B-115051, AUGUST 6, 1953, 33 COMP. GEN. 63

B-115051: Aug 6, 1953

Additional Materials:

Contact:

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

 

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

PAYMENTS - ABSENCE OR UNENFORCEABILITY OF CONTRACTS - BIDS SUBMITTED BY DEBARRED BIDDERS UNDER DIFFERENT NAME DEBARRED BIDDERS (COPARTNERS) WHO WERE AWARDED A CONTRACT FOR THE MANUFACTURE OF SLEEPING BAGS FROM GOVERNMENT-OWNED MATERIAL UPON A BID SUBMITTED BY THE PARTNERS UNDER A DIFFERENT NAME. WHICH CONTRACT WAS SUBSEQUENTLY CANCELED UPON DISCOVERY OF CONTRACTOR'S INELIGIBILITY. ARE NOT ENTITLED TO PAYMENT UPON ANY BASIS FOR WORK COMPLETED ON GOODS DELIVERED TO AND RETAINED BY THE GOVERNMENT. 1953: REFERENCE IS MADE TO CLAIM OF HARRY PAISNER AND SAMUEL PAISNER. OR ASSOCIATION IN WHICH SUCH PERSONS OR FIRMS HAVE CONTROLLING INTEREST UNTIL 3 YEARS HAVE ELAPSED" BECAME EFFECTIVE ON SUCH DATE.

B-115051, AUGUST 6, 1953, 33 COMP. GEN. 63

PAYMENTS - ABSENCE OR UNENFORCEABILITY OF CONTRACTS - BIDS SUBMITTED BY DEBARRED BIDDERS UNDER DIFFERENT NAME DEBARRED BIDDERS (COPARTNERS) WHO WERE AWARDED A CONTRACT FOR THE MANUFACTURE OF SLEEPING BAGS FROM GOVERNMENT-OWNED MATERIAL UPON A BID SUBMITTED BY THE PARTNERS UNDER A DIFFERENT NAME, WHICH CONTRACT WAS SUBSEQUENTLY CANCELED UPON DISCOVERY OF CONTRACTOR'S INELIGIBILITY, ARE NOT ENTITLED TO PAYMENT UPON ANY BASIS FOR WORK COMPLETED ON GOODS DELIVERED TO AND RETAINED BY THE GOVERNMENT.

COMPTROLLER GENERAL WARREN TO HARRY ROSENBLATT, AUGUST 6, 1953:

REFERENCE IS MADE TO CLAIM OF HARRY PAISNER AND SAMUEL PAISNER, COPARTNERS, DOING BUSINESS AS THE QUALITY MANUFACTURING COMPANY, FOR $16,482.24, UNDER CONTRACT NO. DA 30-280-QM-22586, COVERING THE MANUFACTURE OF SLEEPING BAGS FROM GOVERNMENT-OWNED MATERIAL.

ON APRIL 24, 1950, THE SECRETARY OF LABOR FOUND THAT HARRY AND SAMUEL PAISNER, COPARTNERS, DOING BUSINESS AS WESTCHESTER HATS, HAD VIOLATED REPRESENTATIONS AND STIPULATIONS REQUIRED BY THE WALSH-HEALEY ACT, 41 U.S.C. 35, IN THE PERFORMANCE OF THEIR CONTRACTS. IN ACCORDANCE WITH THE TERMS OF SECTION 3 OF THE ACT, THE SANCTION THAT "NO CONTRACTS SHALL BE AWARDED TO SUCH PERSONS OR FIRMS OR TO ANY FIRM, CORPORATION, PARTNERSHIP, OR ASSOCIATION IN WHICH SUCH PERSONS OR FIRMS HAVE CONTROLLING INTEREST UNTIL 3 YEARS HAVE ELAPSED" BECAME EFFECTIVE ON SUCH DATE. ON NOVEMBER 14, 1951, DURING CONTINUANCE OF THE STATUTORY DEBARMENT PERIOD, HARRY PAISNER SUBMITTED A BID IN THE NAME OF QUALITY MANUFACTURING COMPANY WHICH, BY ACCEPTANCE OF THE GOVERNMENT, ON DECEMBER 14, 1951, BECAME CONTRACT NO. DA 30-280-QM 22586, UNDER WHICH THE PRESENT CLAIM ARISES. THE CONTRACTING OFFICER REPORTS THAT, BECAUSE THE NAME OF THE " QUALITY MANUFACTURING COMPANY" DID NOT APPEAR ON THE PUBLISHED LIST OF DEBARRED CONTRACTORS, AND THE INDIVIDUAL NAMES OF THE PARTNERS WERE NOT CHECKED, THE CONTRACT WAS AWARDED IN IGNORANCE OF THE INELIGIBILITY.

ON OR BEFORE MARCH 18, 1952, THE NEW YORK QUARTERMASTER PROCUREMENT AGENCY ASCERTAINED THAT THE QUALITY MANUFACTURING COMPANY WAS A PARTNERSHIP COMPOSED OF THE TWO PAISNERS, WHEREUPON, BY LETTER DATED APRIL 10, 1952, THE COMPANY WAS ADVISED THAT AWARD OF THE CONTRACT "WAS WITHOUT WARRANT OF LAW AND HAS NO FORCE AND EFFECT" AND "IS THEREFORE CANCELED OF RECORD AS VOID AB INITIO.' IN SUCH LETTER, THE CONTRACTOR WAS INSTRUCTED TO RETURN ALL GOVERNMENT PROPERTY FORTHWITH. THE CONTRACTING OFFICER ADVISES THAT---

PRIOR TO THE NOTICE OF CANCELLATION, CLAIMANT HAD COMPLETED THE MANUFACTURE OF SEVERAL THOUSAND UNITS WHICH WERE READY FOR DELIVERY. ALTHOUGH THE COMPANY WAS INSTRUCTED TO CEASE ALL MANUFACTURING OPERATIONS, THE EVIDENCE INDICATES THAT CLAIMANT CONTINUED TO FABRICATE AND SEW ALL PARTIALLY COMPLETED CASES AND TO MANUFACTURE CASES FROM CLOTH WHICH HAD ALREADY BEEN CUT. THE LAST DELIVERY WAS MADE ON 16 MAY 1952, COMPLETING SHIPMENTS TOTALING 12,106 UNITS. THIS OFFICE HAS REFUSED TO MAKE PAYMENTS FOR ANY OF THE ARTICLES DELIVERED.

THE COMPANY'S CLAIM, AS SET FORTH IN LETTER OF JULY 18, 1952, IS FOR $11,972.83, REPRESENTING THE CONTRACT PRICE OF $0.989 FOR EACH OF THE 12,106 UNITS COMPLETED AND SHIPPED, PLUS INTEREST ON PORTIONS THEREOF ALLEGED TO HAVE BEEN EARNED AS DELIVERED, AND FOR $4,509.41, REPRESENTING DAMAGES AT THE RATE OF $0.119 FOR ANTICIPATED PROFIT PER UNIT FOR WORK UNPERFORMED "RESULTING FROM THE BREACH" OF THE CONTRACT BY THE GOVERNMENT. IN A MEMORANDUM ACCOMPANYING SUCH LETTER, IT IS CONTENDED THAT THE COMPANY WAS NOT UNDER ANY IMPEDIMENT TO MAKE THE CONTRACT, APPARENTLY ON THE THEORY THAT INELIGIBILITY HAD ATTACHED AS OF THE DATE A TRIAL EXAMINER MADE ORIGINAL FINDS OF VIOLATIONS IN JUNE, 1948, AND HAD EXPIRED IN JUNE, 1951, 3 YEARS LATER. SUCH A THEORY, AMONG OTHER THINGS, DISREGARDS THE FACT THAT THE PARTNERS, AS SHOWN IN DECISION OF THE SECRETARY NO. PC-304, DATED APRIL 24, 1950, TOOK EXCEPTION TO THE TRIAL EXAMINER'S REPORT AND LATER PETITIONED FOR REVIEW OF THE FINDINGS AND CONCLUSIONS OF THE ADMINISTRATOR, WAGE AND HOUR AND PUBLIC CONTRACTS DIVISIONS, ALL IN RELIANCE UPON THE SECRETARY'S REGULATIONS AND FINAL AUTHORITY IN THE MATTER. THE PLAIN FACT IS THAT THE SECRETARY'S FINAL ACTION WAS TAKEN ON APRIL 24, 1950, AND THAT THE PERIOD OF INELIGIBILITY COMMENCED ON THAT DATE. IT WILL BE NOTED THAT SECTION 5 OF THE ACT PROVIDES THAT THE SECRETARY'S FINDINGS "SHALL BE CONCLUSIVE UPON ALL AGENCIES OF THE UNITED STATES, AND IF SUPPORTED BY THE PREPONDERANCE OF THE EVIDENCE, SHALL BE CONCLUSIVE IN ANY COURT OF THE UNITED STATES.'

IT ALSO IS CONTENDED IN THE MEMORANDUM THAT THE INELIGIBILITY SANCTION IS NO MORE THAN A CAUTION TO "WATCH OUT FOR VIOLATORS," SO THAT THE MAKING OF AWARDS TO VIOLATORS IS NOT PROHIBITED AND DOES NOT RESULT IN VOID CONTRACTS BUT, AT THE MOST, IN VOIDABLE CONTRACTS. IT IS URGED THAT, IN ANY EVENT, THE GOVERNMENT IS LIABLE ON THE BASIS OF QUANTUM MERUIT FOR THE CONTRACT PRICE OF WORK COMPLETED ON GOODS DELIVERED TO THE GOVERNMENT AND RETAINED BY IT.

THE STATUTORY DIRECTION THAT "NO CONTRACTS SHALL BE AWARDED * * *" IS IN THE NATURE OF A PUNISHMENT OR PENALTY IMPOSED UPON THOSE WHO ALREADY HAVE BREACHED CONDITIONS MADE A PART OF THEIR CONTRACTS BY THE TERMS OF THE ACT. IN NO SENSE CAN IT BE REGARDED AS LEAVING ANY OPTION TO AWARD CONTRACTS IN THE CONTRACTING AGENCY. RATHER, IT IS AN UNEQUIVOCAL MANDATE THAT COMPLETELY REMOVES ANY AUTHORITY ON THE PART OF THE AGENCY TO MAKE AWARDS UNDER SUCH CIRCUMSTANCES. THE LEGISLATIVE HISTORY SHOWS THAT, WHILE SOME OF THE MEASURES ORIGINALLY CONSIDERED BY THE CONGRESS MERELY PROVIDED AUTHORITY TO REJECT BIDS WHEN THE BIDDER WAS A VIOLATOR AND AWARD WOULD NOT BE IN THE PUBLIC INTEREST (SECTION 7 OF S. 3055 AND H.R. 9202, 74TH CONG.), THE LANGUAGE OF SECTION 3 WAS OFFERED BY THE HOUSE COMMITTEE ON THE JUDICIARY WITH EXPLANATION THAT IT "PROVIDES MACHINERY WHEREBY A CONTRACTOR FOUND GUILTY OF AGGRAVATED OFFENSES AGAINST THIS ACT MAY BE BARRED FROM BIDDING ON GOVERNMENT CONTRACTS FOR 3 YEARS" (H. REPT. NO. 2946, 74TH CONG.). HENCE, THERE CAN BE NO DOUBT THAT THE LEGISLATIVE INTENT WAS, AS INDICATED IN THE HEADING TO SECTION 3 OF THE ACT IN THE U.S.C. TITLE 41, SECTION 37--- READING IN PART "FUTURE CONTRACTS PROHIBITED"--- TO POSITIVELY AND ABSOLUTELY PROHIBIT AWARDS OF CONTRACTS TO VIOLATORS FOR THREE YEARS.

WHERE POSITIVE LEGISLATIVE INTENT TO OUTLAW AGREEMENTS IS APPARENT, AS IT IS HERE, SUCH AGREEMENTS ARE ILLEGAL AND VOID, EVEN THOUGH THE STATUTE DOES NOT EXPRESSLY SO PROVIDE. FOR FURTHER DISCUSSION OF THIS WELL ESTABLISHED RULE SEE 17 C.J.S. CONTRACTS, SECTION 201, AND CASES CITED THEREIN. MOREOVER, AS STATED IN SECTION 272, IDEM," NO PRINCIPLE OF LAW IS BETTER SETTLED THAN THAT A PARTY TO AN ILLEGAL CONTRACT CANNOT COME INTO A COURT OF LAW AND ASK TO HAVE HIS ILLEGAL OBJECTS CARRIED OUT * * * IT LEAVES THE PARTIES WHERE IT FINDS THEM.'

NOT ONLY IS AN UNAUTHORIZED CONTRACT UNENFORCEABLE ACCORDING TO ITS TERMS, BUT NO CONTRACT MAY BE IMPLIED WHERE A STATUTE POSITIVELY PROHIBITS THE TRANSACTION. THE UNITED STATES IS NEITHER BOUND NOR ESTOPPED BY ACTS OF OFFICERS OR AGENTS IN ENTERING INTO, APPROVING, OR PURPORTING TO AUTHORIZE AGREEMENTS PROHIBITED BY LAW, EVEN THOUGH IT APPEARS THAT THE GOVERNMENT MAY HAVE BENEFITED THEREBY; AND GENERAL PRINCIPLES OF EQUITY WILL NOT BE APPLIED TO FRUSTRATE THE PURPOSE OF SUCH LAWS OR TO THWART PUBLIC POLICY. LIMITATIONS ON AUTHORITY TO IMPOSE CONTRACT OBLIGATIONS UPON THE UNITED STATES ARE AS APPLICABLE TO CONTRACTS BY IMPLICATION AS THEY ARE TO THOSE EXPRESSLY MADE. SEE SUTTON V. UNITED STATES, 256 U.S. 575; PAN AMERICAN COMPANY V. UNITED STATES, 273 U.S. 456; PROVIDENCE ENGINEERING CORP. V. DOWNEY SHIPBUILDING CORP., 294 F. 641, CERTIORARI DENIED, 264 U.S. 586.

IN BANK OF THE UNITED STATES V. OWENS ET AL., 2 PETERS 527, THERE WAS CONSIDERED A CONTRACT RESERVING A GREATER RATE OF INTEREST THAN THAT PROVIDED FOR IN THE CHARTER OF THE BANK OF THE UNITED STATES. AFTER OBSERVING THAT "ALTHOUGH THE ACT OF INCORPORATION FORBIDS THE TAKING OF A GREATER INTEREST THAN SIX PERCENT, IT DOES NOT DECLARE VOID ANY CONTRACT RESERVING A GREATER SUM THAN IS PERMITTED," THE COURT STATED:

THE QUESTION THEN IS, WHETHER SUCH CONTRACTS ARE VOID IN LAW UPON GENERAL PRINCIPLES.

THE ANSWER WOULD SEEM TO BE PLAIN AND OBVIOUS, THAT NO COURT OF JUSTICE CAN IN ITS NATURE BE MADE THE HANDMAID OF INIQUITY. COURTS ARE INSTITUTED TO CARRY INTO EFFECT THE LAWS OF A COUNTRY, HOW CAN THEY THEN BECOME AUXILIARY TO THE CONSUMMATION OF VIOLATIONS OF LAW?

TO ENUMERATE HERE ALL THE INSTANCES AND CASES IN WHICH THIS REASONING HAS BEEN PRACTICALLY APPLIED, WOULD BE TO INCUR THE IMPUTATION OF VAIN PARADE.

THERE CAN BE NO CIVIL RIGHT WHERE THERE CAN BE NO LEGAL REMEDY; AND THERE CAN BE NO LEGAL REMEDY FOR THAT WHICH IS ITSELF ILLEGAL.

NONE OF THE CASES CITED IN YOUR SUPPLEMENTAL MEMORANDUM APPEAR TO ESTABLISH CONTRARY HOLDINGS. WHILE THEY SUPPORT A VIEW THAT, WHERE THE GOVERNMENT HAS RECEIVED THE BENEFIT OF LABOR AND ACCEPTED SUPPLIES, IT IS LIABLE THEREFOR UNDER AN IMPLIED CONTRACT, EVEN IF AN EXPRESS CONTRACT COVERING THE SUBJECT MATTER IS INVALID, THEY ARE RESTRICTED TO INSTANCES OF IRREGULAR, RATHER THAN ILLEGAL, CONTRACTS.

NO EVIDENCE IS FOUND THAT THE PARTNERS WERE NOT FULLY AWARE OF THE CONSEQUENCES FLOWING FROM THE INELIGIBILITY ATTENDANT UPON THEIR VIOLATIONS OF THE WALSH-HEALEY ACT. NONETHELESS, THE OFFICIAL RECORD SHOWS THAT DURING THE ORIGINAL PERIOD OF INELIGIBILITY ( APRIL 24, 1950 1APRIL 24, 1953), THEY CONTINUED TO SEEK GOVERNMENT CONTRACTS, EMPLOYING THE NAME OF THE QUALITY MANUFACTURING COMPANY, AND WERE SUCCESSFUL IN OBTAINING SUCH CONTRACTS ON THREE OCCASIONS. IN ADDITION TO THE CONTRACT UNDER CONSIDERATION, CONTRACTS NOS. DA 30-280-QM-7427 AND 18014, DATED NOVEMBER 22, 1950, AND JUNE 27, 1951, RESPECTIVELY, WERE OBTAINED, UNDER WHICH COMPLETE PAYMENTS HAVE BEEN MADE. FURTHER DEMONSTRATING A LACK OF GOOD FAITH IN THE MATTER IS THE FACT THAT IN PETITIONING THE SECRETARY OF LABOR TO REMOVE THE SANCTION OF INELIGIBILITY, WHICH REQUEST WAS GRANTED IN DECISION PC-304, DATED MAY 8, 1952, THE PARTNERS STATED, AMONG OTHER THINGS, THAT "THE PETITIONERS HAVE PAID THEIR PENALTY, THEIR CONDUCT HAS BEEN EXEMPLARY.'

THE CIRCUMSTANCES ARE SUCH, THEREFORE, THAT I HAVE NO ALTERNATIVE BUT TO ADVISE THAT THERE IS NO LEGAL AUTHORITY IN THIS OFFICE TO ALLOW ANY PART OF THE CLAIM OF HARRY AND SAMUEL PAISNER, COPARTNERS, DOING BUSINESS AS THE QUALITY MANUFACTURING COMPANY, UNDER CONTRACT NO. DA 30 280-QM-22586.