B-123982, JUNE 3, 1955, 34 COMP. GEN. 659

B-123982, JUNE 3, 1955, 34 COMP. GEN. 659

POST OFFICE DEPARTMENT PROPERTY ACT - EARNEST MONEY PAYMENTS - ADVANCE PAYMENT PROHIBITION PAYMENTS OF EARNEST MONEY FOR REAL ESTATE PURCHASE AGREEMENTS WHICH ARE EXECUTED BY THE POSTMASTER GENERAL PURSUANT TO THE POST OFFICE DEPARTMENT PROPERTY ACT OF 1954, AND UNDER WHICH THE GOVERNMENT OBTAINS A PROTECTED INTEREST IN THE LAND, ARE NOT IN CONTRAVENTION OF THE ADVANCE PAYMENT PROHIBITION OF SECTION 3648, REVISED STATUTES.

COMPTROLLER GENERAL CAMPBELL TO THE POSTMASTER GENERAL, JUNE 3, 1955:

YOUR LETTER OF MAY 16, 1955, REQUESTED A DECISION AS TO WHETHER, IN THE CIRCUMSTANCES DETAILED IN THE LETTER, THE POST OFFICE DEPARTMENT MAY FOLLOW THE COMMERCIAL REAL ESTATE PRACTICE OF MAKING EARNEST MONEY PAYMENTS ON REAL ESTATE PURCHASE CONTRACTS.

THERE WAS ENCLOSED WITH YOUR LETTER AN AGREEMENT OF SALE DRAFTED BY THE POST OFFICE DEPARTMENT FOR USE IN A PENDING TRANSACTION UNDER THE PROVISIONS OF SECTION 203 OF THE POST OFFICE DEPARTMENT PROPERTY ACT OF 1954, 68 STAT. 521. IT APPEARS THAT, SINCE THE OWNERS OF THE SITES UNDER CONSIDERATION HAVE REFUSED TO GIVE AN OPTION ON THEIR LAND, YOUR DEPARTMENT CONTEMPLATES MAKING A SUBSTANTIAL EARNEST MONEY PAYMENT UPON EXECUTING THE SALES AGREEMENT. THE DEPARTMENT WILL THEN ADVERTISE FOR BIDS FOR LEASE TO THE DEPARTMENT OF A POSTAL FACILITY TO BE ERECTED ON THE SITE AND ASSIGN THE AGREEMENT TO THE SUCCESSFUL BIDDER FOR THE AMOUNT OF THE EARNEST MONEY PAID. THE SUCCESSFUL BIDDER WILL IN TURN CLOSE THE SALE IN ACCORDANCE WITH THE TERMS OF THE AGREEMENT, AND, AS REQUIRED BY HIS CONTRACT WITH THE DEPARTMENT, CONSTRUCT THE FACILITY AND LEASE IT TO THE DEPARTMENT. IT ALSO APPEARS THAT THE DEPARTMENT CONTEMPLATES USING OPTIONS TO PURCHASE AND MAKING OUTRIGHT PURCHASES AS ADDITIONAL DEVICES IN ACQUIRING POSTAL QUARTERS UNDER SECTION 203 OF THE ACT. IN EACH INSTANCE THE DEPARTMENT PROPOSES TO MAKE AN EARNEST MONEY PAYMENT WHEN CIRCUMSTANCES REQUIRE. THIS PAYMENT WILL BE RETURNED UPON ASSIGNMENT OF THE SALES AGREEMENT OR OPTION OR UPON THE CONVEYANCE OF THE SUBJECT PROPERTY TO THE SUCCESSFUL BIDDER. YOU REQUEST A DECISION AS TO WHETHER THE PAYMENT OF EARNEST MONEY IN THE MANNER OUTLINED ABOVE WOULD CONSTITUTE AN ADVANCE PAYMENT AND THUS BE IN CONTRAVENTION OF THE PROVISIONS OF SECTION 3648, REVISED STATUTES, AS AMENDED, 31 U.S.C. 529.

YOU STATE THAT, IN YOUR OPINION, PAYMENT OF THE EARNEST MONEY IS AUTHORIZED BY SECTIONS 203 AND 207 OF THE POST OFFICE DEPARTMENT PROPERTY ACT OF 1954, 68 STAT. 523, 524, AND, THEREFORE, SUCH PAYMENT WOULD NOT VIOLATE THE PROVISIONS OF 31 U.S.C. 529. YOU POINT OUT THAT SECTION 203 OF THE ACT AUTHORIZES THE POSTMASTER GENERAL TO ACQUIRE AND DISPOSE OF REAL PROPERTY AND INTERESTS THEREIN ON SUCH TERMS AS HE DEEMS APPROPRIATE TO THE BEST INTERESTS OF THE UNITED STATES. THE PAYMENT OF EARNEST MONEY FOR PRELIMINARY AGREEMENTS CONSTITUTES ONE OF THE TERMS YOU CONSIDER APPROPRIATE IN ACQUIRING REAL PROPERTY BY DIRECT PURCHASE SINCE IT ELIMINATES COSTLY SPECULATIONS IN OPTIONS. YOU ALSO STATE THAT IT IS THE POSITION OF YOUR DEPARTMENT THAT THE PAYMENT OF EARNEST MONEY PURSUANT TO A SALES AGREEMENT OR OPTION TO PURCHASE REAL PROPERTY FOR THE PURPOSES OF THE ACT RELATES TO THE ACQUISITION OF REAL PROPERTY. CONSEQUENTLY, IT IS YOUR OPINION THAT THE PROVISIONS OF 31 U.S.C. 529 DO NOT APPLY BECAUSE SECTION 207 (C) OF THE ACT, 68 STAT. 525, EXEMPTS THE FUNCTIONS PERFORMED BY THE POSTMASTER GENERAL FROM CERTAIN DESIGNATED STATUTES "AND ANY OTHER PROVISION OF LAW" RELATING TO THE ACQUISITION OR DISPOSAL OF REAL PROPERTY, CONSTRUCTION OF BUILDINGS, OR LEASING OF SPACE. IN ADDITION, YOU SUGGEST THAT PAYMENTS OF EARNEST MONEY FOR THE OPTIONS OR SALES AGREEMENTS ARE NOT ADVANCES BUT INSTEAD ARE PAYMENTS FOR INTERESTS ACQUIRED IN REAL PROPERTY.

SECTION 3648, REVISED STATUTES, AS AMENDED, 31 U.S.C. 529, PROVIDES IN PERTINENT PART, AS FOLLOWS:

NO ADVANCE OF PUBLIC MONEY SHALL BE MADE IN ANY CASE UNLESS AUTHORIZED BY THE APPROPRIATION CONCERNED OR OTHER LAW. AND IN ALL CASES OF CONTRACTS FOR THE PERFORMANCE OF ANY SERVICE, OR THE DELIVERY OF ARTICLES OF ANY DESCRIPTION, FOR THE USE OF THE UNITED STATES, PAYMENT SHALL NOT EXCEED THE VALUE OF THE SERVICE RENDERED, OR OF THE ARTICLES DELIVERED PREVIOUSLY TO SUCH PAYMENT. * * *

WE HAVE CONSISTENTLY HELD THAT, ALTHOUGH UNDER THE PROHIBITION OF THE STATUTE PAYMENT MAY NOT BE MADE FOR ARTICLES IN WHICH THE UNITED STATES HAS ACQUIRED NO RIGHT OR INTEREST AND FROM WHICH IT DERIVES NO BENEFIT, PAYMENT MAY BE MADE FOR ARTICLES IN ADVANCE OF THEIR DELIVERY INTO THE ACTUAL POSSESSION OF THE UNITED STATES IF THE ARTICLES ARE IMPRESSED WITH A VALID LIEN IN FAVOR OF THE UNITED STATES IN AN AMOUNT AT LEAST EQUAL TO THE PAYMENT. CF. 28 COMP. GEN. 468. UNDER THE PROPOSED AGREEMENT OF SALE, THE SELLER IS REQUIRED TO DELIVER TO THE GOVERNMENT WITHOUT DELAY A TITLE INSURANCE COMMITMENT WRITTEN BY A TITLE COMPANY SATISFACTORY TO THE POSTMASTER GENERAL. SUCH COMMITMENT OBLIGATES THE TITLE COMPANY TO ISSUE A POLICY OF TITLE INSURANCE TO THE GOVERNMENT IN AN AMOUNT NOT LESS THAN THE PURCHASE PRICE, GUARANTEEING TITLE AT THE TIME OF CLOSING. CONSIDERING THESE PROVISIONS OF THE AGREEMENT OF SALE, IT WOULD APPEAR THAT THE GUARANTY IS SUFFICIENT TO PROTECT THE INTERESTS OF THE UNITED STATES IN THE EVENT THAT THE SELLER SHOULD FAIL TO CLEAR THE PROPERTY OF ALL LIENS AND ENCUMBRANCES. IN ADDITION, AS YOU POINT OUT, THE COURTS HAVE HELD THAT A CONTRACT TO PURCHASE REAL ESTATE VESTS IN THE PURCHASER EQUITABLE TITLE TO THE REAL PROPERTY PRIOR TO THE VESTING OF THE LEGAL TITLE WHICH REMAINS IN THE SELLER TO SECURE PAYMENT OF THE PURCHASE MONEY. IN RE SITE FOR JEFFERSON HOUSES, CITY OF NEW YORK, 117 N.E. (2D) 896; FIRST STATE BANK OF THOMPSON FALLS V. UNITED STATES, 92 F.2D 132. APPEARS, THEREFORE, THAT UNDER THE AGREEMENT OF SALE THE GOVERNMENT WILL OBTAIN AN INTEREST IN THE LAND OF SUCH A NATURE THAT ONLY ESTATE REMAINING IN THE VENDOR IS A LIEN FOR THE PURCHASE MONEY.

HAVING REGARD FOR THESE FACTS AS WELL AS THE FACT THAT THE AUTHORITY GRANTED TO THE POST OFFICE DEPARTMENT BY SECTION 203 OF THE ACT WOULD BE NULLIFIED TO A CONSIDERABLE EXTENT IF SUCH PAYMENTS WERE NOT AUTHORIZED, WE WILL NOT OBJECT TO THE PAYMENT OF EARNEST MONEY ON THE GROUNDS THAT IT IS IN CONTRAVENTION OF THE PROVISIONS OF 31 U.S.C. 529.