAL MCCARL TO THE ADMINISTRATOR, FEDERAL EMERGENCY ADMINISTRATION OF PUBLIC WORKS, JULY 9, 1935:

THERE HAS BEEN RECEIVED YOUR LETTER OF JUNE 20, 1935, AS FOLLOWS:

IN CONNECTION WITH THE LOW COST HOUSING AND SLUM CLEARANCE PROJECT DESIGNATED AS NO. H-1401, CHICAGO, ILLINOIS, I HAVE HERETOFORE ENTERED INTO A CONTRACT, NO. PW 110.20, WITH WILLIAM D. COUSIN FOR THE PROCURING OF OPTIONS ON THE REAL ESTATE WITHIN THE AREA SELECTED FOR THE PROJECT SITE. A COUNTERPART THEREOF WAS TRANSMITTED TO YOU UNDER DATE OF DECEMBER 10, 1934.

YOU WILL NOTE THAT PARAGRAPH 2 OF THE CONTRACT PROVIDES THAT THE CONTRACTOR SHALL BE ENTITLED TO RECEIVE AS COMPENSATION FOR HIS SERVICES A SUM EQUAL TO 2 PERCENT OF THE APPRAISED VALUE OF PARCELS ON WHICH HE HAS SECURED OPTIONS SATISFACTORY TO THE GOVERNMENT OR, IN CASE OF CONDEMNATION PROCEEDINGS ON WHICH HE SHALL HAVE NEGOTIATED SETTLEMENTS SATISFACTORY TO THE GOVERNMENT, PROVIDED SUCH OPTIONS OR SETTLEMENTS ARE OBTAINED ON AT LEAST 15 PERCENT OF THE NUMBER OF PARCELS IN THE AREA.

THIS PARAGRAPH ALSO PROVIDES THAT, IF THE CONTRACTOR SHALL HAVE SECURED OPTIONS OR SETTLEMENTS APPROVED BY THE GOVERNMENT COVERING AT LEAST 66 2/3 PERCENT OF THE PARCELS IN THE AREA, HE SHALL BE ENTITLED TO RECEIVE AN AMOUNT EQUAL TO 1 PERCENT OF THE APPRAISED VALUE OF ALL OTHER PARCELS LOCATED IN THE AREA AS TO WHICH AN OPTION OR SETTLEMENT APPROVED BY THE GOVERNMENT SHALL NOT HAVE BEEN SECURED BY THE CONTRACTOR. THE TOTAL AMOUNT OF ALL COMPENSATION TO BE PAID TO THE CONTRACTOR IS NOT TO EXCEED $120,000.

THE AREA EMBRACED IN THIS PROJECT IS OF CONSIDERABLE EXTENT AND INCLUDES A LARGE NUMBER OF PARCELS. SHORTLY AFTER NEGOTIATIONS BETWEEN MR. COUSIN AND THE VARIOUS PROPERTY OWNERS COMMENCED, CONCERTED ACTION WAS TAKEN BY VARIOUS INDIVIDUALS IN THE CITY OF CHICAGO TO FORCE UP THE PRICES OF THE PROPERTY. IN GENERAL, THE SITUATION BECAME SUCH THAT THE WORK INVOLVED IN OBTAINING OPTIONS WAS OUT OF ALL PROPORTION TO THAT CONTEMPLATED AT THE TIME THE CONTRACT WITH MR. COUSIN WAS ENTERED INTO.

IN PROCURING OPTIONS ON AN AREA THE SIZE OF THIS, IT WAS NECESSARY FOR MR. COUSIN TO PROCURE THE SERVICES OF MANY ASSISTANTS AND TO MAKE ARRANGEMENTS EITHER OUT OF HIS OWN POCKET OR OUT OF THE COMPENSATION WHICH HE WAS TO RECEIVE FROM THE GOVERNMENT TO PAY THEIR SALARIES. MR. COUSIN ORGANIZED AND TRAINED HIS STAFF FOR THIS SPECIAL WORK AND THE TRAINING AND EXPERIENCE SO OBTAINED WILL BE OF SUBSTANTIAL VALUE TO THE GOVERNMENT IN ACQUIRING THE AREA FOR THE PROJECT.

ABOUT THE FIRST OF APRIL THE BURDEN ON MR. COUSIN BECAME SO GREAT THAT HE FELT THAT HE COULD NO LONGER CONTINUE UNDER THE CONTRACT AS SET UP AND THOSE SERVING UNDER HIM WERE BECOMING RESTLESS AND LOSING THEIR INTEREST BECAUSE OF THE DELAY IN OBTAINING COMPENSATION. HE WAS, OF COURSE, AT LIBERTY TO ABANDON THE AGREEMENT AFTER USING HIS BEST EFFORTS TO PROCURE THE OPTIONS, BUT IF HE DID SO THE GOVERNMENT WOULD BE UNDER THE BURDEN OF OBTAINING A NEW CONTRACTOR TO DO THE WORK. IT IS OBVIOUS THAT A NEW CONTRACTOR WOULD BASE HIS CHARGE ON KNOWLEDGE OF THE DIFFICULT CONDITIONS IN THE AREA.

UNDER THESE CIRCUMSTANCES AND IN ORDER TO PRESERVE FOR THE GOVERNMENT THE BENEFIT OF THE WORK ALREADY DONE BY MR. COUSIN, AND TO AVOID THE ADDED EXPENSE WHICH WOULD BE INCURRED BY OBTAINING A NEW CONTRACTOR, A SUPPLEMENTAL CONTRACT WAS ENTERED INTO UNDER DATE OF APRIL 9, 1935, WHEREBY THE GOVERNMENT WAIVED THE REQUIREMENT THAT OPTIONS ON 15 PERCENT OF THE PARCELS BE OBTAINED BEFORE ANY PAYMENT WAS MADE AND THE COMPENSATION WAS CHANGED TO 2 1/2 PERCENT OF THE APPRAISED VALUE OF THE PARCELS. IN CONSIDERATION OF THIS CHANGE ON THE PART OF THE GOVERNMENT, MR. COUSIN SURRENDERED HIS RIGHT TO A BONUS OF 1 PERCENT ON ADDITIONAL PARCELS. THE ORIGINAL CONTRACT CALLED FOR A MAXIMUM PAYMENT TO MR. COUSIN OF $120,000. THE SUPPLEMENT WHICH WAS TRANSMITTED TO YOU UNDER DATE OF APRIL 22, 1935, DID NOT CHANGE THIS ORIGINAL FIGURE.

MR. COUSIN HAS NOT AS YET SECURED OPTIONS ON 15 PERCENT OF THE PARCELS IN THE PROPOSED SITE MAINLY DUE TO THE CIRCUMSTANCES ENUMERATED ABOVE. HAS, HOWEVER, LABORED FAITHFULLY IN ENDEAVORING TO CARRY OUT HIS BARGAIN WITH THE GOVERNMENT AND UNLESS THE GOVERNMENT, CAN, AT THE PRESENT TIME, MAKE SOME PAYMENT TO MR. COUSIN ON ACCOUNT OF OPTIONS ALREADY SECURED, HE WILL BE FORCED TO DISCONTINUE HIS WORK. I AM ADVISED THAT THE WORK IN OBTAINING OPTIONS IS PROGRESSING AND THAT HE IS EXPECTED TO OBTAIN 15 PERCENT OF THE PARCELS SOON BUT THAT HIS PRESENT NEED FOR PAYMENT IS URGENT.

WILL YOU PLEASE ADVISE ME IF YOUR OFFICE WILL APPROVE PAYMENT TO MR. COUSIN ON EITHER ONE OF THE FOLLOWING BASES:

1. UNDER THE SUPPLEMENTAL CONTRACT OF APRIL 9, 1935, FOR ALL OPTIONS OBTAINED BY MR. COUSIN AND APPROVED BY THE GOVERNMENT AT THE RATE OF 2 1/2 PERCENT OF THE APPRAISED VALUE OF THE PARCELS ON WHICH SUCH OPTIONS HAVE BEEN OBTAINED, OR

2. IN THE EVENT THE ANSWER TO THE FIRST QUESTION IS IN THE NEGATIVE, AT THE RATE OF 2 PERCENT OF THE APPRAISED VALUE OF ALL OPTIONS SECURED BY MR. COUSIN AND APPROVED BY THE GOVERNMENT REGARDLESS OF THE FACT THAT OPTIONS ON 15 PERCENT OF THE PARCELS HAVE NOT AS YET BEEN OBTAINED.

THE GENERAL RULE IS THAT A CONTRACT MAY NOT BE MODIFIED PREJUDICIALLY TO THE INTEREST OF THE UNITED STATES WITHOUT ADEQUATE CONSIDERATION THEREFOR. UNITED STATES V. AMERICAN SALES COMPANY, 27 FED./2D) 389,AFFIRMED, 32 FED./2D) 141, AND CERTIORARI DENIED, 280 U.S. 574. THE PRINCIPLE BEING, AS STATED IN PACIFIC HARDWARE COMPANY V. UNITED STATES, 49 CT.CLS. 327, 335, THAT: "IT IS UNQUESTIONABLY TRUE THAT AN OFFICIAL OF THE GOVERNMENT IS NOT AUTHORIZED TO GIVE AWAY OR REMIT A CLAIM DUE THE GOVERNMENT" AND IN BAUSCH AND LOMB OPTICAL COMPANY V. UNITED STATES, 78 CT.CLS. 584, 607, WHERE THERE WAS AN ATTEMPT BY SUPPLEMENTAL CONTRACT TO CHANGE THE RIGHTS OF THE PARTIES PREJUDICIALLY TO THE UNITED STATES FOR WHICH NO CONSIDERATION MOVED TO THE GOVERNMENT, THAT:

IF THE CLAIM WAS NOT BASED ON SUCH A CONTRACT IT WAS INVALID AND UNENFORCEABLE AGAINST THE UNITED STATES AND COULD NOT BE VITALIZED INTO A LEGAL CLAIM BY A SUBSEQUENT CONTRACT. AGENTS AND OFFICERS OF THE GOVERNMENT HAVE NO AUTHORITY TO GIVE AWAY THE MONEY OR PROPERTY OF THE UNITED STATES, EITHER DIRECTLY OR UNDER THE GUISE OF A CONTRACT THAT OBLIGATES THE GOVERNMENT TO PAY A CLAIM NOT OTHERWISE ENFORCIBLE AGAINST IT.

TESTED BY THESE SETTLED LEGAL RULES IT MUST BE APPARENT THAT THE SO CALLED SUPPLEMENTAL AGREEMENT OF APRIL 9, 1935--- AS SUMMARIZED IN YOUR REQUEST FOR DECISION--- FINDS NO LEGAL BASIS FOR THE REASON THAT IT PURPORTS TO MODIFY PREJUDICIALLY TO THE UNITED STATES ITS OBLIGATIONS STATED IN THE ORIGINAL CONTRACT OF DECEMBER 7, 1934. CONTRACTOR COUSIN AGREED TO DO NOTHING IN THE SUPPLEMENTAL CONTRACT THAT HE WAS NOT OBLIGATED TO DO IN THE ORIGINAL CONTRACT. THERE HAS BEEN NOTED YOUR SUGGESTION THAT HE "SURRENDERED HIS RIGHT TO A BONUS OF 1 PERCENT ON ADDITIONAL PARCELS" IN RETURN FOR THE INCREASE OF THE COMPENSATION TO2.5 PERCENT, REGARDLESS OF WHETHER HE ACQUIRED OPTIONS SATISFACTORY TO THE GOVERNMENT EQUAL TO 15 PERCENT OF THE PARCELS TO BE INCLUDED IN THE BUILDING SITE BUT IT IS TO BE NOTED THAT HE NEVER ACQUIRED A RIGHT TO THE BONUS OF 1 PERCENT ON THE ADDITIONAL PARCELS. THE MOST THAT HE HAD WAS AN EXPECTANCY TO 1 PERCENT BONUS ON THE ADDITIONAL PARCELS AND SUCH EXPECTANCY COULD NOT RIPEN INTO A RIGHT UNLESS AND UNTIL HE HAD ACQUIRED SATISFACTORY OPTIONS TO 66 2/3 PERCENT OF ALL THE PARCELS INCLUDED IN THE BUILDING SITE. IT CANNOT BE CONCLUDED THAT THE SURRENDER OF SUCH AN EXPECTANCY CONSTITUTED CONSIDERATION; OR, IF SO, SUFFICIENT CONSIDERATION FOR THE PROPOSED MODIFICATION OF THE ORIGINAL CONTRACT. ACCORDINGLY, YOUR FIRST QUESTION MUST NECESSARILY BE AND IS ANSWERED IN THE NEGATIVE.

THE POSSIBILITY OF SUCH A CONTINGENCY AS HAS ARISEN NECESSARILY WAS AND IS PRESUMED TO HAVE BEEN TAKEN INTO CONSIDERATION WHEN THE CONTRACT OF DECEMBER 7, 1934, WAS ENTERED INTO UNDER WHICH CONTRACTOR COUSIN WAS TO RECEIVE NO PAYMENT UNLESS AND UNTIL HE HAD ACQUIRED SATISFACTORY OPTIONS TO 15 PERCENT OF THE PARCELS. HOWEVER, IT SEEMS THIS CONTINGENCY HAS SO FAR OPERATED TO PREVENT THE CONTRACTOR FROM RECEIVING THE REQUIRED NUMBER OF SATISFACTORY OPTIONS TO ENTITLE HIM TO THE FIRST PAYMENT WITH THE RESULT, AS REPORTED, THAT HE IS UNABLE TO CONTINUE TO MAKE ADVANCES TO HIS EMPLOYEES ENGAGED IN ATTEMPTING TO SECURE OPTIONS SO THAT THE GOVERNMENT IS CONFRONTED WITH THE NECESSITY OF EITHER MAKING A PROGRESS PAYMENT ON THE BASIS OF THE OPTIONS NOW OBTAINED OR HAVING THE CONTRACTOR DEFAULT WITH NO PERFORMANCE BOND TO PROTECT THE UNITED STATES AGAINST ANY EXCESS COST. UNDER THESE CIRCUMSTANCES THIS OFFICE WILL INTERPOSE NO OBJECTION TO OTHERWISE PROPER PAYMENTS FROM TIME TO TIME TO CONTRACTOR COUSIN ON THE BASIS OF NOT TO EXCEED 80 PERCENTUM OF THE STIPULATED 2 PERCENT OF THE APPRAISED VALUE OF THE PARCELS ON WHICH HE HAS SECURED OPTIONS SATISFACTORY TO THE GOVERNMENT--- UNTIL HE HAS SECURED THE MINIMUM OPTIONS ON AT LEAST 15 PERCENTUM OF THE REQUIRED PARCELS.