B-179790, FEB 11, 1974, 53 COMP GEN 574

B-179790, FEB 11, 1974, 53 COMP GEN 574

DISTRICT OF COLUMBIA - REDEVELOPMENT LAND AGENCY - LAND DISPOSITION - FAILURE OF BIDDER TO PERFORM - DEPOSIT FORFEITURE WHEN A LIMITED PARTNERSHIP, THE SUCCESSOR IN INTEREST TO A JOINT VENTURE, FAILED TO PERFORM THE OBLIGATION UNDERTAKEN BY THE INITIAL PARTNERSHIP, FORFEITURE OF THE ORIGINAL DEPOSIT IS REQUIRED AS THE DISTRICT OF COLUMBIA REDEVELOPMENT LAND AGENCY MAY NOT WAIVE ITS RIGHT OF FORFEITURE SINCE NO CONSIDERATION PASSED TO THE AGENCY TO PERMIT WAIVER OF THE GOVERNMENT'S RIGHT, AND FURTHERMORE, THE DELAY IN SEEKING FORFEITURE DOES NOT CONSTITUTE A WAIVER OF THE FORFEITURE RIGHT AS THE DELAY WAS REQUESTED BY THE SUCCESSOR PARTNERSHIP IN ORDER TO FIND THE MEANS TO PERFORM THE ORIGINAL OBLIGATION.

IN THE MATTER OF DISTRICT OF COLUMBIA REDEVELOPMENT LAND AGENCY, FEBRUARY 11, 1974:

IN OCTOBER 1967, THE DISTRICT OF COLUMBIA REDEVELOPMENT LAND AGENCY (AGENCY) OFFERED PARCELS 19 AND 20 IN THE SOUTHWEST URBAN RENEWAL AREA FOR SALE OR LEASE FOR PRIVATE REDEVELOPMENT AT A FIXED PRICE OF $2,742,000. FIVE PROPOSALS WERE SUBMITTED TO THE AGENCY PURSUANT TO THE OFFERING. ACCORDANCE WITH THE PROSPECTUS, THE AGENCY BOARD OF DIRECTORS WAS TO TENTATIVELY SELECT A REDEVELOPER SUBJECT TO A PUBLIC HEARING ON THE TERMS OF THE DISPOSITION DOCUMENT AND THE PROPOSAL. ADDITIONALLY, THE PROSPECTUS REQUIRED A $100,000 DEPOSIT WITH ALL PROPOSALS AND FURTHER PROVIDED AS FOLLOWS:

IF THE PROPOSAL IS ACCEPTED, THE DEVELOPER WILL BE REQUIRED TO EXECUTE AND RETURN WITHIN TEN (10) DAYS THE CONTRACT OF SALE OR LEASE AGREEMENT TOGETHER WITH THE REQUIRED TEN PERCENT (10%) DEPOSIT (THE $100,000 DEPOSIT SUBMITTED WITH THE OFFER MAY BE APPLIED TOWARD THIS). THE $100,000 DEPOSIT SHALL BE FORFEITED IF THE DEVELOPER FAILS TO DO SO.

ON OCTOBER 16, 1968, THE AGENCY'S BOARD OF DIRECTORS VOTED TO TENTATIVELY LEASE PARCELS 19 AND 20 TO THE TRANSPORTATION SQUARE JOINT VENTURE (TSJV) SUBJECT TO THE HOLDING OF A PUBLIC HEARING.

AT THE TIME IT SUBMITTED ITS PROPOSAL, TSJV WAS MADE UP OF TWO PARTNERS. THE CHARLES H. TOMPKINS COMPANY (TOMPKINS) HAD INDICATED A TENTATIVE INTENT TO JOIN WITH TSJV IN THIS VENTURE. HOWEVER, TOMPKINS DECIDED NOT TO ENTER INTO THE VENTURE BEFORE TSJV'S OFFER WAS ACCEPTED. SHORTLY THEREAFTER, THE MARIETTA REALTY CORPORATION (MRC), AS THE CONTROLLING INTEREST, JOINED FORCES WITH THE TWO PARTNERS OF TSJV, FORMING THE TRANSPORTATION SQUARE LIMITED PARTNERSHIP (TSLP). A CONDITION OF THIS NEW ARRANGEMENT WAS THAT THE $100,000 PUT UP BY TSJV WOULD CARRY OVER AS THE DEPOSIT OF TSLP.

THE PUBLIC HEARING, AS PROVIDED FOR IN THE PROSPECTUS, WAS HELD ON JUNE 18, 1969, AND THEREAFTER THE AGENCY APPROVED THE LEASE TO TSLP, SUBJECT TO DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT (HUD) APPROVAL.

PRIOR TO RECEIVING HUD APPROVAL, HOWEVER, MRC ADVISED THE AGENCY THAT IT HAD DOUBTS ABOUT PROCEEDING WITH THE VENTURE DUE TO INCREASED CONSTRUCTION COSTS.

THE NONCONTROLLING PARTNERS DISAGREED WITH MRC AND TOOK THE POSITION THAT THE LEASE SHOULD BE EXECUTED. ON SEPTEMBER 8, 1969, ON THE BASIS OF VERBAL HUD APPROVAL, THE AGENCY TRANSMITTED THE LEASE FOR EXECUTION TO MRC, AS CONTROLLING GENERAL PARTNER FOR TSLP. BY LETTER DATED SEPTEMBER 24, 1969, MRC REFUSED TO EXECUTE THE LEASE CLAIMING THAT IT STILL REQUIRED ADDITIONS AND MODIFICATIONS. THE AGENCY RESPONDED TO THESE ASSERTIONS IN ITS LETTERS OF OCTOBER 29 AND DECEMBER 9, 1969, AND POINTED OUT THAT THE TIME FOR EXECUTION OF THE LEASE AGREEMENT HAD EXPIRED, THAT THE REDEVELOPER WAS IN DEFAULT, AND URGED THE REDEVELOPER TO PROMPTLY EXECUTE THE LEASE AGREEMENT. DURING THIS PERIOD, MRC WAS STILL ENGAGED IN A REVIEW OF THE "ECONOMICS" OF THE PROJECT AND HAD NOT DEFINITIVELY STATED THAT IT WOULD REFUSE TO PROCEED. THEREFORE, THE AGENCY DID NOT ACT TO TERMINATE THE AWARD PURSUANT TO THE TERMS OF THE PROSPECTUS.

ON NOVEMBER 20, 1969, MRC ADVISED THE AGENCY THAT IT HAD COMPLETED ITS ANALYSIS OF THE PROJECT AND FOUND IT NOT FEASIBLE.

ON DECEMBER 15, 1969, THE AGENCY WAS ADVISED THAT THE TWO FORMER, REMAINING PARTNERS OF TSJV HAD FILED SUIT AGAINST MARTIN MARIETTA, INC., AND MRC TO COMPEL EXECUTION OF THE LEASE AGREEMENT FOR PARCELS 19 AND 20.

ON MAY 12, 1971, WHILE THE LAWSUIT WAS STILL IN PRETRIAL STAGE, IT WAS LEARNED BY THE AGENCY THAT A MAJOR DEVELOPER, NASSIF, WAS INTERESTED IN PARCELS 19 AND 20. IN JUNE 1971, NEGOTIATIONS BETWEEN NASSIF, THE AGENCY, RIGGS BUILDING CORPORATION AND VAN ROIJEN (THE LATTER TWO BEING THE REMAINING PARTNERS OF TSJV) COMMENCED. A PROPOSAL ACCEPTABLE TO NASSIF WAS DEVELOPED, AND NEW PRELIMINARY PLANS WERE PREPARED FOR THE DEVELOPMENT OF PARCELS 19 AND 20. ON OCTOBER 5, 1971, THE LAWSUIT, WALKER & DUNLOP ET AL. V. MARTIN MARIETTA CORPORATION, ET AL., WAS DISMISSED WITH PREJUDICE PURSUANT TO A COMPROMISE AGREEMENT BETWEEN THE PARTIES. ON MAY 5, 1971, A REDUCED LAND PRICE OF $2,230,000 WAS APPROVED BY THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, AND ON SEPTEMBER 6, 1972, THE AGENCY DETERMINED THAT IT WOULD AGREE TO A SUBSTITUTION OF PARTIES WITH DAVID NASSIF REPLACING MARIETTA REALTY, IF THE PARTNERSHIP WOULD SUBMIT A REVISED PROPOSAL AND AGREE TO EXECUTE A LEASE AGREEMENT.

HOWEVER, IN DECEMBER 1972, THE AGENCY WAS ADVISED THAT REDEVELOPMENT OF PARCELS 19 AND 20 COULD NOT PROCEED BECAUSE THE ONLY MARKET FOR OFFICE SPACE WOULD BE THE GENERAL SERVICES ADMINISTRATION (GSA), AND THERE WAS UNCERTAINTY THAT GSA WOULD LEASE THE SPACE IN VIEW OF THE RECENT ENACTMENT OF THE PUBLIC BUILDINGS AMENDMENTS OF 1972 WHICH RESTRICTED GSA'S AUTHORITY TO LEASE SUBSTANTIAL AMOUNTS OF OFFICE SPACE WITHOUT CONGRESSIONAL APPROVAL (PUBLIC LAW 92-313, 40 U.S.C. 603 NOTE). THE REPRESENTATIVES OF THE LIMITED PARTNERSHIP THEN REQUESTED ADDITIONAL TIME TO SUBMIT A PROPOSAL SO THEY MIGHT DETERMINE WHETHER THEY COULD FIND A POTENTIAL SUBLESSEE.

THROUGH INFORMAL ADVICE OBTAINED FROM THE AGENCY, OUR OFFICE HAS LEARNED THAT THE NEW PARTNERSHIP (TSLP) NO LONGER PLANS TO PROCEED, AS A POTENTIAL SUBLESSEE CANNOT BE FOUND. THEREFORE, THE AGENCY IS PLANNING TO TERMINATE THE AWARD.

THE ONLY QUESTION THAT PRESENTLY EXISTS IS WHETHER OR NOT THE AGENCY MAY EXERCISE DISCRETION IN DETERMINING TO RETURN ANY PORTION OF THE $100,000 DEPOSIT THAT ACCOMPANIED TSJV'S AGREEMENT TO EXECUTE A LEASE IF ITS PROPOSAL WAS ACCEPTED. THE AGREEMENT, AS QUOTED ABOVE, PROVIDES THAT THE DEPOSIT WILL BE RETAINED IN THE EVENT OF DEFAULT.

IT IS THE AGENCY'S POSITION THAT A VALID AND BINDING OBLIGATION AROSE BETWEEN ITSELF AND TSLP ON SEPTEMBER 8, 1969, WHEN IT FORMALLY ACCEPTED THE PROPOSAL AS SUBMITTED BY TSJV, THE PREDECESSOR OF TSLP. THE AGENCY ASSERTS THAT ITS FOREBEARANCE IN NOT TERMINATING THE AWARD SO AS TO PROVIDE THE REDEVELOPER WITH A REASONABLE OPPORTUNITY TO COMPLY WITH ITS OBLIGATIONS DID NOT RESULT IN A RELEASE OF THOSE OBLIGATIONS, NOR WAS THERE A WAIVER OF ANY OF THE AGENCY'S RIGHTS UNDER THE TERMS OF ITS AGREEMENT. FURTHER, THE AGENCY BELIEVES THAT IT HAS THE LEGAL RIGHT TO DEMAND EXECUTION OF A LEASE AGREEMENT AT ANY TIME AND, IN THE EVENT OF FAILURE TO SO EXECUTE, MAY, IN ITS DISCRETION, TERMINATE THE AWARD FOR DEFAULT.

HOWEVER, THE AGENCY DOES RECOGNIZE THAT "*** THE REDEVELOPER HAS, IN GOOD FAITH, MADE AN EXPENSIVE AND TIME CONSUMING EFFORT OVER A LONG PERIOD TO COMPLY WITH ITS OBLIGATIONS TO REDEVELOP PARCELS 19 AND 20." IN VIEW OF THIS GOOD FAITH ATTEMPT, THE AGENCY NOW REQUESTS GUIDANCE AS TO WHETHER IT MAY EXERCISE DISCRETION IN DETERMINING WHETHER OR NOT TO RETURN THE $100,000 DEPOSIT.

WE CONCUR IN THE AGENCY'S POSITION THAT THE REDEVELOPER HAS DEFAULTED ON ITS PROPOSAL AND THAT THE $100,000 IS NOW SUBJECT TO FORFEITURE. BINDING AGREEMENT AROSE BETWEEN THE AGENCY AND TSLP WHEN HUD GRANTED APPROVAL FOR THE PROPOSAL OF TSLP'S PREDECESSOR, TSJV, ON SEPTEMBER 8, 1969. THE ORIGINAL PROPOSAL WAS SUBMITTED BY A JOINT VENTURE, TSJV. AS A GENERAL RULE, JOINT VENTURES ARE GOVERNED BY THE LAWS OF PARTNERSHIP. SEE 48 COMP. GEN. 365 (1968). THE COMMON-LAW RULE IS THAT DISSOLUTION OF A PARTNERSHIP DOES NOT CHANGE THE RIGHTS OF THIRD PARTIES (HERE THE AGENCY) AS TO PAST LEGAL RELATIONSHIPS WITH THE PARTNERSHIP. SEE 35 COMP. GEN. 529 (1956). THEREFORE, WHEN THE AGENCY ACCEPTED TSJV'S OFFER, TSLP, AS SUCCESSOR IN INTEREST TO TSJV, BECAME BOUND TO PERFORM. SEE MARYLAND CASUALTY COMPANY V. BEDSOLE & SHETLEY, ET AL., 228 F. SUPP. 521 (1964). THE STATEMENTS BY MRC WERE NOT A WITHDRAWAL OF THE OFFER BEFORE SUCH WAS ACCEPTED BY HUD. (NOR DO WE FIND ANY PROVISION IN THE PROSPECTUS THAT WOULD HAVE ALLOWED A WITHDRAWAL OF ONE'S PROPOSAL BEFORE THE AGENCY MADE A DETERMINATION OF ACCEPTABILITY WITHOUT RESULTING IN A FORFEITURE OF THE DEPOSIT.) THEREFORE, IT SEEMS CLEAR THAT THE AGENCY DOES HAVE THE LEGAL RIGHT TO RETAIN THE $100,000 ORIGINALLY SUBMITTED WITH TSLP'S PREDECESSOR'S PROPOSAL.

AS CONCERNS THE POSSIBLE RETURN OF ANY OR ALL OF THIS MONEY, IN OUR DECISION 40 COMP. GEN. 309 (1960) WE STATED AT PAGE 311 THAT:

THE RULE IS WELL ESTABLISHED THAT NO OFFICER OR AGENT OF THE GOVERNMENT HAS AUTHORITY TO GIVE AWAY THE MONEY OR PROPERTY OF THE UNITED STATES EITHER DIRECTLY OR BY THE RELEASE OF VESTED CONTRACTUAL RIGHTS, WITHOUT ADEQUATE LEGAL CONSIDERATION. BAUSCH & LOMB OPTICAL COMPANY V. UNITED STATES, 78 CT. CL. 584, 607, CERTIORARI DENIED 292 U.S. 645. THIS RULE IS GROUNDED IN SOUND PUBLIC POLICY AND IS NOT TO BE WEAKENED. PACIFIC HARDWARE & STEEL COMPANY V. UNITED STATES, 49 CT. CL. 327, 335. HOWEVER, AN INSPECTION OF THE FACTS IN THE MATTER WILL REVEAL THAT WAIVER OF THE FORFEITURE PROVISIONS IS NOT IN DEROGATION OF THE ESTABLISHED RULE REQUIRING CONSIDERATION FOR THE RELEASE OF A VESTED CONTRACTUAL RIGHT. "CONSIDERATION" IN THE LEGAL SENSE OF THE WORD IS SOME RIGHT, INTEREST, BENEFIT, OR ADVANTAGE CONFERRED ON THE PROMISOR TO WHICH HE IS OTHERWISE NOT LAWFULLY ENTITLED, OR ANY DETRIMENT, PREJUDICE, LOSS, OR DISADVANTAGE SUFFERED OR UNDERTAKEN BY THE PROMISEE OTHER THAN SUCH AS HE IS AT THE TIME OF CONSENT LAWFULLY BOUND TO SUFFER. CUNEO PRESS, INC. V. CLAYBURN CORPORATION, 90 F.2D 233. ***.

IN THE CASE AT HAND, NEITHER PARTY TO THE CONTRACT INVOLVED WAS UNDER ANY LEGAL DUTY BEYOND THE POINT IN TIME AT WHICH THE FORFEITURE AND TERMINATION PROVISIONS TOOK EFFECT. IT APPEARS THAT THE AGENCY DID NOT IMMEDIATELY TERMINATE THE AWARD AND CAUSE A FORFEITURE OF THE $100,000 ONLY BECAUSE IT GRANTED TSLP ANOTHER CHANCE TO FULFILL THE ORIGINAL OBLIGATION OF TSJV. AT NO TIME DID THE AGENCY CONSIDER TSLP'S SECOND OFFER AS A BASIS FOR WAIVING THE AGENCY'S RIGHT OF FORFEITURE.

ACCORDINGLY, WE WOULD BE OPPOSED TO THE AGENCY EXERCISING ANY DISCRETION IN RETURNING ANY PORTION OF THE $100,000 AS NO CONSIDERATION HAS PASSED TO THE AGENCY TO ALLOW A WAIVER OF THEIR RIGHT TO FORFEITURE.