B-134852, FEB. 28, 1958

B-134852: Feb 28, 1958

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TO BALFRE GEAR AND MANUFACTURING CO.: REFERENCE IS MADE TO YOUR LETTER DATED DECEMBER 30. YOU WERE LEASED 10 ITEMS OF GOVERNMENT-OWNED EQUIPMENT AT A MONTHLY RATE OF ONE PERCENT OF THEIR "AGREED VALUATION.'. ARTICLE 2 OF THE CONTRACT PROVIDES THAT THE EQUIPMENT IS LEASED "IN ITS PRESENT CONDITION. AS IS. YOU WILL REIMBURSE THE GOVERNMENT FOR ALL PACKING. YOU STATE THAT (1) THE 1952 AGREED VALUATION OF CERTAIN EQUIPMENT WAS IN EXCESS OF THE ORIGINAL ACQUISITION COST AND IS IN EXCESS OF THE 1957 USED MARKET PRICE. A MACHINE WAS ENTIRELY UNSUITABLE. (3) YOU WERE OVERCHARGED RENT. (4) UNREASONABLE AND EXORBITANT CHARGES WERE ASSESSED FOR THE PREPARATION OF THE EQUIPMENT FOR STORAGE. THE TERM "AGREED VALUATION" IS NOT SYNONYMOUS WITH "ACQUISITION COST" OR "MARKET VALUE OF EQUIPMENT FIVE YEARS AFTER IT IS LEASED.'.

B-134852, FEB. 28, 1958

TO BALFRE GEAR AND MANUFACTURING CO.:

REFERENCE IS MADE TO YOUR LETTER DATED DECEMBER 30, 1957, WITH ENCLOSURES, RELATIVE TO YOUR INDEBTEDNESS IN THE AMOUNT OF $23,970.94, REPRESENTING RENTAL, AND CHARGES FOR PACKING, HANDLING AND PREPARATION FOR STORAGE OF GOVERNMENT-OWNED EQUIPMENT LEASED TO YOU UNDER CONTRACT NO. DA- 11-184-ENG-10862, DATED MARCH 12, 1952, AND SUPPLEMENTS THERETO.

UNDER THE SUBJECT CONTRACT AND SUBSEQUENT SUPPLEMENTAL AGREEMENTS, YOU WERE LEASED 10 ITEMS OF GOVERNMENT-OWNED EQUIPMENT AT A MONTHLY RATE OF ONE PERCENT OF THEIR "AGREED VALUATION.' ARTICLE 2 OF THE CONTRACT PROVIDES THAT THE EQUIPMENT IS LEASED "IN ITS PRESENT CONDITION, AS IS, WITHOUT ANY WARRANTY, EXPRESS OR IMPLIED ON THE PART OF THE GOVERNMENT AS TO CONDITION OR SERVICEABILITY.' ARTICLE 10 PROVIDES THAT UPON RETURN OF THE EQUIPMENT TO THE GOVERNMENT AND PRESENTATION OF A STATEMENT, YOU WILL REIMBURSE THE GOVERNMENT FOR ALL PACKING, HANDLING AND PREPARATION FOR LONG-TERM STORAGE COSTS INCURRED. AFTER YOU DECLARED THE LEASED ITEMS SURPLUS AND RETURNED THEM TO THE GOVERNMENT, YOU EXECUTED SUPPLEMENTAL AGREEMENTS WHICH PROVIDED THE DATE OF TERMINATION OF THE RENTAL CHARGE FOR EACH ITEM.

YOU STATE THAT (1) THE 1952 AGREED VALUATION OF CERTAIN EQUIPMENT WAS IN EXCESS OF THE ORIGINAL ACQUISITION COST AND IS IN EXCESS OF THE 1957 USED MARKET PRICE, (2) YOU HAD TO SPEND CONSIDERABLE TIME AND MONEY TO MAKE CERTAIN EQUIPMENT OPERABLE AND, IN ONE INSTANCE, A MACHINE WAS ENTIRELY UNSUITABLE, (3) YOU WERE OVERCHARGED RENT, AND (4) UNREASONABLE AND EXORBITANT CHARGES WERE ASSESSED FOR THE PREPARATION OF THE EQUIPMENT FOR STORAGE. ON THE BASIS OF THESE CONTENTIONS, YOU REQUEST THAT YOUR INDEBTEDNESS BE REDUCED.

THE TERM "AGREED VALUATION" IS NOT SYNONYMOUS WITH "ACQUISITION COST" OR "MARKET VALUE OF EQUIPMENT FIVE YEARS AFTER IT IS LEASED.' IN A DECISION OF THIS OFFICE, 28 COMP. GEN. 686, WE CONSIDERED A SITUATION SIMILAR TO THAT THERE INVOLVED, WHEREIN A LESSEE UNEQUIVOCALLY AGREED TO PAY FOR GOVERNMENT-OWNED EQUIPMENT AT SPECIFIED RENTAL BASED ON A PERCENTAGE OF A STATED VALUATION. SUBSEQUENT TO EXECUTION OF THE LEASE, THE LESSEE ASCERTAINED THAT THE ORIGINAL PRICE TO THE GOVERNMENT HAD BEEN SUBSTANTIALLY LESS THAN THE VALUATION USED IN PREPARING THE LEASE. HELD THAT, NOTWITHSTANDING THIS FACT, THE LESSEE WAS NOT ENTITLED TO ANY REDRESS AGAINST THE GOVERNMENT.

IN REGARD TO YOUR SECOND CONTENTION, SINCE UNDER ARTICLE 2 OF THE CONTRACT YOU ASSUMED THE RISK OF THE CONDITION OF THE EQUIPMENT, YOU ARE PRECLUDED FROM RECOVERING FOR ANY OF ITS DEFICIENCIES.

YOU STATE THAT YOU WERE OVERCHARGED RENT BECAUSE, IN CERTAIN INSTANCES, THE TIME LAPSE BETWEEN THE DATE YOU DECLARED THE EQUIPMENT SURPLUS AND THE DATE OF TERMINATION IS TWO AND THREE MONTHS. HOWEVER, YOU SPECIFICALLY AGREED TO THE LEASE TERMINATION DATES WHEN YOU EXECUTED THE TERMINATION AGREEMENTS, AND YOU KNEW THAT THE RENT WOULD BE BASED ON THE TERMINATION DATES. THEREFORE, THERE IS NO MERIT TO THIS CONTENTION.

THERE IS NOTHING OF RECORD HERE TO INDICATE THAT THE CHARGES ASSESSED FOR THE PREPARATION OF THE EQUIPMENT FOR STORAGE WERE UNREASONABLE OR EXORBITANT, AND YOU HAVE SUBMITTED NO EVIDENCE TO SUPPORT YOUR ALLEGATION IN THAT REGARD.

FOR THE FOREGOING REASONS, IT MUST BE CONCLUDED THAT NO BASIS EXISTS FOR ANY REDUCTION IN THE AMOUNT OF YOUR INDEBTEDNESS. ACCORDINGLY, AND SINCE THE GOVERNMENT'S CLAIM HAS BEEN LONG OUTSTANDING, YOU ARE ADVISED THAT UNLESS SATISFACTORY ARRANGEMENTS FOR SETTLEMENT ARE MADE PROMPTLY, THE MATTER WILL BE REPORTED TO THE DEPARTMENT OF JUSTICE FOR APPROPRIATE LEGAL ACTION.