B-145383, MAY 3, 1961

B-145383: May 3, 1961

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TO THE SECRETARY OF THE ARMY: REFERENCE IS MADE TO A LETTER DATED MARCH 15. THERE WAS ENCLOSED A COPY OF INVITATION FOR BIDS NO. IT WAS REPORTED IN THE LETTER OF MARCH 15. WEBER WAS NOTIFIED UNDER DATE OF APRIL 1. THAT HIS RIGHTS ON THE BASE WERE TERMINATED AND THAT THE REMAINING CLEANUP WORK WOULD BE PERFORMED BY THE CORPS OF ENGINEERS AT HIS EXPENSE. IT WAS REPORTED THAT EFFORTS TO COLLECT THE AMOUNT DUE HAVE BEEN UNSUCCESSFUL. THE DEPARTMENT OF THE ARMY APPEARS TO HAVE CONCLUDED THAT THE SO CALLED LIQUIDATED DAMAGE CLAUSE CONTAINED IN PARAGRAPH 6 OF THE CONTRACT OF SALE WAS NOT INTENDED BY THE PARTIES TO REPRESENT THE FAIR MEASURE OF DAMAGES FOR THE REPORTED BREACH OF CONTRACT IN THIS CASE.

B-145383, MAY 3, 1961

TO THE SECRETARY OF THE ARMY:

REFERENCE IS MADE TO A LETTER DATED MARCH 15, 1961, WITH ENCLOSURES, FROM COLONEL WILLIAM H. GURNEE, JR., OFFICE OF THE ASSISTANT SECRETARY, REQUESTING OUR DECISION AS TO WHETHER THE PROVISION FOR LIQUIDATED DAMAGES CONTAINED IN PARAGRAPH 6 OF THE INVITATION FOR BIDS INVOLVED IN THIS CASE PRECLUDES THE GOVERNMENT FROM RECOVERING FOR EXPENDITURES RESULTING FROM THE FAILURE OF THE CONTRACTOR TO COMPLETELY REMOVE THE STRUCTURES INVOLVED AND CLEAN UP THE SITE AS REQUIRED BY PARAGRAPH 11 OF THE INVITATION FOR BIDS.

WITH THE LETTER OF MARCH 15, 1961, THERE WAS ENCLOSED A COPY OF INVITATION FOR BIDS NO. ENG/S/-03-050-58-69, ISSUED BY THE U.S. ARMY ENGINEER DISTRICT AT LITTLE ROCK, ARKANSAS, UNDER DATE OF JUNE 26, 1958, FOR THE SALE OF 30 BUILDINGS LOCATED ON THE BARKSDALE AIR FORCE BASE, LOUISIANA. THE RECORD SHOWS THAT ON JULY 23, 1958, MR. A. E. WEBER OF MUSKOGEE, OKLAHOMA, SUBMITTED A FORMAL BID ON ALL THIRTY OF THE BUILDINGS INVOLVED AT THE PRICE OF $4,322.21, THE SAME BEING ACCOMPANIED BY A BID DEPOSIT OF $500. UNDER DATE OF JULY 24, 1958, THE DISTRICT ENGINEER ACCEPTED MR. WEBER'S BID AS TO ELEVEN OF THE THIRTY ITEMS IN THE TOTAL AMOUNT OF $207.04, DEDUCTED THAT AMOUNT FROM THE BID DEPOSIT OF $500 AND REFUNDED THE BALANCE OF $292.96.

PARAGRAPH 11 OF THE CONTRACT PROVIDED THAT THE PURCHASER WOULD REMOVE ALL STRUCTURES AND CLEAN UP THE SITE WITHIN 90 DAYS FROM THE DATE OF THE GOVERNMENT'S ACCEPTANCE OF THE BID, INCLUDING THE REMOVAL FROM THE BASE OF CONCRETE FLOOR SLABS. IT WAS REPORTED IN THE LETTER OF MARCH 15, 1961, THAT MR. WEBER FAILED TO REMOVE ALL OF HIS PROPERTY AND CLEAN UP THE SITE AS REQUIRED BY THE CONTRACT OF SALE, AND THAT BECAUSE OF SUCH FAILURE AND FOLLOWING THE GIVING OF APPROPRIATE NOTICE, MR. WEBER WAS NOTIFIED UNDER DATE OF APRIL 1, 1959, THAT HIS RIGHTS ON THE BASE WERE TERMINATED AND THAT THE REMAINING CLEANUP WORK WOULD BE PERFORMED BY THE CORPS OF ENGINEERS AT HIS EXPENSE. FOLLOWING THE RECEIPT OF QUOTATIONS FROM SELECTED AVAILABLE CONTRACTORS THE DISTRICT ENGINEER AWARDED A CONTRACT FOR THE REMOVAL OF THE CONCRETE SLABS AND CLEANING UP THE SITE, BASED ON THE LOWEST QUOTATION OF $1,090, AND SUBMITTED A BILL IN THAT AMOUNT TO MR. WEBER ON NOVEMBER 5, 1959. IT WAS REPORTED THAT EFFORTS TO COLLECT THE AMOUNT DUE HAVE BEEN UNSUCCESSFUL.

THE DEPARTMENT OF THE ARMY APPEARS TO HAVE CONCLUDED THAT THE SO CALLED LIQUIDATED DAMAGE CLAUSE CONTAINED IN PARAGRAPH 6 OF THE CONTRACT OF SALE WAS NOT INTENDED BY THE PARTIES TO REPRESENT THE FAIR MEASURE OF DAMAGES FOR THE REPORTED BREACH OF CONTRACT IN THIS CASE. IT WAS POINTED OUT IN THE LETTER OF MARCH 15, 1961, THAT THE INVITATION FOR BIDS WAS DUAL IN PURPOSE, PROVIDING BOTH (A) INSTRUCTIONS FOR THE SUBMISSION OF BIDS AND MAKING DEPOSITS, AND INFORMATION AS TO THE TERMS FOR CLOSING THE CONTRACT, AND (B) COVENANTS AND CONDITIONS TO WHICH PERFORMANCE OF THE CONTRACT WOULD BE SUBJECT. THE VIEW WAS THEN EXPRESSED THAT THE INDICATED PARAGRAPH 6 BELONGS PRIMARILY IN THE FORMER CATEGORY, RELATING PARTICULARLY TO FINANCIAL OBLIGATIONS OF THE BIDDER PRELIMINARY TO CLOSING OF THE CONTRACT OF SALE; THAT WHEN THE LIQUIDATED DAMAGES PROVISION IS READ IN CONTEXT WITH ITS OWN PARAGRAPH AND THE CONTRACT AS A WHOLE, IT SEEMS CLEAR THAT IT WAS INTENDED TO PROVIDE NO MORE THAN A GUARANTY AGAINST DEFAULT IN PAYMENT OF THE BALANCE DUE AND REPUDIATION OF THE OFFER. IN SUPPORT OF SUCH VIEW THE LETTER OF MARCH 15, 1961, CONTAINS THE FOLLOWING LANGUAGE:

"* * * IT IS SIGNIFICANT THAT THE WORDS "BIDDER" AND "DEPOSIT" ARE USED IN RELATION TO THE LIQUIDATED DAMAGES CLAUSE, WITH THE DEFAULTING "BIDDER" (RATHER THAN PURCHASER) TO BE SUBJECT TO FORFEITURE OF HIS RIGHTS UNDER HIS "BID," AND THE "DEPOSIT" TO BE RETAINED AS "LIQUIDATED AGES.' THROUGHOUT PARAGRAPH 6, THE WORD "PURCHASER" IS USED ONLY ONCE, TO SPECIFY THAT HE SHALL NOT REMOVE STRUCTURES UNTIL THE CONSIDERATION IS PAID IN FULL.'

IT WAS THEN STATED THAT SINCE MR. WEBER'S DEPOSIT WAS LARGE ENOUGH TO COVER THE ENTIRE PAYMENT DUE ON THE BUILDINGS AWARDED HIM, HE ACQUIRED TITLE TO THOSE BUILDINGS IMMEDIATELY UPON THE GOVERNMENT'S ACCEPTANCE OF HIS BID, AND THAT DELIVERY WAS EFFECTED BY THE GOVERNMENT MAKING THE BUILDINGS AVAILABLE FOR REMOVAL. UPON THIS BASIS THE VIEW WAS EXPRESSED THAT UPON MAKING THE BUILDINGS AVAILABLE FOR REMOVAL THE DEPOSIT CEASED TO EXIST AS SUCH, BEING CONVERTED INTO A PAYMENT TO COVER THE BUYER'S INDEBTEDNESS, AND THAT HAVING BEEN USED UP FOR SUCH PURPOSE, THE DEPOSIT WAS NO LONGER AVAILABLE AS A SOURCE FOR PAYMENT OF DAMAGES FOR FAILURE TO PERFORM IN ACCORDANCE WITH THE CONTRACT COVENANTS.

WITH REFERENCE TO SUCH VIEW IT WAS STATED THAT---

"* * * ONE SUM OF MONEY COULD NOT REPRESENT, AT THE SAME TIME, BOTH THE PURCHASE PRICE AND, IN THE EVENT OF DEFAULT, DAMAGES. IN VIEW OF THE IMPOSSIBILITY OF FULFILLING THE LIQUIDATED DAMAGES PROVISION UNDER THESE CIRCUMSTANCES, THE TIME FOR ITS APPLICATION HAS EXPIRED AND THEREFORE, IT IS BELIEVED, IT HAS BECOME A NULLITY.'

THE LETTER OF MARCH 15, 1961, THEN GOES ON TO SAY THAT IN TAKING ONLY THE MOST DESIRABLE PORTION (THE BUILDINGS) WHICH COULD BE REMOVED WITH EXPEDIENCE, AND LEAVING SOME OF THE LESS DESIRABLE AND LESS READILY REMOVABLE PARTS, MR. WEBER PLACED THE GOVERNMENT IN A FAR LESS ADVANTAGEOUS POSITION THAN IT WOULD HAVE BEEN HAD HE REPUDIATED HIS CONTRACT INITIALLY, LEAVING THE STRUCTURES INTACT FOR RESALE. WITH REFERENCE TO SUCH STATEMENT IT WAS POINTED OUT THAT THE MONETARY CONSIDERATION IS USUALLY ONLY A PART OF THE GOVERNMENT'S INTEREST IN SELLING BUILDINGS FOR REMOVAL FROM THE SITE; THAT FROM THE GOVERNMENT'S STANDPOINT, THE COMPLETE REMOVAL OF STRUCTURES AND SITE CLEANUP THUS OBTAINED, BEING AN INTEGRAL PART OF AND OFTEN THE MOTIVATING REASON FOR SALES OF THIS NATURE, FURNISH AN IMPORTANT PART OF THE CONSIDERATION; THAT IN DETERMINING THE ADEQUACY OF BIDS, THE BURDEN OF REMOVAL AND CLEANUP PLACED UPON THE BUYER IS TAKEN INTO CONSIDERATION, AND THAT HAVING BUILDINGS TO OFFER PUTS THE GOVERNMENT IN A DISTINCTLY BETTER BARGAINING POSITION FOR OBTAINING SITE CLEARANCE THAN IT WOULD BE IF IT WERE NECESSARY TO HIRE CONTRACT SERVICES FOR PERFORMANCE OF THE WORK. THE POSITION OF YOUR DEPARTMENT CONCERNING THIS MATTER WAS SET FORTH AS FOLLOWS:

"* * * IT IS CERTAIN THAT THE DEPARTMENT OF THE ARMY, IN ANY EVENT, DID NOT CONTEMPLATE THAT THE LIQUIDATED DAMAGES CLAUSE WOULD COVER A SITUATION AS NOW EXISTS, WHERE THE BUYER "SKIMMED THE CREAM" BY TAKING THE MOST ATTRACTIVE AND REMOVABLE PARTS, LEAVING DEBRIS, WITH NOTHING SALEABLE WHICH COULD BE OFFERED AS AN INDUCEMENT TO OBTAIN SITE CLEARANCE IN THE MOST ECONOMICAL MANNER. SINCE THE CLEAN UP WAS CONSIDERATION BARGAINED FOR, IN ADDITION TO MONEY, THE GOVERNMENT IS ENTITLED TO RECOMPENSE FOR THE FAILURE OF THE BUYER IN THIS RESPECT.'

IN THE CONCLUDING PARAGRAPH OF THE LETTER OF MARCH 15, 1961, IT WAS STATED THAT UNDER THE FACTS INVOLVED IN THIS CASE THE DEPARTMENT OF THE ARMY CONSIDERS THAT PARAGRAPH 6 OF THE CONTRACT OF SALE IS INCONSISTENT WITH AN INTENT TO LIQUIDATE DAMAGES, OR WITH ANY THEORY OF ADEQUATE COMPENSATION. OUR DECISION IS REQUESTED AS TO WHETHER UNDER THE FACTS AND CIRCUMSTANCES INVOLVED, THE "LIQUIDATED DAMAGES" CLAUSE IN PARAGRAPH 6 MUST BE GIVEN FULL FORCE AND EFFECT OR WHETHER THE GOVERNMENT MAY PROCEED WITH LEGAL ACTION TO COLLECT THE INDICATED AMOUNT OF $1,090.

WE HAVE NOT BEEN ABLE TO FIND ANY DECISIONS OF THE COURTS DEALING WITH A FACTUAL SITUATION SIMILAR TO THAT INVOLVED IN THIS CASE. HOWEVER, FOR THE REASONS SET FORTH IN THE LETTER OF MARCH 15, 1961, WE AGREE WITH THE VIEW EXPRESSED BY YOUR DEPARTMENT TO THE EFFECT THAT THE SO-CALLED LIQUIDATED DAMAGES CLAUSE WAS NOT INTENDED BY THE PARTIES TO REPRESENT THE FAIR MEASURE OF DAMAGES FOR THE REPORTED BREACH OF CONTRACT.

IT IS OUR VIEW THAT THE DEFAULTING CONTRACTOR SHOULD BE HELD LIABLE FOR THE EXCESS COST OF $1,090 ON THE THEORY THAT THE PROVISIONS OF PARAGRAPH 6 OF THE CONTRACT ARE NOT APPLICABLE UNDER THE CIRCUMSTANCES.

IN THE EVENT MR. WEBER FAILS TO RESPOND TO A FURTHER DEMAND FOR PAYMENT IT IS SUGGESTED THAT THE MATTER BE REPORTED TO OUR CLAIMS DIVISION AS AN UNCOLLECTIBLE INDEBTEDNESS. THEREAFTER THE CLAIM WILL BE REFERRED TO THE DEPARTMENT OF JUSTICE FOR APPROPRIATE ACTION.