B-163778, AUG. 20, 1968

B-163778, AUG. 20, 1968

TO MR. POSTMASTER GENERAL:

REFERENCE IS MADE TO A LETTER FROM THE ASSISTANT POSTMASTER GENERAL, BUREAU OF FACILITIES, DATED MARCH 8, 1968, CONCERNING A CLAIM ASSERTED BY THE FERRIS CORPORATION AGAINST THE POST OFFICE DEPARTMENT IN THE AMOUNT OF $72,010.07, PLUS CERTAIN UNLIQUIDATED COSTS FOR EXECUTIVE TIME. THE CLAIM ARISES OUT OF A CONTRACT BETWEEN FERRIS AND THE POST OFFICE FOR THE CONSTRUCTION OF A VEHICLE MAINTENANCE FACILITY (VMF) WHICH WAS TO BE LEASED UPON COMPLETION TO THE POST OFFICE. BEFORE CONSTRUCTION WAS BEGUN, THE CONTRACTING PARTIES TERMINATED THE CONTRACT BY MUTUAL AGREEMENT. THE QUESTION SUBMITTED TO US INVOLVES THE LIABILITY OF THE GOVERNMENT TO PAY FOR CERTAIN EXPENSES INCURRED BY FERRIS, PRIOR TO THE MUTUAL TERMINATION OF THE CONTRACT, IN MAKING PREPARATIONS TO CONSTRUCT THE FACILITY.

THE POST OFFICE OWNED A PARCEL OF LAND IN BRIDGEPORT, CONNECTICUT. DECEMBER 10, 1965, THE DEPARTMENT ISSUED AN ADVERTISEMENT FOR BIDS WHICH INDICATED THAT THE SUCCESSFUL BIDDER WOULD PURCHASE THE LAND AT A STIPULATED PRICE AND THEN CONSTRUCT UPON IT THE VMF IN ACCORD WITH PRELIMINARY DRAWINGS PREPARED BY THE POST OFFICE, AS WELL AS BUILDING CONSTRUCTION REQUIREMENTS DATED NOVEMBER 1965, AND POST OFFICE GENERAL CONDITIONS DATED OCTOBER 1965, WITH ADDENDUM. THE ADVERTISEMENT ALSO PROVIDED THE ADDRESS OF THE PERSON FROM WHOM INTERESTED PARTIES COULD OBTAIN A PACKAGE CONTAINING ALL THE MATERIALS, INCLUDING THE DRAWINGS AND BUILDING REQUIREMENTS, WHICH MIGHT BE NEEDED FOR BIDDING. PARAGRAPH H-1 OF "BUILDING REQUIREMENTS FOR VEHICLE MAINTENANCE FACILITY, BRIDGEPORT, CONN.' PROVIDED: "ALL IMPROVEMENTS OF THE LAND, INCLUDING NEW BUILDING/S) AND ALL APPURTENANCES THERETO, SHALL CONFORM TO ALL APPLICABLE LOCAL LAWS, ORDINANCES, AND REGULATIONS WHICH RELATE TO THE CONSTRUCTION, SAFETY, AND SANITATION OF THE BUILDING/S) OR, IN THE ABSENCE OF SUCH CODES, ORDINANCES OR REGULATIONS, NATIONAL CODES SHALL APPLY.' PARAGRAPH H-3 OF THE SAME DOCUMENT WAS AS FOLLOWS: "THE LESSOR SHALL, WITHOUT ADDITIONAL EXPENSES TO THE GOVERNMENT, BE RESPONSIBLE FOR OBTAINING ANY NECESSARY LICENSES AND PERMITS REQUIRED FOR PRIVATELY OWNED BUILDINGS, AND FOR COMPLYING WITH ANY APPLICABLE FEDERAL, STATE, AND MUNICIPAL LAWS, CODES, AND REGULATIONS, IN CONNECTION WITH THE PROSECUTION OF THE WORK. HE SHALL TAKE PROPER SAFETY AND HEALTH PRECAUTIONS TO PROTECT THE WORK, THE WORKERS, THE PUBLIC, AND THE PROPERTY OF OTHERS.'

FERRIS CORPORATION WAS THE LOWEST RESPONSIVE BIDDER AND, IN THE SPRING OF 1966, THE AGREEMENT TO LEASE WAS AWARDED TO THAT COMPANY. PURSUANT THERETO, THE SUBJECT PROPERTY WAS CONVEYED BY QUITCLAIM DEED TO FERRIS, AND FERRIS ENGAGED THE SERVICES OF A BOSTON ARCHITECTURAL FIRM FOR THE PURPOSE OF DRAWING UP THE NECESSARY PLANS AND SKETCHES. THE CORRESPONDENCE AND MEMORANDA IN THE FILE REVEAL THAT IN THE SUMMER OF 1966, IN THE COURSE OF PREPARING FOR ACTUAL CONSTRUCTION, CERTAIN DIFFICULTIES AROSE WITH THE BRIDGEPORT ZONING AND FIRE OFFICIALS OVER VARIOUS MATTERS; THAT IS, A PROPOSED 8-FOOT FENCE; THE LOCATION OF PROJECTED PREHEATER OUTLETS; AND THE FIRE RESISTANT CAPABILITY OF THE PLANNED ROOF. IT APPEARS THAT THESE MATTERS WERE RESOLVED TO THE SATISFACTION OF ALL CONCERNED.

A "MISCELLANEOUS" PROVISION OF THE ZONING REGULATIONS OF THE CITY OF BRIDGEPORT PROHIBITS ERECTION OF A NEW, OR ALTERATION OF AN EXISTING, BUILDING WHICH IS INTENDED FOR USE AS A MOTOR VEHICLE GARAGE FOR MORE THAN FIVE VEHICLES OR A MOTOR VEHICLE FILLING-STATION OR REPAIR SHOP IF ANY PART OF THE PREMISES IS WITHIN 200 FEET OF A THEATER OR AUDITORIUM OF 300 OR MORE SEATS. ZONING REGULATIONS OF THE CITY OF BRIDGEPORT, CONNECTICUT (REVISION OF 1960, AS AMENDED THROUGH JUNE 1, 1966), CHAPTER 19, SECTION 1 (E). THE PLANNED VMF WAS IN VIOLATION OF THIS ORDINANCE. HOWEVER, THE RECORD IS BARREN OF ANY INDICATION THAT THE CONTRACTING PARTIES WERE AWARE OF THIS ZONING ORDINANCE UNTIL OCTOBER 1966. INDEED, SOME 2 YEARS EARLIER, BY LETTER OF SEPTEMBER 15, 1964, AN OFFICIAL OF BRIDGEPORT'S OFFICE OF PLANNING AND ZONING ADVISED THE POST OFFICE DEPARTMENT THAT THE TWO SITES THEN UNDER CONSIDERATION, OF WHICH ONE BECAME THE SUBJECT OF THE LEASE AGREEMENT WITH FERRIS, WERE PROPERLY ZONED FOR THE INTENDED CONSTRUCTION AND USE.

THE FIRST RECORD REFERENCE TO THIS ZONING VIOLATION APPEARS IN AN OFFICE MEMORANDUM OF OCTOBER 21, 1966, FROM THE LOCAL POST OFFICE REAL ESTATE OFFICER TO THE CHIEF OF THE REAL ESTATE BRANCH. THE MEMO FIRST STATES THAT THE ZONING DEPARTMENT HAD STAMPED ITS APPROVAL ON THE PLANS AND THAT A BUILDING PERMIT WAS AVAILABLE TO FERRIS ON REQUEST. IT THEN REFLECTS CONCERN BY AN OFFICER OF FERRIS OVER THE ABOVE-REFERENCED ORDINANCE AND OVER THE REFUSAL OF THE CITY OF BRIDGEPORT TO GIVE WRITTEN WAIVER OF THIS REGULATION, EVEN THOUGH VERBAL ASSURANCE WAS GIVEN THAT THE PROVISION WOULD NOT BE ENFORCED IN THIS INSTANCE. BY LETTER DATED OCTOBER 25, 1966, FERRIS CORPORATION WAS INFORMED BY THE BRIDGEPORT ZONING COMMISSION THAT ITS "APPLICATION FOR CERTIFICATE OF ZONING COMPLIANCE," DATED OCTOBER 21, 1966, WAS DISAPPROVED BECAUSE THE PROPOSED VMF WAS WITHIN 200 FEET OF A THEATER CONTAINING 300 OR MORE SEATS.

AS INDICATED IN PARAGRAPH 10 OF THE ASSISTANT POSTMASTER GENERAL'S LETTER, THE POST OFFICE DEPARTMENT CONCLUDED AFTER INDEPENDENT INVESTIGATION THAT A ZONING VARIANCE COULD NOT BE SECURED. SUBSEQUENT NEGOTIATIONS BETWEEN FERRIS AND THE POST OFFICE DEPARTMENT RESULTED IN THE TERMINATION AGREEMENT. THIS DOCUMENT RECITED IN SUBSTANCE THE NATURE OF THE CONTRACT TO BE TERMINATED AND THE FACT THAT THE PARTIES MUTUALLY DESIRED A TERMINATION. IT THEN TERMINATED THE AGREEMENT TO LEASE AND IMPOSED A DUTY ON FERRIS TO RECONVEY THE LAND, WITH A RETURN TO IT OF THE PURCHASE PRICE. AFTER A FURTHER PROVISION NOT OF SIGNIFICANCE HERE, THE DOCUMENT CONCLUDED WITH THIS PARAGRAPH: ,THAT NOTHING CONTAINED HEREIN SHALL BE DEEMED AN ADMISSION OF LIABILITY ON THE PART OF EITHER PARTY AND NOTHING HEREIN SHALL IN ANY WAY PREJUDICE THE RIGHTS THAT EITHER PARTY MAY HAVE AGAINST THE OTHER WHICH MAY ARISE OR MAY HAVE ARISEN UNDER OR BY VIRTUE OF SAID AGREEMENT TO LEASE.'

THE QUESTION THUS MAY BE FRAMED AS FOLLOWS: UPON THE RESCISSION OF A CONTRACT BY VIRTUE OF A MUTUAL AGREEMENT UNDER CIRCUMSTANCES SUCH AS HERE INVOLVED AND AFTER RETURN OF THE PROPERTY AND MONEY WHICH EACH PARTY HAD RECEIVED FROM THE OTHER UNDER THE RESCINDED CONTRACT, DOES EITHER PARTY HAVE ANY ADDITIONAL REMEDIES AGAINST THE OTHER?

THERE ARE SEEMINGLY TWO DISTINCT THEORIES UNDER WHICH LIABILITY MAY BE IMPOSED IN SUCH A SITUATION.

1. UPON RESCISSION, THERE IS A DUTY OWED BY EACH PARTY TO THE OTHER TO RESTORE THE STATUS QUO BY RETURNING TO THE OTHER WHAT EACH HAS RECEIVED UNDER THE CONTRACT AND ALSO, IN CASES WHERE IT IS NECESSARY TO EFFECT COMPLETE JUSTICE, TO REIMBURSE THE OTHER FOR HIS OUT-OF POCKET EXPENSES NECESSARILY INCIDENT TO THE CONTRACT.

2. THE TERMINATION AGREEMENT EXPRESSLY RESERVED RIGHTS AND OBLIGATIONS THERETOFORE ACCRUED; AMONG THESE WAS A RIGHT TO RECOVER DAMAGES SUSTAINED BY FERRIS BECAUSE OF THE POST OFFICE DEPARTMENT'S BREACH OF CONTRACT IN FAILING TO DISCLOSE THE FACT THAT THE PROPOSED VMF WAS IN VIOLATION OF LOCAL ZONING ORDINANCES.

EACH OF THESE THEORIES HAS RECEIVED JUDICIAL AND TEXTUAL RECOGNITION AND HAS BEEN APPLIED IN APPROPRIATE SITUATIONS. SEE, FOR EXAMPLE, 17 AM. JUR. 2D CONTRACTS, SECTIONS 517 AND 519; AND 17A C.J.S., CONTRACTS, SECTIONS 392 AND 442. UNITED STATES V BEHAN, 110 U.S. 338; HEIFETZ METAL CRAFTS, INC. V PETER KIEWIT SONS' CO., 264 F.2D 435; RUMLEY V UNITED STATES, 285 F.2D 773, 776.

IT WILL BE NOTED THAT THE FIXING OF LIABILITY UNDER THE FIRST OF THESE PRINCIPLES DEPENDS SOLELY UPON A CONSIDERATION OF EQUITIES, AS REVEALED BY BOTH THE VERY STATEMENT OF THE THEORY AND A REVIEW OF THE CASES CITED. HOWEVER, THE EQUITIES OF THE CLAIM ARE NOT DETERMINATIVE OF THE GOVERNMENT'S LEGAL LIABILITY FOR ANY ALLEGED BREACH SINCE OUR OFFICE IS WITHOUT AUTHORITY TO SETTLE CLAIMS AGAINST THE UNITED STATES SOLELY ON THE BASIS OF EQUITABLE OR MORAL CONSIDERATIONS. SEE B 133613, FEBRUARY 19, 1959.

WITH REGARD TO THE SECOND PRINCIPLE, THE TERMINATION AGREEMENT EXPRESSLY RESERVED ANY ACCRUED RIGHTS AND OBLIGATIONS. THE QUESTION IS SQUARELY PRESENTED, THEREFORE, WHETHER THE POST OFFICE DEPARTMENT WAS IN BREACH OF CONTRACT WHEN IT CONTRACTED FOR THE CONSTRUCTION OF A BUILDING WHICH COULD NOT BE BUILT DUE TO A PROHIBITION OF LOCAL LAW. THE RECORD CONTAINS NO EXPRESS WARRANTY OR REPRESENTATION BY THE POST OFFICE TO THE EFFECT THAT THE PROPOSED STRUCTURE, AS ORIGINALLY DESIGNED, CONFORMED TO ALL APPLICABLE LOCAL LAWS. MOREOVER, IT DOES NOT APPEAR THAT THE POST OFFICE DEPARTMENT IMPLIEDLY WARRANTED THAT THE LAND WAS IN ALL WAYS SUITABLE FOR THE PROPOSED STRUCTURE. THE EXCERPTS FROM THE BUILDING REQUIREMENTS, QUOTED ABOVE, CLEARLY CAST UPON THE LESSOR THE DUTY OF COMPLYING WITH THE LOCAL LAW. THE GOVERNMENT, HOWEVER, DID NOT HOLD ITSELF OUT AS BEING KNOWLEDGEABLE IN THE APPLICABLE LOCAL LAW; ON THE CONTRARY, FOR ALL THAT APPEARS, THE POST OFFICE WAS AS UNINFORMED AS FERRIS UNTIL IT LEARNED FOR THE FIRST TIME THAT THERE WAS A ZONING ORDINANCE WHICH WOULD COMPLETELY PREVENT CONSTRUCTION OF THE VMF.

PROSPECTIVE BIDDERS WERE PUT ON NOTICE WELL IN ADVANCE OF BIDDING THAT IT WOULD BE THEIR DUTY AND RESPONSIBILITY TO MEET ALL LOCAL REGULATIONS, AND IT WOULD SEEM TO BE THEIR CORRELATIVE DUTY (AND GOOD BUSINESS PRACTICE) TO ADVISE THEMSELVES FULLY CONCERNING ALL ASPECTS OF THE CONTEMPLATED CONSTRUCTION WORK ON THE PARTICULAR PARCEL OF LAND. THIS IS NOT A CASE WHERE THE GOVERNMENT FURNISHES ITS PERSONAL PROPERTY FOR TEMPORARY USE BY A PRIVATE FIRM IN THE MANUFACTURE OF A FINISHED PRODUCT FOR THE GOVERNMENT. IN SUCH A CASE, THE GOVERNMENT ALONE HAS ADVANCE KNOWLEDGE OF THE SUITABILITY OF THE PROPERTY FOR THE INTENDED PURPOSE AND THE CONTRACTOR HAS A RELATIVELY LIMITED INTEREST IN THE PROPERTY. UNDER THESE CIRCUMSTANCES, THE COURTS HAVE IMPLIED A WARRANTY BY THE GOVERNMENT AS TO FITNESS AND SUITABILITY FOR THE PURPOSE INTENDED. SEE EKCO PRODUCTS COMPANY V UNITED STATES, 312 F.2D 768 (CT. CL. 1963). IT MUST BE STRESSED THAT IN THIS CASE UNDER THE TERMS OF THE INVITATION THE SUCCESSFUL BIDDER WAS TO BECOME THE OWNER OF THE LAND WITH ALL THE INCIDENTS AND RESPONSIBILITIES PERTAINING THERETO. THE LAWS, COVENANTS, AND RESTRICTIONS APPLICABLE TO THIS LAND WERE MATTERS OF PUBLIC RECORD AVAILABLE EQUALLY TO THE BIDDER AND THE GOVERNMENT. THE BURDEN OF COMPLIANCE WITH THOSE LAWS WAS IMPOSED UPON THE EVENTUAL LESSOR. IN THESE CIRCUMSTANCES, WE CANNOT FIND AN IMPLIED REPRESENTATION OR WARRANTY BY THE POST OFFICE CONCERNING THE LEGAL AVAILABILITY OF THIS LAND FOR THE PROPOSED FACILITY.

THEREFORE, THE FAILURE TO INFORM FERRIS OF THE ZONING PROHIBITION DID NOT, IN OUR OPINION, CONSTITUTE A BREACH OF CONTRACT. ACCORDINGLY, ON THE RECORD BEFORE US, THE CLAIM DOES NOT REPRESENT A LEGAL OBLIGATION OF THE GOVERNMENT. THE REGIONAL FILE FURNISHED BY THE ASSISTANT GENERAL COUNSEL, REAL ESTATE DIVISION, IS RETURNED AS REQUESTED.