B-95497, JUNE 29, 1950, 29 COMP. GEN. 530

B-95497: Jun 29, 1950

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CONTRACTS - DAMAGES - LIQUIDATED - NON-NECESSITY FOR PROOF OF ACTUAL DAMAGES WHERE DAMAGES FOR DEFAULT BY A PROSPECTIVE LESSEE OF A GOVERNMENT OWNED PLANT HAVE BEEN LIQUIDATED BY THE PARTIES IN THE AMOUNT OF A DEPOSIT MADE AND ACCEPTED AS SECURITY FOR THE PERFORMANCE OF THE AGREEMENT TO LEASE. SUCH LIQUIDATED DAMAGES ARE FOR ASSESSMENT AS MEASURING THE EXTENT OF THE LESSEE'S OBLIGATION IN THE MATTER WITHOUT THE NECESSITY OF INQUIRING INTO THE QUESTION OF WHETHER ACTUAL DAMAGES WERE INCURRED. 1950: REFERENCE IS MADE TO YOUR LETTER OF MAY 17. 000 AS EVIDENCE OF GOOD FAITH ON OUR PART IS ATTACHED WITH THE UNDERSTANDING THAT IT IS TO BE FORFEITED IF WE FAIL TO GO THROUGH WITH THE FOLLOWING OFFER.

B-95497, JUNE 29, 1950, 29 COMP. GEN. 530

CONTRACTS - DAMAGES - LIQUIDATED - NON-NECESSITY FOR PROOF OF ACTUAL DAMAGES WHERE DAMAGES FOR DEFAULT BY A PROSPECTIVE LESSEE OF A GOVERNMENT OWNED PLANT HAVE BEEN LIQUIDATED BY THE PARTIES IN THE AMOUNT OF A DEPOSIT MADE AND ACCEPTED AS SECURITY FOR THE PERFORMANCE OF THE AGREEMENT TO LEASE, SUCH LIQUIDATED DAMAGES ARE FOR ASSESSMENT AS MEASURING THE EXTENT OF THE LESSEE'S OBLIGATION IN THE MATTER WITHOUT THE NECESSITY OF INQUIRING INTO THE QUESTION OF WHETHER ACTUAL DAMAGES WERE INCURRED.

COMPTROLLER GENERAL WARREN TO THE ADMINISTRATOR, GENERAL SERVICES ADMINISTRATION, JUNE 29, 1950:

REFERENCE IS MADE TO YOUR LETTER OF MAY 17, 1950, TRANSMITTING THE FILE RELATIVE TO THE CLAIM OF HARRY H. HOLLOWAY, PRESIDENT, WESTERN RESERVE STEEL COMPANY, FOR $12,500, REPRESENTING THE AGGREGATE AMOUNT OF TWO DEPOSITS MADE BY THE CLAIMANT DURING NEGOTIATIONS FOR A LEASE FOR PLANCORS 2032 AND 2349 ( STANDARD STEEL SPRING COMPANY AND GEORGE FULLER COMPANY), MADISON, ILLINOIS.

CONCERNING THE CIRCUMSTANCES GIVING RISE TO THE FILING OF THE CLAIM, YOUR LETTER STATES THAT BY LETTER OF DECEMBER 21, 1948, THE CLAIMANT OFFERED TO LEASE WITH OPTION TO PURCHASE THE TWO PLANTS DESCRIBED ABOVE. THE REFERRED-TO OFFER, AS QUOTED IN YOUR LETTER, STATED IN PART THAT:

CHECK FOR $5,000 AS EVIDENCE OF GOOD FAITH ON OUR PART IS ATTACHED WITH THE UNDERSTANDING THAT IT IS TO BE FORFEITED IF WE FAIL TO GO THROUGH WITH THE FOLLOWING OFFER, BUT IF WE ARE THE SUCCESSFUL PROPOSER, THEN IT IS TO BE APPLIED IN ITS ENTIRETY TO THE FIRST YEAR'S OBLIGATION.

IT APPEARS THAT THEREAFTER A RECEIPT DATED DECEMBER 27, 1948, WAS ISSUED AND THERE IS QUOTED IN YOUR LETTER A STATEMENT FROM SAID RECEIPT AS FOLLOWS:

THIS DEPOSIT IS ACCEPTED ACCORDING TO THE TERMS SET OUT IN THE ABOVE- MENTIONED PROPOSAL.

THE RECEIPT IS SIGNED ON BEHALF OF THE WAR ASSETS ADMINISTRATION BY THE COLLECTION OFFICER AND, IN THAT CONNECTION, YOU STATE THAT SAID OFFICER WAS WITHOUT AUTHORITY TO NEGOTIATE CONTRACTS ON BEHALF OF THE WAR ASSETS ADMINISTRATION. HOWEVER, IT APPEARS THAT THEREAFTER, BY LETTER OF DECEMBER 31, 1948, THE DIRECTOR, INDUSTRIAL DIVISIONS, OFFICE OF REAL PROPERTY DISPOSAL, WAR ASSETS ADMINISTRATION, NOTIFIED THE BIDDER THAT THE LEASING OF THE INVOLVED PLANTS HAD BEEN APPROVED SUBJECT TO CERTAIN TERMS AND CONDITIONS SUBSTANTIALLY IN ACCORD WITH THE PRINCIPAL TERMS AND CONDITIONS OF THE CLAIMANT'S OFFER OF DECEMBER 21, 1948, SUPRA. PARAGRAPH 12 OF THE REFERRED-TO TERMS AND CONDITIONS, AS QUOTED IN YOUR LETTER, PROVIDES AS FOLLOWS:

ALL OF THE ABOVE IS CONDITIONED UPON THERE BEING ESTABLISHED ON TERMS SATISFACTORY TO THE GOVERNMENT, A CREDIT OF AT LEAST $6,750,000 IN THE CLEVELAND TRUST COMPANY IN FAVOR OF THE WESTERN RESERVE STEEL CORPORATION AS OPERATING CAPITAL FOR THE PURPOSE OF ENABLING IT TO PROCEED WITH PLAN TO LEASE THE FACILITIES FOR THE PROPOSED PURPOSES.

PARAGRAPH 1 (A) PROVIDED FOR A TERM OF FIVE YEARS WITH PRIVILEGE OF RENEWAL FOR AN ADDITIONAL TERM OF FIVE YEARS AND PARAGRAPHS 1 (B) AND (C) PROVIDED FOR RENTALS OF $50,000 FOR THE FIRST YEAR, $150,000 FOR THE SECOND YEAR, AND $240,000 FOR THE THIRD AND EACH YEAR THEREAFTER, PAYABLE IN ADVANCE IN QUARTERLY INSTALLMENTS. PARAGRAPH 3 PROVIDED THAT THE LESSEE SHOULD TAKE POSSESSION IMMEDIATELY UPON EXECUTION OF LETTER OF INTENT BY THE LESSEE. PARAGRAPH 4 PROVIDED THAT WAR ASSETS ADMINISTRATION SHOULD HAVE A REASONABLE PERIOD NOT TO EXCEED 120 DAYS IN WHICH TO REMOVE ANY RESIDUE OF PERSONAL PROPERTY NOT INCLUDED IN THE PROPOSED LEASE AND THAT SAID PERIOD WOULD BE RENT FREE.

YOU STATE THAT ON JANUARY 4, 1949, THE PROPOSED LESSEE ACCEPTED THE AFORESAID TERMS AND CONDITIONS AND THAT ON FEBRUARY 11, 1949, THE PRESIDENT OF THE PROPOSED LESSEE FORWARDED HIS CHECK FOR $7,500 AS THE BALANCE OF RENTAL DUE FOR THE FIRST QUARTER. ALSO, YOU STATE THAT THE PROPOSED LESSEE WAS UNABLE TO COMPLY WITH THE CREDIT REQUIREMENTS OF PARAGRAPH 12 AS QUOTED ABOVE; THAT ON MARCH 31, 1949, THE PROPOSED LESSEE WAS NOTIFIED THAT ITS RIGHT HAD BEEN TERMINATED BY DEFAULT ON ACCOUNT OF FAILURE TO COMPLY WITH SUCH CREDIT REQUIREMENTS; THAT ALL SUMS PAID BY THE PROPOSED LESSEE WERE BEING RETAINED AND WOULD BE APPLIED IN MITIGATION OF DAMAGES; AND THAT THE ADMINISTRATION WAS PROCEEDING TO RE-OFFER THE PROPERTY FOR DISPOSAL. HOWEVER, YOU FURTHER STATE THAT, SINCE THE PROSPECTIVE LESSEE NEVER TOOK POSSESSION OR ENTERED UPON THE PREMISES AND ACTUALLY RECEIVED NO BENEFIT THEREFROM, THE ADMINISTRATION OFFERED TO REFUND THE $7,500 RECEIVED FOR THE BALANCE OF RENT FOR THE FIRST QUARTER BUT THAT SUCH OFFER WAS NEVER ACCEPTED OR REJECTED BY THE PROSPECTIVE LESSEE.

IN CONCLUSION, YOU STATE THAT THE PRESIDENT OF THE PROPOSED LESSEE HAS FILED A CLAIM FOR REFUND OF THE $12,500 PAID BY IT, AND THAT IN PERSONAL INTERVIEWS THE CLAIMANT'S PRESIDENT HAS INDICATED THAT THE CLAIM IS BASED ON THE ALLEGED FACT THAT HIS OFFER OF DECEMBER 21, 1948, WAS NEVER ACCEPTED AND THAT THE CONTRACT INVOLVED--- REFERRED TO IN YOUR LETTER AS CONSISTING OF THE ADMINISTRATION'S COUNTER-OFFER OF DECEMBER 31, 1948, AND THE PROSPECTIVE LESSEE'S ACCEPTANCE THEREOF--- DOES NOT AFFORD THE GOVERNMENT THE RIGHT TO RETAIN ANY OF THE AMOUNT PAID THEREUNDER.

VIEWED IN THE LIGHT OF THE INTENTIONS OF THE PARTIES AS GATHERED FROM THE NEGOTIATIONS AS REPORTED IN YOUR LETTER, AND AS IMPLEMENTED BY THE ENCLOSURES TRANSMITTED THEREWITH, THE INVOLVED TRANSACTION MUST BE REGARDED AS AN AGREEMENT TO LEASE. 35 C.J. 1197, ET SEQ.; 51 C.J.S., LANDLORD AND TENANT, SEC. 185 (B), ET SEQ. WHEN THE TRANSACTION IS CONSIDERED AS A WHOLE, IT IS MANIFEST THAT THE RECITAL AND STIPULATIONS IN THE CLAIMANT'S OFFER OF DECEMBER 21, 1948, QUOTED ABOVE, CONCERNING THE DISPOSITION TO BE MADE OF THE DEPOSIT TRANSMITTED THEREWITH, BECAME A PART OF THE AGREEMENT, NOTWITHSTANDING ANY LACK OF AUTHORITY IN THE COLLECTION OFFICER WHO ACKNOWLEDGED RECEIPT OF SUCH DEPOSIT OR THE FACT THAT THE CONDITIONS AND STIPULATIONS UPON WHICH THE DEPOSIT WAS MADE WERE NOT INCORPORATED IN THE TERMS AND CONDITIONS OF THE ADMINISTRATIVE LETTER OF DECEMBER 31, 1948, NOTIFYING THE CLAIMANT THAT THE PROPOSED LEASE HAD BEEN APPROVED SUBJECT TO THE CONDITIONS THEREIN SET FORTH. NO OTHER REASONABLE CONCLUSION CAN BE REACHED. THE DEPOSIT WAS ACCEPTED IN ACCORDANCE WITH THE CONDITIONS UPON WHICH IT WAS MADE AND THE RECORD REASONABLY ESTABLISHES THAT, AT THE TIME THE CLAIMANT WAS NOTIFIED THAT THE LEASING OF THE PLANT HAD BEEN APPROVED, BOTH PARTIES TO THE TRANSACTION REGARDED THE STIPULATION AND CONDITIONS IN THE CLAIMANT'S LETTER OF DECEMBER 21, 1948, AS SECURITY FOR THE PERFORMANCE OF SUCH AGREEMENT BY THE PROPOSED LESSEE. DEPOSITS MADE PURSUANT TO SUCH CONDITIONS AND STIPULATIONS HAVE BEEN HELD TO IMPORT AN INTENT TO LIQUIDATE THE DAMAGES, AND WHEN SO MADE THEY ARE ENFORCEABLE. 17 C.J. 948; 25 C.J.S. DAMAGES, SEC. 109; 35 C.J. 1210, F.N. 75; AND 51 C.J.S., LANDLORD AND TENANT, SECS. 200 AND 201. THUS, THE DAMAGES FOR DEFAULT BY THE PROSPECTIVE LESSEE HAVING BEEN LIQUIDATED BY THE PARTIES IN THE AMOUNT OF $5,000, IT APPEARS THAT SUCH LIQUIDATED DAMAGES ARE FOR ASSESSMENT AS MEASURING THE EXTENT OF THE LESSEE'S OBLIGATION IN THE MATTER WITHOUT THE NECESSITY OF INQUIRING INTO THE QUESTION OF ACTUAL DAMAGES. SEE 18 COMP. GEN. 855, 858, AND THE CASES THERE CITED. YOU ARE ADVISED, THEREFORE, THAT THIS OFFICE WOULD NOT OBJECT TO THE PAYMENT TO THE CLAIMANT OF THE AMOUNT OF $7,500 AS THE BALANCE PAID BY IT AS RENT FOR THE FIRST QUARTER BUT WOULD BE REQUIRED TO OBJECT TO THE REFUND OF THE AMOUNT OF $5,000 DEPOSITED BY THE CLAIMANT WITH THE UNDERSTANDING THAT IT WOULD BE FORFEITED IN THE EVENT OF DEFAULT.