B-29624 October 29, 1942

B-29624 October 29, 1942

Board of Governors, Federal Reserve System, Washington D.C.

Gentlemen:

I have your letter of October 14, 1942, as follows:

"Attached is a copy of a letter dated October 7, 1942 from the Federal Reserve Bank of Minneapolis setting forth a situation involving an assignment of a Letter of Intent and an assignment of a Notice of Award and inquiring whether there is any doubt as to the assignability of Letters of Intent and Notices of Award.

"It will be appreciated if you will give this Board such advise in the matter as you can in order that we may notify the Federal Reserve Bank of Minneapolis."

The letter of October 7, 1942, from Harry I Ziemer, Vice President of the Federal Reserve Bank of Minneapolis, addressed to the Administrator, War Loans Committee, Board of Governors of the Federal Reserve System, a copy of which was enclosed with your letter, is as follows:

"The First National Bank and Trust Company of Minneapolis has called our attention to difficulties recently encountered by it in connection with the filing under the Assignment of Claims Act of 1940 of the assignments and notices of assignment of amounts to become payable under War Department contracts now in the form of Letters of Intent or Notices of Award.

"In response to notice of assignment of a letter of Intent executed in June and amended in July, the First National Bank and Trust Company was advised by the Contracting Officer:

"'As the contract is now in the hands of the Office of the Chief of Ordnance for approval by Headquarters of the Service of Supply, this Notice of Assignment cannot be acknowledged at the present time. As soon as the contract has been approved, the contracting Officer will acknowledge the Notice of Assignment and return three copies of the Notice of Assignment to the bank.'

"In response to notice of assignment of a Notice of Award executed in July, the First National Bank and Trust Company was advised by a financing officer:

"'Please be advised that inasmuch as this office had no record of subject contract, this matter was taken up with the Philadelphia Signal Depot who state that contract has not been executed.

"'Upon receipt of the necessary papers, therefore, the usual three copies of Notices of Assignment will be returned to your office.'

"In view of the foregoing, the financing institution concerned has inquired as to whether there is any doubt as to the assignability of Letters of Intent and Notices of Award. Would also like to know whether it may safely assume that the two cases above mentioned are isolated instances or whether it may be expected that assignments of Letters of Intent and Notices of Award will, as a matter of policy, be held in abeyance pending the execution of the formal contracts.

"Reference to specific details has been omitted from the foregoing at the express request of the First National Bank and Trust Company of Minneapolis."

The Assignment of Claims Act of 1940, 54 Stat. 1029, provides, in pertinent part, as follows:

"That sections 3477 and 3737 of the Revised Statutes be amended by adding at the end of each such section the following new paragraph:

"'The provisions of the preceding paragraph shall not apply in any case in which the moneys due or to become due from the United States or from any agency or department thereof, under a contract providing for payments aggregating $1,000 or more, are assigned to a bank, trust company, or other financing institution, including any Federal lending agency:***'"

It is a canon of construction to well established to require citation of authorities that when a statute contains a word or term having an accepted legal significance it is to be presumed that Congress used the word in that sense unless a contrary intention is clearly indicated. There is nothing in either the Assignment of Claims Act or its legislative history to indicate that the word "contract" in the above-1uoted portion of said act should be construed in other than its ordinary and usual sense. Hence, the criteria by which it may be determined whether assignments may be made pursuant to the provisions of said act under Letters of Intent or Notices of Award are but the first principles of the law of contracts.

An unqualified acceptance of the offer or proposal of a bidder results in a formation of a contract event though the parties contemplate the execution of a formal written agreement at a future date. Garfield v. United States, 93 U.S. 242; Harvey v. United States, 105 U.S. 671; United States v. New York and Porto Rico SS. Co., 239 U.S. 88; Ackerlind v. United States, 240 U.S. 531; United States v. Purcell Envelope Company, 249 U.S. 75; Adams v. United States, 1 C. Cls. 192; Garfielde v. United States, 11 C. Cls. 592; McCollum v. United States, 17 C. Cls. 92; Proffit v. United States, 42 C. Cls. 248; Waters v. United States, 75 C. Cls. 126; 18 Comp Gen. 54; 21 id. 605. Therefore, since the Notice of Award is merely the vehicle by which a bidder is informed that his bid has been accepted there would appear to be little doubt but that generally such Notice of Award gives rise to a valid contract so that moneys due or to become due thereunder may be assigned pursuant to the Assignment of Claims Act.

However, the determination as to whether a Letter of Intent constitutes a contract within the meaning of said act is complicated at the outset by the fact that there are several types of such letters know to be in current use by various departments of the Government. Compare, for example, the letters considered in decisions of this office published in 21 Comp. Gen. at pages 574 and 605, which, it will be noted, differ not only in form and content but in legal effect.

It may be that in some instances a Letter of Intent serves substantially the same purpose as a Notice of Award. In other words, it may signify an intention on the part of the Government absolutely to be bound to pay a stated sum for the performance of certain work. Where the individual or concern involved properly indicates assent to the terms expressed either in the letter itself or in prior negotiations there likewise would appear to be little doubt but that a valid and binding contract has resulted. See Elkhorn-Hazard Coal Company, et al v. Kentucky River coal Corporation, 20 F. (2d) 67. In such cases, the formal contract subsequently executed is not the agreement of the parties but only the evidence of that agreement. Briggs v. Turivas, 83 C. Cls. 664, 685.

However, there may be instance sin which a Government department in the interest of expediting the war program instructs a prospective contractor by means of a Letter of Intent to proceed at once with certain work but expressly states in such letter that in the event a contract for the complete undertaking is not thereafter consummated, and a formal contract executed, that the Government will reimburse such contractor for the cost of the work actually performed. Some such letters may even contain a specific statement to the effect that the letter constitutes a contract pending the execution of a formal contract. See letters discussed in 21 Comp. Gen. 574, supra. The extent of the contractual obligations thus created depend, of course, upon the particular language of the letter and the work performed thereunder in each case. However, to the extent that the Government is thereby obligated to pay certain sums to the contractor, it would appear that such amounts may be assigned pursuant to the Assignment of Claims Act, if otherwise within the terms of said act.

There is, also, the type of letter discussed in 21 Comp. Gen. 605, supra. The following portion of the text of that decision explains such letter and its legal effect:

"*** it appears that while the contractor was notified by an officer of the Civil Aeronautics Administration, in the letter of August 14, 1941, supra, that award had been made to it under invitation No. 1109, it cannot be said that the letter, in itself, was clear and unconditional acceptance of the contractor's bid so as to bind the Government in the matter from the date of the issuance of said letter. On the contrary, the letter of August 14, 1941, expressly advised the contractor that 'Your bid on Proposal No. 1109 *** is conditionally accepted subject to the execution of a formal contract by the Civil Aeronautics Administration.'

In other words, the letter of August 14, 1941, expressly negatived any intent of the Government to be bound in the transaction by the issuance thereof and definitely put the contractor on notice that there would be no binding agreement between the parties until a formal contract had been executed by the Civil Aeronautics Administration. Hence, it appears that the letter of August 14, 1941, was not an unconditional acceptance of the contractor's bid nor can it be considered as evidencing an intention on the part of the Civil Aeronautics Administration to enter into a binding agreement at that time to purchase the radio transmitters from the contractor."

See, also, National Bank of Kentucky v. Louisville Trust Co., 67 F. (2d) 97, 102. So that where a Letter of Intent is issued merely to put and individual or concern on notice that the Government contemplates the award of a contract for certain work to such individual or concern at some future date and either by its text or the circumstances under which it is issued conditions the existence of a binding contract upon the subsequent placing of a specific order or execution of a formal contract, the letter itself gives rise to no contractual obligations.

It will be seen from what has been hereinbefore stated that the question of whether a Letter of Intent constitutes a contract under the assignment of Claims Act is one upon which a definite answer may be given only when a definite set of facts and circumstances are set forth.

The policy of this office with regard to acknowledging the receipt of notices and copies of assignments which purport to have been made pursuant to the Assignment of Claims Act was set out in decision of August 27, 1942, to you, B-26674, 22 Comp. Gen. 161, wherein it was stated:

"*** since, in legal effect, the acknowledgment of receipt by this office is nothing more than the word implies -- a recognition that the documents referred to have been received in this office -- and in view of the difficulties illuminated by your letter and enclosures, this office shall henceforth acknowledge receipt of the notices of assignment and assignment instruments immediately upon receipt thereof without prior examination -- leaving any question as to the validity or regularity of the assignment for consideration in connection with the audit of payments made under the contract involved."

The same practice will be followed with respect to assignments under Letters of Intent and Notices of Award.

Respectfully,

(Signed) Lindsay G Warren Comptroller General of the United States