B-37871, NOVEMBER 4, 1943, 23 COMP. GEN. 338

B-37871: Nov 4, 1943

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SUCH AN ATTEMPTED PARTIAL CANCELLATION WILL NOT OPERATE TO RELIEVE THE GOVERNMENT FROM LIABILITY FOR ANY DAMAGES INCIDENT TO THE ABANDONMENT OF A PART OF THE BUILDING PRIOR TO THE ANNUAL RENEWAL DATE. 1943: I HAVE A LETTER DATED OCTOBER 25. IT IS STATED IN THE SUBMISSION: THERE HAS NOW ARISEN SOME QUESTION AS TO THE GOVERNMENT'S RIGHT TO CANCEL THIS LEASE EXCEPT AT THE TERMINATION OF ANY ANNUAL RENEWAL DATE. IS AMBIGUOUS AND IS IN APPARENT CONFLICT WITH PARAGRAPH FIVE. THE LEASE WOULD IPSO FACTO BE CANCELLED AND OBVIOUSLY THE GOVERNMENT WOULD NOT BE IN A POSITION TO HOLD THAT IT WAS AUTOMATICALLY RENEWED BECAUSE PARAGRAPH TWO HAD NOT BEEN COMPLIED WITH. THAT IS. THAT PARAGRAPH TWO IS SOMEWHAT AMBIGUOUS AND IS IN CONFLICT WITH PARAGRAPH FIVE.

B-37871, NOVEMBER 4, 1943, 23 COMP. GEN. 338

LEASES - EFFECT OF PARTIAL CANCELLATION DURING LEASE TERM WHERE A LEASE CONTAINS TWO PROVISIONS, ONE PROVIDING FOR CANCELLATION OF THE LEASE OR ANY PORTION THEREOF AT THE TERMINATION OF ANY ANNUAL RENEWAL DATE UPON 90 DAYS' WRITTEN NOTICE, AND THE OTHER RESERVES TO THE GOVERNMENT AN OPTION OF RENEWAL FOR ANOTHER FISCAL YEAR UPON 90 DAYS' WRITTEN NOTICE, THE GOVERNMENT MAY NOT, AFTER EXERCISING ITS OPTION OF RENEWAL OF THE ENTIRE LEASE FOR ANOTHER FISCAL YEAR, EFFECT A PARTIAL CANCELLATION BY ISSUANCE OF A CANCELLATION NOTICE EFFECTIVE AT OTHER THAN THE TERMINATION OF THE EFFECTIVE ANNUAL RENEWAL DATE, AND SUCH AN ATTEMPTED PARTIAL CANCELLATION WILL NOT OPERATE TO RELIEVE THE GOVERNMENT FROM LIABILITY FOR ANY DAMAGES INCIDENT TO THE ABANDONMENT OF A PART OF THE BUILDING PRIOR TO THE ANNUAL RENEWAL DATE.

COMPTROLLER GENERAL WARREN TO THE LIAISON OFFICER, OFFICE FOR EMERGENCY MANAGEMENT, NOVEMBER 4, 1943:

I HAVE A LETTER DATED OCTOBER 25, 1943, FROM THE DIRECTOR, DIVISION OF CENTRAL ADMINISTRATIVE SERVICES, OFFICE FOR EMERGENCY MANAGEMENT, REQUESTING DECISION WHETHER THE GOVERNMENT UNDER THE TERMS OF LEASE DEM 8A -69, DATED APRIL 15, 1942, AS RENEWED, MAY EFFECT PARTIAL CANCELLATION OF THE SPACE OCCUPIED UNDER SAID LEASE UPON 90 DAYS' WRITTEN NOTICE TO THE LESSOR AT ANY TIME AFTER JUNE 30, 1943, SUCH NOTICE TO BE COMPUTED FROM THE DATE OF MAILING. IT APPEARS FROM SAID LETTER AND THE ENCLOSURES TRANSMITTED THEREWITH THAT THE LESSOR CONTENDS THAT, AS THE LEASE HAS BEEN RENEWED FOR THE FISCAL YEAR ENDING JUNE 30, 1944, UNDER THE PROVISIONS OF PARAGRAPH 5 OF THE LEASE THE GOVERNMENT'S RIGHT TO CANCEL THE LEASE OR ANY PORTION THEREOF CAN BE EXERCISED ONLY AT THE TERMINATION OF ANY ANNUAL RENEWAL DATE, UPON 90 DAYS' WRITTEN NOTICE TO BE COMPUTED FROM DATE OF MAILING, AS PROVIDED FOR UNDER PARAGRAPH 2 OF SAID LEASE, AND THAT THE LESSOR HAS NOTIFIED THE GOVERNMENT THAT IT CANNOT ACCEPT AS VALID AND BINDING CANCELLATION NOTICES FOR THE SPACE ON THE NINTH, TENTH, ELEVENTH AND TWELFTH FLOORS ISSUED BY THE GOVERNMENT ON JUNE 1 AND AUGUST 31, 1943, PURPORTING TO BECOME EFFECTIVE ON AUGUST 31, AND NOVEMBER 29, 1943, RESPECTIVELY.

WITH RESPECT TO THE LESSOR'S CONTENTION, IT IS STATED IN THE SUBMISSION:

THERE HAS NOW ARISEN SOME QUESTION AS TO THE GOVERNMENT'S RIGHT TO CANCEL THIS LEASE EXCEPT AT THE TERMINATION OF ANY ANNUAL RENEWAL DATE. PARAGRAPH TWO OF THE LEASE, QUOTED ABOVE, IS AMBIGUOUS AND IS IN APPARENT CONFLICT WITH PARAGRAPH FIVE. UNDER THE TERMS OF THIS LEASE THE ORIGINAL TENURE PERIOD EXTENDED FROM APRIL 15, 1942, TO JUNE 30, 1943. PARAGRAPH 5 OF THE LEASE REQUIRES AFFIRMATIVE ACTION ON THE PART OF THE GOVERNMENT TO EFFECT RENEWAL THEREOF FROM YEAR TO YEAR, BY GIVING THE LESSOR 90 DAYS' NOTICE IN WRITING. SHOULD THE GOVERNMENT FAIL TO EXERCISE THAT OPTION BY AFFIRMATIVELY NOTIFYING THE LESSOR IN WRITING 90 DAYS PRIOR TO THE TERMINATION OF THE LEASE OR ANY RENEWAL THEREOF, THE LEASE WOULD IPSO FACTO BE CANCELLED AND OBVIOUSLY THE GOVERNMENT WOULD NOT BE IN A POSITION TO HOLD THAT IT WAS AUTOMATICALLY RENEWED BECAUSE PARAGRAPH TWO HAD NOT BEEN COMPLIED WITH, THAT IS, NO NOTICE OF CANCELLATION HAD BEEN GIVEN THE LESSOR. IT WOULD APPEAR, THEREFORE, THAT PARAGRAPH TWO IS SOMEWHAT AMBIGUOUS AND IS IN CONFLICT WITH PARAGRAPH FIVE.

THE LESSOR CONTENDS THAT UNDER THE TERMS OF THIS LEASE THE GOVERNMENT COULD EFFECT ITS CANCELLATION ONLY AT THE TERMINATION OF ANY ANNUAL RENEWAL DATE, UPON 90 DAYS' WRITTEN NOTICE TO THE LESSOR. OBVIOUSLY, THIS WAS NOT THE INTENT OF THE CLAUSE IN QUESTION SINCE, NOTWITHSTANDING THIS CLAUSE, SHOULD THE GOVERNMENT DESIRE TO CANCEL THE LEASE OR ANY PORTION THEREOF, AT THE TERMINATION OF ANY ANNUAL RENEWAL DATE, IT WOULD BE NECESSARY MERELY TO REFRAIN FROM EXERCISING THE RENEWAL OPTION, WHICH WOULD CONSTITUTE AN EFFECTIVE CANCELLATION OF THE LEASE.

IT IS APPARENT THEREFORE, THAT PARAGRAPH TWO WAS INCORPORATED TO ACCOMPLISH ANOTHER PURPOSE. WHILE IT IS ADMITTED THAT PARAGRAPH TWO IS AMBIGUOUS AND DOES NOT CLEARLY REFLECT THAT IT WAS INTENDED TO PERMIT CANCELLATION AT ANY TIME AFTER JUNE 30, 1943, UPON 90 DAYS' WRITTEN NOTICE TO THE LESSOR, THE CONTRACTING OFFICER INVOLVED IN NEGOTIATIONS, INSISTS THAT THIS WAS THE EXPRESS INTENT OF PARAGRAPH TWO.

LEASE DEM-8A-69, PROVIDES FOR OCCUPANCY AS OFFICE SPACE OF 58,375 SQUARE FEET OF FLOOR SPACE LOCATED ON THE SECOND TO THE TWELFTH FLOORS, INCLUSIVE, AND 3,519 SQUARE FEET OF SPACE SUITABLE FOR STORAGE ON THE GROUND FLOOR OF THE FIDELITY BUILDING FOR THE TERM BEGINNING FROM DATE OF OCCUPANCY AND ENDING JUNE 30, 1943, AT ANNUAL RENTAL RATE OF $1.50 PER SQUARE FOOT FOR THE OFFICE SPACE AND $0.47 PER SQUARE FOOT FOR THE STORAGE SPACE.

PARAGRAPHS 2 AND 5 OF THE LEASE REFERRED TO ABOVE PROVIDE AS FOLLOWS:

THE GOVERNMENT RESERVES THE RIGHT TO CANCEL THIS LEASE, OR ANY PORTION THEREOF, AT THE TERMINATION OF ANY ANNUAL RENEWAL DATE, UPON NINETY (90) DAYS' WRITTEN NOTICE TO THE LESSOR; SUCH NOTICE TO BE COMPUTED FROM DATE OF MAILING AND FURTHER PROVIDED THAT CANCELLATION SHALL IN NO EVENT BE EFFECTED PRIOR TO JUNE 30, 1943.

THIS LEASE MAY, AT THE OPTION OF THE GOVERNMENT BE RENEWED FROM YEAR TO YEAR AT A RENTAL OF ONE DOLLAR AND FIFTY CENTS ($1.50) PER SQUARE FOOT PER ANNUM, FOR SPACE ON 2ND TO 12TH FLOORS; FORTY-SEVEN CENTS ($0.47) PER SQUARE FOOT PER ANNUM FOR STORAGE SPACE ON GROUND FLOOR AND OTHERWISE UPON THE TERMS AND CONDITIONS HEREIN SPECIFIED, PROVIDED NOTICE BE GIVEN IN WRITING TO THE LESSOR AT LEAST NINETY (90) DAYS BEFORE THIS LEASE OR ANY RENEWAL THEREOF WOULD OTHERWISE EXPIRE: PROVIDED, THAT NO RENEWAL THEREOF SHALL EXTEND THE PERIOD OF OCCUPANCY OF THE PREMISES BEYOND THE THIRTIETH DAY OF JUNE, NINETEEN HUNDRED AND FORTY-EIGHT.

IT IS STATED IN THE SUBMISSION THAT ON MARCH 24, 1943, A WRITTEN NOTICE WAS ADDRESSED TO THE LESSOR, AS FOLLOWS:

* * *" THE UNITED STATES OF AMERICA, THIS, THE 25TH DAY OF MARCH, 1943, ELECTS TO RENEW THE SAID LEASE FOR THE PERIOD OF ONE (1) YEAR FROM AND AFTER JUNE 30, 1943 AND BY THESE PRESENTS DOES RENEW, EXTEND AND ADOPT THE SAID LEASE AND ALL THE TERMS AND CONDITIONS THEREOF FOR THE PERIOD BEGINNING JULY 1, 1943, AND ENDING JUNE 30, 1944.'

THE RECORD SHOWS THAT UNDER DATES OF JUNE 12, AND JULY 8, 1942, SUPPLEMENTAL LEASES NOS. 1 AND 2 WERE ENTERED INTO WITH THE LESSOR FOR 752 SQUARE FEET AND 735 SQUARE FEET OF SPACE ON THE GROUND FLOOR OF THE BUILDING FOR TERMS BEGINNING JUNE 15 AND JULY 8, 1942, AND ENDING JUNE 30, 1943, RESPECTIVELY. EACH OF THE SUPPLEMENTAL LEASES IS RENEWABLE ANNUALLY AFTER THE ORIGINAL TERM UNTIL JUNE 30, 1948, UPON 30 DAYS' WRITTEN NOTICE TO THE LESSOR AND PARAGRAPH 2 OF EACH OF THE SAID SUPPLEMENTAL LEASES PROVIDES FOR CANCELLATION BY THE GOVERNMENT UPON 30 DAYS' WRITTEN NOTICE TO THE LESSOR.

ON STANDARD FORM 1036 ATTACHED TO THE ORIGINAL LEASE IT IS STATED THAT THE LEASE WAS ENTERED INTO WITHOUT ADVERTISING; AND, IN EXPLANATION OF SUCH ACTION, IT IS STATED---

EXEMPTION FROM SECTION 3709 REVISED STATUTES AS CONTAINED IN CURRENT APPROPRIATION ACT.

IN THIS CONNECTION, IT IS STATED, IN EFFECT, IN THE LESSOR'S LETTER OF APRIL 15, 1943, RELATIVE TO ITS CLAIM FOR ELEVATOR SERVICE, REPAIRS, ALTERATIONS AND IMPROVEMENTS IN FITTING THE PREMISES FOR OCCUPANCY OF THE GOVERNMENT, THAT SAID PREMISES WERE NOT VOLUNTARILY VACATED BY THE TENANTS OCCUPYING THE BUILDING PRIOR TO THE GOVERNMENT'S OCCUPANCY BUT THAT SAID PREMISES WERE COMMANDEERED BY THE GOVERNMENT AND NOTICES TO VACATE ISSUED TO SUCH TENANTS WITHOUT NOTICE TO THE LESSOR.

PROVISIONS OF A LEASE WHICH ARE APPARENTLY CONFLICTING MUST BE RECONCILED IF POSSIBLE BY A REASONABLE INTERPRETATION; 35 C. J. 1179. HOWEVER, ANY FAILURE OF A LEASE TO EXPRESS THE FULL INTENTION OF ONE OF THE LEASING PARTIES CANNOT BE OVERCOME BY A CONSTRUCTION IN FAVOR OF THE PARTY DRAFTING SAID LEASE. COMPARE MANHATTAN PROPERTY V. IRVING TRUST COMPANY, 66 F.2D 473; CERTIORARI GRANTED 290 U.S. 619; AFFIRMED 291 U.S. 320, REHEARING DENIED 292 U.S. 697.

WHEN READ SEPARATELY THERE IS NO AMBIGUITY IN THE PROVISIONS OF PARAGRAPHS 2 AND 5 OF THE ORIGINAL LEASE AS WRITTEN; AND WHILE THE PROVISIONS OF PARAGRAPH 2, STANDING ALONE, MIGHT BE OPEN TO OBJECTION AS AN ATTEMPT TO MAKE THE LEASE SELF-PERPETUATING IN EFFECT UNTIL JUNE 30, 1948, BY REASON OF THE AFFIRMATIVE ACTION REQUIRED ON THE PART OF THE GOVERNMENT TO TERMINATE SAID LEASE PRIOR TO THAT TIME, SUCH OBJECTION IS OVERCOME, IF EFFECT BE GIVEN TO PARAGRAPH 5 OF THE LEASE WHICH REQUIRES AT LEAST 90 DAYS' NOTICE OF RENEWAL BEFORE THE EXPIRATION ANY RENEWAL TERM. FURTHERMORE, IT IS TO BE OBSERVED THAT WHILE PARAGRAPH 5 GIVES THE GOVERNMENT THE RIGHT OF RENEWAL AT ITS OPTION, SUCH RIGHT HAS REFERENCE TO THE LEASE IN ITS ENTIRETY AND IF THE GOVERNMENT SHOULD DESIRE TO RENEW ONLY A PORTION OF THE LEASE IT WOULD BE NECESSARY FOR IT TO EXERCISE NOT ONLY THE RIGHT GIVEN BY PARAGRAPH 5, BUT ALSO THE RIGHT GIVEN BY PARAGRAPH 2 TO CANCEL ANY PORTION OF THE LEASE AT THE TERMINATION OF ANY ANNUAL RENEWAL DATE UPON 90 DAYS' WRITTEN NOTICE. HENCE, THE GOVERNMENT BY GIVING THE LESSOR THE REQUIRED NOTICES REQUIRED UNDER PARAGRAPHS 2 AND 5 OF THE ORIGINAL LEASE COULD ACCOMPLISH A REDUCTION IN THE SPACE OCCUPIED FOR ANY RENEWAL TERM. TO THIS EXTENT, PARAGRAPH 2 OF THE ORIGINAL LEASE NOT ONLY IS RECONCILABLE WITH PARAGRAPH 5 OF SAID LEASE BUT GIVES TO THE GOVERNMENT A VALUABLE RIGHT WHICH IT OTHERWISE WOULD NOT HAVE. HOWEVER, BE THAT AS IT MAY, BOTH THE CANCELLATION PROVISION OF PARAGRAPH 2 OF THE ORIGINAL LEASE AND THE RENEWAL PROVISION OF PARAGRAPH 5 OF SAID LEASE SPECIFICALLY ARE MADE APPLICABLE AT THE TERMINATION OF THE RENEWAL DATES AND THERE IS NO PROVISION IN THE LEASE GRANTING THE GOVERNMENT A RIGHT TO CANCEL THE LEASE OR ANY PART THEREOF ON ANY OTHER DATE. NOTICE HAVING BEEN GIVEN AS PROVIDED IN PARAGRAPH 5 OF THE LEASE OF THE GOVERNMENT'S INTENTION TO RENEW FOR THE TERM ENDING JUNE 30, 1944, AND IN THE ABSENCE OF ANY NOTICE AS SPECIFICALLY REQUIRED BY PARAGRAPH 2 OF THE LEASE OF A TOTAL OR PARTIAL CANCELLATION AT THE TERMINATION OF THE EFFECTIVE ANNUAL RENEWAL DATE, THE GOVERNMENT'S OBLIGATIONS UNDER THE LEASE WILL NOT TERMINATE UNTIL THE EXPIRATION OF SUCH TERM. HENCE, THE NOTICES OF JUNE 1, AND AUGUST 31, 1943, REFERRED TO, BY WHICH PARTIAL CANCELLATIONS WERE ATTEMPTED CANNOT OPERATE TO RELIEVE THE GOVERNMENT FROM LIABILITY FOR ANY DAMAGES WHICH THE LESSOR CAN ESTABLISH AS INCIDENTAL TO THE ABANDONMENT OF THAT PART OF THE BUILDING OCCUPIED UNDER THE ORIGINAL LEASE. HOWEVER, WITH RESPECT TO THE SUPPLEMENTAL LEASES, REFERRED TO ABOVE, THE GOVERNMENT'S OBLIGATIONS THEREUNDER MAY BE TERMINATED IN WHOLE OR IN PART AT ANY TIME UPON A TIMELY WRITTEN CANCELLATION NOTICE TO THE LESSOR (30 DAYS) AS SPECIFICALLY PROVIDED FOR UNDER PARAGRAPH 2 OF THE SAID SUPPLEMENTAL LEASES.

IT NECESSARILY FOLLOWS THAT THE GOVERNMENT, IN THE CIRCUMSTANCES AS REPORTED IN YOUR LETTER, WILL HAVE NO FURTHER RIGHT TO CANCEL ANY PART OF THE ORIGINAL LEASE UNTIL THE TERMINATION OF THE CURRENT RENEWAL TERM WITHOUT LIABILITY TO THE LESSOR ON ACCOUNT OF DAMAGES RESULTING THEREFROM.

WHILE IT MAY HAVE BEEN THE INTENTION OF THE CONTRACTING OFFICER OF THE GOVERNMENT TO OBTAIN FOR THE GOVERNMENT SOME OTHER RIGHT OF CANCELLATION SUCH INTENTION IS IN NO WAY EXPRESSED IN THE ORIGINAL LEASE. AS STATED BY THE SUPREME COURT OF THE UNITED STATES IN CALDERON V. ATLAS STEAMSHIP COMPANY, 170 U.S. 272, 280:

IT IS TRUE THAT IN CASES OF AMBIGUITY IN CONTRACTS, AS WELL AS IN STATUTES, COURTS WILL LEAN TOWARD THE PRESUMED INTENTION OF THE PARTIES OR THE LEGISLATURE, AND WILL SO CONSTRUE SUCH CONTRACT OR STATUTE AS TO EFFECTUATE SUCH INTENTION; BUT WHERE THE LANGUAGE IS CLEAR AND EXPLICIT, THERE IS NO CALL FOR CONSTRUCTION, AND THIS PRINCIPLE DOES NOT APPLY. PARTIES ARE PRESUMED TO KNOW THE FORCE AND EFFECT OF THE LANGUAGE IN WHICH THEY HAVE CHOSEN TO EMBODY THEIR CONTRACTS, AND TO REFUSE TO GIVE EFFECT TO SUCH LANGUAGE MIGHT RESULT IN ARTFULLY MISLEADING OTHERS WHO HAD RELIED UPON THE WORDS BEING USED IN THEIR ORDINARY SENSE. IN CONSTRUING CONTRACTS WORDS ARE TO RECEIVE THEIR PLAIN AND LITERAL MEANING, EVEN THOUGH THE INTENTION OF THE PARTY DRAWING THE CONTRACT MAY HAVE BEEN DIFFERENT FROM THAT EXPRESSED. * * * SEE, ALSO, HENRIETTA MILLS V. COMMISSIONER OF INTERNAL REVENUE, 52 F.2D 931, 934; MACDONALD V. COMMISSIONER OF INTERNAL REVENUE, 76 ID. 513, 515.

IT IS UNFORTUNATE THAT THE CONTRACTING OFFICER DID NOT PROPERLY PROTECT THE GOVERNMENT'S INTEREST IN THIS INSTANCE.