B-159418, NOVEMBER 18, 1966, 46 COMP. GEN. 414

B-159418: Nov 18, 1966

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THE FACT THAT THE CHECK ISSUED AS FINAL PAYMENT WAS NOT NEGOTIATED DOES NOT INVALIDATE THE RELEASE EXECUTED TO EXTINGUISH THE GOVERNMENT'S LIABILITY UNDER THE CONTRACT. - IS A VALID DEFENSE TO THE CLAIM OF THE CONTRACTOR FOR UNLIQUIDATED DAMAGES. 1966: FURTHER REFERENCE IS MADE TO YOUR LETTER DATED JUNE 10. WE NOTE THAT YOU DESIRE TO HAVE THE RELEASE REFORMED IN ORDER THAT A CLAIM FOR DAMAGES MIGHT BE ASSERTED FOR BREACH OF CONTRACT. THE FACTS IN THIS CASE AS ADMINISTRATIVELY REPORTED ARE AS FOLLOWS. THE CONTRACT PRICE WAS $500. UNDER THE TERMS OF THE CONTRACT THE WORK WAS TO BE COMPLETED WITHIN 365 CALENDAR DAYS FROM THE DATE OF RECEIPT OF NOTICE TO PROCEED AND DEMOLITION WAS REQUIRED TO BEGIN WITHIN 15 CALENDAR DAYS AFTER RECEIPT OF THE NOTICE.

B-159418, NOVEMBER 18, 1966, 46 COMP. GEN. 414

CONTRACTS - RELEASES - FINALITY OF RELEASE A CONTRACTOR HAVING FAILED TO RESERVE A CLAIM RIGHT AGAINST THE GOVERNMENT IN THE GENERAL RELEASE EXECUTED UPON ACCEPTANCE OF FINAL PAYMENT UNDER A BUILDING DEMOLITION CONTRACT, THE RELEASE MAY NOT BE REFORMED TO PERMIT THE CONTRACTOR TO CLAIM ACCELERATION AND OTHER COSTS INCURRED BECAUSE THE GOVERNMENT DELAYED VACATING THE BUILDING. THE FACT THAT THE CHECK ISSUED AS FINAL PAYMENT WAS NOT NEGOTIATED DOES NOT INVALIDATE THE RELEASE EXECUTED TO EXTINGUISH THE GOVERNMENT'S LIABILITY UNDER THE CONTRACT, AS A CONTRACTOR CANNOT VITIATE A FINAL PAYMENT MADE BY THE GOVERNMENT BY REFUSING TO NEGOTIATE A CHECK THAT REPRESENTS THE FINAL PAYMENT. THEREFORE THE RELEASE--- A CONDITION PRECEDENT TO THE ISSUANCE OF THE CHECK--- IS A VALID DEFENSE TO THE CLAIM OF THE CONTRACTOR FOR UNLIQUIDATED DAMAGES.

TO MARVIN P. SADUR, NOVEMBER 18, 1966:

FURTHER REFERENCE IS MADE TO YOUR LETTER DATED JUNE 10, 1966, WITH ENCLOSURES, ON BEHALF OF ABC DEMOLITION CORPORATION, REQUESTING OUR OFFICE TO REVIEW THE REFUSAL OF THE GENERAL SERVICES ADMINISTRATION (GSA) TO ALLOW A MODIFICATION TO AN ALLEGED GENERAL RELEASE OF CLAIMS FURNISHED THE GOVERNMENT BY ABC DEMOLITION CORPORATION UNDER A CONTRACT FOR THE DEMOLITION OF THE UNITED STATES COURTHOUSE, 219 SOUTH CLARK STREET, CHICAGO, ILLINOIS. YOU REQUEST THAT THE RELEASE BE REFORMED TO REFLECT AN ALLEGED INTENDED EXCEPTION THEREFROM OF THE RIGHT OF THE CONTRACTOR TO CLAIM UNLIQUIDATED ADDITIONAL COSTS ALLEGEDLY INCURRED BECAUSE OF THE DELAY OCCASIONED BY THE FAILURE OF THE GOVERNMENT TO TIMELY VACATE THE BUILDING TO BE DEMOLISHED AT THE TIME AND IN THE MANNER SPECIFIED IN THE CONTRACT AND FOR ACCELERATION COSTS INCIDENT TO THE DELAY. WE NOTE THAT YOU DESIRE TO HAVE THE RELEASE REFORMED IN ORDER THAT A CLAIM FOR DAMAGES MIGHT BE ASSERTED FOR BREACH OF CONTRACT.

THE FACTS IN THIS CASE AS ADMINISTRATIVELY REPORTED ARE AS FOLLOWS. JANUARY 12, 1965, THE GSA CHICAGO, ILLINOIS, REGIONAL OFFICE AWARDED CONTRACT NO. GS-05BC-4750 TO ABC DEMOLITION CORPORATION FOR THE DEMOLITION OF THE UNITED STATES COURTHOUSE, CHICAGO, ILLINOIS. THE CONTRACT PRICE WAS $500,000. UNDER THE TERMS OF THE CONTRACT THE WORK WAS TO BE COMPLETED WITHIN 365 CALENDAR DAYS FROM THE DATE OF RECEIPT OF NOTICE TO PROCEED AND DEMOLITION WAS REQUIRED TO BEGIN WITHIN 15 CALENDAR DAYS AFTER RECEIPT OF THE NOTICE. ON JANUARY 12, 1965, THE DATE THE CONTRACT WAS AWARDED, APPROXIMATELY 15 PERCENT OF THE FLOOR AREA OF THE BUILDING WAS OCCUPIED BY EMPLOYEES OF THE POST OFFICE DEPARTMENT. THE CONTRACTING OFFICER ANTICIPATED THAT THE POSTAL OPERATION WOULD BE REMOVED FROM THE BUILDING PRIOR TO THE TIME DEMOLITION WORK WAS TO BEGIN. HOWEVER, DUE TO UNEXPECTED DIFFICULTIES IN LOCATING SUITABLE ALTERNATE SPACE, IT WAS NOT UNTIL APRIL 24, 1965, THAT THE ENTIRE BUILDING WAS VACATED. IN THE MEANTIME, HOWEVER, THE CONTRACTOR COMMENCED DEMOLITION WORK AS REQUIRED UNDER THE CONTRACT NOTICE TO PROCEED GIVEN ON FEBRUARY 15, 1965.

ON MARCH 25, 1965, THE CONTRACTOR NOTIFIED THE CONTRACTING OFFICER THAT ITS CONTRACT PRICE WAS BASED UPON ITS BELIEF THAT THE BUILDING WOULD NOT BE OCCUPIED AT ANY TIME DURING DEMOLITION WORK, AND THAT THE DELAY OF THE GOVERNMENT IN REMOVING THE POSTAL OPERATION FROM THE BUILDING WAS INCREASING THE COST OF CONTRACT PERFORMANCE. ON APRIL 6, 1965, THE CONTRACTOR ADVISED THAT CONTINUED OCCUPANCY OF THE BUILDING CONSTITUTED A CHANGE IN THE CONTRACT SPECIFICATIONS. SUBSEQUENTLY, BY LETTERS DATED JULY 13, 1965 AND AUGUST 10, 1965, THE CONTRACTOR STATED ITS INTENT TO SUBMIT A CLAIM FOR BOTH DELAY AND ACCELERATION COSTS UPON SUBSTANTIAL COMPLETION OF THE CONTRACT.

ON AUGUST 23, 1965, THE CONTRACTING OFFICER ADVISED ABC DEMOLITION THAT THE CONTRACT DID NOT INCLUDE A SUSPENSION OF WORK CLAUSE OR PROVISION AUTHORIZING PAYMENT FOR DELAY, AND THAT FUNDS WERE NOT AVAILABLE FOR ACCELERATION OF PERFORMANCE. IN THIS LETTER, THE WORK PROGRESS OF THE CONTRACTOR WAS REVIEWED AND IT WAS CONCLUDED THEREFROM THAT THE DELAY WAS LARGELY ATTRIBUTABLE TO THE CONTRACTOR'S FAILURE TO OBTAIN THE NECESSARY PERMITS FROM THE CITY OF CHICAGO TO ALLOW MAJOR DEMOLITION WORK UNTIL 41 DAYS AFTER THE BUILDING HAD BEEN COMPLETELY VACATED. HOWEVER, NO EXPRESS FINDINGS WERE MADE IN THIS RESPECT AND THE CONTRACTOR WAS ADVISED TO DOCUMENT ANY REQUEST FOR A CONTRACT TIME EXTENSION.

FROM AUGUST 23, 1965, UNTIL MARCH 26, 1966, A PERIOD OF MORE THAN 7 MONTHS, NO FURTHER DISCUSSIONS BETWEEN THE PARTIES TOOK PLACE WITH RESPECT TO THE MATTER NOR WERE STEPS TAKEN BY THE CONTRACTOR TO REASSERT OR DOCUMENT ANY CLAIMS.

ON OR ABOUT MARCH 9, 1966, FOLLOWING COMPLETION OF THE CONTRACT, MR. LESTER LEOPOLD, A VICE PRESIDENT OF ABC DEMOLITION CORPORATION, VISITED THE CHICAGO REGIONAL OFFICE AND INQUIRED AS TO THE STATUS OF FINAL PAYMENT. MR. LEOPOLD WAS ADVISED THAT THE CONTRACT (PARAGRAPH 7 (E) OF SF 23-A, APRIL 1961 EDITION AND PARAGRAPH 1-14 (D) OF GSA FORM 1139, AUGUST 1959) REQUIRED THE SUBMISSION OF A RELEASE OF CLAIMS AS A CONDITION TO FINAL PAYMENT. A BLANK COPY OF A RELEASE FORM WAS FURNISHED MR. LEOPOLD.

ON MARCH 11, 1966, THE GOVERNMENT RECEIVED BY MAIL A PROPERLY EXECUTED GENERAL RELEASE OF CLAIMS SIGNED BY MR. LEOPOLD ON BEHALF OF THE CONTRACTOR. THE RELEASE RECITES THAT THE CONTRACTOR "IN ACCORDANCE WITH CLAUSE 7 (E) OF SAID CONTRACT, HEREBY RELEASES THE UNITED STATES FROM ANY AND ALL CLAIMS ARISING UNDER OR BY VIRTUE OF SAID CONTRACT OR ANY MODIFICATION OR CHANGE THEREOF;,NO CLAIM FOR DELAY OR ACCELERATION WAS EXPRESSLY EXCEPTED FROM THE OPERATION OF THE RELEASE. IN FACT, IN THE SPACES RESERVED FOR EXCEPTIONS, THE CONTRACTOR INSERTED THE WORD "NONE;, THE VOUCHER FOR FINAL PAYMENT WAS PREPARED ON MARCH 17, 1966, AND A UNITED STATES TREASURY CHECK IN THE AMOUNT OF $40,150 REPRESENTING FINAL PAYMENT UNDER THE CONTRACT WAS ISSUED AND MAILED TO THE CONTRACTOR'S HOME OFFICE.

ON MARCH 24, 1966, FOLLOWING RECEIPT OF THE CHECK BY THE CONTRACTOR, YOU REQUESTED THE SUCCEEDING CONTRACTING OFFICER TO RETURN THE RELEASE SINCE "DELIVERY OF SAID RELEASE WAS INADVERTENT AND UNAUTHORIZED AND IS WITHOUT CONSIDERATION FOR THE REASON THAT FINAL PAYMENT HAS NOT BEEN MADE OF THE CONTRACT BALANCE;, THIS STATEMENT APPARENTLY HAD REFERENCE TO THE FACT THAT THE CONTRACTOR HAD NOT NEGOTIATED THE CHECK PRESUMABLY SO AS NOT TO PREJUDICE ANY REQUEST THAT THE RELEASE BE RESCINDED OR REFORMED.

IN YOUR LETTER OF JUNE 10, 1966, YOU CONTEND THAT THE CONTRACTOR INADVERTENTLY INCLUDED THE ACCELERATION CLAIM IN THE RELEASE SINCE IMMEDIATELY UPON SUCH REALIZATION, IT OFFERED TO RESCIND THE RELEASE AND RESTORE THE CONSIDERATION (RETURN THE FINAL PAYMENT CHECK ISSUED).

SECTION 7 OF THE GENERAL PROVISIONS OF THE CONTRACT (STANDARD FORM 23-A, APRIL 1961 EDITION) PAYMENTS TO CONTRACTOR, PROVIDES IN PERTINENT PART AS FOLLOWS:

(A) THE GOVERNMENT WILL PAY THE CONTRACT PRICE AS HEREINAFTER PROVIDED.

(E) UPON COMPLETION AND ACCEPTANCE OF ALL WORK, THE AMOUNT DUE TO CONTRACTOR UNDER THIS CONTRACT SHALL BE PAID UPON THE PRESENTATION OF A PROPERLY EXECUTED VOUCHER AND AFTER THE CONTRACTOR SHALL HAVE FURNISHED THE GOVERNMENT WITH A RELEASE, IF REQUIRED, OF ALL CLAIMS AGAINST THE GOVERNMENT ARISING BY VIRTUE OF THIS CONTRACT, OTHER THAN CLAIMS IN STATED AMOUNTS AS MAY BE SPECIFICALLY EXCEPTED BY THE CONTRACTOR FROM THE OPERATION OF THE RELEASE * * *

SECTION 1-14 (D) OF THE GENERAL CONDITIONS (GSA FORM 1139, AUGUST 1959) REQUIRED A RELEASE OF CLAIMS BEFORE FINAL PAYMENT COULD BE MADE. THE CLEAR IMPORT OF THE ABOVE CONTRACT LANGUAGE IMPOSED AN OBLIGATION ON THE GOVERNMENT TO MAKE FINAL PAYMENT ONLY AFTER THE CONTRACTOR PRESENTED A PROPERLY EXECUTED VOUCHER AND A RELEASE OF ALL CLAIMS AGAINST THE GOVERNMENT ARISING BY VIRTUE OF THE CONTRACT, OTHER THAN CLAIMS IN STATED AMOUNTS AS MAY BE SPECIFICALLY EXCEPTED BY THE CONTRACTOR FROM THE OPERATION OF THE RELEASE. THIS REQUIREMENT ON THE PART OF THE CONTRACTOR WAS A CONDITION PRECEDENT TO PAYMENT AND IT WAS PART AND PARCEL OF THE ENTIRE CONTRACT CONSIDERATION.

YOU CONTEND THAT THE RELEASE IS INVALID BECAUSE IT WAS NOT SUPPORTED BY CONSIDERATION FOR THE REASON THAT THE UNITED STATES TREASURY CHECK ISSUED AS FINAL PAYMENT WAS NOT NEGOTIATED BY THE CONTRACTOR. WE NOTE THAT JUDICIAL PRECEDENTS ARE NOT ENTIRELY DISPOSITIVE OF THE QUESTION WHETHER FINAL PAYMENT UNDER CONTRACTS REQUIRING SUBMISSION OF A RELEASE MUST BE MADE BEFORE THE RELEASE BECOMES EFFECTIVE, I.E; WHETHER FINAL PAYMENT OR THE CONTRACT ITSELF IS CONSIDERATION FOR THE RELEASE. SEE UNITED STATES V. WM. CRAMP AND SONS CO; 206 U.S. 118; HOUDAILLE INDUSTRIES V. UNITED STATES, 138 CT. CL. 301; J. G. WATTS CONSTRUCTION COMPANY V. UNITED STATES, 161 CT. CL. 801. HOWEVER, WE BELIEVE THAT THE FAILURE OF THE CONTRACTOR TO NEGOTIATE THE GOVERNMENT'S CHECK ISSUED AS FINAL PAYMENT HAS NO BEARING ON THE FINALITY OF THE RELEASE. THE RELEASE OF THE CONTRACT CLAIMS WAS A FORMAL DOCUMENT WHICH THE GOVERNMENT ACCEPTED AND RELIED UPON TO SUPPORT THE ISSUANCE OF THE CHECK, AND IT IS EVIDENT THAT FINAL PAYMENT WAS DEPENDENT UPON EXECUTION OF THE RELEASE BY THE CONTRACTOR. THE CONTRACTOR FULLY REALIZED THAT IT WAS THE GOVERNMENT'S INVARIABLE PRACTICE TO ACCOMPLISH "FINAL PAYMENT" BY CHECK; AND IT CAN BE STATED WITHOUT EQUIVOCATION THAT THIS MODE OF PAYMENT BY THE GOVERNMENT OF ITS OBLIGATIONS IS FULLY UNDERSTOOD BY THOSE WHO DO BUSINESS WITH IT. THE GOVERNMENT, UPON ISSUING THE CHECK, DID ALL THAT WAS EXPECTED OF IT TO DISCHARGE ITS OBLIGATIONS UNDER THE CONTRACT. WE CANNOT SUBSCRIBE TO THE THEORY THAT THE RELEASE WOULD BE INEFFECTUAL UNTIL THE PAYEE AT HIS PLEASURE ELECTED TO NEGOTIATE THE GOVERNMENT'S CHECK.

THE PURPOSE OF A RELEASE IS TO EXTINGUISH THE GOVERNMENT'S LIABILITY UNDER THE CONTRACT. IF A CONTRACTOR COULD UNILATERALLY, BY REFUSING TO NEGOTIATE A GOVERNMENT CHECK IN HIS POSSESSION, EFFECTIVELY QUESTION THE VALIDITY OF A CONTRACT RELEASE, THEN THE ESSENTIAL PURPOSE OF THE RELEASE FREELY GIVEN AT THE TIME WOULD BE COMPLETELY FRUSTRATED. THIS WAS NOT, OF COURSE, THE INTENTION OF THE PARTIES AT THE TIME THE RELEASE WAS EXECUTED AND ACCEPTED BY THE GOVERNMENT. WE THEREFORE ARE OF THE VIEW THAT A CONTRACTOR CANNOT VITIATE A FINAL PAYMENT BY THE GOVERNMENT BY MERELY REFUSING TO NEGOTIATE A CHECK REPRESENTING SUCH FINAL PAYMENT.

THE SITUATION INVOLVED HEREIN IS TO BE DISTINGUISHED FROM THOSE PRECEDENTS WHICH HOLD GENERALLY THAT A CHECK DOES NOT CONSTITUTE PAYMENT UNTIL THE CHECK IS NEGOTIATED BECAUSE HERE A FORMAL CONTRACT DOCUMENT HAD BEEN EXECUTED BY THE CONTRACTOR WITHOUT EXCEPTION WHICH CONSTITUTED A NECESSARY CONDITION PRECEDENT TO THE ISSUANCE OF THE GOVERNMENT CHECK. CF. 9 COMP. GEN. 144, 146; 19 ID. 811, 814; 24 ID. 61.

ACCORDINGLY, IT IS OUR OPINION THAT THE RELEASE IS A VALID DEFENSE TO THE CONTRACTOR'S CLAIM FOR UNLIQUIDATED DAMAGES. WE HAVE CAREFULLY CONSIDERED THE MANY AUTHORITIES WHICH YOU HAVE CITED TO SUPPORT YOUR POSITION BUT WE REMAIN OF THE VIEW THAT THE FACTS IN THIS CASE DO NOT JUTISFY RESCISSION OR REFORMATION OF THE RELEASE.

WE DO NOT AGREE WITH YOUR ALLEGATION THAT THE MISTAKE IN NOT EXCEPTING FROM THE RELEASE THE ALLEGED CLAIMS WAS A MUTUAL MISTAKE. NOR DO WE BELIEVE THAT THE ATTENDANT CIRCUMSTANCES PLACED THE CONTRACTING OFFICER ON NOTICE OF POSSIBLE ERROR. ALTHOUGH THE CONTRACTOR'S LETTERS OF JULY 13 AND AUGUST 10, 1965, EXPRESSED AN INTENT TO SUBMIT A CLAIM FOR DELAY AND ACCELERATION UPON SUBSTANTIAL COMPLETION OF THE CONTRACT, THE CONTRACTOR FAILED TO CARRY OUT ITS EXPRESSED INTENT UPON SUBSTANTIAL COMPLETION OF THE WORK AND FAILED TO EXCEPT THIS CLAIM FROM ITS GENERAL RELEASE. MOREOVER, THE CONTRACTOR WAS NOTIFIED BY THE CONTRACTING OFFICER'S LETTER OF AUGUST 23, 1965, THAT THE CONTRACT DID NOT INCLUDE A PROVISION AUTHORIZING PAYMENT FOR DELAY, THAT FUNDS WERE NOT AVAILABLE FOR ACCELERATION, AND THAT THE DELAY WAS LARGELY ATTRIBUTABLE TO THE CONTRACTOR'S FAILURE TO OBTAIN THE NECESSARY PERMITS TO ALLOW MAJOR DEMOLITION UNTIL 41 DAYS AFTER THE BUILDING HAD BEEN COMPLETELY VACATED. IT IS REPORTED THAT FROM AUGUST 23, 1965, UNTIL MARCH 26, 1966, OR SUBSEQUENT TO THE EXECUTION OF THE RELEASE, NO FURTHER DISCUSSIONS BETWEEN THE PARTIES TOOK PLACE WITH RESPECT TO THE MATTER NOR WERE STEPS TAKEN BY THE CONTRACTOR TO ASSERT ANY CLAIMS. UNDER THE CIRCUMSTANCES, WE DO NOT BELIEVE THAT THE CONTRACTING OFFICER WAS OR SHOULD HAVE BEEN ON NOTICE OF THE ALLEGED ERROR RELATING TO UNLIQUIDATED CLAIMS BEYOND THE SCOPE OF THE CONTRACT.

YOU STATE THAT THE DELAY-ACCELERATION CLAIM WAS NOT CONTEMPLATED BY THE PARTIES AT THE TIME OF EXECUTION OF THE RELEASE AND, THEREFORE, IS NOT A CLAIM BARRED BY THE RELEASE. WE DO NOT AGREE THAT SUCH WAS THE CASE HERE. ALL CLAIMS ARISING BY VIRTUE OF THE CONTRACT WERE CONTEMPLATED WHEN THE RELEASE WAS EXECUTED AND NO CLAIMS WERE ASSERTED AS EXCEPTIONS TO THE OPERATION OF THE RELEASE. THIS IS ESPECIALLY TRUE SINCE PREVIOUS THERETO, THE CONTRACTOR INDICATED, ALBEIT WITHOUT FURTHER ACTION, THAT CERTAIN CLAIMS WOULD BE MADE. CF. HARRISON ENGINEERING AND CONSTRUCTION CORP. V. UNITED STATES, 107 CT. CL. 205; BUCKLEY V. BESFORD, 184 F. SUPP. 870; WINN -SENTER CONSTRUCTION CO. V. UNITED STATES, 110 CT. CL. 34.

IN VIEW OF THE FOREGOING, AND SINCE THE FAILURE OF THE CONTRACTOR TO EXPRESSLY RESERVE THE CLAIM FOR DELAY AND ACCELERATION IN THE RELEASE WAS THE RESULT OF ITS OWN INATTENTION OR NEGLIGENCE, WE FIND NO BASES TO EITHER REFORM OR RESCIND THE RELEASE.